FEDERAL CIRCUIT COURT OF AUSTRALIA
| PORTER & ANOR v SMEDLEY | [2014] FCCA 1257 |
| Catchwords: COSTS – Trustee’s application for costs and expenses incurred in administration of the estate from date of sequestration order until date of notification of Application for Review – sequestration Order not annulled – Trustee not protected by s.154 of the Bankruptcy Act 1966 (Cth) – relevant considerations. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.153B, 154 Federal Court of Australia Act 1976 (Cth), s.28 |
| Applicant: | JASON PORTER AND PAUL WESTON AS TRUSTEES OF THE BANKRUPT ESTATE OF GRAEME GILBERT SMEDLEY |
| Respondent: | GRAEME GILBERT SMEDLEY |
| File Number: | SYG 1867 of 2013 |
| Judgment of: | Judge Lloyd-Jones |
| Date of Last Submission: | 6 May 2014 |
| Delivered at: | Sydney |
| Delivered on: | 19 June 2014 |
REPRESENTATION
| Solicitors for the Applicant: | Ms I. Hoskinson of Jones King Lawyers |
| Counsel for the Respondent: | Mr D. Allen |
| Solicitors for the Respondent: | Mr Y. Chen of Juris Cor Legal |
ORDERS
Graeme Gilbert Smedley pay Jason Porter and Paul Weston as Trustees of the Bankrupt Estate of Graeme Gilbert Smedley (the “Trustees”) their reasonable costs and expenses incurred in the administration of the estate of Graeme Gilbert Smedley from the date of the sequestration order, being 29 November 2013, until the date of notification of the Application for Review, being 4 February 2014 to be taxed if not agreed.
Graeme Gilbert Smedley pay the Trustees their costs as intervener in the Application for Review filed on 20 December 2013 in these proceedings.
Graeme Gilbert Smedley pay the Trustees their costs of and incidental to this costs application.
The Creditor’s Petition filed on 9 August 2013 is dismissed.
The Trustees notify the Official Receiver of these orders within two days of today’s date.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1867 of 2013
| JASON PORTER AND PAUL WESTON AS TRUSTEES OF THE BANKRUPT ESTATE OF GRAEME GILBERT SMEDLEY |
Applicant
And
| GRAEME GILBERT SMEDLEY |
Respondent
REASONS FOR JUDGMENT
Background
The application before the Court is an application by Jason Porter and Paul Weston as Trustees of the Bankrupt Estate of Graeme Gilbert Smedley (the “Trustees”) against the Debtor/Bankrupt Respondent Graeme Gilbert Smedley seeking costs in relation to the administration of Mr Smedley’s estate who had had a sequestration order made against his estate on 29 November 2013 (the “Sequestration Order”). The Sequestration Order was then set aside…
Continue reading Porter v Smedley
Sign in free to access the full text
- AGLC
- Porter v Smedley [2014] FCCA 1257
- Case
- [2014] FCCA 1257
- Decision Date
CaseChat Overview and Summary
The legal issues before the court were whether the Trustees were entitled to recover their costs and expenses from Mr Smedley, and whether the court had the power to make such an order, particularly given that the sequestration order was set aside and the bankruptcy was not annulled. Mr Smedley argued that the Trustees should bear their own costs, or even pay his costs, due to their opposition to his application to set aside the sequestration order. The Trustees contended that they had acted appropriately and diligently in administering the estate and that to leave their remuneration unpaid would be a gross injustice, arguing that case law supported their entitlement to costs.
The court reasoned that the Trustees had acted appropriately by intervening in the proceedings to seek orders for their costs and expenses, referencing the Full Federal Court's decision in *McCracken v Phoenix Constructions (Queensland) Pty Ltd*. The court found that while the sequestration order was set aside, the Trustees had incurred reasonable costs and expenses in administering the estate between the date of the sequestration order and the notification of the application for review. The court distinguished the present case from others where costs were not awarded to trustees, noting that the creditor's petition was validly served and that the Trustees had provided evidence of the work undertaken. The court ultimately determined that Mr Smedley should pay the Trustees' reasonable costs and expenses for the period of administration.
Consequently, the court ordered that Graeme Gilbert Smedley pay the Trustees their reasonable costs and expenses incurred in the administration of the estate from 29 November 2013 to 4 February 2014, to be taxed if not agreed. Mr Smedley was also ordered to pay the Trustees' costs as intervener in the application for review and the costs of the costs application. The creditor's petition filed on 9 August 2013 was dismissed, and the Trustees were directed to notify the Official Receiver of these orders.
Orders
Orders of the court
1.
Graeme Gilbert Smedley pay Jason Porter and Paul Weston as Trustees of the Bankrupt Estate of Graeme Gilbert Smedley (the “Trustees”) their reasonable costs and expenses incurred in the administration of the estate of Graeme Gilbert Smedley from the date of the sequestration order, being 29 November 2013, until the date of notification of the Application for Review, being 4 February 2014 to be taxed if not agreed.
2.
Graeme Gilbert Smedley pay the Trustees their costs as intervener in the Application for Review filed on 20 December 2013 in these proceedings.
3.
Graeme Gilbert Smedley pay the Trustees their costs of and incidental to this costs application.
4.
The Creditor’s Petition filed on 9 August 2013 is dismissed.
5.
The Trustees notify the Official Receiver of these orders within two days of today’s date.
FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY
SYG 1867 of 2013
JASON PORTER AND PAUL WESTON AS TRUSTEES OF THE BANKRUPT ESTATE OF GRAEME GILBERT SMEDLEY
Applicant
And
GRAEME GILBERT SMEDLEY
Respondent
REASONS FOR JUDGMENT
Background
1.
The application before the Court is an application by Jason Porter and Paul Weston as Trustees of the Bankrupt Estate of Graeme Gilbert Smedley (the “Trustees”) against the Debtor/Bankrupt Respondent Graeme Gilbert Smedley seeking costs in relation to the administration of Mr Smedley’s estate who had had a sequestration order made against his estate on 29 November 2013 (the “Sequestration Order”). The Sequestration Order was then set aside pursuant to an Application for Review filed on 20 December 2013 (the “Application for Review”) on 17 March 2014, however, the Creditor’s Petition that had been brought against Mr Smedley (the “Petition”) by ACM Group Ltd (the “Petitioning Creditor”) remained extant.
2.
The Court exercised its discretion on 17 March 2014 in favour of Mr Smedley by allowing him six weeks to obtain funds to pay the Petitioning Creditor, which has now taken place. The Petitioning Creditor has accepted an offer of payment of the debt including costs and did not pursue the Creditor’s Petition before the Court on 28 April 2014.
Submissions
Respondent’s Submissions
3.
Mr Allen, appearing for Mr Smedley, argued that the Trustee advocated against the relief sought by Mr Smedley. It can be inferred that they did so in order to preserve their appointment as trustees because they wanted to benefit from remaining as Trustees. Mr Allen submits that as they actively opposed the relief sought by Mr Smedley they ought to pay costs from 3 February 2014.
4.
Mr Allen submits it has been intimated that the trustees are seeking an order in relation to their remuneration. Mr Allen argues that the Court has no power to make an order in this respect: Austral Brick Co Pty Ltd v Daskalovski [1998] FCA 782; Symons v Bateman [1999] FCA 658; Kyriackou v Shield Mercantile Pty Ltd (No.2) [2004] FCA 1338 and Pattison v Hadjimouratis (2006) 155 FCR 226.
Trustees’ Submissions
5.
Ms Hoskinson, appearing for the Trustees, submits that the Trustees ask that their costs and disbursements incurred in the administration of Mr Smedley’s Bankrupt Estate be paid by Mr Smedley.
6.
Ms Hoskinson submits that the Trustees find themselves in a position where the Sequestration Order has been set aside and the Petition against Mr Smedley will most likely be dismissed. That leaves the Trustees in an unenviable position of having no statutory basis to recoup their remuneration for the work done in accordance with their statutory obligations. The Trustees’ application must thus be made to this Court.
7.
Ms Hoskinson argues that the Trustees were validly appointed by the Court. The Trustees’ application is supported by this Court’s finding that there were no issues with the making of the Sequestration Order. It follows that there was no error in the Trustees’ appointment and that appointment was validly made by the Court.
8.
In relation to the Trustees’ decision to actively take part in the present proceedings Ms Hoskinson refers the Court to McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 87. In that case the trustee was criticised for not joining the proceedings and its application for costs was accordingly not considered by the Court. In particular, the Full Court stated in McCracken (supra) at [54]:
The trustee in bankruptcy, if they wished to obtain orders of the Court, should have applied to become parties to the appeal proceedings so that they could have agitated for any orders that they seek.
9.
Ms Hoskinson notes that the Trustees are asking the Court to exercise a difficult balance between the injustice done to Mr Smedley and the injustice done to the Court appointed trustees, in relation to leaving their fees unpaid.
10.
While there is some authority where the Court exercised its discretion in favour of the Bankrupt: Kyriackou (supra), the greater weight of authority lies with the Full Federal Court in Flint v Richard Busuttil & Co Pty Ltd (2013) 216 FCR 375, which found in favour of the trustee.
11.
In Kyriackou (supra) the Federal Court in its appellate jurisdiction found that the bankruptcy notice was defective and, therefore, there was no act of bankruptcy. This finding invalidated the whole process that followed. It is quite understandable that the Court felt that the appellant should not be required to pay the trustee’s costs in that case.
12.
The Trustees submit that the present case is distinguishable from the factual scenario in Kyriackou (supra) as there was no challenge made either to the service or to the process during the presentation of the petition. Rather, it was the exercise of the Court’s discretion only that allowed the bankrupt to be able to pay the petitioning creditor’s debt during the adjournment period. The Bankruptcy Notice founding the Petition was not set aside in the present case.
13.
The Trustees concede that in Austral Brick Co v Daskalovski (supra), the Court stated that there was no regime protecting the creditors when a court sets aside a sequestration order, but the distinguishing fact is that in Austral Brick Co v Daskalovski (supra) the creditor’s petition was not validly served. This allowed Emmett J to annul the bankruptcy. In deciding whether to set the sequestration order aside, Emmett J stated therein:
… [I]t seems to me inappropriate to make an order under that rule where the estate has already been administered in bankruptcy, as is the case here.
14.
Ms Hoskinson notes that in the present case, the Petition was validly served. Further, it is submitted that one of the Trustees of, Jason Porter, swore an affidavit on 14 March 2014 which was filed on 23 April 2014 (the “Porter Affidavit”) which outlines the work carried out by the Trustees. Ms Hoskinson submits that having regard to the Porter Affidavit the Court should conclude that there were some significant steps made in the administration of Mr Smedley’s estate in this case as well, bringing the present case in line with Austral Brick Co v Daskalovski (supra).
15.
In Symons v Bateman [1999] FCA 658, his Honour French J (as he was then) was unable to make a conclusion in relation to the trustee’s costs. His Honour stated at [12]:
… I would need to be persuaded that an order under O 35 r 7 would be appropriate where the estate has been administered. In the circumstances I propose to adjourn this matter to an early date to be fixed to enable the parties to consider their position and whether some other form or order, perhaps relying on s 153B, can be agreed.
16.
Ms Hoskinson submits that Symons v Bateman (supra) is also distinguishable to the present case as the Court in this matter has the benefit of the Trustees’ sworn evidence to the expenses of administration of Mr Smedley’s estate.
17.
Ms Hoskinson referred the Court to Flint (supra) which she argues the authority lies with the recent decision of the Full Federal Court. In that matter the Full Court noted that the exposure of the Trustee to the position of “no statutory basis for any remuneration” would be a “gross injustice” at [49]. The Full Court then considered whether to annul the bankruptcy instead of setting aside the sequestration order and dismissing the creditor’s petition. The particular circumstances of that case were such that the Court decided against the annulment. However, the Court found that it had power to deal with the consequential orders in respect of costs and remuneration of the trustee. The Court specifically addressed costs of the trustee within the 21 day appeal period, but found that the Trustee’s actions were “either reasonable or required by law” at [58], and thus costs were included in the orders awarding the Trustee’s remuneration. The orders made were in terms of the “fair and reasonable remuneration and costs of the [trustee] in the administration of the estate of the appellant” for the period running from the appointment of the trustee until the date of the appeal, be paid, subject to the application of Div. 2 of Pt VIII of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) (dealing with the review of claims for remuneration and costs).
18.
Ms Hoskinson argued that from the view of the Trustees, the exercise of the Court’s discretion depends to a large extent on the particular factual circumstances of the case. It is also submitted that the case law indicates that Mr Smedley’s conduct should play a part in the Court’s decision on review. For example, in Demarco v Pascoe [2000] FCA 1771, his Honour Emmett J refused an annulment application because of the bankrupt’s unsatisfactory conduct (at [9] and [16]). However, in Pattison (supra) the evidence before the Court was that the bankrupt notified the Trustee of his decision to set aside the sequestration order two weeks after it was made. Thus his Honour followed Kyriackou (supra). Ms Hoskinson argues that this is not the circumstance in the current matter.
19.
In support of the Trustees’ application, it is submitted that their conduct was beyond reproach, that the work done was both necessary and appropriate, and they exercised appropriate caution as the circumstances of the matter permitted. Ms Hoskinson notes that the judicial pronouncements in cases such as Kyriackou and Pattison where the trustee is urged to exercise caution once they are on notice in relation to the sequestration order being contested. It is argued that the Trustees in this instance acted wholly in accordance with those pronouncements.
20.
Ms Hoskinson submits with respect to Mr Smedley’s conduct, in contravention of Part 7 of the Federal Court (Bankruptcy) Rules 2005 (Cth), Mr Smedley did not advise the Trustees of his intention to review the Sequestration Order until after the Application for Review was filed. Thus, the Trustees incurred additional fees that they would otherwise not have incurred. There was a significant delay in notifying the Trustees. In fact, the Trustees were put on notice of this application only after the Petitioning Creditor forwarded the review application to them on 4 February 2014, approximately one and a half months after the Application for Review was filed in the Court.
21.
The Porter Affidavit outlines the work undertaken by the Trustees. From this, Ms Hoskinson argues the Court can infer the Trustees diligently performed their duties and incurred professional fees and disbursements in doing so.
22.
It is submitted that in part those expenses were contributed to not only by Mr Smedley’s delay in notifying Trustees as outlined above, but also as a result of Mr Smedley’s conduct. In respect of his conduct, Ms Hoskinson refers to Mr Smedley’s application to the Financial Ombudsman and Mr Smedley’s solicitor’s request that the Trustees prepare and provide information for the proposed annulment. The annulment application was never made by Mr Smedley despite this information being provided to the Trustees. Ms Hoskinson submits that this could not be ascertained by the Trustees and it was not at all clear from Mr Smedley’s behaviour he had since decided to pursue the Application for Review, or that he was solvent at the time his bankruptcy commenced. Mr Smedley had explored other avenues first to improve his position
23.
Ms Hoskinson submits that the Trustees should be entitled to recoup the costs incurred in performing their statutory duties and by dealing with Mr Smedley’s particular circumstances, including his conduct in relation to his bankruptcy.
Respondent’s Submissions in Reply
24.
Mr Allen submits that the Trustees’ reliance on Flint is misplaced. In that case there was no issue between the parties that the Full Federal Court exercising appellant jurisdiction had power to make orders for the Trustee’s remuneration. The Full Court did not consider the common position between the parties beyond observing that power to make an order resided in s.28 of the Federal Court of Australia Act (Cth) 1976 at [55]. That section provides what orders the Federal Court in its appellant jurisdiction may make.
25.
Mr Allen submits case law reveals that:
a) The Court has no power to make an order from the remuneration of the trustee when a review of a sequestration order made by a Registrar succeeds;
b) This does not mean the trustee cannot recover his remuneration, it just means that the Court cannot as a consequential order to setting aside a sequestration make the order for remuneration; and
c) A Court hearing a review application may, instead of setting aside the sequestration order, in its discretion annul the bankruptcy, and if the Court annuls the bankruptcy, s.154 of the Bankruptcy Act operates so that the trustee’s remuneration is paid.
26.
Mr Allen submits there was no submission made that Mr Smedley’s bankruptcy ought to be annulled. Mr Allen also argues that the Trustees make no submissions against them being ordered to pay Mr Smedley’s costs.
Consideration
27.
I accept the submission of Ms Hoskinson that the Trustees have taken an active part to intervene and participate in these proceedings. The Trustees filed in Court on 17 February 2014 a notice of appearance being the date that the matter was transferred from the Registrar to my docket and detailed orders were made for the further case management of the proceedings. The Court is referred to the Full Federal Court decision in McCracken (supra) per Lander, Siopis and Gilmour JJ where their Honours stated at [54]-[56]:
54. …The trustees in bankruptcy, if they wished to obtain orders of the Court, should have applied to become parties to the appeal proceeding so that they could have agitated for any orders that they seek.
55. Even now they do not seek to become parties to obtain the orders sought, but merely ask for the Court to make those orders.
56. That is most unsatisfactory. If a person wishes to have the Court make an order, the person must either bring a proceeding or seek to be joined in a proceeding to have the orders made. It is not permissible for a non-party (except perhaps an intervener who, of course, would still need to be joined as an intervener) to ask a Court to make orders.
28.
As indicated in the Court’s earlier decision in these proceedings ACM Group Ltd v Smedley [2014] FCCA 494, the Petition was filed on 9 August 2013 and came before a Registrar of this Court on two separate occasions at which Mr Smedley appeared, but the Petition was adjourned for various reasons. On the third occasion when the Petition came before a Registrar on 29 November 2013 there was no appearance by or on behalf of Mr Smedley. ACM Group Ltd moved on the Petition and a Sequestration Order was made against Mr Smedley’s estate. On 20 December 2013 Mr Smedley filed the Application for Review seeking to have the Sequestration Order set aside. The Application for Review came before a Registrar on 17 February 2014 when the matter was referred to this Court and a date for hearing was allocated on 26 February 2014.
29.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Full text does not contain this section.