Tarrant Enterprises Pty Limited ATF MRT Family Trust v Official Receiver in Bankruptcy
[2022] FedCFamC2G 1078
Federal Circuit and Family Court of Australia
(DIVISION 2)
Tarrant Enterprises Pty Limited ATF MRT Family Trust v Official Receiver in Bankruptcy [2022] FedCFamC2G 1078
File number(s): SYG 1421 of 2020 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 23 December 2022 Catchwords: BANKRUPTCY – COSTS – proceeding brought against Official Receiver to set aside notice issued under s 139ZQ(1) of the Bankruptcy Act 1966 (Cth) was dismissed by consent after the Official Receiver withdrew the notice – whether Official Receiver should pay applicant’s costs – order made that each party bears its or her costs. Legislation: Bankruptcy Act 1966 (Cth) ss 139ZQ(1), 139ZQ(4) Cases cited: Commonwealth of Australia v Gretton [2008] NSWCA 117
Oshlack v Richmond River Council (1998) 193 CLR 72
Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622
Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2021] FCCA 784
Stunning Enterprises Pty Ltd v QIE Pty Ltd [2004] FCA 786
Yong v Velik trading as SV Law [2017] FCCA 2842
Division: General Number of paragraphs: 20 Date of last submission/s: 21 October 2021 Date of hearing: Decided on the papers Place: Sydney ORDERS
SYG 1421 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: TARRANT ENTERPRISES PTY LIMITED ATF MRT FAMILY TRUST
Applicant
AND: OFFICIAL RECEIVER IN BANKRUPTCY
Respondent
order made by:
JUDGE MANOUSARIDIS
DATE OF ORDER:
23 DECEMBER 2022
THE COURT ORDERS THAT:
1.Each party pay its or her own costs.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
On 1 October 2021 I made orders by consent that this proceeding (139ZQ proceeding) be dismissed, and that the costs of this proceeding be reserved. I also made orders requiring the parties to file submissions and evidence in relation to costs.
In these reasons for judgment I consider what costs orders I should make.
background
I have set out most of the background that is relevant to determining the question for costs in a judgment I delivered on 23 April 2021 (earlier judgment).[1] Paragraphs 21 to 50 of the earlier judgment are to be read as incorporated into these reasons. In these reasons for judgment I identify the relevant events that occurred after 23 March 2021 when the applicant (Tarrant Enterprises) filed an application for leave to appeal to the Federal Court against the orders Judge Street made on 10 March 2021.
[1] Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2021] FCCA 784
Tarrant Enterprises’ application for leave to appeal to the Federal Court was disposed of on 17 May 2021 when Katzmann J made the following orders by consent:
1.To the extent necessary, leave to appeal be granted.
2.The appeal be allowed.
3.The orders made by the Federal Circuit Court of Australia on 10 March 2021 and 29 January 2021 be set aside.
4.Costs be reserved.
5.Pursuant to s 28(1)(b) and (c) of the Federal Court of Australia Act 1975 (Cth), the matter, including any questions of costs, be remitted to the Federal Circuit Court of Australia to be heard together with proceeding SYG 446 of 2021.
THE COURT NOTES THAT:
6.The parties agree that the appeal should be allowed on the basis that the applicant on the appeal was not heard (through no fault of its own) and therefore the orders of the primary judge should be set aside as of right.
7.The proceeding before the primary judge (SYG 1421 of 2020) relates to an application to set aside a notice issued under s 139ZQ of the Bankruptcy Act 1966 (Cth). Federal Circuit Court proceeding SYG 446 of 2021 relates to an application for the enforcement of the same notice.
8.The parties agree that there is a risk of conflicting judgments should the matters not be heard together.
After the matter was remitted to this Court, it came before me on a number of directions hearings at the same time as matter number SYG446/2021 (Trustee proceeding) came before me for directions. This occurred until 1 October 2021, when I made the order dismissing the 139ZQ proceeding. I made that order after the parties informed me that on 30 September 2021 the respondent (OR) had revoked, pursuant to s 139ZQ(4) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), the notice dated 3 April 2020 (139ZQ Notice) issued by a delegate of the OR pursuant to s 139ZQ(1) of the Bankruptcy Act. The OR did so after the applicant (Trustee) in the Trustee proceeding filed an amended statement of claim that did not rely on the 139ZQ Notice.
parties’ submissions
Tarrant Enterprises’ submissions
In its counsel’s written submissions, Tarrant Enterprises has divided the course of the 139ZQ proceeding into four stages: up to and including the hearing before Judge Street on 29 January 2021; the hearing on 10 March 2021 to set aside default judgment; the Federal Court’s granting leave to appeal and setting aside Judge Street’s orders; and the continuation of the 139ZQ proceeding after the matter was remitted to me.
Tarrant Enterprises submits that in relation to the first three stages of the 139ZQ proceeding, the OR should be ordered to pay Tarrant Enterprises’ costs, and the OR should be ordered to pay those costs on an indemnity basis. Tarrant Enterprises relies on the following matters and submissions:
(a)In relation to the hearing before Judge Street on 29 January 2021:
(i)Before the hearing on 29 January 2022, the OR (a model litigant) agreed with Ms Lara Tarrant to the Court making orders that the hearing that had been scheduled for 29 January 2021 be vacated, and that the Trustee be joined as a party; and that Tarrant Enterprises be granted leave to file an amended application.[2]
(ii)The OR did not inform Ms Lara Tarrant that the OR had resiled from the making of consent orders.[3]
(iii)The OR “advised”, and for that reason “encouraged”, Tarrant Enterprises that it should be represented by a lawyer or it should seek leave to proceed without a lawyer.[4]
(iv)The OR did not make a submission to Judge Street “that this course”, namely, Ms Tarrant’s applying at the hearing for leave to appear for Tarrant Enterprises, “had been recommended” by the OR, or that the OR expected Ms Tarrant to apply to seek leave to appear on behalf of Tarrant Enterprises at the hearing on 29 January 2021.[5]
(v)The OR did not inform Judge Street that it expected Ms Tarrant to appear.[6]
(b)In relation to the hearing before Judge Street on 10 March 2021, the OR filed submissions opposing the application to set aside Judge Street’s orders, and had applied for an order that Tarrant Enterprises pay the OR’s costs on an indemnity basis.[7]
(c)In relation to the Federal Court appeal, on 17 May 2021 the OR, now represented by counsel, consented to Judge Street’s orders being set aside on the basis that Tarrant Enterprises “was not heard (through no fault of its own)”.[8]
[2] Submissions of the applicant, [10]
[3] Submissions of the applicant, [11]
[4] Submissions of the applicant, [13], [14]
[5] Submissions of the applicant, [15]
[6] Submissions of the applicant, [16]
[7] Submissions of the applicant, [20]
[8] Submissions of the applicant, [23]
As for the 139ZQ proceeding after it was remitted, Tarrant Enterprises submits that the OR should be ordered to pay Tarrant Enterprises’ costs on an ordinary basis. Tarrant Enterprises submits that the OR, “having opposed the substantive merits of [Tarrant Enterprises’] application until now has revoked the 139ZQ Notice, giving Tarrant Enterprises (in substance) a total victory insofar as the matters before the Court concern the Official Receiver”.[9]
[9] Submissions of the applicant, [44]
OR’s submissions
The OR contends that the appropriate costs order is that Tarrant Enterprises pay the OR’s costs up until 29 January 2021, and that each party bears its or her own costs from 29 January 2021. Although the OR has provided detailed written submissions, it relies on two broad submissions in support of its contention.
(a)First, from the outset of the 139ZQ proceeding, the OR, by its lawyer, informed Tarrant Enterprises that the Trustee is the party against whom Tarrant Enterprises ought to have commenced the 139ZQ proceeding; that the OR ought not to have been named as a respondent; and that Tarrant Enterprises, being a corporation, was prohibited from commencing or maintaining a proceeding without a lawyer unless the Court granted leave to the company to proceed without a lawyer. Had Tarrant attended to these matters earlier than it did, “none of what happened after that time would have occurred”.[10]
(b)Second, there was no utility in Tarrant Enterprises applying to the Federal Court of Australia for leave to appeal from the orders Judge Street made on 10 March 2021. The OR relies on the observations I made in paragraphs 55-58 of the earlier judgment.[11]
[10] Official Receiver’s Submissions, filed 19.10.2021, [38]
[11] Official Receiver’s Submissions, filed 19.10.2021, [23]
principles
A useful general statement of the principles governing the award of costs was given by McHugh J in Oshlack v Richmond River Council:[12]
[S]ubject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy … The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.
[12] Oshlack v Richmond River Council (1998) 193 CLR 72, at page 97.
Also useful is the following passage from the judgment of Hodgson JA in however, to bear in mind what Hodgson JA stated in Commonwealth of Australia v Gretton:[13]
In my opinion, underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant's responsibility because the plaintiff was caused to incur costs by the defendant's failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled: cf Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. Departures from the general rule that costs follow the event are broadly based on a similar approach.
[13] Commonwealth of Australia v Gretton [2008] NSWCA 117, at [121]
These statements of principle apply to a proceeding which have been determined after a hearing of the merits. Different principles apply to the exercise of the discretion to award costs where a proceeding has not been determined on the merits; and those principles were stated by McHugh J in Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin:[14]
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action…
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried… But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
[14] Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, at page 624-625
Also illuminating is the following judgment of French J (as his Honour then was) in Stunning Enterprises Pty Ltd v QIE Pty Ltd:[15]
As a general rule, in the absence of special circumstances justifying some other order costs will follow the event. The general principles were discussed by the Full Court in Ruddock v Vadarlis (No 2) (2001) 115 FCR 229. When proceedings terminate before a hearing there may be no basis upon which to determine what the event would have been if the matter had proceeded. The Court cannot, in such a case, conduct an [sic] hypothetical action between the parties. If both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled, the Court will usually make no order as to the costs of the proceedings – Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6;(1997) 186 CLR 622 at 624 (McHugh J). Where, however, the proceedings have been terminated in a way that leads to one side being clearly successful then there is a basis upon which the Court can exercise its discretion in favour of the successful party. As Burchett J said in ONE.TEL Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 at [6]:
‘... it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an [award] of costs to the successful party.’
[15] Stunning Enterprises Pty Ltd v QIE Pty Ltd [2004] FCA 786, at [31]
From these passages the following principles apply when determining an application for costs where a court has not determined the merits:[16]
a)The court should not try a hypothetical action between the parties.
b)In some cases, however, the court may be able to conclude that one of the parties acted so unreasonably that the other party should obtain the costs of the action.
c)In other cases the court may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
d)Where the proceeding has been terminated in a way that leads to one side being clearly successful, there is then a basis on which the court can exercise its discretion in favour of the successful party.
[16] Yong v Velik trading as SV Law [2017] FCCA 2842, at [5]
determination
The 139ZQ proceeding was not determined on the merits; it ended by my making an order by consent dismissing it. The occasion for my making that order arose from the OR deciding to revoke the 139ZQ Notice after the Trustee had filed an amended statement of claim in the Trustee proceeding in which the Trustee no longer relied on the 139ZQ Notice. The determination of the 139ZQ proceeding, however, did not, and it was not intended to, resolve the issues that would have arisen in the 139ZQ proceeding; and that is because those issues are the subject of the Trustee proceeding. The causes of action on which the Trustee relies, in the Trustee proceeding, are premised on the facts alleged in the 139ZQ Notice, and on the asserted legal consequences the 139ZQ Notice attaches to those facts. The purpose of dismissing the 139ZQ proceeding was to ensure that the one set of issues arising out of the one set of facts would be litigated in the one proceeding, namely the Trustee proceeding.
A relevant question for the purpose of determining whether an order for costs should be made, therefore, is not whether it is almost certain that in the 139ZQ proceeding the OR or Tarrant Enterprises would have won or lost on the merits. Instead, the relevant question is whether it was through some unreasonable conduct, by either the OR or Tarrant Enterprises, that two proceedings had been instituted – the 139ZQ proceeding and the Trustee proceeding – to litigate the one set of issues. I am not prepared to hold, in the circumstances of this case, that it was due to any unreasonable conduct of the OR or of Tarrant Enterprises, which led to the institution of two proceedings to litigate the one controversy between the Trustee and Tarrant Enterprises. The OR did not institute the Trustee proceeding; and, in the earlier judgment, I did not accept Tarrant Enterprises’ submission that the Trustee proceeding was vexatious.
As for Tarrant Enterprises, I find that it ought not to have commenced the proceeding against the OR to litigate the claims Tarrant Enterprises made in the statement of claim, at least not without also joining the Trustee; and there is merit in the OR’s submission that, had Tarrant Enterprises responded earlier to the OR’s suggestion that Tarrant Enterprises join the Trustee as a party and that it appoint a lawyer through which it could act in the proceeding, the orders the Court made on 29 January 2021 and on 10 March 2021 may not have been made. I am not, however, prepared to find that it was due to any unreasonable conduct by Tarrant Enterprises that led to the institution of two proceedings to litigate the one set of issues. Tarrant Enterprises, the OR, and the Trustee had agreed to ask the Court on 29 January 2021 to make consent orders which, if made, would have resulted in the Trustee being made a party, and all issues in relation to the 139ZQ Notice being litigated in the 139ZQ proceeding. For reasons that will appear shortly, it was through no fault of either the OR or Tarrant Enterprises that Judge Street did not at the hearing of 29 January 2021 give effect to the agreement the OR, the Trustee, and Tarrant Enterprises had reached.
I next turn to consider whether the OR acted unreasonably at the hearings of 29 January 2021 and 10 March 2021. The OR did not act unreasonably at the hearing of 29 January 2021. It is apparent from the audio recording of the hearing of 29 January 2021, the transcript of which I have set out in the earlier judgment,[17] that Judge Street made the orders dismissing the proceeding without asking for any submissions from the OR. It is true the OR did not make any submission against the orders Judge Street made or proposed to make; but that by itself was not unreasonable. I am not prepared to find that the OR could have made any submissions that would have dissuaded Judge Street from making the orders his Honour made, or that would have persuaded his Honour to set aside the orders, once made. I am therefore not satisfied that the costs that Tarrant Enterprises incurred at the hearing 29 January 2021, and the costs incurred it in having to make an application for reinstatement, was caused by any conduct of the OR.
[17] Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2021] FCCA 784, at [41]
It is also true that at the hearing on 10 March 2021 the OR opposed Tarrant Enterprises’ application to set aside the orders Judge Street made on 21 January 2021. But it is apparent from what occurred at the hearing on 10 March 2021, which I have set out in the earlier judgment,[18] that Judge Street did not refer to any submission OR had made. His Honour instead put to counsel for Tarrant Enterprises the “threefold” “concerns that the Court has”, and dismissed Tarrant Enterprises’ application for reinstatement on the basis of the concerns Judge Street had put to counsel. The OR did not make any submissions to the effect of the concerns Judge Street had expressed, and on which his Honour relied for dismissing Tarrant Enterprises’ application for reinstatement. In those circumstances, I am satisfied that even if OR had informed Judge Street that it did not oppose Tarrant Enterprises’ application to reinstate the proceeding, Judge Street would have made the same orders. For these reasons, I am not satisfied that the costs Tarrant Enterprises incurred at, or in relation to, the hearing on 10 March 2021; or the costs Tarrant Enterprises incurred in connection with its application to the Federal Court for leave to appeal against the orders Judge Street made on 10 March 2021, were caused by any conduct of the OR.
[18] Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2021] FCCA 784 , at [46], [47]
determination
For these reasons I am satisfied that the appropriate order for costs should be that each party bears its or her own costs.
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 23 December 2022
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