Woolley v Spagnol
[2016] FCCA 94
•4 February 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| WOOLLEY v SPAGNOL | [2016] FCCA 94 |
| Catchwords: COSTS – Application to set aside bankruptcy notice – orders made by consent setting aside bankruptcy notice – whether issue of bankruptcy notice was an abuse of process or the circumstances were otherwise such as to warrant an award of indemnity costs. |
| Legislation: Bankruptcy Act 1966 (Cth), s.32 |
| HWY Rent Pty Ltd v HWY Rentals (in liq) (No 2) [2014] FCA 449 Lord & Anor v Rankine & Ors [2010] FMCA 668 Rankine v Lord [2011] FCA 478 |
| Applicant: | JOHN PHILIP WOOLLEY |
| Respondent: | SUZANNE LEIGH SPAGNOL |
| File Number: | SYG 2935 of 2014 |
| Judgment of: | Judge Barnes |
| Hearing date: | Determined on the papers |
| Date of Last Submission: | 7 October 2015 |
| Delivered at: | Sydney |
| Delivered on: | 4 February 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr J. Johnson |
| Solicitors for the Applicant: | Hall Partners |
| Counsel for the Respondent: | Mr R. Lethbridge SC and Ms G. Eldershaw |
| Solicitors for the Respondent: | Searle & Associates Lawyers |
ORDERS
The Respondent pay the costs of the Applicant as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2935 of 2014
| JOHN PHILIP WOOLLEY |
Applicant
And
| SUZANNE LEIGH SPAGNOL |
Respondent
REASONS FOR JUDGMENT
On 22 October 2014 the Applicant, Mr Woolley, filed an application to set aside a bankruptcy notice issued on 9 October 2014 in which the Respondent, Ms Spagnol, relied on a claimed debt of $423,990.68.
Mr Woolley filed an amended application on 28 January 2015 in which he sought that the bankruptcy notice be set aside and (unusually) that several declarations be made as to asserted technical defects in the bankruptcy notice. In particular he sought:
A Declaration that the calculation of the amount outstanding under the final judgement or order relied upon (being the orders of the Family Court of Australia made on 11 February 2011 as amended on 11 December 2013) where calculated according to the general principles of law contains an overstatement both as to interest and as to principal, to the extent that the Respondent seeks to treat payments made in terms of the final judgement or order otherwise than as being payments in respect of the final judgement or order and that is claimed in the bankruptcy notice, namely spousal maintenance, where there was no extant spousal maintenance proceeding; the final judgement or order relied upon and only judgement or order relied upon being that arising by virtue of the judgement and subsequent orders of Justice Benjamin on 11 February 2010 and which concerns the Financial Agreement entered into between the Applicant and the Respondent that is dated 29 September 2005.
In an affidavit relied on in support of the Amended Application, sworn by Cameron Khosravi on 24 November 2014, Mr Woolley’s solicitor asserted generally that the issue of the bankruptcy notice to seek payment of a disputed sum through bankruptcy proceedings was an abuse of process.
Ms Spagnol filed a Notice stating Grounds of Opposition on 16 March 2015 which amounted to submissions addressing the Orders and Declarations sought in the Amended Application. Issue was taken with the Applicant’s characterisation of certain payments made to Ms Spagnol, insofar as that could be discerned from the terms of the declaration sought. Ms Spagnol disputed the claim that she sought to treat such payments as spousal maintenance.
The matter was heard on 22 April 2015. On the day of the hearing the Applicant filed written submissions in which, for the first time, it was clearly articulated that the primary basis on which it was sought that the bankruptcy notice be set aside was a contention that it was an abuse of process. The parties were ordered to file post-hearing submissions. They did not do so. Rather, they advised the Court that the matter had been settled on the basis that the bankruptcy notice should be set aside. The Respondent conceded that she should meet the costs of the Applicant, but disputed that costs should be awarded on an indemnity basis as sought by the Applicant. The parties agreed that this issue should be determined by the Court on the papers on the basis of written submissions and other material before the court.
I made orders by consent on 7 August 2015 setting aside the bankruptcy notice. Written submissions were filed in relation to the issue of whether the Respondent should pay the Applicant’s costs on an indemnity basis. The parties also relied on the affidavit evidence that had been read in the substantive hearing and a copy of an application in a case filed by Ms Spagnol on 31 January 2014 in the Family Court of Australia seeking an enforcement hearing in proceedings between the parties.
The bankruptcy notice claimed amounts said to have originated out of orders made by the Family Court on 11 February 2011 in circumstances where there was a substantive application before the Family Court under Part VIIIA of the Family Law Act 1975 (Cth) (the Family Law Act) concerning the effect of a financial agreement entered into between the parties for the purposes of s.90G of the Family Law Act. Benjamin J declared that the financial agreement was an enforceable financial agreement. On 11 February 2011 his Honour made what was described as a “consequential” order that within 28 days Mr Woolley pay Ms Spagnol $3,150,000 plus interest, to be calculated in a manner specified in the orders. Mr Woolley appealed against the orders of Benjamin J and on 18 March 2011 Benjamin J made stay orders, subject to Mr Woolley paying amounts totalling $3,150,000 into Ms Spagnol’s solicitor’s trust account to be held on trust as specified. An appeal by Mr Woolley in relation to the stay orders was settled. Coleman J made consent orders on 17 May 2011 which noted an agreement that Mr Woolley would pay Ms Spagnol certain amounts (part to be paid forthwith and part described as payments of quarterly income at a specified rate to continue until the judgment of the Full Court of the Family Court in relation to the substantive appeal). The substantive appeal was allowed in part on 11 December 2013. In essence, changes were made to the method of calculation of interest on the amount of $3,150,000 ordered to be paid to Ms Spagnol.
The Applicant claimed that it was common ground that the issue upon which the “debt” claimed in the bankruptcy notice fell to be determined was the interpretation of the orders made by Coleman J on 17 May 2011, in particular whether such orders operated as orders which required payments to be made to Ms Spagnol in the nature of spousal maintenance payments or whether the essential character of the orders was that they required payments to her in the nature of income (which would operate as an “offset to interest”).
It was submitted that it was well-established that bankruptcy should not be used as a means of recovery of disputed debts or where there were other available means by which money could be recovered. It was said to be apparent from the judgment of Benjamin J (delivered on 18 March 2011) that Mr Woolley’s estate was a solvent one and that there were other available means by which Ms Spagnol would have been able to realise her “debt”, short of the making of a sequestration order.
Mr Woolley submitted that the basis on which he had sought that the bankruptcy notice be set aside was, in essence, that it was an abuse of process and that these circumstances warranted an award of costs on an indemnity basis. He submitted that, contrary to the Respondent’s suggestion at the hearing that she had been taken by surprise by the fact that the issue of an abuse of process was raised in written submissions served the night before the hearing, this issue was raised by his solicitors in correspondence with the Respondent’s solicitors as early as 20 October 2014.
The Applicant acknowledged that orders had been made for the parties to file post-hearing submissions to deal with the abuse of process submissions and issues raised during the hearing, but contended that this had given the Respondent the opportunity to deal with the abuse of process argument detailed in the Applicant’s pre-hearing written submissions.
It was pointed out that the Respondent accepted that costs should follow the event. The Applicant submitted that as the court had heard the evidence, it could not be said that there was a difficulty in determining whether it was appropriate to order costs on an indemnity basis.
The Applicant placed reliance on the decision of Raphael FM in Lord & Anor v Rankine & Ors [2010] FMCA 668 in relation to the issue of an abuse of process in bankruptcy proceedings (and see on appeal Rankine v Lord [2011] FCA 478). Raphael FM noted (at [27] and [29]) that it was not appropriate to utilise bankruptcy proceedings to compel a recalcitrant debtor who was otherwise solvent to pay a debt he declined to pay, that there were numerous other ways to enforce a judgment and that “misuse of the processes of the Court constitutes an abuse of process”.
It was submitted that Mr Woolley was not, in any event, a recalcitrant debtor and that he was solvent. Reliance was also placed on the account of the Applicant’s financial circumstances in the judgment of Benjamin J of 18 March 2011 in relation to the stay application. His Honour referred to Mr Woolley’s contention that there was an agreed pool of assets somewhere between $16 to 17 million. The Applicant contended that it was apparent that his “estate” was always solvent and claimed that he had already made payments to Ms Spagnol exceeding $3 million.
The Applicant contended however that there was a need for clarification of the Family Court orders in circumstances where Ms Spagnol wished to seek payments of spousal maintenance despite the absence of any authoritative pronouncement of any entitlement to do so and that this should have been resolved by further proceedings in the Family Court.
It was submitted that the Court “would have been compelled” to set aside the bankruptcy notice and that the desire to use bankruptcy proceedings to “entreat” the payment was “manifest”.
In support of the submission that there was a dispute as to the nature of the payments ordered by the Family Court (in particular whether the payments constituted spousal maintenance) reliance was placed on the fact that on 20 October 2014 the solicitors for Mr Woolley were said to have written to the solicitors for Ms Spagnol suggesting that the issue of a bankruptcy notice against Mr Woolley over such a matter in circumstances where it was known that Mr Woolley was solvent was an abuse of process and suggested that the matter be brought before Coleman J for resolution. No letter of that date in those terms is in evidence. This may be intended to be a reference to emails of October 2013 suggesting that the Applicant may either “set aside” the bankruptcy notice or wait until the Respondent filed a creditor’s petition and seek to have it “struck out as an abuse of process with indemnity costs”.
The Applicant submitted that in all the circumstances, particularly given that the relief sought by him (setting aside the bankruptcy notice) had been defended by the Respondent, but then subsequently conceded, an award of indemnity costs was justified. Such an approach was said to be consistent with the approach taken by Perry J in HWY Rent Pty Ltd v HWY Rentals (in liq) (No 2) [2014] FCA 449 at [55] – [56] on the basis that the Applicant had been unreasonably subjected to the expenditure of costs as a result of the defence of the proceedings by the Respondent on grounds which, it was said, had no real basis and in circumstances where the Respondent was relying heavily upon her own “interpretation” of Family Court orders to justify a bankruptcy notice issued in relation to a solvent “debtor”. It was suggested that this approach had cost time and money for which the Applicant could not be compensated by an ordinary costs order.
The Applicant also submitted that the fact that the Respondent had instructed both senior and junior counsel to appear at the hearing made it clear that the Respondent was prepared to throw unlimited legal resources in defence of what was said never to have been a proper case. There was said to be no reason why the Applicant (who was seeking indemnity costs in relation to only one counsel and one solicitor) should not be properly compensated for the costs he had to incur in “answering” a case “put against him” at the hearing by senior counsel that was said to have had no basis.
It was submitted that this was an unusual case, in that the fact of settlement was an aggravating issue in terms of the justification for an indemnity costs order having regard to the fact that the concession as to the relief claimed by the Applicant came at “the heel of the hunt” in circumstances where the Respondent’s case was said to have always been clearly hopeless.
The Applicant pointed out that other Family Court proceedings instituted by Ms Spagnol seeking sequestration of property owned by Mr Woolley had been settled and suggested that the “primary judgment” in the Family Law proceedings of $3,150,000 had been “fully paid”.
The Respondent conceded that she should pay Mr Woolley’s costs on the basis that she “withdrew” the bankruptcy notice (although in fact the order made by consent was that the bankruptcy notice be set aside). It was submitted that it “followed” that Mr Woolley’s amended application fell away. However the Respondent submitted that it had not been established that there had been an abuse of process such as to warrant an award of indemnity costs and that there was no abuse of process.
It was contended that the Applicant’s submissions acknowledged that there was an issue to be tried in these proceedings and that the matter had not been “fully heard”, given that no judgment had been delivered or reasons for judgment published and the Court had not made any findings that the Respondent’s actions amounted to an abuse of process (or, indeed, made any findings at all). It was submitted that the Applicant should not be awarded costs on an indemnity basis, but that costs should be taxed on a party/party basis. There was also said to be no direct evidence that the Applicant was solvent at the relevant time (insofar as reliance was placed on a 2011 judgment and no fresh evidence had been filed in this respect notwithstanding that the Respondent’s solicitor had asked the Applicant’s solicitor on 18 November 2014 for evidence as to his current financial position).
Consideration
This court has power under s.79 of the Federal Circuit Court of Australia Act 1999 (Cth) to award costs in proceedings before the court. Except as provided by the rules of court or any other Act, the award of costs is in the discretion of the court (s.79(3)). In addition, s.32 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) provides:
The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.
It is not in dispute that the court should make an order for costs in favour of the Applicant. As Perry J stated in HWY Rent Pty Ltd (No 2) at [55], the ordinary rule is that a successful party is entitled to costs on a party/party basis, but this may be departed from and an award of costs made on an indemnity basis where:
…the justice of the particular case so requires or where there is some special or unusual feature of the case justifying a departure from the ordinary rule: Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233 (Sheppard J).
Her Honour pointed out in HWY Rent Pty Ltd at [56]:
The purpose of such an award of costs is explained by Gray J (with whom Carr and Goldberg JJ agreed ) in Hamod v New South Wales (2002) 188 ALR 659 at 665:
“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.”
I have considered whether an award of indemnity costs is warranted having regard to the particular facts and circumstances of this case.
The initial application sought an order to set aside the bankruptcy notice. The supporting affidavit was not read in these proceedings. It was said to be replaced “in total” by the affidavit of Cameron Khosravi, sworn on 24 November 2014. Paragraph 14 of Mr Khosravi’s affidavit briefly raised the issue of an abuse of process in contending that there was a dispute between the parties as to whether payments made pursuant to orders of the Family Court were for spousal maintenance or in the nature of income or interest offsetting liability for the debt that formed the basis for the bankruptcy notice and that it was an abuse of process to seek payment of a disputed sum through the process of bankruptcy.
However, as indicated, the amended application filed on 28 January 2015 sought a range of declarations based on asserted non-compliance with applicable requirements of the Bankruptcy Act and the Bankruptcy Regulations 1996 (Cth). Declarations were sought that the relevant judgment or order was not attached to the bankruptcy notice; that the schedule of interest represented a claim for overstatement of interest; that a claim for interest said to be asserted in an affidavit of the solicitor for Ms Spagnol asserted an entitlement to interest on or as part of final judgment or order to which there was no entitlement; as well as a declaration in the terms set out at [2] above that the calculation of the amount outstanding under the final judgment or order relied upon contained an “overstatement” both as to interest and principal insofar as it sought to treat payments as spousal maintenance. This was not expressed as an assertion that there was an abuse of process. An “order” was sought that these matters reflected “matters which … are essential for the purposes of the validity” of the bankruptcy notice that were not capable of being cured pursuant to s.306 of the Bankruptcy Act. A declaration was also sought that the Applicant had given a valid and effective notice to the Respondent pursuant to s.41(5) of the Act in relation to the claimed overstatement. In addition, a declaration was sought that the bankruptcy notice was not at the time of its issue a valid and effective bankruptcy notice as it did not have attached to it a copy of the final judgment or order relied upon. As indicated, the Respondent disputed any assumption that she sought to treat payments as spousal maintenance in the notice stating grounds of opposition.
Shortly before the hearing of this matter the Applicant prepared written submissions (filed on the day of the hearing) which, for the first time, clearly articulated that the primary basis on which it was sought that the bankruptcy notice be set aside was the contention that there was an abuse of process and made arguments in that respect.
These submissions addressed what was said to be the primary issue between the parties as to the effect of the Family Court orders and as to the nature of payments that had been made to Ms Spagnol by Mr Woolley, the Applicant’s view of the nature of such payments in light of provisions of the Family Law Act and whether this issue should have been resolved by an application to the Family Court. There was said to be an issue as to the nature of the “debt” relied on in the bankruptcy notice, which was said to depend on the interpretation of orders made by Justice Coleman on 17 May 2011, in particular whether such orders operated as orders requiring payments to be made to the wife in the nature of spousal maintenance or in the nature of income such as to operate as an offset to interest. In these circumstances I gave the parties the opportunity to file post-hearing written submissions.
However no such submissions were filed. Instead the matter settled. It cannot be said that the hearing was complete. The Court did not have the benefit of submissions from the Respondent in relation to the abuse of process issue as it ultimately emerged. It has not been conceded that there was an abuse of process (notwithstanding that the bankruptcy notice was set aside by consent). This was not the only basis for the application to set aside the bankruptcy notice. No findings were, or in these circumstances should, be made that the Respondent’s actions amounted to an abuse of process. Nor has it been established that the circumstances were otherwise such as to warrant an award of costs on an indemnity basis. In effect, in the absence of the ordered written submissions, the matter was not fully heard. Moreover no judgment was delivered and no reasons for judgment published (cf HW Rent Pty Ltd).
In addition, insofar as the Applicant submitted that one of the factors relevant to whether the circumstances amounted to an abuse of process was that he was solvent, the evidence before the Court is not such as to establish that Mr Woolley was solvent as at the time of the issue of the bankruptcy notice or thereafter. There was no direct current evidence in this respect. Insofar as reliance was placed on the account of Mr Woolley’s circumstances at the time of the judgment of Justice Benjamin in February 2011, such evidence is not sufficient for the Court to reach a conclusion as to Mr Woolley’s ability to pay his debts at the date of issue of the bankruptcy notice or thereafter.
I have had regard to all the circumstances in this case. While there was a hearing, it was incomplete. The issue of abuse of process was raised in general terms in the affidavit in support of the application to set aside the bankruptcy notice, but this was not addressed in detail until the Applicant’s submissions were filed on the day of the hearing. The Court did not have the benefit of submissions from the Respondent addressing the issue of abuse of process as clarified in the Applicant’s written submissions.
In submissions filed in support of the application for indemnity costs the Applicant submitted that I should be satisfied that the Respondent’s “case” had no basis and was “always hopeless”, that the bankruptcy notice had been issued in circumstances where the Respondent knew that the Applicant was “well and truly solvent” and that the evidence as to all the circumstances was such as to indicate an intention to utilise the bankruptcy process for reasons other than securing the orderly distribution of the debtor’s estate such as to constitute a misuse of the process of the Court in the sense considered in Lord v Rankine. I am not satisfied that it is appropriate to make findings of this nature in the context of an incomplete hearing. Such findings would require a determination of the underlying issue about the nature of payments made to the Respondent and the other grounds relied upon, including, possibly, the appropriateness or availability of further proceedings in the Family Court, notwithstanding the absence of submissions from one of the parties on such matters.
Nor, more generally, am I satisfied that it has been established that the Respondent’s conduct was unreasonable such as to warrant an award of indemnity costs.
In my view the appropriate order in the circumstances, having regard to Rule 13.01 of the Federal Circuit Court (Bankruptcy) Rules (and see Part 40 of the Federal Court Rules), is that the Respondent pay the costs of the Applicant as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Date: 4 February 2016
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