Stephens v Pattison and Anor and Pattison v Stephens (No.2)

[2014] FCCA 953

FEDERAL CIRCUIT COURT OF AUSTRALIA

STEPHENS v PATTISON & ANOR and PATTISON v STEPHENS (No.2) [2014] FCCA 953

Catchwords:
BANKRUPTCY – Consideration of form of final orders to be made – whether court should consider new submissions not previously made where final orders not entered and court not functus officio.

Legislation:
Bankruptcy Act 1966, ss.154, 162(4), 64ZBA

Federal Circuit Court Rules 2001, r.16.05

Stephens v Pattison & Anor and Pattison v Stephen [2014] FCCA 62
Maxwell-Smith v S & E Hall Pty Ltd [2004] FCA 840
Dib Group Pty Ltd v Coolabah Tree Aust-Wide Pty Ltd [2011] FCAFC 57
Adsett v Berlouis (1992) 37 FCR 201
Donnelly v Maxwell-Smith [2010] FCAFC 154

Applicant: KENNETH LYLE STEPHENS

First Respondent: PAUL ANTHONY PATTISON (AS FORMER TRUSTEE OF THE BANKRUPT ESTATE OF KENNETH LYLE STEPHENS, A BANKRUPT)

Second Respondent: OFFICIAL TRUSTEE IN BANKRUPTCY (AS TRUSTEE OF THE BANKRUPT ESTATE OF KENNETH LYLE STEPHENS, A BANKRUPT)

File Number: MLG 1025 of 2010

AND

Applicant:	PAUL ANTHONY PATTISON (AS TRUSTEE OF THE PROPERTY OF KENNETH LYLE STEPHENS, A BANKRUPT)
Respondent:	KENNETH LYLE STEPHENS

File Number: MLG 82 of 2010

Judgment of: Judge Burchardt

Hearing date: 12 March 2014

Date of Last Submission: 12 March 2014

Delivered at: Melbourne

Delivered on: 19 May 2014

REPRESENTATION

MLG 1025 of 2010

Counsel for the Applicant: Ms Knights

Solicitors for the Applicant: Littleton Hackford & D’Alessandro Pty Ltd

The Respondent: In Person

Counsel for the Second Respondent (the Official Trustee): Ms Poulakis

Solicitors for the Second Respondent (the Official Trustee): Harris Carlson Lawyers

MLG 82 of 2010

The Applicant: In person

Counsel for the First Respondent: Ms Knights

Solicitors for the First Respondent: Littleton Hackford & D’Alessandro

ORDERS

1. The bankruptcy of Mr Stephens is annulled. 

2. Mr Stephens is to pay within 90 days:

   (a)Remuneration owed to the First Respondent, $18,336.77;

   (b)Fees owed to Mendelsons, $10,000;

   (c)Second Respondent’s remuneration, $10,235.22.

3. It be declared that the First Respondent and Second Respondent are not entitled to any indemnity from the former bankrupt estate of

   
   

   Mr Stephens in respect of the costs of these proceedings. 

4. In the event that Mr Stephens does not comply with Order (1):

   (a)The Second Respondent take transmission of the Applicant’s property in accordance with section 51(1) of the Transfer of Land Act 1958.

   (b)The Second Respondent will forthwith take vacant possession of the Applicant’s property and thereafter deal with the property as it sees fit to recover the sums orders pursuant to Order (1) or any part thereof still owing as well as any further costs and charges incurred by the Second Respondent in relation to the sale of the property. 

   (c)There otherwise be no orders as to costs. 

FEDERAL CIRCUIT COURT
OF AUSTRALIA

AT MELBOURNE

MLG 1025 of 2010

KENNETH LYLE STEPHENS

Applicant

And

PAUL ANTHONY PATTISON (AS FORMER TRUSTEE OF THE BANKRUPT ESTATE OF KENNETH LYLE STEPHENS, A BANKRUPT)

First Respondent

OFFICIAL TRUSTEE IN BANKRUPTCY (AS TRUSTEE OF THE BANKRUPT ESTATE OF KENNETH LYLE STEPHENS, A BANKRUPT)

Second Respondent

MLG 82 of 2010

PAUL ANTHONY PATTISON (AS TRUSTEE OF THE PROPERTY OF KENNETH LYLE STEPHENS, A BANKRUPT)

Applicant

And

KENNETH LYLE STEPHENS

Respondent

REASONS FOR JUDGMENT

1. On 28 January 2014 I delivered judgment in these two matters (“my earlier judgment”). I annulled Mr Stephens’s bankruptcy, but indicated that I did not have the power to make the cost orders he sought. It seems that through oversight the annulment order has not even yet been entered.

2. Mr Stephens had sought that the remuneration of Mr Pattison, his former Trustee in bankruptcy, be limited in the manner indicated in his Application and that Mr Pattison pay not only his costs, but also the costs of the Second Respondent, the Official Trustee.  These Reasons for Judgment should be read in conjunction with the former ones. 

3. In the course of my earlier judgment, I made it clear that I would have made the orders Mr Stephens sought as to costs if I had the power to do so and I was, on a number of occasions, extremely critical of the levels of costs charged by Mr Pattison.  My language was not kind, but I felt it was justified by the scale of Mr Pattison’s overcharging.  In the course of the judgment I noted (paragraph 57) that at present Mr Pattison is the registered owner of Mr Stephens’s home and the likelihood of some practical difficulty arising from that position. 

4. I indicated (paragraph 69) that I was minded to adopt the procedure indicated in Maxwell-Smith v S & E Hall Pty Ltd [2004] FCA 840, and order that a charge be placed over Mr Stephens’s home which would have the effect of enabling the Trustee to pursue the realisation of the property presently registered in Mr Pattison’s name and thus give effect to the terms of s.154 of the Bankruptcy Act 1966 (“the Bankruptcy Act”).

5. Paragraph 71 of my earlier judgment read:

   “This has been an extremely messy set of proceedings at every step and in the circumstances I will simply publish these reasons for judgment and give the parties an opportunity to consider them before taking submissions as to what orders should be made to give effect to my conclusions.”

6. My conclusions relevantly included paragraph at 70:

   “… There has been a pigheadedness about the Official Trustee’s behaviour which has only compounded the rapacity of Mr Pattison.  If I had power under the Court’s general powers to award costs against Mr Pattison I would undoubtedly use it.  Nonetheless, this general power plainly cannot be invoked in circumstances designed to defeat the operation of s.154. The observations of Moore J in Maxwell‑Smith are plainly binding on me.”

7. It should thus have been apparent to the parties that what I was seeking was orders designed to give effect to my conclusions.  As counsel for the Official Trustee has submitted, the parties did not thereafter conduct themselves in a fashion that suggested that they were limited in that way. 

The Applicant’s Submissions on Costs Orders

1. I had provided a timetable for written submissions to give effect to the concluding paragraph of my judgment.  The applicant’s initial tranche of written submissions is dated 17 February 2014.  In it the applicant effectively submitted that the Court should, on the basis of asserted Federal Court authority, order Mr Pattison to pay the costs of the proceeding and refuse the Trustee indemnity from the bankrupt estate. 

2. It is immediately obvious that this submission runs contrary to the findings I had made in the earlier judgment. 

The First Respondent’s (Mr Pattison) submissions filed 26 February 2014

1. The submissions filed by Mr Pattison submitted that the applicant’s written submissions appear to seek a rehearing of my decision dated

   
   

   28 January 2014 and continued:

   “3.    It is my respectful submission that this is an abuse of process by the Applicant. 

   4.    Your Honour has made his determination and the Applicant was unsuccessful in his action in seeking to have me personally liable as he sought in his Application. 

   5.    I submit the principle of Res Judicata applies.”

2. The written submission went on to take issue with the assertions made by the applicant as to the Federal Court authorities referred to. 

3. At paragraphs 13 and 14, Mr Pattison’s submissions assert:

   “13.  The Applicant emphasises your Honour’s language at paragraph 55 “enormous amount of money” and at paragraph 66(d) “rapacity of Mr. Pattison’s outrageous fee demands”.  It is unfortunate that before delivering judgment your Honour did not inquire of me about what concerned you (the quantum of fees), as my explanation may have caused your Honour to come to a different conclusion or use different terminology. 

   14.  Had I been given the proper opportunity to be heard on this issue I would have submitted that one explanation for these fees is that the fees communicated to the Applicant were determined at the rates charged under the Pattison scale of fees (which were below market rate at that time) and have been compared by his Honour to the rates allowed at taxation.”

4. The written submission goes on to explain why, according to

   
   

   Mr Pattison, the disparity in the rates as taxed and the Pattison rates subsisted.  They went on to assert that there had been no over-charging in the estate.  The written submissions further asserted that it was the fact that the applicant paid out his creditors in full which circumvented Mr Pattison’s ability to have the creditors approve his remuneration of fees and that the creditors would have done so.  The submission went on at paragraph 21 to invite me to reconsider my reasons for judgment in using the phraseology of which Mr Pattison complained pursuant to the slip rule and sought that a further $4,500 be paid to meet an outstanding fee of counsel. 

5. It is once again immediately apparent, as with the applicant’s written submissions, that these did not conform to what I had asked for, namely submissions as to how the conclusions I had earlier expressed in my earlier judgment should be given effect. 

Second Respondent’s submissions on final orders filed 26 February 2014

1. These submissions relevantly, having noted some aspects of the earlier judgment, put what was in effect an offer of compromise to the applicant to reduce the amounts the applicant would have to pay.  The submission went on at paragraph 6 to posit a course of action, namely:

   “If payment of the annulment amount of $73,026.27 is not satisfied by the Applicant within the time allowed for payment, the Second Respondent will take vacant possession of the property, pursuant to section 51(1) of the Transfer of Land Act 1958 and arrange for its sale. The proceeds of sale will be applied toward payment of the annulment amount, as well as any further costs and charges incurred by the Second Respondent, occasioned by the property’s sale.”

2. The submission went on to say under the heading “Final Orders” at paragraphs 11 and 12:

   “11. The Second Respondent’s position is that it is inevitable that it will be required to take transmission of the Applicant’s property. Regardless of whether the property is sold by the Second Respondent with the proceeds of sale disbursed in accordance with sections 153 and 154 of the Act, or whether the Applicant otherwise achieves an annulment and the property revests in the Applicant, the Trustee will be required to transmit the property in accordance with section 51(1) of the Transfer of Land Act 1958.

   12.  For these reasons, the Second Respondent is of the view that the appropriate final orders for this proceeding should be as follows:

   a. The Second Respondent take transmission of the Applicant’s property in accordance with section 51(1) of the Transfer of Land Act 1958; and

   b.  Within 90 days of the orders, or as otherwise ordered or agreed, the Applicant pay the amount of $73,026.27 (annulment amount) to the Second Respondent to be distributed as follows:

   i.   $18,336.77 – Remuneration to the First Respondent;

   ii.  $10,000 – to Mendelsons;

   iii.          $31,176.12 – costs and expenses of the Second Respondent;

   iv. $10,235.22 – remuneration of the Second Respondent; and

   v.  $3,278.16 – realisation charges of the Second Respondent.

   c.  If the Applicant fails to pay the annulment amount, or any part thereof, within 90 days of the orders or as otherwise ordered or agreed, the Second Respondent will forthwith take vacant possession of the Applicant’s property and thereafter deal with the property as it sees fit to recover the annulment amount or any part thereof still owing as well as any further costs and charges incurred by the Second Respondent in relation to the sale of the property.

   d.  There otherwise be no orders as to costs.”

The Applicant’s submissions on costs orders in reply and the affidavit of Mr D’Alessandro

1. These documents were both filed on behalf of the applicant on 6 March 2014.  Although, as with the material filed by Mr Pattison, what I set out is somewhat of a general paraphrase, the applicant’s submissions essentially took issue with Mr Pattison’s assertions as to the entitlement to have charged Pattison rates.  It was put that Mr Pattison knew he could not do so and ought to face censure as a result. 

2. As to the second respondent’s submissions, it was submitted that the Trustee should have known that Mr Pattison’s costs would be substantially taxed down and therefore the applicant was likely to succeed in his annulment application.  It was submitted that from

   
   

   9 May 2013 it should have been understood that Mr Stephens was not pursuing orders limiting the Official Trustee’s remuneration and that in those circumstances it was appropriate that Mr Pattison rather than Mr Stephens bear any burden for the Official Trustee’s legal costs in the annulment proceeding.  Mr Stephens expressly did not accept the compromise offered by the Official Trustee at paragraph 3 of the Official Trustee’s submissions. 

3. The submission concluded at paragraph 14:

   “Further, any result that requires Mr Stephens to bear the Official Trustee’s legal costs of the proceedings will be unable to be met by Mr Stephens without the sale of his home.  It is submitted that this would be an unjust result.”

4. Mr D’Alessandro’s affidavit was essentially facultative, putting into evidence file notes and correspondence purporting to show that

   
   

   Mr Pattison was on clear notice that he would not be able to charge Pattison rates.

The First Respondent’s reply to the Applicant’s submissions on cost orders in reply dated 5 March 2014

1. This document was filed by Mr Pattison in Court by leave.  It responded to the factual assertions made by the applicant.  In part, some of the matters asserted are opinion evidence which are not properly before the Court.  Paragraphs 8 and 9 make factual assertions about industry practice which are clearly inadmissible. 

2. At the hearing, Mr Pattison handed to the Court a Certificate of a Resolution not passed pursuant to s.64ZBA of the Bankruptcy Act dated 5 February 2008 and correspondence from the Official Trustee dated 12 July 2012 to Mr Pattison refusing his request to put a proposal to creditors under s.64ZBA.

The Oral Submissions

1. It is sufficient to say that counsel for Mr Stephens, and Mr Pattison, essentially spoke to their written submissions in terms which, while eloquently expressed, added nothing of substance to what had been written.  

2. Counsel for the Official Trustee submitted that I should give effect to my conclusions as expressed in the earlier judgment and that the submissions made by the other parties did not properly arise from what I had asked.  Counsel proposed a stay period of 90 days for Mr Stephens to pay the amounts necessary to annul his bankruptcy, failing which the Official Trustee would take transmission. 

3. Counsel submitted the case law relied upon by the applicant was distinguishable on its facts.  She submitted that the Official Trustee was the proper contradictor in the annulment application.  The Official Trustee had no instructions in relation to the outstanding counsel’s fee Mr Pattison claimed. 

Consideration

1. Given that I accept the Official Trustee is correct to say that the submissions of the applicant and the first respondent seek to re-agitate matters already determined in my earlier judgment, the first matter that arises is whether it is proper to entertain those submissions at all. 

2. Rule 16.05 of this Court’s Rules (“the Federal Circuit Court Rules 2001”) provides relevantly that:

   “(1)  The Court may vary or set aside its judgment or order before it has been entered.”

3. “Enter” is defined in the Dictionary to the rules as:

   “Enter, in relation to an order, means to take out or authenticate the order.”

4. There is no corresponding definition of “entry” in respect of a judgment. 

5. By r.16.08 an order may be entered, relevantly, under the seal of the Court signed by an Officer of the Court acting with the authority of the Chief Executive Officer. 

6. In this case, consistent with the Court’s general practice, my earlier judgment has been signed and dated by my associate who certifies that the reasons for judgment are a true copy of my reasons for judgment.  It is not the Court’s general practice to seal or sign reasons for judgment.  As just indicated, in relation to orders, entering means:

   “To take out or authenticate the order.”

7. These are posited as alternatives.  Taking out therefore is obviously something different to authenticating. 

8. As a matter of ordinary English and common sense, the taking out of a judgment (as opposed to an order) must surely mean preparing it and publishing it in open Court.  This has already been done. 

9. Nonetheless, no order has been entered of a final nature and it is clear that I am not functus officio. 

10. Equally clearly, in my opinion, it is not open to me simply to vary the terms of my earlier judgment.  It has been published and I do not think I have the power to recall it. 

11. What I can do, it seems to me, is permit further argument if the interests of judgment require it.  In Dib Group Pty Ltd v Coolabah Tree Aust-Wide Pty Ltd [2011] FCAFC 57, the Full Court said at [77] and following:

    “[77] Courts exercise a power to set aside judgments or orders after those judgments or orders have been entered in only limited circumstances so as to uphold the principle that there must be some finality in litigation and that once an order has been entered it should not be subject to review by the judge who made the order: Preston Banking Co v William Allsup & Sons [1895] 1 Ch 141 at 144; Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 at 235. But even that principle must yield in the appropriate case to the interests of justice. The courts have an inherent power (in this court an implied power) to set aside a judgment after it has been entered where there has been a miscarriage of justice: Taylor v Taylor (1979) 143 CLR 1. Circumstances in which a court will vary or set aside an order that has been entered are identified in O 35 r 7(2), but those paragraphs should not be understood to be the only circumstances in which the court would exercise such a power.”

12. The Court continued at [80]-[84]:

    “[80] On the face of it, O 35 r 7(1) is a power which may be exercised at any time before the judgment or order which is to be varied or set aside is entered, and does not require proof of any of the matters in O 35 r 7(2) or any evidence of a clerical mistake or slip as is contemplated in O 35 r 7(3). On its face, it is in the widest possible terms.

    [81] However, the authorities are clear that the exercise of the jurisdiction given under O 35 r 7(1) ought only to be exercised with great caution because of the public interest in the finality of litigation: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 (Autodesk).

    [82] If a judgment is pronounced or an order is made upon the court giving reasons, the power to vary or set aside the judgment or order which follows the reasons would only be exercised “if there is some matter calling for review”: Smith v NSW Bar Association (1992) 176 CLR 256 at 265.

    [83] Where a judge after publishing reasons and giving judgment and making orders realises that he or she has proceeded on a misapprehension either in relation to the facts or the law, that judge may recall those reasons and make orders under O 35 r 7(1) to vary or set aside the orders made on those reasons. This is no more than an example of a court acting to prevent a miscarriage of justice and in furtherance of the administration of justice.

    [84] However, the jurisdiction is given to the court only for the furtherance of the administration of justice and not to allow a party after the court’s reasons have been given and orders made to reagitate the matters upon which the court has opined. In Autodesk Mason CJ said of the circumstances in which the jurisdiction should be exercised at 303:

    What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to reargue their cases.”

1. Here, both the applicant and Mr Pattison proceeded on the footing that they were entitled simply to re-agitate the matters they sought to raise.  Nothing was said about the basis upon which it was appropriate or otherwise for the Court to permit them to do so.  No evidence has been led, and indeed nothing even said by counsel for the applicant, as to whether the authorities now sought to be relied upon were unavailable or, for some reason, overlooked in the original application. 

2. In the circumstances, I propose to look at the authorities upon which counsel seeks to rely to see whether in the first instance I have acted on some misapprehension as to the law.  It will be remembered that counsel for the second respondent submitted that these were distinguishable on their facts. 

3. The first decision in time is that of Adsett v Berlouis (1992) 37 FCR 201. In that decision the Full Court of the Federal Court was considering an appeal from orders for costs made by Pincus J at first instance. The facts of the matter were slightly different to those here. Relevantly, the matter came before Pincus J following a composition with creditors at which time an application by the Trustee, Mr Adsett, to commit the bankrupts for contempt was still before the Court.

4. Pincus J approved the compositions, annulled the bankruptcies of the bankrupts, directed that the Trustee’s remuneration be fixed by a District Registrar, as contemplated by s.162(4) of the Bankruptcy Act, and dismissed the application for contempt.

5. His Honour subsequently made orders as to costs which required the Trustee to pay the costs of the application to commit the bankrupts for alleged contempt.  He further ordered that no part of the costs so ordered to be paid be included in any sum payable to the Trustee under the compositions, and that the Trustee pay his own legal costs of the application of his removal as Trustee, and of the application for the approval of the compositions, and the annulment of the bankruptcies, and that no part of such costs be included in the sum payable to the Trustee under the compositions.  At paragraphs [25]-[26] the Full Court relevantly said of counsel for the Trustee’s submissions:

   “25.  … they say that his Honour did err in principle, that he should have approached the matter on the basis that only a trustee in bankruptcy who has recklessly instituted or precipitated the litigation should be deprived of the right to recover his or her costs from the bankrupt estate.  In the present case, they say, it was reasonable for the trustee to initiate the contempt proceedings; he had reason to believe that the bankrupts had not fully complied with Spender J's order.  As regards the other applications, these were initiated by the bankrupts.  Counsel says that it was reasonable for Mr Adsett, in response to the application for his removal, to defend his administration and reputation; and that it was not merely his entitlement but his duty to put before the Court his concerns about the adequacy of the composition deed.  In relation to the latter point, counsel draw attention to Pincus J's criticisms of the form of the deed.

   26. A number of observations must be made about these submissions. First, we do not accept that the circumstances under which a trustee may be deprived of his costs or her costs indemnity are as limited as counsel suggest. It is necessary to refer to the pertinent principles. A trustee appointed in relation to a bankrupt becomes trustee of the bankrupt's estate. The trustee is bound to administer that estate in accordance with the Bankruptcy Act and Bankruptcy Rules. The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act…”

6. Having made a number of observations about the obligations of Trustees, the Full Court continued at [34] as follows:

   “The critical question, in our view, is whether or not the conduct which gave rise to the burden of costs – whether costs ordered to be paid or costs incurred by the trustee in prosecution of the litigation – was proper in the sense explained in Beddoe; that is, whether the expenditure was reasonably, as well as honestly, incurred.  Where, for example, the litigation was obviously misconceived or, even if it was otherwise reasonable to be undertaken, extravagant in the resources applied to it, we would not regard the expense incurred as proper; notwithstanding that the trustee may have acted honestly throughout.  It is neither possible nor desirable to attempt to identify all the situations in which costs expenditure would not be regarded as proper.  Nor is it profitable to attempt a detailed rule covering all circumstances.  But we issue the caution that the language in some authorities, many of which relate to gratuitous trustees, may mislead.  Sometimes that language appears to require a degree of personal misconduct or wilful recklessness, as opposed to mere negligence, mistake or breach of the trustee's duty as set out above.  We do not think that such a limitation can stand with cases such as Re Beddoe, which in our opinion correctly express the law.  If the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate.  If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not “properly incurred”.  The position is no different with a trustee in bankruptcy.  Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of judgment.”

7. Their Honours went on to refer to the balancing exercise that arose in that case, where some matters pointed in favour of a line of full indemnity and some in favour of the opposite stream of requiring

   
   

   Mr Adsett to pay out of his own pocket all the costs in relation to the applications (see at [44]).  The Court came to the conclusion that the orders of Pincus J were open to him.  I note that at [45] the Court said:

   “The appeal should be dismissed with costs.  The appeal having been initiated after Mr Adsett resigned as trustee, there is, of course, no question of an indemnity in relation to those costs.”

8. In Donnelly v Maxwell-Smith [2010] FCAFC 154, a Full Court of the Federal Court was dealing with part of what was obviously long running litigation involving Mr and Mrs Maxwell-Smith. (The Full Court was aware of the decision of Moore J in Maxwell-Smith v White referred to in my earlier judgment (see the Full Court judgment at [34])). The primary judge made two determinations that the Trustee sought to challenge, which are set out at [8].

9. It should be noted that the Full Court in Adsett noted at [7] that:

   “… Counsel for the trustee specifically disclaim any submission that the learned judge lacked power to make the orders.  They concede that the judge had the necessary power.  We think that this is correct.”

10. The Full Court in Donnelly noted at [8] that the primary judge had determined that Mr Donnelly was not entitled to indemnity out of the former bankrupt’s estates for his legal costs and disbursements incurred in the proceedings before Wilcox J and the appeal to the Full Court, and his remuneration, costs, charges and expenses associated with the public examination of Mr and Mrs Maxwell-Smith.

11. I would refer to the entirety of that judgment by reference but it is perhaps of note that the Full Court noted at [27]:

    “The order of the Full Court set aside Wilcox J’s order that had recognised Mr Donnelly’s right to an indemnity.  The 2006 no costs order was intended to deny Mr Donnelly that entitlement.  Wilcox J did not order Mr and Mrs Maxwell-Smith to pay

    
    

    Mr Donnelly’s costs.  Instead, he only gave Mr Donnelly a right against their estate.  The trustee’s argument that the 2006 no costs order was a party-party order cannot stand examination because Wilcox J had made no party-party order at all, and the Full Court deliberately took away the order recognising

    
    

    Mr Donnelly’s prima facie right to an indemnity.”

12. The Full Court in Donnelly declined to disturb the effect of that order. 

13. It seems clear, on reflection, that the basis upon which I determined my earlier judgment was misconceived. Whether the authorities now advanced by the applicant should have been more stressed in the proceedings before me is in the ultimate, in my opinion, whatever the answer to that proposition might be, not decisive. It is clear that a Court has the power notwithstanding the terms of s.154, to make an order that the costs of legal proceedings of a Trustee should not be paid out of the bankrupt estate (or as in the case in Adsett, the funds in the compromised estates). 

Should the question of the assessment of Mr Pattison’s costs be re-visited?

1. Mr Pattison sought to persuade me that, in essence, the issue of his costs was unfairly dealt with in the earlier judgment.  His explanation, put in the round, was that in part he was deprived of the opportunity to put his fees to the creditors for approval because of the actions of the applicant, who paid out his creditors direct.  In part it was also put (once again putting the matter in the round) that the scales upon which the taxation of his costs had occurred are radically out of date and utterly unreflective of current commercial practice. 

2. There was some contest before me as to the extent to which

   
   

   Mr Pattison should have known from time-to-time that he was not entitled to charge costs at the Pattison rates and I say at the least, without making a final conclusion, that the criticisms advanced by the applicant seem to me to have force.  

3. The real difficulty with Mr Pattison’s position is that the scope and scale of his fees was put vividly in issue by the applicant in the proceedings that led up to my earlier judgment.  The applicant’s whole case was constructed on the footing that Mr Pattison’s overcharging was significant and unjustified and if Mr Pattison wished to put that matter in issue, he should have done so then. 

4. The fact of the matter is that Mr Pattison’s costs were taxed and a very substantial reduction took place.  Furthermore, the overall scale of the charges by Mr Pattison ($85,761.41) is clearly prima facie enormous when compared with the amount of the debt that Mr Stephens may have owed from time-to-time.  True it is that Mr Stephens did not cooperate with the Trustee in various ways and this must have pushed the costs up.  Nonetheless, in my view, the scale of the costs that were actually engendered, and the results of the taxation, in my view leave me in a position where it is inappropriate to revisit my earlier findings on this matter. 

Where does this leave this case?

1. In substance, the parties had mixed levels of success in this proceeding.  In my view it was always obvious, and should have been obvious to everybody, including the respondents, that the Court would make a finding that Mr Stephens was at all material times solvent and the annulment of his bankruptcy was always all but inevitable.  The trivial scale of his original debt and the scope of his then income meant that he clearly satisfied the test of solvency.  Discretionary considerations were by no means wholly unfavourable to Mr Stephens. 

2. The decision of the respondents to oppose the annulment was, in that sense, misguided and inappropriate. 

3. Nonetheless, some other aspects of the applicant’s claim were also in truth beset by obvious difficulty. The terms of s.154, and the judgment of Moore J in Maxwell-Smith, always stood as major obstacle to the fixation of costs and limitation of costs that the applicant sought. 

4. In many ways this strikes me as being a case similar to that of Adsett.  Some of these matters point towards a refusal of the indemnity and a requirement on the part of the Trustee to pay the costs of the proceeding.  Some pointed to the opposite extreme of a full indemnity. 

5. In my view the proper course is that there should be no order as to costs of the application for annulment and that the Trustee and

   
   

   Mr Pattison should not be entitled to any reimbursement out of the estate of the bankrupt.  

6. I note one matter about which no party addressed me is what the effect of Mr Pattison’s removal as Trustee might be. 

The alleged debt to counsel claimed by Mr Pattison

1. Mr Pattison sought the inclusion of counsel’s fees in the outcome of the proceeding.  The debt asserted to counsel does not appear to have ever been lodged or accepted as a provable debt.  In any event it is not open now to Mr Pattison to make such a claim.  He has been removed as the Trustee. 

2. As decisions in relation to Mr Pattison’s affairs reported on show, his own affairs are extremely complicated in any event.  The Official Trustee does not seek in any way to agitate the matter. 

3. It is clear that the alleged debt should not be the subject of any order from this Court. 

Orders to give effect to these conclusions

1. In these circumstances, I have no doubt that if I ask for further submissions as to the form of orders I should make, I will be inundated with further submissions and bitter contest as to whether I am right in my conclusions and what the appropriate orders ought to be.  In these circumstances, I am going to seize the nettle with both hands and make orders and leave any correction of any errors I may make to an appeal. 

2. It should be noted that the sums that Mr Stephens’ is ordered to pay are taken from paragraph 4 of the second respondent’s written submissions, which were not the subject of challenge. 

I certify that the preceding sixty-five (65) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Associate: 

Date:  19 May 2014