Telfer v Telfer
[2016] FCCA 1876
•22 July 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| TELFER v TELFER | [2016] FCCA 1876 |
| Catchwords: BANKRUPTCY – Costs – applicant seeking indemnity costs – whether justifying circumstances to make an indemnity costs order – costs order made on ordinary basis. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 32, 40 Federal Circuit Court of Australia Act 1999 (Cth), s.79 |
| Cases cited: World Best Holdings v Sarker [2006] FMCA 1876 Re Hammant [1965] ALR 340 |
| Applicant: | NEIL RONALD TELFER |
| Respondent: | CAROLYN TELFER |
| File Number: | SYG 164 of 2016 |
| Judgment of: | Judge Nicholls |
| Hearing date: | 4 May 2016 |
| Date of Last Submission: | 12 May 2016 |
| Delivered at: | Sydney |
| Delivered on: | 22 July 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr Justin O’Connor |
| Solicitors for the Applicant: | Barrak Lawyers |
| Counsel for the Respondent: | Mr A G Martin |
| Solicitors for the Respondent: | Whitehead Cooper Williams |
ORDERS
The respondent pay the applicant’s costs in the proceedings, including the hearing of the costs matter, on an ordinary basis as agreed or assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 164 of 2016
| NEIL RONALD TELFER |
Applicant
And
| CAROLYN TELFER |
Respondent
REASONS FOR JUDGMENT
Neil Ronald Telfer (“the applicant”) seeks an order pursuant to s.32 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), or in the alternative, s.43 of the Federal Court of Australia Act 1976 (Cth), that Carolyn Telfer (“the respondent”) pay the applicant’s costs in proceedings in this Court on an indemnity, or alternatively and primarily, an ordinary basis.
The evidence before the Court is as follows:
1)The affidavit of Benjamin Barrak, solicitor, dated 8 March 2016.
2)The affidavit of Benjamin Barrak, solicitor, dated 22 April 2016 with exhibit “BB-1”. Paragraphs [1] and [2] of this affidavit were not pressed by the applicant following objection by the respondent on the basis that they contained “without prejudice” discussions.
3)The affidavit of Denis Paul Williams, solicitor, dated 7 March 2016.
4)The applicant’s “Chronology”, used as an aide-memoire.
Background
The following facts emerge from the background to the current matter. The applicant was named executor of his deceased brother’s estate (Mr Lyall Telfer) by will dated 21 June 2010. I note also a subsequent codicil to the will. The respondent was the wife of the deceased.
The respondent opposed the grant of probate to the applicant of her husband’s will. She commenced proceedings in the New South Wales Supreme Court for a grant of probate of Mr Lyall Telfer’s will. On 24 April 2013 she succeeded, and costs were awarded to the respondent (Neil Ronald Telfer as Executor for the Estate of the late Lyall Telfer v Caroline Telfer [2013] NSWSC 412).
However, the applicant was successful on appeal before the Court of Appeal (Telfer v Telfer [2014] NSWCA 186). The applicant was awarded 75 per cent of his costs of the appeal on an agreed or assessed basis. Costs orders made at first instance were (in large part) reversed.
The applicant sought to recover his costs. The respondent had disputed the costs claimed by the applicant in this regard. She applied to have the costs assessed, and subsequently applied for review of the assessment. That matter was concluded, and the applicant registered three Certificates of Determination of Costs.
Ultimately, on 9 December 2015, the NSW Local Court in Sydney entered judgment in favour of the applicant in the sum of $78,115.33 (“the Judgment Debt”). This debt related to the costs order made by the Court of Appeal with reference to costs on an “as agreed or assessed basis”.
On 9 December 2015 the respondent was served with a copy of the local Court Judgment and a demand for payment of the Judgment Debt.
The respondent did not make any payment towards the Judgment Debt, nor was there any attempt to secure any arrangement to pay. On 22 December 2015, the applicant caused a Bankruptcy Notice to be issued against the respondent.
The Bankruptcy Notice was not complied with within the relevant 21 day period. The applicant asserts that the respondent therefore committed an act of bankruptcy (s.40(1)(g) of the Bankruptcy Act).
The current proceedings in this Court were commenced on 28 January 2016, with the issue of a Creditor’s Petition against the respondent.
Contemporaneous to some of the events set out above, on 17 December 2014, the respondent commenced separate proceedings (to those referred to at [4] above), against the administrator of her late husband’s estate, Mr Kenneth Fairfax, who was appointed for that purpose by the NSW Supreme Court (Carolyn Telfer v Fairfax [2016] NSWSC 60 (“Fairfax”)).
At some subsequent point, Mr Mark Telfer, the deceased’s son (but not the natural son of the respondent in these proceedings), was joined to the Supreme Court proceedings. His involvement arose out of an exchange of contracts for the purchase by Mr Mark Telfer, of a property (“the Northmead property”) from his father. Mr Lyall Telfer died before settlement of the contract could take place. The respondent sought orders from the Supreme Court to extinguish the contract of sale and that a judicial sale at current market price take place.
On 12 February 2016 (that is, after the commencement of the current proceedings), judgment was handed down in the Supreme Court. In short, it was found that Mr Mark Telfer was entitled to specific performance of the contract of sale. Mrs Carolyn Telfer was denied orders for the judicial sale of the Northmead property. However, the respondent had an interest in her late husband’s estate, and the monies from the sale of the Northmead property were to go to that estate.
There was no suggestion that the applicant in the current proceedings was a party to those proceedings, or had an “interest” in the outcome.
As set out above, the current proceedings commenced on 28 January 2016. On 22 February 2016 (that is, after the judgment in Fairfax), the respondent formally provided a Notice of Opposition to the application filed by the applicant. In essence, the respondent’s position was that she could pay her debts and that the applicant knew at a time prior to filing of the Creditors Petition that the respondent “was owed” $500,000. The respondent asserted that, in this light, the Creditors Petition was an abuse of process. The respondent also claimed that the applicant had failed to pay to her monies arising from certain other claims she had on the applicant.
On 7 March 2016, the applicant was served with a copy of the orders made in Fairfax, on 12 February 2016.
The parties through their legal representatives appeared at directions before this Court in the current proceedings on 9 March 2016. No issue was raised by the respondent as to any failure by the applicant to properly comply with the relevant statutory requirements in relation to the Creditors Petition.
However, the respondent’s position, as expressed by her counsel, was that in light of the orders made in Fairfax, and their practical consequences, the applicant appropriately, should take steps to obtain a garnishee order directing Mr Mark Telfer to attach a relevant amount of money, upon settlement of the sale of the property (referred to at [14] above) to the Judgment Debt owed to the applicant.
At directions on 9 March 2016, the application in the current proceedings was listed for hearing on 4 May 2016. In the meantime however, on 22 March 2016 the Local Court issued a garnishee order requiring Mr Mark Telfer to pay the Judgment Debt, less the offsetting claims made by the respondent. In all, Mr Mark Telfer was ordered to pay $68,321.33 at the time of settlement of the purchase of the property. That payment appeared to have taken place before 4 May 2016.
It is important to note that what was set down for final hearing on 4 May 2016 was the Creditors Petition application made by the applicant. Up to the commencement of the hearing, no application was made to the Court by the applicant to discontinue the proceedings in light of the debt having been paid.
On 6 April 2016, the respondent applied to the Local Court to set aside the garnishee order. That application was heard on 14 April 2016, and the application was dismissed, as was an application to amend the respondent’s application to extend the stay of enforcement of the garnishee order.
However, as a consequence of the timing of the proceedings, the settlement of the purchase of the property did not proceed. Mr Mark Telfer sought orders from the Supreme Court which, on 18 April 2016, ordered that the garnishee order be paid from the proceeds of settlement of the purchase of the property by Mr Mark Telfer. The debt was paid on 27 April 2016.
It is the case that where a proceeding is a creditors petition, as in the current case, the applicant would have required the leave of the Court to file a Notice of Discontinuance (rule 13.01(3)(b) of the Federal Circuit Court Rules 2001 (Cth) (“FCC Rules”)). If such leave had been sought and granted, the respondent would have been able to apply for her costs (rule 13.02(1) FCC Rules).
The respondent’s position at the hearing was that the applicant should either move on his Creditors Petition or seek leave to discontinue it. Her position at the commencement of the hearing was that she would not give consent for leave for the Notice of Discontinuance (although the Court could grant any such leave without her consent), unless her costs of the application were paid by the applicant.
However, nor did the applicant otherwise move to seek a discontinuance. The applicant’s position was that in the circumstances, the application should either be discontinued by the Court, or an order made dismissing the Creditors Petition. However, in either circumstance, the applicant sought his costs either on an indemnity basis, or on an ordinary basis.
There was no dispute that the Creditors Petition should in some fashion “cease”. The issue between the parties at the hearing, therefore, was who should pay costs, and if the respondent should pay costs, whether it should be on an indemnity basis. No argument was put that the parties should bear their own costs.
The applicant relies on the following authorities to support his application for costs (applicant’s further submissions on costs dated 4 May 2016 – “AS3”).
First, World Best Holdings Ltd v Sarker [2006] FMCA 1876 (per Smith FM) (“World Best Holdings”). The following propositions were pressed by the applicant from this judgment (see [1](a) – (c) of AS3):
“(a) Where a proceeding is discontinued or dismissed by consent, courts have been reluctant to award costs to an applicant in such a situation, if this requires the substantive merits of the proceeding to be determined or predicted;[1]
(b) In the context of bankruptcy petitions, it is not uncommon for a costs order to be made in favour of a petitioner who accepts payment of its debt and does not proceed with the petition;[2]
(c) Once the availability of the broad discretion conferred by section 32 of the Bankruptcy Act 1966 (Cth) is accepted, the readiness of the Court to consider all the circumstances of the matter before it should not be fettered by judgments decided in other circumstances[3]
See also World Best Holdings at [10]:
[1] World Best Holdings Ltd v Sarker [2006] FMCA 1876 at [17] referring to various authorities including Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6
[2] Ibid at [9]
[3] Ibid at [20]
“This Court is invested with concurrent and exclusive bankruptcy jurisdiction by s.27 of the Bankruptcy Act, and in my opinion its relevant costs power is best identified in s.32 of that Act, rather than the similarly worded power in s.79 of the Federal Magistrates Act 1999 (Cth). It provides:
32 Costs
The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit”.
Second, in World Best at [21] (referring to Re Hammant [1965] ALR 340 at [22] per Mansfield CJ):
“As to how the discretion should be approached in the present case, I would respectfully be guided by the brief reasoning of Mansfield CJ in Re Hammant [1965] ALR 340:
‘With great respect I do not completely agree with the statement that this (i.e. the jurisdiction to award costs) is a jurisdiction which should be sparingly exercised (see, per Clyne, J., in Re S. G. Perry, unreported). I think it should be exercised after consideration of all the relevant circumstances of the particular case and, in particular, the conduct of the debtor, such as any unnecessary delay that may have taken place in the payment of the debt by the debtor. Any unreasonable conduct of the creditor is also a relevant matter. In other words the whole of the circumstances in each particular case should be considered in order to see whether the creditor has lost his right to be reimbursed for his costs or any portion of them. In the present case, if the creditor had chosen to proceed, the estate would have paid 20s. in the [sterling]1 and he would have received his costs of the petition. He has chosen to accept payment by the debtor of the amount of his debt and by that means has freed the debtor from the necessity and stigma of becoming bankrupt and subsequently having to apply to have the bankruptcy annulled or his discharge granted. Furthermore, the debtor’s failure to take any steps to endeavour to comply with the requirements of the bankruptcy notice issued by the creditor is a matter which must have some weight. In all the circumstances of this case I think it is reasonable to order that the debtor pay the petitioning creditor’s costs. I order that the petition be dismissed and that the debtor pay the petitioning creditor’s costs.’”
Third, in World Best at [22]:
“In my opinion, this appropriately focuses the attention of the costs discretion on the reasonableness of the bringing, pursuit and discontinuance of the creditor’s petition, weighed against the reasonableness of the debtor’s failure to pay the debt before the petitioner incurred its costs in a bankruptcy proceeding. In circumstances such as the present, where there has never been a dispute as to the indebtedness to the petitioner, I do not consider that the Court should be hesitant to form a conclusion that discontinuance as a result of a belated payment of the debt provides a justification for an award of costs to the petitioner. Of course, all the circumstances should be considered, before arriving at that opinion.”
There is no dispute that the disposition of the costs issue between the parties arises from the exercise of the Court’s discretion, whether it be from s.32 of the Bankruptcy Act, or s.79 of the Federal Circuit Court of Australia Act 1999 (Cth), having regard to all the circumstances and what is reasonable.
Those circumstances have been set out in the evidence before the Court. In the current case, the debt was paid after the filing of the Creditor’s Petition, and in circumstances where the sequestration order sought by the applicant creditor was not pressed, given that payment occurred. Up to the hearing, the creditor’s petition had been neither dismissed nor discontinued.
In opposing the applicant’s application for costs, and in support of her own application, the respondent argues that the applicant has, in effect, “discontinued” the proceedings and no final hearing took place, in circumstances where the debt was paid and the applicant knew or should have known she was solvent.
I agree with the applicant that the absence of a final hearing and the fact that no sequestration order was made is not determinative of the issue of costs. The fact that no final hearing occurred is certainly relevant to the quantum of costs, but whether a costs order should be made arises from what is reasonable in the circumstances presented.
The respondent’s argument that the applicant has “abandoned” the claim to the sequestration order, and therefore has not been successful in the application, needs to be seen in light of relevant authorities relied on by the applicant now.
In this regard, the applicant submits at ([8] – [9] of AS3):
[8] In Re Ronald Grafton Sarina v the Council of the Shire of Wollondilly [1980] FCA 66 Deane J held that although it was not appropriate to make a sequestration order given that the recalcitrant debtor proved he was solvent and able to pay the judgment debt and the creditor could therefore pursue ordinary remedies by way of execution and garnishee, it was appropriate that the debtor be ordered to pay the creditor’s costs of the proceedings. His Honour held that the petitioning creditor could not be criticised for failing to proceed with the application in circumstances where the debtor had failed to respond to the bankruptcy notice and failed to provide evidence of solvency.
[9] On appeal in Re Ronald Grafton Sarina v the Council of the Shire of Wollondilly [1980] FCA 138 (Bowen CJ; Sweeney J; Lockhart J) the debtor argued that the costs order should be set aside on the basis that the creditor was aware of the fact that he owned land the value of which exceeded the judgment debt. However as the debtor had failed to provide evidence to demonstrate solvency the creditor was entitled to proceed with the application and to an order that the debtor pay its costs of the application.[4]
[Footnotes renumbered]
[4] See also Ian Thomas Francis Robertson Ex Parte: Ivor James Robertson and Ian Thomas Francis Robertson [1989] FCA 130
This properly directs attention to the relevant circumstances in this case surrounding the issue of the Bankruptcy Notice, and then the Creditors Petition.
The respondent submits that at all times, in this proceeding, from as early as the time of the notice of her grounds of opposition to the Creditors Petition, the respondent has maintained that she is solvent. Even if that were the case (although see further below), that assertion does not satisfactorily explain why, when presented with the notice of the judgment debt, the respondent did not pay the debt or take reasonable steps to address the applicants demand that she do so.
It must be said that the respondent’s submission as to her solvency at the relevant times, is a two-edged sword. The order made by the NSW Local Court on 9 December 2015 is, it is trite but in the circumstances of the respondent’s submissions, necessary to state, an order of a Court.
It was an order made by the NSW Court of Appeal, a superior court, that the respondent (in these proceedings) pay the applicant’s (in these proceedings) costs in those proceedings.
The respondent sought an assessment of those costs and subsequently applied for review of that assessment. The Local Court judgment was made on 9 December 2015 after the exhaustion of the review process. There is nothing before the Court now to say that the judgment of the Local Court, a final judgment, was not valid or properly made.
On receipt of the Local Court order and a demand for payment on 9 December 2015, the respondent did not pay the debt within any reasonable period. Importantly, there is no evidence before the Court now to indicate that the respondent took any reasonable steps to come to an arrangement for the payment of the debt.
This raises the question, in answer to the respondent’s submission as to solvency, of why she did not pay the debt as she was requested to do given the efficacy of the Local Court order, and in circumstances where she now says she was solvent.
That is, on her own assertion, the respondent was able to pay all of her debts, as and when they became due and payable (see s.5 of the Bankruptcy Act). The debt which was the subject of the Local Court order became due and payable on 9 December 2015.
In the current proceedings, the respondent has not provided any evidence, nor it must be said, any satisfactory explanation through submissions, as to why, if she was solvent as she now claims, she did not take steps to pay or arrange to pay the debt as ordered by the Court.
What is of relevance in these circumstances is that it was reasonable for the applicant to cause a Bankruptcy Notice to be issued on 22 December 2015. Further, it was also reasonable in circumstances where the respondent took no steps to challenge the Bankruptcy Notice or seek to extend time for compliance with it, to then cause the issue of a Creditors Petition in this Court on 28 January 2016. That is, at the expiration of the 21 day period for compliance with the Bankruptcy Notice.
The respondent now says that the applicant, given the “familial” relationship and litigation “history” involved, should have known she was solvent at the relevant times. I am not satisfied on the evidence that the applicant could reasonably be said to have knowledge, to a sufficient level of detail to be able to say that on balance, he knew the respondent was solvent at the relevant times.
While the applicant can be said, as the respondent now submits, to have had some knowledge of the financial affairs of the respondent, through the various proceedings involving the parties, and indeed the Fairfax proceedings, it cannot be said on the balance of the evidence now before the Court, that the proposition that he “knew” she was solvent could be sustained.
In reaching this conclusion I have had regard to the affidavit of Mr Denis Paul Williams of 7 March 2016, the respondent’s solicitor (“DPW”). That affidavit provides detail of the respondent’s participation in the various litigation described elsewhere in this judgment. It also sets out her “assets” and “liabilities” (see [38] – [43] of DPW).
What emerges, in essence, is that the respondent’s largest “asset” is ([38] of DPW):
Assets
38. Carolyn will be receiving c. $580,000 from the sale of the Northmead property in less than 60 days time, consistent with the orders of Slattery J. Mark Telfer has confirmed he intends to settle the contract of sale.
[Emphasis in original]
This must also be seen in light of the liabilities, which on Mr Williams’ evidence, total over $200,000 ([43] of DPW).
The respondent’s submission that the applicant either personally or through legal representatives and his avuncular relationship with Mr Mark Telfer “was well aware of what was going on” in the Fairfax matter must be seen in light of the lack of evidence that the applicant had knowledge of the entirety of the respondent’s financial position.
The evidence before the Court reveals that the applicant, through his solicitors made a number of requests of the respondent to demonstrate her capacity to pay the judgment debt by providing relevant documentation. This was done prior to, and following, the issue of the Bankruptcy Notice.
At most the respondent provided “recent statements” for “various credit cards” (see [43](b) of DPW and annexure “Q”). On the evidence, the respondent either refused or failed to provide a more comprehensive documentary exposition of her financial position. The respondent’s conduct in this regard was not explained before the Court in either an evidentiary context or by submissions.
Even if the applicant had some knowledge of the respondent’s affairs (which I accept to a limited degree as set out above) through the various proceedings referred to above, the family connection and even in his capacity as executor for Mr Lyall Telfer’s estate, what remains, is that as at the time of the Bankruptcy Notice and then the Creditors Petition, the applicant was not in a position to know to the required degree that the respondent would, or could pay her debt.
At its highest, the respondent’s evidence and consequent submissions on this matter appear to be largely dependent on the respondent’s expectation of receipt of monies from the estate of Mr Lyall Telfer and in particular, monies realised from the sale of the real property to Mr Mark Telfer.
Even in his position as executor of his brother’s estate, the applicant was not in a position to ascertain the financial situation of the respondent in relation to any other assets she may have held. Further, it is relevant to note the circumstance where, on the evidence, an issue in the Fairfax matter was the solvency of Mr Lyall Telfer’s estate. Further, the applicant was not a party to those proceedings. In any event, judgment in this matter was not handed down until a date after the issue of the Bankruptcy Notice and the Creditors Petition.
This still does not provide a satisfactory explanation for the respondent’s conduct. If what is meant by her submission that she was “solvent” at the relevant times, was that she would have sufficient funds to pay the debt from monies she received from her husband’s estate, then on the evidence, she does not appear to have taken steps through her solicitors to properly communicate this to the applicant and seek some arrangement to pay.
The respondent’s position is that the applicant is not entitled to his costs, and that she is entitled to her costs as follows. First, no sequestration order was made, and the Creditors Petition was in reality, “abandoned”. Second, the respondent was solvent at the time of the issue of the Bankruptcy Notice, at the time of the Creditors Petition application, and certainly at the time of the hearing of the Creditors Petition by which time the judgment debt (with relevant adjustments) had been paid. Third, with reference to the time of the Bankruptcy Notice and Creditors Petition, the applicant “knew” she was solvent because, ultimately, she would receive her share of the estate of Mr Lyall Telfer from the proceeds of the purchase of the property by Mr Mark Telfer.
The first matter is dealt with above in this judgment. In relation to the second and third matters, the question that arises in the circumstances is whether it was reasonable for the applicant to proceed with the Bankruptcy Notice and Creditors Petition.
In this regard I agree with the respondent’s submission that the applicant’s authorities on which he relies indicate that the Court should look to the reasonableness of the institution of the proceedings, the prosecution of the Creditors Petition, and the timing of the payment of the debt. I agree that the Court has a discretion to be exercised, judicially, having regard to all the circumstances. This must also include, in my view, the circumstances surrounding the respondent’s relevant conduct prior to, and after, the institution of the proceedings.
On the evidence I find that the applicant’s conduct in issuing the Bankruptcy Notice was reasonable. Even if he had some knowledge of the respondent’s financial affairs, he could not have known the exact nature of those financial affairs or the ultimate disposition of Mr Lyall Telfer’s estate.
If the respondent was solvent at the relevant times, as she now claims, then her failure to pay the debt at any time prior to the Bankruptcy Notice, and the Creditors Petition, raises the question that she was not able to pay her debts when they became due and payable. Her failure to take steps to seek some arrangement to pay the debt, the efficacy of which was not in dispute, only adds to the reasonableness of the applicant’s action.
To the extent that her “solvency” was such to have been dependent on the conversion of the real property in the estate of Mr Lyall Telfer to divisible cash, this does not explain her failure to enter into some arrangement, or even meaningful discussion, with the applicant about payment of the debt.
The respondent also argues that the debt to the applicant was paid in answer to a garnishee order more than a week in advance of the hearing of the Creditors Petition. On the evidence that is not in dispute.
However, the context of the procurement of the garnishee order, the mechanism by which the debt was paid, is relevant to the current consideration. Contrary to the respondent’s submissions now, the matter of the garnishee order, as a possible avenue to effect payment of the debt was raised by the respondent in Court at directions on 9 March 2016, not the applicant.
On 22 March 2016, the applicant applied for, and was issued with the garnishee order. This was notified to the respondent’s solicitors on 31 March 2016. The respondent subsequently challenged the garnishee order on 6 April 2016 seeking that it be set aside. The hearing of this application was on 14 April 2016. The respondent was unsuccessful. Mr Mark Telfer obtained orders from the Supreme Court on 18 April 2016 ordering that the garnishee order be paid from the proceeds of the settlement of the property.
The respondent now says that her application to set aside the garnishee order was not based on a challenge to the garnishee order, but on the basis that the applicant had not taken into account the totality of costs orders which had otherwise been in her favour.
I do not agree with the respondent’s submission that her challenge to the garnishee order is not relevant in the current consideration. In my view it is relevant, at least, because the continuation of the “dispute” about the garnishee order, even as to the relevant quantum, meant that the applicant could not reasonably be satisfied that the debt, which remained owing and unpaid, would be paid. In these circumstances, it was reasonable for the applicant not to seek to discontinue or otherwise obtain dismissal of the Creditors Petition, at least up to 27 April 2016 when the judgment debt was paid out of the settlement of the Northmead property.
While it was open to the applicant to have sought, with leave, to discontinue the proceedings at that time, the issue of costs remained extant and was not heard until 4 May 2016. In my view, it was not unreasonable of the applicant to press his Creditors Petition up to the time of the actual payment of the judgment debt given the circumstances set out above.
There was little relevant time difference between 27 April and 4 May 2016. In that light, the matter of the prior and formal discontinuance of the Creditors Petition is not a matter that can be said to be adverse to the applicant, while the matter of costs remained a live issue.
The respondent also submits that she should, at least, receive costs as from 7 March 2016, which is the date of service of Mr Williams’ affidavit, which reveals that the respondent was solvent and the applicant was therefore put on notice, as of that date, that the respondent was solvent.
There are a number of difficulties with this submission. First, this is not the respondent’s evidence on which she could be tested. It is her solicitor’s evidence about his knowledge of her financial affairs, albeit based on a long professional relationship.
Second, while the evidence of Mr Williams lists “assets” and “liabilities” and makes some reference to income (take home pay) and some expenditure, the applicant’s knowledge of this, as at 7 March 2016, in the absence of evidence from the respondent herself, let alone documentary corroboration, does not provide a reasonable basis to find that the applicant would reasonably conclude that she was solvent (Re Ronald Grafton Sarina v the Council of the Shire of Wollondilly [1980] FCA 66 at 378).
Third, the affidavit repeats, at best by implication, the approach taken in submissions that the respondent was solvent because of the expectation of receiving a share of the estate of Mr Lyall Telfer. That assertion by Mr Williams does not achieve any greater force because it is contained in an affidavit. The matters set out relevant to this “argument” above are relevant here.
The respondent also submits that an element in her favour in considering the exercise of the discretion as to costs, is that the applicant had brought two earlier bankruptcy proceedings against the respondent which were dismissed by the Court. The applicant in the current proceedings was ordered to pay costs, which the respondent submitted as at 3 May 2016 remained unpaid.
The respondent submits that it is open to draw the inference that while the applicant has utilised bankruptcy proceedings on three occasions, he has not complied with Court orders made against him.
The applicant does not appear to dispute that two earlier bankruptcy applications were dismissed (see for example the applicant’s written submissions of 12 May 2016 at [4](a)). It is not clear on the evidence before the Court that any costs remain unpaid. Although from the respondent’s submissions it appears that actual costs for at least one of those matters was (as at 3 May 2016) the subject of dispute before a Registrar which may explain why it was unpaid as at that date (see the respondent’s written submissions of 3 May 2016 at [11]). In oral submissions on 4 May 2016, the applicant’s counsel submitted that on instructions, he understood the other debt had been paid.
In any event, whatever the situation in relation to costs in those other bankruptcy proceedings, I cannot see that the respondent’s submission, in the event that there was evidence to support it, reveals any improper or disentitling conduct by the applicant in the current proceedings. If the respondent claims that costs awarded to her remain unpaid, as the current proceedings demonstrate, there are avenues available to her to address any complaint in this regard.
In all, given what is set out above, I do not agree with the respondent that the applicant should not recover costs for this matter because the proceedings should not have been brought in the first place.
The respondent had a judgment debt against her. She was on notice of this. She did not pay the debt, and did not take any satisfactory steps to come to some arrangement to pay it. At the relevant times the applicant was therefore entitled to cause the issue of a Bankruptcy Notice and in the circumstances, subsequently a Creditors Petition.
The subsequent payment of the debt, and the circumstances surrounding that payment, and its timing, do not retrospectively make the initiation of these proceedings and their prosecution by the applicant, unreasonable.
The applicant should receive his costs and I will make the order the applicant seeks. For the same reasons, the respondent should not receive costs and I will not make the costs order she seeks.
As set out above, the applicant also sought costs on an indemnity basis. The applicant’s position was that the respondent acted so unreasonably, having regard to the respondent’s conduct in the events described variously in this judgment, that a costs order on an indemnity basis should be considered.
The applicant relied on Genovese v BGC Construction Pty Ltd (No.2) [2007] FMCA 601 at [47] – [48] (per Lucev FM, as he then was) as evidence on how the Court should approach consideration of the matter of indemnity costs:
“[47] In determining whether to award costs the Court has a very wide discretion, to be exercised judicially. What is an appropriate costs or indemnity costs order depends on the circumstances of the case. The normal practice, not to be lightly departed from, is to provide for costs to be on a party – party basis. Nevertheless, there are certain issues to which the Court will give consideration, and have to weigh, when determining whether to make, and the extent of, an indemnity costs order, which should only be made where the issues establish special or unusual circumstances warranting an indemnity costs order. Those issues include:
a) whether a party should have known that there was no prospect of success in the case;
b) where a party alleges fraud or forgery, knowing the accusation to be false, or irrelevant to the issues;
c) where a party precipitately punctuates proceedings by resiling from a previously adhered to view;
d) where a party acts in a high handed manner;
e) whether the party against whom indemnity costs is sought is a self-represented litigant, and whether the self-represented litigant ought escape the consequences of indemnity costs;
f) where a party proceeds “vexatiously” that is “without sufficient grounds for the purpose of causing trouble or annoyance”;
g) where a party proceeds for no good purpose at all due to inertia and carelessness;
h) where a party persists in the making of allegations which ought not have been made, or in undue prolongation of groundless contentions;
i) where a party’s conduct causes loss of time to the Court, at to other parties;
j) where a party imprudently refuses an offer of compromise;
k) whether the award of indemnity costs is sought against a contemnor; and
l) having regard to the objects of:
i) encouraging savings of private costs and avoidance of inherent risks, delays and uncertainties of litigation;
ii) saving public cost necessarily incurred in litigation which events demonstrate to have been unnecessary; and
iii) indemnifying one party where the real cause and occasion of the litigation is the attitude adopted by the other party.
[48] The discretion is not so circumscribed that an indemnity costs order ‘may only be made against an ethically or morally delinquent party’. The discretionary categories are not closed, and ‘other elements of litigatious of misconduct may be relevant’.”
[Error in original]
I note also what I relevantly said in Burns v Media Options Group Pty Ltd & Ors (No.2) [2013] FCCA 2016 at [118] – [119] on the question of indemnity costs:
“[118] In relation to the respondents’ conduct, I comprehend the authorities referred to above, to be as follows. Costs are not to be awarded by way of punishment of the unsuccessful party (Latoudis). That is, in the context of indemnity costs, it is where there has been some “delinquency” on the part of an unsuccessful party, the Court “sometimes” has the power to order costs at a “scale greater than party and party costs” (Oshlack). The Court has the power to award costs on an indemnity basis “in appropriate cases in particular circumstances” (De Alwis and Colgate Palmolive).
[119] The question here is, should costs be awarded on an indemnity basis? That is, has there been “delinquency” on the part of the respondents such that there are circumstances where this is such a case where costs should be awarded on that basis?”
In all, the applicant submitted that the “higher threshold” for the awarding of costs on an indemnity basis could be said to have been reached in the current case given the “level” of unreasonableness (“so unreasonable”) in the respondent’s relevant conduct.
For example, the respondent sought and pressed a costs order in her favour in circumstances where she had never given, despite invitation to do so, evidence of her solvency or sought to reach any timely arrangement on the payment of the debt.
As set out above, the applicant’s conduct in initiating and prosecuting these proceedings was reasonable in the circumstances of the respondent’s conduct. I am not persuaded however, that the respondent’s conduct was “so unreasonable” as claimed by the applicant such as to justify costs on an indemnity basis in favour of the applicant.
Beyond general reference to the respondent’s conduct, and the respondent’s failure to pay the debt in a timely fashion, the applicant has not satisfactorily explained in his submissions how the respondent’s conduct is caught by any of the propositions in the authority on which he relies. Nor how this should impact on the exercise of the Court’s discretion. It is not appropriate for the Court to make an order for costs on an indemnity basis, a serious matter that involves impugning the integrity of the respondent, without some focussed argument from the applicant.
Conclusion
The respondent should pay the applicant’s costs in the proceedings, including the hearing of the costs matter on an ordinary basis. I will make that order accordingly.
I certify that the preceding ninety-two (92) paragraphs are a true copy of the reasons for judgment of Judge Nicholls
Date: 22 July 2016
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