//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2017] FCA 1186
Federal Court of Australia
2017-10-06
White J
Original judgment source is linked above.
The Applicant's claims 57 As noted earlier, Axess sought orders that it be paid its own legal costs and orders that those costs and the Judgment Debt (together with accrued interest) be paid from the proceeds of sale of the Williamstown property or, alternatively, priority in the First and Second Respondents' bankrupt estates. 58 Mr Nelson did not contest the entitlement of Axess to have its costs as against the Respondents and I am satisfied that an order to that effect is appropriate. 59 Initially, Axess asked the Court to fix now the quantum of its costs but counsel's ultimate position was that an order should be made that these costs be taxed or agreed. In particular, counsel for Axess indicated that he did not have the necessary instructions with which to engage in a detailed assessment of the total costs claimed by Axess. Counsel for Mr Nelson supported that position. I am conscious that, if the Court proceeded to fix the costs now, there would be some likely saving to the costs which the parties would incur in that respect. However, I will accede to the approach with respect to costs for which counsel contended, but at the same time indicate my expectation that, in any negotiated agreement with respect to the costs claimed by the Applicant, or on a taxation, regard will be had, amongst other things, to the issues concerning the extent of the claimed costs which I raised with counsel in the course of submissions. 60 In relation to alternative forms of priority it sought, Axess referred to s 109(10) of the Act. Section 109(1) provides for the order of priority to be adopted by a trustee in applying the proceeds of the property of a bankrupt. Subsection (11) provides that, subject to one qualification, the debts in each of the classes specified in subs (1) are to rank equally between themselves. Subsection (10) provides for one circumstance in which the Court may order that a creditor have priority over other creditors. It provides: (10) Where in any bankruptcy: (a) property has been recovered, realized or preserved under an indemnity for costs of litigation given by a creditor or creditors; or (b) expenses in relation to which a creditor has, or creditors have, indemnified a trustee have been recovered; the Court may, upon the application of the trustee or a creditor, make such orders as it thinks just and equitable with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving the indemnifying creditor or creditors, as the case may be, an advantage over others in consideration of the risk assumed by creditor or creditors. 61 The principles relating to the application of s 109(10) are well established and were summarised by Jagot J in Grandsky Pty Ltd v Horne in his capacity as Trustee for the Bankrupt Estate of Van Oost [2014] FCA 119. I gratefully adopt, without repeating, that summary. The authorities indicate, in particular, that the discretion conferred by subs (10) is to be exercised having regard to the desirability, in the public interest, of encouraging creditors to provide an indemnity to a trustee so as to permit claims arising out of a bankruptcy to be pursued. It allows recognition by way of reward to be given to the risk undertaken by the indemnifying creditor, even when that creditor has been fully reimbursed. That is because it is in the public interest that the property of a bankrupt should be available to the creditors of the bankrupt. 62 The discretion is of a broad kind and permits the Court to order that a creditor have a complete or partial priority or a priority in respect of all or part of the amount available in the bankrupt's estate. 63 By his interlocutory application, Mr Nelson sought adjournment of the Court's consideration of Axess' application for priority. He did so in order to give him time to obtain further clarity regarding the liabilities of the bankrupt estates. In particular, Mr Nelson submitted that the determination of Axess' entitlement to priority should be deferred until the amount available for distribution to the creditors is known. 64 One of the matters identified by Nicholas J in Woodgate, in the Matter of Eaton (a Bankrupt) [2010] FCA 550 at [5] as relevant to the exercise of the discretion under s 109(10) is "the proportions between the debts of the indemnifying creditor and the other debts". Accordingly, it would be of assistance to have more information concerning the two bankrupt estates. 65 However, Mr Nelson has provided the Court with relatively little information concerning the two estates. He annexed to his affidavit the statements of affairs provided by the two bankrupts but did not provide the Court with any analysis of those statements or with any report of his investigations into the debts and liabilities disclosed by the bankrupts. Mr Nelson deposed, on the basis of his discussions with the bankrupts, that there may be additional claims against the joint estates in the vicinity of $300,000 arising from personal guarantees they have provided to the landlords of retail properties. Again, that was at a level of generality. In addition, Mr Nelson deposed to a belief that there may be other undisclosed creditors but did not provide the Court with any particulars of that belief. 66 I also note that Axess' application had initially been listed for hearing on 6 July 2017. Mr Nelson did not attend at that hearing nor provide any indication that he did not wish to be heard. His affidavit tends to imply that he would have been content for the Court to deal with the application of Axess at that time even in his absence. 67 I am also concerned about the prospect of yet further costs being incurred if the adjournment application is allowed. 68 For these reasons, although the position is not entirely satisfactory, I do not accede to Mr Nelson's application for adjournment of the consideration of Axess' priority claim. 69 The amount of Axess' priority claim (before accrued interest) is $150,042.89. I am satisfied that the action of Axess in seeking the appointment of Mr Ambrose did have the effect of preserving at least one significant asset for the creditors, namely, the net proceeds of the Williamstown property. There is no indication that any other creditor of the Respondents had been willing to take that action. Nor is it suggested that Axess acted opportunistically in order to secure for itself a benefit in the anticipated bankruptcies. Mr Nelson has informed the known and advised creditors of the bankrupts of the application by Axess for priority for its debt of approximately $150,000 and reports that no creditor has objected to that claim. 70 The governing criterion fixed by s 109(9) is the justice and equity of the case. 71 On my assessment, Axess should be rewarded for the risk which it undertook in seeking the appointment of Mr Ambrose and the resultant action which has resulted in a benefit for the creditors generally. In my opinion, it is just and equitable that Axess have priority with respect to the legal costs it incurred (which as noted above are to be taxed if not agreed) and with respect to 50% of the Judgment Debt. I exclude from the claimed priority any post-judgment interest. The priority is granted with respect to the bankrupt estates and not with respect to the proceeds of the sale of the Williamstown property.
Summary 72 For the reasons given above, I make orders as follows: (1) The costs of the controlling trustee appointed by the Court on 25 May 2017 be fixed at $51,159.04 and paid as a priority from the proceeds of Unit 1, 113 Esplanade, Williamstown, Victoria (the Williamstown property). (2) The First and Second Respondents are to pay the Applicant's costs of the proceeding to be agreed or taxed. (3) Pursuant to s 109(10) of the Bankruptcy Act, the Applicant's costs as taxed or agreed and 50% of the Judgment Debt of $150,042.89 be paid as a priority from the bankrupt estates. (4) I will hear from the parties as to any consequential orders. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.
Associate: Dated: 6 October 2017 SCHEDULE OF PARTIES SAD 132 of 2017 Respondents Fourth Respondent: SIMON PATRICK NELSON
Axess Debt Management Pty Ltd
Haykal, in the matter of Haykal
WHITE J: 1 On 25 May 2017, the Court made an order under s 50 of the Bankruptcy Act 1966 (Cth) (the Act) appointing Colin Ambrose to take control of the property of the First and Second Respondents (Elvis Haykal and Rabah Zakarie). Although there are other respondents, it is convenient to refer to Mr Haykal and Mr Zakarie as "the Respondents". 2 The circumstances leading to the order on 25 May 2017 are set out in Axess Debt Management Pty Ltd v Haykal, in the matter of Haykal [2017] FCA 599. In short, those circumstances were that the Applicant (Axess) had obtained judgment by default against the Respondents on 11 April 2017 for the sum of $150,042.89 (the Judgement Debt); the Official Receiver had issued a bankruptcy notice to the Respondents on 26 April 2017 which had been served on them; there was evidence that the Respondents had been disposing of assets which may have been available to their trustee in bankruptcy if a sequestration order was made; and there was evidence that the Second Respondent was seeking to dispose of a further asset. 3 The Third Respondent, Lucia Haykal, is the wife of the First Respondent. The Court also granted an injunction on 25 May 2017 restraining her from dealing with property transferred to her by the First Respondent. 4 The Court adjourned consideration of the application of Axess in relation to its own costs and the Judgment Debt and the costs which would be incurred by Mr Ambrose. This judgment concerns those matters. 5 It is appropriate first to record some further history. 6 In order to procure Mr Ambrose's consent to the appointment as controlling trustee, Axess had provided him with an indemnity in respect of his costs. Perhaps because of this, Mr Ambrose did not seek the deposit of an amount in anticipation of his remuneration of the kind seemingly contemplated by reg 4.07 of the Bankruptcy Regulations 1996 (Cth). 7 On the application of Mr Ambrose, on 1 June 2017 the Court granted him leave to intervene in the proceedings, and issued an injunction restraining the Second Respondent from disposing of the property at Unit 1, 113 Esplanade, Williamstown, Victoria (the Williamstown property) which was listed for auction on 3 June 2017 unless authorised by further order of the Court or with the express written consent of Mr Ambrose. The Court also made consequential orders. 8 Mr Ambrose obtained a valuation of the Williamstown property and ascertained that the Second Respondent's net equity in it was of the order of $730,000. He approved the sale of the property and the sale was settled on 9 August 2017. The net proceeds were paid to Mr Ambrose. 9 In the meantime, on 27 June 2017, the Australian Financial Security Authority (AFSA) accepted debtors' positions presented by the Respondents and made a sequestration order. Mr Simon Nelson was appointed as their trustee in bankruptcy. The solicitors for Axess then raised with AFSA a question concerning the validity of Mr Nelson's appointment given the terms of ss 55(3B) and/or 57(3B) of the Act and the apparent absence of disclosure by the First and Second Respondents to AFSA of the present proceedings and of the creditor's petition of Axess. However, after some correspondence, Axess accepted that the sequestration order had been properly made and that Mr Nelson had been properly appointed. 10 In those circumstances, there was seemingly no need for Mr Ambrose's controlling trusteeship to continue. However, having regard to the submissions of Mr Ambrose, the Court adjourned consideration of an order to that effect on 6 July 2017 so that it could be considered in conjunction with the remaining claims of Axess and with Mr Ambrose's claim for payment of his fees and expenses. On 10 August 2017, the Court ordered that the trusteeship terminate as at 5 pm that day. At the same time, the Court ordered that Mr Nelson be joined as a respondent to the proceedings and that the proceeds from the sale of the Williamstown property be paid to him. 11 Axess seeks orders with respect to costs and priorities as follows: (a) Mr Ambrose's costs and expenses be fixed by the Court and paid as a priority from the proceeds of the Williamstown property; (b) the First Respondent's beneficial interest in a property at Keilor East in Victoria be charged with payment of Mr Ambrose's reasonable costs and expenses; (c) the Respondents pay the Applicant's costs of and incidental to the present proceedings with those costs to be paid from the proceeds of the Williamstown property; (d) pursuant to ss 30 and 50(1)(b) of the Act, payment of the Judgment Debt together with accrued interest be charged against the proceeds of sale of the Williamstown property; (e) pursuant to s 109(10) of the Act, the Judgment Debt be paid as an absolute priority in the Respondents' bankrupt estates. 12 Mr Ambrose seeks an order that he be paid $45,272.63 in respect of his own fees, $14,318.70 in respect of the fees charged by the firm of legal practitioners he had retained (Gretsas and Associates), and $2,890.34 in respect of his disbursements. An affidavit filed on behalf of Axess seemed to indicate that it was seeking payment of its own legal costs in the sum of $32,200. However, at the hearing, Axess sought an order that the Respondents pay its costs to be taxed in default of agreement and that it have priority in respect of those costs.
Is there a procedure for fixing the fees of a controlling trustee? 21 Mr Ambrose submitted that it was necessary for the Court presently to fix his fees as there was no other mechanism available under the Act, the Bankruptcy Regulations or the Federal Court (Bankruptcy) Rules 2016 (Cth) (the Bankruptcy Rules) by which his remuneration may be quantified. Accordingly, Mr Ambrose submitted that the Court should proceed now to quantify his remuneration. 22 In support of this submission, Mr Ambrose noted that the provisions in Div 60 and in s 90-21 of Sch 2 to the Act (the Insolvency Practice Schedule (Bankruptcy)) seem inapplicable in the present context given that he was not the "trustee of a regulated debtor's estate" to which those provisions refer. That is a consequence of the definition of the terms "trustee of a regulated debtor's estate" contained in s 5-20 of Sch 2. That definition does not include a trustee appointed pursuant to s 50. 23 Counsel referred to s 32 of the Act which provides that the Court may, in any proceeding before it, make such orders as to costs as it thinks fit. However, s 32 refers only to a party's legal costs, and not to the fees and expenses of a trustee. See Principal Strategic Options Pty Ltd, in the matter of Coshott v Coshott [2001] FCA 664 at [17]-[18]. Likewise, Pt 13 of the Bankruptcy Rules provides for the determination of the costs to which a party in a proceeding under the Act is entitled to be determined in accordance with Pt 40 of the Federal Court Rules 2011 (Cth) (the FCR). However, this is a reference to the costs incurred in respect of legal advice or legal representation of the kind to which s 43 of the FCA Act refers. 24 Counsel for Mr Ambrose likened the position of a trustee appointed under s 50 to that of a receiver appointed by the Court pursuant to s 57 of the FCA Act or pursuant to r 14.21 of the FCR. He referred in this respect to Penning v Steel Tubes Supplies Pty Ltd (1988) 18 FCR 568 in which the Full Court (Woodward, Fisher and Spender JJ) expressed the view at [32] that "no material distinction is to be drawn between the appointment by a court of a trustee to take control of a debtor's property under s 50 of the Bankruptcy Act 1966 and the appointment by a court of a receiver to take possession of the property of a named person." Counsel then noted that, while r 14.24 of the FCR permits receivers to apply to the Court to have their remuneration fixed, the FCR does not contain any procedure by which that remuneration may be quantified. This indicated, he submitted, the appropriateness of the Court fixing his remuneration now and submitted that, by analogy, the Court must have the same power with respect to s 50 trustees. 25 No other party pointed to any available procedure. In the circumstances, I am willing to proceed with the determination of Mr Ambrose's remuneration. I consider, however, that it would have been possible for the Court to refer that remuneration for assessment by a Registrar, leaving it to the Registrar to issue directions with respect to the proof of, and challenges to, Mr Ambrose's claims of the kind issued in relation to the taxation of a party's legal costs.
The basis for the determination of the remuneration 26 Mr Ambrose submitted that his fees should be fixed on an indemnity basis with no amount disallowed unless the Court is satisfied that he had acted unreasonably in incurring particular costs. He relied on Wenkart v Pantzer [2013] FCAFC 81; (2013) 215 FCR 470 which involved, in part, an appeal against an order that a former bankrupt pay 90% of the costs which his former trustee in bankruptcy had incurred in extensive litigation between the two. The Full Court (Dowsett, McKerracher and Foster JJ) upheld the trustee's claim that he was entitled to a full indemnity, as a matter of bankruptcy law, unless the Court held that he had behaved unreasonably in incurring some or all of those costs, at [351]. The Full Court continued at [353]: The correct costs order in the present case as between the trustee and Dr Wenkart is that the trustee's costs of and incidental to the appeal and both cross-appeals and of the proceedings below be paid to Dr Wenkart on the trustee basis as taxed or agreed. We intend that the taxation of costs on the trustee basis be carried out upon the basis that no costs shall be disallowed, accept insofar as those costs, or part thereof, should not, in accordance with the duty of the trustee (or quasi trustee) or personal representative as such, have been incurred or paid … The emphasis is on what is to be excluded rather than on what is to be included. 27 As I understand it, the "trustee basis" to which the Full Court referred is that stated in National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 at 277 by Williams J, namely: A trustee is entitled to be indemnified out of the trustee estate against all proper costs, charges and expenses incident to the execution of the trust. That is to say, the general principle is that trustees are entitled as of a right to an indemnity out of the trust for all expenses properly incurred, except to the extent that the costs are of an unreasonable amount or have been unreasonably incurred: Rigby v Tiernan [2016] VSC 352 at [110]. 28 However, I do not regard the approach stated in Wenkart v Pantzer as being appropriate presently. First, that case concerned a former trustee in bankruptcy and not a s 50 trustee. Secondly, the case concerned the legal costs incurred by the trustee in litigation with the bankrupt, and not, as here, the trustee's own remuneration. 29 In my opinion, an approach of the general kind adopted by French J in University of Western Australia v Gray (No 6) [2006] FCA 1825 at [82] commends itself, namely, that Mr Ambrose be remunerated at a reasonable rate for the work which was reasonably necessary in the discharge of the responsibilities of his trusteeship.
[2016] VSC 352
(1983) 50 ALR 118
(1941) 64 CLR 268
(1988) 18 FCR 568
(1989) 23 FCR 588
(2013) 215 FCR 470