FEDERAL COURT OF AUSTRALIA

Fewin Pty Ltd v Burke (No 2) [2016] FCA 739

ORDERS

THE COURT ORDERS THAT:

1.    The applicants pay the Inspector-General in Bankruptcy’s costs of the interlocutory application filed on 29 January 2016 to set aside the subpoena to produce documents issued on 18 December 2015 at the request of the applicants on an indemnity basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 12 May 2016 I made orders and gave judgment in three interlocutory applications which have been filed in these proceedings: see Fewin Pty Ltd v Burke [2016] FCA 503 (Fewin v Burke). Two of those interlocutory applications concerned the Inspector-General in Bankruptcy (the Inspector-General). In relation to those interlocutory applications I made the following orders:

(1)    I dismissed the applicants’ application for joinder of the Inspector-General to the proceedings and ordered the applicants to pay the Inspector-General’s costs of that application; and

(2)    I set aside a subpoena to produce documents issued on 18 December 2015 at the request of the applicants to the Inspector-General and ordered the applicants to pay the Inspector-General’s costs of the interlocutory application to set aside the subpoena.

2    At the time of handing down of the judgment, the Inspector-General made an application that her costs of the applicants’ interlocutory application to join her to the proceedings and her interlocutory application to set aside the subpoena be paid on an indemnity basis. The applications were made after pronouncement of orders but prior to their entry. Pursuant to r 39.04 of the Federal Court Rules 2011 the Court is able to vary the costs orders already made: see Yevad Products Pty Ltd v Brookfield [2005] 147 FCR 282 at [25]-[32].

legal principles

3    The Court’s power to award costs is found in s 43 of the Federal Court of Australia Act 1976 (Cth). Section 43(2) gives a broad discretionary power to the Court to award costs and s 43(3) provides that, without limiting the discretion of the Court or a judge in relation to costs, the Court or Judge may, among other things, order that the costs awarded against a party be assessed on an indemnity basis or otherwise.

4    The usual rule is that an order for costs is made on a party and party basis. However, the Court has recognised that an order for indemnity costs can be made in an appropriate case. That is where it can be shown that there is a reason to depart from the ordinary rule: see Colgate Palmolive Co v Cussens Pty Ltd (1993) 46 FCR 225 at 233 (Colgate Palmolive) (Shepherd J); Silverfox Co Pty Ltd v Lenard’s Pty Ltd (No 3) (2004) 214 ALR 621 at [26] (Mansfield J).

5    In Colgate Palmolive Shepherd J observed at 234 that in determining whether to make an award of costs on an indemnity basis “[t]he question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis”. At 233, after observing that the categories of cases in which the discretion to award indemnity costs are not closed, his Honour set out some of the circumstances where an exercise of the discretion had been warranted including where allegations of fraud had been made, knowing them to be false or irrelevant; where there was evidence of particular conduct which caused loss of time to the court or the parties; where proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law; where allegations that ought not to have been made are made or proceedings are unduly prolonged by groundless contentions or where there is an imprudent refusal of an offer of compromise.

6    In Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 11) [2009] FCA 590 Collier J observed the following at [7] to [8] in relation to an award of indemnity costs:

7.    In Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 8) [2008] FCA 1556 I discussed in some detail principles relevant to the award of indemnity costs by the Court in appropriate circumstances. A number of those key principles are:

•    the purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made;

•    the usual rule is that costs should be on a party-party basis, but that the Court has a wide and unfettered discretion to award costs on an indemnity basis in appropriate cases in particular circumstances;

•    each case depends upon its own particular facts;

•    indemnity costs can be awarded where it appears that a proceeding is commenced or continued in circumstances where the applicant properly advised should have known there was no chance of success.

8.    As I also observed in Citrus (No 8) [2008] FCA 1556, a long – and non-exhaustive – list of relevant issues for the Court in considering whether to award indemnity costs can be found in such cases as Colgate-Palmolive v Cussons (1993) 46 FCR 225 and InterTAN Inc v DSE (Holdings) Pty Ltd [2005] FCAFC 54.

evidence relied on by the insepctor general

7    The Inspector-General relied on a letter dated 15 January 2016 from her solicitors, the Australian Government Solicitor, to Martin Place Lawyers, the solicitors for the applicants. That letter, which was marked “without prejudice save as to costs”:

(1)    in relation to the application to join the Inspector General:

(a)    set out the Inspector-General’s view of the application to join her and why, in her view, the application was doomed to fail including that:

(i)    the draft pleading did not comply with the Federal Court Rules 2011;

(ii)    there was no plea of breach of duty;

(iii)    even if the applicants were to remedy the deficiencies in the pleading the duties that were alleged to be owed by the Inspector-General under the Bankruptcy Act 1966 (Cth) were misconceived; and

(iv)    the immunity provided to regulators by s 44 of the Civil Liability Act 2002 (NSW) would apply in respect of the alleged failure on the part of the Inspector-General;

(b)    invited the applicants to withdraw the interlocutory application on the basis that the Inspector-General would not seek any order for costs thrown away by reasons of the application;

(c)    put the applicants on notice that if their application was not withdrawn they should expect the letter to be used to support an application for an order for payment of the Inspector-General’s costs incurred in connection with the application on an indemnity basis. The letter also notified the applicants that the offer in it was made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333;

(2)    in relation to the subpoena which had been issued to the Inspector-General at the request of the applicants:

(a)    pointed out that the documents sought by the subpoena remained in the custody of the Supreme Court of New South Wales and had not yet been returned to the Inspector-General;

(b)    invited the applicants to withdraw the subpoena;

(c)    put the applicants on notice that if the subpoena was not withdrawn the Inspector-General would apply to have it set aside, would seek an order for payment of her costs in connection with the subpoena and the application to set it aside on an indemnity basis and would produce a copy of the letter in support of the latter application.

8    Subsequent to the hearing of the application to set aside the subpoena and prior to the handing down of judgment there was further correspondence between the solicitors for the Inspector-General and the solicitors for the applicants the effect of which was that:

(1)    following discussions between the parties’ counsel after the hearing of the application to set aside the subpoena, the applicants made an offer to resolve the dispute;

(2)    correspondence was exchanged in relation to the terms of that offer but ultimately there was no resolution. The issues that arose concerned the practical matter of the way in which the documents that had been produced to the Supreme Court could be transferred from that Court to the Federal Court, the release of the applicants from their implied undertaking given to the New South Wales Supreme Court and the payment of the Inspector-General’s costs of her production of documents to the New South Wales Supreme Court, which had been previously agreed, and the costs of the application to set aside the subpoena in this Court.

9    In the absence of a resolution of the matter between the parties the matter proceeded to judgment and the subpoena issued by the applicants to the Inspector-General was set aside.

consideration

Application for indemnity costs in relation to the application to join the Inspector-General

10    The applicants submit that their counsel was not favoured with copies of the correspondence upon which the Inspector-General now relies, they understood that there was no Calderbank offer and that the Inspector-General’s application is based on the general law. They also submit that, given the finding at [66] of the judgment in Fewin v Burke in relation to the costs of the joinder application, the Inspector-General should not be permitted to re-agitate her claim for costs on an indemnity basis and that, in any event, there has already been a finding that there is no special reason or unusual feature that would cause the Court to depart from the usual practice of awarding costs.

11    It is not the case that the applicants’ counsel was not favoured with a copy of the correspondence on which the Inspector-General relies in support of her application for indemnity costs. That correspondence was provided to counsel for the applicants appearing before me on 19 May 2016 when the Inspector-General’s applications for indemnity costs were to be heard. In any event, the correspondence is between the parties’ solicitors and must have been received by the applicants’ solicitors. There can be no issue that the applicants were not aware of the correspondence. Further, counsel who appeared for the applicants did not oppose its tender.

12    In Fewin v Burke at [66] in considering the submission in the Inspector-General’s written submissions that, if the application to join her was refused, she should be awarded costs on an indemnity basis I said:

In her written submissions the Inspector-General submits that if the application to join her is refused, an order should be made that the applicant should pay her costs on an indemnity basis. No further submissions were made as to why that should be so. While the application has not succeeded, there is no special reason or unusual feature that would cause the Court to depart from the usual practice in awarding costs. The Inspector-General is entitled to her costs of the application but that order will be made on the usual party and party basis.

13    At that time, quite properly, the letter dated 15 January 2016 from the Inspector-General’s solicitors to the applicants’ solicitors by which they invited the applicants to withdraw their application, set out their reasons why they should do so and put them on notice that if they did not withdraw the application they would rely on the letter to seek costs on an indemnity basis was not before the Court. The Inspector-General seeks to vary that order on the basis of the evidence now before the Court.

14    I have considered the letter from the Inspector-General’s solicitor. Having done so I do not think that the rejection of the Inspector-General’s offer contained in the letter dated 15 January 2016 was unreasonable. The joinder application failed but not only for the reasons raised by the Inspector-General in the letter. I do not think the applicants’ pursuit of the joinder application was so unreasonable or that it could be said there was no chance of its success. It remains the case that there is no special reason or unusual feature that would cause the Court to depart from the usual practice in awarding costs. The costs order made by me on 19 May 2016 that the applicants pay the Inspector-General’s costs of the application to join her should not be disturbed and those costs should be paid on the usual basis.

The application to set aside the subpoena

15    I do not come to the same conclusion in relation to the Inspector-General’s application to set aside the subpoena.

16    The applicants submit that there is no special reason or unusual feature that would warrant an award of costs on an indemnity basis in relation to this application. However, prior to filing her application the Inspector-General pointed out the issues which, in her view, arose in relation to the subpoena. The subpoena was not withdrawn and the steps that the Inspector-General suggested ought be taken to bring the documents before this Court were not taken. The Inspector-General then, as foreshadowed, filed her application to set aside the subpoena. After the hearing of that application there was an attempt to settle the matter.

17    The issues that arose in relation to the subpoena could have been resolved by the applicants taking the steps that were urged upon them by the Inspector-General. Ultimately the subpoena was set aside because of the very issues that the Inspector-General had raised. The applicants chose not to withdraw the subpoena and to defend the application. Their conduct caused loss of time to the parties and the Court in relation to a matter that could have been resolved by taking some practical steps. The applicants took no steps until late in the process to attempt to address the issues that clearly arose and that had been raised by the Inspector-General.

18    In the circumstances, in my opinion, there are special reasons why the Court would depart from the usual practice in awarding costs in relation to this application. There was a level of imprudence or unreasonableness in the conduct of the applicants in not accepting the issues raised by the Inspector-General and the offer put initially to resolve this aspect of the matter. The later attempt to resolve the matter never came to fruition. The reasons for that appear not only to relate to what I will call the mechanics of dealing with the relevant documents but costs issues.

19    I will vary the orders I made on 12 May 2016 in relation to payment of the Inspector-General’s costs of her application to set aside the subpoena to reflect my decision that those costs should be paid on an indemnity basis.

Associate:

Dated:    23 June 2016

SCHEDULE OF PARTIES