World Best Holdings Ltd v Sarker
[2006] FMCA 1876
•22 December 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WORLD BEST HOLDINGS LTD v SARKER | [2006] FMCA 1876 |
| BANKRUPTCY – Petitioner’s costs – debt not disputed – debtor paid debt on day of hearing – admitted act of bankruptcy – merits of notice of opposition – reasonableness of conduct of parties – effect of s.51 of Bankruptcy Act – debtor ordered to pay costs – assessed as lump sum. |
Bankruptcy Act 1966 (Cth), ss.27, 32, 51, 52(2)(b), 109, 109(1)(a)
Federal Court Rules (Cth), O.62
Federal Magistrates Act 1999 (Cth), s.79
Federal Magistrates Court Rules 2001 (Cth), r.21.02(2)(a)
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.1.03(2), 13.01(1), 13.01(2), 13.03(2), 13.03(3), 13.04
Attorney General of New South Wales v World Best Holdings Limited & Ors [2005] NSWCA 261
Australian Securities Commission v Aust‑Home Investments Ltd (1993) 44 FCR 194
Beach Petroleum NL & Claremont Petroleum NL v Johnson (1995) 57 FCR 119
Deputy Commissioner of Taxation v Cameron, in the matter of Cameron [2001] FCA 1567
Gribbles Pathology Pty Ltd v Health Insurance Commission & Ors (1997) 80 FCR 284
Latoudis v Casey (1990) 170 CLR 534
Re B. Vanechteld (1960) 18 ABC 258
Re Hammant [1965] ALR 340
Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622
Saizeriya Co Ltd & Anor v Peregrine Management Group Ltd Pty & Ors [2005] FCA 1174
Sarker v World Best Holdings Ltd, World Best Holdings Ltd v Sarker (No.3) [2004] NSWADT 119
Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788
Totev v Sfar [2006] FCA 470
World Best Holdings Limited v Sarker & anor. [2004] NSWSC 935
World Best Holdings Limited v Abul Sarker [2004] NSWSC 1164
| Applicant: | WORLD BEST HOLDINGS LIMITED ARBN 086 690 146 |
| Respondent: | ABUL SARKER |
| File Number: | SYG1688 of 2006 |
| Judgment of: | Smith FM |
| Hearing date: | 25 October 2006 |
| Date of Last Submission: | 21 November 2006 |
| Delivered at: | Sydney |
| Delivered on: | 22 December 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Levingston |
| Solicitors for the Applicant: | Brock Partners, Solicitors |
| Counsel for the Respondent: | Mr S Docker |
| Solicitors for the Respondent: | Kemp Strang, Solicitors |
ORDERS
The respondent must pay the applicant’s costs, including reserved costs, fixed in the amount of $9,600.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1688 of 2006
| WORLD BEST HOLDINGS LIMITED ARBN 086 690 146 |
Applicant
And
| ABUL SARKER |
Respondent
REASONS FOR JUDGMENT
This proceeding comes after a saga of litigation in other courts which appears to have little prospect of reaching finality without further litigation between the parties. I am now called upon to decide whether the applicant should be awarded its costs of a bankruptcy petition, which was dismissed by consent when the debtor paid a debt of $11,563.29 on the morning of the adjourned hearing. The background can be sketched briefly.
The parties’ dispute has its origins in 2003 when the applicant petitioner, the owner of the Minto Mall Shopping Centre, gave a lease of a shop to the respondent debtor for use as an “Asian Grocery Shop”. The debtor had been earning an income as a taxi driver, and at all times has been a person of slender financial resources. However, he was forced into litigation in the Supreme Court of NSW and in the NSW Administrative Decisions Tribunal (“ADT”) to regain possession of the shop, and then to recover damages after further disputes with the petitioner forced him to give up the shop. In June 2004, the ADT gave a judgment in Sarker v World Best Holdings Ltd, World Best Holdings Ltd v Sarker (No.3) [2004] NSWADT 119, which concluded that the petitioner had “repudiated the lease by its relentless campaign beginning with a surprise lock out and proceeding over six months of the most intensive legal war”. It awarded the debtor $80,630.77 as compensation for unconscionable conduct and repudiation, and made an exceptional award of costs in his favour.
On appeal to the Supreme Court, Sully J dismissed, with costs, one part of an appeal by the petitioner which argued that the ADT made errors of fact and law which justified an appeal on the merits (see World Best Holdings Limited v Sarker & anor. [2004] NSWSC 935). However, the balance of the appeal which contended, among other questions of law, that the ADT had been impermissibly constituted with two non‑legal members, succeeded at first instance before Patten AJ and in the Court of Appeal (see World Best Holdings Limited v Abul Sarker [2004] NSWSC 1164, and Attorney General of New South Wales v World Best Holdings Limited & Ors [2005] NSWCA 261). The debtor suffered a costs order against him at first instance, which was partly offset by a suitor’s fund certificate. The ADT’s decision was set aside and the matter was remitted for further hearing in the ADT.
In the course of the petitioner’s appeal at first instance, Kirby J ordered on 23 July 2004 that the petitioner should pay $10,000 to the debtor’s solicitors as a condition on being given a stay on the ADT’s order. Patten AJ ordered on 10 December 2004 that the debtor should repay this amount with interest, and judgment to this effect was entered on 13 January 2005. The judgment debt provided the basis for a bankruptcy notice issued on 27 April 2006. The debtor failed to comply, and a petition for a sequestration order was filed in this Court on 14 June 2006.
The petition was listed on two occasions before a Registrar, before being referred to me for hearing. The hearing proceeded for half a day on 20 September 2006, and was then adjourned in the expectation that it would be completed in one day on 25 October 2006.
The debtor’s notice of opposition conceded the debt, but challenged the validity of the bankruptcy notice upon formal grounds concerning a claim for interest in its schedule and attachments. It also contended that the petition should be dismissed under s.52(2)(b) on the ground of “other sufficient cause” under principles recently discussed by Allsop J in Totev v Sfar [2006] FCA 470. It was argued that the applicant still had his unresolved damages claim against the petitioner, and was actively pursuing it. At the time of the hearing before me, the claim had been stalled by the petitioner obtaining a stay on the ADT proceedings pending another application by it to the Supreme Court. The debtor presented to me volumes of evidence from the ADT proceeding, and also argued that the factual findings of the first decision of the ADT, upheld by Sully J, sufficiently established that he had a likely prospect of receiving damages and costs from the petitioner in an amount exceeding the debt relied upon in the petition.
The dispute between the parties appeared entrenched when the hearing of the petition was adjourned on 20 September 2006. However, at the commencement of the resumed hearing on 25 October 2006, I was informed that the petitioner had received on that day, and had accepted, the tender of full payment of the debt relied upon. The petitioner accepted that it was appropriate for the petition to be dismissed, and I made that order by consent. The parties agreed that any application for costs should be decided by me in chambers upon written submissions.
The petitioner now submits that the practical outcome of the proceeding has favoured its objective of recovering its debt, so that it should be awarded costs under the normal principle that costs should follow “the event” and be awarded to the successful party (see Latoudis v Casey (1990) 170 CLR 534 at 543, 566‑568). The petitioner submits that these should be fixed by way of a lump sum order, to avoid the expense and delay of assessment procedures.
The debtor opposes any costs order, and submits that provisions of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) and legal precedent point to no order for costs being made. Alternatively, he submits that “the event” favoured him, because the petition was dismissed. He also submits that he has acted more reasonably than the petitioner, because he was seeking to maintain a counterclaim whose merits are apparent. He also opposes the making of an order by way of a lump sum assessment.
This Court is invested with concurrent and exclusive bankruptcy jurisdiction by s.27 of the Bankruptcy Act, and in my opinion its relevant costs power is best identified in s.32 of that Act, rather than the similarly worded power in s.79 of the Federal Magistrates Act 1999 (Cth). It provides:
32Costs
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.
The Bankruptcy Act also contains a specific provision concerning the costs of a creditor’s petition:
51Costs of prosecuting creditor’s petition
Subject to section 109, the prosecution of a creditor’s petition to and including the making of a sequestration order on the petition shall be at the expense of the creditor.
This provision appears in Part IV Division 2, which concerns “Proceedings in connexion with bankruptcy – Creditors’ petition”, immediately before the Court’s power to make or refuse sequestration orders under s.52. Section 109 appears in Part VI Division 2, concerning “Administration of property – Order of payment of debts”, and provides in s.109(1)(a) for payment of the taxed costs of the petitioning creditor to be ranked first in priority for distribution from a bankrupt estate.
The language and location of s.51 might appear to suggest that it addresses the petitioner’s costs of a petition generally, including where the petition is dismissed. However, its terms make no reference to the Court’s discretion to award costs, and it is difficult to find in s.51 an intent to restrict that discretion.
An alternative interpretation is that the words in s.51: “to and including the making of a sequestration order” indicate an intended effect only after a sequestration order is actually made, so that s.51 has no relevance to the situation where a petition is dismissed or withdrawn. On this interpretation, the section, read with s.109, operates to make clear that, if a sequestration order is made, the petitioner can look only to the bankrupt’s estate for recoupment of its expenses, and then only to the extent of its taxed costs and only to the extent that the estate is able to meet them by distribution under s.109.
The provisions of ss.32, 51 and 109 have a history in previous versions of the United Kingdom and Australian bankruptcy legislation, which was referred to by Paine J in Re B. Vanechteld (1960) 18 ABC 258 (“Re Vanechteld”). His Honour followed a decision of Clyne J, and held that the bankruptcy court’s general power in relation to costs remained available, and gave an overriding discretion to award costs to a petitioning creditor. His judgment appears to accept or assume that the provisions of the 1924 Act comparable with s.51 were applicable even where a petition was dismissed. He said:
I arrive at the conclusion that s. 27 (1) gives the court an overriding discretion to award costs to a petitioning creditor under such circumstances. That discretion must, of course, be based on judicial grounds–e.g., that the petitioning creditor’s actions have been warranted and that while the estate may be benefited he has been deprived of some at least of his rights by what has actually occurred.
In the present case it cannot be said that the petitioning creditor’s original action was unwarranted. But the estate has not been benefited, as no sequestration order or other method of distributing the debtor’s estate between what other creditors he may have has resulted as was the case in Re Haarsma (unreported).
The petitioning creditor has been paid his debt and at least part of his costs, and has chosen of his own volition to apply to withdraw his petition. He could possibly have protected himself by refusing to accept the debtor’s solicitor’s cheques and pressed his petition for a sequestration order, and this, prima facie at any rate, would have been granted. It may be he has wisely chosen to take the bird in hand, but I am unable to see the merits of his further application for the bird in the bush as well.
Re Vanechteld is treated by bankruptcy texts as applicable to the current legislation, although I note that the relevant provisions were substantially rearranged and reworded in the 1966 Act. Neither counsel before me submitted that s.51 had no application to the present case, but both counsel accepted that the Court’s general discretion to award costs to the petitioner remained available. My own researches as to the effect of s.51 were incomplete, and I am content to proceed on the same basis.
Counsel for the debtor submitted that in the present case I should follow the same reasoning as in Re Vanechteld, and that I could not be satisfied that “the petitioning creditor’s actions have been warranted” and that “the estate may be benefited” by the petition. He also argued that I should follow the usual approach to a costs discretion where a proceeding is discontinued or dismissed by consent. In most cases, courts have been reluctant to award costs to an applicant in such a situation, if this requires the substantive merits of the proceeding to be determined or predicted (c.f. Australian Securities Commission v Aust‑Home Investments Ltd (1993) 44 FCR 194 per Hill J at 201 and 203; Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 per McHugh J at 624‑625; and Gribbles Pathology Pty Ltd v Health Insurance Commission & Ors (1997) 80 FCR 284 at 287). He also argued that, if I did examine the merits of the matter, I should conclude that the debtor had good grounds for establishing “other sufficient cause” for dismissing the petition, and that the applicant had reasonably pursued this ground of opposition.
I accept that the Court should be wary of predicting the outcome of a disputed petition, where the dispute has been solved by the payment and acceptance of the claimed debt. The above authorities explain why this is so. However, their suggestions that a costs award for an applicant in a proceeding resolved without a judicial determination on its merits will only be considered in rare, special or exceptional cases were made in different contexts than the present.
In the context of bankruptcy petitions, I am inclined to avoid any suggestion that the Court’s costs discretion should be exercised infrequently in favour of a petitioner who accepts payment of its debt and does not proceed with the petition. It appears to be not uncommon for a costs order to be made in some such circumstances. For example, as Lindgren J said in Deputy Commissioner of Taxation v Cameron, in the matter of Cameron [2001] FCA 1567 at [29]:
[29]Ordinarily, I would expect a debtor who pays out the petitioning creditor’s debt the day before the hearing to be ordered to pay the petitioning creditor’s costs, even though the petition was dismissed: see Re Noye; Ex parte Deputy Commissioner of Taxation (1956) 18 ABC 77 at 78.
I also consider that, once the availability of the broad discretion conferred by s.32 is accepted, the readiness of the Court to consider all the circumstances of the matter before it should not be fettered by judgments decided in other circumstances.
As to how the discretion should be approached in the present case, I would respectfully be guided by the brief reasoning of Mansfield CJ in Re Hammant [1965] ALR 340:
With great respect I do not completely agree with the statement that this (i.e. the jurisdiction to award costs) is a jurisdiction which should be sparingly exercised (see, per Clyne, J., in Re S. G. Perry, unreported). I think it should be exercised after consideration of all the relevant circumstances of the particular case and, in particular, the conduct of the debtor, such as any unnecessary delay that may have taken place in the payment of the debt by the debtor. Any unreasonable conduct of the creditor is also a relevant matter. In other words the whole of the circumstances in each particular case should be considered in order to see whether the creditor has lost his right to be reimbursed for his costs or any portion of them. In the present case, if the creditor had chosen to proceed, the estate would have paid 20s. in the £1 and he would have received his costs of the petition. He has chosen to accept payment by the debtor of the amount of his debt and by that means has freed the debtor from the necessity and stigma of becoming bankrupt and subsequently having to apply to have the bankruptcy annulled or his discharge granted. Furthermore, the debtor’s failure to take any steps to endeavour to comply with the requirements of the bankruptcy notice issued by the creditor is a matter which must have some weight. In all the circumstances of this case I think it is reasonable to order that the debtor pay the petitioning creditor’s costs. I order that the petition be dismissed and that the debtor pay the petitioning creditor’s costs.
In my opinion, this appropriately focuses the attention of the costs discretion on the reasonableness of the bringing, pursuit and discontinuance of the creditor’s petition, weighed against the reasonableness of the debtor’s failure to pay the debt before the petitioner incurred its costs in a bankruptcy proceeding. In circumstances such as the present, where there has never been a dispute as to the indebtedness to the petitioner, I do not consider that the Court should be hesitant to form a conclusion that discontinuance as a result of a belated payment of the debt provides a justification for an award of costs to the petitioner. Of course, all the circumstances should be considered, before arriving at that opinion.
In the present case, I am persuaded that the decision of the debtor to call a halt to the disputed notice of opposition by his payment of the debt on the morning of the resumed hearing, clearly raises the question why this was not done earlier, so as to avoid the incurring of the substantial costs of the petition which were belatedly rendered unnecessary. The delay in payment has not been explained by any evidence, and I consider that the bare chronology of the origin of the debt and of the bankruptcy proceeding in the present case justifies an award of costs to the petitioner as a just and appropriate exercise of discretion.
I have considered whether I should decline to award costs to the petitioner upon the debtor’s submission that “his argument that he had a real counterclaim which was likely to succeed was a strong, or at least reasonably strong, argument”. This, in effect, is an invitation for me to consider the merits of the disputed grounds of opposition to the petition.
In this respect, I am prepared to find that the evidence and arguments presented by the debtor showed grounds of opposition to the petition which were reasonably raised and pursued. In particular, the debtor’s claim to damages in the tenancy dispute was shown to have some substance, and I consider that he can point to public interests which support allowing him to pursue that claim against the petitioner without being taken into bankruptcy by the petitioner.
However, although I have read the petitioner’s written submissions against the merits of the grounds of opposition, the hearing never reached the stage where I had received its counsel’s oral submissions. In these circumstances, I consider that it would be inappropriate and impossible for me to make any prediction on the outcome of the petition if the debtor had not paid the debt. I am therefore not persuaded to accept the debtor’s argument that his opposition to the petition was more reasonably pursued than was the petitioner’s pursuit of the petition.
For the reasons I have explained above, not only am I unable to find superior merits in the debtor’s opposition to the petition, but I also consider that it is unnecessary for me to perform such an assessment before forming the opinion, which I have explained above, that it is fair and just to make an award of costs to the petitioner due to the belated decision of the debtor to pay the debt.
Turning to the form of a costs order, the petitioner submitted that “having regard to the history of this litigation through various courts, and the likelihood that costs will be hard fought through the taxation process, it is in the interests of both parties that the Court awards a gross sum for costs. The Applicant will accept $9,600 based on the material set out in the annexure, which is 40% of its costs and disbursements”. The attached memoranda of counsel’s fees and solicitor’s costs and disbursements showed charging for legal services which was not, in my opinion, inappropriate on a client/practitioner basis in the present circumstances.
In the Court’s bankruptcy jurisdiction, Part 13 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) makes provision giving a prima facie entitlement to a party receiving the benefit of a costs order to have those costs determined on a taxation applying the scales and procedures of O.62 of the Federal Court Rules (Cth). This expressly includes a creditor “if the petition is dismissed” (see rr.13.01(1) and 13.03(2) and (3)). Rule 13.04 then requires service on the debtor of a bill and supporting documents.
It is normally convenient for the Court to allow the rules for taxation under the Federal Court Rules to take effect, rather than itself attempting to make any assessment of costs, even on an arbitrary “lump sum” basis. However, there is no doubt that this alternative is available, since Bankruptcy r.13.01(2) provides that “in making an order for costs, the Court may fix the amount of the costs”. In my opinion, the availability of this power implicitly excludes reference to other powers to fix lump sum costs (c.f. Bankruptcy r.1.03(2) and Federal Magistrates Court Rules 2001 (Cth), r.21.02(2)(a)).
The present debtor’s argument against the Court making a fixed award did not challenge the amount sought by the petitioner on the ground that it was based upon unreasonable charging by its legal representatives. Nor was it disputed the discount proposed by the petitioner would produce an amount which was plainly less than the likely amount which would be recovered on a taxation under O.62.
His submission was that the Court should not depart from “the usual course of taxation in default of agreement” (citing Saizeriya Co Ltd & Anor v Peregrine Management Group Ltd Pty & Ors [2005] FCA 1174 at [31], and distinguishing Beach Petroleum NL & Claremont Petroleum NL v Johnson (1995) 57 FCR 119 at 120 and 123, and Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at 812). He also submitted that “there is no reason to find that Mr Sarker would not contribute constructively to the taxation process and, given that he was awarded in excess of $80,000 plus costs by the Administrative Decisions Tribunal for his claim on the first occasion, he will not necessarily be unable to meet any costs order”.
There was evidence before me that the processes of taxation of the costs awarded to both parties in the Supreme Court in 2004 and 2005 were still unresolved. However, I was not taken to any evidence suggesting that these delays were abnormal or were being promoted by any party.
The authorities cited by the debtor in relation to lump sum costs awards are not directly relevant to the present situation, since they concerned cases where the complexity of the litigation was thought to make appropriate a more arbitrary process of fixing costs. Lump sum awards are more common in this Court in a different situation: where the relatively small amounts in issue, and the nature of the parties involved in the litigation, makes it expedient to determine costs without further delay or expense. The Court then acts without a full investigation of the amounts likely to be recovered on a taxation, but usually will not fix an amount unless it is confident that the amount awarded is manifestly less than would be recovered in a taxation process.
In the present case, I am prepared to make such a finding in relation to the amount sought by the petitioner. I also consider that fixing this amount is likely to save both parties and the Court significant additional expenses in a taxation process which, in my opinion, would be inevitable.
Although it was not stated, it is reasonable to assume that the debtor is apprehensive that, if a judgment for costs can be entered without delay by the petitioner, he may again face bankruptcy proceedings to enforce its payment before there is any prospect of an outcome in his claims in his tenancy litigation. I have given careful consideration to such a concern. I accept that the fixing of costs will allow the petitioner to commence new bankruptcy proceedings by immediately issuing a bankruptcy notice. If that notice is not complied with, the parties may soon find themselves again in this Court rearguing the same s.52(2)(b) ground of opposition to a fresh bankruptcy petition.
However, it is speculative whether the debtor will resist or be unable to pay a costs award, and whether the petitioner would again try to short‑circuit the tenancy litigation by sending the debtor bankrupt. If this eventuates, then it will be the duty of the Court to determine the issues which I have been spared. In my opinion, an apprehension that this might happen should not prevent my accepting the petitioner’s request that I should fix costs in the amount sought.
I am prepared to make that order only on the basis that it includes all the petitioner’s costs, including reserved costs and the costs of the costs argument.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 22 December 2006
6
14
0