Camm v Linke Nominees Pty Ltd

1. The applicants pay 90% of the respondent's costs, of and incidental to the proceeding, including reserved costs.
2. The respondent pay the applicants' costs of the respondent's costs application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

TRACEY J: 1 The applicants, who are trustees of the bankrupt estate of Mr Gary Camm, sought a declaration that the transfer of real property from Mr Camm to the respondent ("Linke Nominees") was void against them and an order that Mr Camm do all things necessary to transfer the property to them. The declaration and orders were sought under ss 30 and 121 of the Bankruptcy Act 1966 (Cth) ("the Act"). Last year I dismissed the application: see Camm v Linke Nominees Pty Ltd (No 5) [2015] FCA 431 ("Camm v Linke (No 5)"). These reasons should be read in conjunction with those in Camm v Linke (No 5). 2 In doing so I concluded (at [111]) that: "In an effort to avoid further costs being incurred I consider it desirable to express a provisional view as to an appropriate costs order. Unless either or both parties express a wish to be heard in opposition to the making of such an order, an order reflecting my provisional view will be made. That view is that the trustees should pay 80% of the respondent's costs, of and incidental to the proceeding, including reserved costs." 3 The trustees did not seek to be heard on this proposal. Linke Nominees did. As a result written submissions were filed and oral argument was subsequently heard. 4 Linke Nominees sought orders that: "The applicants pay the respondent's costs of and incidental to the proceeding including all reserved costs: (a) incurred on or before 4 February 2011 on a party and party basis; (b) incurred on or after 4 February 2011 except insofar as they are of an unreasonable amount or have been unreasonably incurred, so that subject to the above exceptions, the respondent be completely indemnified for its costs." 5 Alternatively Linke Nominees sought an order that the trustees pay its costs on a party and party basis. 6 The trustees submitted that the orders which I had proposed on a provisional basis should be made. 7 The Court's power to award costs in the proceeding is derived from s 32 of the Act and s 43 of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act"). Both sections confer on the Court a broad discretionary power which is unfettered but which must be exercised judicially: Re Skase; Ex parte Donnelly (1992) 37 FCR 509 at 522; DSE (Holdings) Pty Ltd v Intertan Inc (2004) 51 ACSR 555 at 557. 8 The discretion falls to be exercised within a peculiar statutory context. Upon the making of a sequestration order under the Act trustees are appointed to administer the bankrupt person's estate. Heavy responsibilities fall on trustees. Their duties are identified in s 19 of the Act. These duties include "taking appropriate steps to recover property for the benefit of the estate": see s 19(1)(f); and "administering the estate as efficiently as possible by avoiding unnecessary expense": see s 19(1)(j). A trustee in bankruptcy is also required to comply with the general law relating to trustees to the extent that it has not been modified by the Act: see Adsett v Berlouis (1992) 37 FCR 201 at 209. The dominant duty of a trustee at general law is "recovering, securing, and duly applying the trust fund": see Re Brogden; Billing v Brogden (1888) 38 Ch D 546 at 571. Trustees also exercise some of their powers as a public duty for a public benefit: see Tapp v LawCover Insurance Pty Ltd [2013] FCA 35 at [16]. 9 The Act contains a number of provisions which are designed to assist trustees in the performance of their duties. The property of the bankrupt forthwith vests in his or her trustee: see s 58(1). Persons who are declared bankrupt are required to provide their trustees with a statement of affairs: see s 54(1). Persons claiming to be creditors of the bankrupt are given the opportunity to lodge proofs of debt: see ss 83 and 84. The trustees are empowered to investigate the bankrupt's conduct and examinable affairs and the books, accounts and records kept by the bankrupt: see s 19AA(1). Section 81 of the Act provides for trustees to apply to the Court for an order that the bankrupt and other relevant persons attend before the Court for examination in relation to the bankruptcy. Such examinations are conducted in public and the person concerned is examined under oath. The power to examine on oath has been described as "unusual and far-reaching": see Karounos v Official Trustee (1988) 19 FCR 330 at 335. If trustees consider that a person, who has become bankrupt, had previously transferred property in an effort to defeat creditors, the trustees can, as has already been noted, apply for a declaration and orders that the transfer is void against the trustee. 10 The relationship between the trustee and the bankrupt is not one of principal and client. 11 The principles which guide the exercise of the Court's discretion to award costs in proceedings brought under the Act were expounded by Wilcox J in his unreported judgment in Cummings v Lewis (unreported, Federal Court, Wilcox J, 29 May 1992). In Skase, Drummond J (at 522) restated the propositions advanced by Wilcox J: "(a) The Court has an unfettered discretion as to its costs order: here see s 32 of the Bankruptcy Act. (b) But, because of the usual practice of the court, a successful respondent has a reasonable expectation of recovering costs, in the absence of special circumstances. (c) In considering the matter of costs, the court is entitled to look beyond the actual conduct of the case and have regard to the circumstances out of which it arose. (d) However, there must be a limitation on the weight to be put on pre-litigation conduct, lest the exception overwhelm the rule. If too much emphasis is placed upon the circumstance that the litigation would not have arisen but for an action of the defendant, few successful defendants would recover their costs. (e) The Court may take into account the conduct of the litigation by the successful party. Where a successful party has put the opposing party to significant expense in connection with an issue on which that party failed, it may be reasonable to take that matter into account by awarding something less than full party-party costs. (f) There is no difference in principle between the case of a successful plaintiff and that of a successful defendant." 12 Although it is usual for costs to follow the event there will be circumstances in which discretionary considerations compel a different outcome. Both parties relied on a passage in the judgment of Eve J in Ritter v Godfrey [1920] 2 KB 46 at 66 where his Lordship said: "[I]n determining whether a good ground exists for the exercise of the judicial discretion, the judge must eliminate from consideration the conduct constituting the alleged cause of action, and must then inquire whether the defendant has so conducted himself ante litem motum (1.) as to induce in the plaintiff's mind the reasonable belief that there is no valid defence to the claim, or (2.) has so misconducted himself as to have goaded the plaintiff into a litigation on which he would never have embarked but for such misconduct. A persistent refusal on the part of an agent or trustee to answer inquiries, to give reasonable explanations, to impart information, or to render adequate accounts might well amount to conduct sufficient to induce a reasonable belief that a claim to recover moneys from him was maintainable, and provocative conduct or even truculent language might readily be shown to have compelled proceedings by a plaintiff who otherwise would never have gone to the extreme limit of instituting an action. In such circumstances there would exist ground for the exercise of the discretion, but in my opinion there must be something more than a repudiation, and even a forcible repudiation, of liability, something more than a display of bad taste, or even bad temper, some actual misconduct on the defendant's part before a foundation is laid for the exercise of the discretion. The judge, however much he may disapprove of the defendant's behaviour, is not entitled to refuse him his costs unless he has materials upon which he is prepared to hold judicially that the defendant has thereby created a mistaken belief in the plaintiff's mind or that his misconduct was the real cause of the action being brought." (Emphasis added.) 13 At paragraphs [106]-[107] of Camm v Linke (No 5), I summarised the matters relied upon by the trustees in commencing the proceeding: "[106] The trustees, who are the moving party in the present proceeding, became aware of the terms of Mr Camm's 2004 affidavit in 2007. In it, Mr Camm had deposed to the existence of an agreement with Mr Linke and Linke Nominees which, had it been entered into, would, prima facie, have suggested the existence of an attempt, fraudulently, to prevent the property forming part of Mr Camm's bankrupt estate. Their enquiries and information which they obtained in the course of the s 81 examination no doubt reinforced their view that Mr Camm and Mr Linke had colluded in an attempt to prevent the property being held or disposed of for the benefit of Mr Camm's creditors. No doubt they were frustrated by Mr Camm's failure, in May 2007, to "swear up" to the truth of the assertions contained in his 2004 affidavit. It was, however, a mistake to seek to bolster their case through leading questions during the October 2007 examination. Their need to resort to such an approach should have raised serious questions about the wisdom of relying on Mr Camm's evidence. [107] Their assessment of Mr Camm's evidence should also have been tempered by an acknowledgment that he had given accounts of his dealings with Mr Linke which were internally inconsistent and that this called into serious question his reliability as a witness. On the other hand, the trustees also had reason to discount Mr Linke's credibility having regard to his conduct in the witness box during his examination." 14 At [110] I made the following findings regarding Mr Linke's and Linke Nominees' conduct during the proceeding: "Although Linke Nominees has been successful in resisting the trustees' claims, its conduct, at various points during the litigation, was not, in my view, consistent with the requirements of ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). On a number of occasions I found it necessary to raise my concerns about such matters with the parties and these concerns culminated in the making of orders, under s 37N(3), for the lawyers on both sides to provide their clients with an estimate of the likely amount of costs that would be incurred in the event that the proceeding continued, as it has, to judgment. The costs of various interlocutory applications stand reserved. One of these applications arose out of an arrangement entered into by Linke Nominees with Mr Schmierer without notice to the trustees. I also bear in mind that the trustees were led to prosecute the proceeding by untruthful and misleading evidence which was given by Mr Linke in the course of the s 81 examination and some false assertions made by him during his dealings with third parties during the negotiation of the sale."