Official Trustee in Bankruptcy v Baker, J.A

[1992] FCA 434

434, sz

JUDGMENT NO. ........ ...... n. n.*..wn.

IN THE FEDERAL COURT OF AUSTRALIA	)	No. NB 72 of 1990
GENERAL DIVISION	)
BANKRUP	TCY DISTRICT OF	)

THE STATE OF OUEENSLAND 1

BETWEEN: QFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

AND :  JAMES ANDREW BAKER

First Respondent

AND :  ART HOLDINGS PTY. LTD. as trustee for the
Contemporary Art Trust

Second Respondent

AND :  GOODGLINT PTY. LTD.

Third Respondent

AND :  VESTOS PTY. LTD.

Fourth Respondent

SERVICE AND PROPERTY p~y. LTD.

Fifth Respondent

23 IUW 1992

MINUTES OF ORDER

JUDGE MAKING ORDER:	Drummond J
DATE OF ORDER:	28 May, 1992
WHERE MADE:	Brisbane
THE COURT ORDERS THAT:

2.	The costs of today are reserved.

1.        Goodglint Pty. Ltd. is to have its costs of and incidental to the Notice of Motion filed 22.05.92, but only on the basis that they are to be Goodglint Pty. Ltd.'s costs in the cause.

THE COURT DIRECTS THAT:

1.        The time by which the respondents are to file and serve any affidavits upon which they intend to rely at trial is extended to 19 June, 1992.

2.        The time by which the applicant is to file and serve any affidavits upon which he intends to rely at trial is extended to 26 June, 1992.

3.        The time by which the respondents are to file and serve any affidavits upon which they intend to rely at trial in reply to the applicant's affidavits is extended to 2 July, 1992.

4.        This matter is adjourned for further directions to Friday, 19 June, 1992 at 10.00 a.m..

5 .        In implementing the fourth order made by M r . Justice Pincus on 18 December, 1990, the District Registrar shall assess claims for payment in respect of all future attendances by Goodglint Pty. Ltd.'s solicitor that are necessary for the proper conduct of Goodglint Pty. Ltd.'s defence at such hourly rate as he considers reasonable in the circumstances, whether or not that rate exceeds those contained in Schedule 3 to the Bankruvtcv Rules.

NOTE :  Settlement and entry of orders is dealt with in Rule
124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA	1	No. NB 72 of 1990
GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF	)
THE STATE OF OUEENSLAND	)

BETWEEN: OFFICIAL TRUSTEE IN BANKRUPTCY

Applicant

AND :  JAMES ANDREW BAKER

First Respondent

AND:  ART HOLDINGS PTY. LTD. as trustee for the
Contemporary Art Trust

Second Respondent

AND :  GOODGLINT PTY. LTD.

Third Respondent

AND :  VESTOS PTY. LTD.

Fourth Respondent

AND :  SERVICE AND PROPERTY PTY. LTD.

Fifth Respondent

m: Drummond J

PLACE: Brisbane

DATE: 28 May, 1992

EX TEMPORE REASONS FOR JUDGMENT

By notice of motion the applicants who are the second, third, fourth, and fifth respondents in the action seek a number of declarations relating to an order made in the action by Pincus J on 18 December, 1990. I was not told and it is not apparent to me why the second, fourth and fifth respondents are involved in this particular application.

The issues in the action, so far as they are presently relevant, are summarised briefly in the reasons of Pincus J as follows:

"Mr J.A. Baker, (the first respondent in the

action), presented a debtor's petition under the

Bankruptcy Act 1966 on 16 January 1990 and it was accepted on the same day. There is evidence that shortly after that a company called Art Holdings Pty Ltd, (the second respondent in the action), in which a valuable art collection made by Mr Baker was then said to be vested, caused title in the collection to pass to the third respondent, Goodglint Pty Ltd, which says the collection is held in trust (not for Mr Baker). The Official Trustee in Bankruptcy does not accept that the collection is vested in Goodglint subject to the trust which Goodglint sets up. It appears that it will be necessary, unless the matter is otherwise resolved, for the court to determine whether the Official Trustee has any interest in the items comprising the collection." (at pp. 1-2 of the judgment)

The Official Trustee commenced the action in which he claims, among other things, that the art collection I have referred to was the property of the bankrupt, Mr. Baker, and that accordingly it vested in the Official Trustee on 16 January, 1990. The action was commenced in August of that

year. Since the order was made in December 1990, pleadings	have been delivered and other interlocutory steps completed.
It is apparent that the action will involve complex issues of both fact and law. I have given directions designed to identify the issues as clearly as possible and to refine the issues that will have to be determined in the action. The trial, which is estimated to take four weeks, is to commence on 6 July next.
Before turning to the order of 18 December, 1990 it is necessary to mention another order made by Pincus J on 28 August, 1990. This order records, among other things, an undertaking by Mr. Baker not to deal in any way with any art works in the ownership, possession or control of either himself or Goodglint without the prior written consent of the Official Trustee. A similar undertaking was given by Goodglint. The order contains a further order that Goodglint be granted leave to carry on in the ordinary course the functions of a curator of a collection of such objects of art, including acquisitions and de-accessions, in relation to which functions Goodglint may seek and obtain the advice and services of Mr. Baker. But the order is expressed to be subject to Goodglint giving the Official Trustee appropriate notice of any acquisitions and de-accessions and it is also expressed to be subject to Goodglint depositing all monies received from the sale of art works in an account designated in the order. The order also stipulates, in relation to proceeds of sales of these art works, that in no event may any
such monies be paid to Mr. Baker or Goodglint.
Concerns thereafter arose as to how Goodglint would fund this action, it being common ground that it has no means of doing this otherwise than from funds raised by the sale of the art works which are the subject of the ownership dispute in the action and which funds Goodglint was prohibited from touching by the order of 28 August, 1990.
On 18 December, 1990 Pincus J ordered that the undertakings and order given and made on 28 August, 1990 be varied in a number of respects, including the following:

(i)       Goodglint Pty Ltd, the third respondent, may use monies realised in carrying out such functions as are mentioned in the said undertaking and order in payment of legal costs (including outlays) in respect of proceedings to which the Official Trustee in Bankruptcy is a party concerning the ownership of and interests in the objects of art referred to in the said undertaking and order.

It is this particular order that is of chief concern

in the application before me.	The proceedings referred to in
the order is the present action.
On 18 December, 1990 Pincus J went on to make a series of other orders, which have been described by counsel who appeared for Goodglint on the application before me as constituting a regime whereby Goodglint could, subject to the control of the District Registrar of this court, put its solicitor in funds to defend the action from the proceeds of sale of art works, the disputed total to which is the subject of the action.

The reason why this application is brought arises out of an exchange of correspondence between Goodglint's solicitor and the solicitors for the Official Trustee earlier this year. The former wrote to the latter on 18 February last saying:

"We are concerned that if your client is successful in this application any monies paid to us for costs and outlays may be 'clawed back' on the basis that the funds in question were never our client's property to deal with in the first place.

There is no doubt issues of estoppel would arise if your client sought to recover these monies however, before taking this matter further or seeking advice in relation to our position, we would like your client's views on how these costs and outlays would, in that event, be treated."

After some intervening correspondence, the Official Trustee's solicitors replied to this query on 16 April last as follows :

"'Claw Back': The question only arises if my client is successful in the action. If my client is successful, it will seek to recover the entirety of

that notwithstanding the order of Pincus J on 18 December, the property owing to/vesting in it and costs." In other words, the Official Trustee's position is

1990 and notwithstanding the further fact that in accordance

with the regime established by that order, Goodglint's solicitor has already received substantial funds on account of his own costs and outlays, if the Official Trustee is successful in the action and establishes that the art works did vest in him upon Mr. Baker's bankruptcy, the Official Trustee will require a refund of all monies paid to Goodglint's solicitor to fund its defence pursuant to the order of 18 December, 1990 on the ground that those monies were always the property of the Official Trustee. It would seem that if entitled to this refund, the Official Trustee could pursue both Goodglint and its solicitor.

As I have said, the hearing of the action will start soon and it will run for a considerable time. Although some monies have been paid to date to Goodglint, and thence to its solicitor, further funds will need to be paid to that solicitor to run the trial. Understandably, Goodglint's solicitor is not prepared to do any further work in the action while he remains faced with the prospect that, if the Official Trustee succeeds in the case, all the funds that that solicitor has been paid pursuant to the order of 18 December, 1990 and part of which he has already disbursed on account of outlays incurred by him to date, may have to be repaid by him

to the Official Trustee.

Counsel who appeared for Goodglint submitted that the order of 18 December, 1990, on its proper construction, provides for payment of such costs as might be allowed under the regime set up pursuant to the order to Goodglint, regardless of the outcome of the case. His alternative submission, in the event that I should hold that that was not the proper construction of the order, was that the order should be varied by adding to it the following words:

"and its said costs shall be paid out of the property, the subject of the said undertaking and order, in any event."

Counsel indicated that he would seek such relief in lieu of that claimed in paragraphs 1, 2 and 3 of the Notice of Motion. Counsel for the respondent Official Trustee, raised no objection to this change in direction. Although counsel for Goodglint applied for relief in the alternative, which would involve the variation of the order of 18 December, 1990, his position, when the question was raised, was that that particular order was a final one and not an interlocutory one, a position also accepted by counsel for the Official Trustee.

The first question raised for my determination is thus one of the proper construction of the order of 18 December, 1990. This order has not been appealed or otherwise attacked. It was accepted by counsel for the Official

Trustee, correctly in my view, that being an order of a	superior court it would therefore bind the parties according
to its terms even if, but for the order, the Official Trustee would have been able to call for payment back of all costs from both Goodglint and those who had received them if he won the case and even if the Bankru~tcv Act 1966 fCthL were to operate so as to put it beyond the power of a court to make an order which would deprive the Official Trustee of his rights or impede the Official Trustee in the performance of his duties under the Bankru~tcv Act with respect to the recovery of these payments if he won the case.
It also seems to me that even if none of the parties involved in the order of 18 December, 1990, including the Official Trustee of course, at the time realised that the order might have that effect, and even if the court itself did not realise that (something which I do not accept was the case for reasons which I will give in a moment), if the order on its proper construction gives Goodglint its costs in question irrespective of the outcome of the action, that is the end of the matter. Counsel for the Official Trustee did not submit otherwise and, in any event, did not seek to put any material before me upon which a contention might be advanced that the Official Trustee had a particular view of the effect of the order inconsistent with that now put forward on behalf of Goodglint.
To return to the order: in terms, it empowers Goodglint in advance of the final determination of the action to use monies realised from the sale of the disputed property
in payment of: "legal costs (including outlays) in respect of" defending the Official Trustee's claim. These monies can thus be used both to pay Goodglint's solicitor in respect of work done by him in connection with the defence and also to pay any third parties including but not limited to counsel retained by that solicitor for work done at the behest of the solicitor in connection with the defence.
It is difficult to accept that an order providing expressly for this situation should be constzued as allowing Goodglint access to the funds necessary to defend itself, but only subject to a qualification that, if it loses, the monies will have to be repaid to the Official Trustee. To so construe the order is not, in my view, consistent with the permission given to Goodglint by the order to use the monies in question in payment of legal costs, including outlays, in respect of defending the action.
The order does not contain any indication that the permissible use or payment is in any way provisional, qualified or contingent upon the outcome of the case. Moreover, it being the clear intent of the order that Goodglint should have access to the monies in question for the purpose of funding its defence, it is difficult to understand how that objective could ever be achieved if the view advanced by the Official Trustee is correct.
prepared to run Goodglint's defence on the basis that he would It is extremely unlikely that any solicitor would be be putting funds during the currency of the litigation to meet
his own costs and outlays, but subject always to having to refund to the Official Trustee all those payments, including payments to third parties such as counsel and witnesses, which he would probably have to make from his own pocket if the client ultimately lost the case.
If that is the proper construction of the order, it would really have been pointless and a waste of time for it to have been made. In my opinion, the effect of the first order made on 18 December, 1990 is clear: on its true construction, all monies received to date by Goodglint's solicitor and all monies it may receive in the future pursuant to the order belong indefeasibly to that solicitor subject only to the condition that they can be used only for the purpose stipulated in the order.
If it were permissible in construing the order to have regard to what Pincus J said in the course of the reasons he gave for making it, it will be seen that his Honour was in no doubt that the order in question was intended to have exactly the operation I have concluded it does have. In the course of his reasons, after recording that the Official Trustee did not dispute Goodglint's entitlement to access to funds for its defence and that S. 32 of the Bankru~tcv Act would authorise the making of an order in that regard, he
said:

"Goodglint's is, however, an unusual proposal insofar as provision is sought to be made for payment of costs from the assets in dispute, whatever the outcome of the case.

If it is held that Goodglint owns the whole collection subject to the trust it sets up, then no doubt Goodglint will obtain an order for costs. If Goodglint were unsuccessful, it would ordinarily have to pay costs, as well as meeting its own; but, it is said Goodglint has no money.

It is common enough in disputes as to the ownership of funds to make an order, in appropriate circumstances, that costs come out of the funds in issue, but that is ordinarily done only at the end of the case. Here. it is aareed that Goodalint should have an order at the outset, when it is not known whether Goodalint will win or lose. or even whether it (or. for that matter. the Official Trusteel has an arauable case." (my emphasis)

I do not think there is any doubt that Pincus J understood that he was making an order which would give Goodglint access to funds to run its defence irrespective of the outcome of the case.

By the second order made on 18 December, 1990, Pincus J gave Goodglint leave from time to time to apply by letter to the District Registrar of this court for orders for costs in accordance with the following directions, which, so far as are presently relevant, are as follows:

"(iii)	Goodglint Pty Ltd shall present in support of any such application such documents and information as the District Registrar requires.
(iv)	In determining any such application, the

District Registrar may inform himself as he sees fit and may make such written

order for payment of Goodglint Pty Ltdls

costs as he thinks reasonable.

Goodglint Pty Ltd may pay costs to its solicitors out of monies mentioned in paragraph (i) only in accordance with such

orders. "

Pincus J explained his reasons for making these orders. He rejected the proposal by Goodglint that it should, in effect, have unlimited access to the sale of proceeds of art works for its defence.

He referred to the policy of the Bankru~tcv Act reflected in S. 167 that bills of costs rendered in respect of the estate of a bankrupt must be taxed. He also referred to rule 162 of the Bankru~tcv Rules which provides in general that solicitors are entitled to costs as set out in Schedule 3 to the Rules. He went on to refer to the low level of costs allowed by that schedule to solicitors in comparison with the costs allowed to them under the Federal Court Rules and concluded, notwithstanding all that, that Goodglint should only be given access to sufficient funds to pay its solicitors' costs of its defence assessed in accordance with Schedule 3. He gave the District Registrar the responsibility for assessing the reasonableness of claims by Goodglint for access to funds for its defence, making it clear that the District Registrar was to adopt a broad approach and not conduct anything in the nature of a formal taxation of any of those costs claims.

Orders numbered 2 to 5 made on 18 December, 1990 (which I have just read) are plainly interlocutory. It is therefore open to me to make further orders covering the area the subject of those earlier orders if circumstances have arisen in the intervening period which justify such further orders.

In relation to paragraph 4(a) of the Notice of Motion, Goodglint seeks a direction to the District Registrar that he should calculate amounts to be allowed to Goodglint under the first order made on 18 December, 1990 in respect of senior counsel at the rate of $270.00 per hour and junior counsel at the rate of $200.00 per hour, and in respect of Goodglint's solicitor, Mr. George, at the rate of $180.00 per hour for all attendances. Schedule 3 does not fix a fee for counsel. The District Registrar, in implementing the orders of 18 December, therefore has the same task as a taxing officer. In respect of Goodglint's claims for funds to meet its solicitor's outlays to counsel, the District Registrar has to allow an amount that is reasonable in the circumstances.

The evidence before me does not suggest that any unfairness or difficulty has resulted from the orders made by Pincus J so far as fees for counsel are concerned. As to the claim that solicitor's fees should be assessed at the rate of $180 per hour, the difficulty for the applicant here is that Pincus J expressly considered the low level of rates in

respect of solicitors' fees fixed by Schedule 3 but held, notwithstanding that, that those rates should be applied by	the District Registrar in implementing his orders.
However, when his Honour fixed the basis upon which Goodglint could obtain funds for its defence in December 1990, the action had only recently been commenced. He rightly identified it as a complex matter but he could not have known how the defence would be conducted thereafter. In particular, he could not have known whether, from the defence side, the preparation for trial would be conducted efficiently and expeditiously or what interlocutory applications might be brought by the defence and whether they would turn out to be justified or not. Nor could he have had any idea how long it would ultimately take to hear the case. Moreover, the dispute before him was not as to whether Goodglint should have access to the funds in question for its defence, but whether it should have open-ended access to those funds.
It is understandable that back in December 1990, having regard to the matters I have just mentioned, his Honour decided to limit Goodglint, so far as access to funds to meet its solicitor's costs of defending the action were concerned, to the low Schedule 3 rates. Such low rates would put a premium on efficiency and preparation and on judicious selectivity in making interlocutory applications. In saying this I make no criticism of the way the solicitor for Goodglint has conducted the action to date. I merely list the
matters which I think would well have justified Pincus J adopting the approach in this regard that he did in December
1990.
However, things have moved on since then. There is no suggestion that unnecessary interlocutory applications have been brought. The contrary, from my experience of overseeing the action at directions hearings, appears to be the case. Disputes have generally been resolved, so far as interlocutory matters are concerned, by sensible agreement. The trial has now been fixed to commence on 6 July, 1992. A realistic estimate is four weeks. It will be a very complex action to run, possibly more complex now that the issues are in the process of crystallisation, than Pincus J may have anticipated. It will be very demanding, so far as calls on the time of the solicitor is concerned.
While there is no evidence before me sufficient to justify a direction that a rate of $180.00 should be allowed by the District Registrar in respect of claims for the solicitor's time, I am prepared to give a direction that, in implementing the fourth order made on 18 December, 1990, the District Registrar shall assess claims for payment in respect of all future attendances by Goodglint's solicitor that are necessary for the proper conduct of Goodglint's defence at such hourly rate as he considers reasonable in the circumstances, whether or not that rate exceeds those contained in Schedule 3 to the Bankru~tcv Rules. While the
matter for the District Registrar, on such information as may the limited information available to me, it is entirely a rate of $180.00 per hour does not appear excessive to me, on be available to him, to strike an appropriate rate in this regard.
The Notice of Motion, by paragraphs 4(d), (e) and (f), seeks directions that would impose on the District Registrar short time limits within which he must determine future claims by Goodglint's solicitor made pursuant to the orders of 18 December, 1990. I am not satisfied on the material before me that difficulties have arisen in implementing these orders which would justify the imposition of such a rigid time frame on the District Registrar. I am not prepared to make those particular orders. This being an interlocutory matter, there is, of course, liberty to apply which can be availed of if difficulties in this regard should arise in the future.
The only other order sought is an order that the proceeds of the sale of art works made pursuant to the orders and undertakings of 28 August, 1990 should be retained in the trust account of Goodglint's solicitor rather than in the bank account specified in those undertakings and orders to which I have earlier referred. I do not think there is any sufficient reason advanced on the material before me to alter the existing arrangements in this regard.
I certify that this and the preceding
fifteen pages is a true copy of the reasons for judgment herein of the Honourable Mr. Justice Drummond.
Date:  28 May, 1992