FEDERAL COURT OF AUSTRALIA

Fewin Pty Limited v Prentice [2016] FCA 1038

ORDERS

THE COURT ORDERS THAT:

1.    The application for leave to appeal be refused.

2.    The applicants pay the respondents’ costs of the application.

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

REASONS FOR JUDGMENT

GLEESON J:

1    This is an application for leave to appeal from an order made in proceeding NSD 708 of 2016 (“proceeding below”) granting the first respondent (“Mr Prentice”) an extension of time to file a bill of costs for services (“extension of time order”). The intended bill of costs relates to Mr Prentice’s remuneration for acting as trustee of the bankrupt estate of the third applicant (“Robert Coshott”) (“bankrupt estate”). The first applicant (“Fewin”) and the second applicant (“Ronald Coshott”) are creditors of the bankrupt estate. Ronald Coshott is the sole director of Fewin.

2    The applicants’ complaint, in essence, is that they were not given an opportunity to oppose the application to extend time because Mr Prentice did not name them as respondents to the proceeding below. Alternatively, because the extension of time order was made by consent in chambers, the applicants were denied an opportunity to seek to be heard in opposition to the application by the Court on the return date for the application.

3    If the applicants had been permitted to oppose the extension of time application, they would have argued that Mr Prentice had deliberately failed to comply with the relevant time limit with knowledge of the legislation and with the benefit of legal advice. In those circumstances, they say, the Court could not have been satisfied that the discretion to extend time should have been exercised in Mr Prentice’s favour.

4    In support of the application for leave to appeal, the applicants tendered a bundle of documents including, in particular, the affidavit of Mr Prentice sworn 13 May 2016 in support of the extension of time application and the following affidavits:

(1)    affidavit of Robert Coshott sworn 9 June 2016;

(2)    two affidavits of Robert Coshott each sworn 29 July 2016;

(3)    affidavit of Bruce Hocking, the applicants’ solicitor, sworn 28 June 2016.

Statutory framework

5    The parties agreed that the relevant provisions of the Bankruptcy Act 1966 (Cth) (“Act”) and the Bankruptcy Regulations 1996 (Cth) (“Regulations”) are those in force immediately before 1 December 2010, by reason of the date of Robert Coshott’s bankruptcy: Bankruptcy Legislation Amendment Act 2010 (Cth), Sch 1, item 17 and Bankruptcy Amendment Regulation 2010 (No. 2) (Cth), reg 4.

Court’s power to extend time to file a bill of costs for taxation

6    Section 33 of the Act provided:

(1)    The Court may:

(a)    upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally;

(b)    at any time allow the amendment of any written process, proceeding or notice under this Act; or

(c)    extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time.

7    In Abeyratne v Trkulja (1998) 90 FCR 253 at 260, North J said, in considering a trustee’s application to extend the time in which to elect to continue legal proceedings commenced by the former bankrupt:

…it would conduce to injustice if an abandonment which arose by mistake was treated in the same way as an abandonment which arose by deliberate act.

8    At 262, North J said:

The power to extend time is a broad discretionary power. It is unfettered and must be exercised with a view to doing justice between the parties.

9    In McKinnon v Pattison [2009] FCA 1421 (“McKinnon”) at [30], Marshall J said:

The power to extend time under s 33(1)(c) of the Act is a broad discretionary power. It is unfettered and must be exercised with a view to doing justice between the parties; see Abeyratne at 262 and see also Vince v Sellers [2004] FMCA 564 at [6]. In order to evaluate whether it is just to grant an extension of time it is necessary to consider all the factors which militate for and against an extension in the circumstances of the particular case. Examples of relevant factors which may need to be taken into account include: the reason why the applicant did not perform the required act within the statutory time limit, the prejudice to other parties of allowing an extension of time and the public policy interest in allowing or refusing an application to extend time.

10    In Hawkins v Kingsway Group Ltd [2009] FCA 1073, Stone J, considering the Court’s general power to extend time in Order 3 r 3 of the former Federal Court Rules, said:

[3]    … In Bishop v R (1982) 40 ALR 40 Deane J considered the principles to be applied in the exercise of the Court’s discretion. At 42, his Honour quoted with approval the following statement of Cullen CJ in Morres v Papuan Rubber & Trading Co Ltd (1914) 14 SR(NSW) 141 at 144:

… when a party, who has neglected to observe those requirements which the rules place him under for the protection of the other side, comes for the indulgence of the Court to ask that the proceedings shall continue notwithstanding that default, he has to satisfy the Court that justice requires that that default of his shall be overlooked, and he must satisfy the Court that there is some reasonable kind of explanation or excuse for his neglect of the rules.

[4]    As Deane J observed, the explanation required will depend on the circumstances of the case. In addition to the explanation for the delay, however, it has generally been accepted, in relation to a wide range of applications, that it is also necessary to consider the likelihood of prejudice to the respondent and whether the applicant for an extension of time has an arguable case: Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-349 per Wilcox J; Bahonko v Royal Melbourne Institute of Technology [2006] FCA 1325 at [21] to [24] per Weinberg J; Bahonko v Nurses Board of Victoria (No 4) (2007) 97 ALD 721 at [48] per Middleton J.

[5]    It is for the Court to weigh up all three factors and exercise its discretion accordingly. In particular circumstances one factor may outweigh the others. For example, an extension of time may be granted where the applicant has a strongly arguable case, even in the case of long delay for which the explanation is not strong. Similarly the prejudice to a respondent who, the prescribed time for appeal having expired, has exercised his or her rights under the decision from which an applicant now seeks to appeal, may be sufficient to justify the Court exercising its discretion to refuse an extension of time.

Trustee’s entitlement to remuneration and reimbursement of expenses

11    Where a trustee in bankruptcy is appointed in the expectation that he or she will be remunerated, and there is no prior agreement to act gratuitously, the Act assumes the existence of a right to be remunerated: Adsett v Berlouis (1992) 37 FCR 201 at 210, applying Mayne v Jaques [1960] HCA 23; (1960) 101 CLR 169 at 172-173, 175, 180-181; Inspector-General in Bankruptcy v Coshott [2014] FCA 42 at [67]. The right to payment is only lost for a specific reason, such as that the trustee has had no work to do or he or she has misconducted himself or herself in some way.

12    It is well established that those taking the benefit of the administration of trust assets should not escape bearing the burden of the proper cost of the administration: Shirlaw v Taylor [1991] FCA 415; (1991) 31 FCR 222 at 230.

13    Section 109(1)(a) of the Act recognises “the principle underlying the general right” of a trustee for “reasonable reimbursement of costs and expenses and reasonable remuneration arising from his role as trustee”: McDonald v Young [2012] FCAFC 137 at [67]. As noted by the Court in Doolan v Dare [2005] FCAFC 69; (2005) 142 FCR 287, ordinarily, a trustee’s right to remuneration arises as work is performed, and the entitlement to remuneration is not dependant on the exercise of the creditor’s powers pursuant to s 162(1) of the Act (at [25]).

14    Section 162 provided relevantly:

162    Trustee’s remuneration - general [see Table B]

(1)    Subject to section 161B, the remuneration of the trustee of the estate of a bankrupt may be fixed, from time to time, by resolution of the creditors or, if the creditors so resolve, by the committee of inspection.

…

(4)    Where the remuneration of the trustee is not fixed by the creditors or the committee of inspection, the trustee is to be remunerated as prescribed by the regulations.

...

(6A)    The trustee must, in relation to the trustee’s remuneration, give such notices to the bankrupt and creditors as are required by the regulations.

(7)    This section does not apply in relation to the Official Trustee.

15    Regulation 8.09 of the Regulations provided:

8.09    Taxation of trustee’s remuneration and costs - preliminary

(1)    Where the trustee of the estate of a bankrupt claims remuneration under section 162 of the Act, the bankrupt or a creditor who is dissatisfied with the amount of the claim may, by notice in writing lodged within 28 days of being notified in writing or becoming aware of the amount of the claim, request a taxing officer to tax the claim.

(2)    The taxing officer must, promptly after receiving a request in accordance with subregulation (1), give notice in writing to the trustee to lodge a detailed bill of costs, in accordance with regulation 8.10, with the taxing officer within 28 days or such further period as the taxing officer may, in writing, allow.

(3)    On receiving the bill of costs, the taxing officer must give notice in writing of the date, time and place for the taxation, at least 5 days before the taxation, to the trustee and the person requesting the taxation.

(4)    Subject to subregulation (5), if the trustee fails to comply with a notice given under subregulation (2):

(a)    the trustee forfeits his or her right to disbursements and expenses; and

(b)    any amount that, apart from this subregulation, would have been applied as the trustee’s remuneration is to be applied for the benefit of the creditors.

(5)    A trustee who is aggrieved by the operation of subregulation (4) in respect of his or her claim, or intended claim, for costs may apply to the Court for relief, and the Court may:

(a)    grant such relief; and

(b)    grant the relief on such terms, if any;

as it thinks fit.

16    In Wenkart v Pantzer (No 6) [2003] FCA 1210, Lindgren J stated that the purpose of the time limit in reg 8.09(1) “is to ensure that finality and certainty are brought to the quantification of a trustee’s remuneration within a relatively short period of time” (at [34]). While regulation 8.09(1) applies in relation to a claim for remuneration (as opposed to a claim for approval for expenses or costs), there is no reason to think that the time limit in reg 8.09(2) has a different purpose.

17    It is not disputed that:

(1)    Mr Prentice claims remuneration under s 162 of the Act;

(2)    Fewin and Ronald Coshott are creditors who are dissatisfied with the amount of the claim and who, by notice in writing lodged within 28 days of being notified in writing or becoming aware of the amount of the claim, requested a taxing officer to tax the claim pursuant to reg 8.09(1) of the Regulations;

(3)    The third respondent, Mr Barr, as taxing officer, gave notice in writing to Mr Prentice to lodge a detailed bill of costs, in accordance with reg 8.10, with Mr Barr within 28 days or such further period as the taxing officer may, in writing, allow, pursuant to reg 8.09(2) (“reg 8.09(2) notice”);

(4)    Mr Prentice failed to comply with the reg 8.09(2) notice;

(5)    Being aggrieved by the operation of reg 8.09(4) in respect of his claim, or intended claim, for costs, Mr Prentice was entitled to apply to the Court for relief pursuant to reg 8.09(5).

Requirement for leave to appeal

18    A non-party to a proceeding can appeal under s 24 of the Federal Court of Australia Act 1976 (Cth) (“Federal Court Act”) with leave. In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 281 ALR 38 at [32], the Court said:

A person who was not a party to a cause can obtain leave to appeal from orders made in the cause. A person who, without being a party, is either bound by an order, or is aggrieved by it, or is prejudicially affected by it, or is sufficiently interested in it can appeal, but only with leave. It does not require much for such a person to obtain leave (see In re Securities Insurance Co [1894] 2 Ch 410 at 413-414). Leave to appeal is given, as a rule, if the person applying, though not a party to the proceeding, might properly have been made a party (see Cuthbertson v Hobart Corporation (1921) 30 CLR 16 at 25).

19    At [35], the Court continued:

On an application for leave to appeal by a non-party, bearing in mind the widely different circumstances in which an application by a non-party for leave to appeal may be made, several matters are likely to be relevant to the exercise of the discretion, as follows:

•    first, the nature and subject matter of the proceeding, including whether it concerns public rights or private rights and, if the latter, whether only personal remedies or proprietary remedies are involved;

•    secondly, whether at first instance the applicant could have but did not seek to be made a party or to be heard, and whether the applicant could or should have been made a party;

•    thirdly, the rights, interests, liabilities and duties of the applicant that would be affected, and the nature and extent of the effect on the applicant of the orders appealed from;

•    fourthly, whether the applicant could commence a separate proceeding for the relief claimed and, if so, whether there would or might be a procedural or substantive difficulty arising from the existence of the judgment in respect of which leave to appeal is sought; and

•    fifthly, whether the proposed grounds of appeal are at least arguable, in the sense that there is a reasonable prospect of success.

20    In addition, the Court or judge must give leave to appeal before an appeal from an interlocutory judgment can be brought: s 24(1A) Federal Court Act. A judgment by consent is taken to be an interlocutory judgment: s 24(1D)(a) Federal Court Act.

21    The principles governing the grant of leave to appeal from an interlocutory judgment are well established. Although each case must be considered on its merits, generally an applicant for grant of leave must establish:

(a)    that, in all the circumstances of the case, the decision is attended by sufficient doubt to warrant its being reconsidered; and

(b)    that substantial injustice would result if leave were refused, supposing the decision to be wrong: Décor Corporation Pty Ltd v  Dart Industries  Inc [1991] FCA 655; (1991) 33 FCR 397 at [2]; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; (2000) 104 FCR 564 at [43]–[44] per French J (as he then was) (Beaumont and Finkelstein JJ agreeing); Samsung Electronics Co Ltd v Apple Inc [2011] FCAFC 156; (2011) 217 FCR 238 at [26]–[30].

22    These considerations are cumulative, so that leave to appeal will not be granted unless both limbs are made out: Sekigawa v Minister for Immigration and Border Protection [2016] FCA 127; (2016) 237 FCR 276 at [12].

23    Further, where the decision appealed from involves the exercise of a discretion, as is the case here, the Court will not interfere unless an error of the kind referred to in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504 to 505 is shown to have been made. The relevant kinds of errors are:

(1)    acting upon a wrong principle;

(2)    allowing extraneous or irrelevant matters to guide or affect the primary judge;

(3)    mistaking the facts;

(4)    failing to take into account some material consideration; or

(5)    reaching a result that is plainly unreasonable or unjust.

Mr Prentice’s claim for remuneration

24    Mr Prentice was appointed trustee of the bankrupt estate on 21 March 2013. He made a claim for remuneration covering the periods 21 March 2013 to 18 November 2014 and 19 November 2014 to 14 October 2015, that is, periods totalling over 2.5 years. The total remuneration claimed is $372,196.50 plus GST. Mr Prentice also claims to have incurred disbursements comprising internal and external non-professional fees totalling $18,636.12 inclusive of GST.

Applicants’ contentions

25    The applicants argued that, as a result of Mr Prentice’s failure to comply with the reg 8.09(2) notice, by reg 8.09(4) they became entitled to have the funds that would otherwise have been applied in payment of Mr Prentice’s remuneration (including, importantly, the costs of legal service providers engaged by Mr Prentice), applied for their benefit. In the cases of Fewin and Ronald Coshott, this was said to be by reason of their position as creditors of the bankrupt estate. In the case of Robert Coshott, his entitlement was said to arise from the prospect of surplus funds in the bankrupt estate after payment of creditors.

26    Thus, the applicants seek to protect a windfall which arises from the operation of reg 8.09(4) if the Court does not grant relief pursuant to reg 8.09(5): cf South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343 at [59]; Karam v ANZ Banking Group Ltd [2000] NSWSC 596; (2000) 34 ACSR 545 at [21].

27    The basis upon which the applicants seek to argue, on an appeal, that an extension of time should not have been granted is that Mr Prentice could not have satisfied the Court below that justice required that his failure or refusal to lodge a bill in time should be overlooked.

28    The applicants’ case therefore requires consideration of the evidence of the circumstances in which Mr Prentice failed to comply with the reg 8.09(2) notice.

Is there evidence that could have justified a decision to refuse to extend THE time to file the bill of costs?

29    The applicants’ case is that Mr Prentice deliberately failed to comply with the relevant time limit with knowledge of the legislation and with the benefit of legal advice.

30    The reg 8.09(2) notice to Mr Prentice was not in evidence. However, based on the correspondence between Mr Prentice and his firm and Australian Financial Security Authority (“AFSA”), described below, such notice was probably given shortly before 17 February 2016 and it probably required Mr Prentice to lodge a detailed bill of costs with the taxing officer within 28 days, being the period stipulated in reg 8.09(2). Therefore, the deadline for lodgement of a detailed bill of costs would have been shortly before 17 March 2016.

31    By letter dated 17 February 2016 from Mr Prentice to AFSA referred to a “recent email communication” and sought confirmation that Mr Barr’s role was “restricted to taxing my remuneration as detailed in my Remuneration Report to creditors dated 4th December 2015 and consequently does not include the taxation of any professional fees, non-professional disbursements and non-professional expenses incurred by me in the administration of” the bankrupt estate. Mr Prentice expressed “serious concerns concerning the capacity and willingness of Ronald Coshott and his company Fewin Pty Ltd to pay the costs of the taxation if required”. Mr Prentice also stated that:

… the funds in the estate have been depleted to the point that there will be no dividend to creditors nor will there be sufficient funds to pay in full my remuneration, John Burke’s remuneration and the Official Trustee’s remuneration after payment of legal expenses.

Therefore, even if my remuneration was reduced on taxation by 15% or more, the resulting amount of my remuneration would still far exceed the actual amount which I would receive from the estate.

Accordingly, the taxation process would not serve any useful purpose and in my view, it would be futile and a further uneconomical use of resources which regrettably, has been a common occurrence in this administration because of the obstructive actions of the members of the Coshott family.

Incidentally, as mentioned above because there are insufficient funds held in the estate to meet the remuneration and expenses of all the trustees in full, section 164 of the Bankruptcy Act will apply. Whilst the successive trustees will easily reach an agreement as to the division of the available funds, section 164 requires such agreement must be endorsed by a resolution passed at a meeting of creditors.

Given their past actions, it is most likely that Ronald Coshott and Fewin will vote against an endorsement by creditors as to the agreed division of remuneration and expenses by the three successive trustees, which will require the trustees to apply to the Court for directions and will be a further unnecessary expenses to be borne by me and the other Trustees.

It can easily be seen that Ronald Coshott and Robert Coshott plus members of Robert Coshott’s family have deliberately embarked on a “scorched earth mission” to use up all the funds in the bankrupt estate on unnecessary litigation to the point that the three successive trustees will probably receive at best only 50% of their remuneration.

It is considered that the request for the taxation of my remuneration is only a further example of that scorched earth mission and accordingly, I request that you seriously consider the issues I have detailed above with a view to staying the taxation process until those issues have been resolved.

It should also be noted that Ronald Coshott and Fewin Pty Ltd recently lodged an application in the Federal Court of Australia under sections 178 and 179 of the Bankruptcy Act which has been set down for hearing on 30 March 2016. The application seeks various declarations and orders which mainly centre of [sic] the validity of my actions and decisions at the meeting of creditors held on 16 December 2015 at which, Mr Findlay attending by telephone.

Therefore, should the Inspector-General still consider it necessary to proceed with the taxation notwithstanding the concerns I have detailed above, I request that the taxation be deferred until such time as the above proceedings have been determined.

(Emphasis in original.)

32    There does not appear to have been a response to Mr Prentice’s 17 February 2016. By letter dated 18 February 2016 from Mr Prentice’s lawyer, Ms Nash, to AFSA, Ms Nash also expressed concern about the scope of the taxation. In the absence of a response from AFSA to the 18 February 2016 letter, on 14 March 2016 Ms Nash resent a copy of her first letter to AFSA and noted that Mr Prentice had indicated that he had not made a request for her costs to be taxed.

33    On 18 March 2016, Mr Cruickshanks, a consultant assisting Mr Prentice on the administration of the bankrupt estate, sent a lengthy email to Mr Barr on behalf of Mr Prentice. He referred to a telephone conversation with Mr Barr earlier that morning. Mr Cruickshanks stated that, before the telephone call, he had not seen Mr Barr’s request for the provision of a detailed bill of costs pursuant to reg 8.09(3) of the Regulations. Mr Cruickshanks gave a detailed account of the complexity and challenges of the administration of the bankrupt estate, as he saw them. The email concluded:

Whilst I acknowledge that the 28 day period specified in Regulation 8.09(2) has passed, I also note that the subject Regulation also refers to “or such period as the taxing officer may in writing, allow.”

Accordingly, I would respectfully submit that given the facts and circumstances surrounding this matter, it would be appropriate for you as the Taxing officer to exercise that discretion afforded to you and allow Mr Prentice additional time to provide you with the requisite detailed bill of costs.

As a demonstration of good faith, I have enclosed the draft of the detailed bill of costs which you will note extends for some 57 pages, which will provide you with an insight into the extent of the work undertaken by Mr Prentice and his staff in that period.

As to the reasons for the delay in responding to your request within the prescribed 28 day period, the reasons are many and varied and include:

1)    Mr Prentice’s absence from the office having a number of surgical procedures on his back,

2)    Mr Prentice’s involvement in the preparation for litigation against Ljiljana Coshott the wife of Mr Coshott, by way of a Creditor’s Petition to recover legal costs from her in excess of $500,000.00.

3)    Mr Prentice’s involvement in the preparation for litigation against James Coshott the son of Mr Coshott, by way of a Creditor’s Petition to recover legal costs from him in excess of $500,000.00.

4)    Mr Prentice’s involvement in the preparation of his defence of the application by Ronald Coshott and Fewin in the Federal Court under sections 178 & 179 of the Act,

5)    Mr Prentice’s involvement in the preparation of garnishee action against the Trustees for Sale seeking to garnishee portion Ljiljana Coshott’s 50% portion of the net sale proceeds.

In conclusion, I would submit that as indicated in Mr Prentice’s letter to the Inspector­General, it can be seen that the request for taxation by Ronald Coshott and Fewin is a futile exercise because even in the event that you reduce Mr Prentice’s remuneration by 40%, there would still not be sufficient funds in the estate to meet that reduced amount. Accordingly, it is submitted that the request for taxation is further attempt by members of the Coshott family to thwart and frustrate the administration of Mr Coshott’s bankrupt estate and that the taxation process will serve no good purpose.

(Emphasis in original.)

34    On 21 March 2016, Mr Cruickshanks sent a further email to Mr Barr, making submissions about Mr Barr’s power to extend the period for lodgement of the itemised bill of costs.

35    On 23 March 2016, Mr Cruickshanks wrote to another ASFA officer, Mark Findlay, concerning the taxation of Mr Prentice’s remuneration. Mr Cruickshanks referred to his emails to Mr Barr. The same afternoon, Mr Findlay replied to Mr Cruickshanks saying, among other things, that:

(1)    he had not expressed a view that Mr Barr was unable to grant the extension of time sought;

(2)    that legal advice was being sought about whether an extension could now be provided by Mr Barr.

36    The evidence set out above reveals that:

(1)    well before the expiration of the time for lodging a bill of costs, Mr Prentice sought to persuade Mr Barr to defer the taxation;

(2)    for reasons that are unclear, the reg 8.09(2) notice did not come to Mr Cruickshanks’ attention until after shortly after the time for compliance had expired;

(3)    when he became aware of the notice, Mr Cruickshanks requested an extension of time to lodge a bill of costs.

37    There is no evidence that Mr Prentice made a deliberate decision to forfeit his rights to reasonable remuneration and reasonable reimbursement of costs and expenses. To the contrary, the evidence is that Mr Prentice sought to preserve his right to have his remuneration taxed.

38    The evidence does not support a conclusion that Mr Prentice deliberately refused to comply with the rules. At most, Mr Prentice failed to take steps to arrange for the preparation of a detailed bill of costs in circumstances in which he had requested that the taxation be deferred but had not received a response. Accepting that it is open to conclude that Mr Prentice “deliberately did not comply within time and allowed time to expire” despite “knowledge of the legislation and benefit of legal advice”, as the applicants put it, that conclusion would not have required the primary judge to refuse to make the extension of time order. It would be necessary to consider what justice required in the circumstances of the case.

39    All of the other relevant circumstances favoured an extension of time. In particular:

(1)    Mr Prentice claimed remuneration for work done over a substantial period, and for a substantial amount, acting under a statutory appointment. In the ordinary course, he is entitled to reasonable remuneration arising from his role as trustee and reasonable reimbursement of costs and expenses. Mr Prentice stood to be significantly disadvantaged if the extension of time was not granted;

(2)    there is no suggestion of prejudice to the applicants beyond the loss of any windfall arising out of the operation of reg 8.09(4);

(3)    there was no significant delay on Mr Prentice’s part in seeking an extension of time. Mr Cruickshank sought an extension of time from Mr Barr as soon as he became aware that the time for compliance with the reg 8.09(2) notice had expired.

40    For these reasons, in my view, the applicants have identified no basis upon which an appeal court could conclude that the primary judge erred in his decision to make the extension of time order.

41    Accordingly, even if the applicant’s contention that the applicants should have been joined as respondents in the proceedings below, or should have been given an opportunity to be heard as non-parties, were accepted, it would be futile to allow the applicants leave to appeal as non-parties from the extension of time order.

Other matters

42    Although the reasons above are sufficient to dispose of the application for leave to appeal, I address some additional aspects of the applicants case below.

Argument that the Court below had no jurisdiction to make extension of time order

43    The applicants contended that the proceeding below was defective in that there was no “justiciable controversy” between Mr Prentice and either of the Inspector-General or Mr Barr. According to the applicants, the Inspector-General and Mr Barr had fulfilled and exhausted their statutory functions and Mr Prentice’s application for an extension of time did not address or affect their rights or liabilities.

44    Section 27 of the Act provides, relevantly, that the Federal Court has “jurisdiction in bankruptcy”. The Court plainly had jurisdiction under s 27 to exercise the power conferred by s 33 of the Act. I do not accept that it is necessary to identify a “justiciable controversy” in order to be satisfied that the Court has jurisdiction to make an extension of time order.

45    If it was necessary to identify a relevant controversy, it was whether the taxing officer should accept a bill of costs lodged out of time. The principal parties to that controversy were Mr Prentice and Mr Barr.

46    I accept that it is arguable that at least Fewin and Ronald Coshott, by virtue of their status as creditors of the bankrupt estate, were proper parties to the proceeding below. However, that proposition does not affect the Court’s jurisdiction. As Mr McGrath SC properly acknowledged, by r 9.07, a proceeding will not be defeated only because a person who should have been joined as a proper or necessary party has not been joined.

Effect of reg 8.09(4)

47    On behalf of the applicants, Mr McGrath SC submitted that Mr Prentice’s failure to lodge a bill of costs within time had the consequence that the remuneration that would otherwise go to the trustee was forfeited for the benefit of the creditors.

48    Mr McGrath SC submitted that the forfeited amount included Mr Prentice’s unpaid legal costs of $1,002,958.92. By reference to that amount and the amount of $372,196.50, being Mr Prentice’s claim for remuneration, Mr McGrath SC submitted that as much as $1.3 million was forfeited for the benefit of the creditors by the operation of reg 8.09(4).

49    On its proper interpretation, reg 8.09(4)(a) does not support this submission. By reg 6.01, payment of proceeds of the property of a bankrupt under s 109(1)(a) of the Act is to be in the order set out in Schedule 3. Relevantly, Schedule 3 provides the following order of payment:

2    Expenses reasonably incurred by or on behalf of the trustee:

(a)    in protecting all or part of the bankrupt’s assets; or

(b)    in carrying on, in accordance with the Act, a business of the bankrupt; or

(c)    by way of an advance made to the trustee of the bankrupt’s estate for payment of properly incurred expenses of the estate for any proper purpose (other than remuneration of the trustee)

3    Other fees, costs, charges and expenses payable by the trustee in administering the bankrupt’s estate.

…

6    The trustee’s lawful remuneration.

Thus, costs including the legal costs of the administration and the remuneration and expenses of the trustee are required to be paid by the trustee from the bankrupt estate as priority payments.

50    Regulation 8.09(4)(a) is not expressed to affect the trustee’s obligation to pay, relevantly, the legal costs of the administration from the proceeds of the property of the bankrupt in accordance with s 109(1)(a). Its ordinary meaning is that, by non-compliance with reg 8.09(2), the trustee forfeits his or her general law right to indemnity from the trust estate against disbursements and expenses. Regulation 8.09(4)(a) says nothing about the rights of the trustee’s lawyers arising from the obligations imposed upon the trustee by s 109(1)(a).

51    To the extent that reg 8.09(4)(a) could be interpreted to disentitle the lawyers to payment of their legal costs in accordance with s 109(1)(a), the regulation is inconsistent with s 109(1)(a) and is rendered invalid on that account: Pearce DC and Geddes RS, Statutory Interpretation in Australia (8th ed, LexisNexis Butterworths, 2014) at [7.16].

52    Further, Mr McGrath SC’s submission would give reg 8.09(4) meaning beyond the scope of reg 8.09 considered in its entirety. As already noted, reg 8.09(1) applies when there is a claim for remuneration (as opposed to a claim for approval of legal costs). Then, reg 8.09(2) provides for the taxing officer to require lodgement of a detailed bill of costs. That requirement can only be made within the scope of the taxing officer’s appointment. As Ms Buchanan, the solicitor for the second and third respondents, observed, the notice of appointment of Mr Barr is not expressed to cover Mr Prentice’s professional expenses such as legal expenses. It covers Mr Prentice’s remuneration, identified by the notice to include “professional fees, non-professional disbursements and non-professional expenses”.

53    It is perverse to suggest that non-compliance with a requirement that was not imposed on the legal service provider and that did not relate to legal costs could produce the result that those legal expenses were no longer payable by the bankrupt estate. Mr McGrath SC did not point to any authority that might support his submission. Such an irrational and unjust result would require plain statutory language which shows that the legislature intended that result: cf Pearce and Geddes [2.35] and [2.36].

54    Nor can reg 8.09(4)(b) support the applicants’ submission. It is expressly concerned with the trustee’s “remuneration” as distinct from the trustee’s “disbursements and expenses” which are the subject of reg 8.09(4)(a). The distinction between those concepts is drawn in ss 162 and 167 of the Act. As appears from reg 8.09(1), the process of taxation commences with a claim by the trustee of the bankrupt estate for “remuneration under s 162 of the Act”.

55    Thus, there is no substance the submission that as much as $1.3 million might have been forfeited to the benefit of creditors by reason of Mr Prentice’s non-compliance with the requirement to lodge a detailed bill of costs. The relevant amounts are Mr Prentice’s claim for remuneration of $372,196.50 and his disbursements and expenses of $18,636.12. Whether there would have been any amount to be applied for the benefit of creditors must depend upon the amounts payable as priority payments. On the evidence before me, it is not clear what amount, apart from reg 8.09(4), would have been applied as the trustee’s remuneration.

Conclusion

56    The application for leave to appeal must be dismissed with costs.

Associate:    

Dated:    1 September 2016