The bankruptcy issue
11 As I have earlier recorded, the applicant entered bankruptcy on 19 February 2010. His appeal to this Court pursuant to s 97 of the EPA Act had been discontinued some two months earlier on 16 December 2009. The question which then arises is whether, in the context of those events, leave of the Federal Court or Federal Magistrate's Court is required before the Council is able to proceed with its present notice of motion.
12 Section 58(3) of the Bankruptcy Act relevantly provides as follows:
"(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."
13 As will be apparent from the terms of s 58(3), the need for leave pursuant to that section will only arise if the Council's notice of motion involves taking a step in the proceedings commenced in this Court in respect of a "provable debt". That requirement then necessitates that attention be given to the provisions of ss 5 and 82.
14 The expression "provable debt" is defined in s 5 of the Bankruptcy Act to mean "a debt or liability that is, under this Act, provable in bankruptcy." Section 82 of that Act, in turn, relevantly provides for those debts that are provable in bankruptcy.
15 Subsection (1) of s 82 provides as follows:
"(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of bankruptcy, are provable in his or her bankruptcy."
16 Applying the language of the latter subsection according to its ordinary usage, the order for costs which the Council now seeks, if made, is not a debt or liability to which the applicant was subject on 19 February 2010, that is, on the date of his bankruptcy. Moreover, an order for costs, not yet made, is not a debt or liability to which the applicant "may become subject" by reason of an obligation incurred before 19 February 2010. No obligation to pay costs can arise until the discretion to make an order so requiring is exercised by this Court. Indeed, having regard to the provisions of Pt 3.7 of the Land and Environment Court Rules 2007 (LECR), no contingent liability for costs could be seen to arise or have arisen as at that date. Subrule (2) of Pt 3.7 provides that the court is not to make an order for the payment of costs in Class 1 proceedings unless it is determined to be "fair and reasonable" so to do in the circumstances of the case. The fact that the Council had not consented to the applicant's discontinuance in December last, because it wished to seek costs, would not seem to me to alter the position. It is necessary for the court first to pronounce upon the application for costs, taking into account the presumption against the making of such an order as expressed in subrule (2) and, in so doing to consider the particular circumstances potentially informing that exercise of discretion, as they are exemplified in subrule (3).
17 It follows that, uninstructed by authority, I would interpret the provisions of the Bankruptcy Act in a way that would present no bar to the Council proceeding with its present notice of motion. In so concluding, my interpretation of the relevant provisions of the Bankruptcy Act is consistent with the judgment of the majority of the High Court in Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56. The facts of that case bear a remarkable similarity to those which I am called upon to consider in the present case.
18 Mr Foots was the defendant in commercial litigation conducted in the Supreme Court of Queensland. In those proceedings judgment was entered against him on 1 September 2005 when he was ordered to pay damages to Southern Cross in the sum of $2,450,000. On 15 September 2005, some fourteen days later, he became bankrupt upon his own petition. However, it was not until 3 February 2006 that the issue of costs in the proceedings was determined, when the trial judge ordered that Mr Foots pay the successful party's costs on an indemnity basis. The terms in which the trial judge had expressed his disapproval of Mr Foots' case, when on 1 September 2005 he had entered judgment against him, made it readily apparent that an order for costs would, in all likelihood, be made against Mr Foots when the issue of costs came to be determined.
19 The order for costs having been made after he had become bankrupt, Mr Foots argued that the application for costs should have been stayed pursuant to s 58(3) of the Bankruptcy Act as no leave had been granted under that section to pursue the application. This argument necessarily involved consideration by the High Court of the operation of ss 58(3) and 82(1) of that Act. The majority (Gleeson CJ and Gummow, Hayne and Crennan JJ) rejected the contentions advanced by Mr Foots.
20 It was necessary for the High Court to determine whether the making of an order for costs, after Mr Foots had entered bankruptcy but consequential upon the determination of the principal proceedings prior to bankruptcy, concerned a debt to which he had become subject by reason of an obligation which he had incurred prior to bankruptcy. On that question, the majority said this:
"[35] What, then of the appellant's first submission? This is, that his exposure to an adverse costs order arose from an "obligation" incurred prior to his bankruptcy. The submission should be rejected: no such obligation arose until the costs order was made….
[36] The most that can be said, as Mummery LJ observed in Glenister , is that "[o]nce legal proceedings have been commenced there is always a possibility or a risk that an order for costs may be made against a party" (citation omitted). But that risk is not a contingent liability within the sense of s 82(1). The order for costs itself is the source of the legal liability and there is no certainty that the court in question will decide to make an order. … ."
21 The considerations relevant to the interpretation of the provisions of the Bankruptcy Act were drawn together by the Court when addressing the issue in Foots in the following way:
"[67] Had the costs order made by Chesterman J on 3 February 2006 been made and taxed before the appellant's bankruptcy ensued, it would have been a provable debt. Even if the order had not been taxed before bankruptcy, it would nonetheless have been provable as a debt incurred "by reason of an obligation incurred before the date of the bankruptcy"; namely the antecedent making of the costs order. However, the order was made only after bankruptcy had already intervened, and the appellant's liability to meet that order did not arise from an obligation incurred before bankruptcy. Thus, it was not a provable debt, and the stay contained in s 58(3) of the Bankruptcy Act was not engaged. His Honour was therefore entitled to make the costs order against Mr Foots."
22 The reasoning and judgment in Foots bears directly upon the present issue. Applying that reasoning, confirming as it does, with respect, my own interpretation of the relevant statutory provisions, I conclude that the Council is able to pursue its present application for costs without the necessity to seek leave under s 58(3) of the Bankruptcy Act.