Pages Property Investments Pty Ltd v Boros
[2023] FedCFamC2G 539
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Pages Property Investments Pty Ltd v Boros [2023] FedCFamC2G 539
File number: SYG 1629 of 2021 Judgment of: JUDGE CAMERON Date of judgment: 23 June 2023 Catchwords: BANKRUPTCY – Matter settled – application for costs – relevant considerations. Legislation: Bankruptcy Act 1966 (Cth) s 32
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) rr 13.01, 13.02, 13.03
Cases cited: Pages Property Investments Pty Ltd v Boros [2019] NSWSC 1778
Boros v Pages Property Investments Pty Ltd [2021] NSWCA 288
Kempsey Local Aboriginal Land Council v Donnelly [2022] FedCFamC2G 149
Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194
Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622
Gribbles Pathology Pty Ltd v Health Insurance Commission and Ors (1997) 80 FCR 284
Ringwood Plus Pty Ltd v Commissioner of State Revenue [2004] VSC 494
Re Kostezky; Ex parte Milder Elfman Szmerling Krycer Pty Ltd (1996) 67 FCR 101
Division: General Division Number of paragraphs: 27 Date of last submissions: 24 June 2022 Date of hearing: On the papers Place: Sydney Counsel for the Applicant: Mr R. C. Gration Solicitor for the Applicant: WMD Law Solicitor for the Respondent: Craddock Murray Neuman Lawyers ORDERS
SYG 1629 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF ATTILA BOROS
BETWEEN: PAGES PROPERTY INVESTMENTS PTY LTD
Applicant
AND: ATTILA BOROS
Respondent
order made by:
JUDGE CAMERON
DATE OF ORDER:
23 June 2023
THE COURT ORDERS THAT:
1.The parties bear their own costs of the proceeding.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE CAMERON
INTRODUCTION
The applicant creditor, Pages Property Investments Pty Ltd (PPI), presented a creditor’s petition on 27 August 2021. The petition alleged that the respondent debtor, Mr Boros, owed PPI $68,504.11 (Interlocutory Costs) arising out of an interlocutory costs order made by Rees J in proceedings between the parties in the Supreme Court of New South Wales (Supreme Court Proceedings).
The creditor’s petition was ultimately dismissed by consent on 16 June 2022, with costs to be determined. These reasons concern the parties’ respective applications for the costs of this proceeding.
BACKGROUND FACTS
In 2016 Mr Boros became the sole director of PPI, the business’s founder, Greg Page, having died in 2003. In August 2016 Mr Page’s widow and sole shareholder of PPI removed Mr Boros as director and PPI commenced the Supreme Court Proceedings alleging that he had breached his director’s duties. Judgment was entered for PPI and, relevantly, Mr Boros ordered to pay 60% of PPI’s costs except as far as costs were the subject of previous costs orders (Trial Judgment): Pages Property Investments Pty Ltd v Boros [2019] NSWSC 1778. The Trial Judgment therefore did not disturb the order supporting the Interlocutory Costs.
Further relevant history is as follows:
(a)on 16 December 2020 Mr Boros appealed against the Trial Judgment and on 24 May 2021 he paid $60,000 into court as security for the costs of that appeal;
(b)on 2 June 2021 Mr Boros was served with Bankruptcy Notice BN 253121 issued on 27 May 2021 which required payment of the Interlocutory Costs (Bankruptcy Notice);
(c)Mr Boros unsuccessfully applied to have the Bankruptcy Notice set aside;
(d)Mr Boros did not comply with the Bankruptcy Notice and so committed an act of bankruptcy;
(e)on 27 August 2021 PPI filed the creditor’s petition relying on Mr Boros’s act of bankruptcy and the unpaid Interlocutory Costs;
(f)on 6 October 2021 Mr Boros filed his notice stating grounds of opposition;
(g)the matter’s first return was on 7 October 2021, at which time timetabling orders were made by the registrar and the further hearing of the petition adjourned to 4 November 2021;
(h)on 4 November 2021 the registrar adjourned the further hearing of the petition to 9 December 2021;
(i)on 25 November 2021 the NSW Court of Appeal upheld Mr Boros’s appeal from the Trial Judgment, entered judgment for him and ordered that PPI pay his costs “at trial” and of the appeal: Boros v Pages Property Investments Pty Ltd [2021] NSWCA 288;
(j)on 9 December 2021 the further hearing of the petition was adjourned to 3 March 2022 when it was transferred from the registrars’ docket to mine;
(k)on 7 March 2022 Mr Boros filed an amended notice stating grounds of opposition;
(l)on 11 March 2022 I listed the matter for hearing on 2 June 2022;
(m)on 27 May 2022 the 2 June 2022 listing was vacated; and
(n)on 16 June 2022 the petition was dismissed by consent.
On 4 November 2021 PPI had made an open offer to discontinue the proceeding upon payment of $88,429.07 (made up of the $68,504.11 Interlocutory Costs; $2,014.96 post-judgment interest; and $17,910, being 75% of PPI’s solicitor and client costs of this proceeding up to that point plus disbursements), which Mr Boros did not accept. A further open offer, to discontinue the proceeding upon payment of $130,779.90 (made up of the $68,504.11 Interlocutory Costs; $3,217.07 post-judgment interest; $30,393.68, being 75% of PPI’s solicitor and client costs of this proceeding up to that point plus disbursements; $28,328.85, being costs of an unsuccessful application for a review of a registrar’s decision not to set the Bankruptcy Notice aside; and $336.14 post-judgment interest), was made on 24 February 2022 and was also not accepted.
On 20 May 2022 Mr Boros offered to settle the matter on the basis that the petition be dismissed and that he pay or to cause to be paid into his solicitors’ controlled money account $105,995.40 which, according to PPI’s written submissions in support of the costs application, was made up of the $68,504.11 Interlocutory Costs; the $28,328.85 costs order; $2,680.10, being the agreed quantification of a costs order in a proceeding in the Federal Court of Australia; plus accrued interest in respect of all of those amounts. The proceeding was resolved on that basis.
LEGISLATION
The Bankruptcy Act 1966 (Cth) relevantly provides:
32 Costs
The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.
The Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules) relevantly provide:
Division 13.1—Orders for costs
13.01Basis for costs
(1)Subject to Division 13.2, a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Part 40 of the Federal Court Rules 2011 unless the Court otherwise orders.
…
Division 13.2—Short form bills of costs
13.02 Application of Division 13.2
(1) This Division makes provision in relation to the costs that may be charged by a legal practitioner for a creditor for work done in relation to a petition against the estate of a debtor on the basis of an act of bankruptcy specified in paragraph 40(1)(g) of the Bankruptcy Act.
(2) This Division does not apply if the Court fixes the amount of the costs.
13.03 Short form bill of costs
(1)If the Court makes a sequestration order against the debtor’s estate, the legal practitioner may charge for costs the amount, applying on the date when the petition was presented, stated in item 14.1 of Schedule 3 to the Federal Court Rules 2011.
(2) If the petition is dismissed, and the creditor obtains an order for costs, the legal practitioner may charge for costs the amount, applying on the date when the petition was presented, stated in item 14.2 of Schedule 3 to the Federal Court Rules 2011.
…
SUBMISSIONS
Applicant
PPI contended that it had incurred unnecessary costs by reason of Mr Boros’s conduct in the proceeding. It submitted that his original notice stating grounds of opposition listed 8 grounds, 6 of which were untenable but not abandoned until the amended notice stating grounds of opposition was filed 5 months later, at which point it became clear to PPI that Mr Boros’s position was that he was solvent and that the appeal outcome had provided him with a claim that offset its claims. It was also submitted that Mr Boros had temporised and prevaricated in the early stages of this proceeding by talking of selling his share in a property to raise funds to pay the Interlocutory Costs but not going through with the transaction. It was argued:
In successfully delaying matters for more than a year after 22 April 2021 when the costs assessor issued the certificate of determination of the costs originally ordered by Rees J in 2019, Mr Boros’s defence of the present creditor’s petition proceedings should be seen as little more than a continuation of what Judge A Kelly described as Mr Boros’s willingness to ‘deploy litigation as a delaying tactic’.
The Court should readily conclude that the repeated adjournments at Mr Boros’s request were simply an exercise by him in ‘stalling for time’, hoping that something might eventuate that would enable him to avoid the making of a sequestration order. It was only at the very last moment, the week before the hearing, when it became clear to Mr Boros that he was at substantial risk of a sequestration order being made, that he agreed to procure the payment of funds on his behalf into a controlled monies account.
PPI submitted that the inference to draw from the settlement that was achieved was that Mr Boros had been unable to pay due and payable debts prior to that time because, if he had been, he would have.
Respondent
Mr Boros submitted that he had been successful in obtaining the dismissal of the petition and that he had done so on a basis consistent with the grounds on which he had opposed the petition, namely that he was solvent and the fact that the parties had claims on the other meant that the presentation of the petition had been premature and should have awaited a final calculation of the rights of the parties. He characterised PPI’s acceptance of his offer as a capitulation.
Mr Boros submitted that in circumstances where the proceeding had settled, the Court was not, absent special circumstances such as a patently unmeritorious case, in a position to make any order other than that the parties bear their own costs because to do otherwise would be to speculate upon the merits of a case that had not been heard. Unreasonableness was said to be a special circumstance which could justify costs being awarded following a settlement and that this was such a case. He submitted:
PPI’s conduct warrants a departure from the general rule that there be no order as to costs. That conduct includes the [pending appeal and then its outcome] to which may be added that:
(a)notwithstanding requests by Mr Boros, PPI refused to adjourn the petition pending the outcome of the Appeal Proceedings;
(b) notwithstanding the outcome of the Appeal Proceedings and the Boros Costs, and notwithstanding an invitation made by Mr Boros to PPI on 2 December 2021 that the petition be dismissed, PPI continued to proceed with its petition;
(c)from as early as 11 July 2021 PPI was aware that Mr Boros contended that he was solvent and may have a cross-claim against PPI for costs orders which may be made in the Appeal Proceedings;
(d) that Mr Boros may be entitled to set off costs orders in his favour against PPI was accepted by the Court of Appeal in Boros v Pages Property Investments Pty Ltd (No 2) [2022] NSWCA 43 at [14]. That must also have been known to PPI at the time that it presented the petition; and
(e) in light of the above, PPI’s continued pursuit of its petition is remarkable: whatever PPI’s objectives may be, it does not appear that they have anything to do with the proper exercise of this Court’s jurisdiction in bankruptcy in respect of the administration of insolvent estates.
He argued that the reasonableness of PPI’s conduct ought to be considered in light of the fact that his appeal from the Trial Judgment had been successful. He pointed in that connection to the seriousness of making a person bankrupt, arguing that the petition ought not to have been brought before the then-pending appeal was determined. He also argued that what he contended was the unreasonableness of PPI’s conduct was not mitigated by the fact that he had not complied with the Bankruptcy Notice as it might be inferred that he could have demonstrated sufficient cause for the Court to have not made a sequestration order. He submitted:
(a) first, Mr Boros has equity available to him in real property of at least $243,690.36, which exceeds any amount which may be owed by him to PPI;
(b) second, Mr Boros is able to raise money to pay his debts by selling or mortgaging real property (third parties have also agreed to purchase his interest in the real property or loan amounts as against the real property);
(c) third, he has cash immediately available to him in the amount of $60,000.00, being the amount which was previously paid as security for costs of the Appeal Proceedings and has now been ordered to be released to him (pursuant to the settlement Mr Boros has also paid the amount of $105,995.40 into a controlled monies account – which significantly exceeds the amount claimed in the petition);
(d) fourth, he has the benefit of costs orders against PPI (although it remains to be seen whether PPI has the capacity to make payment to Mr Boros of any amount assessed under those orders); and
(e) fifth, PPI’s claim for costs orders which have not yet been agreed or assessed total $113,736.86. Until such time as those costs have been agreed or assessed, they are not debts that require immediate payment by Mr Boros.
CONSIDERATION
It is apparent from the portions of the Bankruptcy Act and the Bankruptcy Rules quoted earlier that the Court can order costs for a petitioning creditor even if their petition is dismissed; see also Kempsey Local Aboriginal Land Council v Donnelly [2022] FedCFamC2G 149 at [70].
The arguments presented by the parties may be summarised as follows:
(a)the proceeding had been meritorious because at all relevant times prior to the point when he made the offer that PPI accepted, Mr Boros had not been solvent, in the sense of being able to pay all his debts as they fell due from immediately available cash resources or other money that he could procure within a short time relative to the nature and amount of the debts and to his circumstances; and
(b)the creditor’s petition had been presented precipitately and prematurely at a time when judgment on the appeal was reserved and was no more than an impermissible exercise in debt recovery whose pursuit was doubly unreasonable given the surrounding circumstances.
Those contentions are to be considered in the context of the state of affairs that objectively obtained prior to the settlement of the proceeding, namely that:
(a)Mr Boros had committed an act of bankruptcy and the debt underlying the Bankruptcy Notice, being the Interlocutory Costs, remained outstanding;
(b)Mr Boros had unsuccessfully applied to have the Bankruptcy Notice set aside;
(c)the creditor’s petition was filed before the final outcome of the Supreme Court Proceedings was known; and
(d)the Supreme Court Proceedings’ final outcome did not affect the existence or enforceability of the Interlocutory Costs, did not enter judgment in a sum certain for Mr Boros, did order that PPI pay Mr Boros’s costs at trial and of the appeal but did not order that the various costs orders be set off against each other.
Contrary to the implicit invitations in the parties’ submissions that the Court should take a view on Mr Boros’s solvency, the Court is in no position to do more than speculate on that because it cannot judge whether the effect of the appeal was to provide him with claims exceeding PPI’s claims and because evidence of his financial position more generally was imprecise and untested. As a result, the parties’ arguments on solvency do not take the matter very far.
In Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 Hill J said:
(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order …
(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them.
(4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation …
(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted … (references omitted) (at 201)
In Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 McHugh J said:
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.
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. ....
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. … But such cases are likely to be rare.
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. (references omitted). (at 624-625)
In Gribbles Pathology Pty Ltd v Health Insurance Commission and Ors (1997) 80 FCR 284 Finkelstein J said:
For my own part I should wish to emphasise that in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances. To do otherwise would require some prediction of the outcome of the case. It seems to me that the third proposition stated by Hill J was intended to cover the situation where the Court was in fact able to form a clear view about the merits of a case without a trial. So, if a claim is patently hopeless that would be a good reason to make an order for costs against the claimant. Likewise if a defence was bound to fail that would be good reason for awarding costs in favour of the claimant. But I venture to suggest 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. (at 287)
In Ringwood Plus Pty Ltd v Commissioner of State Revenue [2004] VSC 494 at [15]ff, Hollingworth J disagreed that special circumstances were necessary, observing that each case turned on its own facts.
As a finding on the question of Mr Boros’s solvency is not open, the Court cannot determine the merits of the proceeding, what its outcome should have been or what costs order would have been appropriate had it proceeded to hearing. Consequently, I conclude that, subject to the question of the reasonableness of the parties’ conduct in presenting and opposing the petition, the appropriate result of this application is that the parties bear their own costs.
As far as PPI’s presentation of the petition is concerned, although the net obligations of the parties as between themselves depended on the outcome of the appeal and the quantification of any entitlements that flowed from it, the fact remains that, at the time the petition was presented, Mr Boros had failed to pay the Interlocutory Costs and had committed an act of bankruptcy in circumstances where he had sought, and failed, to have the Bankruptcy Notice set aside. That is to say, the primary preconditions for the making of a sequestration order had been satisfied. To the extent that the petition might be thought to have been premature, any prematurity could have been addressed by an adjournment. In Re Kostezky; Ex parte Milder Elfman Szmerling Krycer Pty Ltd (1996) 67 FCR 101, Sundburg J said:
The debtor then contended that although the debtor had committed an act of bankruptcy, in the exercise of my discretion under s 52, I should not make a sequestration order because of the existence of the Supreme Court proceeding to which I have referred. As a general rule a court sitting in bankruptcy is not an appropriate forum to decide a claim by the debtor that he is entitled to unliquidated damages in tort or for breach of professional retainer against the petitioning creditor. The appropriate course is for that court to form a view as to whether it appears that there is sufficient validity in the debtor's claim to justify a dismissal or adjournment of the petition. The usual course, where the debtor shows that he has a real claim to litigate, is to adjourn the petition to enable the claim to be tried in the ordinary courts: see Re Player (1962) 19 ABC 277 at 282; Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 116, 120; Vee H Aviation Pty Ltd v BP Australia Ltd (1995) 58 FCR 73 at 76. (at 105-106)
However, an adjournment was not necessary in this case because the appeal was decided only three months after the creditor’s petition was presented and half a year before the matter resolved. The issue of prematurity therefore loses its practical significance.
That PPI’s challenge to Mr Boros’s solvency was genuinely brought is suggested by the fact that this remained very much a live proceeding notwithstanding the outcome of the appeal. Whatever the true situation as to Mr Boros’s solvency might have been, the chronology of events in May and June 2022 suggest that it was only at that stage that Mr Boros was able to satisfy PPI, presumably by the agreed payment into his solicitors’ controlled moneys account, that he could pay it what he had been determined by that point to owe it. It was at that point that the creditor’s petition was dismissed.
In the circumstances I consider that it was reasonable of PPI to have presented the petition and to have only resolved the matter when it did.
As for Mr Boros, despite PPI’s complaints regarding his conduct of the proceeding, he was ultimately able to secure the dismissal of the petition. In light of that fact, I conclude that his opposition to the petition was reasonable. Whether he ought to have been ordered to pay costs of the interlocutory hearings in this matter is a different question and not one that it is now appropriate to consider.
As foreshadowed earlier, the Court is not in a position to assess the correctness of Mr Boros’s solicitor’s submission that:
… the evidence served by Mr Boros establishes that he was almost certain to have succeeded in obtaining an order that the petition be dismissed.
In circumstances where it remains to be seen whether the consequence of the appeal judgment is that Mr Boros will be entitled to costs exceeding what he has been adjudged bound to pay PPI, and other details of his financial position were far from clear, it is not open to conclude that he would necessarily have been successful in the proceeding and that he should have his costs of the proceeding on that basis.
Those matters being so, I am not persuaded that circumstances exist in this matter which require a departure from the conclusion expressed earlier, that the appropriate outcome is that the parties bear their own costs.
CONCLUSION
The order will be that the parties bear their own costs of the proceeding.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron. Associate:
Dated: 23 June 2023
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