WILLIAMS v Rees - [2002] FMCA 315

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WILLIAMS v REES

[2002] FMCA 315

BANKRUPTCY – Section 139ZS application – costs after respondent conceded – consideration of nature of offers made by parties – whether indemnity costs should be ordered.

COSTS – Offers of settlement made – action of trustee in making claim not considered to be totally irresponsible or inappropriate.

Bankruptcy Act 1966 (Cth) ss.120, 121, 122(3), 139ZQ, 139ZS

Calderbank v Calderbank [1975] 3 ALL ER 333

Applicant:

MARK SEAN PAKENHAM WILLIAMS

Respondent:

JOHN ROBERT REES (AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHN PAKENHAM WILLIAMS)

File No:

SZ 200 of 2002

Delivered on:

21 November 2002

Delivered at:

Sydney

Hearing Date:

21 November 2002

Judgment of:

Raphael FM

REPRESENTATION

Counsel for the Applicant:

Mr J Kirk

Solicitors for the Applicant:

Ebsworth & Ebsworth

Counsel for the Respondent:

Mr D Morgan

Solicitors for the Respondent:

Abbott Tout

ORDERS

Respondent to pay applicant’s costs on a party and party basis from commencement of proceedings to 29 April 2002 and on an indemnity basis thereafter.
Parties to bring in short minutes of order in relation to Declarations sought by applicant and conceded by respondent.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ 200 of 2002

MARK SEAN PAKENHAM WILLIAMS

Applicant

And

JOHN ROBERT REES (AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHN PAKENHAM WILLIAMS)

Respondent

REASONS FOR JUDGMENT

This is an unfortunate case. I am required to make orders upon costs in a matter where the respondent has, after hearing evidence, conceded that the declarations sought by the applicant should be made. The applicant is a young man just into his career as a Qantas pilot. He was enabled to pursue that career as a result of a generous gift from his parents of flight training to a value of approximately $110,000.00. That gift was made in about 1996. The source of funds for that gift was a loan arrangement with the Colonial State Bank secured on the property of his father and mother.
At the time in question his father was operating a newsagency business in which his mother was also a director in partnership with another couple. The evidence provided to me today indicates that by that time there were difficulties with the business. In 1999 the applicant's father filed his own petition in bankruptcy which petition was accepted by ITSA and which bankruptcy has now ended by effluxion of time.
According to a chronology provided to me by the applicant's counsel, and, I do not believe, disagreed with by the respondents, in early January 2001 the respondent wrote to the applicant demanding payment of some $47,511.00. It is my understanding that this sum represented one half of the moneys advanced to him for his education through the medium of the bank loan.
There was correspondence between the applicant's solicitors and the respondent's solicitors in which matters relating to the dispute were raised and in which the applicant maintained that he had no liability to make these payment. However, on 14 February 2002 the Official Receiver issued s.139ZQ notices demanding payment of that sum relying on s.120 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”).
The applicant, through his solicitors, then sought the withdrawal of the notice but this was not done. So, on 26 March 2002 the applicant filed this application under section 139ZS of the Bankruptcy Act. There was further correspondence between the solicitors seeking the withdrawal of the notice and a flurry of correspondence in April of 2002. However, prior to that time, in late March, the applicant had filed this application and then an amendment to this application seeking declarations.
That (the amendment) occurred on about 29 April 2002. Around that time the trustee agreed to withdraw the notices but did not agree to abandon any claim that he might have against the applicant. Indeed on 17 April 2002 he wrote a letter (exhibit 3) in the following terms:
“We refer to your facsimile dated 17 April 2002.
We have our client's instructions to issue proceedings for a claim pursuant to section 120 and 122 of the Bankruptcy Act.
We do not intend to provided any further particulars of our client's claim as they will be served on your client shortly.”
The situation facing the applicant at that stage was therefore that the notices under section 139ZQ would be withdrawn but he would be the subject of other litigation which presumably would be based on the same factual matrix. Such litigation had not yet been commenced and he knew not when it was to be commenced.
His action in issuing the amended application seeking declarations to put beyond doubt the fact that he did not owe any money to the trustee of his father's bankrupt estate was quite understandable.
I would equally say that some of the conduct of the respondent was understandable. The trustee has a duty to collect in assets of a bankrupt estate and these include bringing proceedings of the type envisaged. Section 139ZQ is an administrative way of bringing a claim that would otherwise have been brought under ss.120 or 121 or 122 of the Bankruptcy Act and was inserted into the Bankruptcy Act for the purposes of simplifying the procedure.
We have no knowledge of whether that (simplification) has in fact occurred, suffice to say a number of cases under section 139ZQ come before these courts. Given the information that was in the hands of the trustee, which has been exhibited in affidavits today, there was certainly some indication that when this money was advanced to the applicant all was not well with the bankrupt.
But these things were known to the trustee and if he had any doubts about the situation there was a very easy way in which he could have either put them to rest or provided himself with sufficient evidence to mount a substantive claim. That was by causing the bankrupt to be examined. So far as I am aware this was not done.
Had it been done, the bankrupt would doubtless have given the same evidence to the trustee that he gave in court today and that evidence appears to have been sufficient to satisfy the trustee that the estate had no claim against this applicant. I think it was unreasonable of the trustee to maintain a possible claim against the applicant after withdrawing the 139ZQ notice in April of this year.
I think it was reasonable for the applicant in those circumstances to bring the proceedings which he brought. During and after April a number of letters passed between the parties in which offers of settlement were made, mostly by the applicant. I'm not satisfied that any offer of settlement by the respondent was one which the applicant could reasonably have accepted.
On the other hand the offers put forward by the applicant to the respondent were offers that it would have been in his interests to take. These letters of offer were all expressed to be in the form of a calderbank offer and I don't think there is any dispute between the parties that they fulfil the obligations of that case. (Calderbank v Calderbank [1975] 3 ALL ER 333).
The applicant, through his counsel, submits that the whole of these proceedings (by which he means the whole of the claim made by the trustee against his client) is ill considered and wrong and asks me to award solicitor and client costs from 14 February 2001 till the date of the issue of the notice and indemnity costs from 21 May 2001.
As I said previously, I do not think that the action of the trustee in making the claim under 139ZQ was totally irresponsible or inappropriate. If the bankrupt had been insolvent in 1996 through to 1997 when the payments were made, then there would have been a very good case for the repayment of this money. But the issue of solvency of the bankrupt is really one for the trustee to establish and it seems hard that the responsibility should have been placed upon the applicant.
Of course, I am sensible of the fact that in s.122(3) of the Act the onus of proof is placed upon the person claiming the benefit of subsection (2). But it seems to me more likely than not that any claim that would have been successful in this case would be a claim under s.120.
The applicant says that the documents, which the respondent relied on to indicate the possible insolvency of the bankrupt as at the time his moneys were expended, were in the hands of the trustee and were not discovered. Those documents that I saw do not prove solvency. They indicate the possibility of insolvency and also arguments as to why insolvency could not be established.
It may well be that the applicant's solicitors, if they were in the possession of those documents, might have been able to put a coherent and persuasive case to the trustee as to why he should not proceed. But the order for discovery was only made as part of an order for directions in these proceedings in April of this year.
A decision on costs is a discretionary matter. One seeks to do justice by both parties. One should not be persuaded by sympathy for one party to make an order that may be excessive. The order I propose to make is that the respondent pay the applicant's costs on a party and party basis from commencement of proceedings until 29 April 2002 and that the respondent pay the applicant's costs on an indemnity basis thereafter.
The costs which I have awarded shall be costs payable under the Bankruptcy Act and assessed in accordance with the Federal Court Rules. They shall be taxed if not agreed. They include any reserved costs.

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

Associate:

Date: