Nelson (as trustee) v Supple and Anor (No.2)
[2020] FCCA 1215
•22 May 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| NELSON (AS TRUSTEE) v SUPPLE & ANOR (No.2) | [2020] FCCA 1215 |
| Catchwords: BANKRUPTCY – Costs – first respondent seeking indemnity costs on basis of Calderbank letter – unsuccessful party not acting unreasonably in not accepting Calderbank offer – application for lump sum order not granted – consideration of costs of interlocutory proceedings. |
| Legislation: Bankruptcy Act 1966 (Cth), s.121 Transfer of Land Act 1958 (Vic), s.89A |
| Cases cited: Carey v Freehills [2013] FCA 1258 |
| Applicant: | SIMON PATRICK NELSON (AS TRUSTEE) |
| First Respondent: | JEFFREY GERARD SUPPLE |
| Second Respondent: | KATARZYNA SUPPLE |
| File Number: | MLG 47 of 2017 |
| Judgment of: | Judge Burchardt |
| Hearing date: | Determined on the papers |
| Date of Last Submission: | 15 May 2020 |
| Delivered at: | Melbourne |
| Delivered on: | 22 May 2020 |
REPRESENTATION
| Counsel for the Applicant: | Not applicable |
| Solicitors for the Applicant: | Baker Jones |
| Counsel for the Respondents: | Not applicable |
| Solicitors for the Respondents: | Furstenberg Law |
ORDERS
Subject to Orders 2 and 3 below, the applicant trustee pay the costs of Mr Supple, the first respondent:
(a)On a party/party basis until 6 April 2018; and
(b)On an indemnity basis,
such costs to be as agreed or as taxed pursuant to the Federal Court Rules 2011 (Cth).
Mr Supple is to pay the applicant trustee, costs of
(a)The directions hearing held on 7 November 2017; and
(b)The costs thrown away by reason of
(i)the adjournment of the trial on 13 March 2018;
(ii)the adjournment of the trial on 25 February 2019; and
(iii)the adjournment of the trial on 15 August 2019,
such costs be agreed or as taxed pursuant to the Federal Court Rules 2011 (Cth).
Each party bear their own costs of:
(a)The directions hearing on 1 August 2017; and
(b)The interim application determined on 17 July 2019.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 47 of 2017
| SIMON PATRICK NELSON (AS TRUSTEE) |
Applicant
And
| JEFFREY GERARD SUPPLE |
First Respondent
| KATARZYNA SUPPLE |
Second Respondent
REASONS FOR JUDGMENT
This is the costs component of the dispute in respect of which I gave judgment on 23 March 2020. Both parties have filed written submissions.
The issues that arise are:
(a)the date from which the applicant should be required to pay the first respondent’s costs on an indemnity basis;
(b)whether the successful first respondent should have their costs taxed or assessed on a lump sum basis; and
(c)who should pay the costs of various interlocutory proceedings.
Indemnity Costs Issue
The first respondent seeks that his costs be taxed on a party-party basis until 22 May 2017 and on an indemnity basis thereafter.
The applicant trustee does not resist an order that costs follow the event, but says that indemnity costs should flow from 6 April 2018.
The respondent’s application for indemnity costs from 22 May 2017 derives from a Calderbank offer made by his solicitors, R.B. Flinders, on or about 22 May 2017, approximately four months after the proceeding had been commenced on 10 January 2017. A copy of that offer is annexure A to the written submissions.
The letter of offer sets out a detailed background to the proceeding, albeit obviously from the perspective of Mr Supple. It asserted relevantly that the trustee’s claim was bound to fail, and that the court was likely to relevantly find that the applicant had no reasonable grounds for filing the application and had filed a section 121 application without any evidence in support of it. The offer went on to offer the applicant $10,000 within 30 days with each party to bear their own costs. The letter of offer was plainly expressed to be a Calderbank letter and foreshadowed an application for indemnity costs if an appropriate result was achieved.
The trustee, in written submissions, notes that the proceeding was commenced in December 2016 in response to the receipt of a lapsing notice issued on the application of Mr Supple, pursuant to section 89A of the Transfer of Land Act 1958. It is clear that such a notice was indeed created. The written submissions assert, and this has not been subsequently contradicted by Mr Supple, that the caveat was lodged in response to Mr Supple listing the property for sale with an estimated sale arrangement between $620,000-$680,000, which was well in excess of the price paid for the property. Indeed, the materials in the substantive trial show that such an endeavour was made.
Albeit that the application was filed on 10 January 2017, no material of substance had been filed by Mr Supple up to the time of the Calderbank offer.
It is important to remember that the making of a Calderbank offer followed by a result more favourable to the offeror than that represented by the offer does not of itself warrant an order for indemnity costs. To justify an order for indemnity costs in favour of the party who made the offer, the offeror must show the refusal to accept it was unreasonable in all the circumstances. The reasonableness of the conduct of the offeree is to be viewed in the light of all the circumstances as they existed when the offer was rejected (see Carey v Freehills [2013] FCA 1258 at [15] - [16] per Kenny J).
Thus, when the Calderbank offer was first received, the applicant trustee had no sworn information available from Mr Supple. He did not even have anything by way of response or defence. He had a series of assertions made by the solicitors for Mr Supple. Those included evaluation by the WBP Property Group, referred to in the solicitor’s letter, with a valuation of $535,000, substantially in excess of the $475,000 that Mr Supple paid. The trustee also appears to, from the terms of the letter, have had a Sutherland expert report likewise in excess of that figure, albeit that both were the subject of criticism in the correspondence (repeated in more detail in the respondent’s reply submissions).
In circumstances where Mr Supple’s assertions made by his solicitor were wholly untested and would appear at the time to have been controversial, in my view, it was not unreasonable for the trustee not to accept the first Calderbank offer.
It follows that indemnity costs will be ordered from the date of the second Calderbank offer made on 6 April 2018, which the trustee concedes should operate (see written submissions, paragraph 3).
Should there be a Lump Sum Costs Order
Mr Supple seeks that his costs not be subject to taxation, but should be the subject of a lump sum costs order in the sum of $70,000. The trustee resists this.
Contrary to this position espoused by Mr Supple, I do not think that taxation in this matter is likely to be excessively complex or difficult. Furthermore, it appears, and I accept of course that this is very much a matter of impression, that there may be a level of overcharging in the overall fees from which the $70,000 spring. It would be a matter for the parties to resolve by agreement or a registrar upon taxation, but I would share the reservations expressed in paragraph 9 of the trustee’s written submissions. In my view, this is a case in which a lump sum approach is not appropriate and I will order taxation default of agreement.
The Disputed Interlocutory Costs
The first matter to deal with is the directions hearing held on 1 August 2017.
When the matter first came before the court on 3 April 2017, Mr Supple was represented and the matter was referred to mediation.
The written submissions of the trustee at paragraph 7(b) assert:
the directions hearing held on 1 August 2017 was held in the context of the First Respondent having failed to file any substantive answering material in the proceeding, other than a notice of name and address for service.
That is so, but bearing in mind that the matter was referred to mediation, I would infer that endeavours were being made to limit costs. I note that on 1 August 2017, I simply made orders for the filing of affidavits and set the matter down for trial with an estimate of two days on 4 October 2017. Mr Supple was ordered to file and serve any affidavits upon which he intended to rely by 28 August 2017.
In these circumstances, it is unclear to me what level of blame is attributable to Mr Supple. In my view, the delays occasioned on 1 August 2017 should be borne by each party equally.
The next matter in issue is the costs of the hearing on 9 November 2017. By this stage, Mr Supple was self-represented. I made an order on that date setting the matter down for final hearing on 14 March 2018 with an estimate time of one day, and relevantly ordered Mr Supple to comply with the order for the filing of affidavits made on 1 August 2017 by no later than 4 pm on 7 December 2017 with judgment in default in the event that he failed to do so.
It is clear that this delay was occasioned by Mr Supple’s decision to cease being legally represented and more particularly by his failure in any event to file his material in compliance with the orders. Mr Supple should pay the costs of the hearing on 9 November 2017.
The matter was adjourned twice thereafter. The trial of 13 March 2018 was vacated effectively by orders made on 25 February 2019, listing the matter on 15 August 2019. The adjournment was asserted by the trustee to have been because McMullen Lawyers were appointed on 9 March 2018 and to give them time to file additional material. That is supported by the orders I made on 13 March 2018 by consent in chambers, vacating the trial listed for the following day and directing the respondent to file and serve any further affidavit material or expert reports on or before 20 April.
It is clear that that trial date was vacated as a result of those matters and, once again, it is appropriate that the trustee should have the costs of that date.
The trial listed on 17 July 2018 had to be adjourned because of the most unfortunate ill health of Mr Supple. I do not understand the trustee to press for costs of this adjournment, and in any event I think that is an appropriate outcome in the circumstances.
The trustee also seeks costs thrown away by reason of the adjournment of the trial listed on 25 February 2019. It was adjourned on Mr Supple’s application due to the failure of Katarzyna Supple to appear in court and his need for her attendance. A similar application is made in relation to the adjournment on 15 August 2019.
No issue has been taken by Mr Supple with those assertions and, indeed, the trustee’s position accords with my memory of the matter. In my view, these adjournments were occasioned by Mr Supple’s direct conduct and he should pay the trustee’s costs thrown away by reason of those adjournments.
Conclusion
Accordingly, I have drawn orders which will require the trustee to pay Mr Supple’s costs on a party and party basis until 6 April 2018 and on an indemnity basis thereafter, to be taxed in default of agreement, including reserved costs, save those in order 2, which will provide that Mr Supple pays the applicant trustee’s costs of the directions hearing held on 9 November 2017, the costs thrown away by reason of the adjournment of the trials on 13 March 2018, 25 February 2019 and 15 August 2019.
This leaves the question of the interim application that I heard in June 2019, giving judgment on 17 July 2019.
It is not necessary or appropriate to indulge in a detailed examination of what I then found and how that interplays with the findings that were ultimately made. I observed at paragraphs [38] – [40]:
38. It should be noted that the court is required to make a practical assessment of whether or not the case brought by the trustee has no reasonable prospects of success. In circumstances where the motivation of the transferor and the state of mind and understanding of the transferee are plainly in issue, it is simply not possible for the court to arrive at a conclusion that the application has no reasonable prospects of success. It may well face difficulty, and, indeed, considerable difficulty, in relation to the issues of the fair market value of the property, but the motivation of the transferor and the knowledge of the transferee are plainly important issues yet to be determined.
39. This decision is, of course, an interlocutory one and involves no final conclusions of fact save matters that are beyond argument. Nonetheless, and applying the test as I understand it, it cannot be said that the trustee’s case has no prospects of success and I will, therefore, dismiss the interim application.
40. Given the proximity of the substantive trial, at which the factual matters, which are likely to be of significant impact, will be determined, it is in my opinion preferable to reserve costs.
It should be noted that in the ultimate, the trustee was wholly unsuccessful on the question of the fair market value of the property. He was also unsuccessful, save in part, in his assertions made against Ms Katarzyna Supple. Nonetheless, I did find that she was insolvent within the meaning of section 121 and the trustee failed, in the ultimate, because of the issues relating to the transfer and Mr Supple’s knowledge and understanding.
Thus, admittedly putting in the matter rather broadly, it should be said that the matters that caused me to adjourn the matter to trial were largely resolved successfully to Mr Supple. On the other hand, however, his application for summary dismissal failed. Ordinarily, costs would follow the event.
In these circumstances, and noting that the trustee was not wholly unsuccessful in establishing the significant matters in issue (there was a particular question of Ms Katarzyna Supple’s solvency at the relevant time), I think the justice of the case requires that there be no order as to the costs of the interim application. Each party should bear their own costs.
I have drawn orders accordingly.
I certify that the preceding thirty three (33) paragraphs are a true copy of the reasons for judgment of Judge Burchardt
Associate:
Date: 22 May 2020
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