Monsour Pty Ltd v Amos
[2007] FMCA 740
•18 May 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MONSOUR PTY LTD v AMOS | [2007] FMCA 740 |
| BANKRUPTCY – Bankruptcy notice – sequestration order – set aside – costs. |
| Bankruptcy Act 1966 (Cth) |
| Re Vanechteld (1960) 18 ABC 258 Hones –v- Gorczynski [2002] FMCA 253 |
| Applicant: | MONSOUR PTY LTD (FORMERLY MONSOUR LEGAL COSTS PTY LTD) ACN 010 644 989 |
| Respondent: | EDWARD AMOS |
| File number: | BRG 244 of 2006 |
| Judgment of: | Burnett FM |
| Hearing date: | 2 May 2007 |
| Date of last submission: | 2 May 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 18 May 2007 |
REPRESENTATION
| Solicitors for the Applicant: | McInnes Wilson |
| Counsel for the Respondent: | Mr Ambrose |
| Solicitors for the Respondent: | Keller Nall & Brown |
ORDERS
That the Respondent pay the Applicant’s costs of and incidental to the application including reserved costs to be assessed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 244 of 2006
| MONSOUR PTY LTD (FORMERLY MONSOUR LEGAL COSTS PTY LTD) ACN 010 644 989 |
Applicant
And
| EDWARD AMOS |
Respondent
REASONS FOR JUDGMENT
Introduction
In this proceeding the Applicant Monsour Pty Ltd (formerly Monsour Legal Costs Pty Ltd) (the Applicant) sought a sequestration order against the Respondent Edward Amos (the Respondent). On 11 April 2007 the Application was dismissed by consent.
The Applicant says that it was only a short time before that date that it was apparent to it from material filed by the Respondent in the application that the Respondent was in all the circumstances able to pay his debts. The Respondent says that his solvency would have been apparent to the Applicant from the outset.
The Respondent asks for costs, they to follow the event of dismissal. The Applicant too seeks costs.
From argument at the hearing two issues arose.
a)Did the Applicant have knowledge, actual or constructive, of the Respondent’s true financial situation prior to bringing its application such as to render its bringing and prosecution of the application unreasonable; and
b)Whether or not it was in any event appropriate to bring bankruptcy proceedings when another cheaper means of verifying the Respondent’s financial position was available.
Background Facts
The Applicant was a company conducting the business of legal cost assessments. The Respondent had been an unsuccessful party to proceedings in the Queensland Supreme Court. In resolution of those proceedings he entered into an agreement with the other party to those proceedings to pay the other party’s costs of those proceedings, which such costs were to be assessed by the Applicant. The costs were duly assessed and the Respondent paid to that party its costs.
The Respondent however considered that the Applicant, in performing its costs assessment, had conducted that assessment negligently and/or in breach of implied terms of its contract with the Respondent. Accordingly it commenced proceedings in the Magistrates Court to recover damages against the Applicant in respect of those alleged contractual breaches and/or its breach of duty.
It is apparent that from the conduct of the assessment of the costs in the proceedings between the Respondent and the third party the Applicant had to review all material which had been before the Supreme Court in those proceedings. Those proceedings in part included reference to various properties which were owned by the Respondent and which were the subject of an application for recovery of possession by the Plaintiff bank in that earlier proceeding.
In addition to information which the Respondent says the Applicant should have gleaned from its assessment of costs in those proceedings there was also additional material concerning the Respondent’s financial position placed before the Applicant prior to the sequestration proceedings. By application brought by the Respondent to set aside the Bankruptcy Notice the Respondent filed an affidavit on 19 October 2005. In that affidavit the Respondent deposed to owning significant real estate holdings together with the provision of an undertaking not to dispose of those holdings pending the resolution of the creditor’s proceedings.
More recently in this application two further affidavits were filed by the Respondent deposing in some detail to his financial position. Those affidavits were filed on 13 November and 1 December 2006.
Governing Principles
Generally concerning costs it is well settled that the Court has a broad general discretion pursuant to section 32 of the Bankruptcy Act 1966 in relation to costs notwithstanding section 51 of the Bankruptcy Act; Re Vanechteld[1]. That discretion is to be exercised judicially. In terms of the exercise of that discretion the issue for resolution is in which party’s favour should the discretion be exercised given the issues which were identified by the parties in the course of submissions and are noted above.
[1] (1960) 18 ABC 258 at 263
Knowledge
The question of relevant knowledge in terms of the exercise of the discretion in respect of costs has been the subject of examination by Courts at both first instance and on appeal in recent times. As a matter of principle the only binding decisions referred to by Counsel were the decisions of the Full Court in ReSarina; Ex Parte Wollondilly Shire Council[2] and Re Murray –v– Vilkelis – Curas Ex Parte; Deputy Commissioner of Taxation[3].
[2] (1980) 32 ALR 596.
[3] Unreported. Federal Court No P360 of 1985 per Jenkinson J.
In Sarina the Full Court determined that knowledge of certain of a Respondent’s assets does not necessarily involve knowledge of the Respondent’s liabilities, income and expenditure. Accordingly if only material as to assets were placed before a court, without more, it would not follow that the Applicant would be deemed to know the overall financial position of the Respondent[4].
[4] At 601.
In Sarina the undisputed evidence showed that the Respondent to the bankruptcy proceedings owned land worth a great deal more than the amount owing to the Applicant in those proceedings premised upon the rating authority’s records and the conduct of litigation between the parties.
In some respects the facts of the decision in Sarina are analogous to those in the present case at least up until November 2006. For instance in this case whilst it might have been apparent that the Respondent had considerable land holdings the only other material to support any question of solvency on the part of the Respondent was that material which later accompanied his application to set aside the Bankruptcy Notice. His affidavit in that application did not descend into any greater detail but to claim “that his equity (in his) properties exceeds the amount claimed in the Bankruptcy Notice even when combined with the amounts of any other known creditors”[5].
[5] Affidavit of Edward Amos Exhibit EA1.
However the Respondent’s later affidavits filed 13 November 2006 and 1 December 2006 descended into some greater detail. In particular the affidavit filed 1 December 2006 particularised the assets and liabilities of the Respondent thereby permitting a better understanding of the general assertion made in the affidavit of 13 November 2006 that the Respondent’s net worth was approximately $4.5M.
Whilst the observations of the Full Court in Sarina in my view remain pertinent to that period of time up to November 2006 they do not apply to what should have been the Applicant’s reasonable state of mind beyond that time.
Insofar as it concerns the period up to November 2006 the evidence before the Court on this application does not demonstrate that there was sufficient information provided to enable the Applicant to know the overall financial position of the Respondent. Upon the premise that “knowledge of certain assets does not necessarily involve knowledge of liabilities income and expenditure” it could not reasonably be said that the Applicant should have had an appreciation of the Respondent’s solvency and thereby acted unreasonably in bringing the application.
In Murray v Phillip Vilkelis-Curas Ex Parte; Deputy Commissioner of Taxation[6] Jenkinson J observed,
“…the petitioner, as judgment creditor, ought not in my opinion to be required, at the risk of being denied his costs of bankruptcy proceedings, either to trust the debtor’s word, or to expend money in procuring testimonial verification, that the debtor is solvent and that accordingly payment of the judgment debt may be enforced without fear that bankruptcy at the suit of some other creditor may supervene.”
[6] Supra at paragraph 8.
From the material it is apparent that at least until November 2006 the Respondent had not done more than provide a broad assertion as to solvency.
Aside from the broad assertion provided for by his affidavit in the application to set aside the bankruptcy the only other material which would have served to place the Applicants on notice concerning this client’s solvency were the papers in the proceeding the subject of the cost assessment.
The Applicant was engaged as a legal cost assessor to undertake a legal costs assessment of the proceeding. The process of legal cost assessment does not require any intricate knowledge or understanding of the proceeding the subject of the assessment to be effected. Quite clearly any information gleaned by the Applicant in the course of the assessment would have been entirely ancillary to the purpose for which the material was being reviewed. Indeed in circumstances where the action settled it could not even be necessarily the case that the Respondent’s full position was contained within the papers before the Applicant for assessment and in turn reviewed in such assessment. As can be seen from the Bill of Costs[7] the closest the Applicant got to the detail appears to be reviewing the affidavit of Bruce Hollis, solicitor for the Plaintiff bank and the exhibits attached thereto which simply noted that the Respondent was the owner of thirteen properties[8].
[7] Affidavit of Edward Amos Annexure EA6.
[8] See affidavit of Edward Amos, Annexure EA5.
At its best it would appear that a review of the material in the primary proceedings did no more than establish knowledge of certain assets. They do not import to the Applicant greater knowledge of liabilities, income and expenditure; see Re Sarina supra at 601.
It follows that at least until November 2006 “it was not, as I think, unreasonable of this petitioner to form no opinion concerning this debtor’s solvency upon the information which he had, …”[9].
[9] Murray v Phillip Vilkelis-Curas supra at paragraph 8.
It is apparent however that beyond November 2006 by reason of the evidence in the proceedings that a fair minded observer would have concluded that the Applicant should have at least have had a reasonable suspicion that the Respondent could pay the amount due from him if he had wanted[10]. In my view from November 2006 it would have been unreasonable for the Applicant to maintain no opinion concerning the Respondent’s solvency premised upon the information which it then had.
[10] Adopting the reasoning in Hones –v– Gorczynski [2002] FMCA253 at 14.
In the circumstances I am of the view that costs incurred beyond November 2006 could be submitted to have been unreasonably incurred.
Other enquiries
In Murray v Vilkelis-Curas supra Jenkinson J observed that the failure of the petitioner to expend time and money in determining whether the judgment debtor was able to pay his debts before deciding to institute bankruptcy proceedings ought not be considered conduct disentitling the petitioner to an award of costs[11]. As with His Honour Jenkinson J in Murray v Vilkelis-Curas I too consider that upon the facts then available to the Applicant at the time of the commencement of his application it was not unreasonable for it to prefer bankruptcy proceedings to satisfy himself about the debtor’s insolvency rather than to rely upon procedures available under the UCPR for oral examination. [This is moreover so because of the potential risk an execution of the Magistrates Court order for costs might have been frustrated by the operation of section 118 of the Bankruptcy Act 1966]
[11] At paragraph 8.
It was submitted that the bankruptcy proceedings were far more expensive than the alternative processes available. No material was placed before the Court to support that contention. In any event it is apparent that irrespective of which process was adopted there would have been a need to file an application and supporting affidavits in order to arrange for the matter to come before a court and that irrespective of the jurisdiction significant legal expense would have been incurred by the Applicant in pursuit of its rights beyond those which might otherwise be recoverable upon a favourable costs order.
Generally
It was submitted by the Respondent that in any event section 51 of the Act expressly provides that the costs of prosecuting a creditor’s petition should be at the expense of the creditor. Although acknowledging that section 51 did not override the general discretion provided for by section 32 it was submitted that the discretion to grant costs would only be exercised in exceptional circumstances; In Re Vanechteld[12] was relied upon in support of that submission.
[12] (1960) 18 ABC 258.
With respect to Counsel for the Respondent I do not accept that “exceptional circumstances” test was imposed by the Court in Re Vanechteld. After reciting the historical background to the costs provisions of the Bankruptcy Act His Honour concluded that section 32(1) gave the Court an overriding discretion to award costs to a petitioning creditor but noted that the discretion had to be exercised upon judicial grounds. Ultimately the question is one to be resolved upon the facts of the individual case. I do not consider that I have to be satisfied of there being “exceptional circumstances” in order to exercise the general discretion provided by section 32.
Likewise the material contained in the Deed of Settlement in my view did no more than inform the Applicant that there had been various properties the subject of dispute together with indebtedness to the bank. It did not purport to be a complete outline of the Respondent’s assets and liabilities and associated cash flow.
In addition it was asserted that evidence of a Court’s earlier determination in respect of insolvency should be considered. However that decision was a decision made by the Federal Court in 2000. Evidence of solvency some six years prior to the subject application could not reasonably be relied upon to support an assertion of solvency after such an extended lapse of time.
Conclusion
The evidence demonstrates that prior to the filing of affidavits in this application in November and December 2006 the Respondent’s material both direct and indirect did no more than make a bald assertion concerning assets held. It did not descend into sufficient particularity to import to the Applicant knowledge of the Respondent’s liabilities, income and expenditure. The Applicant was not unreasonable in bringing the application and pursuing the application until that point in time. Beyond November 2006 it is clear that the Applicant should reasonably have had an appreciation of the Respondent’s solvency and in pursuing the application beyond that time in any meaningful way could not be said to have done so reasonably.
Prima facie, the Applicant should have its costs up until and including 8 November 2006[13].
[13] I have allowed seven days beyond the date of filing of the application to permit time for service, perusal, consideration and action upon the affidavit filed by the Respondent on 1 November 2006.
The Applicant should also be entitled to the costs of its appearance on one further occasion beyond the receipt of the Respondent’s affidavits as such an appearance would have been required in any event. In the event there was only one further appearance on which occasion the Applicant consented to the dismissal of the application.
The matter was listed for hearing on 2 May date solely on the issue of costs. The Respondent has been substantially unsuccessful in that regard and accordingly the Applicant should have the costs of the application and hearing of the costs argument.
Generally it is apparent from the Court file that following the filing by the Respondent of his affidavits of 13 November 2006 and 1 December 2006 there was no further action prior to the application coming before the Court on 11 April 2007. On that occasion the application was dismissed by consent subject to the costs argument which was heard on 2 May 2007. The Court file suggests that no further action was taken by the Applicant after the receipt of the two affidavits filed by the Respondent except for action which would be regarded as appropriate namely the appearance to dismiss the application. It does not appear the application was in fact prosecuted in any meaningful way beyond that date. On the whole the Applicant should have all its costs.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate: Bev Schmidt
Date: 18 May 2007