FEDERAL COURT OF AUSTRALIA

Frost v Bovaird (No 2) [2012] FCAFC 69

THE COURT MAKES THE FOLLOWING ORDERS AND DIRECTIONS:

In proceeding NSD 283/2010

1.    Order that order 2(i) made by Perram J on 3 May 2011 is set aside.

2.    Directs that, until the determination of the appeals in the Supreme Court of New South Wales (being Court of Appeal proceedings numbers 2009/298581, 2009/298569 and 2009/298580 (the NSW Supreme Court appeals)), or until further order, the trustee in bankruptcy would be justified in paying the Appellant executors’ legal costs, as and when incurred, in respect of the said appeals.

3.    Order that order 4 made by Perram J on 3 May 2011 is set aside and orders in lieu thereof that each party bear their own costs of proceeding NSD 283/2010.

4.    Directs that, until the determination of the NSW Supreme Court appeals, or until further order, the trustee in bankruptcy would be justified in paying one half of the costs of the Appellant executors in proceeding NSD 283/2010 as and when incurred.

In proceeding NSD 1394/2009

5.    Directs that, until the determination of the NSW Supreme Court appeals, or further order, the trustee in bankruptcy would be justified in paying the Appellant executors’ own legal costs, as and when incurred, in respect of the costs of proceeding NSD 1394/2009.

6.    Directs that, until further order, the trustee in bankruptcy would be justified in paying the costs payable by the Appellant executors pursuant to Order 3 made by Perram J on 3 May 2011, as and when paid.

In proceeding NSD 1395/2009

7.    Directs that, until the determination of the NSW Supreme Court appeals, or further order, the trustee in bankruptcy would be justified in paying the Appellant executors’ own legal costs, as and when incurred, in respect of the costs of proceeding NSD 1395/2009.

8.    Directs that, until further order, the trustee in bankruptcy would be justified in paying the costs payable by the Appellant executors pursuant to Order 3 made by Perram J on 3 May 2011, as and when paid.

In proceeding NSD 470/2010

9.    Order that the appeal be dismissed.

Costs of the Federal Court Full Court appeal

10.    Order that the Bovaird Respondents are to pay 50 per cent of the Appellant executors’ costs of the appeal on a party and party basis.

11.    Directs that, the trustee in bankruptcy would be justified in paying the difference between the amount that the Appellant executors recover pursuant to Order 10 hereof, and the actual amount reasonably incurred by the Appellant executors by way of legal costs in the conduct of the appeal.

Interim direction as to priority

12.    Directs that, until the determination of the NSW Supreme Court appeals, or further order, that equal priority be given to the payment of the legal costs of the Appellant executors pursuant to the Court’s directions in Orders 2, 4, 5, 6, 7, 8, 11 and 14 hereof, and to the payment by the trustee in bankruptcy of his costs properly incurred in the administration of the bankrupt estate.

Cross-appeals

13.    Order that the Cross-Appellants pay the Cross-Respondents’ costs of the cross-appeals.

14.    Directs that, the trustee in bankruptcy would be justified in paying the difference between the amount recovered by the Cross-Respondents pursuant to Order 13 hereof, and the actual amount reasonably incurred by way of legal costs by the Cross-Respondents in relation to the cross-appeals.

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

REASONS FOR JUDGMENT

THE COURT:

1    On 30 April 2012, this Court made orders allowing in part the appeal brought by the appellants (the executors) and dismissing the cross-appeals brought by Mr Leon Bovaird and the late Mrs Monica Bovaird (the Bovairds) (Frost v Bovaird [2012] FCAFC 60).

2    The parties have provided submissions in relation to the question of costs and the orders which should be made.

the costs of the appeal

3    We deal, first, with the question of costs of the appeal.

4    As mentioned in the principal judgment, there were four proceedings which were heard at the same time by the primary judge. These are described at [25]-[31] of the principal judgment. The executors lodged appeals in the same terms in respect of each of the proceedings. By an order made by Emmett J the appeals were consolidated. Before this Court, the appeal was conducted as a single proceeding.

5    In relation to the costs of the appeal, the executors referred to the fact that they had in June 2011, obtained judicial advice from the New South Wales Supreme Court to the effect that the executors would be justified in pursuing the appeals against the judgments of the primary judge and in having resort to the funds of the estate pursuant to their right of indemnity for the purpose of pursuing those appeals (Frost and Fallon [2011] NSWSC 591 at [78]).

6    The executors contended that their costs of the appeal should be paid, on an indemnity basis, out of the assets of the bankrupt estate and that the Court should give a direction to the trustee in bankruptcy to that effect.

7    The Bovairds contended, however, that there should be no order for costs on the grounds that the executors were successful in relation to only one of the three main issues for which they had contended in the appeal. The Bovairds pointed out that the executors’ appeal had failed in respect of their claim to be indemnified in respect of their legal costs incurred in the devastavit proceeding, and, also, in relation to the claim for a declaration as to the priority of their security over that of the trustee in bankruptcy.

8    The trustee in bankruptcy contended that the executors should pay his costs of the appeal because he was successful in the appeal; in that, this Court had made the interim order that he was entitled to an indemnity from the estate equal in priority to that enjoyed by the executors in respect of the payment of their legal costs.

9    In our view, the main protagonists in this appeal were the executors and the Bovairds. The executors have indeed enjoyed a measure of success in the appeal. The executors were required to bring this appeal, over the opposition of the Bovairds, to achieve that success. In our view, the costs order made should reflect these two factors. However, the executors did not succeed in their appeals in respect of the devastavit proceeding costs indemnity issue nor the priority issue. Their lack of success in respect of those issues should, also, in our view, be reflected in the costs order. In our view, therefore, the Bovairds should be required to pay 50% of the costs of the appeal of the executors on a party and party basis.

10    In our view, the fact that the Bovairds were not parties to proceeding NSD 727/2011 (the appeal which related to proceeding NSD 283/2011) is immaterial. The appeal proceeding was conducted as a single proceeding in which the Bovairds were one of the two main protagonists. In fact, the Bovairds’ contentions were directed almost exclusively to the issues on the appeal which related to the subject-matter of proceeding NSD 283/2011 before the primary judge.

11    The fact that the executors obtained judicial advice to the effect that the executors were justified in bringing the appeal and resorting to the estate assets for the purpose of doing so, should also be recognised. Therefore, the Court will make a direction that the trustee in bankruptcy would be justified in making a payment to the executors from the assets of the estate of the difference between the amount of the costs the executors recover from the Bovairds and the actual amount of their costs of the appeal reasonably incurred in the conduct of the appeal proceeding.

12    The trustee in bankruptcy’s application for his costs of the appeal to be paid by the executors should be dismissed. The trustee in bankruptcy made submissions opposing the contentions made by the executors in support of their successful appeal. Further, albeit that the trustee in bankruptcy was successful in obtaining an interim direction, the trustee in bankruptcy, also, failed in his attempt to obtain a further direction in relation to the means by which to assess whether to pay the executors in respect of their legal costs. In our view, there should be no order for costs in respect of the costs of the appeal incurred by the trustee in bankruptcy. However, it should be made clear that the Court does not intend, thereby, that the trustee in bankruptcy should be precluded from exercising his right of indemnity in respect of his own costs incurred in the conduct of the appeal from the assets of the estate.

the costs of the cross-appeals

13    The cross-appeals which were brought by each of the Bovairds, related only to the orders made by the primary judge in proceedings NSD 1394/2009 and NSD 1395/2009.

14    The cross-appeals were dismissed. The parties are agreed that the executors’ costs of the cross-appeals should be paid by the Bovairds. The executors, however, argued that the Bovairds should be required to pay costs on an indemnity basis in respect of the cross-appeals. In our view, the cross-appeals were not unreasonably brought, nor so devoid of merit as to warrant the making of an indemnity costs order against the Bovairds.

15    However, the matters NSD 1394/2009 and NSD 1395/2009 sought leave to proceed by way of an appeal against the decisions of Brereton J in respect of proceedings brought by the Bovairds in the New South Wales Supreme Court. In those proceedings, Brereton J had determined that the executors had acted properly in defending those proceedings. In our view, the executors acted properly in defending the cross-appeals as an incident of the their appointment as executors, and the trustee in bankruptcy should be directed that he would be justified in paying the executors from the assets of the estate, the difference between the party and party costs recovered from the Bovairds and the actual amount reasonably incurred by the executors in respect of the cross-appeals.

variation to orders made by the primary judge

16    As to the variations that should be made to the orders of the primary judge, the differences between the parties related to Order 3, being the order for costs made by the primary judge in each of proceedings NSD 1394/2009 and NSD 1395/2009; and Order 4, being the costs order in proceeding No NSD 283/2010. In respect of each of these costs orders, the Bovairds contended that there should be no variation made to the orders made by the primary judge.

17    As to each of proceedings NSD 1394/2009 and NSD 1395/2009, the primary judge ordered that the executors pay the costs of the Bovairds but stayed the operation of the order. In our view, consistently with the findings of this Court in [88] of the principal decision, the trustee in bankruptcy should be directed that he would be justified in indemnifying the executors in respect of the payment of any costs they are required to pay pursuant to Order 3 made by the primary judge in each of those proceedings.

18    As to the costs order made in proceeding No NSD 283/2010, consistent with this Court’s findings made in [89] of the principal judgment, there should be no order as to costs in relation to that proceeding. Accordingly, an order will be made setting aside Order 4 made by the primary judge, and replacing it with an order that there be no order as to costs.

Associate:

Dated:    15 May 2012