Vero Insurance Limited v Scriven
[2010] FMCA 352
•28 May 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VERO INSURANCE LIMITED v SCRIVEN | [2010] FMCA 352 |
| BANKRUPTCY – Creditor’s Petition dismissed by consent – costs order Applicant to pay Respondents costs as agreed or taxed Application that costs order made by Registrar be vacated in lieu of a costs order on an indemnity basis. PRACTICE AND PROCEDURE – Costs – whether indemnity costs warranted. |
| Bankruptcy Act 1966, ss.33, 44, 79 Federal Court Rules, o.62 Quick on Costs Vol II Lawbook Co |
| Australian Security Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 Caboolture Park Shopping Centre Pty Ltd [in liq] v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 Colgate – Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225 Davids Holdings Pty Ltd v Coles Myer Ltd [1995] FCA 1043 Finn, Re; Ex parte Amoco Australia Ltd & Official Receiver in Bankruptcy (1982) 41 ALR 487 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 Ford Motor Co of Australia Ltd v Jefferson Ford Pty Ltd [2007] FCA 998 Genevose v BGC Constructions Pty Ltd (No 2) [2007] FMCA 601 Hughes v Western Australian Cricket Association Inc & Ors [1986] FCA 382 Mead v Watsonas liquidator ofHypecElectronics [2005] NSWCA 133 Packer v Meagher [1984] 3 NSWLR 486 Rogers v The Queen [1994] 181 CLR 251 Re Minister for Immigration and Ethnic Affairs, Ex Parte Lai Qin [1997] 186 CLR 622 Re Wiggins, Ex Parte Credit Assistance Pty Ltd (1979) 30 ALR 443 Symes v Holbrook [2005] FCAFC 219 Worthley v England; Re Excel Finance Corp Ltd; Worthley v ASC [1994] 52 FCR 69 |
| Applicant: | VERO INSURANCE LIMITED |
| Respondent: | GRAHAME SCRIVEN |
| File Number: | SYG 2536 of 2009 |
| Judgment of: | Lloyd-Jones FM |
| Hearing dates: | 30 March 2010 & 13 April 2010 |
| Delivered at: | Sydney |
| Delivered on: | 28 May 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr A C Casselden |
| Solicitors for the Applicant: | Gadens Lawyers |
| Counsel for the Respondent: | Ms R Francois |
| Solicitors for the Respondent: | Beswick Lawyers |
ORDERS
The Application in a Case filed on 16 March 2010 is dismissed.
Each party to pay its own costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2536 of 2009
| VERO INSURANCE LIMITED |
Applicant
And
| GRAHAME SCRIVEN |
Respondent
REASONS FOR JUDGMENT
The proceedings
This is an application for the cost orders made by Registrar Hedge on 9 March 2010 be vacated in lieu of a costs order on an indemnity basis. The application is brought by the Respondent in the main proceedings, Mr Grahame Scriven, the Applicant in this matter (“the costs application”), against the Applicant Creditor, Vero Insurance Limited (“Vero Insurance”), the Respondent in this cost application. The parties appeared before Registrar Hedge again on 30 March 2010 in respect of an Application in a Case challenging Orders 2 and 3 of 9 March 2010. The Application in a Case was referred to this Court for hearing. The cost application is to be conducted as a hearing de novo.
The orders made by Registrar Hedge on 9 March 2010 were:
1. The petition against the Respondent Debtor be dismissed by consent.
2. The Applicant pay the Respondent’s costs of the Petition, including reserved costs, as agreed or taxed.
3. The costs order of 16 February 2010 be vacated, with no reserved costs for 16 February 2010.
4. A copy of this order be provided to the Official Receiver in Sydney within two days.
The Application in a Case seeks to challenge orders 2 and 3 above and seeks the substituted orders to be made
1. Order 2 made on 9 March 2010 be vacated and in lieu thereof order that Vero Insurance Ltd pay Mr Scriven’s costs of these proceedings, including reserved costs, on an indemnity basis.
2. Order 3 made on 9 March 2010 be partially vacated and order that the costs order made on the 16 February 2010 be vacated and in lieu thereof order that Vero Insurance Ltd pay Mr Scriven’s costs on 16 February 2010 on an indemnity basis.
3. A copy of this order be provided by Vero Insurance Ltd to the Official Receiver in Sydney within 2 days.
It is submitted that the orders sought by Mr Scriven are on the basis that the Creditor’s Petition issued by Vero Insurance Ltd in the major proceedings against Mr Scriven were an abuse of process. Vero opposes the orders sought by Mr Scriven in his review.
Background
In setting out the following background material, I have either paraphrased or quoted directly from the written submissions prepared by Ms Francois representing the Applicant in this cost application, together with the oral submissions of both Ms Francois and Mr Casselden. I have not made any further direct attribution as this would make the summary unwieldy, which has been provided to assist the understanding to the whole proceedings, and not to establish any evidentiary point.
On 20 November 2008 Mr Scriven applied to Vero Insurance for the issue of a deposit bond. On 28 November 2008 Vero issued a deposit bond guaranteed to Mr Scriven. On 19 March 2009 Vero Insurance made a payment to a nominated third party under the terms of the guarantee and made a demand on Mr Scriven for the payment made by Vero pursuant to the terms of the guarantee.
On 11 May 2009 Vero Insurance issued a Statement of Claim against Mr Scriven in the Local Court of New South Wales, proceedings 4388/2009 seeking to recover the amount owed by Mr Scriven under the guarantee, plus costs and interest. On 9 July 2009, judgment was entered in favour of Vero Insurance against Mr Scriven in the Local Court proceedings, in the amount of $57,418.42. Mr Scriven did not pay the amount of the judgment to Vero Insurance.
On 10 September 2009, the Official Receiver for the Bankruptcy District of New South Wales on request of Vero Insurance, issued Bankruptcy Notice Number NN 4177/2009 against Mr Scriven. The Bankruptcy Notice was personally served on Mr Scriven on 18 September 2009. An act of bankruptcy was committed by Mr Scriven on 7 October 2009 due to his non-compliance with the Bankruptcy Notice. A Creditor’s Petition was issued by Vero Insurance against Mr Scriven on 21 October 2009. The Creditor’s Petition set out the details of the judgment owed by Mr Scriven to Vero Insurance, along with a further debt which had become due and owing by Mr Scriven to Vero Insurance. The Creditor’s Petition was served on Mr Scriven on 23 October 2009. On 14 December 2009 Mr Scriven served on Vero Insurance a Notice of Grounds of Opposition to the Petition, supported by an affidavit of Grahame Scriven sworn 13 December 2009. The basis of the Notice of Grounds of Opposition was that Mr Scriven claimed he was solvent.
On 16 February 2010 the Creditor’s Petition was listed before a Registrar of this Court. On that date, Mr Scriven filed and served in Court an Amended Notice of Grounds of Opposition to the Creditor’s Petition. The Creditor’s Petition was listed for hearing on 9 March 2010. Ms Francois, in her written submissions, acknowledges that at no time prior to 16 February 2010 did Mr Scriven provide any notice that there were any additional grounds of opposition to the Creditor’s Petition, other than those outlined in the Notice of Grounds of Opposition served on 14 December 2009.
On 9 March 2010, orders were made by Registrar Hedge that the Petition against the Respondent Debtor be dismissed by consent. Those orders are set out at paragraph [2] above. The Registrar refused to make an indemnity costs order in favour of Mr Scriven, despite counsel for Mr Scriven seeking such orders. On 9 March 2010, a Notice to Produce served on Vero Insurance by Mr Scriven was called on before the Registrar. The Notice to Produce was dealt with by Registrar Hedge on that occasion. Mr Scriven has purported to reserve the same Notice to Produce on 24 March 2010. On 30 March 2010, when this matter was initially before this Court, Ms Francois appearing for Mr Scriven, called on the Notice to Produce. Vero Insurance contends that the Notice to Produce is irrelevant for the purposes of the review application.
The matter was referred to this Court by Registrar Hedge during the duty list on 30 March. A number of other unrelated matters were also referred to this Court at that time. Ms Francois and Mr Casselden made preliminary submissions in respect of the review and the Notice to Produce. As time did not permit the complete hearing of the matter, I stood the question of the Notice to Produce over to the hearing of the review application and set the date of 13 April 2010 for the hearing of both matters. I indicated to the representatives of Vero Insurance that any relevant documents that are covered by the Notice to Produce should be brought to Court on 13 April 2010 in accordance with the provision of r.15A.17(2) of the Federal Magistrates Court Rules 2001 (Cth). If issues arose in respect of those documents, such as claims for privilege, the relevant documents could immediately be referred to another judicial officer for ruling. The purpose of the instruction was to prevent any further unnecessary delays in the resolution of this issue.
Preliminary issue – Notice to Produce
When the cost application was adjourned on 30 March 2010, the Court was considering a preliminary part of evidence being that Mr Scriven’s solicitor had served a Notice to Produce and there was an oral application to set aside that Notice to Produce on the basis that the documents were not relevant to the issues in dispute.
Ms Francois submits that the Notice to Produce was in the appropriate form and validly served. The Notice to Produce states:
To the Applicant:
The Respondent requires you to produce at 9.45am on 3 March 2010 at the Federal Magistrates Court the following documents for the purpose of evidence –
1. The Documents upon which the Applicant relied to make the estimate in paragraph 2 on page 3 of the Creditor’s Petition that the value of its security was $10.00.
In this Notice to Produce:
“Applicant” means Vero Insurance Limited and its officers, employees and agents including Mr Sherrard and Mr Gardener.
“Creditor’s Petition” means the Creditor’s Petition filed in these proceedings on 21 October 2009.
“Documents” means any record of information which is a ‘document’ within the definition contained in the Evidence Act 1995 (Cth) and any other material data or information stored or recorded by mechanical or electronic means, including in archive systems.
Date: 16 February 2010
Respondent’s Solicitor
The form and validity of service of the notice is not challenged. However the representatives of Vero Insurance state that the material sought in the notice is not relevant to the issue of costs, which is the matter in issue in the cost application.
Ms Francois submits that if there was an abuse of process then a departure from the usual order is warranted. That is what the evidence sought through the Notice to Produce is relevant to. The document upon which the officer of Vero Insurance swore that it was true to his knowledge that the value of the creditor’s interest in Mr Scriven’s property was only $10.00. Ms Francois contends that the valuations of Mr Scriven’s properties and his debts show that he had in excess of $300,000 worth of equity in two of these properties. The debt being claimed was $122,000. Ms Francois submits that there is no proper basis upon which the officer swore that affidavit.
Ms Francois submits that an abuse of process founds an application for an indemnity costs so that the documents sought in the notice are relevant to whether or not these proceedings were commenced in circumstances that amount to an abuse of process. The Creditor’s Petition (page 3) contains the following statement:
The applicant creditor holds security over any current or future interest in any real property of the Respondent Debtor, pursuant to a charging clause granted by the respondent debtor to the applicant creditor. The applicant estimates the value of its security at $10.00, leaving an unsecured debt of $122,408.42 owed by the respondent debtor to the applicant creditor.
The Creditor does not relinquish its security which is a statement it had to make if it was to prove for the amounts that were otherwise secured. Nor does the Petition set out the details of the security. The affidavit verifying the Petition is sworn by James Gardner on 14 October 2009 who states that he is a specialist in the employment of Vero Insurance and has access to the books and records of Vero Insurance and is authorised to make the affidavit on behalf of Vero Insurance. In paragraph [2] of his affidavit on oath, he says “the statements made in paragraphs [1] and [2], being the relevant paragraphs being challenged, of the Creditor’s Petition are within his knowledge to be true.
Tendered to the Registrar was a copy of the caveat that was protecting the deposit bond guarantee together with title searches which showed that a caveat had been lodged on all of Mr Scriven’s properties. The caveat relates to five identified pieces of property, being three strata units and two car parking spaces.
Ms Francois submits that Mr Scriven’s instructions were that he had in the vicinity of $500,000.00 in equity in these properties. However, Vero Insurance failed to properly value its securities, came before the Court and sought to get an improper advantage over other creditors. It is submitted that Vero Insurance’s estimate, could not have been on a proper basis and it is that material that Mr Scriven’s representatives wish to investigate. The Court was advised that one of the relevant properties was in the process of being sold and that there is approximately $20,000.00 that is going to go to Vero Insurance through that process.
Ms Francois refers the Court to the operation of s.44 of the Bankruptcy Act 1966 (Cth) (“the Act”). Sub-section 44(1) of the Act sets out the mandatory provisions. In this matter sub-section 44(3) has not been complied with as there is no required statement appearing in the Petition, nor has sub-section 44(4) been complied with in respect to the particulars of the security. If the creditor had released its security, then it would be a valid petition, but it did not. The documents indentified in the Notice to Produce are sought to establish that Vero Insurance had no basis for the estimate put forward in the Petition and verify by a person claiming that this information was within his own knowledge and true. It was argued that this information is relevant to the Court’s decision as to whether or not to depart from the ordinary course and order costs on an indemnity basis.
Ms Francois submits that to make a statement in any unqualified form is false and that is what she wishes to explore on her client’s behalf. If access is given to the documents in the Notice to Produce, Mr Scriven will be able to demonstrate that the affidavit upon which Vero Insurance relies to say that it satisfies s.44 of the Act is false and ought not to have been sworn. What is in issue on the cost application is whether or not this case was an abuse of process that ought not to have been commenced. It is argued that it is encumbered upon a creditor who wishes to deprive a debtor of their freedoms with respect to their disposal of their property and the freedom of movement and the impact on their business to properly invoke the jurisdiction of this Court.
Mr Casselden appearing for Vero Insurance, submits that no evidence was filed or served in support of the allegations raised in the Amended Notice of Grounds of Opposition. No evidence was provided in respect of the number of properties, the purported value of the properties, or the amounts owing to the various mortgagees. Vero Insurance was not a mortgagee but simply a caveator. After the receipt of the Amended Notice of Grounds of Opposition, the Petition was dismissed by consent and that occurred on 9 April 2010 and then there was an argument of costs. The learned Registrar, in the exercise of her discretion, ordered that Vero Insurance pay Mr Scriven costs on an ordinary basis, there being no abuse of process having been demonstrated. Mr Casselden argues that the documents sought in the Notice to Produce cannot be relevant in circumstances where the Petition was dismissed by consent of the parties.
Mr Casselden submits that s.44(1) of the Act sets out the conditions necessary for a petitioning creditor to comply with. He states that his client complied in full with s.44(1) of the Act. Section 44(3) says that a secured creditor has to get an estimate of the security and that is what his client has done. As caveator, his client does not know and cannot ever know, what is owed to the first registered mortgagee because the bank is precluded from disclosing to third parties, by reason of privacy legislation, what is owed to it by the debtor. His client, as a caveator, falls within the ambit of the definition of a secured creditor and can provide an estimate and that is what he has done. Section 44(3) of the Act does not require an actual valuation as the authorities talk of an estimate. In Re Wiggins, Ex Parte Credit Assistance Pty Ltd (1979) 30 ALR 443 per Lockhart J considers the construction of s.44. At 446 His Honour states:
…Indeed, the language of s.44 of the Act, when viewed in the light of its history, and including its predecessor in the 1924 Act suggest to me that the Act has removed a restriction in relation to a petitioning secured creditor in that he is no longer bound by the estimates he has given, if any, in his petition when he seeks to prove his debt and in this respect is in the same position as any other secured creditor…
The construction of s.44 contended for by the debtor would impose more restrictions on a petitioning secured creditor than applied under the earlier Act. If the language of s.44 leads to this result, so be it, but I do not think it does. In my opinion, s.44 means that a petitioning secured creditor, may, in his petition, estimate the value of a security or state he is willing to surrender his security for the benefit of the creditors generally in the event of a sequestration order being made against the debtor. If he takes the former course, he is not bound by the estimate when he seeks to prove his debt.
… If he takes the latter course, he is obliged, upon request of the trustee, to surrender security after the making of a sequestration order, the sanction for non-compliance being contempt of court.
I do not think that this construction of s.44 would enable any unscrupulous petitioning creditor to value his security at a deliberately low figure for the purpose of obtaining a sequestration order against the debtor and later either relying solely on his security or prove the bankruptcy with a higher estimate of the value of his security.
Mr Casselden submits, in a hypothetical situation, a debtor owns a number of properties and they are heavily encumbered by first, second and third registered mortgagees and a number of caveats. In those circumstances, a caveat holder is not in a position to know the value of his security. Without obtaining a valuation of the property they could not possibly work out the value of their security without knowing each of the other encumbrances in respect of that secured property. Mr Casselden argues that it was entirely appropriate for his client to swear an affidavit identifying that it was a secured creditor. Even if the value is incorrect and erroneous, that does not amount to an abuse of process. It is submitted that there has been no evidence put on by the debtor to show that the estimate was erroneous or incorrect as there is nothing to stop the creditor from seeking leave to amend under s.33 of the Act to cure that irregularity or that defect.
Consideration – Notice to Produce
I have considered the detailed submissions made by both counsel and I am guided by the judgment of His Honour Lockhart J in Re Wiggins, Ex Parte Credit Assistance Pty Ltd (supra) at 446 which states:
I do not think that this construction of s.44 would enable an unscrupulous petitioning creditor to value his security at a deliberately low figure for the purpose of obtaining a Sequestration Order against the debtor and later either rely solely on his security or prove in the bankruptcy with a higher estimate of the value of the security. In those circumstances a Sequestration Order may be rescinded, unless the Order has been taken out, in which case the appropriate remedy is the annulment of the bankruptcy under s.154(1)(a): see Re Duriu (1970) 16 FLR 420.
I believe that this statement makes it clear that the estimate of the value of the security must be genuine. If not, it could ultimately result in the sequestration being rescinded, or an annulment of the bankruptcy. Consequently the documents should be produced and the oral application to have the Notice to Produce set aside is rejected.
Indemnity Costs Application
After a brief adjournment, Mr Casselden informed the Court that following my ruling in relation to the Notice to Produce, Ms Francois formally called on the Notice to Produce and Mr Casselden answered the call indicating that he had no documents to produce in answer to the notice. Mr Williams, a solicitor in the employment of Gadens Lawyers appeared on 9 March 2010 on behalf of Vero Insurance. Ms Francois sought to tender a Statutory Declaration of Tim Lynch, a solicitor employed by Beswick Solicitors who are engaged by Mr Scriven to defend proceedings commenced against him by Vero Insurance in the Federal Magistrates Court in Sydney. Mr Lynch stated that he was present on 9 March 2010 when the matter was listed before Registrar Hedge. The Statutory Declaration was tendered as an alternative for a transcript of proceedings on that date. The Statutory Declaration was objected to by Mr Casselden which was upheld except for paragraph [16] which states:
Registrar Hedge then asked Mr Williams if he had the documents to produce. Mr Williams said that they were back in his office. Registrar Hedge made no adverse look or comment about this response. Ms Francois asked for the proceedings to be stood down so that Mr Williams could have the documents brought to Court. Registrar Hedge said she would not stand it down as that would cause further costs and suggested that once she heard Ms Francois’ argument it may be that we would not need the documents.
Ms Francois submits that if Mr Williams told this Court that they had no documents to produce, then her instructing solicitors would not have issued another Notice to Produce. At no point did Mr Casselden inform the Court that there were no documents to produce. If that had been the course of events, the Notice to Produce would have been entirely irrelevant and the submission being made would have been from the start “there are no documents to support the estimated value of the security”.
Ms Francois indicated that the main issue is the affidavit of Mr Gardener because if it is false, then the outcome is that Mr Scriven should receive his costs on an indemnity basis because all the requirements for an abuse of process are satisfied. Ms Francois argued the case that it is a creditor’s responsibility to ensure that the documents it files in the Court are correct. It cannot be the case that only upon a debtor noticing some problem that they are liable for costs. If it is established that the affidavit is false, costs must follow from the day that the proceedings were initiated because it was the creditor’s sole responsibility to ensure that its documents were correct. In Mr Gardener’s affidavit, he states under oath:
I am a claims specialist in the employ of the applicant and such, have access to the books and records of the applicant and I am authorised to make this affidavit on the applicant’s behalf.
The first point to note is that he is not a property valuer, so he cannot, set out in paragraph [2], so that he does not have the expertise to know the value of the property over which his employer has security. Secondly, he is not the debtor so has to either ask the debtor or get the documents from the mortgage holders to ascertain the value of the debt owed to the parties holding security over the properties. It is submitted that he did neither. Those matters were not within his own knowledge and for him to obtain it, he would have to have been seen in the books and records of the mortgage holders, but he was unable to produce those books or records.
Ms Francois submits the assertion that Mr Gardener had some other source of information, must be rejected particularly according to the terms of the affidavit.
Ms Francois submits that the effect of the Privacy Act1988 (Cth) on an enquiry of this nature to the bank, as mortgagee, cannot be released without Mr Scriven’s written consent. That consent has been neither sought nor obtained from Mr Scriven. Consequently, Mr Gardener does not possess the central pieces of information required to make a general estimate of the value of the security. Ms Francois argues that a person properly invoking the jurisdiction of this Court, if faced with the prospect of unknown amounts secured against properties would not put the Petition in this form. This situation is brought about because a proper estimate cannot be made. Consequently, the appropriate approach, so that Vero Insurance could properly invoke the jurisdiction of this Court, is that they would release their security. It was argued that s.44 could have been easily invoked by Vero Insurance if, pursuant to ss.44(3), it had included in the Petition a statement that it was willing to surrender the security for the benefit of the creditors generally, in the event of a Sequestration Order being made against Mr Scriven. It is submitted that a genuine creditor, thinking that its security was valueless, would have made that statement because that would then bring them properly within s.44.
Mr Casselden referred the Court to the Notice Stating Grounds of Opposition to the Petition filed on 14 December 2009 which states that Mr Scriven intended to oppose the Petition on the following grounds:
i)The Respondent is able to pay his debts.
ii)There is other sufficient cause for a Sequestration Order not to be made.
In support of his claim, Mr Scriven relies on his affidavit sworn 13 December 2009 and filed 14 December 2009. In paragraphs [8] & [9] of his affidavit, Mr Scriven admits the debts owed to Vero Insurance. Mr Casselden argues that given those admissions, together with the affidavits sworn by Mr Gardener, particularly in respect of paragraph [1] of the Creditor’s Petition, it is submitted that Vero Insurance has established and proven the elements required under s.44(1) of the Act.
The only other evidence before the Court are the Notice to Produce and the Land Titles Office property searches. Those searches disclose, in respect of each of the properties over which Vero Insurance has lodged a caveat, that there is in respect of each a first ranking mortgage. Mr Casselden contends that the caveator will never be in a position to give an actual value of its securities. It is for that reason that the construction of s.44 of the Act that was considered by His Honour Lockhart J in Re Wiggins (supra) that a creditor has to give an estimate of the value of his security. This was followed subsequently in Finn, Re; Ex parte Amoco Australia Ltd & Official Receiver in Bankruptcy (1982) 41 ALR 487 and many other cases.
Mr Casselden indicated that he was instructed that there are no documents to produce in relation to the Notice to Produce which is not to say that Mr Gardener, when preparing his affidavit verifying the petition, did not form a view based on other information. Mr Gardener was not cross-examined on his affidavit and there is no evidence before the Court as to what amounts were outstanding as at 21 October 2009 to each of the respective borrowers who held mortgages over the relevant properties. There was no valuation evidence tendered as to what the value of each of the properties was in October 2009. Consequently, there is no evidence for this Court to find that what was being deposed by Mr Gardener is erroneous, false or incorrect. It is submitted that there is simply not enough evidence for this Court to find that what Mr Gardener deposed was incorrect. However, even if it was incorrect, that would not amount to an abuse of process as the valuation figure is always capable of amendment.
Mr Casselden submits that if Mr Scriven, through evidence, was able to establish that the estimate provided by Vero Insurance was inaccurate, then there would be nothing to stop Vero Insurance applying under s.33 of the Act, seeking to amend the Petition. Amendments to Petitions can be made as late as when a debtor moves for an annulment of a bankruptcy. The creditor can still seek to amend and in many cases is granted leave to amend. Mr Casselden then drew to the Court’s attention a number of authorities where Courts have addressed the issue of abuses of process. In Rogers v The Queen [1994] 181 CLR 251 per McHugh J at 286, under the heading “Abuse of Process” His Honour said:
Inherent in every Court of justice is the power to prevent its procedures being abused. Although the categories of abuse of procedures remain open, abuses of procedure usually fall into one of three categories: 1) the Court’s procedures are invoked for an illegitimate purpose; 2) the use of the Court’s procedures is unjustifiably oppressive to one of the parties; or 3) the use of the Court’s procedures would bring the administration of justice into dispute.
Justice McHugh’s approach has been followed in Symes v Holbrook [2005] FCAFC 219 per Lee, Moore and Nicholson JJ at [43] where their Honours set out the historic background in relation to the doctrine of abuse of process. They adopt what McHugh J says in Rogers v The Queen (supra). Then at [48] their Honours state:
[48] In the course of submissions on this appeal, reference was made to statements by appellate courts in recent years in DA Christie Pty Ltd v Baker [1996] 2 VR 582 and in Nominal Defendant v Manning (2000) 50 NSWLR 139. Reference was also made to Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198. There Handley JA referred to State Bank of New South Wales Ltd v Stenhouse Ltd (1997) Aust Torts Reports 81-423 where Giles CJ Comm D stated in relation to abuse of process:
The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice, and amongst the matters to which regard may be had are—
(a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or ultimate issue;
(b) the opportunity available and taken to fully litigate the issue;
(c) the terms and finality of the finding as to the issue;
(d) the identity between the relevant issues in the two proceedings;
(e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; …
(f) the extent of the oppression and unfairness to the other party if the issue was relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and
(g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process.
The respondent relied upon these considerations in particular to support the Magistrate’s decision to which this appeal relates.
Mr Casselden submits that for an abuse to be found, it will be necessary that the offensive purpose, at the very least, is the predominate purpose: Worthley v England; Re Excel Finance Corp Ltd; Worthley v ASC [1994] 52 FCR 69. Mr Casselden submits that this Creditor’s Petition was not brought as a means of obtaining some advantage for which the proceedings were not designed, or for some collateral advantage beyond what the law offers. The purpose for which the Creditor’s Petition was filed has always been to allow for the appointment of a Bankruptcy Trustee to administer the estate of Mr Scriven. This purpose was not foreign to the Act and would not amount to an abuse of process. Based on the judgment of his Honour McHugh J in Rogers v The Queen (supra) element 2 of that test would not be a circumstance that was unjustifiably oppressive to the debtor. In respect of element 3 the use of the Court’s procedures would not bring the administration of justice into dispute.
Mr Casselden submits that in relation to the issue of costs, the decision in Colgate – Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225 sets out the general rule that indemnity costs are intended in situations of some special or unusual feature in proceedings. However, the principles relating to costs where no hearing on the merits has occurred, was addressed by His Honour McHugh J in Re Minister for Immigration and Ethnic Affairs, Ex Parte Lai Qin [1997] 186 CLR 622 at 624 where His Honour stated:
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(1). 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(2). When there was no hearing on the merit, however, a Court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. (1) Latoudis v Casey(1990)170CLR534 (2) Latoudis v Casey (1990) 170CLR534 at 543, 566-568
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 (3). To do so would burden the parties with costs of a legitimate action, which by settlement or extra curial action they had avoided. In some cases, however, a Court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain costs for the action(4). (3) Australian Security Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201. (4) Australian Security Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201.
Mr Casselden submits that the above principles are applicable in relation to this application, there being no hearing on the merits and there being a dismissal of the Creditor’s Petition by consent. In Australian Security Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 per Hill J at 201, His Honour sets out a number of propositions that give some guidance as to how Courts should address matters relating to costs in these types of situations and there are five propositions enunciated:
Firstly
Whether neither party desires to proceed with an invitation, the Court should be ready to facilitate the conclusion of the proceedings by making a costs order
Secondly
It will rarely, if ever be appropriate where there has been no trial on the merits, for a court to determine how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits as if it might be put, to determine the outcome of a hypothetical trial, and this will particularly be the case where a trial on the merits will involve complex factual matters where credit could be in issue.
Thirdly
In determining a question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing proceedings and whether the respondent acted reasonably in defending them.
Fourthly
In a particular case, it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.
Finally
Where the proceedings terminate after interlocutory leave has been granted, the court may take into account the fact that interlocutory relief has been granted.
Mr Casselden makes the following submissions
a)There is no evidence before the court that paragraph [2] of the affidavit of Mr Gardener is incorrect, inaccurate, false or misleading and therefore there is no foundation to find that his statement was erroneous. He may have had other information at hand which enabled him to depose to the contents of paragraph [2] and the Notice to Produce only relates to documents. He was not cross-examined on these issues.
b)Vero Insurance has always met the requirements of s.44(1). Those requirements were satisfied in the affidavit of Mr Gardener at paragraph [1] and there is an admission made by Mr Scriven in his affidavit that his debts are in excess of $2000.00.
c)In the circumstances that have demonstrated that Mr Gardener’s evaluation of security was inaccurate, that is not a reason for the Court to find that it was an abuse of process because the security holder, other than the first registered mortgagee, is required to give an accurate estimate of its value.
d)In such cases where the predominate purpose for the Creditor’s Petition was a valid purpose, this does not amount to an abuse of process when one has regard to the authorities per McHugh J in Rogers v The Queen (supra).
Consideration – Indemnity costs
The Federal Magistrates Act 1999 (Cth) s.79(2) and s.79(3) states:
(2) The Federal Magistrates Court or a Federal Magistrate has jurisdiction to award costs in all proceedings before the Federal Magistrates Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs must not be awarded.
(3) Except as provided by the Rules of Court or any other Act, the award of costs is in the discretion of the Federal Magistrates Court or Federal Magistrate.
The power conferred by s.79(2) and s.79(3) is in similar terms to s.43(1) and s.43(2) of the Federal Court of Australia Act 1976. Whilst the discretion is clearly unfettered, it must be exercised judicially and in the context of the relevant court rules. In Hughes v Western Australian Cricket Association Inc & Ors [1986] FCA 382 Toohey J set out the general principles that apply in exercising the discretion when awarding costs. His Honour stated at [9]:
The discretion must of course be exercised judicially. There are decisions of Australian and English courts that throw light on the way in which the discretion is to be exercised. I shall not refer to those decisions in any detail. I shall simply set out a summary way what I understand to be that effect.
1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Rita v Godfrey (1920) 2KB 47
2. where a litigant has succeeded only on a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigation that portion upon which he has failed: Forster v Farquhar [1893] 1 QB 564
3. a successful party who has failed on certain issues may not only be deprived of the costs of these issues but maybe ordered as well to pay the other party’s costs of them. In this case, “issue” does not mean a precise issue in a technical pleading sense but any disputed question of fact or law: Cretazzo v Lombardi (1975) 13 SASR 4 at [12]
It is only in exceptional circumstances that a court may order that a party pay solicitor and client or indemnity costs for example where the action appears to be an abuse of process: Parker v Meagher [1984] 3 NSWLR 486 or where a party should have known that they had no chance of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397. The principles were summarised in Colgate-Palmolive Co v Cussons Pty Ltd (supra) per Shepherd J.
In relation to bankruptcy proceedings this Court has made particular provisions in respect to costs in r.13.01(1) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) which states:
(1) Subject to Division 13.2, a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Order 62 of the Federal Court Rules unless the Court otherwise orders.
Order 62 of the Federal Court Rules does not deal expressly with the question of indemnity costs however that does not mean there is no power to award indemnity costs. That power arises by reasons of ss.8,15,79 of the Federal Magistrates Act 1999 (Cth) and ss.5,23,43 of the Federal Court Act: Caboolture Park Shopping Centre Pty Ltd [in liq] v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 per Lee, Hill and Cooper JJ at [229]-[231]; Colgate-Palmolive Company & Anor v Coussons Pty Ltd (supra) per Shepherd J at 228.
When determining if it is appropriate to make an indemnity costs order, it depends on the circumstances of the case. Normal practice not to be lightly departed from, is to provide for costs to be on a party –party basis: Davids Holdings Pty Ltd v Coles Myer Ltd [1995] FCA 1043 per Drummond J at [7]. However there are certain issues to which the court will give consideration and weight when determining when an indemnity costs order should be made.
In Genevose v BGC Constructions Pty Ltd (No 2) [2007] FMCA 601 His Honour Lucev FM made the following observations at [47]:
[47] In determining whether to award indemnity costs the Court has a very wide discretion, to be exercised judicially.36 What is an appropriate costs or indemnity costs order depends on the circumstances of the case.37 The normal practice, not to be lightly departed from, is to provide for costs to be on a party — party basis.38 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.39 Those issues include:
a) whether a party should have known that there was no prospect of success in the case;40
b) where a party alleges fraud or forgery, knowing the accusation to be false, or irrelevant to the issues;41
c) where a party precipitately punctuates proceedings by resialing from a previously adhered to view;42
d) where a party acts in a high handed manner;43
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;44
f) where a party proceeds “vexatiously” that is “without sufficient grounds for the purpose of causing trouble or annoyance”;45
g) where a party proceeds for no good purpose at all due to inertia and carelessness;46
h) where a party persists in the making of allegations which ought not have been made, or in undue prolongation of groundless contentions;47
i) where a party’s conduct causes loss of time to the Court, and to other parties;48
j) where a party imprudently refuses an offer to compromise;49
k) whether the award of indemnity costs is sought against a contemnor;50 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.51
[48] The discretion is not so circumscribed that an indemnity costs order “may only be made against an ethically or morally delinquent party”.52 The discretionary categories are not closed, and “other elements of litigatious of misconduct may be relevant”.53
The other significant aspect of indemnity costs is that they are designed to indemnify not punish. Ford Motor Co of Australia v Jefferson Ford Pty Ltd [2007] FCA 998 at [3] where His Honour Jessop J applied Hammond v New South Wales [2002] FCA 424 per Gray J.
[3] Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.
In NMFM Property Pty Ltd & Ors v Citi Bank Ltd (No 2) [2001] FCA 480 per Lindgren J at [56] where His Honour said:
[56] The ordinary rule is that an award of costs is on a party -party basis, that it is only in a special case that the discretion to depart from that rule will be properly exercised: Adventure Industries at [153] per Black CJ, [158] per Cooper and Merkel JJ. In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent fact which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against a fraudulent party will be on a party and party basis. The conduct of a party that is relevant to the issues of indemnity costs is the party’s conduct as a litigant. But, as noted above, the knowledge that a party has included knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct in litigation.
The passage in NMFM Property Pty Ltd (supra) was cited and followed by the New South Wales Court of Appeal in Mead v Watson asliquidator ofHypecElectronics [2005] NSWCA 133 at [9], where Shella, Ipp and Tobias JJ :
[9]… the impugned conduct of a party against whom such an award of indemnity costs is sought must be connected with the litigation itself. In particular, it must be related to the way in which the litigation was conducted. It is thus insufficient that the party against whom award is sought has engaged in unconscionable conduct for breaches of fiduciary duty in a particular deplorable way. The latter conduct comprises the subject matter of the litigation rather than delinquency in its conduct.
I also note the passage in Quick on Costs Vol II Lawbook Co at [4.270], entitled Indemnity Costs Excessive:
There is also some evidence of judicial concern about the excessive costs which can be occasioned by an order of indemnity costs.
At [4.250] it states:
…that in deciding whether any costs are unreasonable on the indemnity basis, the receiving party was to be given the benefit of any doubt.
The critical issue advanced by Ms Francois for determination is the assessment of the veracity of Mr Gardener’s sworn affidavit verifying the Creditor’s Petition. The evidence before the Court is that Vero Insurance held a caveat over five properties of Mr Scriven’s, being three strata units and two car parking spaces. A caveat was lodged to protect a deposit bond guarantee provided to Mr Scriven by Vero Insurance. Mr Gardener, in his affidavit, estimated the value of the security at $10.00. The basis for Mr Gardener to establish the value of the security at this figure is not before the Court. Mr Gardener was not called to give evidence and was not cross-examined during the cost application. From the material that is before the Court it is reasonable to infer that Mr Gardener had not sought or obtained from the mortgagee information in respect to the outstanding amounts due on the first mortgage.
Nothing has been advanced before the Court to indicate that Vero Insurance had in its possession any documentation or mechanism to establish an estimate of its interest created by the caveat. Nothing in his submissions suggests that Mr Gardener may possess other knowledge that enabled him to make this estimate, however, Mr Gardener was not called to establish this issue, nor is there any other material placed before the Court to support this contention. A person properly invoking the jurisdiction of this Court, if faced with the prospect of an unknown amount secured on property with third parties holding a priority of unknown quantum so that a genuine estimate of the secured value is unknown, the approach available to this person would be to release their security.
That election is required to be made in a statement contained within part 1 of the Petition. Section 44(3) of the Act states:
(3) A secured creditor may present, or join in presenting, a Creditor’s Petition as if he or she were an unsecured creditor if he or she includes a petition statement that he or she is willing to surrender his or her security for the benefit of the creditors generally in the event of a Sequestration Order being made against the debtor.
In the absence of this statement, and the holding of a security unknown value prevents the creditor from satisfying s.44(1) of the Act because they are not in a position to verify there is a debt in excess of $2000.00.
Consequently, the Petitioning Creditor had no relevant standing for a Sequestration Order to be made. Had the true position become apparent during the hearing of the Petition, the Court would have been bound not to make an order because the Petitioning Creditor would not have been able to demonstrate the necessary conditions or standing required by s.44(1). However, leave could have been sought for the Petition to be amended at the time of the hearing. This did not occur due to the settlement by consent by the parties prior to the Petition hearing.
Both parties’ written and oral submissions raise the question of whether to indemnity costs should be awarded to Mr Scriven. The question posed was: Did the actions of Mr Gardener in adopting what would appear to be a notional estimate of the value of the security held by Vero Insurance coupled with the failure to include a statement in the Petition surrendering Vero Insurance’s security for the benefit of the creditors generally in the event of a Sequestration Order being made an amount to an abuse of process warranting an indemnity cost order? I acknowledge that the Petition as filed, contained this defect. However, as the matter did not proceed to final hearing because of the consent settlement, it is not known whether leave would have been sought to correct this defect and whether this application would have been granted. It has now become common practice for such applications to be made at the time of the Petition hearing. Such an application may have revealed why the security was given that value.
I am particularly conscious of the line of authority in Ford Motor Company of Australia Ltd v Jefforson Ford Pty Ltd (supra) that clearly states that indemnity costs are not designed to punish a party but rather are designed to compensate a party fully for costs incurred. These proceedings could have been resolved at an earlier stage if Mr Scriven had responded to either the letters of demand or the Bankruptcy Notice. This failure entitled Vero Insurance to pursue the Peititon in attempt to recover the amounts due. This course of action could normally be prevented with an earlier declaration that the amounts due are in dispute and payment is being withheld for a legitimate purpose. From the material before the Court this does not appear to have occurred and consequently the recovery process by way of sequestration was legitimately pursued. In these circumstances I am not inclined to make an order for indemnity costs in the Applicant’s favour. Whilst Vero Insurance filed a Petition that was defective, they should not bear full responsibility for the continuation of the proceedings to the date of settlement. Consequently, the Application in a Case filed on 16 March 2010 challenging Orders 2 and 3 of Registrar Hedge made on 9 March 2010 is dismissed. Orders 2 and 3 made by Registrar Hedge made on 9 March 2010 should stand.
I certify that the preceding fifty-six (56) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Associate: A. Newland
28 May 2010
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