FEDERAL COURT OF AUSTRALIA

Sutherland (In the Matter of Scutts) [1999] FCA 258

SUTHERLAND (IN THE MATTER OF SCUTTS A BANKRUPT)

NG 8147 OF 1997

JUDGE:          SACKVILLE J

DATE:            11 MARCH 1999

PLACE:          SYDNEY

IN THE MATTER OF:

WALTER HENRY SCUTTS

BANKRUPT

THE COURT ORDERS THAT:

1.      The Court directs that, subject to s 109 of the Bankruptcy Act (Cth) 1966, the Trustee would be justified in distributing the property divisible among the bankrupt's creditors (including the funds in the First and Second Accounts and the platinum held by the Western Australian Perth Mint on behalf of the bankrupt's estate) among creditors of the bankrupt pari passu.

2.      That the costs of the Trusteebe paid out of the estate of the bankrupt on a solicitor and client basis, save as to costs unreasonably or improperly incurred.

3.      That the costs of the legal representatives of each category of creditors appearing on the application, with the exception of Mr Ardill-Guinness, be paid out of the estate of the bankrupt on a solicitor and client basis, save as to costs unreasonably or improperly incurred.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE MATTER OF:

WALTER HENRY SCUTTS

BANKRUPT

REASONS FOR JUDGMENT

1                     In this matter, judgment was delivered on 25 February 1999.  In consequence of that judgment, the parties were given an opportunity to comment on the form of directions that ought to be given.  There has been no disagreement between the parties as to the form of the order.  I therefore make an order that the Court direct that, subject to s 109 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”), the Trustee would be justified in distributing the property divisible among the bankrupt's creditors (including the funds in the First and Second Accounts and the platinum held by the Western Australian Perth Mint on behalf of the bankrupt's estate) among creditors of the bankrupt pari passu.

2                     That leaves the question of costs.  Perhaps not surprisingly, there is unanimity among all legal representatives as to the approach to costs.  All say that the costs of the Trustee and represented creditors should be paid out of the estate of the bankrupt, and all say that this ought to be done on a solicitor and client basis.

3                     It has been pointed out that, in at least two cases, the cost of parties represented on the hearing of an application of a similar kind to the present case have been ordered to be paid on a common fund basis or on a solicitor and client basis.  The authorities are Re G B Nathan & Co Pty Limited (in liq) (1991) 24 NSWLR 674, at 689-90, and Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334, at 366.  Both of these cases arose under section 479(3) of the Corporations Law but, as I pointed out in my judgment of 25 February 1999, that sub-section is analogous to s 134(4) of the Bankruptcy Act.

4                     I think there are special circumstances in this case which would warrant the making of an order for costs on a solicitor and client basis. The issues were complex and the complexity was compounded somewhat by the paucity of factual information available to the Trustee and the various groups of creditors.  There was cooperation in order to ensure that the matter was presented in a way that enabled the issue of priorities to be addressed.

5                     I think it is fair to say that there was some degree of uncertainty about the proper approach to an application under section 134(4) of the Bankruptcy Act.  Nonetheless, the issues were ultimately addressed and the parties proceeded on a common basis.  Accordingly, I think it appropriate to make an order that costs be paid on a solicitor and client basis.

6                     The only question that then arises concerns the category B creditors.  Here, the issue is whether some allowance should be made for the costs of Mr Ardill-Guinness.  Mr Ardill-Guinness was a category B creditor who instructed separate solicitors in the course of the proceedings.  Mr Hughes, on his behalf, has explained that this course was adopted because Mr Ardill-Guinness had some concerns about the manner in which the proceedings were being conducted or presented.

7                     In my view, it is not appropriate to award additional costs to Mr Ardill-Guinness over and above those that would be awarded to the category B creditors.  I think that, in a matter of this kind, it is very important that there be only one set of costs available to those who share a common interest.  The fact is that the submissions made by Mr Stomo on behalf of the category B creditors extended to Mr Ardill-Guinness.  So far as the Court was concerned, his interests were the same as other category B creditors and were presented as such.

8                     I think the principle to be applied here is that there should be only one set of costs available to category B creditors but, if it can be shown that a particular creditor incurred additional costs for good and sufficient reasons connected with the conduct of the proceedings, then that creditor should be able to share in the costs awarded to the category as a whole, such that the total amount of costs available to that category of creditors does not exceed the total amount that would be payable had there been one set of legal representatives from the beginning to the end.

9                     Mr Hughes has explained why Mr Ardill-Guinness seeks separate costs.  Although Mr Hughes has made certain comments from the bar table, the material that is before me by way of evidence or submissions does not establish, in my view, that there was a sufficient basis for Mr Ardill-Guinness to be separately represented.  By saying that, I do not denigrate any concerns that Mr Ardill-Guinness may have had about the conduct of the proceedings. 

10                 However, as I have already indicated, the fact is that Mr Ardill-Guinness was represented by the same counsel as other category B creditors and no suggestion was made in the conduct of the proceedings before me that Mr Ardill-Guinness' position was in any way different.  Accordingly, the view I take is that the only allowance that should be made for category B creditors is through those who were instructing Mr Stomo, namely, Craddock Murray & Neumann.

11                  The orders, then, that I make as far as costs are concerned are that the costs of the legal representatives of each category of creditors appearing on the application, with the exception of Mr Ardill-Guinness, be paid out of the estate of the bankrupt on a solicitor and client basis, save as to costs that were unreasonably or improperly incurred.  The Trustee’s costs of the application should also be paid out of the estate of the bankrupt on a solicitor and client basis, save as to costs unreasonably or improperly incurred.

Associate:

Dated:              11 March 1999