FEDERAL COURT OF AUSTRALIA

Mango Boulevard Pty Ltd v Whitton; In the matter of Spencer (Bankrupt)

(No 2) [2011] FCA 845

THE COURT ORDERS THAT:

1.    The costs of and incidental to the application by the first respondent for direction pursuant to s 134 of the Bankruptcy Act 1966 (Cth) are reserved to the judge who hears and determines the applicants’ application.

2.    The application by the respondents for an order that the costs ordered to be paid by the applicants, pursuant to paragraph 2 of the order of 29 April 2011, in respect of the transfer of the proceeding be taxed and paid forthwith is refused, with costs.

3.    Paragraph 2 of that order is amended such that it reads “the respondents’ costs”, rather than “the respondent’s costs”.

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 Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    These reasons for judgment must be read in conjunction with those delivered by me on 29 April 2011 in respect of an application under s 134 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) by the First Respondent, Mr Whitton, in his capacity as trustee of the bankrupt estates of the Second and Third Respondents, Mr Spencer and Ms Perovich: Mango Boulevard Pty Ltd v Whitton; In the matter of Spencer (Bankrupt) [2011] FCA 418 (principal judgment). Also dealt with by me at that time was an outstanding issue in relation to the costs of the application for the transfer of the principal proceeding from the Victorian to the Queensland District Registry of the Court.

2    The principal judgment was a reserved judgment. Such was the nature of the matter, the length of the reserved judgment and the issues covered in it, that it would not have been procedurally fair for the parties to have been expected then and there to have made submissions with respect to costs of the application for direction or other costs issues. Rather, it was necessary to allow time for the parties to absorb the reasons for judgment and to formulate consequential costs submissions. Accordingly, I gave directions providing for the filing and serving of written submissions. It has not proved possible before now to determine, having regard to those submissions, what orders or, as the case may be, further orders should be made in relation to costs.

3    This provokes the thought that one way, perhaps a more efficient way, of determining costs in circumstances such as those just recited would be for the Court to adopt, in particular cases, of its own motion or at the request of the parties, a practice based on that of the High Court of England and Wales, as found in Practice Note E (Reserved Judgments) to Part 40 of the Civil Procedure Rules 1998 (Eng and Wales) (White Book, 2009, p 1115). That practice note details the terms of a protocol whereby that court will, in advance of the date fixed for delivery of judgment, release to the legal advisers to the parties (with provision for further release by them to the parties but no further) a draft of the reasons for judgment. It further provides for the filing of submissions in advance that judgment date in respect of proposed consequential orders, including those in respect of costs. Such a practice, if adopted in a case such as the present, would, I expect, have enabled such residual questions to have been dealt with on the date judgment was delivered.

4    Be this as it may, such residual questions now fall for determination. They fall for determination in the exercise of the power to award costs found in s 32 of the Bankruptcy Act. That section confers an unfettered discretion but nonetheless a discretion which must be exercised judicially, not capriciously.

Costs of Trustee’s Application for Direction

5    One option canvassed in the submissions of Mr Whitton is that he should have his costs of and incidental to the application for direction, out of the funds held by him, in respect of the calling of the meeting.

6    The direction which Mr Whitton sought was as to whether a meeting of creditors to consider compositions promoted by Mr Spencer and Ms Perovich should be held before or after the determination of the substantive proceeding brought by Mango (adopting the same abbreviation as used in the principal judgment)? Though Mr Whitton contended that it ought to be held beforehand, he canvassed at some length in his submissions factors telling for and against that proposition. His applying for a direction from the Court was appropriate relief to seek and a prudent step for any bankruptcy trustee to take in the prevailing circumstances.

7    Mr Whitton has submitted, and for present purposes I accept, that his situation was not materially distinguishable from that of the trustee of a trust in respect of whom provision is made by statute for the seeking of directions from the Court concerning, inter alia, the management or administration of trust property: see, for example, s 96 of the Trusts Act 1973 (Qld) (Trusts Act). That is not to say that the office of trustee in bankruptcy is completely analogous to that of the trustee under a privately constituted inter vivos or will trust. A bankruptcy trustee holds office under the Bankruptcy Act and must administer the bankrupt estate in accordance with that Act. As has been said in Adsett v Berlouis (1992) 37 FCR 201 at 208 (Full Court), a bankruptcy trustee “has a dual function: first to administer the estate in the interests of creditors and the bankrupt; second to exercise as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act”. That said, it falls to each kind of trustee in the administration of an estate, be it a bankrupt estate or otherwise, to make value judgments as to how efficiently and correctly to administer that estate according to law. In the course of that administration circumstances may arise where it is appropriate and prudent for the trustee to approach the relevant court of competent jurisdiction for direction. That is this case. In this sense, I consider that there is a relevant analogy to be drawn as between Mr Whitton’s position and that of a private trustee.

8    Where a trustee of a trust seeks the advice of a court pursuant to a provision such as s 96 of the Trusts Act, concerning the construction of the trust instrument for the purpose of administering the trust fund according to the terms of that instrument, the general rule is that, if the trustee has acted reasonably and in good faith, the trustee’s costs should be met from the trust fund, either directly or pursuant to the trustee’s right of indemnity: Gleeson v Fitzpatrick (1920) 29 CLR 29 at 35 per Knox CJ and esp. at 38 per Rich J; Robertson v Graham (1917) 17 SR (NSW) 676 at 679 per Harvey J; Re Evans (deceased); The Union Trustee Company of Australia Ltd v Attorney General for Queensland [1957] St R Qd 345 at 353 per Mack J (as his Honour then was).

9    In the latter case, Mack J added (ibid) a proviso, which was that the trustee ought to have his costs from the trust fund, providing that the point of construction raised for direction was not so clear as not to admit of argument. That may be but a different way of highlighting that the trustee must be seen to have acted reasonably in bringing the application. Sometimes though, points of construction may have a clarity in the hindsight of judicial determination which they do not have in prospect. Just this consideration was highlighted by Chesterman J (as his Honour then was) in the following passage from another case to which Mr Whitton’s submissions helpfully drew my attention, McKnight and Anor v Ice Skating Queensland (Inc) [2007] QSC 279 at [4]:

[4]    The respondent has been substantially successful in the litigation but it is not, I think, appropriate that the applicants should pay its costs. They were, I think, justified in seeking the opinion of the court as to the terms of the trust on which they held the property, and whether the respondent was entitled to call for the trust property. Their view of the trust was wrong, and I thought clearly so, but they were not acting irresponsibly. They took the advice of counsel who mounted a respectable argument against the respondent’s contention.

10    Here, s 73 of the Bankruptcy Act did not in terms specify when the meetings of the respective creditors of Mr Spencer and Ms Perovich should be held. Mr Whitton certainly mounted a “respectable argument” that it should be held before the determination of Mango’s substantive application but in so doing fairly put arguments for and against that. I consider that the Court is entitled to expect from a bankruptcy trustee in an application for direction a fair summary of pertinent authority and relevant facts, together with a submission as to their effect. That, as here, the Court may reach a different view as to the application of the authorities in the circumstances does not disentitle a bankruptcy trustee to the usual order as to costs. Mango accurately described Mr Whitton’s stance in respect of the application for direction in its submissions on costs in this way, “It cannot be said that Mr Whitton was partisan or not neutral”. This conclusion does not, of course, in any way bind the trial judge as to what to make of Mr Whitton’s involvement, if any, in events yet to be proved in the context of the principal proceeding.

11    I regard the reasonable costs of and incidental to Mr Whitton’s application for direction as costs reasonably incurred in his administration of the estates of Mr Spencer and Ms Perovich. More particularly, they are incidental to the request made of him for the calling of the creditors’ meetings.

12    Though Mr Whitton submitted that the burden of an order for costs in his favour ought to fall on the funds entrusted to him for the purpose of the calling of the meetings, he further submitted that the making of an order might await the determination of Mango’s substantive application. He submitted that it would be in the interests of creditors as a whole just to reserve the question of the costs of the application for direction to the trial judge.

13    It is true that the determination of Mango’s application ought to determine whether Mr Spencer and Ms Perovich remained bankrupts after a date when they would otherwise have lost that status by effluction of time. The determination of that question may involve the Court’s scrutiny of Mr Whitton’s conduct other than in making the application for direction.

14    Mr Spencer and Ms Perovich also submitted that costs of the application for the direction should be reserved to the trial judge. They submitted that Mango’s substantive application had the result of “upsetting the normal course of the administration of the estates”. The application for direction was, they submitted, but a corollary of this “upsetting” occasioned by Mango. Hence the costs of the application for direction should await the determination of Mango’s application.

15    Exactly what constitutes an “upsetting” of the normal course of the administration of these estates depends on one’s reference point. Mango’s application was a reaction to the course taken to, so it was hoped, extend the period of bankruptcy so as to allow Mr Spencer and Ms Perovich to put forward, finally, their respective composition proposals.

16    Mango submitted that Mr Whitton’s costs should be met from the fund entrusted to him for the purpose of the calling of the meetings. There is an obvious relationship between those costs and the request to call the meetings which lends at least a superficial attraction to that submission. Nonetheless, if Mango had not instituted the principal proceeding, the application for direction would not have been necessary. There are no other funds in the estates from which Mr Whitton’s costs might be met.

17    Thus, the alternatives presented are to order:

(a)    that Mr Whitton’s costs of and incidental to the application for direction be taxed on an indemnity basis and paid from the funds held by him for the purpose of the calling of the creditors’ meetings; or

(b)    that Mr Whitton’s costs of the application be reserved to the trial judge.

18    It seems to me that the fate of the determination of Mango’s substantive application does intrude upon who ought to bear Mr Whitton’s costs. For example, though I came to accept Mango’s submission as to when the meeting ought to be held, it does not necessarily follow from this that it should not additionally be responsible for his costs in respect of that application in the event that it fails in the principal proceeding.

19    Similar considerations intrude, in my opinion, as to the costs of the other parties to the application for direction. Mr Spencer and Ms Perovich failed to persuade me that the meeting should be held before the determination of the substantive proceeding. Viewing the event as narrowly as that, it might be thought that a costs order should follow such that they should pay Mango’s costs of and incidental to the application for direction. Again though, that application was necessitated by the bringing of Mango’s substantive application.

20    For these reasons, though I consider that the trial judge should have the benefit of my views, as the judge who heard the application for direction, of the propriety of Mr Whitton’s conduct in bringing that application, it is in the interests of justice that the determination of who should bear his costs of that application should be reserved to the trial judge. I also consider that the interests of justice are also better served by reserving all other questions of costs of that application to the trial judge.

Order the costs of the transfer application to be paid forthwith?

21    I have already ordered that Mango should pay the costs of the other parties of and incidental to the transfer application. Each of the respondents, i.e. Mr Whitton, Mr Spencer and Ms Perovich, submit that these should be taxed and paid forthwith. The usual position is that an order for costs in respect of an interlocutory application does not entitle a party to have his costs taxed until after the conclusion of the principal proceeding in which those costs were ordered to be paid: O 62 r 3(3), Federal Court Rules (Cth), as applied by r 13.01(1) of the Federal Court (Bankruptcy) Rules 2005 (Cth). That position is subject to any order of the Court to the contrary: ibid. In lieu of the usual position, the Court may order that the costs of a party be taxed and paid forthwith: O 62 r 3(2) as likewise applied.

22    The question as to whether or not to order that the costs should be taxed and paid forthwith is not therefore one of whether power to make such an order exists. It plainly does. Rather, the question is how that power ought to be exercised as a matter of discretion?

23    It has been said that the ordering that costs be taxed and paid forthwith is a departure from the general rule: Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 at 312 per Olney J. The way O 62, r 3(3) is cast supports such a conclusion as a matter of language. To recognise that means no more than there must be a reason shown to depart from the usual position for the discretion must be exercised judicially, not whimsically. In McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 at [41] Weinberg J expressed his concurrence with views that had earlier been expressed by Lindgren J in Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 14) [1995] FCA 660 and by Branson J in Life Airbag Co of Australia Pty Ltd v Life Airbag Co (New Zealand) Ltd [1998] FCA 545 that the power to order that costs be taxed and paid forthwith was “possibly under-utilised”. With respect, it may just be that the existence of the power has been under-recognised. Other, more recent authorities are gathered by Besanko J in Rafferty v Time 2000 West Pty Ltd (No 3) (2009) 257 ALR 503. In that case, at [20], Besanko J offers a succinct statement, with which I respectfully agree, of the rationale for the usual position:

20.    The general rule serves a number of purposes. First, it avoids multiple taxations in a proceeding. Secondly, it avoids the apparent unfairness which may arise where, at an early stage of a proceeding, a party who is ultimately successful is required to pay costs to a party who is ultimately unsuccessful. Finally, it prevents interlocutory proceedings being used as a weapon to exhaust the financial resources of one of the parties.

24    His Honour then, at [21], gives examples of circumstances which, in the past, have moved the Court to order that costs be taxed and paid forthwith:

21.    At the same time, the Court may order that costs be paid forthwith, and the cases suggest that that power may be exercised in circumstances in which there is an element of unreasonableness in the conduct of the unsuccessful party, and it is likely that there will be a long delay between the interlocutory proceeding and the conclusion of the principal proceeding. One example of the former which has been discussed in the cases is where an unsuccessful party makes multiple attempts to plead its case. It seems to me that another consideration which may be relevant to the question of whether an order should be made that the costs of an interlocutory proceeding be paid forthwith is the nature of the interlocutory proceeding and the likely quantum of the costs involved. It seems to me that if the interlocutory proceeding is a substantial one and the costs payable are substantial then that may be a matter which, together with other matters, may lead to an order being made that the costs of the interlocutory proceeding be paid forthwith.

25    Such examples should not be regarded as exhaustive of the circumstances in which costs might be ordered to be taxed and paid forthwith. It is not even that there must be an element of unreasonableness on the part of the party against whom an interlocutory costs order has been made before those costs will be ordered to be taxed and paid forthwith, although such conduct is undoubtedly relevant. To approach the exercise of the discretion on the basis that unreasonableness must be present would be to put an impermissible gloss on the language of the rule. The position remains that whether or not to utilise it upon application must necessarily depend on the circumstances of the particular case and the existence of a reason to depart from the usual position.

26    Here, the long and the short of the complaint against Mango is that it instituted the proceeding in the Victorian District Registry of the Court, rather than the Queensland District Registry and was more tardy than the other parties would have wished in recognising that its reasons for its objections to transfer were unpersuasive. For all that, the transfer occurred without the need for a contested hearing, albeit at a late stage.

27    It is important to recall that this is a national court which, in relation to bankruptcy, exercises a national jurisdiction. Subject to the remnants of the cross-vesting scheme, that differs from the position which obtains in respect of matters in State courts in respect of State jurisdiction where the connection of a cause of action with a particular State is of critical jurisdictional importance.

28    Here, Mango’s institution of the substantive proceeding in the Court’s Victorian District Registry validly invoked the Court’s national jurisdiction in bankruptcy. Mango’s institution of the proceeding in that registry was not capricious. In relation to legal advisory work by solicitors, that was being provided to it by those who worked from the Melbourne office of the firm Minter Ellison. Had no objection been raised by the other parties, that proceeding might have been validly heard and determined by a judge of the Court assigned to that registry. It is just that, when factors such as the location of the subject land and Mr Spence and Ms Perovich were highlighted, there was a powerful case for the transfer of the matter to the Court’s Queensland District Registry, which would then make this registry the “proper place” for the purposes of the rules. The reservation voiced by Mango about the possibility of disqualification arising from past association by some judges with this registry with the firm Minter Ellison or the partner concerned was neither whimsical nor, on the evidence, raised in anything other than good faith, even though, on closer examination, it could never have given rise to a conclusion that a reasonable apprehension of bias existed if it transpired that the matter was allocated to the docket of such a judge.

29    That Mango ought to have given more timely attention to a transfer of its substantive application by consent has been recognised already by the award of costs against it. I am not persuaded that that application is not being prosecuted with due diligence or that it is likely to be heard so far into the future as to make it unjust that costs should not be taxed and paid forthwith. Particularly in circumstances where Mango has raised a serious issue to be tried, I consider that it may work an injustice against Mango to order that the costs ordered against it be taxed and paid forthwith. In the event that it does succeed in its application and secures an order for costs in its favour from the trial judge then, depending upon against whom that order is made, there may be scope for ordering a set-off in respect of the costs thus far awarded against Mango. Such matters are for the trial judge.

30    Insofar as the quantum of costs may be relevant, I do not have the benefit of any short form assessment by an independent expert. There is some reference in the supporting affidavits to the other parties’ costs in respect of the transfer application running into some tens of thousands of dollars by the time the pressing of that application for judicial determination was rendered unnecessary by a change of heart by Mango. I do no more than confess to a degree of curiosity, as to how, reasonably, this could be so on a party and party basis. Even if the amount is actually more modest, for reasons which I have already given I consider that the usual position should apply.

31    I decline to order that costs be taxed and paid forthwith. Insofar as Mango has incurred additional costs meeting by submission the application for costs to be taxed and paid forthwith it should have the costs of so doing. For the avoidance of doubt, in respect of these costs, too, I decline to order that they be taxed and paid forthwith.

32    Finally, I record that, in the course of preparing these reasons for judgment, I have discerned a slip in the order made on 29 April 2011 awarding costs in favour of the respondents. That order has not yet been entered. Paragraph 2 of that order should be amended such that it reads “respondents’ costs”, rather than “the respondent’s costs”.

33    There will be orders accordingly.

Associate:

Dated:    28 July 2011