Michell as trustee of the Property of Holbrook, a Bankrupt v Holbrook (No.2)
[2019] FCCA 3619
•13 December 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MICHELL AS TRUSTEE OF THE PROPERTY OF HOLBROOK, A BANKRUPT v HOLBROOK (No.2) | [2019] FCCA 3619 |
| Catchwords: BANKRUPTCY – PRACTICE & PROCEDURE – COSTS – Claim by respondent for an order that costs be assessed on an indemnity basis because applicant did not accept Calderbank offer – whether Calderbank offer constituted genuine compromise – whether the time for which Calderbank offer was open for acceptance rendered offer unreasonable – whether the time at which Calderbank offer was made relative to the hearing rendered the offer unreasonable – indemnity costs ordered from the date offer was open for acceptance. |
| Cases cited: Michell as Trustee of the Property of Holbrook, a Bankrupt v Holbrook [2019] FCCA 2649 Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190 |
| Applicant: | STEPHEN JOHN MICHELL AS TRUSTEE OF THE PROPERTY OF GARY BRUCE HOLBROOK, A BANKRUPT |
| Respondent: | ROBERT WALTER HOLBROOK |
| File Number: | SYG 1476 of 2017 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | Decided on the papers |
| Date of Last Submission: | 11 November 2019 |
| Delivered at: | Sydney |
| Delivered on: | 13 December 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr D Eardley |
| Solicitors for the Applicant: | CLH Lawyers |
| Counsel for the Respondent: | Mr T Yeh |
| Solicitors for the Respondent: | Moisson Lawyers Pty Ltd |
ORDERS
Order 2 of the orders made on 20 September 2019 is discharged.
The applicant pay the respondent’s costs to be assessed or taxed on a party and party basis up to and including 28 November 2018 and on an indemnity basis after 28 November 2018.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1476 of 2017
| STEPEHEN JOHN MICHELL AS TRUSTEE OF THE PROPERTY OF GARY BRUCE HOLBROOK, A BANKRUPT |
Applicant
And
| ROBERT WALTER HOLBROOK |
Respondent
REASONS FOR JUDGMENT
Introduction
On 20 September 2019 I ordered that the application filed in this proceeding be dismissed.[1] I also ordered that the applicant (Trustee) pay the costs of the respondent (Mr Holbrook), but reserved to the parties liberty to apply for an order discharging or varying that order for costs.
[1] Michell as Trustee of the Property of Holbrook, a Bankrupt v Holbrook [2019] FCCA 2649
By email sent to my associate on 3 October 2019 the lawyer for Mr Holbrook applied for an order that the Trustee pay Mr Holbrook’s costs on an indemnity basis. After further correspondence between my associate and the lawyers for the parties, the parties agreed that I could determine Mr Holbrook’s application for indemnity costs in chambers on the basis of material and submissions the parties were to file. Mr Holbrook filed an affidavit made by his lawyer, Mr Hunt, together with submissions; and the Trustee’s lawyer filed submissions.
The parties’ contentions
Mr Holbrook relies on the Trustee’s not accepting an offer of settlement contained in a letter dated 15 November 2018 from Mr Holbrook’s lawyer. The letter, which was headed “without prejudice save as to costs”, included the following (emphasis in original):
The plaintiff’s case appears to be that a distribution from the BDO partnership was property of the bankrupt, however it is clear from the evidence that the distribution was income of the bankrupt within the meaning of section 139L(1) of the Bankruptcy Act 1966.
Our client is confident that his defence will be successful. Notwithstanding that position, our client wishes to avoid the costs and delays of litigation. Accordingly, our client makes the following offer in full and final settlement of the Proceedings:
(a)Our client pay to your client the sum of $5,000 without admission within 7 days of acceptance of the offer[;]
(b)Proceedings dismissed;
(c)No order as to costs on the basis that each party pay their own costs of the Proceedings; and
(d)Consent orders encapsulating paragraphs (b) and (c) above be signed and both parties filed in the Proceedings within seven (7) days of acceptance of this offer.
The above offer is open for acceptance until 4pm on 28 November 2018 after which time it will lapse.
The Trustee accepts that the offer contained in this letter was a “Calderbank” offer (Offer).[2] The Trustee submits, however, that his not accepting the Offer should not ground an order that costs be assessed on an indemnity basis. The Trustee relies on the following contentions:
a)the Offer did not constitute a genuine compromise, because it was “minimal, or immaterial”;
b)the period for which the Offer was stated to be open for acceptance was shorter than the time provided under rules of court for the acceptance of offers of compromise made under such rules; and
c)the Offer was made in November 2018 when the hearing occurred in February 2019.
[2] That is a reference to the offer considered in Calderbank v Calderbank [1976] Fam 93
In those circumstances, the Trustee submits, his rejection of the Offer was not unreasonable. Mr Holbrook, on the other hand, submits the Offer was a genuine compromise. Mr Holbrook also relies on other matters, including the Trustee’s having sought to prosecute the same claims in another court but discontinuing those proceedings.
Principles
The relevance of a party’s rejection of a “Calderbank” offer were stated by the Full Federal Court in Trustee for The MTGI Trust v Johnston (No 2):[3]
It is well-established that a failure to accept a Calderbank offer may justify the exercise of the Court’s discretion to award costs on an indemnity basis. Principles referable to Calderbank offers are well-known. As the Full Court explained in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141:
. . . The purpose of the principles governing Calderbank offers and offers of compromise in accordance with court rules is to ensure that, when one party makes another an offer that contains a genuine element of compromise, the recipient of the offer is compelled to give real consideration to the costs and benefits of prosecuting its claim by reason of the prospect of suffering an indemnity costs order should its failure to accept the offer prove unreasonable.
In determining whether the Court should exercise its discretion and order indemnity costs in light of a rejection by the unsuccessful party of a Calderbank offer, a key question for consideration by the Court is whether the Calderbank offer was reasonable and proposed a genuine compromise of a case brought without a realistic prospect of success: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [125].
[3] [2016] FCAFC 190, at [21], [22]
The onus is on Mr Holbrook to satisfy the Court it is appropriate that his costs, or part of his costs be assessed on an indemnity basis.
Should costs be assessed on an indemnity basis?
The question whether the Offer was a genuine compromise is to be assessed by reference to the amount that was in dispute, and also the likelihood that at the time the offer was made Mr Holbrook had incurred legal costs. The $5,000 offered by Mr Holbrook represented slightly more than 10% of the $48,840 the Trustee claimed in the proceeding. Viewed from Mr Holbrook’s position, which was that he was not liable to pay to the Trustee any part of the $48,840 the Trustee claimed, Mr Holbrook offered to pay $5,000 to discharge a claim he disputed. Further, the Offer was that each party pay his own costs. Thus, in addition to offering to pay $5,000 to discharge a claim he disputed, Mr Holbrook offered to give up a claim for the costs it is reasonable to assume he incurred up to the date on which the Offer was made. In those circumstances I am satisfied the Offer was a genuine compromise by Mr Holbrook.
Although it may be accepted that the time for which the Offer was stated to be open was less than the time provided for by rules of court that regulate the making of offers of compromise, that by itself does not render unreasonable the 13 days for which the Offer was stated to be open for acceptance. There is no evidence that the Trustee’s lawyer requested Mr Holbrook’s lawyer that the 13 day period be extended to permit the Trustee further time to consider the Offer and, in the circumstances, it is open to me to infer, and I do infer that the 13 day period for acceptance of the Offer was sufficient to enable the Trustee to consider whether he should accept the Offer or make any counter offer.
Finally, that the Offer was made on 15 November 2018 in circumstances where the hearing occurred on 13 February 2019 did not render the Offer unreasonable. The Trustee had sufficient time to consider the Offer before the Trustee would have been required to undertake work to prepare for the hearing on 13 February 2019.
It appears that Mr Holbrook also relies on the Trustee’s not accepting an offer made in a letter dated 3 April 2018 from Mr Holbrook’s lawyer. That letter set out in some detail why the Trustee’s claims were bound to fail, and offered to settle the proceeding on the basis that the proceeding be dismissed and each party bear his own costs. The only compromise contained in this offer is that Mr Holbrook release any claim he might have against the Trustee for the costs he incurred up to the date of the offer. There is no evidence of the costs Mr Holbrook had incurred by 3 April 2018, and it is reasonable to assume that he would not by then have incurred any significant costs. In those circumstances, I cannot be satisfied that the offer conveyed by Mr Holbrook’s lawyer’s letter of 3 April 2018 constituted a genuine compromise. I am therefore not satisfied it was unreasonable for the Trustee to not accept that offer.
Disposition
I propose set aside the order for costs I made on 20 September 2019, and instead order that the Trustee pay Mr Holbrook’s costs, such costs to be assessed on a party and party basis up to and including 28 November 2018, and on an indemnity basis after 28 November 2018.
I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 13 December 2019
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