Pattison v Official Trustee in Bankruptcy

[2013] FCCA 58

FEDERAL CIRCUIT COURT OF AUSTRALIA

PATTISON v OFFICIAL TRUSTEE IN BANKRUPTCY [2013] FCCA 58

Catchwords:
BANKRUPTCY – Extempore judgment – ruling on application for indemnity costs.

Legislation:
Bankruptcy Act 1966, ss.58(3), 60(2), 82

Cases cited:
Foots v Southern Cross Management Proprietary Limited [2007] HCA 56

Applicant: PAUL ANTHONY PATTISON

Respondent: OFFICIAL TRUSTEE IN BANKRUPTCY

File Number: MLG 1130 of 2012

Judgment of: Judge Burchardt

Hearing date: 29 January 2013

Date of Last Submission: 4 February 2013

Delivered at: Melbourne

Delivered on: 14 February 2013

REPRESENTATION

Counsel for the Applicant: No appearance

Solicitors for the Applicant: No appearance

Counsel for the Official Trustee: Ms Poulakis

Solicitors for the Respondent: Harris Carlson Lawyers

ORDERS

1. Order 2 of the Orders made on 29 January 2013 be set aside and in lieu thereof the Applicant pay the Official Trustee’s costs on an indemnity basis.

FEDERAL CIRCUIT COURT OF AUSTRALIA
AT MELBOURNE

MLG 1130 of 2012

PAUL ANTHONY PATTISON

Applicant

And

OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

REASONS FOR JUDGMENT

1. In this matter, on 29 January 2013 I made orders which included an order that the application brought by Mr Pattison be dismissed and that the costs be paid on an indemnity basis out of the estate of the bankrupt in accordance with the Act, but that latter part of the order was subject to the receipt of any written submissions to the contrary within seven days.  On 4 February 2013 such submissions were received and those submissions essentially put it that the costs order having taken place after Mr Pattison’s sequestration order on 21 December 2012, this order represented a post-bankruptcy debt for which the official trustee can pursue Mr Pattison personally, possibly leading to a second bankruptcy.

2. Reliance was placed on the decision of the High Court in Foots v Southern Cross Management Proprietary Limited [2007] HCA 56 (“Foots”).

3. Section 82 of the Bankruptcy Act relevantly reads:

   Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

4. If one looks at the decision in Foots that arose out of a particular set of facts.  Judgment was entered in a substantive proceeding in the Supreme Court of Queensland by a judgment of Chesterman J given on 26 August 2005.  Relevantly, Mr Foots was ordered to pay very substantial amounts of money.  Shortly thereafter on 15 September 2005 Mr Foots was declared bankrupt on his own petition. 

5. On 3 February 2006 the costs order that was the subject of further dispute was made.  In other words in that case there was judgment, followed by the bankruptcy of Mr Foots and thirdly, the costs order.  I refer to the entirety of the judgment of the High Court in the sense that I have had regard to all of it and it’s an extensive discussion of the issues, but I note that at [11] the plurality of the court constituted by Gleeson CJ and Gummow, Hayne and Crennan JJ said:

   “A second aspect of s 82 flows from the first.  Contrary to the appellant’s submissions, there is no express or implied textual support for the notion of a debt being provable if it is incidental to, or consequent upon, a debt which is itself is provable.  Those debts which are provable are spelled out by the section: matters falling outside these categories are not provable.”

6. Chesterman J had found that the stay referred to in section 58(3) of the Bankruptcy Act would only operate if the order for costs was a debt or liability within the meaning of section 81. So much is clear from Foots at [15] where the plurality said:

   “Chesterman J referred to ss 58(3) and 82(1) of the Bankruptcy Act and accepted that “[t]he application for costs against Mr Foots is either a legal proceeding or a fresh step in a proceeding”. That acceptance was not challenged in this Court. His Honour then framed the issue as being:

   “whether an order for costs made against Mr Foots would be a debt or liability, future or contingent, to which he was subject at the date of the bankruptcy, or to which he may later become subject by reason of an obligation incurred prior to the bankruptcy.” 

   That is, the stay in s 58(3) would only operate if the order for costs were a debt or liability within the meaning of s 82(1).”

7. It should be noted that Chesterman J found that it was not and therefore made the costs order.  If one goes to Foots at [65] under the heading “Conclusions” the plurality of the High Court said:

   “If the distraction of British Gold Fields is resisted when construing the text of the Bankruptcy Act, and the nature of a costs order is appreciated, several difficulties lie in the path of the admission to proof of the costs order made against Mr Foots. First, the order made falls outside s 82(1) because it was made after bankruptcy, and was thus not a liability “to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy” (emphasis added). Secondly, as explained earlier in these reasons, Mr Foots was under no antecedent obligation to pay costs until the order was made against him. Thirdly, there is no scope in the text or structure of the Bankruptcy Act for the notion of an obligation or liability ‘incidental’ to a provable debt.”

8. At [67] the Court said:

   “Had the costs order made by Chesterman J on 3 February 2006 been made and taxed before the appellant’s bankruptcy ensued, it would have been a provable debt. Even if the order had not been taxed before bankruptcy, it would nonetheless have been provable as a debt incurred “by reason of an obligation incurred before the date of the bankruptcy”; namely the antecedent making of the costs order. However, the order was only made after bankruptcy had already intervened, and the appellant’s liability to meet that order did not arise from an obligation incurred before bankruptcy. Thus it was not a provable debt, and the stay contained in s 58(3) of the Bankruptcy Act was not engaged. His Honour was therefore entitled to make the costs order against Mr Foots. “

9. Now, here, Mr Pattison’s sequestration order was made on 21 December 2012; both the judgment and the costs of the order I have made were made on 29 January 2013. There are two areas that continue to cause me concern: the first is the extent of the operation of the stay in section 58(3) in circumstances where Mr Pattison was already bankrupt at the time the matter came before the court on 29 January 2013; and the second is the effect, if any, of section 60 of the Bankruptcy Act. Pursuant to section 60(2) of the Act:

   An action commenced by a person who subsequently becomes bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

10. Here the trustee has already elected not to continue the action, as is apparent from the trustee’s letter which has been exhibited in the proceeding.  I have heard no submissions about the effect of these aspects of the matter.  What has actually happened is that when the case, which was originally brought by Mr Pattison, came before the court with several other matters which were being heard at the same time, with which Mr Pattison was also involved, neither Mr Pattison nor his trustee turned up to prosecute the matter.

11. The question is whether in retrospect I had the authority to dismiss the action and to order costs.  I have heard no submissions from any party about that, including Mr Pattison, whose interests are obviously affected by the orders that have been made and the orders now sought.  Nonetheless, it seems to me that the proceeding being before the court, it is not improper for the court to dispose of it, and once that is done, it seems as a matter of first principles that the court’s capacity to order costs must still be enlivened.

12. That this is so tends to be, in my view, supported by the way in which the High Court dealt with the matter in Foots, albeit that the facts in this case are different.  Furthermore, I note that there is ongoing controversy as to whether or not a failure on the part of a trustee to elect to pursue a matter finally disposes of it; there is authority to the effect that the action, as it were, lies in abeyance and that it can in certain circumstances be resuscitated. 

13. In all the circumstances, I am going to set aside the order made as to costs on 29 January 2013; I will order in lieu thereof as sought simply that the application be dismissed, and that Mr Pattison pay the official trustee’s costs on an indemnity basis.  In the event that Mr Pattison regards his interests as disturbed by this finding, I note that he did not attend the hearing of the matter.  He would be entitled to apply to be heard in the ordinary way pursuant to the court’s rules.

I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Judge Burchardt.

Associate:

Date:  30 April 2013