Zohar v Hicks (No.2)
[2004] FMCA 109
•28 July 2004 by McInnis FM
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ZOHAR & ORS v HICKS (No.2) | [2004] FMCA 109 |
| PRACTICE & PROCEDURE – BANKRUPTCY – COSTS – Where the applicants were successful on their claim for a declaration that certain mortgages were void pursuant to section 120 of the Bankruptcy Act – offers of compromise – Order 23 of the Federal Court Rules 1976 – costs awarded to the applicant on a party/party basis. |
Bankruptcy Act 1966 (Cth), ss.120, 120(4), 122
Supreme Court Act 1935 (WA)
District Court of Western Australia Act 1969 (WA)
Federal Court Rules 1976, Order 23
Zohar & Ors v Hicks [2002] FMCA 308
Brady v Official Trustee (No 2) [2001] FMCA 87
Bartrop v Nilant & Anor [2003] FMCA 23
| Applicant: | OREN ZOHAR AND CHARLES PHILIPPE LOUIS NILANT as Trustees of the property of Connor Joseph McGrath & Martina Elizabeth McGrath |
| Respondent: | DAVID FREDERICK HICKS |
| File No: | WZ79 of 2001 |
| Completed on: | 2 July 2004 by Bryant CFM |
| Delivered on: | 28 July 2004 by McInnis FM |
| Delivered at: | Perth |
| Hearing date: | 27 May 2003 (via telephone) |
| Judgment of: | Bryant CFM |
REPRESENTATION
| Counsel for the Applicant: | Mr Aristei |
| Solicitors for the Applicant: | Carles Solicitors |
| Counsel for the Respondent: | Mr Ashdown |
| Solicitors for the Respondent: | BJW Ashdown |
ORDERS
It is declared that pursuant to s.120 of the Bankruptcy Act 1966 (Cth) mortgages H459648 secured over the property at 239 Scarborough Beach Road, Doubleview and H459649 secured over 241B Scarborough Beach Road, Doubleview are void as against the applicants.
Pursuant to s.120(4) of the Bankruptcy Act the consideration to be paid to the respondent is $21,385.22 plus costs ordered in the District Court of Western Australia in action number 2374 of 1999 (the District Court costs ) up to and including the 15 February 2001, and interest on the sum of $21,385.22 from 18 June 1999 to 15 February 2001 calculated at 12.25 per cent (the interest).
The District Court costs up to and including 15 January 2001 be taxed or agreed, and paid to the respondent, or be set off against any cost order in favor of the applicants made pursuant to these orders.
The interest be paid to the respondent or be set off against any cost order in favour of the applicants made pursuant to these orders.
The respondent be entitled to retain the sum of $22,745 which sum is to be set off against the sums owing to him pursuant to Order (2) hereof.
That the respondent pay the applicants' costs in relation to these proceedings on a party/party basis and in default of agreement to be taxed pursuant to the Federal Court scale.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
WZ79 of 2001
| OREN ZOHAR AND CHARLES PHILLIPE LOUIS NILANT As Trustees of the property of Conor Joseph McGrath and Martina Elizabeth McGrath |
Applicants
And
| DAVID FREDERICK HICKS |
Respondent
REASONS FOR JUDGMENT
Introduction
The application for determination is an application for costs sought by the applicants against the respondent following orders made on
24 December 2002 in Zohar & Ors v Hicks [2002] FMCA 308.
The applicants (the Trustees) sought to set aside two mortgages over two properties, given by the bankrupts to the respondent as being void against the Trustees pursuant to s.120 of the Bankruptcy Act 1966 (Cth) ("the Act").
There were three arguments put by the applicants as a basis for setting aside the mortgages. The first was a matter of construction in which it was argued that the mortgages were limited to securing the sum of $21,385. The applicant was not successful on that argument (see paragraphs 24 to 27 of my Reasons for Judgement handed down
24 December 2002).
Alternatively, the mortgages were void pursuant to s.120 of the Act to the extent to which they purported to secure more than $22,745. The applicant was successful on that claim which was the main claim.
Thirdly if the mortgages were not void pursuant to s.120 then the applicants were entitled to a charge. It was unnecessary to consider this claim in view of the finding that the mortgages were void pursuant to s.120 of the Act.
At the conclusion of the Reasons for Judgment I indicated that it was appropriate to regard the sum already received by the respondent (being $21,385 plus some interest) as the consideration under s.120(4) of the Act, together with the costs which remained to be taxed.
At paragraph 60 of my Reasons I said:
In the circumstances I am of the view that it is appropriate to regard the sum received by the respondent as the consideration under subsection (4) together with the costs which remain to be taxed and the Trustee will be required to pay to the respondent the sum so ordered. It follows from the foregoing that:
the application of the applicant will succeed;
the Trustee is entitled to a declaration that the transfer of property under the mortgage is void against the Trustee;
the respondent is not obliged to repay to the Trustee the proceeds received as a result of the sale of the secured property; and
the Trustee must pay to the respondent the sum of its taxed costs.
Following the handing down of my decision, the parties were given an opportunity to consider the form of the order that should be made and make submissions on the question of costs. Most of the matters in issue were resolved but the parties could not agree on the question of costs which now requires determination.
The applicants’ submissions
The primary submission of the applicants was that the main part of the applicants' case was successful; namely that the Court found unequivocally that the s.120 application was successful and the mortgages were set aside.
Secondly, the applicants submit that at paragraph 59 of the judgment the Court said:
consideration is a sum of $21,385 together with interest on that sum, and the costs on a party/party basis up to 15 February.
The costs have not yet been taxed.
The applicants contended that the costs could not be a substantial amount in all the circumstances and therefore the consideration was almost entirely made up of $22,745 which was in fact paid by the Trustee on 9 July 2001. Thus the applicants contend the Court is looking at a small as to costs described by the applicant as simply a "mopping up exercise" under subsection 120(4) and nothing that would take the matter away from the usual order that the costs should be clearly be made in favour of a successful applicant.
The applicants contend that although the Reasons for Judgment provided that the Trustee was to pay to the respondent the sum of his taxed costs, the amount has not yet been agreed or taxed. Further, the applicant contended that an offer of compromise had been made which can now be disclosed to the Court.
On 6 September 2001 the applicant made an offer of compromise pursuant to Order 23 of the Federal Court Rules 1976 (“the Rules”). On a without prejudice basis the applicant offered to settle all matters between the parties as follows:
a)The sum of $22,745 received by the respondent from sale of 241B Scarborough Beach Road , Doubleview, be retained by the respondent; and
b)The balance of the moneys received from the sale of 241 Scarborough Beach Road, Doubleview, currently held in the trust account of Ilbery’s, Lawyers, be paid as follows:
i)To the applicant such sum as is required to meet his costs, expenses and disbursements including legal fees in protecting proceeding and realising the said property; and
ii)As to the balance, 90 per cent to the applicant and 10 per cent to the respondent.
c)The remaining property at 239 Scarborough Beach Road, Doubleview be sold by the applicant with the proceeds of sale to be applied in payment of:
i)Such sum as is required to discharge the first mortgage;
ii)Any necessary and reasonable selling costs, including real estate agent commission, settlement fees and the vendor's portion of any rates, taxes and outgoings relating to the property;
iii)Such sum as is required to meet the applicant's costs, expenses and disbursements, including legal fees of protecting, preserving and realising any said property;
iv)As to the balance, 90 per cent to the applicant and 10 per cent to the respondent.
d)This application be dismissed with no order as to cost.
e)This offer is inclusive of all claims in interest and is made pursuant to Order 23 of the Federal Court Rules.
f)This offer remains open and capable of acceptance until 5 pm on 24 September 2001, after which time it will lapse automatically.
The applicants contended that they were successful in that the sum of $22,745 was to be retained by the respondent, but that rather than receiving 10 per cent of the balance of the proceeds of sale of the two properties, together with the sum required to meet the applicant's costs, expenses and disbursements, the orders in fact provided that with the discharges of the mortgages the applicants will receive 100 per cent of what remained. The applicants contended that in those circumstances, following the decision of McInnis FM in Brady v Official Trustee (No 2) [2001] FMCA 87 an order for indemnity costs should be made effectively to the period from when the notice of compromise could or should have been accepted.
Thus the applicants submitted that indemnity costs should follow the event and should be paid in favour of the applicant. It was further submitted that the scale should not be the Federal Magistrates Court scale but the Federal Court scale relied upon by McInnis FM in Brady's case and in Bartrop v Nilant & Anor [2003] FMCA 23.
The respondent’s submissions
The respondent's contention is that the Reasons for Judgment leave open the question of the date upon which the costs in the District Court should be calculated. In particular, the respondent contended:
What was incurred post that judgment by way of the fact of the setting aside of the judgment on the conditional leave to defend, which was incurred (if you like) by virtue of agreeing to the order being set aside, whereas - and the date of 15 February is the date that was taken out of the ultimate order for costs made in the District Court.
So the respondent contended that perhaps what was intended by paragraph 60 of the Reasons for Judgment, was that it was costs awarded on a party/party basis up to 15 February in the District Court and indemnity costs thereafter. In other words, the submission of the respondent was that in assessing the consideration under s.120 (4) the consideration was the whole cost to the respondent of agreeing to have that judgment set aside which is what it took the mortgage in lieu of.
I do not agree with the respondent's contentions on this point. Paragraph 11 of the Reasons for Judgment says:
The bankrupts failed to comply with the order as to the condition on which leave was granted and on 19 January 2000 judgment for part of the District Court action, based upon the failure of the bankrupts to comply with their condition for security was entered. (The first judgment). The judgment was for $21,385.22 plus costs to be taxed. Interest began to run.
What thereafter occurred is described in paragraphs 12 to 15 inclusive.
In paragraph 16 of the Reasons for Judgment the conclusion of the District Court proceedings is described thus:
As a result of the bankrupts failing to comply with a springing order made on 29 June 2001, the District Court granted judgment in favour of the respondent on 24 July 2001 for $82,783.99 (The final judgment). On 9 August 2001, the District Court of Western Australia ordered that the bankrupts pay the respondents costs on a party/party basis up to and including 15 February 2001 and thereafter on an indemnity basis.
Although the respondents argued, as part of their case, that the mortgages covered the first judgment debt of $21,385.22 plus interest accruing on the final judgment debt, and legal costs associated with the registration, administration, enforcement, preservation, maintenance and discharge of the mortgage, that argument was not accepted. In considering the value of the consideration, I have found, in paragraph 42, that the first judgment obtained on 16 December 1999, which was entered:
Pursuant to the order of the Deputy Registrar dated 9 November 1999 whereby it was ordered that the defendant's defence as the plaintiff's claim for the sum of $21,385.22 be struck out and judgment be entered for the plaintiff against the defendants with costs unless within 30 days the defendants do provide security for the sum of $21,385.22 to the satisfaction of the plaintiff.
In paragraph 43 I found that far from there being forbearance to sue for any further sum, it was clear that the basis upon which the security was to be provided was the judgment already entered. The security given was commensurate with the amount of the judgment then obtained.
Thus, I do not accept the respondent's contention that costs beyond the 15 February were part of the consideration pursuant to s.120 (4) of the Act.
The determination of that issue has consequences in relation to the offer made by the applicants on 6 September 2001. The respondent's contention was that, relying on the argument that the costs in the District Court were substantially higher, (on the basis that indemnity costs were payable after 15 February), the offer made was substantially less than the respondent expected to receive, or put another way, in order to rely on the order 23 offer, what the applicant needs to establish is that the respondent will recover, in fact, less than $6000 by way of its costs in the District Court.
Order 23 of the Federal Court Rules says as follows:
3 (1) An offer of compromise is made to a party by serving a notice of the offer on the party.
(2) A notice of offer must:
(a) be prepared in accordance with Order 41; and
(b) bear a statement to the effect that the offer is made under this Order; and
be signed by the party making the offer or by the solicitor appearing for that party.
Until an offer has been accepted, notice of the offer must not be filed.
The question of costs and the question of indemnity costs is a matter for the discretion of the Court. In my view, the facts in this case are not on all fours with those in Brady v Official Trustee in Bankruptcy (No 2). In Brady's case McInnis FM was satisfied that the offer made it clear that it was inclusive of costs and interest and provided a basis upon which the recipient to the offer of compromise could calculate the amount of interest allowed for in that notice. He also found that there was a significant disparity between the total amount of the offer of compromise in the judgment, allowing for interest to the date of offer and that the offer represented a reasonable and serious endeavour to resolve the application which had the potential to increase costs significantly. He found that the offer was reasonable and it was imprudent of the applicant to reject that offer. He formed the view that circumstances of the case demonstrated that the applicant had taken the view he would succeed in obtaining a significant award of damages including exemplary damages. McInnis FM found that the applicant had adopted a:
Quite somewhat aggressive approach
and that even in his submissions to the Court, maintained a position of fraudulent conduct. Those facts are quite different from those in the present case.
There are two further matters which, in my view, mitigate against an order for indemnity costs. The first is that the offer does not include the District Court costs. I accept the contention of the respondent that given the ultimate value of the property, the costs would need to be less than $6000 in order to rely on the Order 23 offer. The problem is that the costs have not been taxed and therefore I do not know whether the costs will exceed $6000 or not and thus the offer is, to that extent, uncertain.
Secondly, the applicants relied upon three arguments; two of which were ultimately unsuccessful. True it is that the applicant succeeded on the third argument and therefore, in my view, should be entitled to costs, but given that two of the arguments did not succeed and the argument pursuant to s.122 of the Act was withdraw shortly before the hearing, this is not a case, in my view, which would entitle the applicant to indemnity costs.
Other matters for determination
There was a further dispute between the parties about the calculation of interest in relation to the District Court judgment. The respondent's at page 177 of the respondent's affidavit, had calculated the interest at $5454.69 but that calculation was from 18 June 1999 to 16 July 2001 and not to the earlier date of judgment. The applicant concedes that this is a matter for the Court to determine and the Court is at liberty to make a finding as to what is a fair consideration.
Consistently with the consideration I have found, it is my view that the interest on $21,385.22 should be paid from 18 June 1999 to the 15 February 2001.
The other matter was the question of what interest rate should be applied. The applicants were prepared to concede interest at the standard rate allowed under the Supreme Court Act of 6 per cent whereas the respondent sought interest at 12.25 per cent as part of the claim being the award under the District Court of Western Australia Act.
In my view, in this case, the interest should be awarded under the District Court scale at 12.25 per cent.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Bryant CFM
Associate:
Date: 28 July 2004
3
0