FEDERAL COURT OF AUSTRALIA

Dubow v Official Receiver (NSW) [2013] FCA 709

THE COURT ORDERS THAT:

1.    Pursuant to rule 36.09 of the Federal Court Rules 2011 (Cth), within 21 days of the date of these orders Ms Dubow provide security for the costs of the appeal of the second respondent in the amount of $25,000.00 in a form acceptable to the Registrar of the Court.

2.    The appeal be stayed until security is provided.

3.    If Ms Dubow fails to provide the security in accordance with Order 1 the appeal be dismissed.

4.    Ms Dubow pay the costs of the second respondent of the amended interlocutory application for security for costs filed on 18 July 2013.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    On 26 April 2012 the second respondent, Mr Barnden, was appointed trustee of the estate of Ms Yolande Dubow pursuant to s 181A of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) following acceptance by the first respondent of a debtor’s petition presented by Ms Dubow. Subsequently in the Federal Magistrates Court (now the Federal Circuit Court) Ms Dubow sought an order that her bankruptcy be annulled pursuant to s 153B of the Bankruptcy Act.

2    The Federal Magistrate (as he then was) dismissed Ms Dubow’s application, and ordered that she pay the costs of the Official Receiver, Mr Barnden, and two creditors who participated in the hearing (Dubow v Official Receiver & Anor [2013] FMCA 217).

3    Ms Dubow has filed a notice of appeal against his Honour’s decision.

4    Before the Court now is an amended interlocutory application filed by Mr Barnden, in which he seeks the following orders:

1.    Pursuant to Rule 36.09 of the Federal Court Rules 2011, the applicant give security for the Second Respondent’s costs of the proceedings in such manner and in such amount as the Court considers appropriate.

2.    The proceedings against the Second Respondent and any other Respondent be stayed until such further security is given.

3.    Such further or other orders as the Court sees fit.

4.    Costs.

5    The solicitor with carriage of the matter for Mr Barnden, Mr Alan McMurran, has sworn an affidavit (dated 21 May 2013) deposing to his belief that Mr Barnden will incur costs in or about the sum of $33,759.00 and disbursements of $895.00 in respect of the appeal.

6    Ms Dubow opposes this interlocutory application.

7    Before considering the merits of this interlocutory application it is useful to set out the background facts.

Background

8    In or around 2011 it appears that Ms Dubow was involved in extensive litigation against Fitness First Australia Pty Ltd and Kent Attorneys (“the Creditors”). At the trial before the Federal Magistrate, Ms Dubow deposed that she was taking advice from a registered trustee, Mr Hugh Ramsay, in relation to demands from Fitness First Australia Pty Ltd.

9    On 18 October 2011, Ms Dubow sent a debtor’s petition and consent to act as trustee from Mr Hugh Ramsay to Insolvency and Trustee Australia (“ITSA”). It appears that Ms Dubow subsequently withdrew and re-sent her petition several times to ITSA, before the Official Receiver accepted her debtor’s petition on 20 March 2012. The Federal Magistrate found that there was no consent to act as trustee attached to the version of the debtor’s petition that was accepted.

10    The Official Trustee became the trustee of Ms Dubow’s estate in bankruptcy pursuant to s 160 of the Bankruptcy Act. On 26 April 2012 Mr Barnden was appointed trustee of Ms Dubow’s estate in bankruptcy pursuant to s 181A of the Bankruptcy Act.

Proceedings in the Federal Magistrates Court

11    On 8 June 2012 Ms Dubow filed an application to have her bankruptcy annulled pursuant to s 153B of the Bankruptcy Act in the Federal Magistrates Court. The Federal Magistrate granted leave to the Creditors to appear at the hearing of the application.

12    In summary, Ms Dubow argued that her bankruptcy be annulled because:

    her debtor’s petition should not have been presented to the Official receiver; and

    her debtor’s petition should not have been accepted by the Official Receiver when it was presented.

13    In dismissing Ms Dubow’s application, the Federal Magistrate found, in summary, that:

    Ms Dubow had not demonstrated that she was solvent at the time she presented her debtor’s petition, or that she could realise assets quickly in order to become solvent.

    Ms Dubow had not demonstrated that either the debtor’s petition or the statement of affairs did not comply with any of the requirements of s 55 of the Bankruptcy Act so that the Official Receiver was bound not to accept the petition.

14    The Federal Magistrate also made the following observations in relation to the exercise of his discretion:

Discretion

42.    In the event that I am wrong about either of the limbs of s 153B of the Act as discussed above, I would decline to exercise the court’s discretion to annul the bankruptcy in any event because:

a)    Her bankruptcy has come about upon her own application, which she made after taking advice from a registered bankruptcy trustee;

b)    She sought to avoid legal proceedings being pursued by one of her creditors by presenting her own petition;

c)    Despite seeking that she be made bankrupt upon her own petition she now says that her petition ought to have been rejected; and

d)    The evidence establishes that Ms Dubow is presently insolvent. She is unable to meet the costs orders against her that are now due.

43.    I have a concern that arises out of the way in which Ms Dubow has presented her case. On the one hand she actively sought to have the Official Trustee accept her debtor’s petition. She presented the petition to, as she says, try and bring the ongoing litigation with Fitness First Australia to an end. Yet she says that at that time she knew she was solvent and the Official Receiver, if he had been doing his job correctly, ought to have picked up that fact from the morass of material that accompanied her petition. Presenting a debtor’s petition when the debtor knows that he or she is not insolvent is an abuse of process. Having on her own case engaged in an abuse of process, the Court should be slow, in my view, to provide its assistance to her. In any event, the material demonstrates that she is in fact insolvent and the bankruptcy should not be annulled.

Appeal to this Court

15    Ms Dubow filed a notice of appeal in this Court on 16 April 2013. Ms Dubow appeals from the whole of the judgment of the Federal Magistrate delivered on 28 March 2013 on 12 different grounds. These grounds may be summarised as follows:

    The decision and reasons of the Federal Magistrate were not supported by the evidence and were based on an inference engineered by the 9-month delay between the hearing and judgment. This delay represented an abuse of process and a denial of natural justice (grounds 1, 2 and 3).

    In [31]-[33] of the decision, the Federal Magistrate erred in finding that on the balance of probabilities Ms Dubow was not solvent at the time of presenting her bankruptcy petition or at the time of the Federal Magistrate’s hearing. The Federal Magistrate misapplied the regime set up in s 153B of the Bankruptcy Act (grounds 4, 7 and 8).

    The Federal Magistrate failed to take into account relevant factors, including the interests of both secured and unsecured creditors if bankruptcy were continued, and a costs judgment by the Supreme Court of New South Wales (grounds 5 and 10).

    Ms Dubow should have been able to exercise her right to nominate the trustee to administer her estate in bankruptcy (ground 6).

    The Federal Magistrate erred in allowing the Creditors to be joined as parties to the hearing (ground 9).

    The decision is bad for all parties involved, including secured creditors, unsecured creditors and Ms Dubow (ground 11).

    There is a reasonable apprehension of bias in the Federal Magistrate. For example, the Federal Magistrate should not have allowed Ms Dubow to be cross-examined, and should have allowed Ms Dubow to cross-examine the Official Receiver (ground 12).

16    In her notice of appeal Ms Dubow seeks the following orders:

1.    If leave is required to commence this appeal, and such leave is not granted within time, an extension of time in which to Appeal is sought.

2.    That the Debtors Petition presented by the Bankrupt should not have been presented, or if presented should not have been accepted by the Official Receiver.

3.    That there is a positive duty upon the Official Receiver to address the issue of solvency on the material produced in a Debtors Petition, such that failure to do so is a failure of a Statutory duty.

4.    That a Consent to act as a nominated Trustee in a Debtors Petition (or at all) remains effective until revoked, and can be relied upon by a Debtor having presented a petition.

5.    That the Bankruptcy should be set aside and the Remuneration to the Trustee should be limited to that which was assessed as at the date of filing for the annulment in the Federal Magistrates Court being 8 May 2012.

6.    Costs of this Matter and the original proceeding to the Applicant.

Security for costs application

17    At the hearing yesterday of the security for costs application, Mr Barnden was represented by Mr Eardley of Counsel. I gave leave to the Official Receiver not to enter an appearance.

18    Ms Dubow appeared in person on the telephone. I note that Ms Dubow is a solicitor with a practising certificate.

19    Both parties filed written submissions, and further relied upon oral submissions and affidavit material. I note further that Mr Eardley objected to the affidavit of Ms Dubow sworn and filed 12 July 2013 in its entirety.

Submissions of the parties

20    In its written submissions and supporting affidavits, the second respondent submitted that security for costs in respect of Ms Dubow’s appeal should be awarded for, in summary, the following reasons:

    The appeal has no reasonable prospects of success. The appeal effectively seeks a declaration to the effect that at the time of presentation of the debtor’s petition the application was not insolvent. This is against the weight of evidence presented in the Federal Magistrates Court, meaning that the grounds of appeal are misconceived and not supported by evidence.

    The Court cannot make Orders 2, 3 and 4 sought in the notice of appeal because they are in the nature of submissions.

    Order 5 sought in the notice of appeal is misconceived. If the bankruptcy were annulled then the trustee in bankruptcy would be entitled to remuneration pursuant to s 154 of the Bankruptcy Act. On the other hand, if a review application were successful, the trustee in bankruptcy would not be successful. (However, a review application could not now be commenced as it is manifestly out of time.)

    The Court should be concerned about the comments made by the Federal Magistrate at [43] of the decision, in relation to Ms Dubow having engaged in an abuse of process.

    Ms Dubow’s lack of funds has not been caused, or contributed to, by the conduct of the second respondent. It is the conduct of Ms Dubow in becoming bankrupt on her own debtor’s petition that has led to her inability to pay her debts as and when they fall due.

    There is no evidence that would suggest that the making of an order for security for costs would unduly stultify the appeal.

    Since the appeal has limited prospects of success there may ultimately be a costs order made in favour of the second respondent. There is no evidence that Ms Dubow has any ability to meet any such costs order.

    There is no evidence that any third party creditors would be affected if the Court were to award the second respondent security for costs.

21    In particular, Mr Eardley read the affidavit of Mr McMurran (as amended at yesterday’s hearing), wherein Mr McMurran detailed his estimate of the costs and disbursements which would be incurred by Mr Barnden in respect of the appeal as follows:

22    Further, Mr Eardley objected to Ms Dubow’s affidavit sworn 12 July 2013 in its entirety because, in addition to the delay with which it was served upon the second respondent, the affidavit contains irrelevant and scandalous material. For example:

    the affidavit contains extensive comments which are in the nature of submissions and opinion rather than evidence.

    at [20]-[23] of the affidavit Ms Dubow states that the Court below was misled by the second respondent in relation to the filing of an affidavit by the second respondent, whereas this was not true. In fact, there had been an error in filing this document as evidenced between correspondence between the parties and the Federal Magistrates Court annexed to Ms Dubow’s affidavit, and the error had been speedily rectified by the second respondent. In this respect, [20]-[23] of Ms Dubow’s affidavit are both misleading and scandalous in their imputations concerning the second respondent.

    at [11], [12], [31], [34] and [37] Ms Dubow makes scandalous claims concerning the Federal Magistrate, including references to an alleged “tirade of abuse” from the Federal Magistrate and alleged “personal animosity” between herself and his Honour.

    at [45] Ms Dubow claims that the second respondent is “diverting rent monies from investment properties to himself”, which is a scandalous allegation against an officer of the Court.

    in [46] Ms Dubow makes scandalous allegations concerning the solicitors for Fitness First.

23    Ms Dubow submitted, in summary:

    no evidence or notice of appearance was filed by the second respondent in the Federal Magistrates Court proceeding.

    a Jones v Dunkel inference should be drawn in relation to the absence of material filed by the second respondent in the Federal Magistrates Court proceeding.

    the second respondent should not be entitled to prevent an appellate Court examining the statutory functions of the Official Receiver in accepting Ms Dubow’s debtor’s petition.

    it was improper for the second respondent to be appointed as the trustee in bankruptcy when a signed consent to so act by another person had been provided by Ms Dubow.

    it was inappropriate for the Federal Magistrate to order costs payable to the Creditors when they were not formally nominated as parties.

    the second respondent already holds rental income diverted over 15 months from three properties owned by Ms Dubow, and to that extent is already possessed of funds such that a security for costs order is unwarranted.

    The second respondent could avoid costs in the appeal by filing a submitting appearance.

    it is improper for the second respondent to prevent Ms Dubow seeking an annulment of the bankruptcy, “so that the Trustee can garner more remuneration for himself”.

    the fact that the second respondent continues to interfere with the legal process in this matter is prima facie evidence that Ms Dubow’s estate was solvent 15 months ago, and “has only been rendered insolvent by the efforts of the Trustee”.

24    In relation to her affidavit of 12 July 2013, Ms Dubow submitted in summary:

    the affidavit was filed electronically on 12 July 2013 and was available from that time;

    the material in the affidavit pointing to bias on the part of the Federal Magistrate and supportive of her written submissions is relevant to the conduct of the appeal.

Consideration – Ms Dubow’s affidavit

25    In relation to Ms Dubow’s affidavit, it is clear that the evidence in that affidavit is substantially in the form of submissions. That this is so is plain on a comparison of the affidavit with Ms Dubow’s written and oral submissions – in my view the affidavit can properly be seen as an expansion of Ms Dubow’s submissions. Indeed Ms Dubow concedes this point in [48] of the affidavit where she states:

I accept that significant amounts of the material in this affidavit are submissions as opposed to facts but also rely on the convention that such is acceptable for self represented litigants.

26    However Ms Dubow deposes that she is a solicitor, with a practising certificate (presumably under the Legal Profession Act 2007 (Qld) although this fact is not specifically identified). Notwithstanding that Ms Dubow is representing herself, as the Full Court observed in Abram v Bank of New Zealand (1996) ATPR 41-507; [1996] FCA 635 at 42,347:

What a judge must do to assist a litigant in person depends on the litigant, the nature of the case, and the litigant's intelligence and understanding of the case.

27    In my view Ms Dubow cannot fall back on a claim of being a litigant in person to substantiate affidavit material which is in the nature of submissions rather than evidence. As was clear at the hearing yesterday – and unsurprisingly in light of her qualifications – Ms Dubow perfectly comprehended the nature of the interlocutory application against her, as well as the relevance of authorities and pertinent legislation. I do not accept that a practising solicitor can declaim professional expertise in relation to a Court document on the basis that she is acting for herself.

28    Second, I am not persuaded of the relevance of a great deal of the material in the body of the affidavit to the interlocutory application before the Court. Ms Dubow’s evidence relates, to a significant degree, to her dissatisfaction with both the conduct of the trial before his Honour and its outcome, and to impugning the second respondent. While there may be some relevance to the merits of Ms Dubow’s appeal it is otherwise difficult to identify this material as relevant to the second respondent’s application for security for costs and factors relevant to the exercise of the Court’s discretion in relation to such an application.

29    Third, peppered throughout the affidavit are references to his Honour below and the second respondent which can only be described as scandalous and wholly inappropriate.

30    The objection of the second respondent to Ms Dubow’s affidavit, in its entirety, is upheld.

Consideration - Security for costs

31    I turn now to the second respondent’s application for security for costs.

32    The power of the Court to order security for costs payable in respect of an appeal is found in s 56(1) of the Federal Court of Australia Act 1976 (Cth), which provides:

56 Security

(1)    The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.

(2)    The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.

(3)    The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given.

(4)    If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed.

(5)    This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security.

33    Further, r 36.09 of the Federal Court Rules 2011 (Cth) provides:

36.09 Security for costs of appeal

(1)    A party may apply to the Court for an order that:

(a)    Ms Dubow give security for the costs of the appeal, and for the manner, time and terms for giving the security; and

(b)    the appeal be stayed until security is given; and

(c)    if Ms Dubow fails to comply with the order to provide security within the time specified in the order—the appeal be stayed or dismissed.

(2)    An application under subrule (1) must be accompanied by an affidavit stating the facts in support of the application.

Note:    Section 56 of the Act also deals with security for costs.

34    The Court must exercise its discretion to order security for costs judicially, as noted in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1. Otherwise, however, the discretion is broad and unfettered.

35    The principles upon which security for costs are ordered for an appeal are well-settled, although they differ from considerations in ordering security in trials at first instance. As explained by Jagot J in Clack v Collins (No 1) [2010] FCA 513:

8    In Moore v Macks [2007] FCA 509 at [20] Mansfield J referred with approval to the decision in Cowell v Taylor (1885) 31 Ch D 34 at 38. In that case, Bowen LJ said:

The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity. There is an exception in the case of appeals, but there Ms Dubow has had the benefit of a decision by one of Her Majesty’s courts, and so an insolvent party is not excluded from the courts, but only prevented, if he cannot find security, from dragging his opponent from one court to another.

9    Mansfield J also referred to the decision of Spender J in Skyring v Sweeney [1999] FCA 61 at [6] to the effect that:

Impecuniosity is a factor which can be taken into account as justifying the grant of security. Impecuniosity ought not to be a bar to a person prosecuting at first instance a claim, but the position on appeal seems to me to be fundamentally different. In effect, in the absence of an order for security for costs in the circumstances of this case, Mr Skyring, in effect, is given a free hit, and that seems to me to be intrinsically unfair.

36    In a number of cases the Courts have observed that factors relevant to the decision whether to order security for costs for an appeal include the following:

1.    The prospects of success of the appeal.

2.    The risk that a costs order will not be satisfied.

3.    Whether the making of an order for security would be oppressive in that it would stifle a reasonably arguable claim.

4.    Whether any impecuniosity of an appellant arises out of the conduct that is the subject of the complaint in the relevant proceeding.

5.    Whether there are any aspects of public interest that weigh in the balance against granting security.

6.    Whether there are any other particular discretionary matters peculiar to the circumstances of the case.

(Soh v Commonwealth of Australia [2008] FCA 1524 at [10], Clack v Collins at [13], Thomson v STX Pan Ocean Co Ltd [2011] FCA 254 at [4], Dye v Commonwealth Securities Limited [2012] FCA 992 at [26].)

37    In this case I consider that an order for security for costs should be made, for the following reasons.

38    First, I consider that there is substance to the submission of the second respondent that Ms Dubow’s appeal has limited prospects of success, although I am not prepared to find at this stage that Ms Dubow has no prospect of succeeding in any aspect of her appeal.

39    Second, in my view there is a real risk that any costs order made against Ms Dubow will not be satisfied. Annexed to Mr Barnden’s affidavit is a Statement of Financial Position as at 19 April 2013 (Annexure AB2), where the deficiency in Ms Dubow’s estate was estimated at $459,810. No financial information was put forward by Ms Dubow at the hearing to contradict this material.

40    Third, while it is possible that the making of a security for costs order against Ms Dubow could prevent her pursuing her appeal, no submissions were made, or evidence drawn to the attention of the Court, by Ms Dubow to that effect. The Court can only speculate that an order in the terms sought by the second respondent may stifle the appeal.

41    Rather, Ms Dubow’s primary submission at the hearing in respect of funding costs was that the second respondent had received rental income from a number of Ms Dubow’s properties and to that extent had access to funds to pay his Court costs if necessary. However in my view this submission is misconceived. Section 19(1)(j) of the Bankruptcy Act requires the trustee to administer the estate as efficiently as possible by avoiding unnecessary expense. It is well-settled that the trustee should administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors’ claims and any possible surplus for the bankrupt (for example Adsett v Berlouis (1992) 37 FCR 201 at 208). It is not to the point that the trustee may have – quite properly – been in receipt of income from the estate, to be used for the benefit of creditors. It is perfectly reasonable for the trustee to seek an order of security for costs in respect of litigation, where there is a real risk that an order for costs against the other party may not be enforceable, rather than first exhaust the assets of the estate.

42    Fourth, while in her appeal Ms Dubow may have complaints concerning the second respondent, her impecuniosity cannot be attributed to conduct of the second respondent. Ms Dubow’s bankruptcy followed a debtor’s petition, which she presented. Further I am not satisfied for the purposes of this application that the second respondent has sought to “garner more remuneration to himself” as alleged by Ms Dubow – no evidence has been produced to support such an allegation.

43    Fifth, I cannot identify any matters of public interest which would weigh in the balance against granting security for costs.

44    Finally, I note his Honour’s findings below that Ms Dubow’s bankruptcy had come about upon her own petition to avoid one of her creditors and that she then sought to have her own petition rejected. While Ms Dubow cavils with his Honour’s judgment, she did not appear to dispute these particular issues before me. I consider further that the judgment of his Honour in dealing with Ms Dubow’s application in the Federal Magistrate’s Court was thoughtful and thorough, and that Ms Dubow has had the benefit of a reasoned judgment in respect of her complaints. I consider that these factors weigh in the balance in favour of an order for security for costs.

45    At the hearing Ms Dubow raised issues concerning the failure of the second respondent to enter an appearance or file evidence in the hearing before his Honour. In my view these issues are of no relevance to the application before me. I agree with Mr Eardley that there was no need for Mr Barnden to either enter an appearance or file evidence at the hearing before his Honour where – as his Honour observed at [33] of the judgment below – the onus was clearly on Ms Dubow to show that she was solvent and she failed to discharge it. I am also not satisfied by Ms Dubow’s submissions concerning the filing of an affidavit by Mr Barnden and the apparent confusion in the Court below concerning whether such an affidavit had actually been filed. This issue appears of little moment and peripheral relevance to the application before me. Finally, I do not accept Ms Dubow’s submission that the second respondent could properly avoid incurring costs by the simple expedient of filing a submitting appearance in the appeal. Such a submission proposes conduct by the second respondent which runs contrary to his duties as trustee of Ms Dubow’s bankrupt estate.

46    On balance, in my view it is appropriate that the Court make an order for security for costs against Ms Dubow.

Appropriate order

47    In the affidavit of Mr Alan McMurran a detailed breakdown of the second respondent’s estimated costs in respect of the appeal is itemised. I note one minor error (in the calculation of the solicitor’s costs in item (a)(i), which should read $2,310.00 rather than $2,100.00), with the result that the total costs estimate should presumably actually be $30,850.00 plus GST (rather than $30,690.00 plus GST). In the circumstances however I will continue to treat Mr McMurran’s estimate of $30,690.00 plus GST, totalling $33,759.00, as the amount submitted as appropriate by the second respondent.

48    As the second respondent concedes, it is accepted principle that an order for security is not intended to grant an indemnity in respect of costs. While the costs and disbursements sought by the second respondent appear reasonable, there is no indication in Mr McMurran’s affidavit whether the costs he estimates have been calculated on an indemnity or a party-party basis. No submission in relation to this issue has been made by the second respondent.

49    Accordingly, in the circumstances I consider an allowance of approximately 30% ought to be made, and that security for costs in the sum of $25,000 be provided by Ms Dubow within 21 days. Pending payment of that sum Ms Dubow’s appeal should be stayed. The usual terms where the Court orders security for costs to be paid are that the matter stands dismissed in default of compliance with the order. Accordingly, I will also order that in default of payment in accordance with these orders Ms Dubow’s appeal should be dismissed.

50    In relation to the costs of this interlocutory application the ordinary rule should apply and costs should follow the event.

Associate:

Dated:    19 July 2013