Shield Mercantile Pty Ltd v Kyriackou (No.3) - [2003] FMCA 526

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SHIELD MERCANTILE PTY LTD v KYRIACKOU (No.3)

[2003] FMCA 526

PRACTICE AND PROCEDURE – BANKRUPTCY – Costs of witness answering subpoena – documents produced – non-compliance with requirement for conduct money – non-compliance by subpoenaed party with Rule 15.13 of the Federal Magistrates Court Rules – relevance of non-compliance – common law principles apply – party answering subpoena despite absence of conduct money entitled to reasonable costs and disbursements – production of documents assists Court – amount of costs fixed – responsibility of person answering subpoena to do so with minimum amount of costs and expense in answering the subpoena – solicitor/client or time based charge out rate not appropriate.

Bankruptcy Act 1975

Federal Magistrates Court Rules 2001, r.15.13, 15.17, 15.20, 21.07
Federal Court Rules 2001, o.62

Applicant:

SHIELD MERCANTILE PTY LTD
ABN 48 082 737 442

Respondent:

MICHAEL KYRIACKOU

File No:

MZ 393 of 2003

Delivered on:

7 November 2003

Delivered at:

Melbourne

Hearing Date:

7 November 2003

Judgment of:

McInnis FM

REPRESENTATION

Applicant:

No appearance

Counsel for the Respondent:

Mr J. Arthur

Solicitors for the Respondent:

John Finlayson Lawyers

Subpoenaed Party:

Mr P.S. Lustig

ORDERS

The Orders made on 8 October 2003 be varied by adding the following:

The costs of Mr Peter Simon Lustig in relation to the subpoena filed 12 August 2003 be fixed in the sum of $600.00 and that amount be paid out of the Bankrupt Estate according to the Bankruptcy Act.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 393 of 2003

SHIELD MERCANTILE PTY LTD

Applicant

and

MICHAEL KYRIACKOU

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

In this Application the Court had made a decision on a preliminary issue on 24 September 2003. On that occasion there was an issue between the parties on an Application for Review of a Sequestration Order as to the validity of a Bankruptcy Notice. For the present purposes, it is sufficient to note that a decision was made on

24 September 2003 in relation to that issue.
The matter was subsequently before the Court on 8 October 2003 and on that date the Application for Review, which had been filed on 1 July 2003, was dismissed. Other orders were made in the usual form in relation to the costs, and in particular orders were made that the Applicant creditor's costs of and incidental to the Application for Review be taxed pursuant to order 62 of the Federal Court Rules and be paid out of the Bankrupt Estate in accordance with the Bankruptcy Act.
When the Court had dealt with this matter at an earlier stage, that is, when the matter was before the Registrar on 18 August 2003, an issue arose in relation to the production of documents in answer to a subpoena served upon Mr Peter Lustig, a barrister and solicitor of the Supreme Court of Victoria. On 18 August 2003 the Registrar made an order in the following terms:
“3.The documents produced by Mr Lustig be kept on the Court premises. Such documents be inspected only by the respondent debtor's legal representatives. No copies to be taken.
4. The costs of Mr Lustig, the subpoenaed party, be referred to the Magistrate hearing this matter.”
The documents produced to the Court and which were then the subject of the orders made by the Registrar on 18 August 2003 had been produced in answer to a subpoena filed on 12 August 2003 by John Finlayson Lawyers of Richmond.
It is noted, and it is indeed common ground, the subpoena addressed to Mr Peter Lustig required him to produce a number of documents. Those documents set out in the subpoena included:
“1.Copy of invoice, in excess of $20,000, issued by Lalor Bargain Centre acknowledging receipt of funds.
2.All Bank West account statements made out to Michael Kyriackou.
3.Transcript of copy of police taped record of interview with Michael Kyriackou and voice cassette.
4.Any other documents in your possession that relate to Shield Mercantile Pty Ltd and Michael Kyriackou.”
The subpoena was served upon Mr Lustig and returnable on 18 August 2003. It is not in dispute that the subpoena was issued according to rule 15.13 of the Federal Magistrates Court Rules. It is also not in dispute that conduct money required to be paid pursuant to rule 15.17 of the Court Rules had not in fact been paid to Mr Lustig. The relevant rules provide:
“15.13 Subpoenas and notices to produce
(1)The Court or a Registrar may, on the Court’s or the Registrar’s own initiative or at the request of a party, issue:
(a)a subpoena for production; or
(b)a subpoena to give evidence; or
(c)a subpoena for production and to give evidence.
(2)A subpoena must be in accordance with the form of subpoena set out in Part 1 of Schedule 2.
(3)A subpoena must specify the name or designation by office or position of the person to who it is directed.
(4)A subpoena requiring a person to produce a document or thing must include an adequate description of the document or thing.
(5)A party should not request the issue of a subpoena for production and to give evidence if production would be sufficient in the circumstances.
…
15.17Conduct money
The person serving a subpoena must tender to the person served conduct money sufficient for return travel between the place of residence or employment (as appropriate) of the person served and the court.”
At that point upon receiving a subpoena without conduct money

Mr Lustig, in my view, would have been within his rights not to comply with the subpoena. Instead, despite there being some evidence of communications between Mr Lustig and the solicitors then acting for the Respondent, it would appear that Mr Lustig did, as I have indicated, attend Court on 18 August 2003 and produced documents which were then the subject of the orders made by the Registrar.
The matter had been listed before me on 2 September 2003, then adjourned to 8 September 2003. On that later date, I heard the preliminary issue and also heard from Mr Lustig, who attended, as anticipated by the orders made by the Registrar on 18 August 2003 and sought an order for costs. That issue was deferred by the Court and I indicated it would be dealt with on a separate occasion and dealt with on the basis of any material sought to be relied upon by Mr Lustig and indeed by the Respondent.
When the matter came on for hearing today Mr Lustig appeared on his own behalf. He has relied upon an affidavit sworn by him on 11September 2003. Mr Arthur has appeared for the Respondent, but also indicates and has made submissions for and on behalf of John Anthony Finlayson, the solicitors for the Respondent.
In the affidavit of Mr Lustig, he claims an amount for costs and disbursements which total the sum of $2789.40. That includes disbursements referred to as totalling $156.90 and costs of $2632.50. It is clear from the manner in which those costs have been itemised that they are amounts based upon time costing and would otherwise be regarded as amounts appropriate to a solicitor-client bill of costs.
Mr Lustig seeks an order for those costs, not simply against the Respondent or out of the Bankrupt Estate of Michael Kyriackou, but specifically seeks an order for those costs to be paid personally by the solicitor, John Anthony Finlayson.
It is relevant to note the rules of this Court in relation to the power to make an order for costs. Rule 15.20 of the Federal Magistrates Court Rules applies as follows:
“(1) This rule applies:
(a)if a subpoena is addressed to a person who is not a party in the proceeding; and
(b)before complying with the subpoena a person has given the party on whose behalf the subpoena is issued notice that substantial loss or expense would be incurred in properly complying with the subpoena; and
(c)the court is satisfied that substantial loss or expense is incurred in properly complying with the subpoena.
….
(3)The Court may fix the amount payable having regard to the scale of fees and allowances payable to witnesses in the Supreme Court of the State or Territory where the person is required to attend.
(4) The amount payable is in addition to any conduct money paid.”
In considering the issue of an order for costs against the lawyer it is relevant to note that rule 21.07 of the Court rules provide as follows:
“(1)The Court or a Registrar may make an order for costs against a lawyer if the lawyer, or an employee or agent of the lawyer has caused costs:
(a)to be incurred by a party or another person; or
(a)to be thrown away;
because of undue delay, negligence, improper conduct or other misconduct or default.”
In support of his Application for the costs in the amount to which I have just referred, Mr Lustig in his affidavit recites the chronology of events and otherwise attaches what might be regarded as relevant documentation. It is sufficient to note that there has obviously been a significant amount of time and effort devoted to this matter, either directly or indirectly, in relation to answering the subpoena.
For the present purposes, to save the parties the cost and expense of a further hearing involving cross‑examination of the deponents to affidavits, I had indicated a preparedness to accept that at least there had been some indication given by Mr Lustig to Mr Finlayson that

Mr Lustig would be seeking costs against Mr Finlayson personally for those costs associated with complying with the subpoena.
Having accepted that as a matter of fact for the present purposes, I am satisfied, however, that does not constitute compliance with

rule 15.20(1)(b). I am further satisfied, and find as a matter of fact, however, that the subpoena that was issued likewise did not comply with the rules as it clearly was served upon Mr Lustig without conduct money being paid pursuant to rule 15.17.
In circumstances where there has been non compliance by a party, or the solicitor of the party issuing a subpoena and the subpoena has been answered, then in my view, it is more appropriate in considering the costs incurred by that party who has not necessarily complied with rule 15.20 to apply common law principles which otherwise would apply in the absence of the rules. Therefore, to the extent that I am required, I will dispense with compliance with the rules for all parties in relation to the subpoena currently in issue before the Court and rely upon common law principles which apply in a matter of this kind.
Some guidance is obtained from the rules in relation to the issue of whether a cost order should be made against the lawyer. Having considered the affidavit material carefully, the submissions made by Mr Lustig on his behalf, whilst I may understand the concern he has in relation to what might be described as the lack of practical response to his enquiries and requests for payment, I am satisfied that there is not sufficient evidence before this Court which would justify a finding that there has been conduct of a kind by the lawyer, that is, Mr Finlayson, which would attract an order for costs against him personally.
I am satisfied that applying rule 21.07 there is insufficient evidence which would enable me to make a finding of undue delay, negligence, improper conduct or other misconduct or default by Mr Finlayson which would attract an order for costs against him personally. I am otherwise satisfied applying principles of common law in the exercise of an unfettered discretion in relation to costs, albeit that any discretion has to be exercised judicially, that there is no material before this Court which would justify an order personally against the lawyer concerned.
That leaves the question of whether or not as a matter of common law this Court is entitled or obliged to make an order in favour of

Mr Lustig. In my view, where a recipient of a subpoena answers the subpoena despite there being no conduct money paid, the fact remains that in answering that subpoena the individual in this case has, to the extent that it is required, assisted that party on whose behalf the subpoena was issued. It further assists the Court in bankruptcy in dealing with the issues before it, and the compliance otherwise with the subpoena despite the absence of conduct money is not a matter which then should be held against the person who undertook the expense and cost of complying with the subpoena.
It follows, in my view, that reasonable costs and expenses incurred in complying with that subpoena should be paid in the circumstances, having regard to the reasons that I have given by way of an order consistent with the previous orders made by this Court, that is, out of the Bankrupt Estate according to the Bankruptcy Act.
Having decided that it is appropriate to make an order for Mr Lustig's costs the next question arises as to the amount of those costs.

I accepted that in answering the subpoena he has incurred costs and expenses in gathering together the appropriate documents and attending Court on two occasions and, in addition, attending Court this day. Mr Lustig also made two earlier court appearances on 18 August 2003 and again on 8 September 2003.
When a subpoena is issued for the production of documents, however, I am satisfied that there are more prudent ways in which one can devote time to the task. It is incumbent upon a person answering a subpoena to endeavour to achieve with the minimum amount of cost and expense the objective of answering that subpoena. It is not a matter of simply claiming every cost and expense that may otherwise be associated with answering that subpoena, in an unfettered and perhaps extravagant manner.
If I were to apply the rules, it is clear the rules, and in particular rule 15.20(3) to which I have already referred, would require me to fix the amount payable having regard to the Supreme Court of Victoria’s scale of fees and allowances payable to witnesses. Given that I have accepted that there has been non compliance with the rules by the parties in this matter, and that I have determined that so much of the rules be dispensed with which would otherwise prevent me from making an order for costs in favour of Mr Lustig, it is my view that I should make an order in relation to costs which I determine to be fair and reasonable without regard to the Supreme Court scale.
I do have regard in general terms to schedule 1 of the Federal Magistrates Court costs in this matter. These costs, however, are of limited assistance in a matter of this kind, and in my view, it is more appropriate that the Court exercises the discretion it undoubtedly has to fix the costs based upon its own assessment of what might be a reasonable amount in this matter.
The amount of the costs claimed by Mr Lustig in my view is clearly inappropriate. The amount is based upon a solicitor-client charge-out rate and cannot possibly form the basis upon which this Court should make an order for costs out of the Bankrupt Estate. However, I accept that there have been two court attendances. I accept, further, that there have been certain disbursements incurred as a result of attending Court. There have obviously been other costs and expenses associated with the preparation of the affidavit material in support of this Application, although to a large extent that affidavit material was rejected to the extent of both the quantum of costs I am about to award and in relation to any personal order for costs to be payable by Mr Finlayson.
In assessing the costs, not including today, I am mindful of the two appearances on 18 August 2003 and 8 September 2003 and I am mindful of the disbursements that are referred to in the material. Doing the best I can on the limited information available to me, it is my view that an appropriate amount of costs that should be ordered in this matter is the sum of $600.
That then leaves the issues of the costs of this day. It has been submitted by Mr Arthur for the Respondent that there should be an indemnity costs order made against Mr Lustig and in favour of, as I understand it, Mr Finlayson personally who, as I have indicated, has sworn an affidavit on 19 September 2003 and who of course has undertaken the cost and expense of arranging the further affidavit of Walter Percival Edwards sworn 16 September 2003.
In my view, there is clearly a significant dispute between Mr Lustig and Mr Finlayson which perhaps is regrettable and has perhaps led to there being this hearing and the incurring of costs by both sides. It is clear that the claim for costs to be paid personally by Mr Finlayson has failed. It is equally clear from the amount of costs that I have determined that Mr Lustig has not succeeded in the amount of costs and disbursements which he otherwise sought or would have liked to have received from the Court.
However, having regard to the general discretion the Court has in relation to costs, and having regard to the non compliance with the rules by both parties, and the fact that the Court was then in a sense forced to rely upon its residual common law powers, and the inherent discretion the Court has in relation to the issue of costs, I have decided that in all the circumstances that there shall be no order as to costs of this day.
The only order of the Court, therefore, is that the orders made on

8 October 2003 be varied by adding to those orders the following:
The costs of Mr Peter Simon Lustig in relation to the subpoena filed

12 August 2003 be fixed in the sum of $600.00 and that amount be paid out of the Bankrupt Estate according to the Bankruptcy Act.

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 7 November 2003