Murphie v Vita Domus Pty Ltd
[2019] FCCA 2063
•30 July 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MURPHIE v VITA DOMUS PTY LTD | [2019] FCCA 2063 |
| Catchwords: BANKRUPTCY – Bankruptcy notice set aside by consent – application to review costs order made by a registrar. |
| Legislation: Bankruptcy Act 1966 (Cth), s.32 Federal Circuit Court of Australia Act 1999 (Cth), ss.79, 104 Federal Circuit Court Rules 2001 (Cth), r.20.03 |
| Cases cited: Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 Kazar (Liquidator) v Kargaran; In the Matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; (2011) 197 FCR 113 Zdrilic v Hickie [2016] FCAFC 101; (2016) 246 FCR 532 |
| Applicant: | MATTHEW MURPHIE |
| Respondent: | VITA DOMUS PTY LTD |
| File Number: | SYG 505 of 2018 |
| Judgment of: | Judge Barnes |
| Hearing date: | 30 July 2018 |
| Delivered at: | Sydney |
| Delivered on: | 30 July 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr Walker |
| Solicitors for the Applicant: | Sparke Helmore |
| Solicitors for the Respondent: | Hunt & Hunt |
ORDERS
(1) Order 2 made by District Registrar Wall on 1 May 2018 be set aside.
(2) Vita Domus Pty Ltd pay the costs of Mr Matthew Murphie in relation to the application to set aside Bankruptcy Notice No. BN221667 to be fixed in accordance with Part 1 of Schedule 1 to the Federal Circuit Court Rules 2001 (Cth).
(3) The parties file an agreed calculation of costs in accordance with Part 1 of Schedule 1 to the Federal Circuit Court Rules 2001 (Cth) within 14 days of today’s date or, if unable to agree, each party file and serve a written submission of no more than 2 pages calculating such costs.
(4) There be no order as to costs in relation to the review application.
| (1) FEDERAL CIRCUIT COURT OF AUSTRALIA AT Sydney |
SYG 505 of 2018
| Mathew Murphie |
Applicant
And
| Vita Domus Pty Ltd |
Respondent
REASONS FOR JUDGMENT
The Application
1. On 23 February 2018 Mr Matthew Murphie filed an application in this court seeking that Bankruptcy Notice No. BN221667 issued on 5 February 2018 on the application of the Respondent, Vita Domus Pty Ltd (Vita Domus) be set aside with costs.
2. On 1 May 2018 a registrar of this court made an order by consent setting aside the bankruptcy notice. That left in issue the question of costs. The registrar ordered that Vita Domus pay Mr Murphie’s costs of the application to set aside the bankruptcy notice “as agreed or taxed”.
3. Vita Domus sought review of the exercise of power by the registrar in relation to the costs order. It seeks that there be no order as to costs. Mr Murphie opposes this application and contends that the award of costs in his favour should not be disturbed.
The Background to these Proceedings
4. In September 2015 Mr Murphie entered into a building contract with Vita Domus to undertake renovations to his residential property. In July 2016 Mr Murphie purported to terminate the contract for breach. In August 2017 Vita Domus filed an application in the NSW Civil and Administrative Tribunal (NCAT) seeking what were said to be outstanding amounts owing under the building contract.
5. In its reasons for decision of 20 September 2017, NCAT recorded that the notice of the hearing of the matter had been sent to the address for Mr Murphie recorded in the 2015 building contract to which correspondence had been sent on behalf of Vita Domus during the course of the building work. Mr Murphie did not appear before NCAT. The matter was dealt with in his absence. NCAT recorded that it was satisfied that notice of the hearing was duly served on Mr Murphie and that justice required that the matter be dealt with in his absence. NCAT ordered that Mr Murphie pay Vita Domus the sum of $76,467.45 and its costs of, and incidental to, the NCAT proceedings as agreed or assessed.
6. On 6 November 2017 Vita Domus registered the NCAT order as a judgment of the Local Court of New South Wales. The order was entered on 2 February 2018.
7. Bankruptcy Notice No. BN221667 was issued on 5 February 2018 on the application of Vita Domus based on the Local Court judgment.
8. It appears not to be in dispute that the bankruptcy notice was served on Mr Murphie at his work address on or around 7 February 2018.
9. On 8 February 2018 Sparke Helmore Lawyers, the solicitors for Mr Murphie, wrote to Hunt & Hunt, the solicitors for Vita Domus, referring to a telephone discussion confirming that they had received instructions to act for Mr Murphie and were instructed to take immediate steps to have what was described as the “default” judgment obtained by Vita Domus and the bankruptcy notice set aside on what were said to be very strong grounds. Sparke Helmore asserted that Mr Murphie had received no notice of, and had not been properly served with, the “statement of claim” issued by Vita Domus or any invoices or letters of demand issued in respect of its claim. It was suggested that it appeared that these documents had been sent to Mr Murphie’s previous rental address in circumstances where Vita Domus was aware that that address was no longer Mr Murphie’s proper address for service. The letter pointed out that Vita Domus had been engaged in relation to work on Mr Murphie’s permanent residence. It was said to be aware Mr Murphie had engaged Gadens Lawyers to act on his behalf.
10. The letter of 8 February 2018 also asserted that Mr Murphie had a strong and genuine defence and a significant cross claim of no less than $110,000 that would more than offset the amount claimed by Vita Domus. It was explained that this claim was made on the basis that Vita Domus had been unable to complete the building work required and that Mr Murphie had engaged alternative contractors at considerable additional expense. There also were said to be defects in the work performed by Vita Domus which had required remediation and occasioned further cost.
11. The solicitors for Mr Murphie went on to “demand” that Vita Domus take all necessary steps to have the judgment and bankruptcy notice “set aside”. It was suggested that Vita Domus would be at liberty to pursue its claim in the Local Court should it maintain that it had a legitimate claim.
12. This letter concluded by indicating that, given the urgency of the matter, a response was sought by 9 February 2018, in the absence of which instructions would be sought to make applications to the Local Court and the Federal Court without further notice and that this correspondence would be relied on in relation to the issue of costs.
13. In a response of 9 February 2018, the solicitors for Vita Domus stated that Mr Murphie had been notified by registered post of the NCAT application and that NCAT had been satisfied with service. It was suggested that it was for Mr Murphie to apply to “stay” the bankruptcy notice and to apply to NCAT to set aside the order which was the basis for the Local Court judgment.
14. Mr Murphie’s solicitors replied on 9 February 2018, reiterating that Mr Murphie had not received any notice of the NCAT application or the hearing and that Vita Domus was aware that his previous address was no longer valid. The letter inquired as to whether the solicitors for Vita Domus had instructions to receive service, including service of applications to set aside the NCAT orders and the bankruptcy notice.
15. On 22 February 2018 Mr Murphie filed an application in NCAT to set aside the orders of 20 September 2017.
16. On 23 February 2018 Mr Murphie filed an application in this court to set aside the bankruptcy notice.
17. On 27 February 2019 a registrar of this court extended the time for compliance with the bankruptcy notice to 13 March 2018 (the return date for the application).
18. On 13 March 2018 orders were made by a registrar by consent extending the time for compliance with the bankruptcy notice to 1 May 2018 in circumstances where Mr Murphie’s NCAT application would not be determined by 13 March 2018. The parties were not required to appear on 13 March 2018. The registry listed the matter on 1 May 2018.
19. On 3 April 2018 NCAT accepted that Mr Murphie had not become aware of the NCAT hearing and determination until he received notice of the bankruptcy proceedings (clearly a reference to the bankruptcy notice) at his work address. It extended the time for him to make his application to set aside the NCAT orders of 20 September 2017.
20. NCAT then set aside the orders it had made on 20 September 2017. It was satisfied that the decision was made in Mr Murphie’s absence where the notice of hearing went to “old rental premises” and that his absence had resulted in his case “not being adequately put” in circumstances where he had supplied evidence “that needs to be heard”. In the exercise of its discretion NCAT was satisfied that it was appropriate to set aside its decision because it was in the interests of justice that Mr Murphie have an opportunity to have his case heard.
21. On 11 April 2018 Mr Murphie’s solicitors wrote to the solicitors for Vita Domus seeking consent to orders setting aside the Local Court judgment and the bankruptcy notice and that it pay Mr Murphie’s costs of the NCAT proceedings and in this court. On 16 April 2018 the solicitors for Vita Domus advised that they consented to the Local Court judgment and bankruptcy notice being set aside, but were of the view that there should be no order as to costs. Further correspondence in relation to costs ensued.
22. As indicated, on 1 May 2018 a registrar set aside the Bankruptcy Notice by consent and also ordered that Vita Domus pay Mr Murphie’s costs as agreed or taxed.
23. Mr Murphie’s solicitors subsequently informed Vita Domus’ solicitor that his costs in relation to the application to set aside the bankruptcy notice had been calculated to be $25,505.51 on a party-party basis. The solicitors for Vita Domus took issue with this assessment as “grossly excessive”.
24. It was in these circumstances that Vita Domus filed the review application seeking that there be no order as to costs.
The Nature of the Review
25. It is not in dispute that the application to this court is an application under s.104(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCC Act) for review of the exercise of a registrar’s power. Rule 20.03(a) of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules) provides that such application must proceed by way of a hearing de novo. Vita Domus, the review applicant, sought that there be no order as to costs. Mr Murphie contended that the review application should be dismissed leaving in place the costs order in his favour.
26. A preliminary point was raised by Mr Murphie in relation to the nature of this review. Mr Murphie acknowledged that, as Emmett J pointed out in Totev v Sfar [2008] FCAFC 35; (2008) 167 FCR 193 at [14] (in considering an application for review of a sequestration order made by a registrar of this court), because the hearing of such an application for review is a hearing de novo, it would not be sufficient for the reviewing judge to be satisfied that the registrar made no error and to simply dismiss the application for review. Rather, the judge who hears such a review application must hear the matter afresh.
27. Mr Murphie relied on decisions of the NSW Supreme Court (such as O’Neill v FSS Trustee Corporation [2015] NSWSC 1248) in relation to review of decisions of registrars under provisions of the Supreme Court Act 1970 (NSW) and/or the Uniform Civil Procedure Rules 2005 (NSW), also citing the decision of the New South Wales Court of Appeal in Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61 in relation to an application to review a decision of a registrar of the Supreme Court not to extend time for filing of a cross appeal.
28. Mr Murphie submitted that where the argument before the registrar concerned a matter of practice and procedure (as was said to be the case in this instance), the registrar’s decision was a relevant consideration and that it was proper for a judge to exhibit a “natural inhibition” against the “unrestrained substitution” of his or her own views for those of the registrar, as discussed by Slattery J in O’Neill at [19].
29. Counsel for Mr Murphie noted that under r.20.03(d) of the FCC Rules this court may receive as evidence any transcript of the proceeding before the registrar. It was submitted that the court should have regard to the registrar’s reasons in this case in the manner suggested in Tomko and in O’Neill.
30. Apart from the general reference to Totev v Sfar, Mr Murphie did not address authorities in relation to this court’s power under s.104(2) of the FCC Act to review a registrar’s decision.
31. However, in oral submissions counsel for Mr Murphie contended that even if the court was not of the view that it should follow the approach suggested in Tomko and in O’Neill as a matter of principle, in exercising its discretion afresh the court should make a costs order in favour of Mr Murphie.
32. The transcript of the proceedings before the registrar on 1 May 2018 is an annexure to an affidavit of Alexander Conrad White affirmed on 29 June 2018. Vita Domus did not formally object to this evidence, but questioned its relevance in light of the nature of a de novo review under s.140(2) of the FCC Act.
33. The authorities relied on by Mr Murphie in relation to the approach of a judge on review of a registrar’s decision relate to review of decisions of registrars made under state (not federal) legislative provisions. There was no suggestion that such principles have been applied in relation to review under s.104(2) of the FCC Act of decisions of registrars of this court under the Bankruptcy Act 1966 (Cth) or otherwise. Further, the costs order in question is not simply a decision as to a matter of practice or procedure in the course of an ongoing matter (cf Tomko).
34. There is considerable authority in relation to review of decisions of registrars of federal courts to the effect that such a review is a de novo review in the sense that the court is to consider the matter afresh and exercise for itself any discretion exercised by the registrar (see for example the discussion in Zdrilic v Hickie [2016] FCAFC 101; (2016) 246 FCR 532 and Tran v Pu [2015] FCA 97; (2015) 228 FCR 562 (both of which related to the nature of the review of the exercise of power by a registrar of this court); Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 in relation to review by the Family Court of an exercise of power by a registrar of that Court; and Martin v Commonwealth Bank of Australia [2001] HCA 87; (2001) 217 ALR 634 in relation to a review by a Federal Court judge of the exercise of power by a registrar of that court in the bankruptcy jurisdiction).
35. Notably, the Full Court of the Federal Court stated in Zdrilic v Hickie at [16]:
1. As the FCC Rules recognise, a review of an exercise of power by a registrar must proceed by way of a hearing de novo. Anything less than a hearing de novo would probably constitute a failure to adhere to what Beach J referred to in Tran v Pu [2015] FCA 97; (2015) 228 FCR 562 (Tran v Pu) at [19] as “the constitutional imperative”, that is to say the requirement that the judicial power of the Commonwealth only be exercised by judges of federal courts or other courts exercising federal jurisdiction: see Totev v Sfar and Another [2008] FCAFC 35; (2008) 167 FCR 193 (Totev v Sfar) at [10] (per Emmett J) and Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84 at 164 …
36. Notwithstanding that on the hearing of such a review the transcript of the proceeding before the registrar may be received as evidence under the FCC Rules, I am satisfied that the hearing must proceed by way of a hearing de novo. It is necessary to hear the matter afresh and to exercise my discretion as to the costs of the application to set aside the bankruptcy notice.
The Costs Application
37. Mr Murphie, who succeeded in his application to have the bankruptcy notice set aside, albeit by consent, seeks a costs order in his favour (as was made by the registrar) on the basis that he was wholly successful. He also relies on the fact that his solicitor’s letter of 8 February 2018, which was sent prior to the commencement of the proceedings, explained the basis on which he would proceed to seek to have the underlying judgment and bankruptcy notice set aside. This was said to have put Vita Domus on notice of his position. It was contended that Vita Domus should not have resisted the making of the costs order sought by Mr Murphie before the registrar.
38. It was pointed out that in the letter of 8 February of 2018 and the email of 9 February 2018, Mr Murphie’s solicitors had made it clear that if he was required to take action to set aside the bankruptcy notice he would rely on that correspondence in relation to the question of costs.
39. Mr Murphie submitted that Vita Domus had considerable time to elect whether or not to “maintain” the bankruptcy notice, knowing the basis on which Mr Murphie would apply to set aside the NCAT order, the judgment and the bankruptcy notice and that it had the benefit of legal advice and representation, but nonetheless chose to put him in the position where he had to bring the application to set aside the bankruptcy notice to avoid its consequences.
40. It was also pointed out that the evidence filed by Mr Murphie in support of his application to NCAT (the day before the application to set aside the bankruptcy notice) set out in detail the grounds on which he challenged Vita Domus’ right to the judgment based on the NCAT orders. Thus, there was said to be a considerable body of material to which Vita Domus could have had regard when it elected to resist the proceedings, so that it could not be said that it elected to resist the application to set aside the bankruptcy notice in a vacuum.
41. While Mr Murphie also acknowledged that it was open to Vita Domus to proceed as it did in awaiting the outcome of the NCAT application, it was submitted that what occurred prior to that time was relevant in relation to the question of costs. It was pointed out that it was only after NCAT set aside the orders that had been made in Mr Murphie’s absence on 3 April 2018 that Vita Domus agreed to consent to an order setting the bankruptcy notice aside.
42. In these circumstances Mr Murphie submitted that Vita Domus had put him to the time and expense of applying to set aside the bankruptcy notice, only to “capitulate” when he successfully took the steps he had said he would take in circumstances where he was in a position to adduce evidence which, it was suggested, would certainly have resulted in having the bankruptcy notice set aside.
43. It was pointed out that in One.Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 at [7] Burchett J had observed that in a case where there was a “clear winner” and the losing party had defended the proceeding until it faced an evidentiary difficulty and was then forced to acknowledge defeat, an award of costs in favour of the successful party was appropriate. Such remarks were said to be in point in this case.
44. Mr Murphie acknowledged that in a case which terminated before hearing, a court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial (see Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 626). However it was pointed out that, as discussed by Burchett J in One.Tel Ltd at [5] – [6], this did not mean that the court could never make an order for costs in such circumstances. It was acknowledged that often the court would be unable to do so, but observed that in Lai Qin McHugh J had referred to the fact that in some cases an examination of the reasonableness of the conduct of the prospective parties may provide the basis for an order, or “a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried” (see McHugh J in Lai Qin at 625). Mr Murphie submitted that in this case Vita Domus had effectively had to “surrender” or “capitulate” and that these circumstances warranted a costs order in his favour (see One.Tel at [6]).
45. Vita Domus acknowledged that the form of any costs order was a matter of discretion for the court. It was submitted however that the appropriate order to be made by the court on review was that there be no order for costs in relation to the application to set aside the bankruptcy notice.
46. It was contended that circumstances such as the present, where a debtor sought to have a bankruptcy notice set aside on the basis that he or she had no notice of the original hearing which had created the judgment debt, were well-known and a common basis for granting an interim stay (and extension of the time to comply with the bankruptcy notice) to allow the debtor the opportunity to try to convince the original court or tribunal to set aside the underlying judgment. However it was also suggested that where such matters were settled by consent, the court would generally dispose of the bankruptcy proceedings by making no order as to costs, although it was not unknown for the court to make an order in favour of a judgment creditor when setting aside a bankruptcy notice.
47. Vita Domus referred to supporting documents in relation to the residential building contract between the parties, the NCAT application in relation to building works said to have been carried out under contract, and the NCAT order of 20 September 2017 that Mr Murphie pay Vita Domus over $76,000. It was pointed out that this order had been made in circumstances where NCAT was satisfied that the notice of hearing had been served on Mr Murphie in circumstances where there was correspondence with Vita Domus to and from the address nominated by Mr Murphie in the 2015 building contract and where there were said to be issues in relation to Mr Murphie’s subsequent evidence to NCAT about when he changed his address, whether he had notified Vita Domus of this and where he in fact resided.
48. It was also submitted that having obtained an NCAT order Vita Domus had exercised its right (as it was entitled to do) to have the order entered as a judgment and to enforce it, unless and until Mr Murphie obtained a stay or an order to set aside the NCAT order and the Local Court order.
49. While Vita Domus acknowledged that ultimately the NCAT order was set aside on 3 April 2018, it was pointed out that this was done in the exercise of the tribunal member’s discretion on the basis that it was in the interests of justice that Mr Murphie have the opportunity to have his case heard by NCAT. It was submitted that this did not, and could not, adversely reflect on Vita Domus as the party which had been successful in the prior NCAT hearing in the absence of Mr Murphie.
50. Vita Domus submitted that it was not unreasonable for it to wait for NCAT to determine the issue of whether the NCAT order should be set aside. It was also pointed out that Vita Domus had consented to extensions of time for compliance with the bankruptcy notice until Mr Murphie had the opportunity to present his case to NCAT and that after NCAT had determined to set aside the original order, Vita Domus had agreed that the Local Court judgment and the bankruptcy notice should be set aside. Vita Domus had also been prepared to accept costs being dealt with on the basis that there be no order as to costs as it had indicated in correspondence with Mr Murphie’s solicitors. This was said to be a reasonable and proper approach in the circumstances.
51. Vita Domus submitted that One.Tel involved a very different situation, that this was not a case involving a default judgment or akin to a situation where a party had failed because of serious defects in its case and that the NCAT orders in favour of Vita Domus had been set aside on discretionary grounds, not because of any conduct of Vita Domus. It was said to be perfectly legitimate and reasonable for Vita Domus to maintain its opposition to Mr Murphie’s application to set aside the bankruptcy notice until after the NCAT orders were set aside.
52. Vita Domus also submitted that having regard to the evidence that it was at all times content to await and abide by the decision of NCAT in relation to setting aside the original order, there had been no reason for Mr Murphie to incur what were described as the extraordinary costs outlined in his solicitor’s letter of 16 May 2018.
53. Vita Domus submitted that if the court was minded to order that it pay Mr Murphie’s costs, the court should fix the amount of costs.
54. Vita Domus contended that the need for a hearing to debate the form of costs order was entirely at the feet of Mr Murphie and that Vita Domus should be entitled to costs incurred in relation to the review application.
Consideration
55. It is not in dispute that this court has jurisdiction to make such order as to costs as it thinks fit (see s.32 of the Bankruptcy Act1966 (Cth) and s.79(2) of the FCC Act).
56. Ordinarily the court exercises its discretion in relation to costs after a hearing on the merits. In that context, the discretion is generally exercised in favour of the successful party, although there is no rule or requirement that costs must always follow the event. It is well-established that while the discretion ought to be guided by settled principles, such principles are not narrow legal rules and the exercise of the discretion must take account of the particular circumstances of the case and the conduct of the litigation (see generally the discussion by Greenwood and Rares JJ in Kazar (Liquidator) v Kargaran; In the Matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; (2011) 197 FCR 113 at [5]).
57. Relevant guiding principles in relation to the discretion to order costs in matters that are resolved without a hearing on the merits were considered by McHugh J in Lai Qin. His Honour stated at [6] – [9]:
1. 6. In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
2. 7. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
3. 8. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80% of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
4. 9. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
(footnotes omitted)
58. One.Tel involved a challenge to the validity of certain notices issued by the Deputy Commissioner of Taxation (the DCT). One.Tel applied to have the notices set aside. After initially defending the notices, the DCT encountered what Burchett J described (at [7]) as “at least” an evidentiary difficulty and acknowledged that the notices should be set aside. Burchett J saw these circumstances as involving a “clear winner” and ordered that the DCT pay the costs of One.Tel.
59. In that context Burchett J stated at [5] – [6]:
1. 5. It is accepted that, in a case which terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 at 624. But this does not mean that the Court can never make an order for costs. Often, it will be unable to do so; but in other cases an examination of the reasonableness of the conduct of the parties, respectively, may provide the basis of an order, or "a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried", as McHugh J put it in Ex parte Lai Qin at 625. His Honour added:
1. "If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings."
2. Although his Honour thought this would "usually" be so, he made it clear that he was not laying down an invariable rule. At the beginning of his discussion of the applicable principles (at 624), he referred to the discretionary nature of the power to order costs, and to the "general rule [that] the successful party is entitled to his or her costs", and he said:
3. "In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action."
4. As Sackville J pointed out in Rizal v Minister for Immigration and Multicultural Affairs [1999] FCA 334 at para 16, the remarks made by McHugh J evince "a somewhat more flexible approach" than that taken by the Court in Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 at 287, when it suggested that "there will be very few cases where the issues will be sufficiently clear, in the absence of a hearing, for an order for costs to be made in favour of a party." What is well established is that frequently the determining factor will be the reasonableness of the conduct of the parties, a matter which was emphasized in each of the decisions I have cited, and also in Reddy v Hughes (1996) 37 IPR 413; Sun Zhan Qui v Minister for Immigration and Ethnic Affairs [1999] FCA 119; and Australian Securities Commission v Berona Investments Pty Ltd (1995) 18 ACSR 772. In the last case, Cooper J commented (at 774), concerning the principles laid down in Australian Securities Commission v Aust-Home Investments:
5. "These propositions are of assistance in focusing attention upon some of the relevant circumstances which should be considered in the exercise of the discretion to award costs where proceedings do not proceed to a final hearing. However they are not the only circumstances; nor are they intended to limit the discretion."
6. 6. In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs…
a.60. While the court cannot engage in something in the nature of a hypothetical trial, it is appropriate to have regard to the circumstances in which the application to set aside the bankruptcy notice was filed, the reasonableness of the parties’ conduct and the circumstances and manner in which the proceedings were resolved.
b.61. The proceedings to set aside the bankruptcy notice were initiated by Mr Murphie. Notably, however, there was no suggestion that he was aware of the NCAT proceedings or the Local Court judgment prior to service of the bankruptcy notice in February 2018.
c.62. Once Mr Murphie was served with the bankruptcy notice, he acted promptly in circumstances where if he did not either comply with the bankruptcy notice within the 21 day period specified in the notice or commence action to set it aside he would have committed an act of bankruptcy. He also took action to have the NCAT orders set aside the day before he filed his application to set aside the bankruptcy notice. He had informed Vita Domus of his intention.
d.63. On 8 February 2018 Mr Murphie’s solicitors had advised Vita Domus’ solicitors of their client’s instructions that he had received no notice of the statement of claim (presumably intended to be a reference to the NCAT application and notice of hearing) and that he had not been properly served. It was suggested that Mr Murphie would have no difficultly in satisfying “the Court” that the “statement of claim was not received or served properly” and that his instructions were that he had a strong and genuine defence and a significant cross claim (given a dispute in relation to the building work which was described briefly in the letter). The subsequent correspondence of 9 February 2018 made his intention clear.
e.64. There has been no adjudication in these proceedings of the merits of Mr Murphie’s claim (in the application he filed on 23 February 2019) that he had a counter-claim, set-off or cross demand exceeding the amount of the judgment debt.
f.65. Nor has there been, or should there be in the context of the costs application, an adjudication of the question of whether Mr Murphie was properly “served” with the NCAT application and notice of hearing. In particular, insofar as Mr Murphie’s contentions involve a suggestion that Vita Domus was “aware” that the address at which NCAT documents were served on Mr Murphie was “no longer valid”, this is not a matter that ought to be determined in the present context. NCAT accepted that Mr Murphie was not on notice and that he had raised matters that in the interests of justice ought to be considered. In the exercise of its discretion, NCAT set aside the orders that were the basis for the Local Court judgment so that Mr Murphie could have the opportunity to have his case heard in NCAT. In making those orders NCAT did not determine the merits of Mr Murphie’s claim against Vita Domus.
g.66. Following the NCAT decision Vita Domus promptly acknowledged that the Local Court judgment based on the NCAT orders that had been set aside should be set aside, as should the bankruptcy notice. It consented to orders to that effect.
h.67. However it was reasonable for Vita Domus to not take action to withdraw the bankruptcy notice prior to Mr Murphie filing his application to set aside the bankruptcy notice. It had a judgment in its favour at the time the bankruptcy notice was issued and served.
68. In particular I am not persuaded that on receipt of the letter of 8 February 2018, it was unreasonable for Vita Domus not to seek to “set aside” (or withdraw) the bankruptcy notice and/or take steps to have the Local Court judgment or the NCAT orders “set aside” as Mr Murphie’s solicitors sought. The letter expressed the view that if Mr Murphie filed an application with NCAT he may well persuade NCAT to set aside its orders in favour of Vita Domus, but it cannot be said that it ought to have been clear on that letter that the merits of Mr Murphie’s claim were such that he must succeed in that respect. The same may be said insofar as the letter can be seen as alerting Vita Domus to arguments Mr Murphie would raise in this court at any hearing of any application to set aside the bankruptcy notice. As the solicitors for Vita Domus advised in an email of 9 February 2018, it was for Mr Murphie to apply for any stay and to apply to NCAT to set aside the order that was the basis for the Local Court judgment. It was reasonable for Vita Domus to await further action by Mr Murphie.
j.69. Further, the fact Mr Murphie filed an application to set aside the NCAT orders on 22 February 2018 was not such as to make it unreasonable for Vita Domus not to have withdrawn the bankruptcy notice at that point, although that action did alert it to the potential merit of Mr Murphie’s application to NCAT.
k.70. After Mr Murphie filed the application to set aside the bankruptcy notice, Vita Domus acted reasonably in consenting to an order extending the time for compliance (and a further extension) until after Mr Murphie’s NCAT application was determined, thus avoiding the need for appearances before the registrar.
l.71. As indicated, when NCAT set aside its orders, it did not find that Mr Murphie was not “served” properly or determine his claims against Vita Domus. Rather, it exercised its discretion after finding that the decision was made in his absence because the notice of hearing was sent to old rental premises. In addition, in light of the evidence he provided to it in support of his set aside application, NCAT found that his case had not been adequately put and exercised its discretion in finding that it was in the interests of justice that Mr Murphie have an opportunity to present his case.
m.72. Mr Murphie’s solicitors advised Vita Domus’ solicitors on 11 April 2018 that NCAT had set its orders aside. Vita Domus indicated on 16 April 2018 that it consented to setting aside the Local Court judgment and the bankruptcy notice. At that stage the matter was listed before the registrar on 1 May 2018. The intervening correspondence reflected the proposal by Mr Murphie’s solicitors that Vita Domus pay his costs.
n.73. However, while it was reasonable for Vita Domus to await the decision of NCAT, it would have been aware that if NCAT set aside its orders, Mr Murphie would in all probability succeed in the application to set aside the bankruptcy notice.
o.74. Further, although both parties acted reasonably in the conduct of the litigation, once Mr Murphie’s application to set aside the NCAT orders was successful, he was in fact almost certain to succeed if the application to set aside the bankruptcy notice had been heard.
p.75. Indeed, once NCAT set aside its orders, Vita Domus consented to an order setting aside the bankruptcy notice (and the Local Court judgment) presumably in recognition of the lack of utility in opposing such orders in circumstances where it no longer had the benefit of the orders that were the basis for the Local Court judgment in its favour.
q.76. In the present matter, despite the absence of a hearing, I feel confident that although both parties acted reasonably, not only was Mr Murphie almost certain to have succeeded if the application to set aside the bankruptcy notice had proceeded to a hearing, but also he in fact succeeded in having the bankruptcy notice set aside. Although the result Mr Murphie sought was achieved without a hearing, there was a “clear winner” in the sense considered in One.Tel.
r.77. Having regard to all the circumstances I have concluded that it is appropriate that Vita Domus should pay the costs of Mr Murphie. However, such costs should clearly be limited to the costs of the application to set aside the bankruptcy notice. Given the nature of the proceeding and the relatively straightforward manner in which it was resolved (without the need for any appearance prior to 1 May 2018 and by then consent in relation to the substantive issue) and bearing in mind the expenses inevitably associated with an order for taxation of costs, I consider it appropriate to fix the costs in accordance with Part 1 of Schedule 1 to the FCC Rules. The parties will be given the opportunity to file an agreed calculation of such costs or, if they cannot agree, to each provide calculations.
s.78. Vita Domus has succeeded in relation to the method of calculation of costs, but Mr Murphie has maintained the benefit of a costs order. There should be no order as to costs in relation to the review.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Date: 30 July 2019
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