Re Ayre; ex parte Deputy Commissioner of Taxation
[1995] FCA 520
•25 JULY 1995
CATCHWORDS
BANKRUPTCY - Trustee in bankruptcy and creditor sought an order for costs pursuant to s 32 Bankruptcy Act against the other following the withdrawal by the creditor of an application for annulment of the bankrupt's bankruptcy - costs order made in favour of non-party trustee in bankruptcy
Bankruptcy Act 1966 (Cth) - ss 32, 122, 153B, 162
Federal Court of Australia Act 1976 (Cth) - ss 4, 43
Bankruptcy Rules - rr 4(2), 5, 57(2A) (3) and (4)
Bills of Sale and Other Instruments Act 1955-1986 (Qld) - s 21
Rules of the Supreme Court of Queensland - O 91 r 1
Adsett v Berlouis (1992) 37 FCR 201 Referred to
Bent v Gough (1992) 36 FCR 204 Referred to
Boral Johns Perry Industries Pty Limited v Piccardi (Full Federal Court, unreported, 27 June, 1989) Referred to
Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 117 ALR 253 Referred to
Cachia v Hanes (1994) 179 CLR 403 Referred to
Central Trust Co v Rafuse (1987) 31 DLR (4th) 481 Referred to
Re Doney; Ex parte Doney (1901) 18 NSWWN 73 Referred to
Re Hatcher (French J, unreported, 6 November, 1987) Referred to
Re Kersten (1986) 65 ALR 372 Referred to
Knight v F P Special Assets Limited (1992) 174 CLR 178 Applied
Re Maher (1985) 7 FCR 240 Referred to
In re Oswell; Ex parte The Board of Trade (1892) 9 Morr 202 Referred to
Re Todd (1910) 10 SRNSW 281 Referred to
Re Suzanne J. Ayre; Ex parte Deputy Commissioner of Taxation
QP 746 of 1994
Drummond J
Brisbane
25 July, 1995
IN THE FEDERAL COURT OF AUSTRALIA ) No. QP 746 of 1994
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF )
THE STATE OF QUEENSLAND )
RE:SUZANNE J. AYRE
Debtor
EX PARTE:DEPUTY COMMISSIONER OF TAXATION
Creditor
MINUTES OF ORDER
JUDGE MAKING ORDER: Drummond J
DATE OF ORDER: 25 July, 1995
WHERE MADE: Brisbane
THE COURT ORDERS THAT:
The Deputy Commissioner of Taxation pay the trustee's costs of the Deputy Commissioner of Taxation's application of 29 July, 1994 limited to the trustee's costs of the preparation and filing of the trustee's affidavits filed 29 July, 1994, 10 August, 1994 and 17 November, 1994 and the trustee's costs of his solicitor's appearance at the hearing on 28 September, 1994, all to be taxed.
The Deputy Commissioner of Taxation pay the trustee's costs of and incidental to the hearing of 17 November, 1994, to be taxed.
NOTE:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) No. QP 746 of 1994
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF )
THE STATE OF QUEENSLAND )
RE:SUZANNE J. AYRE
Debtor
EX PARTE:DEPUTY COMMISSIONER OF TAXATION
Creditor
CORAM: Drummond J
PLACE: Brisbane
DATE: 25 July, 1995
REASONS FOR JUDGMENT
Mr. Clout, trustee in the bankruptcy of Suzanne J. Ayre (the "bankrupt"), seeks an order that the Deputy Commissioner of Taxation ("DCT") pay his costs of an application brought by the DCT on 29 July, 1994. The DCT, for his part, seeks an order that the costs of his application be paid by Mr. Clout and his solicitor.
THE HISTORY OF THE PROCEEDINGS
The debtor became bankrupt on 21 June, 1994 on acceptance of her own petition. Her petition should not have been accepted: there was then pending a creditor's petition filed by the DCT on 5 April, 1994 and based on an act of bankruptcy comprising the failure of the bankrupt to comply, by 28 March, 1994, with a bankruptcy notice. Confusion arose because the DCT petitioned against the bankrupt under the name "Susan J. Ayre", while the debtor presented her own petition under another name she used, "Susan Joy Preston-Roewer". On 29 June, 1994, after the DCT had learned of the bankruptcy, the District Registrar, at the DCT's request, ordered that his petition be dismissed and that the costs of that petition be taxed and paid out of the bankrupt's estate.
On 29 July, 1994, however, the DCT applied to the Court to annul the bankrupt's bankruptcy, to reinstate his petition by making an order setting aside the order of 29 June, 1994 that dismissed it and to make a sequestration order on the DCT's petition; the DCT also sought an order that Mr. Clout be appointed trustee in that new bankruptcy.
The DCT made this application because, subsequent to the dismissal of his petition, his solicitor was told by the trustee's solicitor of a possible voidable transaction, a bill of sale granted to the National Australia Bank ("NAB") by the bankrupt on 18 January, 1994. The DCT's solicitor was told that this was "six months and three days prior to the presentation of the debtor's petition" and so outside the relation back period referred to in s. 122 the Bankruptcy Act 1966 (Cth), but that it could be attacked as a preference, if a sequestration order was made against the estate on the DCT's petition. This advice was wrong: the NAB transaction was within the s. 122 relation back period applicable to the existing bankruptcy. On 15 July, 1994, Mr. Clout's solicitor wrote to the DCT urging him to follow the course he ultimately did on 29 July, 1994. (The trustee may have been able to make application for annulment of the bankruptcy himself: see Australian Bankruptcy Law & Practice, 5th Ed., para. 893/94. But it would have been pointless for him to have done that because he had no locus standi to apply for the sequestration order which he urged the DCT, as a creditor, to seek). In this letter Mr. Clout's solicitor said that he believed that the debtor had filed her petition to protect not only this, but other transactions from challenges as preferences. Subsequently, Mr. Clout's investigations disclosed another possible voidable preference, a bill of sale granted by the bankrupt to Whittington Print Pty. Ltd. ("Whittington Print") on 24 November, 1993, i.e., outside the s. 122 relation back period applicable to the bankruptcy upon the debtor's own petition but within the relation back period that would have applied if an order had been made on the DCT's petition.
The DCT's application first came before the Court on 29 August, 1994. It is apparent, from Mr. Clout's affidavit filed 10 August, 1994 and from what the solicitor for the DCT then said, that the DCT was relying on the possible voidability of both the NAB and the Whittington Print securities to justify the orders he was seeking. The Court ordered that Whittington Print, which appeared by counsel, although not a party to it, be made a respondent to the DCT's application for annulment. By the time the matter came back before the Court on 28 September, 1994, Mr. Clout had reached an agreement with NAB in relation to its bill of sale. Directions were then given requiring the DCT and Whittington Print each to file and serve statements of their factual and legal contentions with respect to the DCT's claim that Whittington Print's bill of sale was a preference.
However, shortly after that, the DCT withdrew his application of 29 July, 1994.
The only material before me explaining this withdrawal is a letter of 21 October, 1994 from the DCT's solicitor to the District Registrar and one paragraph in the DCT's solicitor's affidavit filed 17 November, 1994. In this letter, the DCT's solicitor told the District Registrar that the NAB transaction of 18 January, 1994 was in fact within the relation back period applicable to the existing bankruptcy and that the advice of Mr. Clout's solicitor to the DCT's solicitor to the contrary "involved an error in calculation which temporarily escaped my attention"; the DCT's solicitor concluded by saying that Whittington Print and the DCT had settled the matter and therefore no further hearing was necessary. In the affidavit, the DCT's solicitor says:
"As a result of Counsel's advice the matter was settled between the parties, there being no further requirement for the involvement of this Honourable Court."
Counsel's advice to the DCT has not been disclosed either to the trustee or to the Court. But sufficient appears from the material before me to show that the DCT had come to the view that there was no prospect of having the Whittington Print security set aside, if his application were to proceed and a sequestration order made on his resurrected petition.
By direction of the Court, the trustee was informed of the request in the letter from the DCT's solicitor for his application to be dismissed; the trustee opposed dismissal until he had an opportunity to seek his costs from the DCT. When the DCT's application came before me and was dismissed, the applications for costs were made orally by both the trustee and the DCT.
THE ARGUMENTS OF THE PARTIES
The DCT submits that the trustee should pay his costs of his application of 29 July, 1994, essentially because he unjustifiably caused the DCT to bring the application in reliance on two unfounded considerations: it was said that the first consideration was unfounded because there was never any prospect of the Whittington Print security being set aside since it merely perfected an equitable charge created long before by a contract for the purchase of a business and plant by the bankrupt from that company. Secondly, it was said that, contrary to the erroneous advice to the DCT's solicitor given by the trustee's solicitor, the only other security that could be challenged, the NAB bill of sale, was within the s. 122 relation back period applicable to the existing bankruptcy so that there never was any justification for the trustee, by his solicitor, suggesting that the DCT's application be made to attack that security.
The trustee submits that the DCT should pay his costs of this application, firstly, because he was a party to that application and is entitled to his costs on the principle that a discontinuing party should pay the costs of the other parties and, secondly, because even if he was not a party to the application, there are good reasons for a costs order under s. 32 the Bankruptcy Act 1966 (Cth) in the trustee's favour.
THE POWER TO AWARD COSTS TO AND AGAINST NON-PARTIES
Section 32 the Bankruptcy Act 1966 (Cth), like s. 43 the Federal Court of Australia Act 1976 (Cth), confers a very wide discretion. There is no doubt that each section confers power on the Court to make an order against a non-party. See Bent v Gough (1992) 36 F.C.R. 204, as to s. 32 the Bankruptcy Act 1966 (Cth), and Caboolture Park Shopping Centre Pty. Ltd. (in liq.) v White Industries (Qld) Pty. Ltd. (1993) 117 A.L.R. 253, as to s. 43 the Federal Court of Australia Act 1976 (Cth).
I have found no case in which the power to order costs conferred in terms similar to that contained in s. 32 the Bankruptcy Act 1966 (Cth) has been exercised in favour of a person who is not a party on the record to a proceeding. But the justification for holding that the power extends to the awarding of costs against a non-party is the width of the words in which the power is conferred: that is also sufficient reason for holding that the power can be exercised in favour of a non-party. After referring to the wide words of O. 91, r. 1 the Rules of the Supreme Court of Queensland in the course of explaining why this rule conferred jurisdiction on that Court to make an order for costs against a non-party, Dawson J, in Knight v F.P. Special Assets Limited (1992) 174 C.L.R. 178 at 203, said:
"The wording of O. 91, r. 1 does not confine the discretion to award costs to the parties to the proceedings. The circumstances in which it would be appropriate to award costs to a non-party would necessarily be confined, but that is a question of discretion, not jurisdiction."
The generally worded dictum of Mason CJ and Deane J at 190 is consistent with this. Their Honours said:
"... it is impossible to construe the wide and general words of O. 54, r. 1 and its successor O. 91, r. 1 as delimiting the jurisdiction to order payment of costs as one which was and is confined to parties to the proceedings. The language of the rule is quite inapt to give expression to the complex course of judicial decisions at common law and in equity before the Judicature Acts. Moreover, the extended concept of `party', [given by s. 1 the Judicature Act 1876 (Qld)], including as it does a variety of persons on whom notice of proceedings is served, makes it inappropriate to introduce a limitation which was applied at a time when the concept of `party' related to a person on the record of the proceedings. It is preferable to interpret the words of the rule according to their natural and ordinary meaning as conferring a grant of jurisdiction to order costs not limited to parties on the record and ensure that the jurisdiction is exercised responsibly."
Their Honours there recognised that it may, in certain circumstances, be appropriate to make an order for costs in favour of a person who, although not a party on the record, is required to be given notice of the proceeding. Such a person is within the extended meaning that the term "party" bears in the Queensland provision, a concept also reflected in the extended meaning which the term "proceeding" in s. 43 the Federal Court of Australia Act 1976 (Cth) is given by s. 4 of that Act. A person, like Mr. Clout as trustee in this bankruptcy, who is required by statute or by rules of court to be given notice of a proceeding, although not a party to it, might be thought to have a good claim to the benefit of such a costs order, if that person was justified in responding to the notice by taking part in the proceeding.
But Knight shows that power to order costs against a non-party will only be exercised in special or exceptional circumstances. There is a similar limitation on the propriety of exercising the power to award costs in favour of a non-party.
THE DCT'S APPLICATION FOR COSTS
The DCT argued, firstly, that the Whittington Print bill of sale was not capable of being a preference within s. 122 the Bankruptcy Act 1966 (Cth) because it was merely the perfection of the equitable security created by the original contract of sale in June 1991. It appears from the affidavit filed 8 September, 1994 of Mr. Myles-Whittington, a principal of Whittington Print Pty. Ltd., that in June 1991, Whittington Print entered into a contract for the sale by it to the bankrupt of a commercial printing business for $126,000. The contract required the bankrupt to grant a bill of sale over the whole of the plant she agreed to buy and which is listed in Annexure "A" to the contract and also over the other equipment she already owned, which is listed in Annexure "B" to the contract, to secure payment of the purchase price, which was to remain outstanding on completion of this contract. The contract was completed on 28 June, 1991. However, the bill of sale referred to in it was never executed. As at November 1993, the outstanding balance of the contract price and interest which Whittington Print claimed was then due from the bankrupt to it was $44,196.41. In consideration of Whittington Print not instituting proceedings to recover these moneys, the bankrupt, on 24 November, 1993, granted a bill of sale to Whittington Print over 19 items of equipment.
There is good reason to think that this bill of sale was not the mere perfection of the earlier equitable security created by the contract: Whittington Print did not, in 1993, demand execution of the security required by the contract, viz., a bill of sale securing payment at the times fixed by the contract of instalments of purchase price, which were to fall due after completion of that contract, and interest on the purchase price at 10% from 1 July, 1991, but rather a new security given for a consideration different from that in respect of which the original security was agreed to be provided, viz., a bill of sale securing payment by instalments of an amount equal to the instalments (including interest at 10%) that should have been, but were not paid under the 1991 contract, together with interest at 12.5% on this amount from 1 December, 1993. Moreover, the November 1993 security was granted over a range of property that included different items of property from those which were to provide the security contemplated by the 1991 contract: it appears from the letter written by Whittington Print's solicitor on 26 July, 1993 to the bankrupt's then accountant that very few of the 19 items the subject of the 1993 security were included in the equipment the subject of the 1991 sale and that some of the equipment the bankrupt then bought from Whittington Print had been traded in by her on other equipment by November 1993.
Counsel for the DCT relied on the proviso to s. 21 the Bills of Sale and Other Instruments Act 1955-1986 (Qld) in support of an argument that the November 1993 bill of sale was valid as the perfection of the security agreed to be granted by clause 32 of the 1991 contract of sale. Section 21, so far as it is relevant to the DCT's argument, provides:
"Save as is expressly provided by this Act, an instrument being a bill of sale given by way of security shall not have any effect as regards any chattels which the grantor acquires or becomes entitled to after the time of the execution of the instrument:
Provided that where a bill of sale given by way of security over any chattels is therein expressed to be given as security for a loan to be expended, in whole or in part, in the purchase of those chattels, the grantor shall be deemed to have acquired the said chattels contemporaneously with the execution of the instrument: ..."
Counsel's argument assumed that the November 1993 security would have been invalidated by the first part of this section set out above, but was made effective by the proviso. This provision is of no assistance to the DCT. The first part of the section does not affect the November 1993 bill of sale: that security operated upon all the goods over which it was granted upon execution and did not purport to apply to any goods which the bankrupt might acquire after November 1993. The proviso to s. 21 can therefore have no application to that bill of sale. In any event, the purpose of the 1993 bill of sale was to secure a past indebtedness, not to facilitate the future acquisition of chattels. It is only such securities, otherwise void because they apply to goods to be acquired by the grantor after execution of the security, that are saved by the proviso.
In view of the information available to the DCT up to the time he abandoned his application, so far as that information is revealed by the material before me, I consider that the DCT would have got the sequestration order he once sought if he had pressed on with his application and that there was a reasonable prospect that Mr. Clout, as trustee under the new administration, could have increased the pool of funds available to the bankrupt's creditors by having the Whittington Print bill of sale declared voidable as a preference. I reject the DCT's argument that it would have been futile for him to follow the advice of the trustee's solicitor that the Whittington Print security was open to challenge.
The erroneous advice given to the solicitor for the DCT by the solicitor for the trustee related only to the NAB bill of sale. The DCT also pursued the application in order to attack the Whittington Print security, an objective in relation to which this default on the part of the solicitor for the trustee was irrelevant. That the DCT, on the advice of his solicitor, may have relied on the incorrect information given by the trustee's solicitor with respect to the NAB security in deciding to institute the application cannot, on any view, assist the DCT here. But insofar as the DCT's reliance on the point that the trustee's solicitor gave wrong information to his own solicitor about the NAB security is concerned, if a solicitor accepts a retainer, he "must have a sufficient knowledge of the fundamental issues or principles of law applicable to the particular work he has undertaken to enable him to perceive the need to ascertain the law on relevant points": Central Trust Co. v Rafuse (1987) 31 D.L.R. (4th) 481, Le Dain J at 524. I do not think the solicitor for the DCT, acting as the latter's professional adviser, was entitled to accept uncritically the say-so of someone urging his client to institute legal action, even though that person was the solicitor for a trustee in bankruptcy; his own retainer obliged him to make basic checks on what he was told to confirm that he could safely advise his client to adopt the course proposed. The calculation of the s. 122 relation back period was a basic matter which the DCT's solicitor should have checked. Insofar as the DCT's application was brought in order to attack the NAB security, it was unnecessary. But the failure of the DCT's own solicitor to make this basic check, rather than the erroneous advice by the trustee's solicitor, was the immediate cause of the DCT's decision to make the application so far as it related to the NAB security.
Neither argument advanced by the DCT is sufficient to justify the costs order he seeks against the trustee.
THE TRUSTEE'S APPLICATION FOR COSTS
Rule 5 and form 1 the Bankruptcy Rules require documents filed in or issued by the Court to name the respondents to the relevant proceeding. The DCT's application of 29 July, 1994 was ancillary to his dismissed petition for the purposes of rule 4(2), insofar as it sought reinstatement of that petition and sequestration upon it. The application was also ancillary to the debtor's petition, insofar as it sought annulment of the existing bankruptcy. The DCT correctly named the bankrupt in his application as the only respondent to that application - see rule 4(2)(a). These rules provide no support for the trustee's argument that he was a party to the DCT's application.
Nor is there any other ground for holding that the trustee was a party to it. The DCT, having made his application of 29 July, 1994 under s. 153B, was required by rule 57(2A) to serve a copy on the trustee. The rule also provides:
"(3)If an application for an order annulling a bankruptcy is served on the trustee, the trustee must file a report, not later than 10 days before the hearing date of the application, about the bankrupt's conduct, and examinable affairs, in both the period before and the period after the bankruptcy occurred.
(4)The Court may, upon the hearing of an application for an order annulling a bankruptcy, have regard to the report filed in accordance with sub-rule (3)."
But service in compliance with this rule does not make the trustee a party to the annulment application. Service on the trustee is part of a process designed to give the court that deals with an annulment application assistance, in the form of information from its own independent officer relevant to whether the annulment should be granted. The provision by the trustee of this assistance is an element of his function of performing public duties for the public welfare: cf. Adsett v Berlouis (1992) 37 F.C.R. 201 at 208. The requirement that notice of an annulment application be given to the trustee can thus be seen to be a consequence of the fundamental principle that proceedings in bankruptcy are not merely proceedings inter partes, that once an act of bankruptcy has been committed and the process of the Court has been put into motion, the case is thereafter affected with the interests of other creditors and the public: Boral Johns Perry Industries Pty. Limited v Piccardi (Full Federal Court, unreported, 27 June, 1989). It is to ensure that the Court is informed on how these other interests might be affected by an annulment that the trustee's report is required. In this respect, the court dealing with an annulment application has the same sort of duty to enquire that rested on the Court when a discharge was sought under the old s. 150, a matter discussed in Re Kersten (1986) 65 A.L.R. 372 at 378-379. The trustee's role in reporting is not to present any partisan view point. But it is proper, and necessary, for him to bring to the attention of the Court any matters of which he has become aware in the course of his administration that might bear upon whether the annulment should be granted or refused and he is entitled, if the information he has justifies it, to support or oppose the application: cf. the discussion of the trustee's role with respect to a discharge application in Re Todd (1910) 10 S.R.N.S.W. 281 at 287-289 and in Re Maher (1985) 7 F.C.R. 240 at 242-243. In Re Hatcher (unreported, 6 November, 1987) French J said:
"At the critical point in the administration of an estate where the bankrupt applies for discharge or annulment, it is the trustee himself or properly instructed counsel who should appear."
Given the nature of the duties he had to perform, Mr. Clout was fully entitled, if not obliged, to put before the Court the information contained in his three affidavits filed in the proceeding commenced by the DCT's application of 29 July, 1994; he was also entitled to appear by his solicitor when this application came before the Court to inform the Court that he supported the DCT's application. But Mr. Clout is not entitled to be awarded costs on the basis that he was a party to the DCT's application.
The next question is whether there is good reason for the Court to award the trustee his costs even though he was not a party to the DCT's application.
A trustee in bankruptcy required to be given notice of an application by another will ordinarily be required to look to the estate to recompense him for work done and to recoup legal professional costs properly incurred by him in connection with the application. See Adsett v Berlouis, supra, at 210. But there may be circumstances in which it would be proper not to make an order which would operate to the detriment of the creditors generally by imposing the trustee's legal costs on the estate, but to order instead, in reliance on the wide jurisdiction conferred by s. 32, that the person bringing the application pay the trustee's legal costs. For example, if an application was brought without reasonable cause, but the trustee was obliged, in order to properly perform his duties, to incur legal costs in preparing a report for the court, it might be proper to order the applicant to pay those costs as the trustee's costs of the application.
The trustee's participation in the proceedings on the DCT's application involved swearing three affidavits which were prepared and filed by his solicitor, in which Mr. Clout dealt with his investigations into the NAB and the Whittington Print securities, and two appearances by his solicitor. His solicitor also filed an affidavit that set out the solicitor's dealings with the NAB on behalf of Mr. Clout in respect of this security.
Once the DCT made his annulment application, the trustee was bound to report to the Court. The trustee never filed the report required by rule 57(3). The DCT withdrew his annulment application before that was done. I reject the submission on behalf of the trustee that the affidavits he swore in connection with the DCT's application should be treated as his report for the purposes of the rule. The affidavits do not I think cover a sufficient range of matters to be so regarded: for example, they do not refer to the bankrupt's conduct after the bankruptcy commenced. But an important part of the information that would have been included in the trustee's report can be gathered from the affidavits he filed in support of the DCT's application. What he deals with in these affidavits plainly relates to the bankrupt's pre-bankruptcy conduct and to her examinable affairs and would have provided assistance to the Court if the annulment application had gone ahead. If, before the DCT withdrew his annulment application, the trustee had reported about the bankrupt's conduct and examinable affairs both pre- and post- the bankruptcy, as required by rule 57(3), he would have had to deal with both the NAB and Whittington Print securities, even though the latter was outside the s. 122 relation back period applicable to that bankruptcy. Accordingly, he would have been entitled to remuneration for the work he did in preparing the report, fixed under s. 162 the Bankruptcy Act 1966 (Cth) and paid out of the bankrupt's estate, whether or not the DCT's annulment application succeeded. There is no reason to think he is not entitled to be remunerated out of the estate for the work he did by way of investigating these two securities in the events which have happened, even though he never got to the stage of embodying that work in a report to the Court. But the trustee, in addition to doing this work of investigating the securities, incurred legal costs in having the results of this work of investigation into these two securities embodied in the three affidavits he swore and in filing them in the proceedings instituted by the DCT's annulment application. His costs application is brought under s. 32 the Bankruptcy Act 1966 (Cth) and the only question for determination is thus whether he can obtain from the DCT the partial indemnity, assessed in accordance with the relevant provisions of the Act and Rules, recoverable under the section in respect of these legal costs, i.e., in respect of moneys paid out and liabilities incurred by him for professional legal services. See Cachia v Hanes (1994) 179 C.L.R. 403.
By rule 57(4), the Court is required to have regard to the trustee's report in deciding whether to annul a bankruptcy. But this rule gives the report no special evidentiary status. If there is a dispute, then, insofar as anyone wishes to rely on matters contained in the trustee's report, they must be properly proved. See In re Oswell; Ex parte The Board of Trade (1892) 9 Morr. 202 and Re Doney; Ex parte Doney (1901) 18 N.S.W.W.N. 73. While the material before me indicates that the attack made by Mr. Clout as trustee upon the NAB security was quite quickly resolved, with the bank agreeing on a "without prejudice" basis to pay a sum of money to the trustee, it was apparent from an early stage that Whittington Print intended to defend any attack that might be made upon its security: it was represented by counsel on both occasions the DCT's application came before the Court.
It therefore seems to me that the trustee incurred the costs of having his three affidavits prepared and filed in connection with the DCT's annulment application when he would not have incurred those costs but for the DCT's decision to make the application. It further appears that, insofar as those costs were incurred by the trustee in relation to the affidavits I have referred to which dealt with the Whittington Print security, it was reasonable for the trustee to incur those costs: when that material was prepared, the DCT was still intending to pursue his application and it was therefore necessary for the material to be in admissible form, in view of Whittington Print's opposition. Moreover, on the material before me, there were grounds for thinking that the Whittington Print security would be voidable as a preference, if it were reachable in bankruptcy, something that depended on the DCT pursuing his application.
The trustee is therefore entitled to an order that the Deputy Commissioner pay the trustee's costs insofar as they were incurred by the trustee in having his solicitor prepare and file the affidavits sworn by the trustee which dealt with the Whittington Print security.
The trustee's affidavits filed 29 July, 1994 and 10 August, 1994 also deal with the NAB security. That matter was of possible relevance to the annulment application. Up to 10 August, 1994, the NAB had not indicated its attitude to the challenge made by the trustee to that security. It was therefore reasonable for the trustee to incur legal costs in having his affidavits prepared and filed insofar as they dealt with his investigations up to 10 August, 1994 in relation to that particular security. They, too, are costs the trustee would not have incurred but for the DCT's decision to make his application (even though he would no doubt have done the work and incurred the other costs that resulted in his reaching the compromise with the NAB even if that application had never been made). He is entitled to recover those costs from the Deputy Commissioner also.
The costs incurred by the trustee in having his solicitor swear and file an affidavit stand in a different position. The solicitor's affidavit contains a history of the trustee's dealings with the NAB which resulted in the compromise of the trustee's claim in relation to the NAB security which resolved that matter. There is no reason why all this information could not have been put before the Court in what would have been, on the material before me, an uncontentious portion of the trustee's report in the preparation of which the trustee could not have justified legal assistance. I will therefore not make any order requiring the DCT to pay the trustee's costs in relation to this particular affidavit.
Before the DCT decided to abandon his application, the trustee also incurred costs in having his solicitor appear for him on the two occasions the DCT's application came before the Court when directions were given in relation to the issue of the voidability of the Whittington Print security. It is apparent from the course proceedings took on both occasions and from the directions given that the DCT undertook responsibility for marshalling the evidence he intended to rely on in attacking the Whittington Print security. No direction was given on either occasion requiring the trustee to do anything and, on the second occasion, the solicitor for the trustee contented himself with indicating that the trustee intended to take no part in the dispute, other than to state his support for the DCT's application. The solicitor also said that, if the trustee were to be directed to file any statement of contentions, he would simply file a statement adopting what the DCT had to say. On the first occasion, 29 August, 1994, when the trustee's solicitor, Mr. Tucker, had appeared, he read no material on behalf of the trustee and declined to be heard on the only question which ultimately was determined by the Court, the intervention by Whittington Print.
Given what I have said about the proper role of the trustee in proceedings of the kind instituted by the DCT, the trustee was, I think, entitled to appear by a solicitor on one occasion to indicate that his attitude was one of support for the DCT's application. He had good reason for adopting that position. The costs he incurred in appearing to do that were incurred solely because the DCT chose to make the application. The DCT should therefore pay the trustee's costs of the appearance on 28 September, 1994, when the trustee's attitude was made clear. There is, however, no justification in my
view for the trustee recovering his costs of the other appearance from the DCT.
I will therefore order that the DCT pay the trustee's costs of the DCT's application of 29 July, 1994 limited to the trustee's costs of the preparation and filing of the trustee's three affidavits filed 29 July, 1994, 10 August, 1994 and 17 November, 1994 and the trustee's costs of his appearance by his solicitor at the hearing on 28 September, 1994, all to be taxed. The DCT's application for costs has failed while the trustee has been substantially successful on his own application: the DCT must pay the trustee's costs of the hearing on 17 November last.
I certify that this and the preceding
22 pages are a true copy of the
reasons for judgment herein of the
Honourable Justice Drummond.
Associate:
Date: 25 July, 1995
Counsel for the creditor: S.R. Eleftheriou
Solicitors for the creditor: Australian Government
Solicitor
Solicitors for the trustee: Russell and Company
Date of Hearing: 17 November, 1994
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