Lahdo v Spearwood Holdings (WA) Pty Ltd (No.2)
[2014] FCCA 2286
•10 October 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LAHDO v SPEARWOOD HOLDINGS (WA) PTY LTD (No.2) | [2014] FCCA 2286 |
| Catchwords: BANKRUPTCY – Unsuccessful application to set aside bankruptcy notice – costs – whether indemnity costs payable. |
| COSTS – Application for costs – unsuccessful application to set aside bankruptcy notice – whether indemnity costs payable where unsuccessful applicant forewarned. |
| Legislation: Bankruptcy Act 1966 (Cth), s.32 Federal Circuit Court of Australia Act 1999 (Cth), ss.8, 15, 79, 81 |
| Bhagat v Global Custodians Ltd [2002] FCA 223 Pierson’s Pro-Health Pty Ltd & Ors v Silvex Nominees Pty Ltd & Anor (No. 3) [2010] FMCA 250 |
| Applicant: | ABRAHAM LAHDO |
| Respondent: | SPEARWOOD HOLDINGS (WA) PTY LTD |
| File Number: | PEG 386 of 2013 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 10 October 2014 |
| Date of Last Submission: | 10 October 2014 |
| Delivered at: | Perth |
| Delivered on: | 10 October 2014 |
REPRESENTATION
| For the Applicant: | In person |
| Counsel for the Respondent: | Ms L Coci |
| Solicitors for the Respondent: | Clayton Utz |
ORDERS
The Applicant is to pay the Respondent’s costs as taxed by a Registrar of this Court under Part 40 of the Federal Court Rules 2011 (Cth) (in accordance with r.13.01 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth)) as follows:
(a)on a party-party basis up to and including 16 February 2014; and
(b)on an indemnity basis on and from 17 February 2014.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 386 of 2013
| ABRAHAM LAHDO |
Applicant
And
| SPEARWOOD HOLDINGS (WA) PTY LTD |
Respondent
REASONS FOR JUDGMENT
(Edited ex tempore Reasons for Judgment)
Application for indemnity costs
In Lahdo v Spearwood Holdings (WA) Pty Ltd [2014] FCCA 2285 (“Lahdo (No. 1)”) delivered earlier this afternoon this Court dismissed an application by Mr Lahdo to set aside a bankruptcy notice. Consequently, Spearwood Holdings now seeks it costs of the set-aside proceedings, including on an indemnity basis on and from 17 February 2014. Mr Lahdo has been on notice of the costs, including the indemnity costs, application since the original hearing by reason of it being the subject of written submissions made by Spearwood Holdings for the purposes of the original hearing.
Spearwood Holdings’ submissions
Spearwood Holdings says that on 17 February 2014 its lawyers wrote to the then lawyers for Mr Lahdo (“17 February 2014 Letter”) and:
a)set out, in full, the reasons why the set-aside application should fail;
b)forewarned that Spearwood Holdings would seek its costs of the set-aside application on an indemnity basis if the set-aside application were not successful; and
c)invited Mr Lahdo to withdraw the set-aside application prior to a hearing then scheduled for 14 March 2014, but ultimately heard on 17 April 2014: Affidavit of Lauren Coci, sworn 7 March 2014, annexure LDC1.
Spearwood Holdings says that no response was ever received by its lawyers to the 17 February 2014 Letter.
Spearwood Holdings submits that it is clear from the authorities that wilful disregard of the known facts or the clearly established law warrants an order for indemnity costs: citing Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J (“Fountain Selected Meats”); J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch & Anor (No. 2) (1993) 46 IR 301 at 303 per French J (“J-Corp (No. 2)”), and that a warning of a claim for indemnity costs affords the occasion for making such an order in full knowledge that the risk has been appreciated and the unsuccessful party has pressed on regardless: citing Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 at 250 per Kirby P (“Huntsman Chemical Company”) (also reported at (1995) 125 FLR 151).
Mr Lahdo’s submissions
Mr Lahdo submitted that the issue of costs ought to be put into abeyance pending the outcome of other proceedings which are referred to in Lahdo (No. 1), but about which there is no evidence as to their current status before the Court. Otherwise, he asserted that he ought not have to pay costs until those other proceedings were determined.
Costs
Generally in bankruptcy proceedings
Rule 13.01(1) of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (“FCC (Bankruptcy) Rules”) provides as follows:
(1) Subject to Division 13.2, a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Part 40 of the Federal Court Rules 2011 unless the Court otherwise orders.
Division 13.2 of the FCC (Bankruptcy) Rules is not relevant for present purposes.
In accordance with r.13.01 of the FCC (Bankruptcy) Rules the general practice of this Court has been to award costs in bankruptcy matters on the basis of the relevant Federal Court scale under Part 40 of the Federal Court Rules 2011 (Cth) (“FC Rules”) and it remains the primary basis for an award of costs in bankruptcy matters in this Court, although more expedient bases for costs orders in bankruptcy proceedings are sometimes utilised: Pierson’s Pro-Health Pty Ltd & Ors v Silvex Nominees Pty Ltd & Anor (No. 3) [2010] FMCA 250 at para.42 per Lucev FM (“Pierson’s (No. 3)”); Cann v Commonwealth Bank of Australia (No. 6) [2011] FMCA 912 at para.10 per Lucev FM (“Cann (No. 6)”). Costs in bankruptcy proceedings usually follow the event, no matter what scale is used, so that the unsuccessful party, here Mr Lahdo, pays the costs of the proceedings.
Indemnity costs generally
The power to order indemnity costs in this Court arises from ss.8, 15 and 79 of the Federal Circuit Court of Australia Act 1999 (Cth) (“FCCA Act”). There are statutory equivalents in ss.5, 23 and 43 of the Federal Court of Australia Act 1976 (Cth). See also Caboolture Park Shopping Centre Pty Ltd [in Liq] v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 at 229-231 per Lee, Hill and Cooper JJ; (1993) 117 ALR 253 at 255-260 per Lee, Hill and Cooper JJ; Colgate-Palmolive Company & Anor v Cussens Pty Ltd (1993) 46 FCR 225 at 228 per Sheppard J (“Colgate-Palmolive”); Genovese v BGC Construction Pty Ltd (No. 2) [2007] FMCA 601 (“Genovese (No. 2)”).
The FCC (Bankruptcy) Rules provide that the FCC Rules apply “so far as they are not inconsistent with these [FCC (Bankruptcy)] Rules, to a proceeding to which the Bankruptcy Act applies”: FCC Bankruptcy Rules, 1.03(2). The FCC Rules can apply to the present proceedings so far as they are not inconsistent with FCC (Bankruptcy) Rules, because the indemnity costs application is a “proceeding”, and a proceeding to which the Bankruptcy Act applies, and in respect of which costs orders may be made by the Court by reason of s.32 of the Bankruptcy Act (when read in conjunction with the FCCA Act and FCC Rules): Genovese (No. 2) at para.42 per Lucev FM.
In determining whether to award indemnity costs the Court has a very wide discretion under s.79(3) of the FCCA Act to be exercised judicially: D’Souza v Pattison [2007] FMCA 116 at para.24 per McInnis FM; Bhagat v Global Custodians Ltd [2002] FCA 223 at para.60 per O’Loughlin, Whitlam and Marshall JJ (“Bhagat”); Fountain Selected Meats at 401 per Woodward J. What is an appropriate costs or indemnity costs order depends on the circumstances of the case: Colgate-Palmolive at 227 per Sheppard J. The normal practice, not to be lightly departed from, is to provide for costs to be on a party – party basis: Colgate-Palmolive at 230 and 233 per Sheppard J; Davids Holdings Pty Ltd v Coles Myer Limited & Ors (1995) ATPR 41-383 at 40, 298 per Drummond J (“Davids Holdings”); Hughes (formerly De Jager) v Car Buyers Pty Ltd & Ors (2004) 210 ALR 645 at 662 per Walters FM; [2004] FMCA 526 at para.93 per Walters FM. There are however certain issues to which the Court will give consideration, and weigh, when determining whether to make an indemnity costs order, and the extent of any such order. The issues must establish special or unusual circumstances warranting an indemnity costs order: Fountain Selected Meats at 400 per Woodward J; Colgate-Palmolive at 233 per Sheppard J; Davids Holdings at 40, 298 per Drummond J. Those issues include, but are not limited to, the following:
a)whether a party should have known that there was no prospect of success in the case: Fountain Selected Meats at 401 per Woodward J; Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court of Australia, 3 May 1991) at 8 per French J;
b)whether the party against whom indemnity costs is sought is a self-represented litigant, and whether the self-represented litigant ought escape the consequences of indemnity costs: Bhagat at para.57 per O’Loughlin, Whitlam and Marshall JJ;
c)where a party persists in the making of allegations which ought not to have been made, or in undue prolongation of groundless contentions: Colgate-Palmolive at 233 per Sheppard J; J-Corp (No. 2) at 303 per French J;
d)where a party’s conduct causes loss of time to the Court, and to other parties: Ugly Tribe Co Pty Ltd v Sikola & Ors [2001] VSC 189 at para.7 per Harper J; and
e)where a party imprudently refuses an offer to compromise: Colgate-Palmolive at 233-234 per Sheppard J (and cases there cited).
Indemnity costs in bankruptcy proceedings in this Court
Based upon a proper consideration of relevant special or unusual circumstances warranting an indemnity costs order, indemnity costs have been awarded in bankruptcy proceedings by this Court. There are many such cases, but see, for example, Carter v Scotney [2014] FCCA 697 at paras.44-46 per Judge Coker; Cann (No. 6) at paras.25-26 per Lucev FM; Gorczynski v Holden & Ors [2009] FMCA 351 at paras.8-10 per Raphael FM; Maxim Security Group Pty Ltd (In Liq) v Robertson (No. 2) [2008] FMCA 71; Genovese (No. 2) at para.51 per Lucev FM.
Consideration
In this case, there is nothing justifying departure from the general rule that costs follow the event, and the only issue is as to whether indemnity costs ought to be awarded in relation to that part of the proceedings following the sending of the 17 February 2014 Letter by the lawyers for Spearwood Holdings to the then lawyers for Mr Lahdo. Inherent in that finding is a rejection of the submission by Mr Lahdo that the issue of costs ought to be held in abeyance or not paid whilst other proceedings reach some kind of unspecified conclusion. The Court has determined the set aside application before it, and it is appropriate that costs be determined, and it is an inevitable outcome in the present circumstances that costs will follow the event, and that the only issue to be determined is that in relation to indemnity costs.
The 17 February 2014 Letter is set out in its relevant terms in Lahdo (No. 1): Lahdo (No. 1) at para.12 per Judge Lucev. Those terms need not be repeated in full here, and it suffices to observe that in summary the 17 February 2014 Letter advised Mr Lahdo as follows:
a)that Mr Lahdo did not have a set-off because he was not a party to the SAT Proceedings, and could not become a party as he had no cause of action in the SAT Proceedings;
b)there was a lack of mutuality and Mr Lahdo could not claim a set-off in the same right arising from the SAT Proceedings;
c)no set-off could be claimed by Mr Lahdo as a consequence of the provisions in cl.24.2 of the Lease Agreement;
d)the alleged set-off had already been set up in the District Court Action, and had been rejected by the District Court in Volley Investments (No. 1) and again in the summary judgment appeal;
e)that Mr Lahdo had failed to specify the amount of the alleged set-off and the amount by which it exceeded the sum demanded in the Bankruptcy Notice, as required by r.3.02(2) of the FCC (Bankruptcy) Rules; and
f)indemnity costs would be claimed, and reliance would be placed upon the 17 February 2014 Letter, unless Mr Lahdo withdrew his application by 14 March 2014.
In Lahdo (No. 1) the Court found that Mr Lahdo:
a)could not establish a set-off because of a lack of mutuality;
b)could not establish a set-off because he was precluded by the terms of cl.24.2 of the Lease Agreement; and
c)failed to specify the amount of the set-off and the amount by which it exceeded the judgment debt: Lahdo (No. 1) at paras.26-35 per Judge Lucev.
Although slightly differently expressed, the essential reasons for the Court’s rejection of Mr Lahdo’s application to set aside the Bankruptcy Notice largely reflected the matters put forward on behalf of Spearwood Holdings in the 17 February 2014 Letter, save in particular that the Court did not find that the set-off could have been set up in the District Court Action (even though there was an attempt to do so).
The Court has given consideration as to whether an indemnity costs order ought to be made as sought by Spearwood Holdings. The Court is conscious of the fact that an indemnity costs order is not the norm, and sufficiently exceptional to sometimes not be granted even when there is a seemingly powerful case for one to be granted: Hunstman Chemical Company FLR at 155-158 per Kirby P; NSWLR at 247-250 per Kirby P. That said, each case must be considered in relation to its individual circumstances. In this case, the circumstances when considered in their totality favour the making of an indemnity costs order on and from 11 February 2014 because:
a)the application to set aside the Bankruptcy Notice did not ever have any prospects of success;
b)by way of the 17 February 2014 Letter Mr Lahdo, and at that time Mr Lahdo’s lawyers, were told, in a plain and simple way, by Spearwood Holdings’ lawyers that the application to set aside the Bankruptcy Notice did not have any prospect of success, and the reasons why that was so;
c)despite the forewarning of the reasons why the application to set aside the Bankruptcy Notice could not succeed, which have largely been upheld by the Court, Mr Lahdo has persisted with litigation from which he should have desisted;
d)the fact that Mr Lahdo is now self-represented does not assist him to any significant degree: he was not self-represented at the time the 17 February 2014 Letter was written, and he has given no evidence which might entitle him to argue that he had relied upon his lawyers’ bad advice, if that be the case, which might have provided some grounds for not granting an indemnity costs order: For an examination of the general principles as to the effect of a lawyer’s mistake see TWU v School Bus Contractors Pty Ltd (2011) 201 IR 327 at 343-344 per Lucev FM; [2011] FMCA 28 at paras.58-67 per Lucev FM (and cases there cited); and
e)even a self-represented litigant could not help but understand the plain import of the plain terms of the 17 February 2014 Letter.
For the above reasons, the Court, in the exercise of its discretion with respect to an award of indemnity costs, has concluded that Mr Lahdo ought to pay Spearwood Holdings’ costs on an indemnity basis on and from 17 February 2014, such costs to be taxed by a Registrar of this Court under Part 40 of the FC Rules (in accordance with r.13.01 of the FCC (Bankruptcy) Rules).
Conclusions and orders
The Court has concluded that Mr Lahdo:
a)ought to pay Spearwood Holdings’ costs on a party-party basis up to and including 16 February 2014; and
b)ought to pay Spearwood Holdings’ costs on an indemnity basis on and from 17 February 2014,
with the costs to be taxed by a Registrar of this Court under Part 40 of the FC Rules (in accordance with r.13.01 of the FCC (Bankruptcy) Rules). There will be an order accordingly.
I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Associate:
Date: 10 October 2014
0