Re Burton, L.R. Ex parte E.E. Emmett & Sons P/L
[1993] FCA 526
•30 Jul 1993
IN THE FEDERAL COURT OF AUSTRALIA )
| BANKRUPTCY DIVISION | NB 2218 of 1992 |
| BANKRUPTCY DISTRICT OF THE STATE ) | NX 48 of 1993 |
| OF NEW SOUTH WALES |
Re : LESLIE ROSS BURTON
Debtor
Ex parte: E.E. EMMETT & SONS P/L
LAURENCE WILLIAM EMMETTALAN BERESPORD EMMETT
And : HUGH JENNER WILY
Receiver
.. --
REASONS FOR JUDGMENT ON COSTS
| EINPELD J | SYDNEY | 30 JULY 1993 |
This case is an excellent example of how the legal system sometimes allows itself, albeit with the best intentions and in accordance with traditional fairness and procedures, to be manipulated without apparent merit or advantage to the public interest. It also exemplifies why the registry and the Court itself should ensure that matters with such an aura should always come before the same Judge or Registrar to prevent misuse of court time and, in bankruptcy matters, of funds which should properly be available to creditors. The relevant part of the history of the matter is only part of the whole history. Even this part was difficult to extract from the papers. Other facts appear in my judgment on 8 July 1993 in this matter. The whole saga is inglorious:
between the creditor as licensor, Olola Holding Pty Ltd 1. A deed of licence was entered into on 18 December 1990
(a company of which the debtor was a director and shareholder) as licensee, and the debtor and his wife as guarantors. I shall hereafter refer to the guarantors as the debtor.
By clause 16 of the deed, the debtor --
(a) guaranteed the payment by the licensee of moneys fixed by the deed, and (b) indemnified the creditor from the costs of enforcing the deed on a solicitor/client basis.
The licensee failed to pay certain moneys under the deed but the debtor refused to honour the guarantee.
4. The creditor issued proceedings in the Campbelltown District Court on 4 November 1991 seeking payment by the debtor of all or some of the unpaid moneys.
5 . The matter came on for hearing on 4 March 1992. There was no appearance or defence by the debtor and judgment was given in favour of the creditor for $57,082.10. Apparently in reliance upon clause 16 of the deed, the District Court ordered the debtor to pay the creditor's costs on a full indemnity basis.
6. The judgment and costs were not paid, so on 12 June 1992 the creditor issued a bankruptcy notice addressed to the debtor to enforce the District Court judgment of 4 March 1992. The notice was served on 2 August.
7. On 21 September 1992 the debtor issued an application to set aside the bankruptcy notice. The application was listed for hearing on 6 November when it was adjourned by consent. An order was made extending to 4 March 1993 the time for compliance with the bankruptcy notice. It does not seem to have been extended beyond that date.
8. Meanwhile on 9 October 1992 the debtor made application to the District Court to have the judgment set aside but the application was dismissed and the debtor ordered to pay the creditor's costs on a solicitor/client basis in accordance with the deed.
9. On 12 March 1993 I dismissed the application to set aside
the bankruptcy notice by consent. The creditor sought its costs on an indemnity basis. The debtor opposed the order. Because of the state of the Court's list that day, written submissions were ordered and judgment was reserved. Submissions have been made by the creditor but notwithstanding his verbal opposition the debtor has made none.
10. On 27 April, the creditor filed an application for a sequestration order and on 28 April, Justice Burchett ordered that the application issue as quickly as possible.
11. On 6 May, Registrar Jurd made orders for the substituted service of the application for sequestration and reserved the question of costs. The matter was relisted on 24 May.
12. On 24 May the application for sequestration was listed before Registrar Lane. The creditor filed, apparently in Court, an application for the appointment of a receiver under section 50 of the Act. Concerned that she did not have the power to make this order, Registrar Lane decided that the matter should go before a Judge. The creditor applied for that to be done immediately but the debtor sought an adjournment of both applications on the grounds that there was a dispute over the debt and that he had a cross claim. Registrar Lane granted a short adjournment
and refused to refer the adjournment decision to a Judge. 13. On 2 5 May the creditor sought a review by Justice Whitlam of these two decisions of Registrar Lane to adjourn and refuse to refer. It seems that his Honour gave leave for the review application to be filed and heard immediately, and in essence upheld the Registrar's decision to adjourn the sequestration proceedings by adjourning them himself to 15 June. Costs of the application for review were ordered to be "costs in the cause". Justice Whitlam granted the application for the appointment of a section 50 receiver and appointed Hugh Jenner Wily to that position. Costs of that application were ordered to be the creditor's costs in the proceedings.
14. On 2 June the receiver filed an application for the issue of summonses to various persons to attend for examination on oath. This application was made returnable on 15 June.
15. On 3 June the Receiver filed in Court an application against the debtor for security for the costs of the receivership and for injunctions to prevent the debtor from disposing of or dealing with his assets and property. This application was made returnable immediately by Justice Whitlam and his Honour granted the principal injunctions by consent. Costs were reserved and the remainder of the application was stood
over to 15 June. 16. On 15 June Justice Hill gave leave to amend the application for security for costs and adjourned it to 6 July. His Honour granted the application for the examination summonses and ordered that the costs of that application be "costs in the administration".
this time to 8 July when it was specially fixed for
hearing before me.18. On 6 July the receiver's application for security for costs came before Justice Beazley who adjourned it to the 8 July fixture before me.
19. On 8 July the debtor applied for a further adjournment of the creditor's application for sequestration and the receiver's application for security for the costs of the receivership. For reasons I then gave, the adjournment applications were refused and a sequestration order made. The application for security for costs was not further pressed and should apparently now be dismissed. I so order but reserve liberty to apply within 7 days if this order is for some reason not desired. Costs of many matters were sought and the whole question of costs was reserved with a request that the parties clarify what costs orders were sought.
| Costs are now sought: | |
| A. bv the receiver. on his a~~lications | for securitv and |
iniunctions and for examination summonses:
1. which were reserved by Justice Whitlam on 3 June 1993 when injunctions were granted by consent -- as
to which the debtor argued that these orders could have been sought from and granted by his Honour on 25 May
2. of the hearing before Justice Hill on 15 June when leave was given to amend the security application, apparently without an application or an order for costs -- as to which the debtor argued that the amendment could and should have been dealt with on 25 May before Justice Whitlam
3. of the issue on 2 June and the hearing before Justice Hill on 15 June of the application for examination summonses -- which his Honour apparently ordered to be "costs in the administration"
4. in respect of the adjournment of the security application before Justice Beazley when no order for costs was sought or granted
| in respect of all four of which |
(a)
the receiver seeks priority over the other costs of the bankruptcy under section 109(l)(a), and
(b)
the creditor seeks credit for the sum of $15,000 paid by it to the receiver on an account of the costs of his interim receivership.
| B. | bv the creditor, in the seauestration proceedinas: | |
|
1993 of the debtor's application to set aside the
bankruptcy notice, when costs were reserved
2. of the hearing of the application for sequestration before Registrar Lane on 24 May -- which Justice Whitlam may have included in his order on 25 May of "costs in the cause"
3. of the hearing of the application for review by Justice Whitlam on 25 May -- which his Honour ordered to be "costs in the cause"
4. of the hearing before me on 8 July of the application for sequestration
I shall deal with each of these applications by the numbers I
| have ascribed to them. |
A.l There is no merit in the debtor's objection to these costs. The receiver was only appointed on 25 May. He needed to consider the situation with which he was faced. The application for injunctions was not made until 2 June so the injunctions could not have been granted on 25 May. The receiver's costs will be paid out of the estate.
A.2 The amendment which Justice Hill gave leave to make on 15 June 1993 was to delete from one of the orders for security for costs the words "Petitioning Creditor" and substitute the words "the Applicants E.E. Emmett & Sons Pty Limited, Laurence William Emmett and Alan Beresford Emmett". This amendment was merely a clarification of what was obviously always intended. 15 June was the Court's ordinary Tuesday bankruptcy day and Justice Whitlam had adjourned the security application to that day by consent. No extra costs were incurred by reason of the amendment. The receiver's costs of the hearing on
15 June are to be paid out of the estate.
A.3 It is clear that these costs of the receiver were intended by Justice Hill to be paid by the debtor or out of his assets. Now that these assets are part of his bankrupt estate, they should be paid out of that estate.
| A.4 Consequent upon my earlier dismissal of the security receiver's costs incurred in that application before | application, its costs fall to be dealt with. As the |
| Justice Whitlam on 3 June and Justice Hill on 15 June have effectively been ordered to be paid out of the bankrupt estate, there is no reason why the costs of the hearing before Justice Beazley ought not likewise be paid out of the bankrupt estate. |
- l0 -
All these costs should be paid in priority to other costs of the bankruptcy. It seems that the $15,000 advance for costs given by the creditor is dealt with by the rule 40(c) of the Bankruptcy Rules but to the extent that it is necessary, I order that the receiver repay the creditor the amount of the advance with the appropriate priority or bring it to the credit of the creditor against other moneys payable by it.
B. 1 Clearly if the debtor had not been made bankrupt, indemnity costs would be payable to the creditor for these proceedings under the deed. Nothing has been put that the terms of the deed automatically attach to the bankrupt estate but its spirit and the circumstances of the matter, including the futility of the application and its dismissal by consent, and the fact that the costs were sought before the bankruptcy, suggest that this is the appropriate order in this case. I so order.
| B.2 Justice Whitlam does not appear to have expressly included the costs of the proceedings before Registrar |
Lane on 24 May in his "costs in the cause" order on 25 May but it is clear that that was what his Honour intended. It is also the spirit of that order that it be so extended. I so order.
B.3 However, what is not clear from Justice Whitlam's order of 25 May is whether "the cause" is the application for review which was basically not granted or the application for sequestration which was eventually granted on 8 July. Rather than send the matter back to his Honour which no party has requested, I believe that his order intended that the costs abide the ultimate event, viz. sequestration. Hence all the costs covered by his Honour's order should now be paid out of the estate. These should include the creditor's costs of the proceedings before Registrar Lane on 24 May.
B.4 Clearly the creditor's costs on the sequestration order should be paid as provided by the Act and rules.
In all cases costs will be as assessed or taxed.
| Counsel and solicitor | Mr J.R. Dupree |
| for the debtor | instructed by Caldwell Martin & Cox |
| Counsel and solicitor for | M r C Iiogg |
| for the creditor | instructed by Messrs Kekatos & As6ociptes |
| Counsel and solicitor | Mr J.K. Chippindall |
| for the receiver | instructed by Aitken & Magney |
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