Schmierer v Horan and Anor (No.2)
[2004] FMCA 95
•1 March 2004 (in chambers)
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SCHMIERER v HORAN & ANOR (No.2) | [2004] FMCA 95 |
| COSTS – BANKRUPTCY – Competing claims for costs – applicant partially successful – settlement offer made by the respondents – whether the applicant did better than the offer – whether the defence to the action was unreasonable – reduction in a costs award where the successful party is only partially successful. |
Bankruptcy Act 1966 (Cth), ss.120, 121
Evidence Act 1995 (Cth), s.131
Federal Court of Australia Act 1976 (Cth), 43
Federal Magistrates Act 1999 (Cth), s.79
Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd [2002] FCA 1294
ACCC v Black on White Pty Ltd [2002] FCA 1605
Fotheringham v Fotheringham (No 2) [1999] NSWCA 21
Gladstone Park Shopping Centre Pty Ltd v Ross Wills (1984) 6 FCR 496; 59 ALR 109
Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133
Ruddock v Vadarlis (No 2) (2001) 115 FCR 229; 188 ALR 143; [2001] FCA 1865
Schmierer v Horan & Anor [2004] FMCA 16
Trade Practices Commission v Nicholas Enterprises Ltd (No 3) (1979) 42 FLR 213
| Applicant: | TREVOR JOHN SCHMIERER |
| First Respondent: Second Respondent: | AMANDA HORAN ROBERT HORAN |
| File No: | SZ683 of 2003 |
| Delivered on: | 1 March 2004 (in chambers) |
| Delivered at: | Sydney |
| Hearing date: | Decided on written submissions |
| Judgment of: | Driver FM |
REPRESENTATION
| Counsel for the Applicant: | Mr B Skinner |
| Solicitors for the Applicant: | Koffels |
| Counsel for the Respondents: | Mr A Broadfoot |
| Solicitors for the Respondents: | Wollerman Shacklock |
ORDERS
The respondents shall pay 50 per cent of the costs and disbursements incurred by the applicant, to be assessed and, if necessary taxed, in accordance with the Federal Court scale.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ683 of 2003
| TREVOR JOHN SCHMIERER |
Applicant
And
| AMANDA HORAN |
First Respondent
ROBERT HORAN
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
On 3 February 2004 I gave judgment in the principal proceedings in this matter: Schmierer v Horan & Anor [2004] FMCA 16. The outcome of those proceedings was that the applicant trustee was successful pursuant to s.120 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). I gave declaratory relief and an order that the second respondent, Robert Brian Horan pay to the applicant the sum of $3,513.86 within 90 days. I further ordered that if the second respondent failed to comply with the order requiring him to pay that sum, both respondents were required to transfer the first respondent’s title in real estate the subject of the proceedings to the applicant. I also found that the second respondent had given partial consideration for the transfer to him of the first respondent’s interest in the property in the sum of $12,259.14. I ordered that in the event that the first respondent’s title was transferred to the applicant, the applicant was required to pay the second respondent that sum.
I invited written submissions from the parties as to costs at the time I gave judgment in the principal proceedings. Written submissions on behalf of the applicant as to costs were filed on 18 February 2004. Written submissions on behalf of the respondents were filed on 16 February 2004. Notwithstanding his success in the proceedings, the applicant trustee appealed to the Federal Court against orders 2, 3, 4 and 5 made by me on 3 February 2004. The notice of appeal identifies asserted errors made by me in determining the consideration given by the second respondent for the transfer and in not ordering the immediate transfer of the first respondent’s interest to the applicant. The notice of appeal also asserts error in my failure to make a decision for the purposes of s.121 of the Bankruptcy Act.
Submissions
Mr Broadfoot submits as follows:
The Court has a broad discretion under s.79 of the Federal Magistrates Act 1999 (Cth) (“the Federal Magistrates Act”) to make orders as to costs. Subsection 79(3) provides:
Except as provided by the Rules of Court or any other Act, the award of costs is in the discretion of the Federal Magistrates Court or Federal Magistrate.
Subsection 79(3) is drafted in similar terms to subsection 43(2) of the Federal Court of Australia Act 1976 (Cth) which has been held to confer an absolute and unfettered discretion, albeit one that must be exercised judicially and not arbitrarily or capriciously, or upon grounds unconnected with the litigation: see eg ACCC v Black on White Pty Ltd [2002] FCA 1605 at [5] (Spender J) applying Trade Practices Commission v Nicholas Enterprises Ltd (No 3) (1979) 42 FLR 213 at 219 (Fisher J).
Annexure PGW1 to affidavit of Peter Wollerman sworn 16 February 2004, being an offer by the second respondent to settle the proceeding for $5,000 is admissible on the question of costs (notwithstanding that the offer was made on a without prejudice basis) by virtue of subsection 131(2)(h) of the Evidence Act 1995 (Cth) (“the Evidence Act”). The offer is likely to be more favourable than the relief that the applicant would have obtained had it accepted an offer of $3,513.86 and its party-party costs on 10 November 2003, and the amount of the offer is more than the amount of $3,513.86 which the second respondent was ultimately ordered to pay to the applicant (on the basis that should he fail to do so, he will be required to transfer title to the property to the applicant).
In Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133 at [20] Powell JA (with whom Priestley JA and Sheppard AJA agreed), after referring to the New South Wales provision that is equivalent to subsection 131(2)(h) of the Evidence Act, considered the relevance of certain “without prejudice” offers which had not been accepted and stated:
Even if the offer which had been contained in one or more of the letters written by the respondent’s solicitors had been made the subject of a formal order for compromise delivered pursuant to the provisions of SCR Pt 22 the Court would have retained a discretion not to order the Appellant to pay the Respondent’s costs of the appeal’s success on an indemnity basis (Fotheringham v Fotheringham (No 2) [1999] NSWCA 21) and, even if one or other of the letters written by the Respondent’s solicitors be regarded as “a Calderbank letter”, the position clearly is that the court retains a discretion not to make an order for the payment of costs assessed on an indemnity basis, that discretion to be exercised in the light of all the circumstances of the case.
Adopting such an approach, the offer made by the letter annexed as PGW1 should be taken into account by the Court in exercising its discretion under s.79 of the Federal Magistrates Act, notwithstanding the fact that the offer was not made in terms of a traditional “Calderbank” letter.
In the circumstances, it would be appropriate for the applicant to be awarded its costs (to be taxed on a party-party basis in default of agreement) up until 10 November 2003, and for the second respondent to be awarded solicitor-client costs (so as to include costs associated with the respondents and counsel attending the hearing in Sydney) incurred from 11 November 2003. A certificate for counsel fees should be allowed in accordance with rule 21.15.
Alternatively, there should be no orders as to costs at all in light of the limited relief ultimately granted to the applicant. Further, Koffels solicitors (who as conceded at the hearing were the only creditors claiming against the first respondent’s estate) were acting for the applicant on a contingency basis: see the affidavit of Ross Carl Koffel sworn 6 June 2003 at paragraph 15. There is therefore no need for the applicant to have an order for costs.
The applicant’s solicitors submit as follows:
The applicant is the trustee of the bankrupt estate of Amanda Horan, the first respondent. The second respondent, Robert Horan, is the first respondent’s husband. The respondents each held a half interest in a house property in Melbourne. On or around 24 July 2000 the first respondent transferred to the second respondent her interest in the property. On 1 November 2000, the first respondent became a bankrupt. In the proceedings, the applicant sought inter alia a declaration that the transfer is void against trustee pursuant to sections 120 and/or 121 of the Bankruptcy Act, and costs.
The respondents defended the proceedings, on the basis that the second respondent had given consideration for the transfer of a value at least equal to the market value of the property at the time of the transfer.
The matter was heard by Federal Magistrate Driver on 25 November 2003. Judgment was handed down on 3 February 2004. A copy of the judgment is attached at ‘A’. His Honour rejected the respondents’ contention that the first respondent had given consideration for the transfer of a value at least equal to the market value of the property at the time of the transfer.[1] His Honour found that the transfer is void as against the trustee.[2] His Honour indicated that he would hear the parties in relation to costs, and that written submissions should be filed in support of any costs application.
[1] At paragraph 26 of the judgment, a copy of which is attached.
[2] At paragraph 26 of the judgment.
The applicant seeks an order that the first and second respondents pay the applicant’s costs of the proceedings, as agreed or assessed on an indemnity basis or, in the alternative, on a party and party basis.
Submissions
As to the making of a costs order in the applicant’s favour generally: costs to follow the event.
The applicant submits that he has been successful or at the least substantially successful in the proceedings, in that the transfer has been declared void as against the trustee.
The applicant seeks an order that the first and second respondents pay the applicant’s costs of the proceedings, as agreed or assessed on a party and party basis.
The applicant submits that he is entitled to the order sought in paragraph (1) on the following bases:
a)Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstance justifying some other order: See, for example, Ruddock v Vadarlis (No 2) (2001) 115 FCR 229; 188 ALR 143; [2001] FCA 1865 at paragraph 11 per Black CJ and French J; Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd [2002] FCA 1294 (22 October 2002], at paragraph 22 per Goldberg J.
b)Although the Court’s power to award costs is discretionary, the discretion “must be exercised judicially and not against the successful party except for some reason connected with the case”: Ruddock v Vadarlis (No 2) (supra) at paragraph 9 per Black CJ and French J. In the exercise of the discretion, justice demands consistency of approach: Gladstone Park Shopping Centre Pty Ltd v Ross Wills (1984) 6 FCR 496 at 505; 59 ALR 109 per Davies J.
The applicant submits that there are no “special circumstances” justifying a departure from the general rule that “costs follow the event”.
As to the awarding of indemnity costs: unreasonable defence of proceedings
Costs may be awarded on an indemnity basis in circumstances where a proceeding is “continued in wilful disregard of known facts or clearly established law”: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (supra) at paragraph 22 per Goldberg J.
The applicant submits that the sole basis upon which the respondents sought to defend the application was that the second respondent had given consideration for the transfer of a value at least equal to the market value of the property at the time of the transfer.
The applicant submits that the value of the property the subject of the transfer at the time of the transfer was, for lending purposes, $155,000.00, on the basis set out by Driver FM at paragraph 26 of the judgment. The applicant submits that the market value of the property the subject of the transfer at the time of the transfer was in excess of $155,000.00 but, in any event, the respondents did not seek to adduce any evidence in relation to the question of market value.
The applicant submits that the respondents did not lead evidence capable of establishing the sole basis of the respondents’ defence of the proceedings i.e. that the second respondent had given consideration for the transfer at a value at least equal to the market value of the property at the time of the transfer, even accepting $155,000.00 as such market value. This is so because the evidence did not amount to payment of consideration equivalent to an equity of $15,773.00, as Driver FM found.
The applicant submits that the basis of the respondents’ defence amounted to nothing more than a bare assertion which the respondents did not lead sufficient evidence to support at the hearing. The applicant submits that the respondents’ defence of the proceedings was unreasonable in that it was carried out in wilful disregard of known facts (being that the respondents could not adduce evidence to prove the basis of their defence) and clearly established law (being sections 120 and 121 of the Bankruptcy Act).
Further and in the alternative, the applicant notes that Driver FM, having found that the transfer was void as against the trustee under section 120 of the Bankruptcy Act, did not consider it necessary to proceed to determine whether or not the transfer was also void as against the trustee under section 121 of the same act.[3] The applicant repeats the submission that the sole basis upon which the respondents sought to defend the application was that the second respondent had given consideration for the transfer of a value at least equal to the market value of the property at the time of the transfer, and the applicant submits that even if the respondents’ assertion in relation to their defence had been proved, the transfer would have been void against the trustee under section 121 of the Bankruptcy Act, since the giving for the transfer of consideration at least as valuable as the market value of the property of the transfer does not, of itself, avoid the operation of section 121 in relation to the voiding of transfers of property as against the trustee. The applicant submits that the respondents’ defence of the proceedings was unreasonable in that it was carried out in wilful disregard of clearly established law (being section 121 of the Bankruptcy Act.
[3] At paragraph 27 of the judgment.
Respondents’ offers of settlement: why the offers should be irrelevant to the making of a costs order
By their letter dated 13 August 2003, the respondents foreshadowed an invitation “to withdraw the application and meet [the respondents’] costs”. A copy of that letter is attached at ‘B’. In the same letter, the respondents foreshadowed that “additional [a]ffidavit information will be available to confirm that valuable consideration was paid to Mrs Horan by her estranged husband in 1999 and 2000, prior to the transfer of the property.”
It was not possible to properly assess the respondents’ offer in circumstances where the evidence upon which it was asserted to be based had not been served. Furthermore, even if evidence had been available as alluded to be the respondents, such evidence would not have addressed the applicant’s claim under section 121 of the Bankruptcy Act, for the reasons set out above. In addition, the applicant has been successful in having the transfer declared void as against him. It was therefore reasonable for the applicant to not accept the respondents’ offer.
By their letter dated 17 September 2003, the respondents invited the applicant “to withdraw the [a]pplication now to save any further costs.” A copy of that letter is attached at ‘C’. That invitation was put “[i]n light of the material already submitted…”. The fact that the applicant has been successful in having the transfer declared void as against him demonstrates, without more, that it was reasonable for the applicant to not accept the respondents’offer.
By their letter dated 16 October 2003, the respondents said to the applicant: “[w]e invite you to withdraw your application immediately. If not then we put you on the notice that we will be looking for every cent in costs in preparing for this action.” A copy of that letter is attached at ‘D’. The letter referred to evidence (being the content of certain documents produced by Bendigo Bank under subpoena) which, it is submitted, was inadmissible to prove the assertion made by the respondents and which was not ultimately relied upon by the respondents at the hearing. Furthermore, even if evidence had been admissible and had been adduced by the respondents at the hearing, such evidence would not have addressed the applicant’s claim under section 121 of the Bankruptcy Act, for the reasons set out above. In addition, the applicant has been successful in having the transfer declared void as against him. It was therefore reasonable for the applicant to not accept the respondents’ offer.
On 23 October 2003, the solicitors for the applicant wrote to the solicitors for the respondents in the following terms:
We note your invitation to our client to withdraw this action immediately. We will of course advise our client of this, as we have done with previous invitations. However, it is difficult for us to give meaningful advice as to settlement to our client in circumstances where your clients may not have filed and served all the evidence in support of their position. In other words, we are not going to advise our client that settlement is advisable in circumstances where you have simply foreshadowed that compelling evidence will be available in support of your clients’ position, without serving that evidence for our consideration.
If you are prepared to advise us that your clients’ evidence is now complete, or in the alternative provide specific details of any further evidence which you anticipate will be forthcoming, then we will of course reconsider the position.
A copy of that letter is attached at ‘E’.
On 27 October 2003, the solicitors for the respondents replied in the following terms:
We understand there is likely to be at least one or two further [a]ffidavits to confirm that in fact considerable valuable consideration was paid to Mrs Horan by [the second respondent] to obtain her interest in the property; and thereby limiting your opportunity to claim anything from her interest, as it did not exist.
We are still trying to get that final evidence; it’s difficult to obtain but when we do we shall advise you. You should be well aware that the valuation of the property at the time this situation occurred together with the amounts paid by our client more than substantiate the acquisition by our client of an interest for valuable consideration.
A copy of that letter is attached at ‘F’. It is submitted that the evidence alluded to was never served, nor adduced at the hearing of the matter.
On 10 November 2003, the solicitors for the respondents indicated by letter that “[i]n order to try and make some commercial decision to settle this matter” the respondents were willing to settle the matter by “an all in offer of $5,000.00”. A copy of that letter is attached at ‘G’. It is submitted that it was reasonable for the applicant to not accept that offer since:
a)The offer did not make any provision for the payment of the applicant’s costs of the proceedings to date, and the amount of the offer would clearly be insufficient to cover the applicant’s costs on an “all in” basis.
b)The offer was for considerably less than the applicant could expect to recover in the event that he was successful at the hearing of the matter, in circumstances where the respondents had not served evidence in compelling support of the sole basis upon which they intended to defend the claim.
Driver FM’s judgment anticipates that the rights as between the parties will be resolved following payment by the second respondent to the applicant of the sum of $3,513.86.[4] It is submitted that it is not appropriate to deny the applicant his costs of the proceedings, or to make a costs order against the applicant, on the basis that the sum of $3,513.86 is less than the amount of $5,000.00 referred to in the respondent’s letter dated 10 November 2003 since:
a)It is submitted that the applicant is entitled to his costs of the proceedings, which, it is submitted, will exceed the amount of $5,000.00 even on a party and party assessment basis.
b)Driver FM’s judgment is flawed in the following respects inter alia:
i)Having found that the transfer of the property the subject of the proceedings was void against the trustee, it was not open for His Honour to resolve the dispute on the basis that he did (as anticipated by orders (3) and (4).
ii)Having found that the transfer of the property the subject of the proceedings was void against the trustee, His Honour should have ordered that the second respondent transfer to the trustee the interest in the property previously owned by the first respondent. Alternatively, such a result could have been obtained by operation of law.
Had His Honour made the order set out at paragraph 22.2(b), the applicant could have expected to obtain an interest worth approximately $57,142.00 (based on a drive-by valuation of $250,000.00 as at the date of the hearing[5], less the amount of the discharge value of the ANZ mortgage ($123,454.93) less the amount which His Honour found that the second respondent paid in consideration for the transfer ($12,259.14)[6], divided by 50%). This amount is considerably in excess of the amount of the respondents’ offer.
Orders (2), (3), (4) and (5) of His Honour’s judgment are to be the subject of an appeal to the Federal Court of Australia.
[4] At order (3) of the judgment.
[5] This evidence was not led as it was not necessary or relevant to the relief sought by the applicant.
[6] Which finding will be the subject of an appeal by the applicant.
Reasoning
I have considered whether it is necessary and appropriate to make a decision on costs pending the outcome of the appeal in the Federal Court. If the appellant is successful the Federal Court may well make orders as to the costs of the proceedings before me. If I make orders as to costs, it is possible that there may need to be a separate appeal, given the lapse of time between my decision in the principal proceedings and any decision as to costs. However, a decision by me on costs may be relevant to the appeal and it is open to the Federal Court to hear an appeal on costs concurrently with the hearing of the appeal on the substantive orders. I have decided, in the circumstances, that I should make a decision on costs now.
As Mr Broadfoot noted in his written submissions, the Court’s discretion under s.79 of the Federal Magistrates Act is a broad one. However, I also accept the applicant’s submissions that generally, costs should follow the event. Nevertheless, the principle that costs follow the event is only a principle. It is not a rule of application and a successful party has no entitlement to costs. Circumstances justifying a departure from the general principle include the circumstance that an offer of settlement has been made by an unsuccessful party prior to the conclusion of the proceedings and the successful party has done no better than the terms of that offer. In this matter, I accept that two offers of settlement were made by the respondents. The first is not presently relevant. The second was made by letter dated 10 November 2003 and contained an offer to settle the proceedings by payment of $5,000 inclusive of costs. The offer was not in the strict form of a Calderbank offer but I nevertheless consider it in relation to the question of costs. I find that the successful applicant did not do no better than the offer for two reasons. First, it is almost certain that, at the time the offer was made, the applicant’s costs would have exceeded the difference between $5,000 and the sum of $3,513.86 that the second respondent is required to pay the applicant. I do not think it is material that the applicant’s solicitors (the principal creditor) were acting on a no win no fee basis. The applicant did win and will presumably have to pay the solicitors. Secondly, the orders deal with the contingency that the sum required to be paid may not be paid. At this stage, I have no knowledge that the sum required to be paid has been paid. If it is not paid within 90 days then the first respondent’s interest in the property will have to be transferred to the applicant. In the circumstances, it cannot be said that the applicant has done no better than the terms of the offer. I reject the second respondent’s claim for costs.
I also reject the applicant’s claim for indemnity costs. In my view, the defence of the proceedings by the respondents was not unreasonable. They asserted consideration for the transfer of the house property from the first respondent to the second respondent and were able to persuade me that there had been partial consideration. They had an arguable case that there had been full consideration. The evidence as presented, however, did not persuade me that there had been full consideration.
I conclude that the successful applicant should receive an order for costs. However, it is generally accepted that an order for costs may be reduced where a successful party is only partially successful. The applicant did not succeed in obtaining an order for the immediate transfer of the first respondent’s interest to the applicant. I found that there was consideration for the impugned transfer between the respondents at a level significantly greater than what the applicant was prepared to concede. I found it unnecessary to deal with the application under s.121 of the Bankruptcy Act. I have decided that, in these circumstances, the costs award that the applicant would ordinarily receive under the Federal Court scale should be reduced by 50 per cent.
I certify that the preceding eight (8) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 1 March 2004
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