FEDERAL COURT OF AUSTRALIA

Rambaldi v Volkov (No 2) [2009] FCA 357

GESS MICHAEL RAMBALDI (AS TRUSTEE OF THE BANKRUPT ESTATE OF STEFAN VOLKOV) v VALDA MAREE VOLKOV

VID 97 of 2007

RYAN J

17 APRIL 2009

MELBOURNE

IN THE MATTER OF STEFAN VOLKOV, A BANKRUPT

THE COURT ORDERS THAT:

1.         Subject to paragraph 2 of this order, the applicant’s costs of and incidental to the application herein be taxed and paid or retained out of the estate of the bankrupt.

2.         The respondent pay the applicant’s costs respectively reserved by the order of Registrar Luxton of 5 March 2007 and by the order of Registrar Mussett of 9 July 2007, such costs to be taxed in default of agreement.

3.         There be no order as to the respondent’s costs of the application herein.

4.         There be general liberty to either party to apply as he or she may be advised.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE MATTER OF STEFAN VOKOV, A BANKRUPT

REASONS FOR JUDGMENT AS TO FORM OF FINAL ORDERS

1                          On 19 December 2008, I delivered substantive reasons for judgment in this case: Rambaldi v Volkov [2008] FCA 1957 (“the principal reasons”). The matters at issue concerned the vesting of various properties upon the bankruptcy of Mr Stefan Volkov (“the bankrupt”), the husband of the respondent.  Each party, the applicant as trustee (“the trustee”) of the estate of the bankrupt and the respondent, Mrs Volkov, had a degree of success in the principal proceedings.  Subsidiary questions have arisen as to the terms of the final orders which should be made to give effect to the principal reasons, first in relation to the withdrawal of caveats and secondly, in relation to costs.  When the principal reasons were published the parties were invited to make written submissions on those subsidiary issues.

The Principal Proceedings

2                          At issue in the principal proceedings were two properties, the land contained in Certificate of Title Volume 3225 Folio 952 and the improvements thereon, being the land known as 21 The Avenue, Spotswood (“21 The Avenue”), and the land contained in Certificate of Title Volume 4743 Folio 477 and the improvements thereon, being the land known as 19 The Avenue, Spotswood (“19 The Avenue”).

3                          There had been a complex series of transactions or dealings with each of 19 The Avenue and 21 The Avenue.  A detailed history of those dealings has been set out in the principal reasons and it is unnecessary to rehearse it in the course of the present reasons.

4                          The orders made in light of the principal reasons were in the following terms:-

‘1.        IT BE DECLARED THAT:

1.1       The land contained in Certificate of Title Volume 3225 Folio 952 together with the improvements thereon (“21 The Avenue Spotswood”) vested in the applicant as trustee of the bankrupt estate of Stefan Volkov (“the bankrupt”) pursuant to s 58 of the Bankruptcy Act 1966 (Cth) (“the Act”). 

1.2       21 The Avenue, Spotswood is property available for distribution to the creditors of the bankrupt. 

1.3       The financial agreement dated 18 January 2001 between the bankrupt and the respondent did not transfer, and is not capable of transferring, the bankrupt’s then interest in 21 The Avenue, Spotswood to the respondent.

1.4       The respondent was, at the date of the bankruptcy, and has at all relevant times been, the sole beneficial owner of the land contained in Certificate of Title Volume 4743 Folio 477 together with the improvements thereon (“19 The Avenue Spotswood”). 

1.5       The applicant holds 19 The Avenue, Spotswood on trust for the respondent absolutely and 19 The Avenue, Spotswood is not property available for distribution to the creditors of the bankrupt.

2.         There be a stay of paragraph 1 of this Order until13th February 2009 or further order.

3.         Each party file and serve, by 13 February 2009, written submissions as to any further orders, including any order as to costs, which that party contends should be made in light of the reasons published this day.’

5                          The respondent had, on 19 January 2001, lodged a caveat against the title to each of 19 The Avenue and 21 The Avenue.  Those caveats were said to be supported by a “financial agreement” dated 18 January 2001 between the bankrupt and the respondent or, alternatively, by a constructive trust in favour of the respondent. 

6                          At [34] of the principal reasons, I concluded that, from 27 April 1998, the bankrupt had held 19 The Avenue on a constructive trust for the respondent.  I there noted that 19 The Avenue had, on 24 January 1986, been transferred from the bankrupt to the respondent as sole registered proprietor.  The reasons or consideration for that transfer I regarded as immaterial.  I further found that, in 1998, 19 The Avenue had been transferred back to the bankrupt to enable him to use it as part security for loans from the National Australia Bank.  The respondent agreed to that arrangement in return for promises by the bankrupt about the transfer to the respondent of another, unrelated, property and the payment to her of a lump sum of $450,000.  Those promises were never fulfilled. 

7                          By contrast, I concluded, at [39] of the principal reasons that, before the making of the “financial agreement”, the respondent had no equitable interest, by way of constructive trust or otherwise, in 21 The Avenue.  Insofar as the “financial agreement” of 18 January 2001 might have purported to effect the transfer to the respondent of 21 The Avenue, I held that it was void as against the trustee pursuant to s 121 of the Bankruptcy Act 1966 (Cth). 

8                          In accordance with paragraph 3 of the orders recited at [4] above, each of the trustee and the respondent has filed written submissions outlining his or her contentions as to the further orders which should be made in consequence of the principal reasons. 

Caveats

9                          While the dispute between the trustee and the respondent as to their respective interests in 19 The Avenue and 21 The Avenue was unresolved, each party lodged a caveat against the title to each of those properties.  It follows from the conclusions reached in the principal reasons and the declarations made in paragraphs 1.1 and 1.2 of the orders of 19 December 2008 in respect of 21 The Avenue that the respondent cannot support her caveat against the title to that property.  I therefore expect that, at least after she has exhausted her rights of appeal against the orders of 19 December 2008, the respondent will cause that caveat to be removed.  Should that expectation be disappointed, the trustee can apply, pursuant to the general liberty which I propose to reserve, for an order compelling the respondent to procure the removal of her caveat dated 19 January 2001 against the title to 21 The Avenue. 

10                        I shall take a similar course in relation to the trustee’s caveat against the title to 19 The Avenue.  Counsel for the trustee in written submissions dated 13 February 2009 accepts that the trustee “will need to remove the caveat” with respect to that property and “depending upon Titles Office requirements, take a transmission and subsequently transfer proprietorship to the respondent.”  The trustee has not cross-appealed against my orders of 19 December 2008 so there is even less reason for any formal order requiring the removal of his caveat against 19 The Avenue than there is in respect of that related to 21 The Avenue.

Costs

11                        In the written submissions filed on behalf of the respondent on 27 March 2009, it was contended that she “was entitled to have the matters of ownership of the properties determined by the Court rather than agree to the arbitrary position” put in a letter dated 20 June 2006 from the trustee’s solicitors to the solicitors then acting for the respondent.  That letter ended by making this “proposal” to the respondent on behalf of the trustee;

‘The Trustee has already incurred significant expenses in addressing the issues in this matter and is continuing to incur costs to comply with his obligations under the Bankruptcy Act.  If he is required to pursue Federal Court proceedings in this matter, costs to both parties will escalate.  The Trustee has therefore indicated that he would be willing to consider a proposal for resolution of the matter and to settle his claim on the basis that the bankrupt estate retains one of the subject properties with your client retaining the other.  The Trustee and your client would then otherwise release each other from any further claims whatsoever in relation to the properties.

Our client will consider any such proposal favourably with a view to minimising legal costs in this matter and maximising the return to all parties.  You must advise us by 4.00pm Friday, 30^th June 2006, if your client is interested in resolving the matter on this basis.  Otherwise, our client is not prepared to limit his claim to one property only and proceedings will be taken by the Trustee to recover both properties.’

12                        It was then suggested in the respondent’s written submissions that an application of the “usual order of the Court that costs follow the result” would mean that there should be two orders for costs;  one (presumably in favour of the respondent) in respect of 19 The Avenue and the other (presumably in favour of the trustee) in respect of 21 The Avenue.  In the same context, it was pointed out that in both written and oral submissions in the course of the principal proceedings, the trustee had vigorously contended that the equitable estate in 19 The Avenue had vested in him and had sought to rebut the existence in respect of that property of a constructive trust in favour of the respondent.  Those submissions and the exploration of the relevant facts, it was said, took as much time as, and were inextricably bound up with, the issues raised by the “financial agreement” of 18 January 2001 which was ultimately held to be void as against the trustee.

13                        In written submissions filed on behalf of the trustee on 13 February 2009, it was contended that an order should be made in favour of the trustee for payment of his costs, including all reserved costs, to be taxed on a party and party basis.  There was reliance on the proposal in the letter of 20 June 2006 quoted at [11] above and it was suggested that the respondent’s failure to reply to it “illustrates that it was entirely appropriate to file the proceedings in this Court.” 

14                        In the same written submissions, Counsel for the trustee argued that “the Court’s determination that the [trustee] had no interest in 19 The Avenue is not indicative of a 50/50 result.”  In support of that contention, it was pointed out that the respondent’s “cardinal argument” invoking the “financial agreement” of 18 January 2001 had been rejected and “the ancillary question of whether or not the beneficial ownership of the land contained in either 19 or 21 The Avenue was ventilated without any significant addition to Court time or increase in the complexity of issues which needed to be addressed.” 

15                        As well, Counsel for the trustee pointed specifically to paragraph 2 of an order by Registrar Luxton on 5 March 2007 and paragraph 4 of an order made by Registrar Mussett on 9 July 2007.  The first of those orders recited;

‘1.        The further hearing of the application be adjourned to 2 April 2007 at 9.30 am.

2.         The respondent file and serve any application for the transfer of these proceedings to the Family Court of Australia and any affidavits in support thereof by 4.30 pm on 19 March 2007.

3.         The applicant file and serve any affidavit in reply by 4.30 pm on 26 March 2007.

4.         Costs be reserved.’

16                        The second order, by Registrar Mussett, was in these terms;

‘1.        The further hearing of this matter be adjourned to 13 August 2007 at 9.30 a.m

2.         The respondent, file and serve any affidavit on which she seeks to rely by 3 August 2007.

3.         The applicant, file and serve any affidavit in response by 10 August 2007.

4.         Any motion the Respondent seeks to file restraining Applicant’s solicitors from acting to be filed by 27 July 2007.

5.         Reserve costs.’

17                        Counsel for the trustee pointed out that the respondent had not complied with either Registrar’s order and had taken no further steps, either to have the proceedings transferred to the Family Court or to restrain the trustee’s solicitors from continuing to act.  It was therefore submitted that the respondent should, in any event, pay the trustee’s costs which had been reserved by each of the Registrars.

18                        I do not consider that the features exhibited by this litigation justify the conclusion that the trustee should never have instituted the proceedings.  As I have already indicated, each of the trustee and the respondent has enjoyed a measure of success in respect of some of the issues resolved in the principal proceedings.  However, the issues were to a large degree intertwined.  The issues were not always as clearly or coherently identified as they might have been.  However, I do not regard those features or the comparative success or failure of the parties on a particular issue as so striking as to require a specific, separate, order as to the costs of that issue. 

19                        On balance, and subject to the exception noted below, I regard it as an appropriate exercise of the Court’s discretion as to costs to order that the trustee’s costs be taxed and paid or retained out of the estate of the bankrupt and to leave the respondent to bear her own costs.

20                        An exception, I consider, should be made in respect of the costs of the hearings on 5 March 2007 and 9 July 2007.  On those dates, directions were given, apparently at the instigation of the respondent, but were never complied with by her.  No response was made in the respondent’s written submissions to the contentions of the trustee in respect of those directions hearings.  It is a trite proposition that costs are not awarded against a party by way of punishment but so as to compensate the other party for the expense occasioned by the litigation to which that party would not otherwise have been put;  see Cilli v Abbott (1981) 53 FLR 108, at 111 and Latoudis v Casey (1990) 170 CLR 534, at 543, 563 and 567.  In this case, it is impossible to reach any other conclusion than that the trustee should not have been put to the expense of incurring the costs respectively reserved by Registrar Luxton and Registrar Mussett.  I shall therefore order that those costs be taxed and paid by the respondent.

Associate:

Dated:         17 April 2009