FEDERAL COURT OF AUSTRALIA

Khadpekar v Official Trustee in Bankruptcy (No 3) [2009] FCA 495

MANGALA KHADPEKAR v OFFICIAL TRUSTEE IN BANKRUPTCY

QUD 149 of 2008

SIOPIS J

20 APRIL 2009

PERTH

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The respondent pay the appellant’s disbursements reasonably incurred in the application for leave to appeal and the appeal, to be taxed.

2.         The question of costs of the proceeding before the Federal Magistrate in Queensland is remitted to the Federal Magistrates Court.

3.         The respondent is not entitled to an indemnity against the appellant’s estate in respect of costs incurred in defending the appellant’s application for leave to appeal.

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.

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

REASONS FOR JUDGMENT

1                          This is an application for costs.  I delivered a judgment in this matter on 19 March 2009 and I asked the parties to address me separately on the question of costs.

2                          There were two costs issues.

3                          The first issue relates to the costs of the appeal and the proceeding at first instance before the Federal Magistrate.  I deal first with the costs of the appeal.  In this case, I made a referral under O 80 of the Federal Court Rules for pro bono counsel to be appointed to represent the appellant, Ms Khadpekar, in this litigation.  However, regrettably, counsel was unable to accept the mandate due to ill health.  The consequence was that Ms Khadpekar conducted the case as a litigant in person, save for some informal assistance from Mr Morrisey.

4                          Costs are normally awarded to indemnify a party to litigation in respect of legal costs which a legal practitioner has charged, or is entitled to charge, that party; or, where a pro bono appointee has acted, to provide for the legal costs that practitioner would otherwise have charged for the services rendered.  As Ms Khadpekaer conducted the application for an extension of time and the appeal in person, she will not incur any liability in respect of legal costs.  Further, pro bono counsel was unable to accept the mandate of representing Ms Khadpekar.  Accordingly, the basis for an award of costs in Ms Khadpekar’s favour in relation to the application for leave to extend time and the appeal, is absent.

5                          However, Ms Khadpekar has advised the Court and it is evident from the Court file, that she has incurred disbursements in relation to the conduct of this appeal and the application for leave to extend time.  The respondent, the trustee, does not oppose the making of an order that the trustee pay Ms Khadpekar’s disbursements on the basis that the disbursements are taxed.  A taxing officer will assess whether the disbursements have been properly incurred, and issue an order in respect of the payment of those disbursements by the trustee.  I will order that the trustee pay Ms Khadpekar’s disbursements incurred in the conduct of the application for leave to extend time and the appeal, to be taxed.

6                          As to the question of the costs which were incurred before the Federal Magistrate at first instance in Queensland, Ms Khadpekar was legally represented at some stage in that proceeding.  However, I have remitted the matter to a different Federal Magistrate for rehearing.  I will reserve the question of the costs of the first instance hearing, to the decision of the Federal Magistrate who hears the remitted application.  The Federal Magistrate to whom the matter has been remitted will be in a better position to deal with the question of the costs of the first instance hearing.

7                          I now turn to deal with the question which I raised at the end of my judgment on 19 March 2009, as to whether the costs which were incurred by the trustee in conducting this litigation could be chargeable to the estate of the bankrupt.  Ms Khadpekar contended in her written submissions, that the legal costs incurred by the trustee were not reasonably and properly incurred and, therefore, should not be charged to the estate.  Ms Khadpekar contended that other than in respect of the question of the need to provide security for the trustee’s costs in respect of the conduct of the proposed appeal, there was no merit in the trustee’s argument in the appeal before this Court.

8                          Further, in oral submissions today, Ms Khadpekar also contended that the trustee had incurred unnecessary costs by taking the point before the Court that the notice of appeal had been served out of time.  In my view, there is merit in Ms Khadpekar’s argument that the trustee acted unreasonably in opposing the application for the extension of time to serve the notice of appeal.  When the trustee was served with the notice of appeal out of time, the trustee would have seen that the notice of appeal had been filed within time.  There was no prejudice to the trustee in respect of the late service.

9                          The conduct of litigation is, generally speaking, not assisted by parties who take trivial points in circumstances where no prejudice has been suffered.  It would have been better if the trustee had consented to the extension of time and the appeal had simply proceeded to be heard.  I find that the trustee’s costs in relation to opposing the application to extend the time for the service of the notice of appeal were not reasonably and properly incurred.  Those costs should not be charged to the estate of the bankrupt.

10                        However, in respect of the conduct of the appeal itself, in my view, it was necessary and reasonable for the trustee to incur legal costs in defending the appeal.  The trustee was, after all, the only contradictor.  It was the trustee’s decision which was under attack and, therefore, there was no real option other than for the trustee to participate in the process.  The reasonableness of a trustee participating in a proceeding where an application is brought under s 178 of the Bankruptcy Act 1966 (Cth) (the Act), was referred to by Emmett J in the case of Wilson v Official Trustee in Bankruptcy [2000] FCA 1251.  In that case, Emmett J drew a distinction between proceedings under s 178 of the Act, and the situation then before the Court, namely, a challenge to an admission of a proof of debt, where there was a third party contradictor.

11                        At [63] of his judgment, Emmett J observed:

However, the question of whether the Trustee had acted with propriety was not of itself an issue before Sweeney J.  There would therefore be no justification for the Trustee incurring costs to defend allegations that were not formally made against him in those proceedings.  It would of course be a different matter were allegations made against the Trustee in an application under s 178.  That was not the nature of the proceedings before Sweeney J.

12                        In my view, it was necessary and reasonable for the trustee to appear and defend the appeal proceeding.

13                        The next question is whether the appeal proceeding was defended in a manner which was unreasonable.  In my view, the trustee, correctly, raised as one of the issues in the appeal, the fact that there was before the Federal Magistrates Court no evidence that Ms Khadpekar would be able to honour the undertaking given to indemnify the trustee in respect of costs incurred in the conduct of any application for leave to extend time and any consequential appeal against the decision of the Cairns Magistrates Court.  The question of the risk to the trustee in those circumstances was raised by the trustee in argument as being an important consideration in the exercise of the Federal Magistrate’s discretion.

14                        I found that whilst the consideration was important it did not result in the trustee succeeding on appeal.  This was because it was possible that had the gravamen of Ms Khadpekar’s complaint been addressed by the Federal Magistrate, a different view on this question may have been taken, or may be taken.  Nevertheless, it was, in my view, reasonable for the trustee to have argued this ground on the appeal.  I, therefore, find that there is no obstacle to the trustee claiming an indemnity from the bankrupt’s estate in respect of the expenses which it has incurred in the conduct of the appeal proceeding.

15                        I will make orders which will give effect to my reasons.

Associate:

Dated:         14 May 2009