Lyons and Anor v Weston as trustee of the Bankrupt Estate of Lyons and Anor (No.2)
[2019] FCCA 1393
•24 May 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LYONS & ANOR v WESTON AS TRUSTEE OF THE BANKRUPT ESTATE OF LYONS & ANOR (No.2) | [2019] FCCA 1393 |
| Catchwords: COSTS |
| Legislation: Bankruptcy Act 1966 (Cth), s.139ZQ |
| Cases cited: Donnelly v Edelston (1994) 49 FCR 384 Trustees of the Property of Sandor v Ramirez [1999] NSWCA 261 |
| First Applicant: | DANIEL LYONS |
| Second Applicant: | BRADLEY JAMES LYON |
| First Respondent: | PAUL GERARD WESTON AS TRUSTEE OF THE BANKRUPT ESTATE OF TONY CHARLES LYONS |
| Second Respondent: | OFFICIAL RECEIVER, AUSTRALIAN FINANCIAL SECURITY AUTHORITY |
| File Number: | BRG 116 of 2016 |
| Judgment of: | Judge Jarrett |
| Hearing date: | On the papers |
| Date of Last Submission: | 11 April 2019 |
| Delivered at: | Brisbane |
| Delivered on: | 24 May 2019 |
REPRESENTATION
| Solicitors for the Applicants: | CLO Lawyers |
| Solicitors for the Respondents: | Owen Hodge Lawyers |
ORDERS
The application for costs is dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 116 of 2016
| DANIEL LYONS |
First Applicant
| BRADLEY JAMES LYONS |
Second Applicant
And
| PAUL GERARD WESTON AS TRUSTEE OF THE BANKRUPT ESTATE OF TONY CHARLES LYONS |
First Respondent
| OFFICIAL RECEIVER, AUSTRALIAN FINANCIAL SECURITY AUTHORITY |
Second Respondent
REASONS FOR JUDGMENT
By this application the applicants seek an order that the first respondent pay their costs of and incidental to the principal proceedings to be agreed between the parties and failing agreement “to be taxed in accordance with the Federal Circuit Court (Bankruptcy) Rules 2016”. They also seek an order for costs “on the indemnity basis” for this costs application. In the alternative, they seek an order that the first respondent pay their costs of the proceedings (including this costs application) to be agreed and failing agreement to be taxed in accordance with the Federal Circuit Court (Bankruptcy) Rules 2016.
Essentially, the applicants argue that costs should follow the event. They were wholly successful in the proceedings, having had their application to set aside the first respondent’s s.139ZQ notice allowed and the first respondent’s cross-claim dismissed. They argue that they had no genuine choice but to make the application to set aside their notice as there were adverse consequences for failing to do so within time. They point out that the first respondent did not consent to any of the orders sought by the applicants nor that there were any relevant offers of compromise that passed between the parties.
In respect of their application for indemnity costs, the applicants argue that they offered at an early stage to join with the first respondent in an approach to the Court with an agreed order for the costs of the proceedings but that the first respondent did not respond to that proposal and thereby acted unreasonably in not agreeing to an order for costs as proposed by the applicants. That unreasonableness, it is said, should sound in an order for indemnity costs.
Prima facie, the applicants were successful in the proceedings and the first respondent was unsuccessful. Costs ordinarily follow the event unless there are special circumstances that would justify the Court in departing from the usual approach. The first respondent argues that there are two reasons to depart from the usual approach that costs should follow the event.
First, the first respondent argues that it is necessary to recognise that the proceedings were commenced by the applicants as a consequence of a notice issued by the first respondent pursuant to s.139ZQ of the Bankruptcy Act 1966 (Cth) and that in issuing that notice the first respondent did not act inappropriately. He was simply performing his functions, as the trustee of the bankrupt estate of Mr Lyons Snr, when he caused the notice to be issued. The issue of the notice was in accordance with the first respondent’s obligations to seek to recover for the benefit of creditors any assets which ought to form part of the bankrupt estate.
The effect of the s.139ZQ notice was to allege that the property at issue in the proceedings was transferred to the applicants for a consideration of $240,000.00 which was less than its market value of $345,000.00 such that the transfer of property was void. The notice sought payment of $63,214.70 from the applicants. The first respondent acted on, amongst other things, the basis of a transfer executed by the applicants and Mr and Mrs Lyons Snr which was declared by them to be correct but which, in the principal proceedings, was contended by the applicants to have been incorrect. The first respondent argues that the proceedings were commenced only by reason of the s.139ZQ notice having been issued which in turn was issued on the strength of the ostensibly undervalued transfer of the bankrupt’s interest in the relevant real property to the applicants. The first respondent argues that the applicants must “ultimately accept responsibility for these proceedings having been commenced. They became necessary as the applicants wished to set aside the notice which the first respondent caused to be issued based upon their declarations in the transfer in properly discharging his duties”.
The first respondent’s written submissions seem to misapprehend the applicants’ application. The matters appearing in paragraphs 13-22 of those written submissions appear under the heading “The correspondence relied on by the Applicants in seeking indemnity costs generally”. The applicants are not seeking indemnity costs generally. They only seek their costs generally on the standard basis. The assertion that the first respondent “persisted with a hopeless case and, properly advised, should have known there was no prospect of successfully resisting the order” is a reference by the applicants to the first respondent not successfully resisting an order for costs on the present costs application. The reference to “a hopeless case” is a reference to the first respondent’s case on the costs application, rather than the applicant’s more generally.
The gravamen of the applicants’ case in the principal proceedings was that the transfer document at issue did not properly reflect the consideration that passed between the applicants and Mr and Mrs Lyons Snr for the transfer of the relevant interest. As I found, the transfer also included as part of its consideration, the value of the life interest that the applicants granted to Mr and Mrs Lyons Snr and as recorded in a separate occupancy deed.
Because of the misleading nature of the transfer document, the first respondent seeks an order that the applicants pay his costs of the proceedings. He says that it was not until the report of Mr Halley, annexed to an affidavit sworn on 23 March, 2016, that he was provided with any evidence as to the value of the right of occupancy granted by the occupancy deed. The first respondent argues that he ought to have his costs of the proceedings prior to that time and that if the applicants ought to have any costs at all, they should only be from that date onwards being the first date on which the applicants provided any evidence that sought to impugn the matters that they had declared to be correct in the transfer.
The first respondent urges the Court to take a “broad-brush” approach to the determination of the costs argument. And, on the basis that perhaps the first respondent is entitled to costs up to the date of the occupancy deed (as discussed above) but thereafter the applicants are entitled to their costs, then the Court ought to come to the conclusion that each party ought to bear their own costs.
The first respondent argues that that order is entirely appropriate where:
a)the proceedings were necessitated by reason of the misleading declaration made by the applicants in the land transfer which caused the issue of the s.139ZQ notice initially;
b)the later provision of evidence about the occupancy deed and the value of the interest granted thereunder; and
c)the fact that the first respondent was under a statutory duty to take steps that were necessary and reasonable to obtain possession of property in discharging his duties under the Bankruptcy Act.
In support of the last point, the first respondent relies upon a passage from Donnelly v Edelston (1994) 49 FCR 384 at 395:
The contention that a trustee in bankruptcy, under a statutory duty to take steps that are necessary and reasonable to obtain possession of property or declarations of entitlement to the property of a bankrupt, should not readily be subjected to an order for costs has some force. It cannot be in the interest of creditors, or in the public interest, to dissuade a trustee from approaching the court for orders necessary to allow the trustee properly to administer the estate of a bankrupt. On the other hand, it will not be in the interest of the creditors, nor in the public interest, to have the meagre funds of an estate squandered on the costs of the trustee and other parties, in a proceeding that has little chance of success or may reasonably be compromised.
I accept the first respondent’s submissions that the issue of the s.139ZQ notice by the first respondent was reasonable in all of the circumstances and the proceedings became necessary only by reason of the issue of that notice consequent upon the applicants’ misleading declaration. I accept the first respondent’s submissions that where the applicants declared that the property was transferred for consideration of only $240,000.00, being an amount well below market value, by signing the transfer, the transfer appeared to be a transaction for less than market value or to defeat creditors. In that respect, I accept the first respondent’s submissions that the comments of Sheller JA in Trustees of the Property of Sandor v Ramirez [1999] NSWCA 261 at [74] are apt:
However, the award of costs remains discretionary and if a bankrupt has engaged in transactions which appear to be fraudulent and the trustee believes that it has a good cause of action or defence against the bankrupt, the Court may decide not to order the trustee, even though unsuccessful, to pay the bankrupt’s costs.
I accept the first respondent’s submissions that he ought not be ordered to pay the applicants’ costs of the proceedings, despite their ultimate success and that there should be no order for costs.
Accordingly, the application for costs is dismissed.
I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 24 May, 2019.
Date: 24 May, 2019
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