Bertram v Naudi

Principles 11 The principles relating to an award of costs are well-settled. 12 The Court has a broad discretion in awarding costs which must be exercised judicially taking account of relevant facts and circumstances of the litigation: s 43(2), (3) Federal Court of Australia Act 1976 (Cth). 13 The ordinary rule is that costs follow the event and that a successful party is entitled to its costs on a party/party basis. ALDI Foods Pty Limited as General Partner of ALDI Stores (A Limited Partnership) v Transport Workers' Union of Australia v Transport Workers Union of Australia [2020] FCAFC 231 at [86]-[88]; (2020) 282 FCR 174 (Besanko, Bromberg and O'Brien JJ), Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [22] (Gaudron and Gummow JJ) (in respect of an equivalent statutory costs power). 14 The discretion includes the power to order costs be paid on an indemnity basis which may properly be awarded where there is some special or unusual feature in the case justifying the Court in exercising the discretion in that way: Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [5] citing Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, 152 (Black CJ). 15 The Full Court in Anchorage continued at [6] by observing that "A well-established circumstance justifying an award of indemnity costs is an imprudent refusal of an offer of compromise.": Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 232-233 (Sheppard J)

The parties' submissions and consideration 16 Mr Naudi's claim for indemnity costs has four alternate bases: (i) The applicant unnecessarily invoked a costly procedure in the face of the no-cost alternative in s 139ZA of the Bankruptcy Act 1966 (Cth); (ii) By failing to file a genuine steps statement, the applicant did not comply with the Civil Dispute Resolution Act 2011 (Cth); (iii) The applicant prosecuted the proceedings in the knowledge that his communications with the respondent were at best misleading, if not false. That was a position that the applicant must have known when he commenced the proceedings (no reasonable basis); and (iv) Imprudent refusals to accept offers of compromise.

Section 139ZA of the Bankruptcy Act 17 The respondent submits that pursuant to s 139ZA of the Bankruptcy Act, a no-cost recovery procedure is available by which the applicant could apply for an internal review by the Inspector-General of Mr Naudi's decision as Trustee, however instead Mr Bertram elected to proceed in this Court. 18 There was no issue that the Court had jurisdiction to consider the matters the subject of the applicant's claim: s 90-15 Schedule 2 to the Bankruptcy Act. 19 The decision to proceed in this Court as opposed to utilising the internal review procedure set out in the Bankruptcy Act is a matter that went to the exercise of the discretion by the Court as to whether it would grant the relief sought by Mr Bertram. 20 After the proceedings in this matter had been instituted, a proposal was put by Mr Naudi to the applicant by letter from its solicitors, Charlton Rowley, dated 16 August 2021, to the applicant's solicitors, CCK lawyers. In summary, the proposal was that the proceedings be stayed whilst an internal review procedure pursuant to s 139ZA of the Bankruptcy Act was undertaken. That proposal was not accepted. 21 As part of the submissions on this point, the respondent referred to ss 37M and 37N of the FCA in advancing a submission that given the Overarching Purpose of the Civil Practice and Procedure Provisions of the FCA and the obligation on the parties to act consistently with the Overarching Purpose, a failure to do so by not proceeding with the internal review process constituted a breach of those provisions. The consequence, so it was submitted, was that such a breach was a basis upon which an order for indemnity costs should be made. 22 Section 37M(4) identifies the Civil Practice and Procedure Provisions as being the Federal Court Rules 2011 (Cth), and any other provision made by or under the FCA or any other Act with respect to the practice and procedure of the Court. 23 I accept that a breach of s 37M and/or s 37N might provide grounds for the award of costs in favour of a party affected by such a breach: s 37N(4). However, Mr Naudi seeks to extend the Overarching Purpose and the obligation to conduct the proceeding in a manner consistent with that Overarching Purpose, to not bring proceedings before the Court at all or at least if instituted, to not prosecute those proceedings. 24 Mr Bertram was entitled to bring his claim before the Court. Whereas a decision not to pursue an internal review under the Bankruptcy Act may have an impact on the exercise of the discretion as to whether Mr Naudi would be granted the relief sought, I do not accept that the applicant breached s 37M and/or s 37N of the FCA in failing to pursue an internal review under the Bankruptcy Act. 25 Accordingly, I am not satisfied that the existence of the internal review procedure as an alternative to issuing proceedings in this Court is a basis upon which the Court should exercise its discretion to award costs whether on an indemnity basis or otherwise.

Non-compliance with the Civil Dispute Resolution Act 26 The respondent submits that prior to the commencement of proceedings, the applicant failed to take genuine steps to resolve the dispute as contemplated by the CDR Act. 27 There is no doubt the provisions of the CDR Act apply to these proceedings and that ss 6, 9, 11 and 12 apply. Those provisions provide: 6 Genuine steps statement to be filed by applicant (1) An applicant who institutes civil proceedings in an eligible court must file a genuine steps statement at the time of filing the application. (2) A genuine steps statement filed under subsection (1) must specify: (a) the steps that have been taken to try to resolve the issues in dispute between the applicant and the respondent in the proceedings; or (b) the reasons why no such steps were taken, which may relate to, but are not limited to the following: (i) the urgency of the proceedings; (ii) whether, and the extent to which, the safety or security of any person or property would have been compromised by taking such steps. (3) A genuine steps statement need not be filed under subsection (1) in relation to proceedings that are wholly excluded proceedings. (4) A genuine steps statement must be filed under subsection (1) in relation to proceedings that are in part excluded proceedings, but the statement need not relate to the parts of the proceedings that are excluded proceedings. 9 Duty of lawyers to advise people of the requirements of this Act A lawyer acting for a person who is required to file a genuine steps statement must: (a) advise the person of the requirement; and (b) assist the person to comply with the requirement. 11 Court may have regard to genuine steps requirements in exercising powers and performing functions An eligible court may, in performing functions or exercising powers in relation to civil proceedings before it, take account of the following: (a) whether a person who was required to file a genuine steps statement under Part 2 in the proceedings filed such a statement; (b) whether such a person took genuine steps to resolve the dispute. 12 Exercising discretion to award costs (1) In exercising a discretion to award costs in a civil proceeding in an eligible court, the court, Judge or other person exercising the discretion may take account of: (a) whether a person who was required to file a genuine steps statement under Part 2 in the proceedings filed such a statement; and (b) whether such a person took genuine steps to resolve the dispute. (2) In exercising a discretion to award costs in a civil proceeding in an eligible court, the court, Judge or other person exercising the discretion may take account of any failure by a lawyer to comply with the duty imposed by section 9. (3) If a lawyer is ordered to bear costs personally because of a failure to comply with section 9, the lawyer must not recover the costs from the lawyer's client. 28 There is no evidence that CCK lawyers failed to comply with its obligations under s 9 of the CDR Act. 29 Mr Naudi submits that it was not open for Mr Bertram to ignore the obligations set out in ss 11 and 12 of the CDR Act. 30 I accept that there was an obligation on the part of Mr Bertram to take genuine steps and to file a genuine steps statement in the circumstances of this matter and that he failed to do so. However, as I noted in the reasons delivered in this matter on 25 October 2024, the relief sought by Mr Bertram to set aside the Trustee's Contribution Assessment Notices was an "all or nothing" proposition. 31 Accordingly, whereas I may take account of the fact that Mr Bertram did not file a genuine step statement, when considering the exercise of my discretion to award costs whether on a party/party or other basis, I do not accept that in the circumstances of this matter the failure by Mr Bertram to take genuine steps or to file a genuine steps statement provides a basis for the Court to exercise its discretion to award indemnity costs.

No reasonable basis 32 In the course of the reasons published in this matter on 25 October 2024, I found that an email sent from Mr Bertram to Mr Naudi on 13 June 2019, which contained a statement concerning a denial that a third party had paid Mr Bertram's legal costs for work done for him by CCK lawyers, was at best misleading, if not false. I made the same finding about Mr Bertram's email to Mr Naudi on 11 July 2019 which addressed the same question: Reasons [118], [129]. 33 I have found that work done by CCK Lawyers was done for Mr Bertram and that a third party either paid CCK Lawyers' fees for performing that work, or alternatively assumed an obligation to do so. 34 Relying on those findings, Mr Naudi submits that neither Mr Bertram nor his solicitors could have reasonably held the belief that work done for Mr Bertram was in fact being done for the applicant's brother, Richard Bertram before, or after, they commenced proceedings against Mr Naudi. 35 I accept that Mr Bertram and his solicitors must have known that work was being done for the applicant by CCK Lawyers and that its fees were being paid for by a third party, alternatively that a third party had assumed an obligation to pay its fees. 36 Further, the position taken at the hearing by Mr Bertram in relation to money paid into trust by that third party on account of work performed by CCK Lawyers, was that since the money had not been transferred from trust to CCK Lawyer's firm account, CCK Lawyer's outstanding fees had not been paid. 37 The significance of that point is that there is a strong argument that these proceedings were commenced by Mr Bertram and continued in circumstances where, properly advised, Mr Bertram should have known he had no chance of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; [1988] FCA 364, 401 (Woodward J). 38 As strong as the argument is, I am not satisfied that Mr Bertram should have known he had no chance of success. Mr Bertram brought proceedings which involved a merits review. The findings in the Reasons revealed a case where Mr Bertram's conduct was unacceptable, however as weak as Mr Bertram's case was, that does not mean that properly advised he should have known he had no chance of success. 39 Although not without considerable hesitation, I do not consider that the circumstances of this matter are so clear that I can be satisfied that the knowledge of Mr Bertram and/or his solicitors were such that Mr Bertram should have known he had no chance of success. Accordingly, I am not satisfied that the Court should exercise its discretion to award indemnity costs on this basis.

Imprudent refusals to accept offers of compromise 40 Mr Naudi relies upon two offers, an Informal Offer made 2 March 2022 and a Formal Offer by way of a Notice of Offer to Compromise the claim and the cross-claim filed and served 29 April 2022.

Informal Offer 41 A chronology of events deposed to by Mr Rowley in the Rowley Affidavit reveals that by email sent from Charlton Rowley to CCK Lawyers on 2 March 2022 at 5:46pm, the respondent offered "… to resolve the proceedings by the Applicant paying the Respondent the amount of $165K (inclusive of costs)." The offer was open for acceptance until the commencement of a mediation listed the following day. 42 At a general level, there is no issue that an informal offer may be taken into account in deciding whether to award costs on an indemnity basis and that one of the key issues in considering any informal offer is whether the failure by a party to accept it was unreasonable. 43 The Informal Offer was made late afternoon/early evening on the day before a mediation was scheduled to occur before a Registrar of the Court. It was stated as being open for acceptance until the opening of the mediation the following day. 44 The applicant submits, and I accept, that was an insufficient time within which to consider whether the offer should be accepted. 45 Although I accept that just prior to the mediation one might expect the parties to be across all the issues and in a position to consider any offers, nonetheless parties are entitled to a reasonable time within which to consider any offer. 46 It is for these reasons that there was no unreasonable failure to accept the Informal Offer such that I am not satisfied that the non-acceptance of the Informal Offer is a basis upon which the Court should exercise its discretion to award indemnity costs.

Formal Offer 47 On 29 April 2022, the respondent served the Formal Offer by email from his solicitors to CCK Lawyers in accordance with the provisions of FCR 25. 48 In so far as relevant, FCR 25.14 provides: 25.14 Costs where offer not accepted (1) If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer: (a) the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and (b) the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis. (2) If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis. (3) If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis. Note 1: Costs on an indemnity basis is defined in the Dictionary. Note 2: The Court may make an order inconsistent with these rules - see rule 1.35. 49 The Formal Offer was expressed, in part, in the following terms: The Respondent offers ("Offer") to compromise this proceeding only as it relates to the following matters the subject of the Amended Statement of Claim filed herein on 1 October 2021 and the Amended Statement of Cross Claim filed herein on 13 October 2021: • The liability of the Applicant to make payment to the Respondent under the Revised CAP 1 Assessment, the Revised CAP 2 Assessment or the Revised CAP 3 Assessment (as those terms are defined in the Amended Statement of Claim filed herein on 1 October 2021). The Offer does not purport to resolve this proceeding so far as it relates to the Purported s77A Notice (as that term is defined in the Amended Statement of Claim filed herein on 1 October 2021). The Offer is the amount of $161,401.76 plus legal costs which are to be taxed. … 50 A difficulty in this matter is that the Formal Offer was made by the respondent to resolve both the applicant's claim and the respondent's cross-claim, save for what was a minor aspect in relation to a notice issued pursuant to s 77A of the Bankruptcy Act. 51 Further, the only monetary claim was that issued by the respondent by its cross-claim. 52 In Calix Ltd v Grenof Pty Ltd (No 2) [2023] FCA 832, Nicholas J considered the same situation where a Notice of Offer to Compromise had been filed as a global offer that offered to settle both the applicant's claim against the first respondent and the first respondent's cross-claim against the applicant. 53 His Honour observed that the offer proposed a settlement of both the applicant's claim and the first respondent's cross-claim on a global basis. Since the parties' submissions were directed to whether the applicant's failure to accept the offer in that matter was unreasonable within the meaning of FCR 25.14(2), his Honour dealt with the first respondent's claim for indemnity costs on that basis. 54 In contrast, Mr Naudi relies on FCR 25.14(3) on the basis that as cross-claimant, he is an applicant. Mr Naudi also relies on the general discretion conferred by s 43 of the FCA. 55 It was common ground between the parties that for the purposes of FCR 25.14, Mr Naudi, as cross-claimant, is to be considered an applicant and Mr Bertram, as cross-respondent, is to be considered a respondent. That is contrary to the Dictionary contained within the FCR which defines "applicant" in the following terms: (a) a party, other than a cross-claimant, claiming relief; or (b) … and "respondent" in the following terms: (a) a party, other than a cross-respondent, against whom relief is claimed, (b) … 56 In the particular circumstances of this matter, I proceed on the basis that although the formal offer is in the form of an offer from the "respondent", nonetheless the only claim concerning a claim for money was that issued by Mr Naudi as cross-claimant and I consider FCR 25.14(3) applies to the Formal Offer. 57 The Formal Offer was that the applicant pay to the respondent "… $161,401.76 plus legal costs to be taxed" and was open for acceptance for 14 days after service. Given that the document was served on 29 April 2022, and the day upon which it was served is not counted in the 14 day period, the offer was open for acceptance until 13 May 2022: FCR 1.61. 58 The time calculated in accordance with FCR 25.14(3)(a) is 11.00am on Tuesday 3 May 2022. 59 Mr Naudi obtained a judgment which was more favourable than the Formal Offer. 60 On that basis, pursuant to FCR 25.14(3), Mr Naudi is entitled to costs: (a) Before 11.00am on the second business day after the offer was served - on a party/party basis; and (b) After the time mentioned in paragraph (a) above - on an indemnity basis: FCR 25.14 (3)(a) and (b). 61 There is nothing that has been put before me that persuades me the Court should not award costs in accordance with FCR 25.14(3). I am satisfied that in the exercise of the Court's discretion, Mr Naudi is entitled to an order that Mr Bertram pay Mr Naudi costs of the proceedings on a party/party basis until 11.00am on Tuesday 3 May 2022 and thereafter on an indemnity basis. 62 In the event that contrary to the position taken by the parties, the relevant section is FCR 25.14(2), I am satisfied in any event that Mr Bertram's failure to accept the Formal Offer was unreasonable with the result that the consequences set out in the rule apply. The result is no different to that which flows from FCR 25.14(3).

Conclusion 63 There will be an order that until 11.00am on 3 May 2022, the applicant pay the respondent's costs of the claim and the cross-claim on a party/party basis and thereafter, the applicant pay the respondent's costs of the claim and the cross-claim on an indemnity basis. I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan.