Federal Court of Australia
Thompson v Lane (Trustee) (No 4)  FCA 616
BODY CORPORATE FOR ARILA LODGE CTS 14237
DATE OF ORDER:
THE COURT ORDERS THAT:
1. The first respondent’s costs be paid out of the bankrupt’s estate.
2. The second respondent’s costs be paid out of the bankrupt’s estate with the same priority accorded by s 109(1)(a) the Bankruptcy Act 1966 (Cth) to the trustee’s costs.
3. In each instance, the costs for which this order provides be fixed by a Registrar on a lump-sum basis.
1 On 18 February 2022, I dismissed the application made by Ms Thompson for the annulment of her bankruptcy: Thompson v Lane (Trustee) (No 3)  FCA 128 (principal judgment). Also at that time, I made provision for the determination, on the papers and by written submission (unless otherwise ordered) of consequential issues as to costs. These reasons for judgement address those costs issues. They must be read in conjunction with the principal judgment. For consistency, I have adopted the same abbreviations in this judgement as I did in the principal judgment.
2 BCAL has sought an order for costs, as has the trustee, Mr Lane. Ms Thompson submits that neither of them is entitled to an order for costs.
3 One basis for the asserted absence of entitlement is that, as is her perfect right, Ms Thompson has, since 18 February 2022, instituted an appeal against the order dismissing her annulment application.
4 The institution of an appeal does not of itself stay the operation of the order of dismissal. Nor does it prevent the making in the original jurisdiction of such order as to costs as appears just as a consequence of the order of dismissal. I accept that it would be possible, as Ms Thompson submitted, to defer the making of any order in respect of costs, pending the hearing and determination of the appeal. However, in my view, the outstanding issues as to costs are better resolved in reasonable proximity to the time when the principal judgment was delivered. Obviously enough, if Ms Thompson succeeds in setting aside on appeal the order of dismissal, that may well have ramifications in respect of consequential costs orders. Those ramifications are for the Full Court to determine. Related to that, another factor which tends in favour of determining now issues of costs in the original jurisdiction is that any party dissatisfied with the costs orders may, perhaps by leave, challenge those orders before the Full Court in conjunction with the hearing of the substantive appeal.
5 A necessary starring point is s 32 of the Bankruptcy Act 1966 (Cth), which confers upon a court exercising bankruptcy jurisdiction a discretionary power to award costs every bit as broad as the Court’s general power to award costs, conferred by s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act).
6 Broad though the discretionary power may be, it must still be exercised judicially. And the usual, although not invariable, way in which a discretionary power to award costs is exercised is by an order which provides for costs following the event in a proceeding: Oshlack v Richmond River Council (1998) 193 CLR 72, at 96, per McHugh J. In this case, the relevant “event” is the dismissal of the annulment application.
7 BCAL was the active party contradictor in respect of Ms Thompson’s annulment application. It submitted that, having successfully resisted the application, it should not only have the benefit of an order for costs but also that its costs, as taxed or fixed, should be ordered to be paid from the estate of the bankrupt with a like priority of payment of to the costs of the trustee in the administration of that estate.
8 There is, as BCAL has submitted, precedent for the making of such an order. Moreover, insofar as it deals with the construction of the Bankruptcy Act, the case concerned, Lawman v Queensland Building Services Authority  FCA 174 (Lawman), being a judgement of the Full Court, is binding upon me. In Lawman, at , the Full Court stated:
Though the Act, by s 109(1)(a), makes express provision for the priority in which the costs to which the trustee is entitled in respect of the annulment proceedings are to be paid, that provision is expressed to be “subject to this Act”, ie, subject to s 32. Under s 32 of the Bankruptcy Act, the Court has a wide power with respect to costs orders. This would extend in an appropriate case to ordering that a party to proceedings in bankruptcy entitled to the costs of those proceedings should have those costs out of the estate in a particular priority. The petitioning creditor was plainly not acting only in its own interest. The petitioning creditor, by successfully resisting the bankrupt's annulment application, has preserved the bankrupt's property, such as it is, for distribution among the creditors generally. It can therefore be said to have a claim to payment out of the estate of its costs of doing that in the same priority which s 109(1)(a) accords to the trustee's costs of the annulment proceedings. This consideration, in our opinion, entitles the petitioning creditor to be put in the same position so far as priority of payment of his costs is concerned as is the trustee. The fact that the trustee has incurred expenses substantially in excess of what was expected is not conclusive against the result we have reached.
Lawman was later followed and applied in similar circumstances to the present by Jagot J in Kerr v Bechara (No 2)  FCA 444 and by Burnett FM (as his Honour then was) in Bayles v Nominal Defendant  FMCA 184.
9 As in these cases, by successfully resisting Ms Thompson’s annulment application, BCAL has not just acted in its own interest. It has preserved the bankrupt's property, such as it is, for distribution among the creditors generally.
10 Ms Thompson raised the subject of compliance with the BCCM Act in relation to the incurring of legal expenses and also the absence of proof of costs agreements. But I am not concerned with costs as between solicitor and client, only with questions of party and party costs. The contradictor role undertaken by BCAL was to the benefit of creditors generally.
11 So far as BCAL is concerned, the case is therefore one in which BCAL’s costs should be paid out of the bankrupt's estate with the same priority accorded by s 109(1)(a) the Bankruptcy Act to the trustee's costs.
12 BCAL has also sought an order that the Court fix its costs in a lump-sum. There is no doubt, such is the breadth of the discretionary conferred by s 32 of the Bankruptcy Act, that, as with the discretionary power conferred by s 43 of the FCA Act, it extends to the fixing of costs in gross: Seven Network Ltd v News Ltd  FCA 2059. In this regard, r 13.01(2) of the Federal Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules), which provides that, “In making an order for costs, the Court may fix the amount of the costs” is declaratory of a position which would in any event exist, such is the breadth of power conferred by s 32 of the Bankruptcy Act.
13 Division 13.2 of the Bankruptcy Rules makes particular provision, not presently relevant, in relation to the costs that may be charged by a lawyer for a creditor for work done in relation to a petition against the estate of a debtor on the basis of an act of bankruptcy grounded in a failure to comply with a bankruptcy notice. Subject to that particular provision, r 13.01(1) of the Bankruptcy Rules provides that “a person who is entitled to costs in a proceeding to which the Bankruptcy Act applies is entitled to costs in accordance with Part 40 of the Federal Court Rules 2011 unless the Court otherwise orders”. Within Pt 40 of the Federal Court Rules 2011 (Cth) (Federal Court Rules), r 40.02(b) and r 40.02(c) respectively, like r 13.01(2) of the Bankruptcy Rules, are declaratory of an ability to award costs on a lump-sum basis and by a process other than taxation.
14 A purpose of fixing costs in gross by a process other than taxation is to obviate the unreasonable delay and expense which a taxation of costs may entail: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, at 120. It is no part of that purpose that such costs be fixed other than in a procedurally fair way and on the basis of material reasonably capable of supporting the fixing of costs in a particular lump-sum amount. Further, although the fixing of costs in a lump-sum is not to be approached as if it were a taxation of costs, that does not mean that whether costs have been improperly, unreasonably or negligently incurred ceases to be a relevant consideration.
15 To assist in the achievement of these ends in relation to the fixing of costs in a lump-sum, the Court has promulgated, in Costs Practice Note (GPN-COSTS) (Practice Note), particular procedures to be followed. Indeed, para 4.1 of that Practice Note states that, “The Court’s preference, wherever it is practicable and appropriate to do so, is for the making of a lump-sum costs order.”
16 BCAL’s application for the fixing of its costs in a lump-sum was supported by an affidavit of Mr Brenton Schoch, a solicitor in the employ of the firm which acted for it in relation to the annulment application. In some respects, the material annexed to Mr Schoch’s affidavit goes further than is contemplated by the Practice Note, in that it includes a bill of costs that might be prepared for a taxation of costs. What the Practice Note contemplates is that a “Costs Summary”, as described in Annexure A to the Practice Note, will support an application for a lump-sum costs order. One particular omission is that neither in the affidavit nor in its annexures is there a verification by BCAL’s solicitors as described in Part A of Annexure A to the Practice Note. It is there specified that the verification ought to take this form:
1. the deponent has read the Federal Court Costs Practice Note; and
2. the Costs Applicant* [name of party with the benefit of the costs order] is [entitled/not entitled] to claim input tax credits in respect of any GST relevant to the claims in the Costs Summary and has complied with Part 6 of the Costs Practice Note; and
3. in the Costs Summary:
(a) the Costs Applicant is not claiming more than the Costs Applicant is liable to pay for costs and disbursements;
(b) the calculations made are correct;
(c) the matters noted are a fair and accurate summary of the costs and disbursements that the Costs Applicant is entitled to claim; and
4. the amounts claimed are capable of further verification through source material (such as file records, tax invoices and receipts for payment) should such material be required by the Court to be produced.
17 Again, however, Mr Schoch’s affidavit goes further than what one might expect to see in a verified costs summary in that counsel’s tax invoices, together with the related dissection by counsel of the particular professional services which yielded he invoiced total are annexures to the affidavit.
18 Although BCAL’s application for the fixing of is costs in a lump-sum is not strictly compliant with the requirements of the Practice Note, I accept that it would be possible nonetheless so to fix costs by reference to Mr Schoch’s affidavit. The basis for the request that the costs be fixed in the amount of $45,987.80, inclusive of disbursements and exclusive of goods and services tax has been exposed. The amounts in the itemised bill of costs have been calculated by reference to what are said to be the scale amounts in schedule 3 to the Federal Court Rules. The Court’s National Guide to Counsel’s Fees, publically available via a link in the Practice Note, itself publicly available on the Court’s website, would offer a reference base in respect of the reasonableness or otherwise of the fee amounts charged by counsel. In this sense, the detailed exposure of BCAL’s costs claim, and the related opportunity afforded to her by the interlocutory order which I made on 18 February 2022 to file a response submission and any supporting material would meet procedural fairness requirements. That is not to say that it would follow that costs should be fixed on the amount of $45,987.80, only that the basis upon which that sum is promoted is exposed. Fixing costs would still require the making of a discretionary value judgement as to what was reasonably necessary and what ought reasonably be allowed in respect of the cost of undertaking the work, but not an item by item dissection as if taxing costs.
19 Ms Thompson has availed herself of the opportunity to make a responsive submission. Apart from raising quite irrelevant issues in relation to compliance with the BCCM Act, she submitted that the amounts charged by counsel exceed scale amounts and in any event that there is duplication of work both as between counsel briefed in succession (Mr Macintosh of Counsel and then, in light of his unavailability for the substantive hearing, Mr Strangman of Counsel) and as between counsel and solicitors. She has also put forward that it was unnecessary and unreasonable for work to have been undertaken by multiple solicitors. While, as indicated already, the fixing of costs in a lump-sum is not to be approached as if it were a taxation of costs but rather on a more robust basis, my perusal of the annexed bill of costs and the detailed dissections of work undertaken by counsel has raised in my mind an interrogative note on these subjects. Put another way, the point raised by Ms Thompson, albeit without detailed analysis, has at least impressionistic support.
20 Both the fees claimed by BCAL’s solicitors and most of the fees charged by counsel and claimed as disbursements have been calculated on a time costing basis. Schedule 3 to the Federal Court Rules does contemplate that legal professional fees might be so charged and amounts so calculated allowed even on a taxation of costs. It does not therefore necessarily follow that a foundation for a fixing of costs in a lump-sum might not be found in costs so charged. However, the charging of costs on this basis does not necessarily yield a reasonable basis for the fixing of costs. There have been numerous cautionary notes sounded by the judiciary in relation to how time costing can reward inefficiency. I gathered together many such authorities in expressing just such a view in Wide Bay Conservation Council Inc v Sunwater Pty Ltd (No 9) (2011) 194 FCR 250.
21 There is also no evidence that the fees as invoiced by counsel have been paid.
22 Against this background, the view which I have reached is that, while it is appropriate that BCAL’s costs be fixed in a lump-sum, it is preferable, both for BCAL and for Ms Thompson, that the fixing of that amount be undertaken by a Registrar. The Court’s Registrars have, by virtue of a particular function, regularly undertaken by them, in relation to the fixing of costs particular and current familiarity with amounts which are reasonable to allow both for counsel and solicitors on a party and party basis.
23 In reaching this view, I have given earnest consideration as to whether, notwithstanding that familiarity on the part of Registrars, I should nonetheless fix the costs myself so as not to burden either BCAL or Ms Thompson with a further step in the proceeding. In particular, based on my experience as docket judge, and without intending any disrespect to Ms Thompson, to consign the task to a Registrar is fraught with the prospect of extraneous issues being introduced by her. To some extent, and, impressionistically, this is also evident in the dissection of the amount claimed by BCAL as a lump-sum for costs, in that the introduction of extraneous issues in the course of the proceeding has seemingly necessarily increased the costs which might otherwise have been incurred by BCAL. Sometimes, an application for the fixing of costs in a lump-sum is accompanied by an affidavit from a costs assessor which gives guidance as to amounts usually allowed on a party and party basis. I am not adversely critical of BCAL for the absence of such an affidavit. The overall amount in issue in relation to costs may not have been thought to warrant the expense of obtaining such advice and preparing a related affidavit. However, the absence of such expert assistance does incline me to prefer that a Registrar undertake the task of fixing costs in a lump-sum.
24 Although the trustee, Mr Lane, took a neutral stance in relation to the question of whether an order annulling the bankruptcy should be made, the trustee was a necessary party and furnished a report in relation to the estate and the sufficiency of assets to meet liabilities. Mr Lane also furnished evidence in relation, in particular, to dealings with the Australian Taxation Office.
25 The trustee has submitted that, in these circumstances:
(a) there is nothing to warrant a departure from the usual order as to costs;
(b) pursuant to r 13.01(1) of the Bankruptcy Rules, the costs should be determined in accordance with Part 40 of the Federal Court Rules; and
(c) his costs should be paid from Ms Thompson’s bankrupt estate.
I agree. More particularly, the various assertions made by Ms Thompson concerning the conduct of Mr Lane as trustee misunderstand, as I endeavoured to highlight in the principal judgment, that it was always her duty to assist the trustee in the administration of her bankrupt estate. The amount reasonably to allow in respect of the costs of the solicitors for the trustee will fall to be fixed by a Registrar in accordance with the procedure specified in the Practice Note. That procedure includes provision for Ms Thompson to make a response on that subject. It is not necessary to make particular reference in the costs order in favour of the trustee to s 109(1)(a) of the Bankruptcy Act as that provision will operate according of its terms in respect of which is a cost in the administration by the trustee of Ms Thompson’s bankrupt estate.
26 There will be orders in the terms indicated.