Metro Finance Pty Ltd v Awad
[2020] FCCA 1840
•13 July 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| METRO FINANCE PTY LTD v AWAD | [2020] FCCA 1840 |
| Catchwords: BANKRUPTCY – Creditor’s Petition – Application for costs following repayment of debt. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.32, 40(1)(g), 44 Federal Court of Australia Act 1976 (Cth), s.43 |
| Cases cited: Fewin Pty Ltd v Prentice (No 2) [2017] FCA 102 |
| Applicant: | METRO FINANCE PTY LTD ACN 600 674 093 |
| Respondent: | AZZAM SAM AWAD |
| File Number: | SYG 1902 of 2019 |
| Judgment of: | Registrar Chuan Ng |
| Hearing date: | 12 May 2020 |
| Date of Last Submission: | 23 June 2020 |
| Delivered at: | Sydney |
| Delivered on: | 13 July 2020 |
REPRESENTATION
| Solicitors for the Applicant: | Mr A. Yogachandra of Shine Lawyers |
| Solicitors for the Respondent: | In person |
ORDERS
The Respondent pay the Applicant’s costs be fixed in the amount $7,000, to be paid within 3 months of the date of these Orders.
THE COURT NOTES:
The Creditor’s Petition was dismissed on 12 May 2020.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1902 of 2019
| METRO FINANCE PTY LTD ACN 600 674 093 |
Applicant
And
| AZZAM SAM AWAD |
Respondent
REASONS FOR JUDGMENT
SUMMARY
Before me is an application for costs sought by the Applicant following the dismissal of the Creditor’s Petition against the Respondent. The Respondent opposed the making of any costs order against him, asserting his belief that his arrangement with the Applicant was that he only had to repay only the entirety of the judgment debt pleaded in the Creditor’s Petition.
This matter was last before me on 12 May 2020 in the Bankruptcy List. On that date, I dismissed the Creditor’s Petition in circumstances where the Respondent had repaid almost the entirety of the debt pled in the Creditor’s Petition and brought it below the $5,000 threshold.
For the reasons identified below, I am of the view that the Respondent is liable to pay the costs of the Applicant.
However, I am content that the circumstances allow for a reduction of the costs and make the following order:
The Respondent pay the Applicant’s costs be fixed in the amount $7,000, to be paid within 3 months of the date of these Orders.
HISTORY OF PROCEEDINGS
Judgment in the Local Court
On 4 December 2018, the Applicant obtained a judgment against the Respondent in the Local Court at Sydney for $24,530.09.
Commencement of the bankruptcy proceedings
On 6 March 2019, the Applicant obtained a Bankruptcy Notice (number 237961) relying on the judgment from the Official Trustee.
On 1 April 2019, Bankruptcy Notice (number 237961) was served upon the Respondent pursuant to Regulation 16.01(c) of the Bankruptcy Regulations by leaving at his last known address.
In circumstances where no application was made to set aside Bankruptcy Notice (number 237961), an act of bankruptcy was deemed to occur 21 days later on 22 April 2016: s 40(1)(g) of the Bankruptcy Act 1966 (Cth).
On 26 July 2019, a Creditor’s Petition relied upon Bankruptcy Notice (number 237961) judgment debt of $24,530.09 was presented.
On 14 August 2019, the Creditor’s Petition was personally served upon the Respondent at his residential address.
The Creditor’s Petition was then adjourned on a number of occasions, in circumstances where the Respondent sought time to raise monies to repay the debt: 19 September 2019; 10 October 2019; 7 November 2019; 5 December 2019; 19 December 2019; 18 February 2019; 24 March 2019; 28 April 2019; and 12 May 2019.
The Respondent appeared in person each time the Creditor’s Petition was listed in Court.
Incorrect pleading of the original Creditor’s Petition
I pause to observe that the Creditor’s Petition presented on 26 July 2019 originally pleaded that the Applicant held as security a “2013 Posi-Track Terex PT Track Loader” valued at $15,000, but that “the vehicle had been stolen and its whereabouts were unknown”.
When the matter was before me on 7 November 2019, I drew the Applicant’s attention to the requirement that where security is retained, s 44(4) of the Bankruptcy Act requires the creditor to plead that he is willing to surrender any security held for the benefit of creditors generally in the event that a sequestration order was made.
In circumstances where I formed the view that this pleading was not so substantial so as to invalidate the Creditor’s Petition, I granted leave to the Applicant to amend it pursuant to s 306 of the Bankruptcy Act. On 8 November 2020, the Applicant filed an Amended Creditor’s Petition which now deleted any claim over the (non-existent) security.
Repayments made by the Respondent
From 10 December 2019 to the present, the Respondent made the following repayments to reduce the outstanding debt of $24,530.09 pleaded on the amended Creditor’s Petition:
Payments
Date
Amount Paid
Outstanding
$24,530.09
1
10 December 2019
$4,000
$20,530.09
2
10 December 2019
$4,000
$16,530.09
3
22 January 2020
$1,000
$15,530.09
4
18 February 2020
$1,000
$14,530.09
5
27 April 2020
$50
$14,480.09
6
29 April 2020
$7,000
$ 7,480.09
7
8 May 2020
$1,800
$ 5,680.09
8
12 May 2020
$4,000
$ 1,680.09
9
12 May 2020
$730
$ 950.91
11
23 June 2020
$509
$ 441.91
In providing proof of the payment on 23 June 2020 (see paragraph 25 below), the Respondent’s accompanying email identified this as the “final payment for monies owed to metro”. As there has been no contrary statement by the Applicant, I accept that the judgment debt was extinguish on this date[1].
[1] The Applicant’s solicitor was asked by the Registry to confirm this. At the time of the publishing of this judgment, no response has been received.
THE DISMISSAL OF THE CREDITOR’S PETITION
When the matter was last before the Court on 12 May 2020, the Applicant’s solicitor informed me that due to recent repayments earlier that day, the debt owed now fell below threshold of $5,000. The following exchange took place:
THE REGISTRAR: All right. Yes. Mr Yogachandra, what’s the latest? Tell me.
MR YOGACHANDRA: Registrar, just to make it as quick as possible for the court, in a short update, the previous order was for Mr Awad to make an amount of payment. He has made some payments which has only cleared into our account today for an amount of $4730. My understanding is Mr Awad was making a further payment of $900-odd. I’m not sure if that has been made or not. But, Registrar, the creditor’s position is the debt is now below the $5000 threshold with the court.
THE REGISTRAR: Yes.
I proceeded to dismiss the Creditor’s Petition on this date.
APPLICATION FOR COSTS: OPPOSED BY THE RESPONDENT
The Applicant then sought that an order for costs for the amount of $9,322.60, itemised accordingly:
Item
Amount
Costs
Costs pursuant to Item 14.1 of Schedule 3 of the FCR 2011, following dismissal of the Creditor’s Petition
$2,339.00
8 court appearances @ $300 (on 19 September 2019, 10 October 2019, 7 November 2019, 5 December 2019, 19 December 2019, 18 February 2020, 24 March 2020, 28 April 2020).
$2,400.00
Sub-total of costs
$4739.00
Disbursements
Bankruptcy Notice filing fee
$440.00
Filing fee of the Creditor’s Petition
$3,755.00
Ten searches conducted with AFSA NPII @ $38.86
$388.60
Subtotal of disbursements
$4,583.60
TOTAL AMOUNT
$9,322.60
The Respondent opposes the making of the costs order. In oral submissions on 12 May 2020, he asserted that he understood he was only liable to repay a total of approximately $24,000, which comprised of an outstanding debt of $14,000 and what he understood was an additional $10,000 in costs. The following exchange took place:
MR AWAD: But I’m under the impression, Registrar, that that was all the – that’s all included in the $24,530. So - - -
THE REGISTRAR: No.
MR AWAD: $24,530 is the total amount owing.
THE REGISTRAR: Well, that’s the amount owing for the debt, Mr Awad. But 25 costs - - -
MR AWAD: No, no. Registrar, the debt was only 14,000. The debt was only 14,000 initially to the – when it first started, I only owed 14,000. So I’ve so far – I’ve so far paid twenty-four and a half thousand dollars. I have a twenty-four and a 30 half – well, twenty-four and a half thousand dollars. 24,000. The debt was initially only 14,000. So I’m under the impression that the rest of that, the rest of the 14 from the 24 is legal costs.
THE REGISTRAR: Mr Yogachandra, can you elaborate, please?
MR YOGACHANDRA: Registrar, I’m just bringing up some documents. The creditor’s petition, Registrar, was filed. It was in respect of the judgment debt of 24,000. Registrar, I explained this to Mr Awad that we’re seeking this costs order. He has made payments close to 24,000 which is judgment debt. This matter was before Registrar Morgan on the last occasion where Registrar Morgan approved as set out that although the judgment debt is paid, there’s going to be a costs order close to the $9000 figure. I don’t know how, Registrar, the respondent is confused about - - -
MR AWAD: So no. So what you’re really saying I still owe another $9000 on top of the 24 that I’ve paid?
MR YOGACHANDRA: The applicant creditor is seeking the costs order of $9000 today.
MR AWAD: So how come – so if the initial debt was $14,000, where’s the other 10,000?
MR YOGACHANDRA: The creditor’s petition was filed in the amount of $24,530. That - - -
MR AWAD: Well, that’s not what I owed. That’s not what I owed. I only owed 14,000. I only owed 14,000. Now, the last – on the last occasion we spoke and I emailed – I emailed you as a matter of point, and I said to you, “Can you please provide me with a statement of what I need to pay and finalise this matter.” And the statement that I got was that I owed $24,530.09. So I’ve worked based on that. Now, I will tell you right now, there’s no way in the world I can pay another $9000. I’m already in debt 14,000 over – I’m in debt $20,000. I’ve had to borrow most of that money.
THE REGISTRAR: Well, Mr Awad, let me just have a look for you. So if you were to go back to the original situation - - -
MR AWAD: Yes. I know, Registrar, I financed 14,000 initially when it – when everything happened.
THE REGISTRAR: Well, Mr Awad, just going back to 4 December 2018, Metro Finance got a judgment from you from the Local Court. So that was for the amount of $24,530. So that was what it was at that time. So - - -
MR AWAD: But that’s not what the - - -
THE REGISTRAR: From the 14, I’m not sure how it increased. Maybe it was interest. I don’t know. Maybe you borrowed more. I don’t know.
MR AWAD: It wouldn’t have been 10,000 interest in six months, Registrar. That’s not what I owed. I owed Metro Finance – I only borrowed $22,000 from Metro Finance. That’s all I borrowed.
THE REGISTRAR: Mr Awad, this is from the judgment.
MR AWAD: And I paid that for over a year and a half.
THE REGISTRAR: Mr Awad, just so it’s clear, there is a judgment. So the reason this matter got to this court is because there was a judgment obtained in the Local Court December 2018. So that’s - - -
MR AWAD: That’s right, Registrar.
MR AWAD: And I never received the paperwork for that matter at Penrith Court for me to attend. And I’ve mentioned this to you numerous times. I was never given an opportunity to represent or to defend this case initially. The court 5 paperwork back then went to not my address, current address. It must have gone to an old address because I never received it. The only time I was made aware of any court judgment against me was early last year. Not until ’18.
THE REGISTRAR: Well, so that may be - - -
MR AWAD: I was never given an opportunity to represent this – to defend myself with this matter at Penrith Court.
THE REGISTRAR: Yes. All right.
MR AWAD: And that has been my whole argument the whole time.
Given the Respondent’s ambiguity, I indicated to the parties that I would reserve on the question of costs and consider this in chambers. I directed the Applicant’s solicitor to provide to the Respondent further particulars regarding the judgment debt; made orders for the Applicant to file and serve any documents and written submissions by 26 May 2020; and for the Respondent to file and serve any documents in reply by 2 June 2020.
On 26 May 2020, the Applicant’s solicitor filed in the Registry an email with attachments that had been sent to the Respondent on the same date. In summary, that email provided a chronology of the proceedings, the history of the repayments and various annexures. In closing, the Applicant stated the following:
We disagree with your allegation that you were unaware of the amount of the Judgment Debt as:
a. You had instructed KDA Legal acting for you once you were served with the Bankruptcy Notice;
b. You contacted the self‐representation service as directed by Registrar Trott on 10 October 2019;
c. You were informed of the amount of the Judgment Debt when you informed the Court that you would like to enter into an instalment order; and
d. Since you were served with the Bankruptcy Notice no application was made to the local court to set aside or dispute the amount of the Judgment Debt.
To date (and certainly not by the deadline of 2 June 2020 that I imposed), no reply submissions or materials have been filed by the Respondent.
Most recently on 23 June 2020, the Respondent sent an email to the Applicant’s solicitor which was copied to the Registry providing an electronic bank receipt identifying that $509 was repaid, stating:
Dear register [sic],
FYI Please see attached confirmation
Final payment for monies owed to metro has just been paid..
I’ve just paid the last outstanding amount of $509 has just been paid..
The applicant has been also been informed of this..
As the Respondent has not filed submissions or adduce further material to support his belief that he was only required to repay the judgment debt outlined in the Creditor’s Petition, there is no evidence before me to support his assertions that he was not liable to a costs order.
In an earlier hearing on 28 April 2020, the Respondent appeared before Registrar Morgan where the following exchange ensued (my emphasis in bold):
MR YOGACHANDRA: And previously, our client’s position has always been – our instructions have been always to proceed. ..... on each time the matter has been called. Our client just wants to proceed on the creditor’s petition. They’re incurring 35 costs on instructing me to appear and that’s my client’s position.
THE REGISTRAR: Sure. Do you – I understand that the final debt doesn’t include your costs to date. Is that correct?
MR YOGACHANDRA: Correct, Registrar. That’s correct.
THE REGISTRAR: So do you have an indication of what those costs are at the moment? I want Mr Awad that it’s just not a matter at this time of paying off the debt. Each time it comes back to court, there’s added legal costs that also have to be paid before the creditor will consider dismissing the petition.
MR AWAD: I understand – I’ve known there’s going to be legal fees, Registrar, all along. I’ve known that. What I’m saying is the main debt to Metro, I’ve paid more than what I owe them. I’ve paid 17,000 so far, so I should 3,000 in the red.
Based on my observations of the Respondent on the five occasions that he appeared before me, he presented as being genuinely nervous and anxious about these bankruptcy proceedings. Throughout the proceedings he variously referred to his poor mental health condition that required him to take medication and which led to him being hospitalised at one stage. I am prepared to accept that his mental health clouded his understanding that he was not required to pay any additional costs that exceeded the outstanding debt. Even in his oral exchange with the presiding Registrar on 28 April 2020, he maintained that his debt was around $14,000, he had “paid more than what I owe them”, had “paid $17,000 so far” and was now “$3,000 in the red”.
Nevertheless, I am of the view that the Respondent is liable to a costs order. At the time the Bankruptcy Notice was issued by the Official Trustee, a valid judgment debt was in existence against him. The Respondent did not file any application to set this aside. Nor did the Respondent file any Notice of Grounds of Opposition against the Creditor’s Petition after it was initiated. He also conceded he owed a debt. If the Respondent genuinely believed that he had an arrangement to repay the primary debt in full, there is no objective evidence to corroborate this assertion.
AWARDING COSTS IN BANKRUPTCY PROCEEDINGS
Section 32 of the Bankruptcy Act 1966 (Cth) confers an unfettered discretion upon a Court exercising bankruptcy jurisdiction to award costs:
32. Costs
The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.The Federal Court of Australia has repeatedly held that the principles applying to the exercise of discretion to award costs under s 32 of the Bankruptcy Act 1966 (Cth) is analogous to the general power to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth).
The most recent Federal Court decision to have dealt with this principle was Fewin Pty Ltd v Prentice (No 2) [2017] FCA 102. There, Markovic J recited the long-established principles from earlier authorities (at [5] – [7]):
LEGAL PRINCIPLES
5.Section 43 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) gives the Court or a Judge a wide discretion to award costs in all proceedings before the Court other than those in respect of which an Act provides that costs must not be awarded. That discretion, although unfettered, must be exercised judicially.
6.Section 32 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) provides that the Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such order as to costs as it thinks fit. Section 5 of the Bankruptcy Act defines “proceeding” to mean a proceeding under that Act. In Fewin v Prentice relief was sought pursuant to, among others, ss 30 and 178 of the Bankruptcy Act.
7.The principles to be applied in determining costs under s 43 of the Federal Court Act and s 32 of the Bankruptcy Act are similar. In Principal Strategic Options Pty Ltd, in the matter ofCoshott v Coshott[2001] FCA 664 at [18] Branson J noted that the Court has a very wide discretion with respect to the making of costs orders under s 32 of the Bankruptcy Act, but observed that the discretion must be exercised judicially. Her Honour continued at [19]:
The general rule in bankruptcy proceedings, as in proceedings before the Court generally, is that costs should follow the event (Re Skase; ex parte Donnelly[1992] FCA 429; (1992) 37 FCR 509 per Drummond J at 522). In Re Skase, Drummond J treated as applicable to bankruptcy proceedings certain propositions propounded by Wilcox J in Cummings v Lewis[1992] FCA 334. Drummond J in Re Skase set out those propositions as follow:
(a) The Court has an unfettered discretion as to its costs order: here see s 32 of the Bankruptcy Act.
(b) But, because of the usual practice of the court, a successful respondent has a reasonable expectation of recovering costs, in the absence of special circumstances.
(c) In considering the matter of costs, the court is entitled to look beyond the actual conduct of the case and have regard to the circumstances out of which it arose.
(d) However, there must be a limitation on the weight to be put on pre-litigation conduct, lest the exception overwhelm the rule. If too much emphasis is placed upon the circumstance that the litigation would not have arisen but for an action of the defendant, few successful defendants would recover their costs.
(e) The court may take into account the conduct of the litigation by the successful party. Where a successful party has put the opposing party to significant expense in connection with an issue on which that party failed, it may be reasonable to take that matter into account by awarding something less than full party-party costs.
(f) There is no difference in principle between the case of a successful plaintiff and that of a successful defendant.
……..
How much costs should be awarded?
In circumstances where I have reached the view that costs should be awarded to the Applicant upon the dismissal of the Creditor’s Petition, the question turns to how much?
The Applicant relies on the Short Form Bill of Costs filed on 12 May 2020 and seeks the amount of $9,322.60.
In the normal course, I would consider that the amount of $9,322.60 sought as costs appears to be fair and reasonable. However and for the following reasons, I am minded to reduce the amount of the costs order sought against the Respondent.
Incorrect pleading of the original Creditor’s Petition
In paragraphs 14 to 16 above, I referred to the fact that the original Creditor’s Petition had pleaded that there was a security held in the form of equipment valued at $15,000 but then went on to state that its whereabouts was unknown or lost. Presumably, this was the equipment that the Respondent had purchased using the finance he had obtained from the Applicant. To cure the irregularity, I granted the Applicant leave to amend the Creditor’s Petition pursuant to s 306 of the Bankruptcy Act 1966 (Cth), which it did by deleting this reference.
In my view, this reference was a confusing statement. Any layperson reading that passage in the Creditor’s Petition could have mistakenly interpreted this to mean that the value of the secured equipment pleaded as $15,000 was to be deducted from the judgment debt of $24,530. Based on the coincidence of these figures, it is arguable that the Respondent was misled into thinking that the only amounts he was required to repay was the balance of the debt (in his mind, around $14,000) and the outstanding costs (again, in his mind) was around $10,000.
Had I not raised this with the Applicant’s solicitor in Court on 7 November 2020 (on the basis that it failed to comply with s 44(4) of the Bankruptcy Act 1966), it is most unlikely that this confusing and misleading pleading in the Creditor’s Petition would have been rectified before the matter reached final disposition.
The authorities have repeatedly expressed that the failure of an applicant to particularise with precision can result in a Court concluding that the papers relied upon in pursuing a bankruptcy are incurable and therefore nullity the proceedings: Adams v Lambert(2006) 225 ALR 396.
In Re Frank Ballato; Ex parte Rocco Pezzano [1988] FCA 768, Lee J cited Re Hastings (1985) 1 All ER 885 at p 888:
“…the form of petition requires the act of bankruptcy which founds the entire bankruptcy proceedings to be stated with precision”.
In my view, this principle equally applies to ensuring that an Applicant creditor particularises the nature of any security held with accuracy and precision, so as not to have the effect of misleading a Respondent debtor.
The Respondent’s concerted efforts to repay the $24,530.09 owing on the Creditor’s Petition
Based on the figures provided by the Applicant and reproduced in the table contained in paragraph 21, the judgment debt in the Creditor’s Petition was reduce below the $5,000 threshold by 12 May 2020.
Unlike other respondent debtors that have frequently appeared before me in the Bankruptcy Lists, the Respondent could have deliberately repaid just enough so that the outstanding debt fell below $5,000. He could then have ceased making any further repayments and apply to the Court to dismiss the Creditor’s Petition. To his credit the Respondent continued to make repayments until as recently as 23 June 2020 which has now resulted in the total judgment debt pleaded in the Creditor’s Petition being extinguished.
Having had regard to the underlying circumstances that I have identified in paragraphs 37 - 42, I have reached the view that the costs sought by the Respondent should be reduced from $9.322.60. I also allow the Respondent a reasonable opportunity to repay this amount to the Applicant’s solicitors, being 3 months.
ORDERS MADE
Accordingly, I make the following orders:
i.The Respondent pay the Applicant’s costs be fixed in the amount $7,000, to be paid within 3 months of the date of these Orders.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Registrar Chuan Ng
Associate:
Date: 13 July 2020
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