Xiang v Ward
[2018] FCCA 893
•16 April 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| XIANG v WARD | [2018] FCCA 893 |
| Catchwords: BANKRUPTCY – Creditor’s petition – debtor’s petition filed before the matter was given a date for the final hearing – the respondent debtor sought to argue solvency as an objection to the making of a sequestration order. COSTS – Applicant creditor and respondent debtor both made applications for costs – costs follow the event – the event is that the creditor’s petition was dismissed – applicant creditor’s application for costs allowed – respondent debtor’s application for costs refused. |
| Legislation: Bankruptcy Act 1966, ss.32, 43, 109 Federal Circuit Court Act 1999 (Cth), s.79 |
| Cases cited: Yates Property Corp Pty Ltd v John Boland & Ors [1997] FCA 760; (1997) 147 ALR 685 Re Kimberley John Hughes v Western Australian Cricket Association & Ors [1986] FCA 382 |
| Applicant: | YOUFA XIANG |
| Respondent: | PETER LUSCOMBE WARD |
| File Number: | SYG 2459 of 2016 |
| Judgment of: | Judge Nicholls |
| Hearing date: | Matter decided on the papers |
| Date of Last Submission: | 8 September 2017 |
| Delivered at: | Sydney |
| Delivered on: | 16 April 2018 |
REPRESENTATION
| Solicitors for the Applicant: | Mr D M Junn of Dixon Holmes Lawyers |
| Solicitors for the Respondent: | Mr J F Merewether of Merewether & Co Solicitors |
ORDERS
The respondent debtor’s application for costs is dismissed.
The respondent debtor pay the applicant creditor’s costs as agreed or as assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2459 of 2016
| YOUFA XIANG |
Applicant
And
| PETER LUSCOMBE WARD |
Respondent
REASONS FOR JUDGMENT
This judgment concerns two applications for costs arising from the following circumstances.
On 12 September 2016 Mr Youfa Xiang filed a creditor’s petition in this Court which sought a sequestration order under s.43 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), against the estate of Mr Peter Luscombe Ward. Mr Xiang petitioned that Mr Ward owed him an amount of $727,812.71 pursuant to a judgment debt obtained by him in the District Court of New South Wales. Mr Xiang was represented by Dixon Holmes Lawyers.
The creditor’s petition was accompanied by an affidavit of service of Caitlin Zou, Legal Secretary, made on 5 September 2016.
On 12 October 2016, Mr Ward (represented by Merewether & Co Solicitors) filed a “Notice Stating Grounds of Opposition” (“the notice”) to the creditor’s petition. In essence, the notice denied that an act of bankruptcy had occurred, as the bankruptcy notice giving rise to the creditor’s petition, had not been properly served in accordance with reg.16.01 of the Bankruptcy Regulations 1996 (Cth) (“the Bankruptcy Regulations”). Further, that Mr Ward had filed a Notice of Appeal in relation to the District Court judgment.
The notice was accompanied by Mr Ward’s affidavit of 12 October 2016.
The matter came before a Registrar of the Court on 17 October 2016, 3 November 2016, and 14 March 2017. Various orders were made for the progress of the matter including the filing of various affidavits.
On 22 March 2017, Mr Ward filed an amended “Notice Stating Grounds of Opposition” to the creditor’s petition (“the amended notice”). In essence, Mr Ward continued to rely on the objection that the bankruptcy notice not been served in accordance with reg.16.01 of the Bankruptcy Regulations, and therefore denied that an act of bankruptcy had been committed, and importantly, the second objection was amended such that Mr Ward claimed that he “[was] able to pay his debts”. The objection based on the Notice of Appeal (see above at [4]) was abandoned.
On 28 March 2017, and on application from Mr Ward, a Registrar of the Court referred the matter to my docket. The creditor’s petition and the amended notice were listed for directions on 19 April 2017. In the meantime, further affidavits were filed by Mr Xiang. The matter was subsequently listed for directions on 3 May 2017.
On 3 May 2017, further orders were made by the Court for the conduct of the case. This included that the matter be listed for final hearing on a date to be administratively advised to the parties. Orders were also made for the filing of written submissions by Mr Xiang and Mr Ward, 14 and 7 days respectively, before the final hearing.
On 3 May 2017, Mr Ward, through his solicitor, also advised that he had lodged a debtor’s petition with Australian Financial Security Authority (“AFSA”). As at that date, the petition had not yet been accepted by AFSA, and Mr Ward therefore pressed for a final hearing date on the creditor’s petition and the amended notice. As mentioned above, the matter was set down for hearing on a date to be administratively advised to the parties. The Court’s Registry was advised of the acceptance by AFSA of the debtor’s petition on 4 May 2017. Mr Ward’s solicitor also emailed chambers on 10 May 2017 advising of the acceptance of the debtor’s petition, that Mr Ward would be seeking costs, and therefore sought to have the matter listed for further directions.
On 11 July 2017 Mr Ward, through his solicitor, filed written submissions (“Mr Ward’s first written submissions”) accompanied by an affidavit seeking costs in this matter.
The parties attended Court on 12 July 2017 for directions. The following orders were made:
“1. The Creditor’s Petition filed on 12 September 2016 is dismissed.
2. The applicant (in the substantive proceedings) file and serve any evidence by way of affidavit in relation to the respondent’s (in the substantive proceedings) application for costs, on or before 2 August 2017.
3. The applicant (in the substantive proceedings) to file and serve any written submissions in relation to the respondent’s (in the substantive proceedings) application for costs, on or before 2 August 2017
4. The respondent (in the substantive proceedings) to file and serve any further evidence by way of affidavit in relation to its application for costs, on or before 9 August 2017.
5. The respondent (in the substantive proceedings) to file and serve any further written submissions in relation to its application for costs, on or before 9 August 2017.
6. The respondent (in the substantive proceedings) has leave to file and serve evidence by way of affidavit in relation to correspondence between the respondent (in the substantive proceedings) and the Trustee in Bankruptcy, as of the date of the making of this order.”
Pursuant to the orders made on 12 July 2017, Mr Xiang filed written submissions on 30 August 2017 and Mr Ward filed further written submissions (“Mr Ward’s second written submissions”) on 8 September 2017.
In essence, Mr Ward’s application for costs relies on the proposition that no act of bankruptcy occurred because the bankruptcy notice was not served in accordance with reg.16.01 the Bankruptcy Regulations. His submissions seek to explain this by presenting arguments as to why this is the case, especially in circumstances where no final hearing of the creditor’s petition and the objections to the making of a sequestration order, was held.
That is, Mr Ward’s submissions address reg.16.01(1)(c) of the Bankruptcy Regulations which is in the following terms:
“Reg 16.01
Service of documents
(1) Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:
…
(c) left, in an envelope or similar packaging marked with the person’s name, at the last-known address of the person.”
Mr Ward refers to a large number of cases in this regard. Mr Ward essentially argues that Mr Xiang did not comply with the requirement in reg.16.01(1)(c) of the Bankruptcy Regulations.
However, Mr Ward’s submissions proceed on this argument, without reference to the general principles relevant, and applicable, to the consideration of the awarding of costs.
Section 32 of the Bankruptcy Act 1966 (Cth) (“the Act”) provides the power to the Court, as a Court of bankruptcy, to make a costs order in in a bankruptcy matter in which the application has been dismissed. Rule 13.01 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (“the Bankruptcy Rules”), sets out the bases on which such a costs order may be may be made.
In the current case, the application (the creditor’s petition), was dismissed by order made on 12 July 2017. However, this order was made in circumstances where Mr Ward had petitioned for his own bankruptcy.
The power to award costs also derives from s.79 of the Federal Circuit Court of Australia Act 1999 (Cth). The power to award costs is unfettered, but plainly it must be exercised judicially in the context of the Federal Circuit Court Rules 2001 (Cth) (“FCC Rules”) (see Yates Property Corp Pty Ltd v John Boland & Ors [1997] FCA 760; (1997) 147 ALR 685).
The following emerges in the dispute between the parties.
Mr Ward asserts that Mr Xiang should pay his costs. Mr Xiang opposes this.
Mr Xiang asserts that Mr Ward should pay his costs. He asserts that this is the “usual course” in proceedings where a creditor’s petition is dismissed following a debtor petitioning for his own bankruptcy
([2] – [3] of Mr Xiang’s written submissions).
Mr Ward opposes this. He asserts that the “usual order” when a debtor’s petition is presented, when a creditor’s petition is on foot, is that the costs of the applicant (that is, in this case, Mr Xiang) be paid out of the estate of the respondent debtor in the same priority as if an order had been made by the Court ([1] of Mr Ward’s second written submissions). Mr Xiang opposes such an order.
In the current case, it is not in dispute that there has been no hearing on the merits of the creditor’s petition, or the objections to the making of a sequestration order. Nor do the parties appear to raise any argument derived from what, in my view, is the “usual” starting point of “costs follow the event”. For example, Mr Xiang does not point to the debtor’s petition as the event (of itself) which leads to the proposition that “costs follow” that “event”. Nor, on the converse, does Mr Ward necessarily point to the order dismissing the creditor’s petition in support of his application for costs.
Nonetheless, as was said by Justice Toohey in Re Kimberley John Hughes v Western Australian Cricket Association & Ors [1986] FCA 382 (at [9]):
“[9]… 1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order: Ritter v Godfrey (1920 2 KB 47).”
As mentioned earlier, it is clear that in this case, there has been no hearing on the merits. In this circumstance, what was said by Justice McHugh in Re Minister for Immigration & Ethnic Affairs (Cth); Ex Parte Lai Qin[1997] HCA 6; (1997) 186 CLR 622 is of assistance (at [6] – [7]):
“[6] 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. 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. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
[7] 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. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action...”
[Footnotes omitted.]
Further, there may be exceptional circumstances that may lead to the discretion being exercised contrary to the proposition that “costs follow the event”. The conduct of the parties may be a relevant factor (see for example Cummings v Lewis (Wilcox J, Federal Court of Australia, 29 May 1992, unreported) and Re Skase ex parte Donnelly[1992] FCA 429; (1992) 37 FCR 509).
Therefore, the first issue in the current case is to determine what “the event” is, from which costs should follow (if any).
The second issue is whether one of the parties has acted so unreasonably, that the opposing party should obtain the costs of the action. The third issue is whether there are any special, or unusual, circumstances involved in the proceedings.
If the party to get their costs is to be Mr Xiang, the fourth issue is what the form of the order to be made is.
In the current case, Mr Xiang is the successful party. While the creditor’s petition was dismissed, this was done in circumstances where the debtor successfully petitioned for his own bankruptcy.
At no time in these proceedings did Mr Ward dispute that Mr Xiang successfully obtained judgment against him on 4 May 2016 in the District Court of New South Wales. Nor did he dispute that the relevant amount was $727,812.71.
The creditor’s petition was made on 12 September 2016. Mr Ward’s objections to the creditor’s petition (made on 12 October 2016), did not assert Mr Ward’s “solvency” as an objection to the creditor’s petition.
As noted above, the basis of the objection at the relevant time (the notice), was the assertion that no act of bankruptcy had occurred.
It was not until 22 March 2017, by way of the amended notice that Mr Ward asserted his solvency as another basis of objection to the creditor’s petition.
On the material that is before the Court, the raising of Mr Ward’s “solvency” on 22 March 2017, led to the referral of this matter to my docket (see orders of the Registrar made on 28 March 2017).
Having raised his solvency as an objection, Mr Ward then, in effect, abandoned that objection by his own appointment of a trustee. This occurred on 4 May 2017. This was in circumstances where the Court had ordered the final hearing of this matter, albeit on a date to be administratively advised to the parties.
There is nothing in the material before the Court to indicate that Mr Xiang acted so unreasonably that costs should not follow the event, and that Mr Ward should receive a costs order in his favour.
Although he has not expressed it as such, presumably Mr Ward’s argument is that this matter involves a special, or extraordinary, circumstance, such that Mr Xiang should not get his costs.
I pause to note that even if this were the case (which for the reasons set out below it is not), Mr Ward has still not explained why he should get his costs, particularly in circumstances where he petitioned for his own bankruptcy.
The only circumstance relied on by Mr Ward now, is the assertion that the bankruptcy notice was not served in accordance with the regulatory requirements. The argument here is as follows.
One, reg.16.01(1)(c) of the Bankruptcy Regulations requires that a bankruptcy notice be “left in an envelope or similar packaging marked with the person’s name”.
Two, it was not left in such an envelope.
Three, and further, the bankruptcy notice should be left at the person’s “last known address”.
Four, it was not left at that address.
It is to be remembered yet again, that in the current case, no final hearing of any of these matters was conducted.
In relation to the envelope, Mr Ward submits that Ms Zou’s affidavit makes no reference to an envelope, or an envelope marked with Mr Ward’s name. He relies on De Robillard v Carver [2007] FCAFC 73; (2007) 159 FCR 38 (“De Robillard”) at [28] as follows (see [8] of the Mr Ward’s first written submissions):
“…The evidence does not supply the final ingredient necessary to conclude that service was effected in accordance with reg 16.01(1)(c). There is no written or oral evidence that the envelope left for the appellant, with the bankruptcy notice inside, was marked with his name as required. I therefore find myself unable to agree with the primary judge that service by this method was proved.”
This is distinguishable from the current circumstances, in at least one important respect. That is, in De Robillard a final hearing had occurred before the primary Judge. That is, the evidence had been tested. What I respectfully understand the Court on appeal to have found, is that the evidence in that case did not “prove” service. That is, there was no evidence, oral or written, of an envelope marked with the relevant name.
Mr Ward also submits that the bankruptcy notice was not sent, delivered, or left at his last known address for service. He relies on a number of authorities in relation to the matter of “last known address”. Again, the authorities on which Mr Ward relies are cases where a final hearing of the evidence had occurred (see [21] – [30] of Mr Ward’s first written submissions).
However, here again Mr Ward’s argument, and the “debate” between the parties as to whether the bankruptcy notice was directed to the last known address, misses the key and central element in Mr Xiang’s application for costs (see below). This element also provides an answer to Mr Ward’s own application for costs.
In the current case, Mr Ward’s submissions appear to overlook the context for Mr Xiang’s application for costs.
Mr Xiang does not seek costs because he was successful in obtaining a sequestration order, following a successful response to Mr Ward’s objections to the creditor’s petition.
Rather, he seeks costs in circumstances where he issued a bankruptcy notice, then made a creditor’s petition seeking a sequestration order, but in spite of initial and changing objections to the creditor’s petition nonetheless, Mr Ward petitioned for his own bankruptcy.
Mr Xiang incurred his costs because Mr Ward initially pursued an alternative course with some iteration, only to ultimately petition for his own bankruptcy on the basis that he could not satisfy his debts. There is nothing in the material before the Court to indicate that this state of affairs (that he could not satisfy his debt), was not known to Mr Ward at the time of the issuing of the bankruptcy notice or the filing of the creditor’s petition.
It is on that sequence of events that Mr Xiang now relies for the making of a costs order in his favour. Mr Xiang does not rely on the successful making of a sequestration order arising from his creditor’s petition following the issuing of the bankruptcy notice.
In this light, disputes between the parties as to whether the requirements of reg.16.01 of the Bankruptcy Regulations were complied with or not, are not relevant.
Mr Xiang should get his costs because of Mr Ward’s conduct as outlined above. There is nothing in Mr Ward’s submissions now, or the material before the Court, to explain any relevant change in circumstances between the issuing of the bankruptcy notice, and filing of the creditor’s petition, and Mr Ward’s own petition for bankruptcy.
That is, there is nothing specifically to explain why Mr Ward pursued a course contrary to, and inimical to, ultimately, his own debtor’s petition. A course which resulted in costs for Mr Xiang which could have been avoided. Mr Xiang should therefore obtain a costs order in his favour.
The issue now is the form of that costs order. Mr Ward has provided an “opinion” from his trustee in bankruptcy (see the affidavit of Mr Merewether made on 19 July 2017 at annexure “A”):
“I confirm that it is my opinion that the [a]pplicant creditor should not be afforded priority for his costs in the filing of a creditor’s petition due to the ineffective service of the [b]ankruptcy [n]otice.”
Mr Ward’s submission (in his second written submissions), is that the “usual order” when a debtor’s petition is presented when a creditor’s petition is on foot, is that the costs of the applicant (creditor) be paid out of the estate of the respondent (debtor) in the same priority as if a sequestration order had been made by the Court. The submission is that an order that the debtor/respondent pay the creditor/applicant’s costs is an “unusual” order (see [1] of Mr Ward’s second written submissions).
This is in contrast with Mr Ward’s earlier submission (in his first written submissions), that the costs of the respondent should be paid by the applicant or his solicitor.
Two things may immediately be noted. One, it is not clear on the submissions why the costs should be paid by Mr Xiang’s solicitor. There is no express assertion, or further submission to explain this. In any event, before the Court on 12 July 2017, Mr Ward’s solicitor confirmed that he was not pursuing this issue.
Two, at best the basis (in the submissions) for the proposition that Mr Xiang should pay his costs is because of the ineffective service of the bankruptcy notice. That is addressed above.
Therefore, what is left is that the dispute between the parties as it arises from Mr Ward’s second written submissions (see [60] above) and Mr Xiang’s submissions, is whether the costs order in favour of Mr Xiang, be made against Mr Ward, or against his estate.
It is to be remembered that the making of a costs order, and the form it should take, is a matter for the exercise of the Court’s discretion.
In one sense, to speak of the “usual order” or an “unusual order” and to apply it as a given (as each party appears to assert), is to detract from the proper exercise of the Court’s discretion. That is, the exercise is in the context of the evidence, or in this case, the material before the Court.
What “usually” may be done, or what has been done in other cases, may assist in informing the proper exercise of this discretion. However, and ultimately, it is to the particular circumstances presented, and the respective conduct of the parties, to which the focus must be directed.
In the current case there is a District Court judgment against Mr Ward in favour of Mr Xiang. The amount of that debt is clear. Mr Ward did not pay that debt. In the circumstances, there is nothing to say it was unreasonable of Mr Xiang to have issued the bankruptcy notice, and to make the subsequent creditor’s petition to the Court.
Mr Xiang incurred costs during the time Mr Ward’s objections to the bankruptcy notice were before the Court. Mr Ward raised a number of matters that required consideration by a Registrar of the Court, and a Judge of the Court.
Mr Ward ultimately petitioned that the affairs of his estate be put in the hands of a trustee in bankruptcy. There is nothing in the material before the Court to indicate that the judgment debt is not a matter that the trustee of Mr Ward’s estate will have to address.
In fact, the indication from Mr Ward, given the abandonment of one of his objections to the bankruptcy notice (that is, the Notice of Appeal of the District Court judgment), is that the judgment debt stands.
Mr Xiang, as set out above, was successful in these proceedings in achieving the outcome he sought with his creditor’s petition. That is, that the affairs of Mr Ward be put in the hands of a trustee in bankruptcy.
The only reason that Mr Ward says that Mr Xiang should not have priority is, consistent with the “opinion” of the trustee, the asserted defect in the bankruptcy notice. That is dealt with above.
I note further and in any event, this submission is contradicted by Mr Ward’s second written submissions (at [1]) where he asserts that the “usual order” is such that “the costs of the [a]pplicant be paid out of the estate of the [r]espondent in the same priority as if a sequestration [order] had been made by the Court”.
This Court has the power pursuant to s.32 of the Bankruptcy Act to make an appropriate order for costs, in favour of Mr Xiang, notwithstanding a presentation by Mr Ward of a debtor’s petition during the currency of Mr Xiang’s creditor’s petition (see Re Donald Ian Hankey Ex parte: Noel Austin Kratzmann [1986] FCA 280; (1986) 66 ALR 702).
It is also appropriate in the circumstances that the costs to be paid by Mr Ward, to Mr Xiang, be given priority as set out by s.109 of the Bankruptcy Act. Mr Ward’s second written submissions appear to agree with this, in the event that a costs order is made in favour of Mr Xiang.
Conclusion
I will make the order sought by Mr Xiang. Mr Ward’s application for costs is refused.
I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of Judge Nicholls
Associate:
Date: 16 April 2018
0
6
6