FEDERAL COURT OF AUSTRALIA

Meinhardt (Hong Kong) Ltd v Meinhardt (Deceased) (No 3) [2006] FCA 1390

BANKRUPTCY – costs – whether proceeding involves administration of estate or adversarial litigation.

Bankruptcy Act 1966 (Cth): s 32), s 109(1)(a)

MEINHARDT (HONG KONG) LTD v WILLIAM LINDSAY MEINHARDT (DECEASED), WILLIAM EDWARD MEINHARDT AND VICTORIA BARBARA TREYVAUD

VID838 OF 2006

JESSUP J

26 OCTOBER 2006

MELBOURNE

THE COURT ORDERS THAT:

1.                  The costs of Timothy Jonathan Browne and Roderick Charles McKenzie be taxed as between solicitor and client and be paid from the estate of William Lindsay Meinhardt (Deceased) with the same priority as would arise under s 109(1)(a) of the Bankruptcy Act 1966 (Cth).

2.                  The second respondent pay the applicant’s costs, including reserved costs.

REASONS FOR JUDGMENT

1                     On 10 October 2006 I gave judgment in this matter – Meinhardt (Hong Kong) Ltd v Meinhardt (Decd) [2006] FCA 1323 – and gave the parties leave to make written submissions on the question of costs. They did so, and it is with the question of costs that these reasons are concerned.

2                     The proceeding was commenced in the Federal Magistrates Court. Although the estate of Mr W.L. Meinhardt was the only obvious respondent, the applicant also served Mr Meinhardt’s children, the residuary beneficiaries under his will. The second and third respondents appeared, and joined in giving consent to orders made on 21 June 2006 by which they were made respondents in the proceeding. At the same time, also by consent, Mr R.C. McKenzie and Mr T.J Browne, the named executors under Mr Meinhardt’s will (although without the grant of probate), were excused from further attendance, with the question of their costs being reserved.

3                     In this court, two main contested issues have been dealt with: first, the question whether the applicant required leave to present the petition pursuant to s 244(13) of the Bankruptcy Act 1966 (Cth) (‘the Act’); and secondly, the question whether an order under s 244 of that Act should be made in relation to the estate. The second respondent urged that these questions should be answered in the affirmative and in the negative respectively. In each case the contrary position advanced by the applicant prevailed. The third respondent participated at each level, but only that she might respond to any accusations or blame that might be directed at her.

4                     The present matter requires me to consider whether the proceeding is to be seen as one in which well-meaning litigants seek a ruling from the court as to the administration of an estate or a trust in accordance with some governing instrument or the general law, on the one hand, or should rather be seen as conventional adversarial litigation on the other hand: see In re Buckton [1907] 2 Ch 406, 414-415. Pursuant to s 32 of the Act, the matter of costs is within the discretion of the court.

5                     The named executors seek an order that their solicitor/client costs be paid from the estate ‘with the usual priority’. They did not explain what was meant by the ‘usual priority’. Under s 109(1)(a) of the Act as modified for the purposes of Pt XI, ‘the trustee of the deceased person’s estate’ is given the same priority as the petitioning creditor. In the absence of any grant of probate, I do not believe I should regard the named executors as the trustees of Mr Meinhardt’s estate. On the other hand, through no obvious default of their own – save perhaps some tardiness in applying for probate – they find themselves in a kind of legal half-light in which they have been obliged to incur some costs in a cause which is not their own. When served in this proceeding, they caused to be made and filed an affidavit which frankly and, it seems, comprehensively, set out the assets and liabilities of the estate and in which the deponent stated his belief that the estate was insolvent. At the next opportunity, they sought to be excused from the proceeding. I consider that they have acted reasonably and should have their costs paid from the estate. For that reason, and because they had no personal interest in the proceeding, I am prepared to order that these costs be paid as between solicitor and client, and that they have priority as though governed by s 109(1)(a) of the Act.

6                     The applicant seeks its costs of the proceeding, subsequent to the first directions hearing on 13 June 2006, from the second respondent on a solicitor/client basis. It says that the second respondent has conducted his case purely in his own interests, and in a manner which is effectively indistinguishable from the situation of a party in conventional adversarial litigation. It disputes the proposition that any part of the proceeding was concerned with the distribution of a fund. It points to a number of respects in which, it contends, the second respondent’s conduct of the proceeding was unreasonable, such as requiring discovery, and requiring the attendance of a witness from overseas, in relation to transactions by or involving the applicant which appeared ex facie regular and which the second respondent had no disclosed reason to impugn. For his part, the second respondent points to the circumstance that the applicant is itself an overseas company, and to several places in my reasons of 10 October 2006 in which I expressed reservations about the comprehensiveness of the picture which was visible from the accounts and other records disclosed to the court by the applicant. He points out that, with the withdrawal of the named executors, he himself stepped up to the plate, as it were, to perform the necessary role of contradictor. He says that the applicant’s claim was of such an order, and potentially of such significant impact on the estate as a whole, as to warrant careful investigation by the court, and that his active role as contradictor facilitated that. He says that it was the applicant’s case, and that he took no more than an appropriate role by way of putting the applicant to its proof.

7                     I regard the proceeding not as one which involves the administration of the estate, but as one designed to establish that the estate should be administered under s 244 of the Act. The applicant made an application before a court, respondents were joined and, at least as far as the applicant and the second respondent are concerned, the matter proceeded as a conventional adversarial contest. There is a sense in which the applicant might be regarded as a party acting for the benefit of all creditors (as would generally be the case in a Pt XI administration and as is recognised by s 109(1)(a)), but the two aspects of the case upon which it has succeeded concerned its right to have recourse to Pt XI at all and the establishment of its own claim. Similarly, there is a sense in which the second respondent might be seen as acting in the interests of residuary beneficiaries under Mr Meinhardt’s will, but, in a practical sense, he was substantially seeking to advance his own interests. On the questions decided by the court, his position did not prevail. I am, in the circumstances, persuaded to view the case through the prism of conventional adversarial litigation and to order, therefore, that the second respondent pay the applicant’s costs. I am not, however, disposed to order that those costs be paid as between solicitor and client. Having held that the proceedings were effectively adversarial, something more than the vigorous and thorough prosecution of his own case by the second respondent would be necessary before the court would depart from the normal rule that costs be taxed as between party and party. It is not enough that the applicant, at an early stage, informed the second respondent that the position for which it contended would be likely to prevail. Neither that nor the other matters on which the applicant relied in its written submission on costs has persuaded me to depart from the normal rule.

8                     The applicant also seeks an order that its costs, save to the extent paid by the second respondent, be paid from the estate on a solicitor/client basis, with priority. It says that this would be the normal entitlement of a petitioning creditor. The normal entitlement of a petitioner under s 109(1)(a) is not, I consider, something upon which I should rule just because there have been contested proceedings before the court in which costs orders have been made under s 32 of the Act. Save to the extent necessary to address the rather ambiguous position of the named executors, I propose to confine myself to questions of costs as they have arisen as between the parties to the litigation. If the applicant in fact has an entitlement under s 109(1)(a), there is no reason why that provision should not operate according to its terms. For these reasons, I propose not to make any costs order in favour of the applicant beyond that which obliges the second respondent.

9                     The second respondent seeks that his costs be paid out of the estate ‘with priority’. This submission was very faintly put, and it is sufficient for me to conclude, as I do, that there are no circumstances warranting a costs order of the kind which the second respondent seeks.

10                  The third respondent seeks her costs of the hearing on 21 and 22 September 2006 from the second respondent. Those days were occupied with the question whether an order should be made under s 244 of the Act in relation to the estate. I accept that I have jurisdiction under s 32 to make the order sought by the third respondent. However, there was no issue joined as between the second and third respondents: neither made any claim against the other. It is true that, in a number of respects, it appeared to be a necessary inference from the way the second respondent conducted his case against the applicant that the third respondent might have received more than her due from the assets of the applicant, and it is also true that, at one point, it was submitted that the proceeding itself was an abuse of process, but at no stage was the third respondent the target of the second respondent’s case. To the extent that the case of the second respondent at times seemed to imply what was almost a slur against the third respondent, such was, in my view merely a consequence of the appropriately robust way in which the case was advanced as against the applicant. The third respondent, as a party to the proceeding, was of course, entitled to participate in the hearing in a manner which was substantially concerned to protect her own reputation from such slurs, but ultimately nothing turned on matters of that nature and there is not otherwise any basis upon which the court would be justified in ordering the second respondent to pay her costs.

Associate:

Dated: 26 October 2006