Michell v Onroad Offroad (Costs)
[2018] VSC 706
•16 November 2018
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE COMMERCIAL COURT CORPORATIONS LIST | Not Restricted |
S CI 2017 2403
IN THE MATTER of the BANKRUPT ESTATE OF CHERYL ANN HILL
| STEPHEN JOHN MICHELL (as trustee of the Bankrupt Estate of Cheryl Ann Hill) | Plaintiff |
| v | |
| ONROAD OFFROAD PTY LTD | Defendant |
---
JUDGE: | DIGBY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the Papers |
DATE OF RULING: | 16 November 2018 |
CASE MAY BE CITED AS: | Michell v Onroad Offroad (Costs) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 706 |
---
COSTS – Costs of the proceeding – Reserved costs – Where successful party made unsuccessful adjournment application – Whether costs should be taxed on an indemnity basis – Where unsuccessful party is a trustee in bankruptcy – Whether costs of the proceeding should be paid from the bankrupt estate – Whether costs of the proceeding should be paid personally by the trustee.
---
The Papers: |
| 1. Plaintiff’s Submissions on Costs (5 November 2018) 2. Defendant’s Submissions on Costs (12 November 2018) 3. Plaintiff’s Reply Submissions on Costs (14 November 2018) |
HIS HONOUR:
Costs dispute
The Trustee for the Bankrupt Estate of Ms Cheryl Ann Hill (the Trustee) attempted to recover money allegedly advanced under a loan agreement between Ms Cheryl Ann Hill (Hill) and Onroad Offroad Pty Ltd (the defendant).
In Michell v Onroad Offroad Pty Ltd [2018] VSC 648 (the judgment), the Trustee was unsuccessful for two reasons. First, the Trustee did not prove the existence of the loan agreement that was said to give rise to the alleged debt. Second, the asserted claim was barred under s 5(1)(a) of the Limitation of Actions Act 1958 (Vic) (the Act).
The parties were unable to agree on orders to dispose of the proceeding. In relation to costs there are three outstanding questions:
(a) the costs of the defendant’s unsuccessful adjournment application made 7 September 2018;
(b) whether the Trustee should pay the defendant’s costs on an indemnity rather than standard basis, and if so, from which date; and
(c) whether the Trustee ought to bear the costs personally as opposed to drawing upon the estate of the Bankrupt.
Costs of the adjournment application
Submissions
The defendant:
…seeks orders that the Plaintiff pay the reserved costs made on 7 September 2018 arising from the Defendants unsuccessful adjournment application on the basis that the Defendant was wholly successful in the substantive proceeding and consequently those costs should follow the event.[1]
[1]Defendant’s Submissions on Costs, 12 November 2018 (Defendant’s Submissions), [4].
The Trustee points out that it incurred expenses in responding to, preparing for and appearing at the defendant’s unmeritorious adjournment application. For this reason, the Trustee submits:
…that orders ought be made that the Defendant pay the Plaintiff’s costs of that application and not be entitled to its costs of making that application in any costs order made in the substantive proceeding.[2]
[2]Plaintiff’s Submissions on Costs, 5 November 2018 (Plaintiff’s Submissions), [6].
Disposition
The parties’ costs of the adjournment application made by the defendant on 7 September 2018 were reserved.
Rule 63.22 of the Supreme Court (General Civil Procedure Rules) 2015 provides:
Where by order of the Court the costs of any interlocutory or other application, or of any step in a proceeding, are reserved, the reserved costs are the parties' costs in the proceeding, unless the Court otherwise orders.
In my view, the costs of the unsuccessful adjournment application on 7 September 2018 by the defendant for the trial of this matter, fixed to commence on 10 September 2018, should be borne as costs to the defendant because:
(a) the hearing on 7 September 2018 largely addressed issues related to Mr Townsend’s (a witness of the defendant) inability to attend trial;
(b) the defendant’s application was made in respect of a trial fixed to commence on the next Court day; and
(c) the defendant’s application to adjourn the trial was unsuccessful.[3]
[3]Michell v Onroad Offroad Pty Ltd [2018] VSC 648, [28].
Application for indemnity costs
Submissions
The defendant makes an application for indemnity costs. In support of the application the defendant submits:
(a) the Trustee’s pleaded case had no proper basis in contravention of the Civil Procedure Act 2010;[4]
(b) the Trustee’s pleaded case was ‘hopeless’, ‘doomed to fail’ and as found in the judgment ‘defies both commercial and common sense’ such that it ought not to have been commenced or continued;[5] and
(c) the Trustee failed to properly investigate and substantiate a proper basis for its claim against the defendant,[6] relying nearly exclusively on circumstantial evidence,[7] and failed to challenge much of the evidence put on by the defendant.[8]
[4]Defendant’s Submissions, [9].
[5]Ibid [9].
[6]Ibid [9].
[7]Ibid [10].
[8]Ibid [10].
In response, the Trustee submits:
…there is nothing in this proceeding that indicates that the maintenance of the Plaintiff’s proceeding was inappropriate. The Court ought not go any further than ordering costs follow the event.[9]
[9]Ibid [3].
Disposition
There are several circumstances that have been held to justify a special costs order. These include:
(a) where a litigant persists in what should be seen as a ‘hopeless’ case (as opposed to a weak or marginal case);
(b) where a litigant prolongs a matter or engages in obstructionist tactics in the course of litigation that amounts to an abuse of court process;
(c) where the Court is satisfied a case was brought other than in good faith and for an ulterior purpose; and
(d) where a litigant rejects an offer of compromise from his or her opponent that proves more favourable than the judgment.
The substance of the defendant’s submissions concern the ‘hopelessness’ of the Trustee’s case. The defendant submitted that the Trustee chose to persist with its claim, and to plead the ‘loan agreement’ as the only basis on which the alleged debt was due, despite having no direct evidence that such an agreement had formed between the relevant parties. In addition, the defendant points out that the Trustee appears to have failed to investigate a proper basis for its claim and overlooked the operation of the Act.[10]
[10]Defendant’s Submissions, [9].
Circumstances in which indemnity costs have been awarded include the litigant’s delinquency, unreasonableness or flagrant disregard for court process in respect of the litigation, and conduct which overreaches or is reprehensible in some relevant way.
There were obviously a number of clear deficiencies in the Trustee’s case, as explained in the judgment in this matter. However, in my view, this case is more appropriately described as ‘weak’ rather than ‘hopeless’. This is for at least the following reasons:
(a) The Trustee did adduce evidence going to the formation of the relevant loan agreement. Principally this included books of account and journal entries. This evidence was not misconceived. In some respects the evidence was potentially on point and potentially persuasive. Ultimately, however, the Trustee failed because of the overwhelming weight and persuasiveness of the defendant’s evidence.[11]
(b) It was not certain from the outset of the trial that the Trustee’s claim would be statute-barred. Although the limitations issue in my view impugned the Trustee’s case altogether, the conclusion that s 5(1) of the Act applied was reached only after an analysis of the evidence of part payments, including their description and treatment, together with s 24(3) of the Act and the relevant authorities. I do not consider that the Trustee was at all material times ‘doomed’ to fail in this respect.
[11]Michell v Onroad Offroad Pty Ltd [2018] VSC 648, [84].
For the above reasons I do not consider that the Trustee’s claim was so ‘hopeless’ as to now justify awarding indemnity costs against the Trustee. Nor is there any other basis upon which to conclude that the Trustee’s prosecution of the claim somehow justifies the exceptional cost order now sought by the defendant. Finally, there is no suggestion that the Trustee rejected a relevant offer of compromise, or the like.
Accordingly, the defendant’s application for indemnity costs should be rejected.
Costs from the bankrupt estate
Submissions
The defendant submits:
…the Defendant submits that the Plaintiff issued proceedings (as Plaintiff in this Honourable Court) and this Honourable Court has the power to make costs orders (in the terms sought by the Defendant) under Section 24(1) of the Supreme Court Act.[12]
[12]Defendant’s Submissions, [11].
It appears (but is not altogether clear) that the defendant seeks an order that the costs not be paid from the bankrupt estate of Ms Hill.[13] In this regard, the defendant’s submissions address whether the plaintiff ought to bear personally both its own costs of the proceeding and those he is ordered to pay to the defendant.[14]
[13]Ibid [12].
[14]Defendant’s Submissions, [3](c), [11] and [12].
The Trustee submits that:
Whilst the court has a discretion to award costs, making an order interfering with the administration of the bankrupt estate is exercising bankruptcy jurisdiction made exclusive to a federal court pursuant to section 27 of the Bankruptcy Act 1966.[15]
In addition, the Plaintiff has a discretion to bring any action or other legal proceeding relating to the administration of the bankrupt estate pursuant to section 134(j) of the Act. To impugn that discretion is to exercise exclusive bankruptcy jurisdiction of the Federal Court or the Federal Circuit Court. Federal Courts have powers under section 90-15 or 90-20 of the Insolvency Practice Schedule to determine if there has been proper exercise of discretion by a bankruptcy trustee. The order sought by the Defendant seeks to usurp that supervisory role and this Court ought to decline to make any order that involves exercising bankruptcy jurisdiction.[16]
[15]Plaintiff’s Submissions, [1](b).
[16]Ibid [4].
The Trustee further submits that:
Section 24(1) of the Supreme Court Act commences with “Unless otherwise expressly provided by this or any other Act…”, Section 27 the Bankruptcy Act is an Act of the Commonwealth Parliament reserving the execution of bankruptcy jurisdiction to federal courts. Mrs Hill may be a former director of the Defendant, and her husband a current director however the Defendant is a stranger to the bankrupt estate. The Court can exercise its costs discretion to order any party (or non party if it so chose) to pay costs, but to make any finding that the actions of a bankruptcy trustee executing his Court-appointed function to issue proceedings to seek to recover what he saw as assets of the bankrupt estate was in any way inappropriate is to exercise bankruptcy jurisdiction, not a costs discretion. [17]
[17]Plaintiff’s Reply Submissions on Costs (14 November 2018) [3] (Plaintiff’s Reply Submissions).
The Trustee also observes that:
…as the Defendant is a stranger to the bankrupt estate, whether or not the Plaintiff has recourse to the assets (if any) of the bankrupt estate, is not its concern. If Mrs Hill, a creditor of the bankrupt estate, or the Inspector-General in Bankruptcy has concerns about the administration of her bankrupt estate, they have adequate powers under the statutory regime to address them in a federal court under section 90-15 of the Insolvency Practice Schedule.[18]
[18]Ibid [4].
Statutory provisions referenced by the Trustee
Section 27 of the Bankruptcy Act 1966 provides:
27 Bankruptcy courts
(1)The Federal Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than:
(a)the jurisdiction of the High Court under section 75 of the Constitution; or
(b)the jurisdiction of the Family Court under section 35 or 35A of this Act.
(2) To avoid doubt, subsection (1) does not:
(a) confer jurisdiction in a criminal matter; or
(b)exclude the jurisdiction of a court of a State or Territory under the Judiciary Act 1903 in a criminal matter relating to this Act.
Section 134(j) of the Bankruptcy Act 1966 provides:
134 Powers exercisable at discretion of trustee
(1) Subject to this Act, the trustee may do all or any of the following things:
(j)bring, institute or defend any action or other legal proceeding relating to the administration of the estate;
Sections 90–15 and 90–20 of the Insolvency Practice Schedule (Bankruptcy) in Schedule 2 to the Bankruptcy Act 1966 provide:
90-15 Court may make orders in relation to estate administration
Court may make orders(1)The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor’s estate.
Orders on own initiative or on application
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90-20.
Examples of orders that may be made
(3)Without limiting subsection (1), those orders may include any one or more of the following:
(a)an order determining any question arising in the administration of the estate;
(b) an order that a person cease to be the trustee of the estate;
(c)an order that another person be appointed as the trustee of the estate;
(d) an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate;
(e) an order in relation to any loss that the estate has sustained because of a breach of duty by the trustee;
(f) an order in relation to remuneration, including an order requiring a person to repay to the estate of a regulated debtor, or the creditors of a regulated debtor, remuneration paid to the person as trustee.
Matters that may be taken into account
(4)Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a)whether the trustee has faithfully performed, or is faithfully performing, the trustee’s duties; and
(b)whether an action or failure to act by the trustee is in compliance with this Act and the Insolvency Practice Rules; and
(c)whether an action or failure to act by the trustee is in compliance with an order of the Court; and
(d)whether the regulated debtor’s estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and
(e)the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group.
Costs orders
(5)Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:
(a)the trustee or another person is personally liable for some or all of those costs; and
(b)the trustee or another person is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to some or all of those costs.
Orders to make good loss sustained because of a breach of duty
(6)Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:
(a)the trustee is personally liable to make good some or all of the loss; and
(b)the trustee is not entitled to be reimbursed by the regulated debtor’s estate or creditors in relation to the amount made good.
Section does not limit Court’s powers
(7)This section does not limit the Court’s powers under any other provision of this Act, or under any other law.
90-20 Application for Court order
(1)Each of the following persons may apply for an order under section 90-15:
(a)a person with a financial interest in the administration of the regulated debtor’s estate;
(b)if the committee of inspection (if any) so resolves—a creditor, on behalf of the committee;
(c) the Inspector-General.
(2)If an application is made by a person referred to in paragraph (1)(b), the reasonable expenses associated with the application are to be taken to be expenses of the administration of the estate.
Section 24(1) of the Supreme Court Act 1986 provides:
(1)Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.
This Court has power to make a personal costs order
In substance, the Trustee submits that the Bankruptcy Act 1966 has conferred an exclusive jurisdiction on the federal courts to make personal costs against Trustees. This, the Trustee submits, ensues by the cumulative operation of s 27 conferring exclusive jurisdiction on the federal courts in respect of ‘bankruptcy;’ and ss 90–15(5) and 90–20 of the Insolvency Practice Schedule, which require a specific application to be made to the federal courts for an order imposing a personal cost obligation on the Trustee, including, for example, an order preventing the Trustee from being reimbursed from the bankrupt’s estate.
The Trustee submits that if this Court made a personal costs order against the Trustee, this Court would be usurping the exclusive federal jurisdiction.
I disagree with the Trustee for reasons including that:
(a) While the terms of the Trustee’s appointment and his conduct and carriage of the bankrupt’s affairs are largely the subject of federal legislation, and jurisdiction over bankruptcy is reposed in the federal courts, the Trustee is here a party to a civil proceeding in this Court. The Trustee has invoked the jurisdiction of this Court by filing and serving a writ on the defendant. The Trustee, together with the defendant, is a party subject to the jurisdiction and orders of this Court in this proceeding. The Trustee’s submissions elide the distinction between the Federal Court’s exclusive jurisdiction over bankruptcy and this Court’s general jurisdiction in relation to a proceeding in which the Trustee is a proper party. Both jurisdictions exist co-extensively.
(b) To accept the Trustee’s submission would be to circumscribe this Court’s jurisdiction and discretion over costs in its own proceedings, indeed in this case, a proceeding appropriately commenced in this court by the Trustee as plaintiff.
(c) Although s 90–15 of the Insolvency Practice Schedule allows the Federal Court to make orders of the kind that are sought by the defendant, the Trustee has not here pointed to any legislation purporting to have the privative effect for which the Trustee contends of ousting or detracting from this Court’s jurisdiction in relation to costs.
(d) Section 24(1) of the Supreme Court Act 1986 reposes a broad discretion in this Court over costs ‘unless otherwise expressly provided by this or any other Act…’ The provisions of federal legislation and regulations to which the Trustee referred did not expressly detract from this (or any Court’s) jurisdiction as to costs.
(e) Further, more generally, statutes are not to be interpreted as depriving Superior Courts of power to assume jurisdiction unless an intention to do so appears ‘clearly and unmistakably’.[19] To conclude that there has been any diminution of this Court’s jurisdiction to make a personal costs order against a Trustee in Bankruptcy, were that to be justified, would require clear and unmistakable language to this effect in a relevant Act or statutory rules.
(f) The Court’s discretion as to costs has been interpreted as wide enough to found a costs order against a person who is not a party to proceedings,[20] and to found a costs order against parties’ lawyers.[21] As the cases that are referred to below demonstrate, there is also a specific jurisdiction to award costs against a malfeasant Trustee in Bankruptcy in certain circumstances. In my view, the Trustee, as a party to the immediate proceeding himself, could in appropriate circumstances, be subject to a personal costs order.
[19]Magrath v Goldsbrough, Mort & Co Ltd (1932) 47 CLR 121,134 (Dixon J); Shergold v Tanner (2002) 209 CLR 126, 136 [34] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ).
[20]Re Bonlac Foods Ltd (2001) 37 ACSR 457, 463–64 (Warren J).
[21]Supreme Court (General Civil Procedure) Rules 2015 (Vic.) r 63.23.
Considerations in relation to making a personal costs order
In Re Angerstein; Ex parte Angerstein,[22] Mellish LJ observed:
In a case where a trustee makes an application the success of which is doubtful, he ought, before making it, to get from the creditors an indemnity against the costs, if he knows that there are no assets out of which they can be paid. I see no difference between the case of an official liquidator and a trustee in bankruptcy. With regard to the former, we have already laid down the rule that he must pay costs if he fails in an application.[23]
[22](1874) LR 9 Ch App 479.
[23]Ibid 479–80 (Mellish LJ).
This passage was approved by Yates J in Sheikholeslami v Tolcher (No 2).[24]
[24][2012] FCA 199 [12] (Yates J).
More recently, in Trustees of the Property of Sandor v Ramirez,[25] Sheller JA observed:
unless…the Court is of opinion that there are special circumstances that justify an order that the trustee be personally liable, a trustee in bankruptcy who takes up the defence of an action begun against a bankrupt puts itself entirely in the bankrupt's place with respect to costs …[26]
[25][1999] NSWCA 261.
[26]Ibid [73] (Sheller JA).
In Re Bryant, Ex parte Gordon,[27] Cave J observed:
Where the trustee has shown such carelessness and want of sense in a case in which, if he had exercised common sense, it would probably have saved litigation, I shall certainly make him pay the costs out of his own pocket.[28]
[27](1889) 6 Mor 262.
[28]Ibid 266.
This latter statement was adopted in Re Nader; ex parte Official Trustee in Bankruptcy,[29] and then referred to in Young; Re Macryannis (No. 2).[30] Accordingly, there is a well-recognised jurisdiction to make a personal costs order against a Trustee in Bankruptcy prosecuting a frivolous proceeding. In such circumstances the Trustee may well not be able to draw upon or be indemnified from the bankrupt’s estate.
[29](unreported, 12 July 1991, Einfeld J).
[30][2012] FCA 175 [10] (Stone J).
The default position is however that the Trustee is entitled to draw upon the bankrupt estate to meet appropriately incurred legal costs. In deciding whether to make an order otherwise, the Court will have regard to factors including:
(a) the merits of the claim prosecuted or application that is brought by the Trustee;
(b) whether the Trustee has shown any careless or want of sense in his prosecution or application; and
(c) any other ‘special circumstances’ that justify imposing personal liability on the Trustee.
Decision – the power should not be exercised here
The authorities indicate that personal liability for costs should not be imposed on the Trustee lightly. Here, the defendant has not demonstrated a proper basis upon which a personal costs order should be made against the Trustee, because, as explained above, I do not consider the claim instigated and pursued by the Trustee was so ‘hopeless’ as to justify a special costs order, or so ‘hopeless’ as to justify an exceptional order of the type which appears to be sought by the defendant against the Trustee.
Further, there has been no sensible suggestion that the Trustee’s conduct was dilatory or lacking reasonable care. Nor are there any asserted ‘special circumstances’ that would justify imposition of a personal liability.
For these reasons, I reject the defendant’s application that the Trustee personally bear the costs of the proceeding or that the Trustee be deprived of the usual indemnity in this case.
Conclusion
For the reasons outlined above, there should be orders that:
(a) the defendant pay the plaintiff’s costs of the adjournment application made 7 September 2018 on a standard basis; and
(b) the plaintiff pay the defendant’s costs of the proceeding on a standard basis.
There should be no order that the Trustee bear any cost liabilities personally.
Orders
I shall order:
1.The defendant pay to the plaintiff’s the costs of and associated with the application for adjournment on 7 September 2018 on a standard basis.
2.The plaintiff pay the defendant’s costs of the proceeding on a standard basis.
---
0
3
0