Watton v Whitton as Trustee in Bankruptcy Estate of Steven Leonard Watton

[2017] NSWSC 1598

Supreme Court

New South Wales

Medium Neutral Citation:	Watton v Whitton as Trustee in Bankruptcy Estate of Steven Leonard Watton [2017] NSWSC 1598
Hearing dates:	On the papers
Date of orders:	22 November 2017
Decision date:	22 November 2017
Jurisdiction:	Equity
Before:	Darke J
Decision:	Defendant ordered to pay the plaintiff’s costs of the proceedings.
Catchwords:	COSTS – plaintiff lodges caveat claiming interest in land due to mortgage repayments – lapsing notice served by bankruptcy trustee of plaintiff’s former spouse – plaintiff commences proceedings seeking extension of caveat – plaintiff subsequently commences proceedings in Federal Court – caveat extended until determination of Federal Court proceedings – whether plaintiff should not have commenced proceedings in Supreme Court – whether plaintiff’s delay warrants costs order against her
Legislation Cited:	Bankruptcy Act 1966 (Cth), s 27 Real Property Act 1900 (Cth), ss 74J, 74K, 90 Uniform Civil Procedure Rules 2005 (NSW), rr 13.4, 42.20
Cases Cited:	In the marriage of Stevens (1991) 15 Fam LR 51 Ipandco (Australia) Pty Ltd v Australian Technology Park Precinct Management Ltd [2003] FCA 1322 Jones v Daniel [2004] NSWSC 517 Leroy v Koutavas, Re Koutavas (No 2) [2017] FCA 912
Category:	Costs
Parties:	Charlene Watton (Plaintiff) Robert Whitton as Trustee in Bankruptcy Estate of Steven Leonard Watton (Defendant)
Representation:	Counsel: Mr S Lipp (Plaintiff) Mr S H Hartford-Davis (Defendant)   Solicitors: Madison Marcus Law Firm (Plaintiff) Piper Alderman (Defendant)
File Number(s):	2017/00010768
Publication restriction:	None

Judgment

1. By Summons filed on 12 January 2017 the plaintiff in these proceedings sought the extension of the operation of a caveat over land at Rouse Hill, together with an order that the defendant transfer the property to the plaintiff. The defendant is the trustee in bankruptcy of the former spouse of the plaintiff.

2. On 3 October 2017 the plaintiff commenced proceedings in the Federal Court of Australia, having come to the view that that Court was the appropriate forum for the parties’ substantive dispute by virtue of s 27(1) of the Bankruptcy Act 1966 (Cth).

3. On 13 October 2017 the defendant filed a Notice of Motion in this Court seeking that the proceedings be dismissed, on the basis that it would undertake to consent to an order for the extension of the operation of the plaintiff’s caveat in the Federal Court proceedings. On 20 October 2017 the Court declined to dismiss the proceedings and ordered that the operation of the plaintiff’s caveat be extended until the determination of the Federal Court proceedings, and that the proceedings be otherwise dismissed. At that time the parties indicated that they were content for the question of costs to be determined on the papers, on the basis of the written submissions they had provided in relation to the defendant’s Notice of Motion.

4. Before turning to the parties’ submissions on costs, it is necessary to briefly summarise the factual background.

Background

5. The plaintiff and her former spouse, Mr Watton, began residing in the Rouse Hill property in 2001. Mr Watton was the registered proprietor of the property. The plaintiff and Mr Watton married in September 2005 and separated a year later in September 2006. The parties entered into a Binding Financial Agreement at the time of their separation which, inter alia, required Mr Watton to transfer his interest in the Rouse Hill property to the plaintiff. Notwithstanding their separation, the parties then jointly obtained a “consumer loan” from Liberty Financial in January 2007 in the amount of $460,000. The lender took a registered mortgage over the property.

6. On 12 November 2007 the defendant was appointed as the trustee of Mr Watton’s bankrupt estate pursuant to a sequestration order made by the Federal Magistrates Court of Australia. The bankruptcy expired on 12 November 2010.

7. On 5 May 2011 the plaintiff lodged a caveat over the property which claimed an equitable interest in the property by virtue of “paying the monthly mortgage repayments on the property since March 2007”. Nothing of relevance then occurred until the defendant became registered as the proprietor of the property in August 2015 pursuant to s 90 of the Real Property Act 1900 (NSW). On 16 September 2015 the defendant’s solicitors, Piper Alderman, wrote to the plaintiff, asserted that she had no caveatable interest, and demanded that the caveat be withdrawn within 14 days. The letter foreshadowed an application for preparation of a Lapsing Notice pursuant to s 74J of the Real Property Act.

8. The plaintiff’s solicitors responded on 14 October 2015, stating that she had “been contributing the entire amount of the monthly repayments payable under the Facility since January 2007 to the present date”, estimated to be in the amount of $466,198.12. The plaintiff maintained that she had a valid caveatable interest in the property either as beneficial owner pursuant to the Binding Financial Agreement, as a beneficiary under a constructive trust, or as the holder of an equitable charge.

9. In a letter dated 21 June 2016, the defendant’s solicitors asserted that the Binding Financial Agreement, and the transfer of property it required, were void. The defendant also requested documentary evidence of the plaintiff’s contributions to the property. The letter again foreshadowed an application for the preparation of a Lapsing Notice in respect of the plaintiff’s caveat. The plaintiff’s solicitors thereafter provided loan account statements from Liberty Financial which were said to support the plaintiff’s claim to an equitable interest in the property.

10. The defendant’s solicitors responded on 2 September 2016, stating that the loan account statements did not demonstrate that the plaintiff had provided the funds used to make the mortgage repayments, and seeking further evidence that the repayments came from the plaintiff’s funds. A Lapsing Notice application was again foreshadowed.

11. After two further requests from the defendant for evidence, the plaintiff’s solicitors stated on 21 October 2016 that they did “not presently have the documents sought by your client” and considered the defendant’s request to be oppressive as no alternative hypothesis as to the source of the mortgage repayments had been put forward. The plaintiff’s solicitors again stated on 11 November 2016 that the plaintiff could not “provide the perfect document trail” sought by the defendant, and invited the defendant to make an offer to settle the proceedings.

12. Under cover of a letter dated 22 December 2016, the defendant then served a Lapsing Notice dated 16 December 2016. On 12 January 2017 the plaintiff commenced the proceedings, and obtained orders by consent extending the operation of the caveat. On 27 January 2017 the operation of the plaintiff’s caveat was extended until final determination of the proceedings. A timetable for pleadings was set.

13. The plaintiff failed to file a Statement of Claim within the stipulated time, and instead sought a number of extensions of time from the defendant. On 13 April 2017 the plaintiff’s solicitors provided draft Federal Court pleadings to the defendant’s solicitors, stating that they believed the appropriate forum was the Federal Court. The plaintiff sought the defendant’s views on that matter. The defendant responded on 22 May 2017, agreeing that the Federal Court was the proper forum for the plaintiff’s substantive claims.

14. The proceedings in this Court were listed for directions before the Equity Registrar on 25 May 2017. On 24 May 2017 the plaintiff’s solicitors wrote to the defendant’s solicitors indicating that they would inform the Court of the parties’ view that the Federal Court was the appropriate forum. The letter also included the following:

Further to the above, we will be seeking an order that the existing order of the Supreme Court of New South Wales which continues the operation of the caveat until the final determination of the Federal Court proceedings [sic]. We propose this regime on the basis that it would appear that subsection 74J(1)(a) of the Real Property Act 1900 (NSW) explicitly refers to an order of the ‘Supreme Court’ and it is not evident that the Federal Court of Australia would have power to make a like order.

15. The operation of the caveat was extended until further order on 25 May 2017. On 16 June 2017 the defendant’s solicitors enquired as to the status of the draft Federal Court pleadings which had been provided in April. The plaintiff confirmed that the Statement of Claim was the “final draft document” proposed to be filed.

16. The defendant’s solicitors sent a letter to the plaintiff’s solicitors on 18 August 2017 which included the following:

Your client’s claims could only ever have been brought in the Federal Court of Australia, by reason of s 30 of the Bankruptcy Act 1966 (Cth).

Nevertheless, you commenced proceedings in the Supreme Court of New South Wales, perhaps on the mistaken assumption that only the Supreme Court has jurisdiction to make orders extending a caveat under the Real Property Act 1900 (NSW).

Yet it is well established that the Federal Court can make orders extending and, indeed, withdrawing a caveat under the Real Property Act 1900 (NSW), by reason of s 79 of the Judiciary Act 1903 (Cth): see for example Ipandco (Australia) Pty Ltd v Australian Technology Park Precinct Management Ltd [2003] FCA 1322 at [1] per Hely J. Similarly, in relation to the Family Court, Auricchio & Auricchio and Ors (No. 2) [2014] FamCA 240 at [31].

…

Accordingly, your client should never have commenced proceedings in the Supreme Court of New South Wales. Those proceedings should be discontinued and there should be an order that your client pay our client’s costs of those proceedings.

…

Your client should proceed to file its proceedings in the Federal Court of Australia without delay, if that is what it is advised to do. With respect, it is not for the writer to advise your client or comment on the procedural pathway by which your client seeks relief. That said, whatever your client is advised to do should be done with due expedition, and in any event within fourteen (14) days of this letter.

…

Furthermore, should you agree to an order disposing of the Supreme Court proceedings with costs payable to our client, then our client will undertake not to seek to enforce that costs order until the final resolution of the proposed proceedings in the Federal Court.

17. On 1 September 2017 the plaintiff’s solicitors stated that “we have today lodged our clients [sic] Application and Statement of Claim, in the form provided to you in draft, and are currently waiting for same to be processed by the Federal Court of Australia.” That email annexed a letter which included the following:

Despite your contention, that our client’s claim could only be brought in the Federal Court of Australia by reason of s 30 of the Bankruptcy Act 1966 (Cth), your client, unreasonably, took it upon himself to file a Lapsing Notice of our client’s caveat on 22 December 2017 [sic], three days prior to Christmas, on the assumption that our client would not respond nor oppose same over the holiday period.

Given the circumstances, both counsel and our staff were nonetheless required to return from leave early, in order to respond to your clients [sic] lapsing notice (a notice that could have been brought at any other time in the many years since your client’s appointment as trustee). Further, the parties had been in discussions at that time to settle the matter, and in spite of those discussions your client issued the Lapsing Notice.

In the circumstances of the issue of the Lapsing Notice, it was entirely reasonable and indeed appropriate that our client approach the Supreme Court to [sic] with respect to the Lapsing Notice. Any contention to the contrary is unmeritorious. We will oppose any application for costs in the Supreme Court proceedings.

…

Accordingly, there is no need for the parties to waste further costs in having the caveat extended in the Federal Court, and our client’s interests are protected by the extension granted by the Supreme Court. That extension should continue until the final determination of the proceedings.

18. The defendant’s solicitors made two further requests on 8 and 19 September 2017 for sealed copies of the documents filed at the Federal Court. On 19 September the plaintiff’s solicitors responded, stating that the documents had been lodged on 1 September with a Financial Hardship Application for waiver of the filing fee, which application was subsequently refused. On 3 October 2017 the plaintiff served sealed copies of a Federal Court Application and Federal Court Statement of Claim filed on that day.

Submissions

19. Although the parties’ submissions were primarily directed to the defendant’s application for the proceedings to be dismissed, the parties’ positions on costs are apparent from the positions they took in relation to the defendant’s application.

20. The plaintiff submitted that it was reasonable and appropriate for the plaintiff to commence proceedings in this Court, and that the plaintiff’s proposal for the caveat to be extended by this Court until determination of the Federal Court proceedings was also reasonable and appropriate. The plaintiff submitted that its approach involved no further duplication of costs and had the benefit of the absolute certainty of the power of the Supreme Court to extend the operation of the caveat.

21. The plaintiff submitted that it was not clear whether the Federal Court would have jurisdiction to order the extension of the operation of the caveat. The plaintiff noted that in Ipandco (Australia) Pty Ltd v Australian Technology Park Precinct Management Ltd [2003] FCA 1322, relied upon by the defendant, it was common ground between the parties that the Federal Court had jurisdiction to extend the operation of a caveat under s 74K of the Real Property Act. The plaintiff referred to Jones v Daniel [2004] NSWSC 517 in which Barrett J (as his Honour then was) made reference to academic commentary querying the jurisdiction of the Federal Court to make orders against the Registrar-General of New South Wales. The plaintiff took the position that although the Judiciary Act 1903 (Cth) might grant power to the Federal Court under s 74K, that was by no means clear.

22. The defendant’s primary submission was that the operation of the plaintiff’s caveat could not be extended because the plaintiff had “abandoned her claim for final relief in this Court”. It contended that the proceedings should be dismissed as frivolous or vexatious pursuant to Uniform Civil Procedure Rules 2005 (NSW)(“UCPR”), r 13.4, and that the plaintiff should accordingly pay its costs.

23. The defendant further submitted that the proceedings “should always have been commenced in the Federal Court”, and that “[t]here can be no doubt that the Federal Court had the power to extend the operation of the caveat”, citing Ipandco (supra) and Leroy v Koutavas, Re Koutavas (No 2) [2017] FCA 912.

24. Finally, the defendant submitted that the plaintiff’s delay in commencing the Federal Court proceedings warranted an order for indemnity costs from 13 April 2017 onward, being the date on which the plaintiff first provided its draft Federal Court pleadings to the defendant.

Determination

25. As I have already noted, the Court did not accede to the defendant’s application for the proceedings to be dismissed, and ordered that the caveat be extended until final determination of the Federal Court proceedings. The plaintiff first proposed that course to the defendant on 24 May 2017, and has obtained the orders that it sought. The defendant has opposed that course since August 2017, and filed its application for the dismissal of the proceedings on the basis of that opposition. It was unsuccessful in that application. In my view, that outcome would indicate that the defendant should pay the plaintiff’s costs of the proceedings.

26. There are three matters which might suggest a contrary result. First, one of the orders made on 20 October 2017 was that the proceedings be “otherwise dismissed”. Whilst it could be said that, pursuant to UCPR, r 42.20, the plaintiff should therefore pay the defendant’s costs of the proceedings in relation to the plaintiff’s claim for final relief, I do not think that is the case. The order that the proceedings be otherwise dismissed simply reflects the fact that the plaintiff is now seeking its final relief in the Federal Court, which the parties agree is the proper forum. The plaintiff has not “abandoned” its claim for final relief. The order that the proceedings be otherwise dismissed is to allow these proceedings to be disposed of consequent upon the extension of the operation of the caveat, which was the central matter in dispute.

27. The second matter is the defendant’s submission that the proceedings should always have been commenced in the Federal Court. I am unable to accept this submission. Section 74J of the Real Property Act contains a statement that, where a Lapsing Notice is issued, the caveat will lapse unless an order extending the operation of the caveat is “obtained from the Supreme Court” and lodged with the Registrar-General within 21 days. Although it may sometimes be possible for a caveator to proceed to a federal Court and obtain interlocutory relief to protect its position, I do not think it was at all unreasonable for the plaintiff in the present case to come to this Court given the clear words of the section. That is all the more so because the defendant served the Lapsing Notice on 22 December 2016, three days prior to Christmas. Although there may be good reasons why the lapsing notice was served on that date, that course should be avoided wherever it is possible to do so. It had the result that the 21 days available to the plaintiff fell in the midst of the holiday period, which would have made obtaining instructions and commencing proceedings more difficult. That circumstance further persuades me that it was reasonable and appropriate for the plaintiff to commence proceedings in this Court.

28. I do not share the defendant’s view that there is “no doubt” that the Federal Court has power under s 74K of the Real Property Act to extend the operation of a caveat. As the plaintiff observed, the jurisdiction of the Federal Court was common ground between the parties in Ipandco (Australia) Pty Ltd v Australian Technology Park Precinct Management Ltd (supra) (see at [1]). The plaintiff also observed that Leroy v Koutavas, in the matter of Koutavas (No 2) (supra) concerned s 74MA of the Real Property Act rather than s 74K. I note that the orders in that case were also made with the consent of all active parties. Barrett J did not express any view on the matter in Jones v Daniel (supra), although did refer to In the marriage of Stevens (1991) 15 Fam LR 51. Of course, the provision of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) relied upon in that case (s 4(2)) to give the Family Court jurisdiction under s 74K is of a type that has been held to be unconstitutional, and has been repealed. In my view, the apparent absence of any authority which conclusively establishes the Federal Court’s jurisdiction under s 74K further indicates that the plaintiff acted reasonably and appropriately in initially seeking relief in this Court.

29. The third matter is the plaintiff’s delay in commencing its Federal Court proceedings. There has clearly been delay on its part. The draft pleadings were first provided to the defendant on 13 April 2017. The parties agreed that the Federal Court was the appropriate forum for determination of the plaintiff’s substantive dispute in late May 2017. On 18 June 2017 the defendant requested the final form of the Federal Court pleadings. On 28 June 2017 the plaintiff confirmed that the pleading provided in April was the final draft document. The defendant then requested on 18 August 2017 that the Federal Court proceedings be filed within 14 days. The lodgement of the pleadings on 1 September 2017 was within that timeframe, albeit without disclosure of the fact that a Financial Hardship Application had been made (which caused further delay). The documents were eventually filed on 3 October 2017.

25. I accept that the plaintiff could have proceeded with more alacrity to commence proceedings in the Federal Court. Due to the undisclosed Financial Hardship Application, there was a delay in filing of one month beyond the timeframe requested by the defendant on 18 August 2017. The defendant already has the benefit of a costs order for the directions hearing on 22 September 2017 which fell in that month. Because of the Financial Hardship Application, the Federal Court proceedings had not been filed at that time, and the matter was unable to be progressed as a result (apart from the defendant being granted leave to file its Notice of Motion). I do not consider that any other delay which can be attributed to the plaintiff is sufficiently egregious or causative of prejudice to warrant her being deprived of her costs. It must not be forgotten that Mr Watton’s bankruptcy concluded in 2010, and the defendant only took his first steps in relation to the plaintiff’s caveat in 2015.

26. In my opinion, the plaintiff has been the successful party in this Court and should have her costs of the proceedings. The Court will order that the defendant pay the plaintiff’s costs of the proceedings, save for the plaintiff’s costs of the directions hearing on 22 September 2017.

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Decision last updated: 22 November 2017