FEDERAL COURT OF AUSTRALIA

Coumanios v Giunti (No 2) [2017] FCA 1449

ORDERS

THE COURT ORDERS THAT:

1.    The applicants are to pay the costs of the first and second respondents as agreed or taxed.

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

REASONS FOR JUDGMENT

PERRY J:

1.    INTRODUCTION

1    The applicants, Frosso Coumanios, Stanley Charles Coumanios and John Coumanios, are former bankrupts. The second respondent, Maxwell Prentice, is the trustee of the bankrupt estates of the former bankrupts (the trustee). The first respondent, Giuseppe Giunti, is a creditor in the bankrupt estates. By the statement of claim, the applicants advanced claims to a number of properties in Greece, as well as to the proceeds of sale by such properties. By the time the matter proceeded to trial, the proprietary claims had been abandoned. However the applicants maintained their claim for the sum of $23,324.64, being the sum realised from the sale of four properties on the island of Lesbos in Greece. The applicants also sought a permanent stay of proceedings against Mr Giunti in Australia and Greece in order to prevent him from realising other properties located in Greece pursuant to orders made by a Greek court for the enforcement of a judgment obtained by Mr Giunti in the District Court of New South Wales against the applicants (the District Court judgment). The District Court judgment pre-dated the bankruptcy and was accepted as a provable debt against the applicants in the bankruptcies.

2    The application was comprehensively dismissed in Coumanios v Giunti [2017] FCA 678 (Coumanios (No. 1)). In my reasons in Coumanios (No. 1) at [80], I expressed the preliminary view that costs should follow the event and therefore that the applicants should pay the first and second respondents’ costs but, at their request, afforded the applicants an opportunity to be heard if they wished to contend for a different outcome. The parties subsequently filed submissions on costs, with the applicants contending that the parties should pay their own costs. However, Mr Giunti contends that the applicants should pay his costs on a full indemnity basis on the basis that the applicant had no standing to commence the proceedings and the proceedings were totally misconceived and should never have been commenced. The second respondent contends that there is no reason why the ordinary rule that costs follow the event should not apply.

3    Having considered the parties’ submissions, I consider that the applicants should pay the respondents’ costs on a party/party basis.

2.    RELEVANT PRINCIPLES

4    The Court has a broad discretion to order costs under s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). That discretion is not to be read down otherwise than in accordance with accepted principle. Nonetheless, a successful party is in general entitled to an order for its costs on a party and party basis. As explained by McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [66], the outcome of the litigation is “[b]y far the most important factor which courts have viewed as guiding the exercise of the costs discretion.”

5    The ordinary rule may be departed from so as to award costs on an indemnity basis where the justice of the particular case so requires or where there is some special or unusual feature of the case justifying a departure from the ordinary rule: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 (Sheppard J). The purpose of an award of indemnity costs is explained by Gray J (with whom Carr and Goldberg JJ agreed ) in Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [66], 665:

Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.

6    While the categories of cases in which such an award may be made are not closed, cases in which such an order may be warranted include those where there is evidence of misconduct that causes loss of time to the Court and other parties, or the proceedings are instituted in disregard of known facts or clearly established law.

3.    CONSIDERATION

7    The applicant has not established any basis on which the first and second respondents should be deprived of their costs.

8    First, as I have said, the respondents were completely successful in defending the claims.

9    Secondly, the applicants had no standing in so far as they sought relief to preserve the property of the bankrupt estates and sought the interlocutory injunction issued against Mr Giunti, notwithstanding that it was made by consent (Coumanios (No. 1) at [44]). This is because the applicants were divested of the properties on the making of the sequestration order and no longer under any obligation to make any payments under the District Court judgment (Coumanios (No. 1) at [49]). Nor could the applicant’s submissions to the contrary be reconciled with their consent to the declaration made on 12 November 2015 prior to trial where they accepted that they had no interest in the properties since the date of their respective bankruptcies by virtue of s 58 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) (Coumanios (No. 1) at [52]).

10    Thirdly, the allegations made by the applicants in their submissions that the first respondent acted contrary to the Bankruptcy Act or was effectively responsible for the sale of the four properties in Greece despite the injunction made by consent on 12 January 2015, ignores my findings in Coumanios (No. 1) at [68], namely that:

The applicants also submitted that the Court should infer that the realisation of the four Lesbos properties took place in circumstances where the bankruptcy had not been revealed and that the enforceability of the District Court judgment was the moving part of the decision-making process of the Greek court. In this regard, it can fairly be inferred from the contemporaneous documents that the proceedings were pursued in the Greek courts to enforce the NSW District Court judgment because Mr Perry was not aware of the bankruptcy, in line with the evidence contained in his affidavit. No evidence was led as to why Mr Perry was not informed about the bankruptcy by Mr Giunti although nothing suggests any bad faith on Mr Giunti’s part and no such case is pleaded. Consistently with this, Mr Giunti’s conduct once the issue had been raised with his agent, Mr Perry, was one of co-operation with the trustee: see further at [74(1)] below. While there was a suggestion by the applicants that it may be inferred that if Mr Giunti had given evidence, it would not have assisted his case, it is not clear how any such evidence might have assisted the applicants’ case. I note in this regard that the failure to call a witness cannot fill gaps in the evidence, or convert conjecture and suspicion into inference: Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121 at [53] (Gleeson CJ and McHugh J); O’Donnell v Reichard [1975] VR 916 at 929.

11    Fourthly, the applicant’s submission that “it was principally due to the efforts of the applicant’s lawyers that secured payment into court albeit by consent” is misconceived. As I held in Coumanios (No. 1) at [73] (in rejecting the applicant’s claim that the moneys realised by the sale of the properties were paid into court due to their actions and accordingly vested in the trustee subject to the preservation principle in Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171):

First, it is not in dispute that the applicants did not disclose any of the Lesbos properties. … Secondly, it was through Mr Giunti’s efforts that the additional properties were located. Thirdly, it was as a consequence of the trustee’s efforts, as the rightful owner of the fund, to obtain information from the applicants and Mr Giunti that the monies came to be paid into Court…. As the trustee submitted, “[w]ithout these efforts, the Applicants’ non-disclosure would have meant that the properties went undiscovered by the [trustee] and the fund would not have been created.” As such, as the trustee submits, the applicants should not be rewarded for doing no more than was required by the Act, namely, to disclose the information to the trustee.

12    Fifthly, there is no evidential foundation for the allegations in the applicants’ submissions that the respondents should not be entitled to costs because they were benefiting from “illegal acts” and “failed to act with appropriate candour” with respect to disclosing the contents of the deed authorising Mr Giunti to take steps to realise the Athens and other Greek properties on behalf of the trustee. Further, as the second respondent submits, this was not a proposition advanced during the trial when the trustee, who gave sworn evidence, would have been entitled to respond. As such, the allegations are scandalous and ought not to have made. To the contrary, the monies from the sale of the Lesbos properties had vested in the trustee on realisation of those properties as the properties themselves had vested in the trustee under s 58, as Mr Giunti accepted (Coumanios (No. 1) at [66]). The deed showed only that Mr Giunti was co-operating appropriately with the trustee, notwithstanding that the evidence suggests that the processes of the Greek courts were not able to be halted in time to prevent the sale of the four Lesbos properties (Coumanios (No. 1) at [74]). The applicants had no beneficial interest in the properties and therefore there was no reason for them to be advised of the deed. Nor is there any merit in the suggestion that early disclosure of the intention to enter the deed might have led to a successful mediation in circumstances where there was no merit in any event in the applicants’ claims.

13    Sixthly the suggestion by the applicants that they were “reluctantly required to be further involved” after the statement of claim was filed on 14 December 2015 in the proceedings ignores the findings in Coumanios (No. 1) at [74]-[75] rejecting the applicants’ submission that the proceedings were instituted or maintained by the applicants for the benefit of the respective estates in bankruptcy or their creditors, as opposed to their own benefit. Equally the applicants’ submission that they did not dispute the second respondent’s entitlement to those funds apart from reimbursement for their costs from either one of the respondents must be rejected. As the second respondent submits “Paragraph 2 of the Judgment makes clear that, even in the narrowed form which they ultimately took, the Applicant’s claims were made in competition to any entitlement of the Second Respondent as trustee of the bankrupt estate.”

14    Finally, the applicants rely upon the respondents’ decision not to accept offers of compromise whereby the moneys realised from the sale of the Lesbos properties which had been paid into Court would be paid to the trustee. In the case of Mr Giunti, the offer was made on the basis that he would pay the applicants’ costs. In the case of the trustee, the offer was that there be no order as to costs and that the trustee would relinquish all other rights, interests or claims that might exist for the benefit of the bankrupt estate in respect of the properties in Greece. Neither offer has been vindicated so as to engage the principles in Calderbank v Calderbank [1976] 3 All ER 333. The final result was not more favourable to the applicants than the terms of their offer.

15    Finally, I do accept that as a matter of fairness that the first respondent should receive its costs on an indemnity basis. There was no formal application for indemnity costs and the issue of indemnity costs was raised only in the first respondent’s submissions as to costs pursuant to orders which did not afford the applicants a right of reply or an opportunity to call evidence in response.

Associate:

Dated:    6 December 2017