Totterdell v D'Angelo (No.2)
[2004] FMCA 700
•29 October 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TOTTERDELL v D’ANGELO (No.2) | [2004] FMCA 700 |
| BANKRUPTCY – Costs – whether costs order appropriate where declaration made pursuant to s.222(2) of the Bankruptcy Act 1966. |
Bankruptcy Act 1966, s.32, 64ZC
Musolino v Sidiropoulos (1991) 101 ALR 235
Oayda v Mercantile Mutual Life Insurance Co Ltd (1995) ANZ ConvR 225
Cummings v Lewis (1993) 41 FCR 559
Bent v Gough (1992) 36 SCR 204; 108 ALR 131
| Applicant: | GEOFFREY FRANK TOTTERDELL |
| Respondent: | JOHN NICHOLAS D’ANGELO |
| File No: | WZ 49 of 2004 |
| Delivered on: | 29 October 2004 |
| Delivered at: | Melbourne (by video link to Perth) |
| Date of Last Submission: | 6 October 2004 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr F Carles |
| Solicitors for the Applicant: | Carles Solicitors |
| Counsel for the Respondent: | Mr P Arns |
| Solicitors for the Respondent: | Arns & Associates |
| Counsel for the Creditors namely: Leonard David Goldstein | Mr N Dillon |
| Counsel for the National Australia Bank: | Mr J Atkinson |
| Solicitors for the National Australia Bank: | Minter Ellison |
ORDERS
(1)Pursuant to s.222(2) of the Bankruptcy Act 1966, the composition accepted by a meeting of creditors of the respondent on 7 January 2004 be declared not void.
(2)The syndicate of creditors be jointly and severally liable to pay the costs of the National Australia Bank of and incidental to the proceedings, including reserved costs, if any, to be taxed in default of agreement pursuant to order 62 of the Federal Court Rules.
(3)Pursuant to Rule 21.15 of the Federal Magistrates Court Rules the Court certifies that it was reasonable for the parties to employ an advocate to appear in the proceeding.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
WZ 49 of 2004
| GEOFFREY FRANK TOTTERDELL |
Applicant
And
| JOHN NICHOLAS D’ANGELO |
Respondent
REASONS FOR JUDGMENT
Introduction
In this matter the court delivered a judgment on 24 September 2004 and at that time an order was made that pursuant to s.222(2) of the Bankruptcy Act 1966 (the Act) that the composition accepted under Part X of the Bankruptcy Act as presented to a meeting of creditors of the respondent held on 7 January 2004 was declared to be not void.
It was indicated to the parties that I would hear submissions in relation to other orders which may be appropriate arising out of the declaration, including any orders for costs. The parties were given the opportunity of filing and serving written submissions. The court has received the following:-
·Applicant's submissions on costs filed 30 September 2004.
·Applicant's supplementary submissions on costs dated 6 October 2004.
·Respondent's submissions as to costs filed 30 September 2004.
·Syndicate of employee creditor submissions on orders including orders in relation to costs dated 30 September 2004.
·National Australia Bank Ltd (the NAB) submissions on costs.
The applicant's submissions
The applicant submitted that there should be no order for costs as between the trustee and the other parties. It was submitted that whether employee creditors should pay the costs of the respondent is a matter between those parties.
It was submitted that the Applicant had taken a neutral position in the proceedings and brought the application for the purpose of determining whether the composition was void or not void as a result of ongoing complaints from employee creditors who could have brought the court application themselves but chose not to do so. The neutrality, it was claimed, of the Applicant was evident from the following:-
a)the amended application seeks orders that the composition should be declared either void or not void;
b)no application for a sequestration order was included in the original application or the amended application. It is highly unusual for an application for a sequestration order not to be included in an application relating to the overturning of a Part X composition;
c)some of the submissions and affidavit material filed on behalf of employee creditors strayed into the territory of an inquiry into the trustee's conduct. The trustee was entitled to defend those allegations. Beyond that, the applicant trustee put relevant matters before the court and adopted a neutral position.
It was submitted that the Applicant in the present case could neither be regarded as a successful or unsuccessful party and should not be ordered to pay the costs of any other party, or be entitled to claim costs against any other party.
It was otherwise submitted on behalf of the Applicant that the costs should be determined by reference to who was successful or unsuccessful in the proceedings. Any issue of culpability on the part of the Applicant in determining the votes is irrelevant, it was submitted, to the court's discretion on costs. By way of example, reference was made to the decision of Musolino v Sidiropoulos (1991) 101 ALR 235 (Musolino) where the trustee was entirely at fault in respect of an error in adding the value of votes, though nevertheless there was no order as to costs made against the trustee.
Although in the present case the Applicant as Trustee had wrongly allowed one creditor to vote where the creditor had appointed the respondent debtor as proxy, it was noted that the other incorrect vote in favour occurred as a result of the respondent debtor wrongly stating that he had signed a guarantee in favour of that creditor. The respondent is at fault in respect of that vote. It was submitted that in the event the "culpability" on voting is relevant to costs, which the applicant submits it is not, then the applicant and respondent would be equally culpable. It accordingly was submitted there would be no basis for a costs order in favour of the respondent as against the applicant.
Reference was made to the respondent's submissions on costs where arguments were advanced that the Applicant should be responsible for the respondent's costs and where reliance was placed upon the decision of the Federal Court in Oayda v Mercantile Mutual Life Insurance Co Ltd (1995) ANZ ConvR 225 (Oayda). The trustee submitted that reliance on that case was inappropriate and pointed out that the extracts in the written submissions of the respondent in fact refer to a judgment of Wilcox J (not Lindgren J as claimed by the respondent) where his Honour stated at paragraph 29 the following:
“29. I cannot pass from the case without expressing dismay at the number of serious irregularities that occurred in connection with this matter. Mr Shirlaw is an accountant and an experienced registered trustee. It seems to me that it is not asking too much of those who are registered as trustees, and thus obtain access to substantial remuneration for rendering services under the Bankruptcy Act, to become cognisant of its terms and punctilious in its observation. In the present case, Mr Shirlaw's actions in permitting a number of irregularities has delayed the dealing with the bankrupt's affairs for a considerable time and has involved the parties in unnecessary expense.”
The Applicant submitted that the Oayda decision was wrongly decided as it did not refer to or apply the early decision of the Full Court in Musolino and that Wilcox J had simply set aside the Part X after finding problems with the voting without considering the second step of exercising a discretion as to whether or not the Part X should be set aside. In Oayda the Part X was set aside, while in the present case it in fact was not set aside. Specific findings in that case were made criticising the trustee's conduct, whereas there are no such findings in the present case, and that in Oayda there was no suggestion that the debtor contributed to the problems which occurred by giving incorrect information to the Applicant.
It was otherwise submitted by the Applicant that the employee creditors have been unsuccessful and there is no basis upon which they can seek costs against the trustee.
The Applicant as trustee it was submitted is entitled to be reimbursed and indemnified for his costs and expenses, including general legal expenses and legal costs of the present proceedings out of the estate and no costs order is required for the applicant trustee to exercise that entitlement. If creditors of the debtor are dissatisfied with the amount of remuneration, disbursements and expenses claimed by the trustee, then there is provision for a taxation in the Bankruptcy Regulations 8.09 and following. Accordingly, it was submitted there was no need for a court order that the trustee's costs be paid out of the estate.
In supplementary submissions the Applicant referred to the employee creditor's submissions and in particular dealt with the issue raised by the applicant in relation to the partnership status of Messrs Foo, Math and Cooke having been found to have been misconceived, or at best, superficial. The Applicant submitted that any allegation that the applicant occasioned unnecessary litigation and expense to the employee's creditors is misleading and incorrect. There is no reference to the partnership issue in the first three affidavits of the trustee, with the first mention of the partnership issue arising in the affidavit of Mr Foo sworn 19 July 2004. The next reference to the issue is in the Applicant’s letter of 22 July 2004 addressed to Mr Foo and in that letter the trustee was not raising the partnership issue as an issue in these proceedings, but was simply asking Mr Foo to reconsider his claim.
The partnership issue was raised in detail in these proceedings, according to the Applicant, in the affidavits of Foo and Math sworn
29 July 2004. It was as a result of the partnership issue having been raised in the proceedings by the affidavits of Foo and Math the applicant filed affidavits of Mr Carles sworn 3 August 2004, which did no more than annex a business name search, and Mr Totterdell sworn 14 September 2004 dealing with the partnership issue. Hence, it was submitted that it is surprising that the employee creditors now submit that the raising of the partnership issue was unnecessary and should be the basis of an indemnity costs order against the party raising that issue when they themselves appear to be the party which raised the issue in these proceedings. Accordingly, it was submitted there is no basis for a costs order in favour of the unsuccessful employees as against the trustee, let alone any basis for indemnity costs.
The respondent's submissions as to costs
It was noted and it would appear to be common ground that the court has an unfettered discretion as to a costs order pursuant to s.32 of the Act. In the absence of special circumstances, the respondent submitted that a successful respondent has a reasonable expectation of recovery of costs (see Cummings v Lewis Wilcox J FCA Unreported (29 May 1992) upheld on appeal in Cummings v Lewis (1993) 41 FCR 559). Unless the court otherwise orders a party entitled to costs in a proceeding to which the Act applies is entitled to costs in accordance with the Federal Court Rules (see rule 29.08 Federal Magistrates Court Rules 2001) (the FMC Rules).
It was submitted that the creditors who participated in the proceedings filed a notice of appearance and submitted to the jurisdiction of the court and that irrespective of whether leave to appear was formally sought and granted pursuant to rule 29.05 of the FMC Rules, the creditors took an active part in the proceedings and argued strongly in support of an order that the composition be declared void. In any event, it was submitted the court has power to make orders against a non-party to proceedings (see Bent v Gough (1992) 36 SCR 204; 108 ALR 131). The respondent submitted there is no reason to depart from the general principle that costs should follow the event.
It was submitted that the respondent is entitled to an order for costs either against the creditors, or in the alternative, against the trustee. The claim against the trustee was based upon the assertion the proceedings were commenced by an application filed by the trustee and that affidavits filed in support of the application raised two grounds; namely, that a proxy received from Caverhill Pty Ltd was invalid and that a creditor, Success Ventures Pty Ltd, should have been permitted to vote at a creditors meeting. The proxy received from Caverhill Pty Ltd was invalid on its face in that it appointed the respondent as the creditor's proxy in contravention of s.64ZC of the Act.
Reliance was placed upon the decision of Wilcox J in Oayda in support of the application for costs. In brief terms, reliance was placed upon an order being made in that case for costs on the basis that the proceedings were necessitated by an oversight on the part of the trustee.
The creditor's submissions
The orders sought by the creditors are as follows:
(a)The composition under Part X of the Bankruptcy Act 1966 of John Nicholas D'Angelo be declared not void pursuant to section 222 of the act.
(b)There be no order as to costs between the applicant and the respondents.
(c)Subject to order 4 (sic) below, the applicant and respondent be jointly and severally liable for the costs of the following creditors, the costs to be taxed if not agreed:
(i)Peter Foo;
(ii)John Cooke;
(iii)Leonard Goldstein;
(iv)Deborah Harrington;
(v)Gerard Math;
(vi)Joel Sheldrick;
(vii)Julie Smeets;
(viii)Mary Victoria Reynolds;
(ix)Janelle Spargo;
(x)Cheryl Richardson.
(d)In relation to the issue of whether the creditors Messrs Foo, Math and Cooke were partners of the respondent up to
30 June 2003, the applicant pay the costs of those creditors on an indemnity basis, the costs to be taxed if not agreed.
The reference in proposed order (c) as being subject to order "4 below" is taken to mean subject to order (d).
In support of the orders reference was made to the general unfettered discretion and the rules referred to earlier in this judgment and otherwise general principles well-known, both in relation to costs following the event and the basis upon which indemnity costs should be awarded. Reliance was placed upon the Oayda decision referred to earlier in this judgment.
Reference was made to the background to the proceedings and the ultimate declaration made by the court, including a reference to the issue of whether or not Messrs Foo, Math and Cooke were until 30 June 2003 partners of the respondent in the firm D'Angelo and Partners.
On behalf of the creditors relevant extracts were relied upon from this court's decision and on the basis of those extracts it was submitted that the application would not have been commenced if the respondent had not included in his statement of affairs the misleading particulars that he was personally indebted to Frank Knight or that prior to the vote on 7 January 2004 the applicant had properly investigated the status of the Frank Knight personal guarantee and/or vetted the proxy submitted by National Collections. It was argued further that the creditors may not have participated in the application if the sale agreement entered into between the respondent and Friedman Lurie Singh had been properly explained by the applicant with information provided by the applicant to creditors in relation to availability of GEERS being complete and detailed, or if the applicant had properly investigated the benefits to be received by the respondent as a result of the sale of the firm. It was claimed the applicant raised the partnership issue which it was submitted that if the applicant had been properly advised that issue should not have been raised.
National Australia Bank submissions
The NAB submitted that it should be entitled to an order that the employee creditors pay the bank's costs in these proceedings. The bank adopted a neutral position in the proceedings, however, entered an appearance and filed an affidavit of Stephen John Robertson following the affidavit of Deborah Maree Harrington sworn 23 July 2004 and the submissions filed by the creditors which put into issue the bank's conduct in the circumstances giving rise to the sale agreement between the respondent and Friedman Lurie Singh.
It was submitted on behalf of the NAB that it was entitled to an order that the creditors pay its costs based upon the following:
a)Employee creditors raised a number of issues in relation to the conduct of the NAB. Specifically, they submitted that the NAB’s conduct was:
i)inappropriate or improper; and
ii)oppressive or against the interests of others;
b)The court accepted the material set out in the affidavit of Mr Robertson and the NAB submissions. In particular, the court held that the sale agreement was an appropriate agreement and that the appointment of the applicant as trustee was the appropriate decision at the time. In doing so, the court rejected the employee creditors' arguments against the NAB.
c)While remaining neutral in terms of the outcome of the proceedings the NAB was wholly successful in relation to the claims raised by the employee creditors. It was submitted in these usual circumstances that the usual rule should apply and the costs should follow the event with the NAB as the successful litigant receiving its costs.
Reasoning
There is no doubt that the court has an unfettered discretion in relation to the costs order in this application. The appropriate form of the declaration arising out of the judgment will be:-
“Pursuant to s.222(2) of the Bankruptcy Act 1966, the composition accepted by a meeting of creditors of the respondent on 7 January 2004 be declared not void.”
In exercising the court's unfettered discretion in relation to the issue of costs, I accept the submissions made for and on behalf of the Applicant trustee that in this case it would be appropriate that there be no order made for or against the Applicant. It is clear to me that the trustee has acted essentially in a neutral role as required and has properly brought before the court the issue to be determined by way of declaration one way or another which was clearly in the interests of all parties. It was essential, in my view, that the issues be resolved, and in a sense by amending the application in the manner described and even by ultimately referring in affidavit material to the partnership issue the Applicant has simply placed before the court all relevant options and evidence and made appropriate submissions. Having adopted a neutral position and approached the task in the manner described, it will be inappropriate, in my view, in the exercise of the court's discretion to make any order either for or against the Applicant. I otherwise note that it is unnecessary to make an order that the Applicant’s costs as trustee be paid out of the estate.
In relation to the respondent's costs and the submission that an order should be made consistent with costs following the event, whilst
I accept that there is a strong argument advanced for and on behalf of the creditors in support of an order that the composition be declared void, it is relevant to have regard to the context in which the creditors pursued that matter. Both the chronology of events and at least in part invalidity of voting at the creditors meeting could properly be said to be attributable to the conduct of the respondent. Had that not occurred, then it appears at least arguable that perhaps the creditors would not have become as involved and nor would their suspicions have necessarily been raised. On the other hand, the creditors did have access to information at an early stage at the meeting and shortly thereafter and consciously chose to seek an order the composition be declared void.
On balance, however, there is a clear benefit to the respondent in achieving the declaration now made by the court that the composition is not void. In my view, that declaration and indeed these proceedings, in part at least, have occurred as a result of the conduct to which I have referred of the respondent in relation to the voting at the creditors meeting. In the circumstances it is my view that there should be no order as to costs in favour of the respondent.
In relation to the issue of the creditor's costs, whilst I note that
a comprehensive argument has been raised based upon the reasoning of the court that a costs order should be made against both the applicant and respondent with the applicant to pay costs of creditors on an indemnity basis in relation to the partnership issue, I am not satisfied, as indicated earlier, that it is appropriate to make any order for costs against the trustee, that is, the applicant. Specifically, I do not accept that this is an appropriate matter where an indemnity costs order should be made in relation to the partnership issue. I otherwise accept the Applicant's submissions regarding that issue. There is no doubt it was raised in the manner accurately described in the submissions of the Applicant and I can see no basis upon which that issue and the result should lead the court to make an order for indemnity costs against the Applicant.
As to whether or not an order should be made in favour of the creditors against the respondent, I am satisfied on a proper reading of the reasons that effectively the assertions made by the creditors were ultimately not found to be sufficient to achieve an order of the kind sought by the creditors; namely, that the composition be declared void. In those circumstances a proper outcome, having regard to the court's finding, would be that there be no order as to costs in favour of the creditors.
The position of the NAB is somewhat different as I am satisfied that the intervention of the bank for which leave was granted without objection and its reliance upon the affidavit of Stephen John Robertson occurred as a direct response to issues raised by the employee creditors as to impropriety and/or oppressive conduct by the NAB which this court ultimately held could not be sustained. They are significant and serious allegations which clearly required intervention with the result that the arguments advanced against the NAB were rejected by the court. Despite the neutrality in relation to the outcome of the proceedings, I am satisfied that the NAB otherwise presented appropriate arguments and was entitled to file and rely upon the affidavit of Stephen John Robertson. To that extent, the NAB has been successful in resisting the arguments raised against it by the creditors. Having raised those issues the creditors should in the exercise of my discretion face the consequences of paying the costs of the NAB.
The creditors had filed further submissions in writing, not with the leave of the court, by way of supplementary submissions in answer to the applicant's supplementary submissions on costs and by way of reply to the NAB submissions on costs.
In the supplementary submissions in answer to the applicant's supplementary submissions detailed reference was made to the chronology and analysis of the raising of the partnership issue. Even accepting that chronology to be correct, it does not in the exercise of my discretion alter the outcome in this matter. The raising of the partnership issue, whether by the creditors or the Applicant, in my view, is of little or no consequence in circumstances where ultimately that issue was agitated in far more detail during the hearing and throughout submissions by the creditors. Nevertheless, even raising that issue is not in itself a determinative factor in relation to the issue of costs. I do accept that the creditors were placed in the position where material had to be addressed and/or provided in relation to the partnership issue.
In relation to the reply to the NAB submissions where the creditors claim there had been no notice the bank would participate in the hearing of the application and then voluntarily submitted material to the court which it is claimed the previous nondisclosure of which was one of the principal reasons of the cause of the application also does not advance the issue further than that already referred to in this decision. Although provision of the additional material may constitute a waiver of the insistence of confidentiality, it was nevertheless necessitated by allegations made, directly or indirectly, by the creditors in the material before this court. I am satisfied that the NAB in the circumstances responded appropriately.
Given the nature of the submissions made even after the affidavit material was filed for and on behalf of the NAB, I doubt whether or not the mere provision of that material would have altered the perception of the creditors in relation to the arrangements between the bank and the respondent or that this application would have been avoided. Whilst is it true that the NAB at no stage risked any adverse order, the fact remains that its participation was appropriate in circumstances where serious allegations were made in relation to the arrangements between the bank and the respondent. Accordingly, it was entitled to participate in the proceedings and place appropriate and relevant material before the court by way of the affidavit of Mr Robertson. This is not a case where it could be properly concluded that the intervener has merely intervened to support an application, but rather has intervened to place relevant material before the court in circumstances where doubts have been raised concerning its conduct. The participation of the NAB in the manner described, in my view, is justified and, as indicated earlier, it is entitled to an order in its favour in relation to costs.
Accordingly, it follows that the orders of the court shall be:
(4)Pursuant to s.222(2) of the Bankruptcy Act 1966, the composition accepted by a meeting of creditors of the respondent on 7 January 2004 be declared not void.
(5)The syndicate of creditors be jointly and severally liable to pay the costs of the National Australia Bank of and incidental to the proceedings, including reserved costs, if any, to be taxed in default of agreement pursuant to order 62 of the Federal Court Rules.
(6)Pursuant to Rule 21.15 of the Federal Magistrates Court Rules the Court certifies that it was reasonable for the parties to employ an advocate to appear in the proceeding.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 29 October 2004
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