Bovaird v Frost

MAX DONNELLY IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF THE LATE MAXWELL WALTER ALLEN FROST

JUDGE: PERRAM J DATE: 7 NOVEMBER 2013 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 27 September 2013 I dismissed the Bovairds' application for leave to apply to the Supreme Court of New South Wales for leave to amend their statement of claim in proceedings pending in that Court entitled Bovaird v Frost 2010/41888: Bovaird v Frost [2013] FCA 974. I did so because I had previously granted leave to pursue those proceedings (see Bovaird v The Trustee of the Bankrupt Estate of Frost (No 2) [2011] FCA 465) and the terms of that grant of leave already encompassed the making of an application to amend the pleading in the way in which the Bovairds now sought. The leave of this Court had been thought to be necessary because the proceeding in the Supreme Court was in respect of a debt provable in the administration of the estate. 2 The Bovairds did not accept that they needed to approach this Court for leave because they thought the antecedent grant of leave sufficient but, in the face of a claim by the Frosts that they did need leave, they sought it. In the event, I determined that they did not need it and dismissed the application as a matter of formality. 3 The Bovairds now seek their costs on the basis that the application was made necessary by the insistence of the Frosts that leave of this Court was required. I agree. If the Frosts had not insisted that the application be made because of their erroneous view that leave was necessary the application would not have been made. Thus, whilst the Frosts were formally the respondents to the application, they were in substance the aggressors and the basic point for which they contended has been rejected. The Frosts are to pay the Bovairds' costs of the application for leave to apply for leave to amend the Supreme Court pleading. 4 The Bovairds also sought orders cross-vesting the entire matter in this Court to the Supreme Court so that it could determine the leave issue (in bankruptcy) at the same time as the substantive question of whether leave to amend should be granted. I dismissed this application because it was unnecessary in light of my determination that leave was not necessary at all. In my opinion, it was reasonable to bring that application in light of the position adopted by the Frosts. On the other hand, the application was almost certain to fail because this Court should avoid transferring matters to the Supreme Court where that Court appears not to have jurisdiction (Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) s 5(4)(b)(ii)(A)). The jurisdiction of this Court in bankruptcy is exclusive of the jurisdiction of the State courts (Bankruptcy Act 1966 (Cth) s 27) so that the Supreme Court has no jurisdiction to grant the leave presently sought. The cross-vesting application would therefore certainly have failed. The clarity of that proposition makes this case one of those cases where, even though there has been no determination on the merits, it was not reasonable to make such an application where the Frosts would have been almost certainly successful if the matter had been fully tried: see Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625 per McHugh J. For that reason, the Bovairds should bear the costs of the cross-vesting application. 5 During the hearing the Frosts applied orally for leave to remould the original grant of leave (of 3 May 2011) so that it would not cover the application before the Supreme Court to amend the proceedings. I refused that application on the basis that it would be much more sensible for the Court seized of those proceedings to determine whether an amendment should be made and because I perceived no substantive threat to the estate. I see no reason why costs ought not to follow the event. The Frosts are to pay the costs of the oral application. 6 The Bovairds also seek an order that their costs after 4 September 2013 be taxed on an indemnity basis. This was submitted to be appropriate because they had made an offer to compromise the proceedings in this Court on a basis which was such that it was unreasonable for the Frosts thereafter to refuse it. The offer was that leave would be granted to pursue the amendment application in the Supreme Court with each party to bear their own costs in this Court. I do not think it was unreasonable of the Frosts to reject the offer for two reasons. First, the Frosts had the benefit of the obiter remarks of Basten JA in Bovaird v Frost [2013] NSWCA 91 at [15] that 'it is apparent from the judgment of Perram J that the appellants would be required to return to the Federal Court to obtain leave in order to make a further claim in the devastavit proceedings'. Although I concluded that this was not, in fact, correct it was reasonable for the Frosts to regard this statement as supporting their position. Secondly, whilst I accept that the offer of compromise did involve some compromise on the Bovairds' part (in effect, the Bovairds gave away all of the costs they had already spent on the application), I do not think that it was such a compromise that rejection of it should be characterised as unreasonable. Accordingly, I decline to award indemnity costs in respect of the period from 4 September 2013 onwards. 7 The Bovairds also sought an order that the trustee would not be justified in meeting the costs of the Frosts in relation to the present application out of the estate. When I granted leave to the Bovairds to proceed on 3 May 2011 I also directed that the trustee in bankruptcy would not be justified in indemnifying the Frosts for their costs in defending Bovaird v Frost in the Supreme Court, a conclusion not disturbed on appeal. The Bovairds now seek to characterise the present application as being, in effect, ancillary to those proceedings with the result that the Frosts should be denied indemnity. 8 The effect of what has happened in this litigation is that the Frosts are not entitled to any current indemnity in respect of those proceedings. This does not mean, as I recognised in the main judgment on the present application (see [2013] FCA 974 at [24]), that if the Frosts succeed in that litigation they may not ultimately be entitled to indemnity out of the estate at that time. However, they are not presently entitled to it. The Frosts emphasised, correctly, that their position in the present application was not unreasonable and, as I have said, I accept this because of the remarks of Basten JA. 9 The question comes down to whether one sees the proceeding in this Court as an aspect of the bankruptcy which this Court is supervising or as part of the Supreme Court proceedings. My original decision on 3 May 2011 was that the Frosts were not entitled to indemnity in respect of the proceedings in this Court but this was reversed by the Full Court (Frost v Bovaird (2012) 203 FCR 95 at 110-111 [89]). This was on the basis that so much of the costs of the proceedings in this Court as related to the proposed proceedings in the Court of Appeal (brought by the Bovairds against the Frosts) should be subject to indemnity. Those proceedings were an appeal from orders in which the conduct of the Frosts had already been judicially determined to be reasonable. It was that characterisation of the conduct of the Frosts which meant that it was erroneous for me to have proceeded on the basis that I was not persuaded, at that stage, of its reasonableness. 10 Here I have determined that the conduct of the Frosts in respect of the application in this Court was reasonable. That conduct relates to a suit, however, in which the underlying question is whether their conduct as executors was reasonable. If they lose that suit then it will be unlikely that they will be entitled to indemnity. It would be a little surprising, in that circumstance, if they were entitled to indemnity in respect of the present application. That suggests that the present application is ancillary to the Supreme Court proceedings. In those circumstances, I conclude that the question of indemnity should await the outcome of the proceedings in the Supreme Court. Accordingly, I will make the direction sought by the Bovairds. 11 That leaves the question of costs of the costs application. Both parties have had some success. There should be no order as to costs in respect of the costs application. 12 The orders of the Court will be: 1. The first and second respondents pay the applicants' costs of: (i) seeking leave to proceed in the Supreme Court; and (ii) resisting the oral application of the first and second respondents to vary the grant of leave given on 3 May 2011. 2. The applicants pay the first and second respondents' costs of the applicants' application to cross-vest the proceedings to the Supreme Court of New South Wales. 3. The third respondent would not be justified, at this stage, in indemnifying the first and second respondents for their costs in respect of the present applications. 4. There be no order as to costs in respect of the costs issues arising from the present applications. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.