Coshott v Prentice

JUDGE: PERRY J DATE OF ORDER: 14 November 2013 WHERE MADE: SYDNEY

1. The applicant is to pay the costs of the first respondent on an indemnity basis for the interlocutory application made in this proceeding and dismissed by this Court on 31 October 2013.
2. The taxation of the costs, if not agreed, be conducted by a taxing officer under the Federal Court Rules 2011 on the basis of common costs between proceeding NSD 2016 of 2013 and NSD 2140 of 2013 incurred on and from 21 October 2013 in respect of the three applications for a stay dealt with in the judgment delivered on 31 October 2013 and following such assessment apportioned 50% in respect of proceeding NSD 2016 of 2013 and 50% in proceeding NSD 2140 of 2013.
3. Leave be granted for the first respondent to proceed to taxation of the costs forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2016 of 2013

AND: MAXWELL WILLIAM PRENTICE (IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF ROBERT GILBERT COSHOStart Typing Catchwords TT, A BANKRUPT)

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2140 of 2013

AND: MAXWELL WILLIAM PRENTICE (IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF ROBERT GILBERT COSHOTT, A BANKRUPT)

JUDGE: PERRY J DATE: 14 NOVEMBER 2013 PLACE: SYDNEY

1. introduction 1 In Coshott v Prentice [2013] FCA 1085, I dismissed various interim applications for a stay of orders made by the primary judge on 10 September 2013 in Coshott v Coshott [2013] FCA 907 ('the Coshott proceedings') pending the hearing and determination of an appeal against that decision by Ljiljana Coshott. Judgment on costs was reserved. These reasons deal with the question of costs following receipt of written submissions from the parties on the question. 2 The orders in the Coshott proceedings which are the subject of the appeal include a declaration as to the half-interest of the first respondent, Maxwell Prentice, in the appellant's family home ('the property') as the trustee in bankruptcy of Robert Coshott, with the remaining interest being held by Ljiljana Coshott, and provide for the vesting of the property in the first respondent as trustee for sale and for the sale of the property. The orders also provided for vacant possession of the property to be given by midnight on 22 October 2013. 3 The first application was made by Fewin Pty Ltd ACN 051 132 453 ('Fewin') on 17 October 2013 in separate proceedings ostensibly to protect its interests in the property as mortgagee in possession of the property ('the Fewin proceedings'). Final relief seeking to vindicate Fewin's interest is also sought. Ronald Coshott, Ljiljana Coshott's brother-in-law, described himself as the "moving mind" of Fewin and was responsible for causing Fewin to lend substantial sums of money to Ljiljana Coshott and her two sons, which sums were said to be secured by the alleged mortgage. 4 The second application was made on 21 October 2013 by Ljiljana Coshott in the Coshott proceedings during the hearing of the application in the Fewin proceedings after I had raised with Fewin during the course of argument, questions as to Fewin's capacity to seek a stay in its separate proceedings. In this regard, I note that an earlier application for a stay of the 10 September 2013 orders had also been made by Ljiljana Coshott which was refused in Coshott v Prentice [2013] FCA 1036 on the basis that none of the grounds raised by the notice of appeal were reasonably arguable. This second application for a stay by Ljiljana was made on the basis of a subsequent amendment to the notice of appeal to add a further ground in an attempt to raise an arguable ground. 5 The third application was made by Fewin on 22 October 2013 in the Coshott proceedings during the course of argument on the second and final day of substantive hearing of the two other applications for a stay. 6 In the evolving circumstances in which the applications were made, the three applications were heard and determined together: Coshott v Prentice [2013] FCA 1085 at [3]-[4]. 7 I dismissed the first application by Fewin on the ground that it had no capacity to seek a stay to preserve the status quo pending the appeal under Rule 36.08 of the Federal Court Rules 2011 by separate proceedings as set out in Coshott v Prentice [2013] FCA 1085 at [58]. As such, I considered that the application was misconceived. In any event, I would not have exercised my discretion to grant the stay even if it had been competent for the same reasons that I refused its application for a stay in the Coshott proceedings. I dismissed the remaining applications on the basis that neither applicant had established an appropriate case for a stay.

2. the issues on costs 8 The trustee seeks costs orders in his favour against Fewin and Ljiljana Coshott assessed on an indemnity basis. He also seeks an order in both proceedings that: "The taxation of the costs, if not agreed, be conducted by a Taxing Officer under the Federal Court Rules 2011 on the basis of common costs between Proceeding No. NSD 2016 of 2013 and NSD 2140 of 2013 in respect of the applications for stay dealt with in the judgment delivered 31 October 2013 and following such assessment apportioned 50% in respect of Proceeding No. NSD 2016 of 2013 and 50% in proceeding No. NSD 2140 of 2013." 9 Leave is also sought for the trustee to proceed to taxation of the costs forthwith. 10 Neither Fewin nor Ljiljana Coshott dispute that the trustee is entitled to his costs on a party/party basis. However, they oppose the grant of an indemnity costs order. Furthermore, notwithstanding that Ljiljana Coshott sought orders in the appeal that differed in certain respects from those sought by the trustee, namely: "a. Subject to the order referred to in paragraph (b) below, Mrs Coshott is to pay Mr Prectice's [sic] costs of the Interlocutory Application filed in Court on her behalf on 21 October 2013. b. To the extent that the costs referred to in paragraph (a) above are common with those incurred by Mr Prentice in connection with the Interlocutory Application filed on behalf of Frewin [sic] in these proceedings and the Interlocutory Application in the Frewin Proceedings, costs are to be apportioned such that Mrs Coshott and Frewin are each to pay 50% of those costs." 11 Ljiljana Coshott submitted that no order for indemnity costs should be made in relation to her application in the Coshott proceedings given the following matters: a) It could not be said that her application for a stay had no prospects of success. b) The court did not find that the new ground of appeal in the amended notice of appeal was unarguable. c) The fact that a previous application for a stay had been made and dismissed is not material. The application was dismissed on discretionary grounds. d) The inherent nature of the harm to Ljiljana Coshott through being required to vacate the family home was acknowledged in both decisions on a stay, notwithstanding that both decisions expressed concern about the absence of evidence otherwise as to harm and as to Ljiljana Coshott's financial circumstances. e) Contrary to the trustee's submissions, the position of Robert Coshott's creditors is not relevant to the question of indemnity costs, the trustee having contended that in all of the circumstances, the creditors ought not to suffer any further diminution of the pool of funds available for distribution. 12 Fewin also opposed the proposed order for indemnity costs against it on the following grounds: a) Fewin contended that as an interested party, it played only a small role in the Coshott proceedings even though unsuccessful in its support of the application for a stay and should therefore bear no more than a joint and several liability with Mrs Coshott for costs under the usual rule on an ordinary basis. b) The Court on the first application for a stay "is recorded by Perry J as having indicated that the third ground of appeal, relating to an alleged lack of power under section 30 of the Bankruptcy Act 1966 (Cth) to deal with property of a co-owner who is not the relevant bankrupt may be arguable." c) There had been no earlier unsuccessful application for a stay by Fewin, bearing in mind that it had been open to Ljiljana or the trustee to join Fewin as a party to the proceedings before the primary judge which would have accorded Fewin the right to be heard as to its position as equitable mortgagee. d) Fewin was doing no more than, for the first time, seeking stay orders to protect its rights as an equitable mortgagee "in circumstances wherein a judge of the Court had stated that a challenge to the powers used by [the primary judge] to effect [sic] the rights of Mrs Coshott, and hence Fewin, may be arguable."

3. Principles governing the award of indemnity COSTS 13 The Court has a broad discretion to order costs under s 43 of the Federal Court of Australia Act 1976 (Cth). That discretion is not to be read down otherwise than in accordance with accepted principle. Nonetheless, a successful party is in general entitled to an order for its costs on a party and party basis only. However, that ordinary rule as to costs may be departed from so as to award costs on an indemnity basis where the justice of the particular case so requires or where there is some special or unusual feature of the case justifying a departure from the ordinary rule: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 (Sheppard J). 14 The purpose of such an award of costs is explained by Gray J (with whom the other members of the court agreed) in Hamod v New South Wales (2002) 188 ALR 659 at 665: "Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs." 15 While the categories of cases in which such an award may be made are not closed, cases in which such an order may be warranted include those where there is evidence of misconduct that causes loss of time to the Court and other parties, the institution of proceedings in disregard of known facts or clearly established law. "The question", as Sheppard J said in Colgate-Palmolive Company at 234, "must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis."

4.1 Should indemnity costs be awarded against Fewin? 16 I am of the opinion that an order for indemnity costs should be made against Fewin in both the Coshott and the Fewin proceedings. 17 First, for the reasons given in Coshott v Prentice [2013] FCA 1085, I consider that Fewin delayed unreasonably in taking action to protect its alleged interest in the property for which it failed to give any explanation. Fewin through its director, Ronald Coshott, was aware of the cross-claim by the trustee in the Coshott proceedings in which among other things he gave evidence for Ljiljana Coshott, and was aware subsequently of the orders made in those proceedings on 10 September 2013 and of the earlier unsuccessful application for a stay. In particular, there is no reason as to why Fewin should not have sought to be joined to the Coshott proceedings in order to protect its alleged interest. 18 Secondly, there was no explanation as to why Fewin did not respond to the letter from the trustee for sale on 17 September 2013 when, in the context of advising as to the steps that the trustee was taking to effect the sale of the property, the trustee advised of his intention to register himself on the title to the property and enclosed a withdrawal of caveat for Fewin to complete. Given Fewin's submission that such registration would extinguish Fewin's equitable interest in the property and that this was the harm that it would suffer if the stay was not granted, Fewin's failure to act then demanded an explanation if such could be given. 19 Thirdly, contrary to the suggestion in Fewin's submissions, there was no evidence that the trustee was aware before 17 October 2013 when the proceedings were instituted, that Fewin asserted an interest in the property and had allegedly entered into possession. As such, it can scarcely be said that it was open to the trustee at any time to have sought to join Fewin as a party. 20 Fourthly, the failure by Fewin to come forward until final orders had been made in the Coshott proceedings and a stay application had already been made and been dismissed, has resulted in wasted costs and resources both for the Court and the trustee. The application for a stay may have been completely unnecessary if Fewin had sought to protect its rights at an earlier point in time. It is also not correct to say that the court on the first application for a stay indicated that the new ground of appeal in the further amended notice of appeal may be arguable. That submission ignores the fact that the Court pointed to an alternative source of power whereby the property of a co-owner who is not the relevant bankrupt could be made, which was conceded at that time by Ljiljana Coshott. 21 In the fifth place, given that each of the applications sought the same interim relief on the same substantive basis, namely, that the further amended notice of appeal raised an arguable ground of appeal, it cannot fairly be said that Fewin played a small role only in the Coshott proceedings. 22 In addition to the discretionary factors set out above, the application for an interim stay by Fewin in the separate proceedings based upon rule 36.08(2) was misconceived and as such had no reasonable prospects of success. 23 Finally, I note that the effect of an order of costs on a party/party basis would deplete the estate of the trustee in bankruptcy and therefore ultimately the funds available to meet creditors' demands. While that factor may reinforce the desirability of an order for indemnity costs, I have not ultimately given this factor any weight given the strength of the other factors that in my view weigh heavily in favour of the making of an order for indemnity costs and the fact that none of the applications were made by the bankrupt himself.

4.2 The application for indemnity costs against Ljiljana Coshott 24 I have also reached the view that the circumstances warrant an order for indemnity costs against Ljiljana Coshott for the following reasons. 25 First, the application for a stay was based upon an amendment to the notice of appeal following the dismissal of Ljiljana Coshott's earlier application for stay on the basis that the grounds of appeal were not reasonably arguable. Contrary to the submissions for Ljiljana Coshott, that fact is highly relevant to the question of whether an award of indemnity costs is warranted. In particular, the second application was based not on any external change in circumstances, but upon the applicant's own endeavours to remedy the basis on which she lost the first stay application and relied on a ground not even raised at trial. Even assuming that the point ultimately has some merit (which, in the circumstances explained at [47] of my reasons on the stay applications, I could not exclude as a possibility), that does not justify the applicant bringing a second stay application with the consequential wastage of resources and costs for the trustee. Such conduct falls well short of complying with the obligation on the parties in s 37N of the Federal Court of Australia Act 1976 (Cth) to conduct proceedings in a way that is consistent with the overarching purpose in s 37M of that Act, being to facilitate the just resolution of disputes "as quickly, inexpensively and efficiently as possible" and is a matter that I am required to take into account under s 37N(4) in exercising my discretion to award costs. 26 Secondly, the application was brought only the day before vacant possession was required under the orders made by the primary judge on 10 September 2013 and only after questions were raised in arguendo during the hearing of the Fewin proceedings as to the capacity of Fewin to seek the stay in the context of those separate proceedings. No explanation was given as to the reason for the delay, bearing in mind that the amendments to the notice of appeal relied upon in support of the stay application were made on 15 October 2013. 27 Thirdly, notwithstanding the observations of the Court on the earlier stay application in Coshott v Prentice [2013] FCA 1036 at [46]-[47], the applicant again led no evidence as to the harm that she would suffer in the event that the stay was not granted. She was already on notice by those reasons that it was not necessarily sufficient if a serious case of detriment was to be run, to rely merely upon the obvious detriment of being required to leave the family home. Nor was any evidence led as to the state of the property, or the capacity of Ljiljana Coshott or of the other appellant to maintain and insure the property if a stay was granted, or of their ability to cover all relevant taxes and the like. As such, Ljiljana Coshott sought to invoke the jurisdiction of the Court to act to protect her interests against harm, without taking any steps to inform the Court as to the extent and nature of that harm or her capacity to protect the trustee's interest in the property.

5. Conclusion 28 For the reasons set out above, I am satisfied that it was unreasonable for Fewin and Ljiljana Coshott to have subjected the trustee to the expenditure of costs in responding to their various applications. I do not consider that the applications should have been brought. As a result, I consider that an award of indemnity costs should be made against Fewin and Ljiljana Coshott in favour of the trustee. 29 Furthermore, in determining how costs should be apportioned between Fewin and Ljiljana Coshott, I have taken into account that: a) all three applications for a stay were heard together; b) in both the Fewin and Coshott proceedings, Fewin sought orders in the same terms, relied upon the same evidence and made substantive submissions to the same effect; c) Fewin's application for a stay in the appeal proceedings was made to guard against the possibility that its application in the Fewin proceedings was incompetent in light of issues that arose during the hearing on 21 October 2013; d) the submissions put by Fewin focused upon whether ground 3A of the further amended notice of appeal in the Coshott proceedings was arguable; and e) Fewin's submissions were adopted by Ljiljana Coshott in support of her application for a stay and supplemented only in limited respects. 30 These factors in my opinion make it appropriate to make orders apportioning costs 50/50 as between the two proceedings, save that it should be clear from the terms of the two sets of orders that no liability for costs in relation to the Coshott proceedings arose until the commencement of the hearing of the Fewin proceedings on 21 October 2013 when an application for a stay was made in the Coshott proceedings by Ljiljana Coshott. It is also appropriate in light of these factors, in my opinion, to make Fewin and Ljiljana Coshott jointly and severally liable in relation to the trustee's costs on the applications brought within the Coshott proceeding notwithstanding that Fewin did not make its application in the appeal until 22 October 2013. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perry.