FEDERAL COURT OF AUSTRALIA

Donnelly v Johnson [1999] FCA 1875

MAX CHRISTOPHER DONNELLY v MARK ANTHONY JOHNSON

N 7524 OF 1999

LEHANE J

24 DECEMBER 1999

SYDNEY

THE COURT ORDERS THAT:

1.         The application is dismissed.

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

EX TEMPORE REASONS FOR JUDGMENT

1                     I delivered reasons for judgment on 29 November 1999 in which I indicated that, in my view, the appropriate order was that the application be dismissed.  I indicated also that the parties should have an opportunity to make submissions about the form of the orders and about costs.  I expressed, additionally, a tentative view that in the circumstances which I had described, there should be no order as to costs.  I ordered that the applicant file and serve short minutes of the orders which he submitted should be made in the light of my reasons.  The parties were invited to submit written submissions and written submissions have been submitted on the question of costs.  The facts are stated in my published reasons; I shall not restate them.

2                     Draft orders submitted by the applicant would give effect to the tentative views which I expressed, namely that the application be dismissed and that there be no order as to costs.  The reason why I expressed the tentative view that there ought be no order in the circumstances as to costs was that, on the view which I took, the basis on which the respondent succeeded was one which was not raised directly at least in his pleading or, I think it is fair to say, at all in submissions at the trial.  It was one which occurred to me after the trial was over and, I may add, I regret did not occur to me during the course of the trial.

3                     The respondent has filed written submissions supporting a claim that I ought to make an order that the applicant pay the respondent's costs, that is that in the usual way costs ought to follow the event.  The submissions may I think be summarised as follows.  It is said that at the time when the case was heard, indeed perhaps well before that date, all the facts upon which the judgment was based were known to the applicant and at least to a considerable extent were accepted by the applicant; and that, if the applicant had given consideration to the applicable law in relation to the facts known to him, the applicant would have realised that the proceeding would fail and accordingly would not have proceeded.

4                     It is then said, as I understand it, that although specifically the basis on which I found in favour of the respondent did not form part of the argument for the respondent at the trial, nevertheless it was within the pleadings (as I found).  It was open on the evidence (as I found) and therefore there was no reason why, simply because the respondent’s legal representatives did not perceive the principles as I did, the usual order for costs should not be made.

5                     In response, the applicant has pointed out simply that the proceedings were decided on a point raised only indirectly by the respondent and not argued at the hearing.  The applicant also submits that if an order for costs were made in favour of the respondent, it should be one which limited the rights of the respondent as to enforcement of the order to enforcement against the bankrupt estate of Ms Dawson, on the footing that the respondent in respect of the order for costs would be treated as an ordinary creditor, rather than against the applicant personally.

6                     I think it is to overstate the position to say that all the facts upon which the judgment was based were known to the applicant and that the applicant must have realised, had he given careful consideration to the position, that any claim against the respondent must fail.  The principal reasons why that is so are, I think, first that the factual material as to the payment of the sum $90,000 in question was by no means unequivocal.  It is certainly true that both the respondent and Ms Dawson had, during a public examination in relation to Ms Dawson's affairs, given evidence that the $90,000 was due and had not been paid.  There was, however, an admission by the respondent to the contrary in the form of an acknowledgment of receipt in a transfer.  Secondly, there was the circumstance, which remains not fully explained, that the consideration for the transfer apparently included the discharge of one mortgage and the granting of another, involving presumably a release of liabilities of the respondent and the assumption of some additional liabilities by Ms Dawson.  Thirdly, the applicant was faced with a pleading and evidence which while they left open the basis on which the case was decided appeared to put it on an entirely different and, it might reasonably have been thought, substantially inconsistent basis.

7                     In short, I do not think that the applicant is by any means to be criticised for instituting and prosecuting the proceedings in the circumstances known to him.  There was a written contract for sale of the property under which an amount less than its value had actually been paid by way of consideration, the balance of the stated consideration being apparently a recharacterisation of certain payments made in the past.  In my view, it would be unreasonable to expect the applicant to perceive, in the circumstances as they appeared to him, that the respondent would be in a position to rely, as I have held he was entitled to rely, on a vendor's lien arising from the transaction in October 1992.  Those circumstances justify I think, indeed in my view require an order other than the usual order which would have the effect that costs would follow the event.  If what happened is properly to be characterised – and there is no occasion to be unduly critical of anybody about this – as a failure on the part of the respondent's lawyers to perceive or articulate a clear or sound basis on which he might resist the applicant's claim, that is not a matter attributable to the applicant and the question with which I am faced is whether, in the circumstances, the applicant should be required to pay some proportion of the costs payable by the respondent to his own lawyers.

8                     Certainly, I think there is great force in the argument of the applicant that, if an order for costs were to be made in favour of the respondent, it ought to be one which was enforceable only against the bankrupt estate of Ms Dawson not against the applicant personally.  If such an order were to be made, it would I think properly be one under which only a portion, and perhaps not a very large proportion, of the respondent's costs was to be paid in that way by the applicant.  In those circumstances, it seems to me that it would not be a practically sensible course to make an order for payment of a relatively small amount of costs out of an estate which all the evidence suggested is not one which is likely to return any substantial sum to the bankrupt's creditors.

9                     In short, it is simply not worthwhile to consider whether some order might be made, enforceable against the estate, in circumstances where the further costs of preparing bills and having them taxed could hardly be justified.  In short, although after, I confess, some hesitation, I adhere to the view which I initially expressed and orders will be made as foreshadowed in my reasons of 29 November 1999.

10                  Accordingly, the orders of the court are that the application is dismissed.  There is no order as to costs.

Associate:

Dated:              24 January 1999