Re St Leon, I.K.M.G v Ex parte National Australia Bank Ltd

[1994] FCA 1032

RE: ISABELL KARIN MARION GERTRUD ST LEON
EX PARTE: NATIONAL AUSTRALIA BANK LIMITED
No. NP2426 of 1994
RE: REGINALD PHILLIP FRANCIS ST LEON
EX PARTE: NATIONAL AUSTRALIA BANK LIMITED
No. NP2427 of 1994
FED No. 1032/94
Number of pages - 4
Costs

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF NEW SOUTH WALES
LINDGREN J

CATCHWORDS

Costs - General Rule - Costs follow the event - dismissal of creditor's petition on ground of invalidity of bankruptcy notice - failure by the debtor to question the validity of the bankruptcy notice in an application to set aside the bankruptcy notice - whether this should deprive debtor of costs on proceedings on creditor's petition.

Re McAlpine; Ex parte AMEV Finance Limited (1987) 80 ALR 29 dist.
Re Bunn; Ex parte Bunn (1989) 20 FCR 393 dist.

HEARING

SYDNEY, 19 December 1994
#DATE 19:12:1994

Mr P Parker of Kemp Strang and Chippindall appeared for the debtors.

Mr S M P Reeves of counsel instructed by Mallesons Stephen Jacques appeared for the creditor.

ORDER

THE COURT ORDERS:
THAT there be no order varying the costs order made on 16 December 1994.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

LINDGREN J In these two matters NP2426 of 1994 and NP2427 of 1994, I made orders on Friday, 16 December 1994. The orders made included an order that the petitioning creditor pay the debtors' costs of the proceedings. Identical orders were made in both cases (henceforward, I shall, for convenience, refer to the facts of one case, but they are relevantly identical). As appears from the Reasons for Judgment, of that date, the creditor's petition was dismissed on the ground that there was no act of bankruptcy. There was no act of bankruptcy because, as I held, the bankruptcy notice was invalid for failing to state an address for the petitioning creditor.

1. At the time when I delivered judgment on 16 December, Mr Reeves of counsel for the creditor asked to be heard on costs and I said that I would hear him, although time did not permit this to occur on that occasion. Accordingly the matter has been relisted today on the question of costs.

2. Mr Reeves has referred me to Re McAlpine; Ex parte AMEV Finance Limited (1987) 80 ALR 29 (FCA/Spender J) and Re Bunn; Ex parte Bunn (1989) 20 FCR 393 (FCA/Neaves J) in both of which creditors' petitions were dismissed on the ground of the invalidity of a bankruptcy notice relied upon and the debtor did not obtain order for costs without qualification.

3. In the McAlpine case, Spender J, gave the debtor only half of his taxed costs. His Honour gave two reasons: the first was that there had been two issues argued as to the validity of the bankruptcy notice and the debtor had succeeded on one only. The second reason, which he described as being the more important, was that the question of the validity of the bankruptcy notice had been raised only at the petition stage. In this regard his Honour said (at 34):
   

"... the court ought not to be seen to encourage a party to lay by and raise objections only at the petition stage which could have

been earlier taken".

1. In other words,depriving the debtor of half of his costs was, as it were, a sanction for failure to apply to set aside the bankruptcy notice. In the McAlpine case the point regarding the validity of the notice on which the debtor succeeded was raised on the return of the creditor's petition.

2. In the Bunn case, Neaves J made no order as to costs. His Honour took into account the facts that the debtor had taken no steps to set aside the bankruptcy notice and that the debtor did not initially rely on the ground of invalidity on which the debtor succeeded on the hearing. Further, his Honour took into account the fact that the substantial part of the hearing was concerned with submissions on other aspects and that each party had had some measure of success in relation to those issues.

3. Although the present case is like both the McAlpine and the Bunn cases in the respect that the debtor did not apply to set aside the bankruptcy notice on the ground on which the debtor succeeded on the hearing of the creditor's petition, it is unlike both of those cases in other respects.

4. First, in the present case there were four issues argued on the hearing and the debtor succeeded on all of those issues, whereas in McAlpine and Bunn the debtor did not have success on all issues argued on the hearing of the creditor's petition.

5. Secondly, in the present case the debtor was not effectively represented and advised until late in the day. A little needs to be said about the history of the matter.

6. The debtor applied to set aside the bankruptcy notice but this was not pursued as I indicated in my Reasons for Judgment dated 16 December 1994. Indeed, the debtor's application was in fact dismissed and the debtor was ordered to pay the creditor's costs.

7. The application to set aside was filed by the debtor without the benefit of legal advice. It was returnable on 27 June 1994. The ground asserted was the debtor's wish to pursue a cross demand against the creditor. Upon the filing of the application to set aside, a Deputy Registrar made an order extending the time for compliance with the bankruptcy notice to the return date of the debtor's application to set aside, that is, to 27 June 1994.

8. The debtor was represented by a solicitor on 27 June 1994, but all that happened then was that the debtor's application was stood over to 12 July 1994 and a Registrar further extended the time for compliance with the bankruptcy notice to the latter date. At some time the then solicitor for the debtor ceased to act, and on 12 July 1994, in the absence of any appearance by or for the debtor, the application to set aside was dismissed and the debtor was ordered to pay the creditor's costs.

9. The point of all this is that the debtor appears to have been without effective legal representation and advice in relation to the substance of the matter until the present solicitors came into the matter at the petition stage. It was they who noticed the defect in the bankruptcy notice and they promptly raised it with the judgment creditor's solicitors.

10. Thirdly, the judgment creditor has had the benefit of two orders for costs in its favour in relation to the bankruptcy notice proceedings. There was the order made upon dismissal of the debtor's application to set aside the bankruptcy notice previously noted. As well, the judgment creditor itself filed an application seeking relief in respect of orders which had been made by a Deputy Registrar and Registrar, extending and further extending the time for compliance with the bankruptcy notice. That application was heard by his Honour, Lockhart J, on 2 August 1994. I dealt with the substantive orders then made by his Honour, in my earlier Reasons for Judgment. The judgment creditor obtained an order that the debtor pay the judgment creditor's costs on that application.

11. Thus, two orders for costs have been made against the debtor in favour of the creditor in the proceedings relating to the bankruptcy notice. This is another feature which distinguishes the present case from the McAlpine and Bunn cases.

12. The creditor's petition was filed on 18 August 1994. The first directions hearing on the creditor's petition took place on 30 September, 1994 and the question of the defect in the notice was raised with the judgment creditor's solicitors not long after that date. Apparently it was raised in early October by telephone and there was formal notification on 14 October 1994. From that time down to the delivery of judgment on 16 December 1994 the judgment creditor has resolutely sought to support the bankruptcy notice.

13. Mr Reeves has said all that could be said in favour of the petitioning creditor's case, both on the present question of costs and on the substance of the questions which I decided separately on 16 December 1994. However, I am not persuaded. It does seem to me that nearly all, if not all, of the costs relating to the separate questions decided on 16 December were incurred after the debtor raised the point on which the debtor has now had success. It is perhaps understandable, in general terms, that a creditor would wish such a point to be raised upon the making of an application to set aside the bankruptcy notice. But it should be noted that in this case from the time when the point was first raised the judgment creditor has disputed it.

14. If any order other than the one which I made on 16 December was to be made in this case, it would in my view on any reckoning have to be an order which gave the debtor virtually all of the debtor's costs on the proceedings on the creditor's petition. If the point on which the debtor succeeded had been litigated on an application to set aside the bankruptcy notice, the creditor would not have obtained the two orders for costs of which it now has the benefit.

15. I should perhaps make it clear, although it is surely obvious, that the order which I made on the creditor's petition does not affect the orders for costs in favour of the creditor made on the debtor's application to set aside the bankruptcy notice and also on the hearing of the creditor's application before Lockhart J.

16. Notwithstanding the arguments put for the petitioning creditor I see no reason to make any order different from the order which I made on 16 December, 1994, that is, that the creditor pay the debtor's costs of the proceeding.