Federal Court of Australia

Moran v Psomas (Trustee), in the matter of Moran (Bankrupt) [2024] FCA 1258

ORDERS

THE COURT ORDERS THAT:

1.    The respondent pay the applicant’s costs of the application to be agreed or taxed.

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

REASONS FOR JUDGMENT

MCDONALD J:

Introduction

1    Section 272(1)(c) of the Bankruptcy Act 1966 (Cth) prohibits an undischarged bankrupt from leaving Australia without the consent in writing of the trustee of their estate. On 11 June 2024, the applicant, Russell Moran, who is an undischarged bankrupt, made a written request to the respondent, the trustee of his estate (Trustee), with respect to two occasions of proposed overseas travel, both for family holidays, the first to Bali in September 2024, and the second to Italy in January 2025.

2    On 29 July 2024, Mr Moran made the present application pursuant to s 90-15 of Schedule 2 to the Bankruptcy Act. In his application Mr Moran sought orders that permission be granted for the proposed travel to Bali and to Italy, on the basis that the Trustee had failed or constructively refused to provide her consent to Mr Moran’s applications for permission.

3    Mr Moran’s application was listed to be heard on 9 September 2024. On 26 August 2024, Mr Moran and the Trustee agreed to consent orders which had the effect of permitting Mr Moran to travel overseas on certain conditions. The only remaining issue to be resolved concerns the costs of the application. The parties agreed to that issue being decided on the basis of affidavits and written submissions. Mr Moran seeks an order that the Trustee pay his costs of the application on the basis that his application has been successful and costs should follow the event. The Trustee submits that Mr Moran should pay her costs of the application on the basis that Mr Moran acted unreasonably in making his application precipitously.

4    For the reasons that follow, I will order that the Trustee pay Mr Moran’s costs of the application. I will not make an order preventing the Trustee from recovering the costs of the application from the bankrupt estate.

Relevant principles

5    The Court’s power to order costs is discretionary: see s 43 of the Federal Court of Australia Act 1976 (Cth) and s 32 of the Bankruptcy Act. The award of costs is intended to compensate the successful party for professional legal expenses. Where a matter has proceeded to a contested hearing, costs usually follow the event; the successful party is entitled to their costs.

6    In Adsett v Berlouis (1992) 109 ALR 100, the Full Court said (at 109):

The obligation of a trustee in bankruptcy to pay costs to another party involved in litigation unsuccessfully instituted or defended by the trustee is a matter distinct from the trustee’s entitlement to recoupment out of the bankrupt’s estate: Pitts v La Fontaine (1880) 6 App Cas 482 at 486; Re Driller (1972) 21 FLR 159 at 175. Ordinarily, an unsuccessful trustee will be ordered to pay the costs of the successful party. Such an order imposes a personal obligation on the trustee. In such a case, the question then arises as to whether or not the trustee has a right to be reimbursed out of the trust estate. This latter question arises in the administration of the bankruptcy, not in the original litigation. In the general area of the administration of trusts, the position was stated by Lindley LJ in Re Beddoe [[1893] 1 Ch 547] at 558 …

7    In Pantzer v Wenkart (2006) 153 FCR 466; [2006] FCAFC 140, the Full Court said (at [1]):

A fundamental feature of Australian bankruptcy law is that the estate of the bankrupt vests in a trustee. The trustee must administer the estate and deal with the bankrupt’s real and personal property in accordance with the provisions of the Bankruptcy Act 1966 (Cth) … and do so for the benefit of the creditors of the bankrupt and the bankrupt. The trustee must be a suitably qualified accountant. Some estates are simple to administer, others are not. Often, property is marshalled and sold by the trustee and the proceeds used to pay creditors, though creditors can be paid from funds realised by other means. The trustee must be involved in the process. The costs of administering the estate are paid out of the estate. Those costs will include the professional fees of the trustee as well as expenses and legal costs. Sometimes there are sufficient funds in the estate to meet the trustee’s remuneration, disbursements and expenses. On other occasions there are not and the trustee bears the loss.

8    As I understand these authorities, I should generally exercise the discretion in favour of making an order that the Trustee not be entitled to be indemnified for costs of litigation only if satisfied that the Trustee acted unreasonably such that it can be said that the costs were not properly incurred in the course of the administration of the estate.

Factual background

9    Previous trustees administering Mr Moran’s estate had made decisions in relation to travel and CAP assessments. Mr Moran had been granted permission by previous trustees to travel to Bali in each of April and June 2023.

10    Mr Moran has been active in contesting decisions made by his trustees. On 26 July 2023, he applied to the Inspector General (IG) to review CAP1 and CAP 2 income contribution assessments made by his former trustee. On 30 November 2023, Mr Moran applied to the Administrative Appeals Tribunal (AAT) to review a decision of the IG. On 16 May 2024, Mr Moran applied to the IG to review the CAP 3 income contribution assessment made by his former trustee. The AAT proceedings and the CAP 3 IG review remained undetermined in June 2024. The amount of the income contributions that would be required of Mr Moran therefore remained uncertain at that time.

11    In late May 2024 Mr Moran and four other applicants applied to set aside summonses issued by Mr Moran’s former trustee. I heard that application in September 2024. Mr Moran was represented and was not required to appear in person, so his proposed September 2024 travel was not apt to affect the hearing or determination of the applications to set aside the summonses. The intended dates of the proposed travel to Italy were in the Court’s non-sitting period so that travel also was not likely to interfere with any examination or other court process.

12    Mr Moran’s solicitor first wrote to the Trustee in relation to the proposed September 2024 travel to Bali and the proposed January 2025 travel to Italy by letter dated 11 June 2024. The letter provided the precise dates and some other details of the proposed travel, indicated that Mr Moran would remain contactable by mobile phone and email, and offered to provide further details of specific accommodation closer to the dates of travel. The letter indicated that permission was required at that time so that advance discounted rates for flights and accommodation could be obtained. The letter noted that there were two extant disputes about Mr Moran’s income assessment contributions but that he was continuing to make monthly payments towards his income contribution liability and would continue to do so, at a rate above that which had been agreed with his former trustee. It appears that, on 17 June 2024, an email was sent to the Trustee following up the letter of 11 June 2024.

13    By letter dated 20 June 2024, the Trustee responded to the letter of 11 June 2024, stating among other things:

I advise that it is appropriate to consider each travel request on its own merits and according to the status of the administration at the time such request is made.

As you may appreciate, the considerations for urgent requests to travel overseas for compassionate reasons associated with the health of an elderly relative or for work reasons which serve to improve a debtor’s financial position and potentially the creditors of the bankrupt estate greatly differ to any request to travel for a family holiday.

14    The tenor of these paragraphs could reasonably be understood as at least faintly suggesting that the Trustee may be less likely to grant permission for travel for the proposed Bali and Italy travel, notwithstanding that previous trustees had earlier seen fit to grant Mr Moran permission to travel. The Trustee’s letter of 20 June 2024 also stated that Mr Moran’s action in applying to set aside the summons issued to him did “not appear consistent with [his solicitor’s] advice that he has complied with all requests for information”. Again, this could reasonably be understood as suggesting that the Trustee was less likely to grant permission to travel. The Trustee’s letter of 20 June 2024 concluded by stating:

In order to consider your client’s request, I will require financial evidence to support his ability to pay for his airfares and accommodation and his expenses abroad, while continuing to meet the contribution liability as assessed.

If Mr Moran is also paying for his children’s travelling cost (whether in part or full), please provide the relevant details.

An estimate of costs would also be helpful.

15    By letter dated 21 June 2024, Mr Moran’s solicitor stated that Mr Moran’s take-home income had not changed since he had last provided that information; provided estimates of the costs of airfares and accommodation for travel to Bali with a screenshot of web sites showing the prices of possible flights and accommodation; provided a more general estimate of the costs of airfares and accommodation for the proposed Italy travel.

16    By email dated 1 July 2024, Mr Moran’s solicitor followed up the Trustee, noting that he had not received a response to the information about expected travel costs provided in his letter of 21 June 2024, and stating:

Further delays in confirming my client’s travel, for booking and purchase, has the effect of increasing the costs thereof.

If you require more time or information to make your decision can you please let me know.

Otherwise, I would be grateful to receive your response by COB tomorrow – and failing which I will call you to confer on next steps.

17    A further exchange of emails on 2 July 2024 led to the Trustee and Mr Moran’s solicitor arranging a call on 3 July 2024. Following that call, on 4 July 2024, the Trustee emailed Mr Moran’s solicitor stated:

As discussed, given the pending proceedings in relation to the examinations and the uncertainty of when these matters will be heard together with the pending contribution assessment reviews, I am not prepared to grant permission today for Mr Moran to travel to Italy in January 2025. I confirm that if Mr Moran would like to request permission at some later stage, I will consider that request.    

18    In relation to the proposed Bali travel, the Trustee stated that, on the basis of the assessments that was under review by the IG, the income contribution payments were in arrears. The Trustee stated that, if the result of the IG review was to refer the matter back to the Trustee, she would re-assess the contribution liability from the beginning of the bankruptcy and the re-assessments would include a fresh consideration of “the deeming income provisions” of the Bankruptcy Act. The Trustee’s email of 4 July 2024 then stated that, “to expedite the above process and to assist me in making a decision on the Bali trip”, it would be appreciated if Mr Moran provided his 2024 income tax return (if available); 2024 income statement from myGov; details of all bank accounts of which he was a signatory or supplementary cardholder; and bank statements for his everyday account from 1 February 2023 onwards. This was a further request for significant further documentation, over and above what had been requested by the Trustee in her letter of 20 June 2024, the main substance of which had been provided by Mr Moran’s solicitor in his letter of 21 June 2024. The Trustee’s letter of 4 July 2024 concluded:

As advised, if permission for the Bali trip is granted, I will require that Mr Moran pays his contribution liability as assessed (including any arrears amount) prior to his proposed departure from the country. In addition, Mr Moran is also required to provide a copy of his confirmed (not proposed) ticket/itinerary and accommodation booking details for my records.

(Underlining in original.)

19    By email sent on 10 July 2024, Mr Moran’s solicitor provided a detailed response to the Trustee’s email of 4 July 2024. That email included a response to the request for documents which stated that two documents did not exist and attached the other documents requested, and a without prejudice offer that proposed, among other things, that Mr Moran should pay $10,000 into his solicitor’s trust account pending the outcome of the reviews before the IG and the AAT, evidently with the intention that those funds should be used to cover any arrears in income contributions that was found to exist.

20    By return email sent later on 10 July 2024, the Trustee acknowledged receipt of the email from Mr Moran’s solicitors and indicated that a response would be provided by 17 July 2024.

21    In an email sent after business hours on 17 July 2024, Mr Moran’s solicitor wrote to the Trustee:

I would be grateful to receive your response, including in respect of my client’s request for travel permission.

Having already now: complied with your most recent request for documents; and answered your further queries – my client has instructed me to make an urgent application to the Court in the event his request for travel permission is denied.

Please therefore let me have your response by 12 noon, WST tomorrow.

22    On 18 July 2024 at 1:13pm, the Trustee sent an email in which she indicated that, following the resolution of the proceeding in the AAT, and in light of a preliminary view provided by the IG, the Trustee would undertake a fresh assessment of Mr Moran’s income contributions for each of CAP1, CAP2 and CAP3. The Trustee asserted that Mr Moran’s proposal in the email of 10 July 2024 was “not relevant in view of the IG’s position on the assessments”. The email included the following:

I confirm that I have not denied your client permission to travel. However, I am still required to consider each request to travel separately and your client’s financial ability to meet his ordinary living costs, his compulsory contribution payments and the added costs of travelling overseas.

23    The Trustee’s email of 18 July 2024 noted that Mr Moran had stated that he had advised that he would be funding previous overseas trips, but that the bank statements provided by him did not show evidence that Mr Moran funded those trips. The Trustee said that she was “seeking full transparency of Mr Moran’s financial position”. These were legitimate inquiries that had the potential to bear upon an assessment of Mr Moran’s income in the relevant extended sense. The email continued:

I am focused on completing fresh assessments for CAPs 1, 2 and 3 to quantify the contribution liability as soon as possible. This will clarify your client’s liability for the current CAP and provide some guidance on what (if any) contributions are due whilst Mr Moran proposed to be overseas. …

24    The email of 18 July 2024 went on to indicate that the Trustee expected to complete the fresh assessments within two weeks, subject to the provision of ten further numbered items of information. I accept that each of the Trustee's further requests for information was borne of a genuine desire to obtain information relevant to the administration of his estate. The email concluded by stating that the Trustee was happy to have a teleconference or videoconference with Mr Moran and his solicitor “to answer any questions and to work with you in finalising these assessments and/or the overseas travel requests”. The effect of the email was to leave it unclear when any decision would be made in relation to travel. However, it was at least implicit that any decision regarding permission to travel was likely to be deferred until after the completion of the fresh income contribution assessments.

25    By email on 29 July 2024, Mr Moran’s solicitor responded to the Trustee’s email, including by providing information and additionally stating that some of the information requested had already been provided to Mr Moran’s previous trustees. In relation to the fact that the Trustee proposed to make fresh income contribution assessments, Mr Moran’s solicitor wrote: “That may be so, however this should not reasonably prevent you from deciding my client’s travel request – now.” He made reference to the decision of Jagot J in Moltoni v Macks as Trustee of the Bankrupt Estate of Moltoni (No 2) [2020] FCA 792 at [33]. The email concluded:

All my client’s compliance with your requests to date, have just resulted in further ongoing requests and with no consent for his travel being given. In those circumstances and observing the imminence of the September Bali Trip – my client has no confidence that, even this latest response and compliance, will result in your consent. He has instructed me to make an application to the Court.

26    By 29 July 2024, the request for permission to travel that had been made on 11 June 2024 had still not been determined. Almost seven weeks had passed. Mr Moran, through his solicitors, had provided information requested of him in a timely manner in response to iterative requests for more information. The Trustee had made it clear that she was at least reluctant to grant permission and had conveyed that a family holiday was not regarded as a compelling reason for travel; had been put on notice of Mr Moran’s reasons for seeking a timely decision; had been relatively slow at times (though not unreasonably slow) to respond to correspondence; had declined an offer from Mr Moran to provide $10,000 security for any additional income contribution he may be required to pay; and had given a strong indication that she would not determine the travel request until after the completion of the income contribution assessments, which it was said could take a further two weeks. The Trustee had also made a clear statement refusing to give permission for the Italy travel at that time, although she had indicated a willingness to revisit that decision in the future.

27    Mr Moran commenced the proceedings on 29 July 2024. They were not served on the Trustee until 2 August 2024. In the meantime, the Trustee wrote to Mr Moran by letter dated 1 August 2024, stating that permission for the proposed travel to Bali was granted on the following conditions:

1.     That your client provides documentary evidence to show that he has sufficient funds to pay for his own airfares, accommodation, visa fees, travel insurance, food, entertainment and other expenses;

2.     That your client settles his outstanding contribution liability prior to his travel. I will confirm the amount payable by your client upon completion of his fresh income contribution assessment for CAPs 1-3 within the next 2-3 weeks; and

3.     That, subject to items 1 and 2 above, your client provides a copy of his confirmed ticket/itinerary, accommodation booking details and contact details in Bali when these become available.

I note that the grant of permission to travel on these conditions did not obviously depend on the Trustee having particular information, because they required that Mr Moran provide identified information as a condition of the grant of permission, and permission could have been granted on the same basis at an earlier point in time.

28    On 16 August 2024, the Trustee provided Mr Moran with a reassessment of his income contributions for CAPs 1, 2 and 3. The effect was that Mr Moran’s total outstanding contribution liability (ie, the total liability for CAPs 1, 2 and 3, less contributions already made) was $9,657.77 and his monthly instalment for CAP3 was now greater than it previously had been.

29    There followed some further negotiation between the solicitors for both parties as to the precise terms of the conditions to be included in consent orders granting permission to travel to both Bali and Italy. Proposed consent orders were provided to the Court on 27 August 2024 and the consent orders were made on 28 August 2024.

Conclusions regarding the exercise of the costs discretion

30    The consent orders have resulted in permission to travel being granted in relation to both Bali and Italy, and include imposition of negotiated conditions. The affidavit of Mr Moran filed in support of his application indicated that he was prepared to comply with all reasonable conditions imposed in connection with the grant of permission to travel. I consider it appropriate to proceed on the basis that Mr Moran has been successful in his application.

31    The Trustee submitted that Mr Moran had acted unreasonably in bringing the application when he did; that he had “jumped the gun” and commenced the application at a point in time when the grant of permission by the Trustee was imminent; and that consequently Mr Moran should be ordered to pay the costs of the Trustee. It is true that, as it happens, the Trustee did grant permission on 1 August 2024, before she was even served with Mr Moran’s application. However, Mr Moran could not have known that when he commenced the proceedings and the reasonableness of his conduct in bringing the application should not be assessed with the benefit of that hindsight.

32    Mr Moran, though his solicitor, had been seeking approval of the Bali travel since 11 June 2024. The judgement he had to make as to whether, and if so when, to commence proceedings so as to allow enough time for the application to be resolved before the travel was a difficult one. Mr Moran could not know how quickly the Court would hear the application and once he formed the view that an application was necessary it was reasonable to attempt to avoid placing the Court and the parties under unnecessary time pressure by delaying its filing too long. I also accept that Mr Moran apprehended that further delay leading to a later booking would likely result in an increase in the costs associated with the travel. The Trustee had stated that she was not prepared to grant permission for the Italy travel, but she had made it clear that she was still willing to consider granting permission for that travel at a later time. That was technically a refusal to grant permission, but I do not find it necessary to decide whether it would have been reasonable for Mr Moran to commence proceedings as early as late July 2024 had permission to travel to Italy in January 2025 been the only issue. However, given that similar issues were likely to arise in relation to the approval of both trips, it was not unreasonable for Mr Moran to raise both issues in the same application, if it was not unreasonable for him to make apply to the Court when he did in respect of the travel to Bali. In light of the way the correspondence had developed, and the proximity of the proposed travel, I am not prepared to find that Mr Moran acted unreasonably in commencing the proceedings at the point when he did.

33    Given the Trustee’s evident view that Mr Moran was likely to be required to make further income contributions in the future, it was not unreasonable for the Trustee to require an appropriate form of assurance that there would be funds available for that purpose as a condition of permitting the travel. Mr Moran also relies upon his offer to pay $10,000 into his solicitor’s trust account, contained in the email sent by his solicitor on 10 July 2024. Mr Moran points to the fact that the outcome of the fresh income contribution assessments issued by the Trustee on 16 August 2024 was that Mr Moran’s contribution liability was $9,657,77. I accept that the offer made by Mr Moran was a reasonable practical offer to progress the issue of travel approval, and that the amount he offered to pay into his solicitor’s trust account in fact exceeded the outstanding income contribution amount that the consent orders required Mr Moran to pay as a condition of the travel. I do not treat it as exactly equivalent to an offer to settle litigation that Mr Moran has “bettered” but the fact that a reasonable offer of that kind had been rebuffed as irrelevant is, in my view, a further indication that Mr Moran acted reasonably in commencing the proceedings.

34    I do not suggest that the Trustee has been acting otherwise than in good faith. I accept that each of the Trustee’s further requests for information was borne of a genuine desire to obtain information relevant to the administration of his estate. Her view of what was necessary evidently developed over time. The Trustee’s letter of 18 July 2024 was unclear as to whether the further information requested was relevant only to the fresh income contribution assessments, but the email read as a whole made it clear that permission was still being considered and did not suggest that a decision was imminent.

35    I also accept that, on 1 August 2024, the Trustee had indicated a willingness to permit the proposed travel to Bali (but not Italy) on conditions which were similar, though not identical, to the conditions ultimately imposed by the consent orders. By that date, Mr Moran’s application had been filed (though not yet served) and I infer that most of the costs reasonably incurred by Mr Moran in connection with the application would already have been incurred by that stage. I do not consider that it was unreasonable for Mr Moran, having reasonably commenced his application relating to both Bali and Italy, to continue to negotiate consent orders to address both instances of proposed travel and to refine the conditions of travel.

36    In the circumstances I have described, Mr Moran should not be required personally to pay the costs of the Trustee. Costs should follow the event and the Trustee should pay Mr Moran’s costs of the application (including the costs of the argument in relation to the costs of the application).

37    Mr Moran submitted that this was a case where “it would not be an unreasonable exercise of the Court’s discretion” to order that the Trustee pay the costs of the application “personally”. I understand that to be a submission that I should order that the Trustee not be entitled to be indemnified for the costs to be paid to Mr Moran out of the bankrupt estate. I am not prepared to conclude that the Trustee has acted unreasonably or otherwise than properly in the administration of the estate in connection with the consideration of Mr Moran’s request for permission to travel, even though I have found that the circumstances (including aspects of the conduct of the Trustee) made it not unreasonable that Mr Moran should commence the proceedings, in which he has ultimately succeeded. I decline to make an order that the Trustee not be entitled to recover the costs of these proceedings from the bankrupt estate.

Conclusion

38    I will order that the respondent pay the applicant’s costs of the application to be agreed or taxed.

Associate:

Dated:    31 October 2024