The OWNERS - Strata PLAN 72856 v MISOYANNIS

[2017] FCCA 1721

FEDERAL CIRCUIT COURT OF AUSTRALIA

THE OWNERS - STRATA PLAN 72856 v MISOYANNIS [2017] FCCA 1721

Catchwords:
BANKRUPTCY – Application for review of Registrar’s decision – trustee sought to be joined as a party to the proceedings to seek his costs in the administration of the bankrupt estate – whether the review applicant’s conduct increased the work undertaken by the trustee – orders of the Registrar set aside – no order as to costs of the trustee.

Legislation:

Bankruptcy Act 1966, ss.19, 109(1)(a), 153B

Other materials cited:

Oxford English Dictionary
Smith, Perry and Burns, International Journal of Ethics (The University of Chicago Press, Chicago, 1937-38)

Cases cited:

Flint v Richard Busuttil & Co Pty Ltd (2013) 216 FCR 375; [2013] FCAFC 131

Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004] FCA 1338

Applicant: THE OWNERS - STRATA PLAN 72856

First Respondent: VALERIE MISOYANNIS

Second Respondent: ANDREW JOHN SCOTT

File Number: SYG 2664 of 2016

Judgment of: Judge Smith

Hearing date: 14 July 2017

Date of Last Submission: 14 July 2017

Delivered at: Sydney

Delivered on: 28 July 2017

REPRESENTATION

Solicitors for the Applicant: CCSG Legal Pty Ltd

Counsel for the First Respondent: Mr T. Bors

Solicitors for the Second Respondent: Mr D Farrar, Farrar Legal

ORDERS

1. Order 1 made by Registrar Ng on 23 February 2017 be set aside.

2. Order 2 made by Registrar Ng on 23 February 2017 be varied to read:

   The respondent pay the applicant creditor’s costs fixed in the sum of $8,368.90.

3. The creditor’s petition be dismissed.

4. The first respondent pay the applicant creditor’s costs of the review application fixed in the sum of $3,050.00.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2664 of 2016

THE OWNERS - STRATA PLAN 72856

Applicant

And

VALERIE MISOYANNIS

First Respondent

ANDREW JOHN SCOTT

Second Respondent

REASONS FOR JUDGMENT

1. On 23 February 2017, a Registrar of the Court ordered that the estate of the first respondent be sequestered under the Bankruptcy Act 1966 (Cth) (Act) and that the applicant creditor’s costs fixed in the sum of $8,368.90 be paid from the first respondent’s estate in accordance with the Act.

2. The Registrar’s orders noted that a consent to act as trustee signed by Andrew John Scott had been served. Mr Scott is a registered trustee. As a consequence of his consent, Mr Scott became the trustee of the first respondent’s estate upon the first respondent (review applicant) becoming a bankrupt. For that reason, I will refer to Mr Scott as the trustee.

3. The review applicant lodged an application seeking review of the Registrar’s orders on 16 March 2017, and has since that time, paid the amount owing to the applicant creditor. In light of that payment, subject to an order for its costs in its favour, the applicant creditor did not contest the orders sought by the review applicant and adduced no evidence in the application. The review applicant did not oppose the order for costs sought by the applicant creditor.

4. In those circumstances, the ordinary course would be that orders would be made setting aside the orders made by the Registrar dismissing the creditor’s petition, and that the review applicant pay the creditor’s costs of the application for review set in the amount sought. The review applicant does not seek an order setting aside the Registrar’s order for costs. I will deal with that in due course.

5. The matter is complicated by the fact that the trustee sought to be, and was, joined as a party to the proceedings. The trustee sought such a joinder in order to make a submission that his costs of administering the review applicant’s estate ought to be paid by the review applicant.  

6. The trustee accepted that it was not appropriate for the Court to order that the bankruptcy of the review applicant be annulled pursuant to s.153B of the Act, but submitted that it would be manifestly unjust for the trustee to be deprived of his costs and remuneration, where those costs were incurred as a result of actions taken by him, that were either reasonable or required by law: Flint v Richard Busuttil & Co Pty Ltd (2013) 216 FCR 375 at 386 [58]; [2013] FCAFC 131.

7. The review applicant did not contest that the Court had the power to make an order in the nature of that sought by the trustee. However, she argued first, that the work undertaken in the administration of her bankrupt estate was no more than administrivial[1]; secondly, trustees should in general, exercise caution when incurring expenses before the expiry of the 21-day period within which a challenge to a sequestration order may be made[2]; and thirdly, that in any event, the vast proportion of the trustee’s costs and expenses have been undertaken in these proceedings pursuing an order for costs, well in excess of the debt on which the creditor’s petition leading to the sequestration order was based.

   [1] Although Counsel for the respondent claimed this word as his own neologism, it appears to derive from the noun “administrivia”, the earliest use of which is reported to have been in the 1937 International Journal of Ethics: online Oxford English Dictionary.

   [2] Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004] FCA 1338 at [42].

8. The trustee responded to these submissions saying that the review applicant’s conduct had added considerably to the time and expense of administering the estate. This conduct included her refusal to lodge a statement of affairs, attending at the trustee’s office, being abusive to the trustee’s staff and providing inconsistent responses to correspondence. Further, although the review applicant filed her application for review within the correct timeframe, she did not notify the trustee of that fact or serve the application on him. In light of that, he only became aware of the application on 4 April 2017.

9. The parties agreed that the Court had to balance the interests of the parties in all the circumstances of the case.

10. The duties of a trustee in bankruptcy include those matters set out in s.19 of the Act. Amongst other things, a trustee is required to notify creditors of the bankruptcy, determine whether the estate includes property that can be realised to pay a dividend to the creditors, and to take appropriate steps to recover property for the benefit of the estate. It may be that there is a tension between the fulfilment of these duties and the possibility that the sequestration order will be set aside; however, not only does this possibility require the trustee to exercise caution within the 21-day period for making an application for review, but sub-s.19(1)(j) of the Act requires a trustee to administer “the estate as efficiently as possible by avoiding unnecessary expense”.

11. There is in evidence a description of the work done by the trustee for which an order is sought. The description is a print out of the records concerning the review applicant kept in the time management system maintained by the trustee’s firm. That record contains a brief description of:

    ·the work;

    ·who carried out the work;

    ·the time (expressed in units of 1/10^th of an hour);

    ·the time to be charged per hour and for the work done;

    ·the task performed; and

    ·the phase in which the task was performed.

    Unfortunately, the document is sorted first by the person who carried out the work, and next by the phase. This makes it difficult to know easily just how much work was done when.

12. This record appears to have been the basis of the trustee’s remuneration report dated 8 June 2017 which was also in evidence.

13. Without being overly precise, it can be seen that the trustee did undertake a fair amount of work in the fulfilment of his duties under the Act. This included dealing with creditors and with the real property in the estate (a strata unit, the unpaid strata fees in respect of which were the initiating cause of the sequestration order). However, the cost of the task described as “litigation/recovery” amounts to nearly $6,000, or half of the total fees incurred (taking into account an amount to be written off). The narrative description of line items falling under that task reveals that the task concerned these proceedings. For example, on 8 June 2017 there is an entry for 3.0 hours (in respect of which $1,380 was claimed) described as “review and amend affidavit of A Scott, print and prepare annexures to affidavit.”

14. Thus, while it cannot be said that most of the work undertaken by the trustee was in respect of this litigation, a large proportion of the work was.

15. Further, the trustee claims the legal fees that he has, or will incur in respect of the proceedings. A tax invoice from the trustee’s solicitors dated 28 June 2017 claimed the amount of $8,779.10 including GST. The fees described in the tax invoice were charged in respect of work that commenced on 1 May 2017.

16. I do not accept on the evidence, that the conduct of the review applicant greatly increased the amount of work that had to be undertaken by the trustee. There was some correspondence with her, an attendance by her at the trustee’s offices, and correspondence with creditors probably required because the review applicant did not lodge a statement of affairs. The review applicant may have been rude or even abusive but, while nobody can condone such behaviour, I cannot see that it tips the scales of justice towards the trustee.

17. The trustee submitted at one point, that he was appointed by order of the Court and had no say in that process. I reject that submission. He signed a consent to act as trustee. The trustee knew that this would lead to him being appointed as trustee in the event that the review applicant became bankrupt. I infer from the fact that he is a registered trustee, that he would also know that he was, to some extent, at risk for his fees in the event that the sequestration order was set aside. In circumstances where, shortly after the sequestration order was made, the trustee would have become aware that the debt that led to the sequestration order was less than $10,000, and owed in respect of a strata title unit, he must have known that the risk was significant.

18. In all of the circumstances of this case, I do not accept that there would be a manifest injustice in making orders setting aside the Registrar’s orders and dismissing the creditor’s petition, without making any order for the trustee’s costs. By contrast, given that the review applicant has paid the debt underlying the sequestration order, and the amount of the order sought by the trustee well exceeds that amount, I consider that an order requiring the review applicant to pay the trustee’s costs would amount to an injustice. In light of that, I will reject the trustee’s application for such an order.

19. As the trustee lost his application, and his application was the only reason for which the proceedings went to a final hearing, I would ordinarily order that he pay the costs of the application. However, I will not do that here because the review applicant did not seek any order for costs against the trustee.

20. The remaining issue is the question of the petitioning creditor’s costs of the proceedings before the Registrar. It appears that the understanding between the review applicant and the petitioning creditor was that the review applicant would not seek to disturb the order in respect of those costs. I infer that this understanding was part of the basis on which the petitioning creditor took no substantive part in the final hearing of these proceedings. The difficulty with that understanding, is that the form of the costs order was, as is usually the case, directed to the situation where the review applicant remains a bankrupt and the costs are dealt with under the Act (see sub-s.109(1)(a)). Thus, the form of the order is inappropriate where the sequestration order is set aside. However, the orders can be amended to overcome that difficulty and, at the same time, to reflect the parties’ understanding.

21. For those reasons, I make the following orders:

    i)Order 1 made by Registrar Ng on 23 February 2017 be set aside.

    ii)Order 2 made by Registrar Ng on 23 February 2017 be varied to read:

    The respondent pay the applicant creditor’s costs fixed in the sum of $8,368.90.

    iii)The creditor’s petition be dismissed.

    iv)The first respondent pay the applicant creditor’s costs of the review application fixed in the sum of $3,050.00.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Judge Smith

Date:     28 July 2017