Re Morton, Robert William v Official Receiver for the Bankruptcy District of the State of Victoria

[1996] FCA 644

CATCHWORDS

COSTS - application to vary order as to costs made under s 32 Bankruptcy Act 1966 to include out of pocket expenses - whether costs order variable under a "slip rule" - application treated as an application under s 37 Bankruptcy Act 1966 - meaning of "costs" in s 32 - whether item in bill of costs was properly characterised as out of pocket expenses - whether party is entitled to recover out of pocket expenses.

BANKRUPTCY - application under s 37 Bankruptcy Act 1966 to vary costs order made under s 32 Bankruptcy Act 1966.

Bankruptcy Act 1966 ss32,37.

Secretary, Department of Foreign Affairs and Trade v Boswell (No. 2) 39 FCR 288
Cachia v Hanes 179 CLR 403
Guss v Veenhuizen (1976) 136 CLR 47

RE ROBERT WILLIAM MORTON v OFFICIAL RECEIVER FOR THE BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

No. VT 932 of 1994

Olney J
Melbourne
29 July 1996

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
GENERAL DIVISION  No VT 932 of 1994

Re:
                   ROBERT WILLIAM MORTON

Applicant

OFFICIAL RECEIVER FOR THE BANKRUPTCY DISTRICT
                 OF THE STATE OF VICTORIA

Respondent

Coram:    Olney J

Place:    Melbourne

Judgment: 29 July 1996

REASONS FOR JUDGMENT - COSTS
                (Application to vary order)

This proceeding first came before the Court in April 1995 as a result of the Official Receiver in Bankruptcy for the Bankruptcy District of the State of Victoria (the Official Receiver) having given notice pursuant to s 155A(4) of the Bankruptcy Act 1966 of his objection to the application of Robert William Morton (the applicant) for an extension of the term of his registration as a trustee under the provisions of the Bankruptcy Act.   The objection was referred to the Court pursuant to s 155A(5) for a direction to grant or refuse the application.

The matter was heard on 26, 27 and 28 April 1995.   At the conclusion of the hearing I announced my decision that I was satisfied that the applicant was capable of performing the duties of a trustee under the Act and was otherwise a fit and proper person to be registered as a trustee.   I published written reasons on 14 June 1995.   The question of the costs was reserved and the parties were invited to make written submissions.

In a submission filed on 22 June 1995 on behalf of the applicant it was submitted that the appropriate costs order was that the Official Receiver pay the applicant's costs of the proceeding (including the costs referable to the conference convened by the Registrar pursuant to Rule 61E and any reserved costs) on an indemnity basis.   In a submission in reply filed on 30 June 1995 the Official Receiver urged that there be no order for costs.   A reply to the Official Receiver's submission was filed on 6 July 1995 and on 17 July 1995 the Official Receiver filed a response to the applicant's further submissions.    Having considered the various submissions on 28 July 1995 I ordered that the applicant's costs of and incidental to the proceeding be taxed in accordance with the scale of costs applicable to a defended proceeding in the General Division of the Federal Court and paid by the Official Receiver.

On 20 March 1996 the applicant's bill of costs was filed for taxation.   The taxation commenced before a Deputy Registrar on 13 May 1996 and continued on 17 May 1996.   The Deputy Registrar indicated that he intended to reserve a number of items in the bill and issued an interim certificate.   One of the reserved items, and the matter which has since been the subject of agitation before the Court, is item 235 in which the sum of $70,256.80 is claimed as a disbursement.   The item in the form in which it appears in the bill is as follows:

Mortons Accountants - fees are claimed for the time spent by Mr Morton and other employees in reviewing files, given the nature of the allegations made, in providing instructions to solicitors and counsel, in conferring with solicitors and counsel and in attending in court to provide instructions to counsel.

The time spent has generally been charged to the appropriate estate as part of the administration of same.   This has been done in accordance with advice provided to the trustee by members of the respondent that it was appropriate to so charge such time.  Any allowance made in respect of the fees claimed by Morton Accountants herein will be reimbursed to the appropriate estate.

Fees in accordance with attached accounts     $70,256.80

The amount claimed is said to be based upon the scale of fees charged by members of the Insolvency Practitioners Association of Australia.

The Deputy Registrar took the view that the claim in item 235 was not allowable but as the applicant's solicitor indicated that it was proposed to seek the Court's approval for this item to be claimed, the Deputy Registrar requested that I list the matter for mention in order to clarify whether or not the order of 28 July 1995 was intended to cover the claimed expenses.   On 12 June 1996 the parties appeared before me and by consent I made orders for the filing of submissions and for the matter to be argued on 22 July 1996.   At the time I raised the question of whether I had any standing to make any further order.   The parties had differing views on that question and I was told that it would be addressed in the written submissions.

A written submission was filed on behalf of the applicant on 28 June 1996 and on behalf of the Official Receiver on 12 July 1996.   The applicant seeks an order that the Official Receiver "pay to the applicant his out of pocket expenses necessarily and reasonably incurred in relation to this matter, such out of pocket expenses to include earnings (if any) actually lost as a result of the need to prepare this case".   The Official Receiver makes a number of points in reply.   First, it is said that the amount claimed is not properly characterised as "out of pocket expenses", second, it is said that so far as the order for costs is concerned the Court is functus officio and the matter is not covered by any "slip rule"; and third, that the Court's power under s 37 to "rescind, vary or discharge" an order made under the Bankruptcy Act does not extend to authorising the Court to make a new order.   Furthermore, the Official Receiver points out that there is not presently before the Court any application supported by appropriate affidavit material seeking an order for rescission, variation or discharge of the costs order made on 28 July 1995.

The matter was argued in full on 22 July 1996. In the course of argument I indicated that I was prepared to treat the proceeding as the hearing of an oral application made by the applicant pursuant to s 37 of the Bankruptcy Act for an order varying the order of 28 July 1995.

Before proceeding further I wish to make it clear that in my opinion the present application is fundamentally flawed insofar as it seeks to characterise the claim in item 235 as a claim for out of pocket expenses.   It is clear that the applicant is not "out of pocket" in respect of any of the matters for which he has claimed.   He has been paid in full by being recouped for his time and expenses out of estates which he is administering.   It follows therefore that what follows in these reasons has no real bearing on the outcome of the application which must inevitably fail.

Proceedings under the Bankruptcy Act are conducted pursuant to that Act and the Bankruptcy Rules.   The Federal Court Rules do not apply (Federal Court Rules O 1 r 11).   Although the Bankruptcy Rules do not contain "a slip rule" (equivalent to O 35 r 7(3) of the Federal Court Rules) the applicant's case was initially presented on the basis that such a rule is applicable and in the course of that presentation it was asserted that the failure of the applicant's legal advisers to seek a special order was through inadvertence.   This is a most extraordinary assertion.   Not only is it not supported by any evidence but it makes a mockery of the exhaustive written submissions made by the parties on the question of costs.   I reject out of hand any suggestion that the failure to raise the question of the applicant's "out of pocket expenses" was due to inadvertence or oversight.   The issue is clearly a new issue which has been raised for the first time many  months  after  the costs  order  was  made.  If, as it is submitted on behalf of the applicant, in the absence of any "slip rule" the Court in the exercise of its bankruptcy jurisdiction has an inherent power to correct errors which have arisen through the inadvertence of a party's legal representatives, this is not a case for the exercise of any such power.   The submission based upon the claimed inadvertence of the applicant's legal representatives is entirely unmeritorious.

For present purposes I am prepared to approach this matter on the basis that the power conferred by s 37 is sufficiently wide to enable the Court to vary a costs order to include a direction that the costs recoverable under the order include a particular item of expense which might properly be regarded as part of the costs of the party in whose favour the order was made.

The authority for the Court to make an order for costs is contained in s 32 of the Bankruptcy Act.   That section provides:

32.The Court may, in any proceedings before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.

This is the only relevant provision relating to costs and it immediately raises the question as to what the term "costs" means.   As the term is not defined by the statute, its meaning must be derived from the accepted meaning of the words used in the context in which they appear.   That context
includes s 32 , the other provisions of the Bankruptcy Act and the general law relating to costs.

As the section authorises the making of orders as to costs "in any proceeding", there is a strong inference that it deals with the costs of the proceeding in question.   As the balance of the statute is silent on the subject the question then arises as to what costs are to be regarded as the costs of a legal proceeding.   This question has been dealt with in a number of relatively recent cases involving litigants in person and although I have not been referred to any authority in which the question has been raised where the litigant has been legally represented, the principles applicable in the cases involving unrepresented litigants are obviously equally applicable in the present case.

In Secretary, Department of Foreign Affairs and Trade v Boswell (No 2) 39 FCR 288 the Full Court (Sheppard, Hill and Cooper JJ) had occasion to consider an application for costs made by a litigant in person who had successfully resisted an appeal to the Full Court. The litigant had sought to recover as part of her costs earnings which she had lost as a result of the need to prepare her case and to attend court to present it. The Full Court reviewed the relevant authorities and consistent with the decision of the High Court in Guss v Veenhuizen (1976) 136 CLR 47 concluded that a successful litigant, who is not a solicitor, may not receive any remuneration in the nature of professional costs for work done in the preparation of a case or for appearing in court. At p 292, after stating this principle, the Court said of the relevant authorities from which it is derived:

But they also establish that litigants in person are entitled to recover their out of pocket expenses.   We can find nothing in the cases which obliges this Court to hold that a litigant in person who has had to have time away from his or her employment or business in order to prepare a case or to attend court to present it should not recover an indemnity for any loss of earnings suffered in consequence.  That is not to permit a litigant in person to charge a sum in the nature of professional costs;  rather it is to provide an appropriate indemnity against loss of earnings incurred whether in the preparation of a case or in actual attendance at court.   Of course the touchstone is that of what was necessary and reasonable in all the circumstances.   So long as this is the approach, no injustice can result.

In the event the Court ordered that:

The appellant pay to the respondent her out of pocket expenses necessarily and reasonably incurred in relation to the appeal, such out of pocket expenses to include earnings (if any) actually lost as a result of the need to prepare her case and to attend court to present it.

Subsequent to the decision in Boswell the High Court decided by a majority (Mason CJ, Brennan, Deane, Dawson and McHugh JJ, Toohey and Gaudron JJ dissenting) in Cachia v Hanes 179 CLR 403 that the costs for which r 23(2) of the Supreme Court Rules (NSW) provided namely "such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed" were confined to money paid or liabilities incurred for professional legal services and did not include compensation for time spent by a litigant who was not a lawyer in preparing and conducting his case.   In the majority judgment, after making reference to the provisions of rule 23(2), their Honours said at 409:

It is fundamental to the appellant's argument that the time he lost in preparing and conducting his case constitutes "costs" within the meaning of this rule.   He is however, unable to sustain that proposition.   The "costs" provided for in the Rules do not include
time spent by a litigant who is not a lawyer in preparing and conducting his case.   They are confined to money paid or liabilities incurred for professional legal services.   It is only in that sense that the Rules speak of "costs".

And at 410-411 their Honours said:

To use the Rules to compensate a litigant in person for time lost would cut across their clear intent.   Costs, within the meaning of the Rules, are reimbursement for work done or expenses incurred by a practitioner or practitioner's employee.   Compensation for the loss of time of a litigant in person cannot be said to constitute costs within the meaning of the Rules.

This is hardly surprising.   It has not been doubted since 1278, when the Statute of Gloucester (1278 (UK) 6 Edw. I c.1) introduced the notion of costs to the common law, that costs are awarded by way of indemnity (or, more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation.  They were never intended to be comprehensive compensation for any loss suffered by a litigant.   As Coke observed of the Statute of Gloucester, the costs which might be awarded to a litigant extended to the legal costs of the suit, "but not to the costs and expences  of his travell and losse of time". (Coke, Second part of the Institutes of the Laws of England (1797) p 228).

There is nothing in the NSW rule 23(2) which distinguishes the concept of "costs" therein referred to from "costs" as referred to in s 32 of the Bankruptcy Act.   Indeed, at 415 the majority in Cachia referred to the NSW rules as being "in accordance with established law".   The majority did however refer in some detail to the English Litigants in Person (Costs and Expenses) Act 1975 (UK) and the rules made thereunder which directly address the question of a personal litigant's entitlement to recover costs and having done so observed (at 416-7):

We should add that the English legislation and rule represent a straightforward approach to the problem, in contrast to the approach adopted in some cases where courts have treated the loss in earnings of a litigant incurred in the course of the presentation or conduct of his case as a disbursement (45).   Clearly, that is merely an indirect way of recompensing a litigant for time spent in the preparation or conduct of his case which, if it is not contemplated by the relevant legislation or rules, is not permissible.   Of course, a litigant who qualifies as a witness is entitled to the ordinary witness's fees.

The footnote (45) includes a reference to the Full Court decision in Boswell.

In my opinion the High Court has expressly disapproved of the device resorted to in Boswell whereby it sought to deem something which was not an out of pocket expense to be such an expense so as to enable a litigant to recover what was not recoverable in accordance with well established principle.

Of particular relevance in the present context are the following remarks in Cachia at 414:

If costs were to be awarded otherwise than by way of indemnity, there would be no logical reason for denying compensation to a litigant who was represented.   That would in some cases dramatically increase the costs awarded to a successful litigant.   In corporate litigation of complexity, for example, a litigant may expend considerable time and effort in preparing its case.

Whilst the restricted basis upon which party and party costs are awarded may be debated as a matter of policy, it is to be borne in mind that party and party costs have never been regarded as a total indemnity to a successful litigant for costs incurred, let alone total recompense for work done and time lost.   Putting to one side the question posed by the relatively rare exception of a solicitor acting in person, there is no inequality involved:  all litigants are treated in the same manner.   And if only litigants in person were recompensed for lost time and trouble, there would be real inequality between litigants in person and litigants who were represented, many of whom would have suffered considerable loss of time and trouble in addition to incurring professional costs.

CONCLUSION
In my opinion the decision in Cachia is directly applicable to the facts of this case and to the extent that it disapproves of the order made in Boswell is to be preferred to that decision.

The applicant has failed to establish first that he has suffered any loss of earnings or so called "out of pocket expenses" of the type sought to be claimed in item 235 of his bill of costs but even if he had sustained any such loss or incurred such expenses the authority of the Court to make an order for costs in the proceeding does not extend to ordering the payment of such losses and/or expenses as part of the costs of the proceeding.   The applicant is entitled to be paid the appropriate witness fee for the days on which he gave evidence.   No order of the Court is required to give him that entitlement.

There is no basis upon which the Court may exercise its power under s 32 in the manner sought by the applicant and no order will be made, other than that the Official Receiver's costs of and incidental to the appearances on 12 June 1996 and 22 July 1996, including the cost of preparing the written submission filed on 12 July 1996, be taxed and set-off against the amount of the applicant's costs as finally certified by the Deputy Registrar. I will hear counsel on the question of the basis upon which the Official Receiver's costs should be taxed.

I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney

Associate:

Dated:

Heard:    22 July 1996

Place:    Melbourne

Judgment: 29 July 1996

Appearances:

Mr J.K. Chippendall (instructed by Norton Smith Gledhill) appeared for the applicant.

Mr M. Galvin (instructed by J.M. Smith & Emmerton) appeared for the respondent.