FEDERAL COURT OF AUSTRALIA

Kessly v Beadle as Trustee of the Bankrupt Estate of Evangelina Francisca Kessly (No 2) [2020] FCA 975

ORDERS

THE COURT ORDERS THAT:

1.    Upon the respondent filing with the Court, by no later than 90 days from the date of this order, an affidavit certifying that the applicant has:

(a)    paid or caused to be paid the intervener’s debt in the amount of $84,870.22 plus interest calculated by the respondent in accordance with r 26.01 of the Federal Circuit Court Rules 2001 (Cth) (FCCR) from 1 July 2016 until the date of payment;

(b)    paid or caused to be paid the intervener’s costs of the creditor’s petition in the amount of $11,100 plus interest calculated by the respondent in accordance with FCCR 26.01;

(c)    paid or caused to be paid or compromised, to the satisfaction of the respondent, the applicant’s other debts known to the respondent as at the date of this order;

(d)    paid or caused to be paid the intervener’s costs of these proceedings in the amount determined in accordance with Order 5; and

(e)    paid or caused to be paid the respondent’s remuneration and expenses incurred in her capacity as the trustee of the applicant’s estate, including the respondent’s costs of these proceedings on an indemnity basis, as ordered in Order 4 below;

the bankruptcy of the applicant is annulled pursuant to s 153B of the Bankruptcy Act 1966 (Cth).

2.    The respondent shall provide to the applicant such reasonable assistance as the respondent considers necessary to facilitate the events in Order 1 being effected.

3.    Further to Order 2, the respondent may at her discretion release to the applicant property vested in the respondent as trustee of the bankrupt estate of the applicant so as to facilitate the applicant being able to meet those payments required by Order 1 herein.

4.    The applicant pay the respondent’s costs of this proceeding on an indemnity basis.

5.    The applicant pay the intervener’s costs of these proceedings on an ordinary basis in an amount to be assessed by the Court. For this purpose:

(a)    the intervener is to file evidence and submissions (of no more than 3 pages) in support of the costs for which it contends within 7 days;

(b)    the applicant and the respondent are to file evidence and submissions (of no more than 3 pages) in response within 7 days thereafter;

(c)    the intervener is to file any submissions in response (of no more than 2 pages) within 7 days thereafter; and

(d)    The Court will assess the costs on the papers.

6.    In the event that the requirements of Order 1 are not satisfied, the application be dismissed with costs.

7.    The parties have liberty to apply on two days’ notice.

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

REASONS FOR JUDGMENT

BURLEY J:

1    In Kessly v Beadle as Trustee of the Bankrupt Estate of Evangelina Francisca Kessly [2020] FCA 607 (the judgment) I gave reasons indicating that subject to the fulfilment of certain conditions, orders would be made for the annulment of the bankruptcy of the applicant, Evangelina Kessly. I directed the parties to file submissions as to the form of orders to be made, which they have now done. These reasons assume familiarity with the judgment and use the definitions in it.

2    I propose to make the following orders:

(1)    Upon the Trustee filing with the Court, by no later than 90 days from the date of this order, an affidavit certifying that Mrs Kessly has:

(a)    paid or caused to be paid BK’s debt in the amount of $84,870.22 plus interest calculated by the Trustee in accordance with r 26.01 of the Federal Circuit Court Rules 2001 (Cth) (FCCR) from 1 July 2016 until the date of payment;

(b)    paid or caused to be paid BK’s costs of the creditor’s petition in the amount of $11,100 plus interest calculated by the Trustee in accordance with FCCR 26.01;

(c)    paid or caused to be paid or compromised, to the satisfaction of the Trustee, Mrs Kessly’s other debts known to the Trustee as at the date of this order;

(d)    paid or caused to be paid BK’s costs of these proceedings in the amount determined in accordance with Order 5; and

(e)    paid or caused to be paid the Trustee’s remuneration and expenses incurred in her capacity as the trustee of Mrs Kessly’s estate, including the Trustee’s costs of these proceedings on an indemnity basis, as ordered in Order 4 below;

the bankruptcy of Mrs Kessly is annulled pursuant to s 153B of the Bankruptcy Act 1966 (Cth).

(2)    The Trustee shall provide to Mrs Kessly such reasonable assistance as the Trustee considers necessary to facilitate the events in Order 1 being effected.

(3)    Further to Order 2, the Trustee may at her discretion release to Mrs Kessly property vested in the Trustee as trustee of the bankrupt estate of Mrs Kessly so as to facilitate Mrs Kessly being able to meet those payments required by Order 1 herein.

(4)    Mrs Kessly pay the Trustee’s costs of this proceeding on an indemnity basis.

(5)    Mrs Kessly pay BK’s costs of these proceedings on an ordinary basis in an amount to be assessed by the Court. For this purpose:

(a)    BK is to file evidence and submissions (of no more than 3 pages) in support of the costs for which it contends within 7 days;

(b)    Mrs Kessly and the Trustee are to file evidence and submissions (of no more than 3 pages) in response within 7 days thereafter;

(c)    BK is to file any submissions in response (of no more than 2 pages) within 7 days thereafter; and

(d)    The Court will assess the costs on the papers.

(6)    In the event that the requirements of Order 1 are not satisfied, the application be dismissed with costs.

(7)    The parties have liberty to apply on two days’ notice.

3    I address below the various disputes in relation to the form of orders initially proposed by the Trustee that are raised by the parties.

4    In relation to the chapeau to Order 1, Mrs Kessly contends that the time allowed for the payment of her debts by Mrs Kessly and subsequent certification by the Trustee in accordance with Order 1 should be 90 days. I am satisfied that this is appropriate. She submits that it is her and her husband’s intention to sell the Smithfield property in order to meet her financial obligations, and that 90 days is an appropriate time within which to effect that sale. The Trustee does not demur as to timing. I am satisfied, having regard to the need to sell real estate, the current COVID-19 restrictions and the absence of cash at hand in the estate generally, that this timeframe is appropriate. Although BK submits that the timeframe should be 30 days, I do not think that this is realistic.

5    In relation to Order 1(a), there is no dispute that the judgment debt in the amount of $84,870.22 plus interest is due. It is appropriate that the Trustee should calculate the total amount of interest. The parties proposed that interest should be calculated in accordance with the UCPR. The prescribed interest rate under UCPR 36.7 is the same as the prescribed interest rate in r 39.06 of the Federal Court Rules 2011 (Cth) (FCR). FCCR 26.01 provides that the rate of interest is that prescribed by the FCR. Accordingly, for the sake of uniformity in the orders I refer only to the FCCR.

6    Order 1(b) concerns the costs of the creditor’s petition. The Trustee submits that s 109(1)(a) of the Act only permits the costs of a petitioning creditor to be paid in priority where those costs have been taxed, which she contends has not taken place. Mrs Kessly submits that the amounts should be adjudicated by the Trustee, and that only a small portion of those amounts, namely the disbursements incurred by BK, is recoverable because the intervener was self-represented on the creditor’s petition, citing Bell Lawyers Pty Ltd v Pentelew [2019] HCA 29; 93 ALRJ 1007, which was decided after the costs orders were made. BK submits that there can be no dispute that the FCCA made two lump sum costs orders: one in the amount of $9,000 and another in the amount of $2,100, and that those costs orders, and interest, should be paid.

7    A lump sum costs order made by the FCCA stands in lieu of taxation. Rule 13.01 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (FCCBR) provides: that in making an order for costs, the court may fix the amount of the costs (which is what the FCCA did in making the lump sum orders); and that a person who is entitled to costs in a proceeding to which the Act applies is entitled to costs in accordance with Part 40 of the FCR. FCR Part 40 deals extensively with costs. FCR r 40.02 provides that a party who is entitled to costs may apply to the Court for an order “that costs ... (b) be awarded in a lump sum, instead of, or in addition to, any taxed costs; or (c) be determined otherwise than by taxation” (emphasis added).

8    The language used in (b) indicates that an award of lump sum costs is in lieu of taxation, and has the same legal effect. The well accepted principle underlying the award of lump sum costs is to empower a court to order a gross amount in costs instead of an amount determined after taxation to avoid the expense, delay and the protraction of litigation that taxation has a tendency to cause: see Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd [2008] FCA 1051; 249 ALR 371 at [22] (and the cases cited there) (Finn J). No authority was cited by the Trustee or Mrs Kessly in support of the proposition that costs fixed directly by the Court exercising bankruptcy jurisdiction are not to be regarded as “taxed” for the purposes of s 109(1)(a). It would be an odd result if that were the case. The correct position, in my view, is that the costs ordered by the FCCA are to be regarded as taxed costs, with the consequence that they are entitled to priority in accordance with s 109(1)(a) of the Act. The lump sum orders were made on the basis of the law as it then stood and should not be disturbed. In any event, Mrs Kessly has provided insufficient evidence to demonstrate that, applying Bell Lawyers, the sums assessed would be materially different. The time has now passed for doing so. In these circumstances in my view there is no warrant to go behind the judgment or orders made by the FCCA. Accordingly the full amount, not just the disbursements incurred by BK, is recoverable.

9    Order 1(c) concerns the discharge by Mrs Kessly of other debts. BK refers to two pre-sequestration costs orders that remain untaxed. The first is a costs order made by Judge Taylor on 16 November 2018 in the District Court proceedings. The second was made on 6 February 2019 by Judge Baird: Kessly v Benjamin & Khoury Pty Ltd (No. 2) [2019] FCCA 216. For these costs orders, BK seeks only the payment of disbursements, to avoid any issue arising following the decision in Bell Lawyers. Order 1(c) accommodates the consideration by the Trustee of the correct amount and ensuring that it is paid. In doing so, she will no doubt also be aware of Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; 234 CLR 52 at [35]-[37], [61]-[68].

10     In relation to Orders 1(d) and 5, Mrs Kessly proposes that she be ordered to reimburse BK its costs of these proceedings, limited to two-thirds of its third party disbursements which have been paid by the date of the order, upon production of tax invoices and receipts. BK submits that it should be paid its costs in a lump sum as assessed by the Court and as a pre-requisite to the annulment of the bankruptcy. To address concerns arising from Bell Lawyers, BK indicates that the costs it seeks will only be in respect of its disbursements. The parties do not seem to be much apart on this point. However, given the history of disputation in this matter, the order that I will make is that BK’s costs be paid in a lump sum, with a short timetable for the assessment of that sum by the Court, which must be paid before the bankruptcy is annulled.

11    Orders 1(e) and 4 concern the costs of the Trustee. Mrs Kessly has proposed this form of order, though she proposes the word "reasonable” be added before “remuneration and expenses”. Section 154(1)(b) of the Act does not impose a reasonableness limitation upon the recovery available to the Trustee, and I see no reason why it should be added to the Orders. These Orders ensure that before the bankruptcy is annulled the Trustee is remunerated, which I consider to be appropriate.

12    There is no real dispute as to the form of Order. 2.

13    BK submits that Order 3 should not be made, because of Mrs Kessly’s self-professed lack of understanding of legal matters and language difficulties, and because of her conduct to date. However, BK’s submission does not engage with the Trustee’s submission that the Trustee would only contemplate a release of property if she was satisfied that sufficient property remained in the estate to facilitate payment of all claims without regard to the released property. The Trustee further submits that she would either seek the direction of the Court before relinquishing control of any property to Mrs Kessly, or that the Trustee would control the sale of any property, in keeping with her duties and obligations as Trustee. In those circumstances, I am satisfied that it is appropriate to make Order 3.

14    I will otherwise order that if the requirements of Order 1 are not satisfied, then the application be dismissed. The Trustee will then proceed to administer the bankrupt estate in accordance with the requirements of the Act. In such a case, I will order that Mrs Kessly pay BK’s costs of the application on an ordinary basis.

Associate:

Dated:    10 July 2020