FEDERAL COURT OF AUSTRALIA

Low v Barnet (Trustee); In the Matter of Mathai (No 2) [2016] FCA 736

ORDERS

THE COURT:

1.    ORDERS that the Application be dismissed.

2.    ORDERS that the applicant pay the respondent’s costs of the proceeding as agreed or taxed.

3.    ORDERS that Order 3 made on 4 July 2014 be vacated and replaced with the following order:

3.    The taxed costs of the applicant (Ms Low) of and incidental to the said Interim Application be paid out of the bankrupt estate of the said Mathew Keralavakayil Mathai.

4.    ORDERS that the sum of $100,000 paid by Mathew Keralavakayil Mathai pursuant to Order 1(b) made on 4 July 2014 as security for the applicant’s costs and the respondent’s costs of this proceeding together with any interest earned thereon be refunded by the Court to Mr Mathai as soon as practicable after the making of these Orders.

5.    NOTES that the Order in par 2 above is not intended to qualify the respondent’s entitlement, in the first instance, to pay the legal costs and disbursements incurred by her in the conduct of this proceeding from the bankrupt estate of Mathew Keralavakayil Mathai.

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

ORDERS

THE COURT:

1.    DIRECTS the respondent to admit as an expense of the administration of the bankrupt estate of Mathew Keralavakayil Mathai and to pay to the applicant, with the priority afforded by s 109(1)(a) of the Bankruptcy Act 1966 (Cth):

(a)    The costs to which she is entitled pursuant to the orders made by Graham J on 19 July 2005 in proceeding NSD 596 of 2005 (Mathai v Kwee [2005] FCA 932, (2005) 3 ABC(NS) 268), such costs to be as agreed or taxed;

(b)    The amount of $5,186.48 in respect of the costs incurred by her in respect of Trip 19 undertaken by Mr Leong in March 2010 and which is referred to in Items 6, 7 and 10 of the Originating Application filed herein on 25 July 2014; and

(c)    The amount of $17,500 in reimbursement of fees paid to Mr P Hayes of Counsel in connection with Federal Court proceeding VID 1038 of 2011 and High Court proceeding M9 of 2013 claimed as Item 9(a) in the Originating Application filed herein on 25 July 2014.

2.    ORDERS that the Application otherwise be dismissed.

3.    ORDERS that the applicant pay 90% of the respondent’s costs of and incidental to this proceeding, as agreed or taxed.

4.    ORDERS that Order 3 made on 6 November 2014 be vacated and replaced with the following order:

3.    The taxed costs of the applicant (Ms Low) of and incidental to the said Interim Application be paid out of the bankrupt estate of the said Mathew Keralavakayil Mathai.

5.    NOTES that Order 3 above is not intended to qualify the respondent’s entitlement, in the first instance, to pay the legal costs and disbursements incurred by her in the conduct of this proceeding from the bankrupt estate of Mathew Keralavakayil Mathai.

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

REASONS FOR JUDGMENT

FOSTER J:

1    On 4 December 2015, I delivered Reasons for Judgment in respect of two sets of proceedings concerning the bankrupt estate of Mathew Keralavakayil Mathai (Mr Mathai’s estate) (NSD 310 of 2014 and NSD 769 of 2014) (Low v Barnet (Trustee); In the Matter of Mathai [2015] FCA 1386, (2015) 13 ABC(NS) 427) (Low v Barnet No 1). I will assume that readers of this judgment will have read Low v Barnet No 1.

2    I did not make final orders on 4 December 2015. Rather, in each of the matters, I made orders in the following terms:

1.    By 14 December 2015, the parties and their legal representatives confer and endeavour to agree on the form of orders which should be made in order to give effect to Reasons for Judgment published by Foster J this day (Low v Barnet (Trustee); In the Matter of Mathai [2015] FCA 1386).

2.    In the event that agreement is reached as to the form of such orders, the agreed form of orders be lodged with the Associate to Foster J by 15 December 2015 for consideration by the Court.

3.    In the event that agreement is not reached as to the appropriate form of orders, by 18 December 2015, each party lodge with the Associate to Foster J that party’s draft of the orders which that party considers ought to be made and thereafter the form of the final orders will be decided on the papers.

4.    By 18 December 2015, the applicant and the respondent lodge a Written Submission of no more than three (3) pages in length addressing the question of costs in light of the said Reasons for Judgment published this day and thereafter the said question of costs will be decided on the papers.

3    Subsequently, as directed, each of the parties lodged a Written Submission with my Associate in which each of those parties specified the form of those orders which the parties agreed were appropriate in order to give effect to my Reasons in Low v Barnet No 1. The parties also expressed their preferences in respect of those orders which were not agreed and provided submissions in support of the orders propounded by each of them.

4    By these Reasons for Judgment, I determine the form of the final orders to be made in both matters.

PROCEEDING NSD 310 OF 2014

5    All of the parties agreed that this proceeding should be dismissed. The parties also agreed that, as noted by me at 13 ABC(NS) 451 [163]–[164] of Low v Barnet No 1, Order 3 made on 4 July 2014 should be vacated and replaced with an order which only provides that the taxed costs of the applicant (Ms Low) of the interim application determined by the orders made by me on that day be paid out of Mr Mathai’s estate. I had previously made an order to that effect but had also made an order that the Trustee’s costs also be paid out of that estate. The parties agreed that this latter order was unnecessary and likely to cause confusion. The parties also agreed that the amount of $100,000 paid by Mr Mathai as security for the costs of Ms Low and the Trustee pursuant to Order 1(b) made on 4 July 2014 plus any interest earned thereon now be paid out to Mr Mathai. These agreed orders will now be made.

6    In light of the above matters, the only dispute which remains unresolved relates to costs.

7    All parties submitted that the question of costs is in the discretion of the Court and that the discretion, though broad, is required to be exercised judicially (see, in particular, Kazar (Liquidator) v Kargarian (2011) 197 FCR 113 at 115–117 [2]–[9] per Greenwood and Rares JJ and at 123–125 [43]–[47] per Foster J).

8    Senior Counsel for Ms Low submitted that the unchallenged evidence of both Mr Ryan (a former trustee of Mr Mathai’s estate) and Mr Leong (Ms Low’s husband) was that, as a result of Mr Ryan’s accepting funding and the costs indemnity from Ms Low, there was an agreement made by those two gentlemen to the effect that Mr Ryan would “support” any subsequent application made by Ms Low for the payment of a risk premium pursuant to s 109(10) of the Bankruptcy Act 1966 (Cth) (the Act). It was submitted on behalf of Ms Low that, while Mr Ryan did not purport to legally bind the estate to pay a risk premium and could not do so effectively even if he had purported to do so, nonetheless Mr Ryan bound Mr Mathai’s estate to support Ms Low’s application for the payment of a risk premium. It was submitted that the Trustee became bound to honour that commitment once Ms Low provided the indemnity which she provided to the Trustee and subsequently provided funds to the Trustee pursuant to that indemnity. Senior Counsel for Ms Low went on to submit that the promise to support Ms Low’s claim should be regarded as extending to supporting a further promise to use the Trustee’s best endeavours to secure the payment of Ms Low’s costs of and incidental to any subsequent application made by her pursuant to s 109(10) of the Act, even if the Court ultimately determined that it would not sanction the payment sought. It was submitted that the present case is analogous to the case where a mortgagee seeks to recover its litigation costs from the mortgagor pursuant to a covenant in the relevant mortgage which provides for full recovery of costs, such covenants generally being enforced by the courts.

9    For these reasons, Ms Low’s primary position was that her costs of this proceeding should be paid out of Mr Mathai’s estate. In the alternative, she submitted that the Court should make no order as to the costs of her s 109(10) application.

10    The commitment upon which Ms Low relies was the subject of evidence from Mr Ryan at par 28 and par 29 of his affidavit sworn on 24 August 2014. In those paragraphs, Mr Ryan said:

My conversation with Philip in August 2007

28.    In about mid-August 2007 I met with Philip [referring to Mr Leong] at my office in Moonee Ponds, Victoria. At the beginning of the meeting he handed me a letter from Monica dated 12 August 2007. A copy of this letter is at pages 16 to 17 of the Bundle. At this meeting, Philip and I had a conversation that included an exchange to the following effect:

Me:     Mark Koroneos has estimated that it will cost approximately $100,000 to conduct the proceedings. I will need funding for the proceedings and to conduct public examinations of the Bankrupt, Margaret Mathai and Michael Mathai under section 81 of the Bankruptcy Act. I will also need an indemnity from Monica to cover any adverse costs order made against me in the proceedings.

Philip:     If Monica was to fund you in the amounts you have requested and give you her indemnity she thinks it only fair and reasonable to receive an incentive or reward for her taking on the risks of litigation.

Me:     Given the risks that Monica would be taking in funding the proceedings, I think it would only be fair and appropriate that she obtain some sort of risk premium out of the net proceeds of the proceedings. That is a matter for the Court to decide and you would need to apply to the Court under 109(10). I would support you in any application made to the Court to determine the risk premium.

As mentioned earlier, I would need an indemnity from Monica to cover me for any adverse costs if the litigation is not successful.

Philip:     Monica agrees to provide you with the cash funding for the legal costs as and when you require. Monica will also indemnify you for any adverse costs orders made against you.

Monica would like a risk premium of between 80% and 85%.

Me:     That is a bit high.

Philip:    I don’t think so given the huge risks that Monica would be taking in trying to recover the properties which were transferred almost 28 years ago.

Me:    As the Court would have to agree to the application, I think 75% may be more acceptable.

29.    From our discussions during the August 2007 meeting, I believed that Philip and I agreed to the following:

(a)    Monica would provide me with cash funding as and when I required for the purposes of conducting the s. 121 Proceedings and the Public Examinations and would indemnify me against any adverse costs order.

(b)    Monica and Philip would assist me in preparing for the s. 121 Proceedings if and when required, which may include Monica or Philip travelling to Australia to provide me with any information and evidence in support of the s. 121 Proceedings.

(c)    Monica would be justified to make a claim of 75% of any net proceeds of sale of assets recovered from the s.121 Proceedings. Monica would be required to make an application for such a claim to the Court pursuant to Section 109 of the Bankruptcy Act.

(d)    I would support Monica in any application made by her to the Court under section 109 of the Bankruptcy Act to recover 75% of the net proceeds of sale of the assets recovered from the s. 121 Proceedings.

11    At par 97 and par 99 of his affidavit sworn on 26 February 2014, Mr Leong gave evidence much to the same effect. In particular, according to Mr Leong, Mr Ryan expressly stated that he would support any subsequent application made by Ms Low under s 109(10) of the Act.

12    As I have already observed, Senior Counsel for Ms Low accepted that Mr Ryan could not bind Mr Mathai’s estate to pay a risk premium to Ms Low in consideration of her undertaking the risk associated with indemnifying Mr Ryan in respect of the foreshadowed recovery proceedings involving 68A Wellington Street and 69 Wellington Street and other matters. Nor was it suggested that the Trustee of Mr Mathai’s estate was estopped from opposing the claim ultimately made by Ms Low pursuant to s 109(10) of the Act. The argument before me was confined to the proposition that, in all of the circumstances (which included the conversation which I have extracted at [10] above) Ms Low should have her costs paid out of Mr Mathai’s estate or, at the very least, no order for costs should be made against her.

13    The Trustee and Mr Mathai submitted that costs should follow the event. They both submitted that Ms Low was wholly unsuccessful and therefore should pay the Trustee’s costs. In particular, the Trustee submitted that it was burden enough for Mr Mathai’s estate to have to bear the Trustee’s costs. It would be unjust, so the argument ran, for the estate to be further diminished by having to pay Ms Low’s costs. It would also be unjust for the estate not to receive some compensation from Ms Low in respect of costs in circumstances where she had been wholly unsuccessful.

14    There is nothing in either version of the mid-August 2007 conversation which took place between Mr Ryan and Mr Leong which suggests that there was any discussion between those gentlemen as to who should pay the costs of any application for a risk premium made by Ms Low under s 109(10) of the Act. In particular, there was no discussion as to whether Ms Low should have her costs out of Mr Mathai’s estate in the event that her application was unsuccessful.

15    To the contrary, Mr Ryan made clear to Mr Leong that the question of whether Ms Low should be paid a risk premium and, if so, how much, was entirely a matter for the Court. Mr Ryan emphasised that, while Mr Ryan’s support might be of assistance, the decision was the Court’s, and the Court’s alone. Mr Leong understood all of these things.

16    In those circumstances, I do not consider that the discussion which took place between Mr Ryan and Mr Leong has any real bearing on the exercise of the Court’s discretion in respect of costs.

17    Ms Low has been wholly unsuccessful in this proceeding. There is no reason why she should not pay the Trustee’s costs of and incidental to this proceeding.

18    The costs order which I propose to make will reflect my conclusion as stated at [17] above.

19    I will otherwise make orders substantially in accordance with the orders agreed between the parties in respect of this proceeding.

PROCEEDING NSD 769 OF 2014

20    In Low v Barnet No 1, I addressed Ms Low’s appeal under s 178 of the Act at 13 ABC(NS) 448–451 [140]–[162]. At 451 [162], I noted that I had rejected most of the claims made by Ms Low under s 178 of the Act.

21    At 13 ABC(NS) 448–449 [146(a)], I discussed Item 4 in Ms Low’s Proof of Debt which was a claim by her for legal costs and disbursements in respect of Mr Mathai’s annulment application filed on 19 April 2005 and a claim by her for reimbursement of certain travel and accommodation expenses incurred by Mr Leong. In Low v Barnet No 1, I held that, in the absence of agreement in relation to quantum in respect of these claims, the claims should be taxed under the Act. In her Written Submission lodged with my Associate after delivery of judgment in Low v Barnet No 1, Ms Low submitted that I should now make an order awarding to Ms Low the full amount claimed by her in respect of Item 4(a) (viz $67,514.30) and the full amount of travel and accommodation expenses for trips 6 and 7 undertaken by Mr Leong in relation to the bankrupt’s annulment application and review of the Registrar’s sequestration order (viz $8,870.59). In respect of those claims, I am not prepared to adopt a position which is different from that which I explained at 13 ABC(NS) 448–449 [146(a)] of my Reasons in Low v Barnet No 1. Accordingly, in the absence of agreement in respect of these items, Ms Low’s claims will need to be taxed.

22    At 13 ABC(NS) 449 [146(b)], I allowed Ms Low’s claim for reimbursement of Mr Leong’s travel and accommodation expenses for trip 19 in an amount of $5,186.48. I will now make an order allowing that claim.

23    At 13 ABC(NS) 449 [146(c)], I also indicated that I would allow Ms Low’s claim for reimbursement of $17,500 being fees paid to Mr P Hayes of Counsel. I will also now make an order for payment of that claim.

24    As I noted at 13 ABC(NS) 431 [16] of Low v Barnet No 1, Ms Low’s claim for reimbursement of outlays in proceeding NSD 769 of 2014 totalled $443,024.21. As a consequence of my Reasons in Low v Barnet No 1, I propose to award Ms Low $22,686.48 of that claim with the prospect of a further award of a substantial part of $76,300 (approx) after taxation. The remaining claims made by Ms Low were rejected. The quantification of Ms Low’s actual success so far is approximately 5.12% of the total quantum of all of the claims made by her with the prospect of a further 16.9% (max) the subject of further consideration. Insofar as that further 16.9% is concerned, I note that the Trustee’s concession in respect of Ms Low’s entitlement to have that additional amount taxed was only made shortly before the hearing of this proceeding. The Trustee maintains the position that the quantum of this claim is inflated.

25    It was submitted on behalf of Ms Low that it must have been obvious to the Trustee all along that Ms Low was entitled to some reimbursement in respect of Item 4(a) because the costs and disbursements in question related to Mr Mathai’s annulment application which would not have been incurred had Mr Mathai not applied for an annulment of his bankruptcy. It was submitted on behalf of Ms Low that the concessions ultimately made by the Trustee were made very late. In those circumstances, Senior Counsel for Ms Low submitted that the appropriate order for costs in respect of Ms Low’s s 178 application was that Ms Low’s costs should be paid out of Mr Mathai’s estate. In the alternative, she claimed a number of specific orders for costs designed to take account of the circumstances that the concessions made by the Trustee were significant, were correctly made and should have been made much earlier.

26    Counsel for the Trustee and Counsel for Mr Mathai submitted that the Trustee had been substantially successful in respect of Ms Low’s claim under s 178 of the Act and that costs should therefore follow the event. They sought an order that Ms Low pay the Trustee’s costs of and incidental to that application.

27    Counsel for the Trustee submitted that the Court should not approach the question of costs by looking at each item in Ms Low’s Proof of Debt and assessing the costs incurred in respect of each item individually and then relating those costs to the outcome in respect of each item. Counsel submitted that, on any view of the outcome, Ms Low failed in respect of the vast bulk of her claims. It was submitted that she pressed her appeal in respect of all items even after the Trustee’s concessions were made. It was said that the items which were conceded did not raise any separate issues of law or any substantial or distinct issues of fact to those which remained in dispute. The making of these concessions did not reduce the hearing time to any significant extent. It was then submitted that, as a matter of general approach, parties to litigation ought not to be dissuaded from making reasonable concessions on matters genuinely in issue for fear that the Court may, after the outcome of the case is known, take an overly technical and pedantic approach to questions of costs including by seeking to dissect the overall outcome and allocate costs on an issue by issue basis reflecting different levels of success or failure on separate parts of the case.

28    In the alternative, Counsel for the Trustee submitted that, were I persuaded that there should be some reduction in the costs recoverable by the Trustee (and thus the estate), I should adopt an all-up broad brush approach and discount the costs that would otherwise be awarded to the Trustee by an appropriate amount rather than adopt the alternative approach advocated by Ms Low which involves taking, to some extent, an issue by issue approach. The Trustee proposed an overall discount of 10%.

29    In the end, I am persuaded that the Trustee’s alternative submissions strike the most appropriate balance in this case. Accordingly, I propose to order Ms Low to pay 90% of the Trustee’s costs as taxed or agreed.

30    There will be orders accordingly.

Associate:

Dated:    21 June 2016