Yeo & Rambaldi (as trustees of the bankrupt estate of Arifovic) v Arifovic & Anor (No.2)
[2017] FCCA 1189
•6 June 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| YEO & RAMBALDI (AS TRUSTEES OF THE BANKRUPT ESTATE OF ARIFOVIC) v ARIFOVIC & ANOR (No.2) | [2017] FCCA 1189 |
| Catchwords: BANKRUPTCY – Application for costs by successful trustees after a four-day trial – lump sum costs ordered – power to so order – whether party/party costs or indemnity costs should be ordered – trial prolonged by questioning of trustee by second respondent, a litigant in person – no basis for an indemnity costs order. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.32, 77C Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), r.13.01 |
| Cases cited: Black & Decker Inc v GMCA Pty Ltd (No.4) [2008] FCA 1737 |
| Applicants: | ANDREW REGINALD YEO & GESS MICHAEL RAMBALDI (AS TRUSTEES OF THE BANKRUPT ESTATE OF BROCK SIMON ARIFOVIC) |
| First Respondent: | BROCK SIMON ARIFOVIC |
| Second Respondent: | TARA SUZANNE HOCKING |
| File Number: | MLG 1141 of 2016 |
| Judgment of: | Judge Wilson |
| Hearing date: | On the papers |
| Date of Last Submission: | 17 May 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 6 June 2017 |
REPRESENTATION
| Counsel for the Applicants: | Mr C Moller |
| Solicitors for the Applicants: | Macpherson + Kelley |
| First and Second Respondents in person |
THE COURT ORDERS THAT the respondents pay the applicants’ costs in the sum of $83,837.42, payment of such sum stayed for 30 days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1141 of 2016
| ANDREW REGINALD YEO & GESS MICHAEL RAMBALDI (AS TRUSTEES OF THE BANKRUPT ESTATE OF BROCK SIMON ARIFOVIC) |
Applicants
And
| BROCK SIMON ARIFOVIC |
First Respondent
| TARA SUZANNE HOCKING |
Second Respondent
REASONS FOR JUDGMENT
Introduction
On 29 March 2017 I handed down judgment in Yeo & Rambaldi
(as trustees of the bankrupt estate of Arifovic) v Arifovic & Anor[1](“the primary decision”). In the primary decision I indicated I would receive submissions from the parties on costs.
[1] [2017] FCCA 604.
On 17 May 2017 the applicants filed written submissions pursuant to which they calculated their costs and disbursements. The respondents did not file any documents in relation to costs.
In essence the applicants contended –
a)when calculated in accordance with Sch.3 of the Federal Court Rules 2011 (Cth) their costs were $56,231.00 and their disbursements were $42,401.26, a total of $98,632.26;
b)if assessed on a solicitor-client basis, the applicants’ costs were $70,511.00 plus GST to which the sum of $42,401.26 in disbursements was to be added, making in total $112,912.26; and
c)the applicants were willing to discount the total of that cost and disbursements by 15% thereby arriving at an amount of $83,837.42.
Whatever figure was selected, a crushing result will follow to the respondents. It will be recalled that in the primary decision I ordered that the property located at 32 Pimpala Avenue, Seaford (“the Seaford property”) was to be sold and once sold, the net proceeds were to be apportioned as to 32.52% to the respondents and the balance to the applicants. It will also be recalled that in December 2013 the
first respondent Brock Simon Arifovic purchased the Seaford property and borrowed almost $340,000.00 to do so. No valuation evidence was adduced in this case. However, using very crude arithmetic, assuming the Seaford property sold for approximately $500,000.00, the sum due to the mortgagee was greater than $340,000.00. That left the respondents’ equity at possibly $150,000.00 and of that sum, 32.52% was to be distributed to the second respondent Tara Suzanne Hocking. Applying the arithmetic, Ms Hocking may have anticipated receiving 32.52% of $150,000.00 being an amount less than $48,000.00.
The applicants’ costs and disbursements, even at the discounted rate, is nearly double that sum. Self-evidently, Ms Hocking will receive nothing from this litigation and there will be a shortfall in the applicants’ recovery of costs and disbursements.
It is readily apparent that this litigation has been disastrous for the respondents. Whether the litigation could have been avoided had the respondents been less aggressive and defiant in their dealings with the applicants is another matter. I am required to apply the law to the facts of this case as I have found them.
Synopsis
For the reasons that follow I order the respondents to pay the applicants’ reduced costs and disbursements of $83,837.42.
Consideration
In the bankruptcy jurisdiction an award of costs in the proceeding is at large, the proposition being enshrined in s.32 of the Bankruptcy Act 1966 (Cth) (“the Act”) that empowers the court, in any proceeding before it, to make such order as to costs it thinks fit.
The starting point is therefore, whether a costs order should be made at all.
In my judgment a costs order should be made in this case.
This proceeding was necessitated by the respondents’ hostile and intransigent resistance to legitimate claims by Mr Arifovic’s trustees in bankruptcy, the applicants. As canvassed in the primary decision,
the respondents did not cooperate with the applicants in any shape or form and when they did engage with the applicants, Ms Hocking in particular was defiant, rude and hostile to the legitimate points the applicants were making. It seemed to me that the applicants had no choice but to commence this proceeding. In the end, the applicants were successful and Ms Hocking’s principal position of a 100% entitlement to a constructive trust failed.
Once it is acknowledged that the applicants had no choice but to commence this litigation, in which the respondents were unsuccessful, a very considerable body of authority has held that costs ordinarily follow the event. On that analysis, given that the applicants succeeded and the respondents failed, ordinarily the respondents would be ordered to pay the applicants’ party/party costs. For the moment I leave to one side principles of the law concerning the award of indemnity costs.
The next question became whether any valid grounds existed for my not applying the ordinary result of costs following the event.
By applying the ordinary result of costs following the event,
the respondents are ordered to pay the applicants’ costs. After all,
the weight of authority is almost overwhelming. Of course, s.32 of the Act confers upon the court the power to make “such order as to costs as it thinks fit”.
While possessing a discretion in relation to the award of costs,
that discretion is not one to be exercised arbitrarily as the discretion must be exercised judicially in accordance with established principles and in relation to the facts of the case. One scarcely needs authority for that proposition, but authority on point dates back to the last century in the decision of Buckley LJ in Scherer v Counting Instruments Ltd.[2] More recently the proposition was stated by the Full Court of the Federal Court of Australia in Cummings v Lewis & Ors,[3] by Toohey J in Hughes v Western Australian Cricket Association Inc,[4] by Cooper J in Brott v Grey,[5] by Branson J in Re Principal Strategic Options Pty Ltd; Coshott v Coshott[6] and by Tamberlin J in Nine Films and Television Pty Ltd v Ninox Television Ltd[7] (“Nine Films”).
[2] [1986] 1 WLR 615, 621.
[3] (1993) 41 FCR 559.
[4] (1986) ATPR 40-748.
[5] [2000] FCA 1836.
[6] [2001] FCA 664.
[7] [2006] FCA 1046.
In my view, no valid ground existed to departing from the ordinary rule that costs follow the event
A costs order does not serve to punish the party against whom the costs order is made. That much was held by the High Court in Latoudis v Casey[8] (“Latoudis”). There, McHugh J explained that the rationale for a costs order is that it is just and reasonable that the party who has caused the other to incur the costs of litigation should reimburse the successful party for the liability incurred.
[8] (1990) 170 CLR 534.
It seemed to me that the attitude exhibited by the respondents prior to the applicants commencing this litigation was uncooperative, to say the least. The respondents did not respond to proper approaches made by the applicants and their staff. Once the applicants’ investigations deepened, the respondents were difficult to the applicants’ staff.
When the trial of this proceeding commenced, Ms Hocking was openly insulting towards the applicants, a matter on which I had to intervene.
It struck me that throughout the period between the date of the applicants’ appointment and the conclusion of the trial of this proceeding, the respondents (Ms Hocking especially) adopted an attitude that she was entitled to an order that the applicants held 100% of her interest in the Seaford property on a constructive trust in her favour. She pressed that argument to the very end. Ms Hocking failed in her contentions. By reason of her immoveable and not negotiable approach in this case the respondents caused the applicants to incur the costs of this litigation. According to the observations of McHugh J in Latoudis, the unsuccessful respondents should reimburse the successful applicants for the costs liability the applicants incurred.
It must not be overlooked that the applicants were forced to serve documents pursuant to s.77C of the Act to verify Ms Hocking’s claim to an entitlement to an amount that she ought to have proved. There is force in the submission that the respondents bore the burden of proving the factual and legal entitlement to their contentions about a constructive trust. The applicants undertook the task of proving aspects of the case that assisted the respondents. In the process they incurred costs. They must be reimbursed for that effort.
It is also relevant to observe that Ms Hocking unduly prolonged this case. The questioning of one of the applicants was lengthy, purposeless and indulgent. I am satisfied that this case could have – and should have – been conducted more efficiently. To some extent, the duration of the respondents’ cross-examination may have been explained by the fact that Ms Hocking was a litigant in person, unskilled in the art of cross-examination. That said, on very many occasions I was forced to intervene so as to ensure that Ms Hocking’s questions were relevant and that they were not merely pejorative denigrations of the applicants and their role in this case.
A percentage discount?
For their own reasons, the applicants submitted that they were willing to discount the total of their costs and disbursements to the extent of 15%. The basis for that willingness or the percentage selected was not explained. Be that as it may, I am prepared to accept that position as the applicants’ position without further examination.
On what basis should costs be ordered?
In his written submissions,[9] Mr C Moller of counsel pointed out that it was open to me to award costs on an indemnity basis. The classic formulation of the circumstances in which an order for indemnity costs can be made was stated by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd.[10] No suggestion of fraud was alleged in this case nor was it suggested that an offer of compromise should have been accepted. In this case, the two categories of the classic formulation that were relevant related to undue prolongation of the case. As against that, I accept that Ms Hocking was a litigant in person. It would be unfair, unwise and wrong to visit upon her the full commercial impact of an indemnity costs order by reason of her want of skills as a
cross-examiner. I decline to do so. It is appropriate to order costs to be assessed on a party/party basis.
[9] Applicants’ submissions as to costs filed 17 May 2017.
[10] (1993) 46 FCR 225.
Assessing costs as a lump sum amount
Mr Moller submitted that having regard to the expense, delay and inconvenience associated with the taxation of costs, I should make an order for costs of a lump sum that the respondents should pay.
The power to make such an order lays in three sources – the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (“the bankruptcy rules”), the Federal Court Rules and in the decided cases.
Under r.13.01 of the bankruptcy rules, a person entitled to costs in a proceeding to which the Act applies is entitled to costs in accordance with Part 40 of the rules and in making such a costs order, the court (me, in this case) may fix the amount of those costs.
Fixed amount costs orders have been made in a litany of decisions of the Federal Court of Australia. Among them are Ualesi t/as Australian Empire Imports v Expediters International Pty Ltd,[11] Dunstan v Human Rights and Equal Opportunity Commission (No.3),[12] Nine Films, Black & Decker Inc v GMCA Pty Ltd (No.4),[13] Byrnes v Brisconnections Management Co Ltd (No.2),[14] Playcorp Group of Companies Pty Ltd v Bodum A/S (No.2)[15] and Fewin Pty Ltd v Prentice (No.2).[16]
[11] [2006] FCA 26.
[12] [2006] FCA 916.
[13] [2008] FCA 1737.
[14] [2009] FCA 1432.
[15] [2010] FCA 455.
[16] [2017] FCA 102.
The applicants suggested a lump sum figure on account of costs and disbursements, discounted by 15% in the sum of $83,837.42.
They supported that figure by a detailed itemised breakdown of costs. In that detailed itemised recitation, on a line-by-line basis the applicants attributed an activity to a date against a scale item number and arrived at a specific dollar amount. Very specific sums were recorded, including $25.60 on 14 June 2016 and telephone calls on
20 October 2016 totalling $157.50. The detail of that document was considerable. It reflected careful preparation. In no way did it reflect double charging or the duplication of activity nor did it claim unfairly for amounts properly due.
For chargeable time, the total of the amounts on that document came to $56,231.00. For a four-day trial in an intermediate Federal court, that amount was reasonable, in my view.
To that were added disbursements including filing fees, the process server’s fee, transcription fees and counsel’s fees aggregating $42,401.26. Again, none of those amounts were excessive. Naturally, the total of those amounts exceeded $98,000.00. The applicants applied a 15% reduction and thereby arrived at $83,837.42.
I am prepared to order a lump sum costs amount in that sum.
Orders
The respondents are to pay to the applicants on account of the applicants’ costs and disbursements the lump sum amount of $83,837.42.
I grant a stay of 30 days.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Judge Wilson
Associate:
Date: 6 June 2017
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