FEDERAL COURT OF AUSTRALIA

Pekar v Holden (Trustee) (No 3) [2019] FCA 1928

ORDERS

THE COURT DECLARES THAT:

1.    The respondent breached the contract between him and the applicant, such contract comprising:

(a)    the letter dated 27 June 2017 sent by Andrew Ball of KCL Lawyers to Tracey Rothwell of Rothwell Lawyers; and

(b)    the email sent in reply to that letter by Ms Rothwell to Mr Ball on 27 June 2017 (the Agreement),

by failing to administer the bankrupt estate of Fima Pekar in a timely manner and in accordance with the Bankruptcy Act 1966 (Cth).

2.    The Agreement was terminated by letter dated 2 August 2018, by which the applicant demanded repayment of the $200,000 he had paid to the respondent pursuant to the Agreement.

THE COURT ORDERS THAT:

3.    The evidence and submissions in proceeding No. VID 81 of 2017 be evidence and submissions in this proceeding and vice versa.

4.    The respondent forthwith pay to the applicant the amount of $180,102.24 (less any portion of that amount representing interest that the Trustee is legally required to remit to the Commonwealth), together with interest for the period from 2 August 2018 to the date of payment, calculated in accordance with the Interest on Judgments Practice Note (GPN-INT) dated 18 September 2017.

5.    The respondent, within 7 days of these orders, make an application under reg 15A.07 of the Bankruptcy Regulations 1996 (Cth) for remission of overpayments made in respect of the administration of the bankrupt estate of Fima Pekar of:

(c)    $14,001.75 in realisation charges; and

(d)    $936.33 in interest charges (and any additional interest charges),

such application to be accompanied by a copy of these orders.

6.    Within 7 days of receiving any remission of the overpayments referred to in paragraph 5 the respondent pay to the applicant the amounts paid to him.

7.    The respondent cease to be the trustee of the bankrupt estate of Fima Pekar.

8.    The respondent pay the applicant’s legal costs of and incidental to the hearing of this proceeding on 19 September 2019 and 18 November 2019 in an amount of $7,692.50, such costs to be paid directly to counsel for the applicant in accordance with r 4.19(3) of the Federal Court Rules 2011.

9.    The respondent be personally liable for, and not be indemnified from the bankrupt estate of Fima Pekar, in respect of:

(e)    the applicant’s legal costs of and incidental to the hearing of this proceeding on 19 September 2019 and 18 November 2019;

(f)    the legal costs he has incurred of and incidental to this proceeding for the period after 3 April 2019;

(g)    any remuneration in his capacity as trustee of the bankrupt estate of Fima Pekar, or administrative costs incurred, of and incidental to this proceeding for the period after 3 April 2019.

10.    There be no order as to costs of the proceeding for the period up to and including 3 April 2019.

11.    There be liberty to apply.

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

ORDERS

THE COURT ORDERS THAT:

1.    The evidence and submissions in proceeding No. VID 991 of 2018 be evidence and submissions in this proceeding and vice versa.

2.    The respondent’s interlocutory application dated 23 September 2019 be adjourned to a date to be fixed.

3.    Costs be reserved.

4.    There be liberty to apply.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    This judgment deals with orders to give effect to reasons previously delivered, as well as a number of ancillary issues that have arisen. The judgment should be read together with my earlier judgments, namely: Pekar v Holden (Trustee) [2019] FCA 442, delivered on 3 April 2019 (the April 2019 Reasons) and Pekar v Holden (Trustee) (No 2) [2019] FCA 1212, delivered on 7 August 2019 (the August 2019 Reasons). I will adopt the abbreviations used in those reasons.

2    The previous judgements were given in proceeding No. VID 991 of 2018. In addition to that proceeding, the issues to be dealt with in these reasons also concern proceeding No. VID 81 of 2017.

3    Mr Pekar appeared for himself at the hearings that led to the April 2019 Reasons and the August 2019 Reasons. However, following delivery of the August 2019 Reasons, I made a pro bono referral (with the consent of Mr Pekar). Mr Murano of counsel agreed to act for Mr Pekar and appeared at a case management hearing on 19 September 2019 and at the hearing today. He also prepared outlines of submissions in connection with those hearings, affidavits and other documents.

4    The following applications are now before the Court:

(a)    an amended application filed by Mr Pekar in proceeding No. VID 991 of 2018; and

(b)    an interlocutory application filed by Mr Holden in proceeding No. VID 81 of 2017.

5    In addition to the affidavits filed for the purposes of previous hearings, the following affidavits have been filed for the purposes of the present applications:

(a)    an affidavit of Mr Pekar dated 18 October 2019;

(b)    an affidavit of Tracey Rothwell, the solicitor for Mr Holden, dated 7 November 2019; and

(c)    an affidavit of Mr Pekar dated 14 November 2019.

6    With the consent of the parties, I made an order in each proceeding that the evidence and submissions in one proceeding, be evidence and submissions in the other proceeding.

7    Eight issues are raised by the applications that are before the Court. I will deal with each issue in turn.

Issue 1:  Whether to make declarations 1 and 2 as set out in Mr Pekar’s amended application

8    In Mr Pekar’s amended application, he seeks the following declarations in relation to the contract contention that was upheld in the August 2019 Reasons:

1.    The Respondent breached the contract between him and the Applicant, such contract comprising:

a.    the letter dated 27 June 2017 sent by Andrew Ball of KCL Lawyers to Tracey Rothwell of Rothwell Lawyers; and

b.    the email sent in reply to that letter by Ms Rothwell to Mr Ball on 27 June 2017,

(Agreement) by failing to administer the Bankrupt Estate of Fima Pekar in a timely manner and in accordance with the Bankruptcy Act 1966 (Cth).

2.    The Agreement was terminated by letter dated 2 August 2018 by which the Applicant demanded repayment of the $200,000 he had paid to the Respondent pursuant to the Agreement (Outstanding Amount).

9    Mr Holden opposes the making of these declarations on the basis that they are unnecessary, given that the Court has already made findings about these matters in the August 2019 Reasons. Mr Holden also submits, in effect, that declarations that merely reflect findings, rather than rights, are not appropriate. In my view, in the circumstances of this case, which has a public dimension as it involves the administration of a bankrupt estate pursuant to the Bankruptcy Act 1966 (Cth), it is appropriate for the Court’s conclusions to be reflected in a declaration or declarations. In my view, the proposed declarations accurately reflect the substance of the conclusions set out in [13]-[14] of the August 2019 Reasons. Accordingly, I will make declarations to the effect proposed by Mr Pekar as set out above.

Issue 2:  What amount is Mr Holden liable to pay to Mr Pekar?

10    In his outline of submissions, Mr Holden states that, having regard to the findings of the Court in the August 2019 Reasons, he does not resist an order for the repayment of what remains of the $200,000 paid by Mr Pekar to Mr Holden pursuant to the Agreement. The amount currently held by Mr Holden is $180,102.24.

11    The issue between the parties concerns damages. Mr Pekar seeks damages for:

(a)    an amount paid to his daughter on account of capital gains tax incurred by her in selling shares to provide the $200,000 to Mr Pekar (so that he could then provide it to Mr Holden pursuant to the Agreement), quantified at $12,200.35; and

(b)    an amount for legal expenses that he incurred to Kliger Partners (now KCL Law) in relation to the Agreement and annulment issues, quantified at $4,596.26.

12    The claims for damages are put on the basis that they were wasted expenditure in relation to the Agreement: see Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81 per Mason CJ and Dawson J. See also Cheshire & Fifoot, Law of Contract (11th Aust ed) at [23.11]-[23.12].

13    The difficulty with these claims is that it is not established that the relevant amounts were wasted as a result of the breach. In relation to the sale of shares, it is likely that capital gains tax on the shares would have been incurred in any event, albeit perhaps at a later date. Accordingly, Mr Pekar’s payment to his daughter should be characterised as a voluntary payment in relation to his daughter’s capital gains tax liability. I do not consider it to be wasted as a result of the breach.

14    In relation to the claim for legal costs, the way in which the amount has been quantified is set out in footnote 2 to Mr Pekar’s reply submissions. It is apparent from the source documents, which are annexed to Mr Pekar’s affidavit dated 14 November 2019, that the majority of the items claimed predate the Agreement, which was formed on 27 June 2017. These costs would have been incurred whether or not the Agreement was entered into. In these circumstances, I do not consider these costs to have been wasted as a result of the breach. Insofar as the claim relates to the period after 27 June 2017, it is not established that these costs were incurred in implementing the Agreement or otherwise sufficiently referable to the Agreement. Accordingly, I decline to award damages with respect to these costs.

15    It follows that I will make an order for the repayment of the amount currently held by Mr Holden, namely $180,102.24, and that I will not make an order for the payment of damages. The wording of the order will accommodate the fact that the Trustee may be legally required to remit a portion of this amount, representing interest earnt, to the Commonwealth.

Issue 3:  Whether an order should be made for the payment of interest under s 51A of the Federal Court of Australia Act 1976 (Cth)

16    Mr Pekar seeks an order that Mr Holden pay interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) on the amount that he is ordered to pay to Mr Pekar. In light of my conclusion in relation to issue 2, this is the amount of $180,102.24 (less any interest that the Trustee is legally required to remit to the Commonwealth).

17    Section 51A(1) provides as follows:

(1)    In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

(a)    order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or

(b)    without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.

18    The principles relating to s 51A were discussed by the Full Court of this Court in Kazar v Kargarian (2011) 197 FCR 113. See, in particular, at [97] per Foster J (with whom Greenwood and Rares JJ generally agreed). The amount of interest is in the Court’s discretion. In the Court’s Interest on Judgments Practice Note (GPN-INT), it is indicated that the Court will generally have regard to the following rates:

(a)    in respect of the period from 1 January to 30 June in any year – the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced; and

(b)    in respect of the period from 1 July to 31 December in any year – the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced.

19    In the present case, I do not consider that Mr Holden has shown good cause for interest not to be awarded. Accordingly, in principle, it is appropriate to make an award for interest. However, I consider it appropriate to provide for interest to be payable in respect of a shorter period than that sought by Mr Pekar. Although the cause of action arose when the Agreement was breached, I do not consider it appropriate to make an order for interest from that date. Rather, in the circumstances of this case, I consider it appropriate to order that interest be paid in respect of the period from 2 August 2018, being the date on which Mr Pekar terminated the Agreement and was thus entitled to return of the money, and the date on which the money is repaid.

20    Accordingly, I propose to make an order that Mr Holden forthwith pay Mr Pekar the amount of $180,102.24 (less any interest that Mr Holden is legally required to remit to the Commonwealth), together with interest for the period from 2 August 2018 to the date of payment, calculated in accordance with the Interest on Judgments Practice Note (GPN-INT) dated 18 September 2017. I note for completeness that there is no application that the interest amount be paid by Mr Holden personally and that he not be indemnified from the bankrupt estate in respect of that amount.

Issue 4:  Whether Mr Holden should be ordered to seek remission of the realisation charge and interest

21    In the amended application, Mr Pekar seeks orders as follows:

7.    The Respondent, within 7 days of these orders, make an application under reg 15A.07 of the Bankruptcy Regulations 1996 (Cth) for remission of overpayments made in respect of the administration of the Bankrupt Estate of Fima Pekar of:

(a)    $14,001.75 in realisations charge; and

(b)    $936.33 in interest charge,

such application to be accompanied by a copy of these orders.

8.    Within 7 days of receiving a remission of the overpayment referred to in order 7, the Respondent pay to the Applicant the amounts paid to him.

22    Mr Holden consents to such orders being made. Accordingly, I will make orders to this effect.

Issue 5:  Whether an order should be made that Mr Holden cease to be the trustee

23    In the amended application, Mr Pekar seeks an order pursuant to s 90-15 or s 45-1 of Sch 2 to the Bankruptcy Act that Mr Holden cease to be the trustee of the bankrupt estate of Mr Pekar.

24    There is no issue between the parties as to the applicable principles, which are set out in the judgment of White J in Borg v de Vries (2018) 16 ABC(NS) 399; [2018] FCA 2116 at [21]-[33].

25    At the conclusion of the hearing of these applications, counsel for Mr Holden indicated that Mr Holden does not oppose an order that he cease to be the trustee of the bankrupt estate of Mr Pekar. In these circumstances, it is not necessary to deal with this issue in detail. It is sufficient to say that I consider there to be a proper basis to make such an order in the circumstances of this case, including the facts and matters set out in the April 2019 Reasons and the August 2019 Reasons.

26    Mr Pekar has not proposed another person to act as the trustee. In these circumstances, once the order is made, there will be no registered trustee in respect of the bankrupt estate and the Official Trustee will become the trustee of the estate: see s 160 of the Bankruptcy Act.

Issue 6:  Costs

27    There are a number of costs issues to be considered:

(a)    Whether Mr Holden should pay Mr Pekar’s costs referable to the hearings on 19 September 2019 and today. These costs relate to the period when Mr Pekar had legal representation. They have been quantified at $7,692.50.

(b)    Whether an order should be made pursuant to s 90-15 of Sch 2 to the Bankruptcy Act that Mr Holden be personally liable for, and not indemnified from the bankrupt estate in respect of:

(i)    the costs payable to Mr Pekar as described in (a) above;

(ii)    Mr Holden’s legal costs of proceeding No. VID 991 of 2018; and

(iii)    Mr Holden’s remuneration and administrative costs incurred in relation to proceeding No. VID 991 of 2018.

28    In relation to (a) above, in my view Mr Pekar has been substantially successful in relation to the issues agitated today. In particular, I have made the declarations he sought in relation to the contract claim and I have made an order that Mr Holden cease to be the trustee (albeit that this order was ultimately not opposed). In these circumstances, it is appropriate to make a costs order in proceeding No. VID 991 of 2018 in Mr Pekar’s favour in relation to the hearings on 19 September 2019 and today, and the legal work associated with those hearings. No issue was taken with the amount proposed. I will therefore make a costs order in Mr Pekar’s favour fixed in the amount of $7,692.50, such costs to be paid directly to counsel for Mr Pekar in accordance with r 4.19(3) of the Federal Court Rules 2011.

29    In relation to the costs referred to in [27](b) above, the relevant principles are set out in Adsett v Berlouis (1992) 37 FCR 201 at 212.

30    I consider there to be a distinction between the costs of proceeding No. VID 991 of 2018 up to the April 2019 Reasons and the costs since then. In relation to the period up to the April 2019 Reasons, I consider the costs incurred by Mr Holden in defending the proceeding to have been prudently and reasonably incurred in the discharge of his proper duties. I therefore decline to make an order as outlined in [27](b) above in relation to these costs.

31    In relation to the period since the April 2019 Reasons, I do not consider the Trustee’s costs to have been prudently and reasonably incurred in the discharge of his proper duties. Once the April 2019 Reasons had been delivered, the facts and circumstances had been clearly set out and the contract contention had been raised. In light of those matters, I do not consider the continued defence of the proceeding to have been prudent or reasonable. Accordingly, I will make an order that Mr Holden be personally liable for, and not indemnified from, the bankrupt estate, in respect of:

(a)    the costs payable to Mr Pekar as described in [27](a) above;

(b)    Mr Holden’s legal costs of proceeding No. VID 991 of 2018 for the period after 3 April 2019;

(c)    Mr Holden’s remuneration and administrative costs incurred in relation to proceeding No. VID 991 of 2018 for the period after 3 April 2019.

32    In relation to the costs of proceeding No. VID 991 of 2018 for the period up to and including 3 April 2019, I consider it appropriate in all the circumstances for there to be no order as to costs. Although Mr Pekar’s contentions as dealt with in the April 2019 Reasons were unsuccessful, there was underlying merit in his position. I note for completeness that Mr Holden is entitled to be indemnified from the bankrupt estate in respect of his legal costs, remuneration and administrative costs incurred in relation to proceeding No. VID 991 of 2018 for the period up to and including 3 April 2019.

Issue 7:  Should the stay granted by Tracey J on 18 July 2017 in proceeding No. VID 81 of 2017 be lifted?

33    In his interlocutory application in proceeding No. VID 81 of 2017, Mr Holden seeks an order that the stay granted by Tracey J on 18 July 2017 be lifted. Conversely, in the amended application, Mr Pekar seeks declarations to the effect that the stay granted by Tracey J is a right accrued to Mr Pekar and that any right Mr Holden may have to apply for the stay order to be lifted is unenforceable.

34    The logic of Mr Holden’s position is that the stay (of the order for possession) was granted in order to give effect to the Agreement; if an order is to be made for the return of the balance of the $200,000, the basis for the stay no longer exists and the stay should be lifted.

35    Mr Pekar’s position is that the stay is in the nature of an accrued right as discussed in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477. Mr Pekar argues that any rights accrued to either party before termination may be enforced, even after termination. He submits that, by reference to the text of the Agreement, objectively construed in accordance with the principles of contractual interpretation, the stay of the possession order is an accrued right that survived termination of the Agreement.

36    Mr Pekar further submits that any right Mr Holden had under [4] of the Agreement to have the stay lifted is a separate and distinct right from Mr Pekar’s accrued right. It is submitted that any right under [4] was no longer enforceable as at the date of the termination of the Agreement because there is no evidence before the Court of any “shortfall” as at the date of termination and, accordingly, any right to have the stay lifted on the basis of any “shortfall” was executory as at the date of termination.

37    In my view, Mr Pekar’s contentions on this issue should not be accepted for the following reasons. First, the stay order was an interlocutory order of the Court and therefore always subject to subsequent variation. Secondly, the stay was predicated on the $200,000 being provided under the Agreement for the purposes of the administration of the estate. Once the $200,000 (or, at least, the remaining balance) is to be returned, the underlying justification for the stay ceases to exist. Thirdly, the Agreement itself (set out at [37] of the April 2019 Reasons) anticipates flexibility regarding the continued operation of the stay, as indicated by the terms of [4] and [6] of the Agreement.

38    Notwithstanding these conclusions, I propose to defer making any order vacating the stay order for the time being. In circumstances where the trustee is to be replaced, I consider it preferable for the new trustee to consider whether or not to press for the stay order to be lifted. I will therefore adjourn Mr Holden’s interlocutory application to a date to be fixed. I will reserve the costs of that application.

Issue 8  Whether the Court should refer Mr Holden for investigation by the Inspector-General under s 45-1 of Sch 2 to the Bankruptcy Act

39    This issue is raised by Mr Pekar’s amended application. In my view, the facts and circumstances of this matter have already been the subject of detailed consideration in the course of this proceeding, and findings have been made in the April 2019 Reasons and the August 2019 Reasons. In these circumstances, I do not consider it necessary or appropriate to make such a referral.

Associate:

Dated:    22 November 2019