FEDERAL COURT OF AUSTRALIA

Young, in the matter of Macryannis (No 2) [2012] FCA 175

YOUNG, IN THE MATTER OF THE BANKRUPT ESTATE OF THE LATE CHRISTOPHER JOHN MACRYANNIS

THE COURT ORDERS THAT:

1.    There be no order as to costs with the intent that Kathryn Anne Young and Geoffrey David McDonald bear their own costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules

YOUNG, IN THE MATTER OF THE BANKRUPT ESTATE OF THE LATE CHRISTOPHER JOHN MACRYANNIS

REASONS FOR JUDGMENT

1        On 8 November 2011 I gave judgment disposing of interim applications filed respectively by Geoffrey David McDonald, as trustee of the Bankrupt Estate of the late Christopher John Macryannis and by Kathryn Anne Young, the sister of Mr Macryannis: Young, in the matter of Macryannis (2011) 124 ALD 28 (earlier reasons). I made no order as to costs of these applications and gave leave to Mrs Young and the Trustee to provide draft orders on costs in respect of each of the applications the subject of my reasons as well as submissions in support of those draft orders.

2        The parties were allowed time to exchange draft orders and submissions before providing them to the Court. I indicated that the issue would be decided on the papers unless either of them wished to make oral submissions. Neither Mrs Young nor the Trustee indicated a wish to make oral submissions. These are my reasons for the orders as to costs; they should be read together with my earlier reasons.

MRS YOUNG’S APPLICATION

Submissions on behalf of the Trustee

3        At issue in the proceeding was the administration of the deceased estate of Christopher John Macryannis which in 2006, was ordered to be administered under Part XI of the Bankruptcy Act 1966 (Cth) and, in particular the Trustee’s dealing with exempt assets. In my earlier reasons I rejected Mrs Young’s application for an order pursuant to s 179 of the Act that the Court enquire into the conduct of the Trustee in relation to his handling of the estate of Mr Macryannis. The Trustee seeks an order that Mrs Young pay his costs incurred in respect of the application made under s 179 on an indemnity basis, including reserved costs. The Trustee also seeks an order that he be entitled to retain from the exempt assets prior to distribution, any costs which Mrs Young is ordered to pay including taxation costs to the extent relevant. In support of his application, the Trustee makes the following submissions:

1.    Mrs Young was “wholly unsuccessful” in her application for an enquiry under s 179 of the Act, which was not brought in Mrs Young’s personal capacity rather on behalf of the trust created under the will of Mr Macryannis of which Mrs Young is the trustee.

2.    There were alternatives to Mrs Young making an application under s 179. She could have requested the assistance of the Inspector-General in Bankruptcy who has wide-ranging powers to make enquiries and undertake investigations and make reports. Although Mrs Young did complain to the Insolvency and Trustee Service Australia (ITSA) in September 2009, the Inspector-General did not request an enquiry under s 179.

3.    Notwithstanding the breakdown in the relationship between the Trustee and the solicitor for Mrs Young, “it is perplexing as to why [Mrs] Young saw fit to become involved to a degree which culminated in an allegation of misuse of funds and deceit”. Mrs Young made ill-founded allegations of misuse of funds and deceit and her motivation in seeking an enquiry was for the purpose of having the Trustee removed.

4.    Mrs Young could have avoided the first two complaints in her s 179 application by obtaining a declaration from the Supreme Court of New South Wales early in the administration of the estate.

5.    The Court determined that an inquiry concerning access to the accounts and records of the estate was not warranted.

6.    The Trustee provided an explanation for the transactions the subject of the s 179 application. There was no misuse of funds and all distributions were supported by detailed records notified to Mrs Young’s solicitors.

4        In his written submissions the Trustee stated that his position is a special one. He was not involved in resisting the application as a usual party to adversarial litigation. He referred to the decision of O’Connor J in Deputy Commissioner of Taxation v Wily [1999] FCA 881 in support of the proposition that a Court may decide not to order costs against a trustee even where the applicant has been successful in its application.

5        The Trustee also referred to the decision of Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 where his Honour, at 231, quoted the following comment of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401:

I believe that it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.

6        Justice Sheppard’s observations were accepted by French J in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 225 where his Honour observed at 8, that the categories in which the discretion may be exercised are not closed.

7        The costs sought by the Trustee include costs in relation to the hearing of the Trustee’s interlocutory application to set aside subpoenas and notices to produce issued by Mrs Young in relation to the s 179 application. The Trustee submits the Court is entitled to make separate orders in respect of reserved costs.

Submissions on behalf of Mrs Young

8        Mrs Young seeks an order that the Trustee pay her costs of and incidental to the notice of motion filed 28 June 2010 on an ordinary basis as agreed or taxed. Mrs Young submits that her application was not wholly unsuccessful. She was successful in obtaining an order that her costs, as petitioning creditor, be taxed and paid out of the bankrupt estate. While she was unsuccessful in her application to obtain an order for a Court enquiry pursuant to s 179, she was successful in demonstrating that there was sufficient evidence to justify concern about the Trustee’s conduct. Although I considered that it was not appropriate to order an enquiry, I expressed the view that there is an issue to be explored concerning the Trustee’s suitability to continue to be registered as a trustee under the Bankruptcy Act. I ordered that the Registrar of the Court forward my earlier reasons for judgment to the Inspector-General in Bankruptcy drawing to his attention my comments concerning the Trustee: earlier reasons at [142]. Mrs Young was also successful in her application concerning payment of the exempt assets.

9        In relation to the Trustee’s conduct, Mrs Young points to the following findings I made, in support of an order that the Trustee pay her costs of the notice of motion:

    the Trustee had “not [acted] with the initiative and diligence that it was reasonable to expect”: earlier reasons at [91].

    the Trustee had been “lax about his record keeping and…less than helpful in responding to legitimate enquires”: earlier reasons at [116].

    his conduct “did not always meet the required standard”: earlier reasons at [120].

    he “was often unprofessional”: earlier reasons at [139].

10        Mrs Young submits that had the Trustee made the accounts and records of the estate readily available to her, litigation could have been avoided. She refers to a decision of this Court in Re Nader, T. Ex Parte; Official Trustee in Bankruptcy and Anor [1991] FCA 394 where the comments of Justice Cave in Re Bryant, Ex parte Gordon (1889) 6 Mor 262 at 266 were noted:

Where the trustee has shown such carelessness and want of sense in a case in which, if he had exercised common sense, it would probably have saved litigation, I shall certainly make him pay the costs out of his own pocket.

11        Mrs Young concedes that there was a breakdown in the relationship between herself and the Trustee, but submits that this breakdown reflects more on the Trustee as I noted in my earlier reasons at [120] where I said:

The history of the dispute between the parties over the books and records is yet another illustration of the antagonism between them and their inability to co-operate with each other. Ultimately, this reflects more on the Trustee than on Mrs Young. As the person appointed by the Court to administer the Macryannis estate under Part XI, the Trustee has duties and obligations which he is expected to discharge in a professional manner without allowing personal animosities to intrude. The tenor of the correspondence between the parties suggests that the Trustee did not always meet the required standard.

THE TRUSTEE’S APPLICATION

Submissions on behalf of Mrs Young

12        Mrs Young seeks an order that the Trustee pay her costs of and incidental to the Trustee’s application on an indemnity basis or on an ordinary basis, as agreed or taxed.

13        In written submissions, Mrs Young concedes that the Trustee was successful in his interim application to the extent that he was found to be entitled to remuneration and reimbursement of his costs and expenses in relation to the “care, preservation and realisation” of the exempt assets. However, the Trustee was unsuccessful in having his remuneration fixed in a prescribed amount and in having that remuneration drawn from the exempt assets.

14        Mrs Young submits that, when considering costs, the Court should take into account offers made in Calderbank from her and from the beneficiaries under the will of Mr Macryannis to the Trustee in respect of his remuneration. Annexed to Mrs Young’s written submissions are two letters representing these offers. The first is a letter dated 15 December 2009 addressed to the Trustee’s solicitors, Parry Carroll, from Rockliffs on behalf of Mrs Young. The letter renews an offer made by Mr Findlay, the New South Wales Business Manager, Regulator Unit of the Insolvency and Trustee Service Australia (ITSA) on behalf of Mrs Young on 14 October 2009. Mrs Young offered to allow a deduction of $5,000 from the exempt assets on account of the Trustee’s remuneration. The second letter is dated 11 May 2010 addressed to Parry Carroll from the beneficiaries’ solicitors, Argyle Lawyers, in which the beneficiaries offered to pay the Trustee $25,000 in remuneration.

Submissions on behalf of the Trustee

15        The Trustee submits that these offers are of no relevance because they were incapable of implementation. He says this is so because Mrs Young refused to “regularise the Will position until the eleventh hour” and “The offers neglected to deal with the costs of the trustee’s application to the Court for directions and did not deal with exempt assets.”.

16        In response Mrs Young submits that the delay in obtaining the Supreme Court declaration was to a significant extent caused by the Trustee’s conduct which led her to believe that the only issue to be resolved prior to payment of the assets to her was the approval of the Trustee’s remuneration. If Mrs Young believed the matter could have been resolved by obtaining the declaration, which was eventually obtained, she submits she would have done so.

17        The Trustee seeks an order that Mrs Young pay his legal costs of the interim application on a party-party basis, despite the dismissal of his application, for the following reasons:

1.    The Trustee’s decision to seek directions in relation to his remuneration was correct. The correctness of this decision was not challenged, nor could it be.

2.    The Court found the Trustee had a right to seek reimbursement of his costs and expenses under general law.

3.    “[T]he need to bring the proceedings arose out of directions given by Mr Findlay, which included the option of payment of the balance of assets into Court within 14 days. The trustee was under compulsion to institute proceedings, one way or another”.

4.    The Trustee was requested by Mr Rockliff, in an email dated 28 September 2009, to make an application.

5.    Mrs Young had refused to approve the Trustee’s remuneration in an email dated 25 September 2009.

6.     Mrs Young had rejected a suggestion by the Trustee on 21 January 2010 to have the issue of remuneration referred to arbitration or a Registrar for determination. If the Trustee’s suggestion had been accepted, the Court may not have been required to deal with the application.

7.    The Court was not prepared to make orders by consent or otherwise earlier in the proceeding distributing a proportion of the exempt assets to the beneficiaries, because a declaration had not been obtained in relation to the will. Mrs Young was not, at that stage, entitled to receive any assets from the estate.

8.    “The material filed on behalf of [Mrs] Young was so excessive that it had to be defined by directions of the Court. The costs of the trustee were inflated by the conduct of the case conducted on behalf of [Mrs] Young”.

18        The Trustee further submits that if the Court does not accept his submissions, as set out above, the Court should fix payment of a fixed percentage of his costs of the entire proceeding.

REASONING AND CONCLUSION

19        Although there are two separate applications to be considered here, that of the Trustee and that of Mrs Young, the two are closely connected: They relate to the same substratum of facts and were prompted by the same dispute between the parties. The Trustee sought to have the Court determine his remuneration because of Mrs Young’s failure to approve his recommendations in that regard. Mrs Young refused to approve the Trustee’s remuneration because she regarded the Trustee as not entitled by reason of his conduct. It was that conduct which, in Mrs Young’s view, warranted an enquiry under s 179. It would be artificial to award costs in respect of the separate applications and, for that reason, I propose to treat them as one for the purpose of determining costs.

20        The Trustee submits that as Mrs Young was unsuccessful in her application for an enquiry under s 179, his costs of that application should be paid on an indemnity basis. While the usual position is that the successful party is awarded costs this is not a usual situation. In my earlier reasons I made clear that while I had “serious reservations about some aspects of the Trustee’s discharge of his obligations as trustee” I did not think that an enquiry under s 179 would be of utility or that it would be “in the interests of the orderly administration of the deceased estate”. As I said at [141]:

There remains little to do to finalise the administration and, I understand, limited funds are available for any additional work in connection with the administration. In the circumstances it is in the interests of all concerned that it be finalised as soon as possible.

21        This conclusion did not reflect a rejection of all Mrs Young’s complaints about the Trustee. I have referred above, at [11], to the Trustee’s unprofessional behaviour. I might add that this extended beyond his dealings with Mrs Young, to his relations with Mr Macryannis’ children and Mr Findlay. I do not doubt that had he behaved in a more professional manner the litigation might well have been avoided or considerably shortened. As such it is appropriate that the Trustee’s conduct be taken into account in considering his application for costs. This is not to deny that Mrs Young also had some responsibility for the debacle surrounding the administration of Mr Macryannis’ estate.

22        In so far as the Trustee’s interim application in relation to his remuneration is concerned, my earlier reasons explain why, in my view, the issue could have been dealt with simply and with more expedition by following the statutory procedure outlined in my reasons.

23        Both the Trustee and Mrs Young in their submissions point to ways in which things might have been done differently and, if this had been so, the litigation might have been avoided. There is some merit in each case. It is not necessary for me to respond to these submissions point by point. It is clear from my earlier reasons that there was fault, delay and confusion on each side. I repeat, however, that in my view the greater fault lay with the Trustee despite him perhaps having greater success in the proceeding.

24        While it is rare for a successful litigant to be denied costs it is not unprecedented. In Cummings v Lewis [1992] FCA 334 Wilcox J considered the principles applicable to the exercise of discretion on costs, taking into account the relevance of the pre-trial conduct of the successful party and the weight to be attributed to this factor. His Honour’s conclusions were summarised by Drummond J in Re Skase; ex parte Donnelly (1992) 37 FCR 509 at 522. In each case the successful party was denied part of its costs. The fundamental principle is that, in relation to costs, the Court has an unfettered discretion to do what is just in all the circumstances.

25        In my view the just result in this proceeding is that the Court make no order as to costs, the intent being that the Trustee and Mrs Young should bear their own costs.

Associate:

Dated:    2 March 2012