Federal Court of Australia

Watton v Whitton (Trustee), in the matter of Watton (No 2) [2021] FCA 1003

ORDERS

THE COURT NOTES THAT:

A.    On 20 October 2017, the Supreme Court of New South Wales entered an order that Caveat No. AG214151 (Caveat) over the Property be “extended until the determination of the Federal Court of Australia proceedings NSW1718/2017”.

B.    Subject to the expiry of the period for bringing an appeal from the orders set out below based on the judgment published on 22 July 2021, these proceedings have “determined” such that the Caveat will lapse automatically under s 74LA(1) of the Real Property Act 1900 (NSW).

THE COURT ORDERS THAT:

1.    It be declared that, upon the appointment of the respondent as trustee in bankruptcy of Steven Leonard Watton (the Bankrupt) and, subsequently, as trustee in bankruptcy of the bankrupt estate of Steven Leonard Watton (the Bankrupt Estate):

(a)    pursuant to s 58(1)(a) of the Bankruptcy Act 1966 (Cth), all of the equitable right and interest in the property described as in Certificate of Title Folio Identifier 323/876729 and known as 14 Mailey Circuit, Rouse Hill, NSW, 2155 (the Property) vested in the respondent; and

(b)    the Property was and remains property available for distribution to the creditors of the Bankrupt and the Bankrupt Estate.

2.    Pursuant to s 30(1)(b) of the Bankruptcy Act 1966 (Cth), within 60 days of the making of this order, the applicant:

(a)    vacate and deliver up to the respondent vacant possession of the Property;

(b)    deliver up to the respondent the keys for all buildings and improvements on the Property; and

(c)    remove from the Property all motor vehicles, rubbish, and any other chattels.

3.    If the applicant fails to comply with order 2(c), the respondent is empowered to remove and dispose of any and all personal property on the Property as he sees fit.

4.    If the applicant fails to give vacant possession of the Property to the respondent in compliance with order 2, order 2 is to take effect as an order for possession of land and a writ of possession is to issue forthwith in favour of the respondent.

5.    The applicant pay the respondent’s costs of this proceeding:

(a)    prior to 19 October 2019, on the ordinary basis;

(b)    from 19 October 2019, on an indemnity basis,

as agreed or taxed.

6.    Unless and until they are paid by the applicant, the respondent’s costs are properly costs of the Bankrupt Estate, and the respondent’s costs of and incidental to this proceeding, including any reserved costs, are to be borne by the Bankrupt Estate.

7.    Liberty to apply be reserved.

8.    The originating application dated 3 October 2017 otherwise be dismissed.

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

REASONS FOR JUDGMENT

FARRELL J:

1    By an originating application dated 3 October 2017, Charlene Lorinda Watton (Ms Watton) sought orders that she is the beneficial owner of a property located at 14 Mailey Circuit, Rouse Hill in the State of New South Wales (the Property) which was then registered in the name of the respondent as the trustee of the bankrupt estate of her former husband, Steven Leonard Watton.

2    On 22 July 2021, I published reasons indicating that I would dismiss the originating application and make consequential orders of the kind sought by the trustee: see Watton v Whitton (Trustee) [2021] FCA 832. I then made the following orders:

1.    By 4 pm on Friday, 30 July 2021, the parties provide to Justice Farrell’s Associate draft orders consistent with these reasons and as to costs.

2.    If either party considers that the costs order should not be that the applicant pay the respondent’s costs as agreed or taxed, that party should provide brief written submissions with the draft orders provided in accordance with Order 1. Responsive submissions may be provided by 4 pm on Friday, 6 August 2021.

3.    Costs reserved.

3    On 30 July 2021, the solicitors for the trustee filed submissions as to costs, draft short minutes of order and an affidavit of Sean Wengel sworn on 30 July 2021. Mr Wengel is a director of William Buck Chartered Accountants who has assisted the trustee in the administration of the bankrupt estate. Following correspondence with the parties in which the Court was advised that Ms Watton’s previous advisers no longer acted for her and she required time to seek legal advice, I made orders extending time for Ms Watton to respond to the trustee’s proposed orders until 4 pm on 18 August 2021. On that morning, Ms Watton advised that she “will not be submitting further information, with respect to these orders”.

Trustee’s submissions

4    In his affidavit, Mr Wengel deposed to settlement offers between the parties.

5    On 26 September 2019, the trustee, Mr Wengel and the trustee’s solicitors attended a settlement conference at the offices of Ms Watton’s solicitors at which the trustee instructed his solicitors to make an offer to her to settle the matter (First Offer).

6    On 16 October 2019, Ms Watton’s solicitors sent a letter addressed to the trustee’s solicitors in which Ms Watton rejected the First Offer and made a counter-offer to the trustee on a “without prejudice save as to costs” basis. The counter-offer (Second Offer) was that, among other things:

(a)    the trustee pay Ms Watton $140,000 in full and final settlement of all claims arising out of the subject matter of the proceedings and the Property;

(b)    the Property be sold in a process suggested by the trustee; and

(c)    after “all loan, mortgage and costs (professional and disbursement costs incurred as a result of the sale of the Property)”, the net proceeds be divided as to 25% to the trustee and as to 75% to Ms Watton; and

(d)    the counter-offer was made in accordance with the principles espoused in Calderbank v Calderbank [1975] 3 All ER 333 and it remained open for acceptance until 5 pm on 21 October 2019.

7    On 17 October 2019, the solicitors for the trustee sent a letter to Ms Watton’s solicitors informing them that the trustee rejected the Second Offer. The trustee reserved his right to rely on the correspondence on any question of costs. The letter contained a counter-offer. It was that the Property be sold and after “all loan, mortgage and costs (professional and disbursement costs incurred as a result of the sale)”, the net proceeds be apportioned as to 30% to Ms Watton and 70% to the trustee. That offer was also said to be made in accordance with the principles espoused in Calderbank and it was open for acceptance until 6 pm on 18 October 2019 (Third Offer).

8    The trustee did not receive any correspondence from Ms Watton in relation to the Third Offer and it lapsed.

9    The trustee submitted that at the time of refusing the Third Offer:

(a)    All the evidence had been served and the parties had exchanged opening submissions;

(b)    Ms Watton was in a position to understand and assess the weakness of her case;

(c)    The offer represented a substantial compromise; and

(d)    It was unreasonable to reject it.

10    Having regard to the making and expiry of the Third Offer, the trustee seeks orders that Ms Watton pay the trustee’s costs prior to 19 October 2019 on the ordinary basis and from 19 October 2019 on an indemnity basis.

Disposition

11    Under s 43 of the Federal Court of Australia Act 1976 (Cth), the Court’s power to award costs encompasses power to award costs on an indemnity basis.

12    The Third Offer was not expressed to be made under r 25.14 of the Federal Court Rules 2011 (Cth). Accordingly, the question of costs falls to be made on a discretionary basis. That discretion must be exercised judicially having regard to established principles. In respect of a Calderbank offer, characterisation of the refusal to accept the offer as reasonable or not is significant, even potentially determinative: see IFTC Broking Services Ltd v Commissioner of Taxation [2010] FCAFC 31; (2010) 268 ALR 1 at [12] (Stone, Edmonds and Jagot JJ).

13    In this case:

(a)    The outcome foreshadowed in Watton v Whitton is materially less advantageous to Ms Watton than the outcome which she would have achieved had she accepted the Third Offer;

(b)    As noted in Watton v Whitton, Ms Watton’s case relied significantly on her credit. As I found in those reasons, objective circumstances did not support her case. Those circumstances included the representations concerning ownership and residence of the Property made by the Wattons in procuring financing and the terms of the financing documents entered into soon after September 2006. They also included the terms of correspondence with the trustee soon after his appointment in November 2007. In that correspondence, neither the Purported BFA (as that term is defined in Watton v Whitton) nor Ms Watton’s alleged ownership of the Property was raised by either of Ms Watton or Steven Watton. The circumstances also include the Wattons’ presentation of themselves as married after September 2006 (rather than as ex-husband and wife), with no steps taken towards divorce until 2018. That was the state of the evidence at the time the Third Offer was made;

(c)    The Third Offer warned that it might be relied on as to costs;

(d)    The Third Offer was open for only a day and it was made shortly before the first day of the hearing. However, the trustee had already made the First Offer (on 26 September 2019) and Ms Watton had the Second Offer so that her legal advisers may be expected to have been across the evidence and outlines of opening submissions that had been filed at that time. Ms Watton’s advisers would therefore have been in a position to understand the strengths and weaknesses of her case and to advise her accordingly. In that context, a reasonable amount of time was allowed for response;

(e)    There was no ambiguity in the Third Offer and it would have brought the proceedings to an end; and

(f)    The trustee has expressly asserted that Ms Watton’s failure to accept the Third Offer was unreasonable in his submissions in support of the short minutes of order that he has proposed. Ms Watton has offered no response.

14    Having regard to those circumstances, in my view, Ms Watton’s conduct in refusing the Third Offer can properly be characterised as an imprudent refusal of an offer to compromise and the refusal was unreasonable at that time. The costs orders sought by the trustee should be made. I will make the orders in the draft short minutes of order with minor amendments.

Associate:

Dated:    23 August 2021