Draper v Official Trustee in Bankruptcy

MANSFIELD & RARES JJ 1 The Court delivered judgment on this appeal on 10 November 2006: Draper v Official Trustee in Bankruptcy [2006] FCAFC 157. The effect of the orders then made was as follows:

1. The appeal be allowed in part.
2. The orders made by the Federal Magistrates Court on 23 September 2005 and 14 October 2005 respectively were set aside.
3. There be a new trial in the Federal Magistrates Court, differently constituted, limited to the Drapers' claims concerning the property at Lot 202 Heaslip Road, MacDonald Park, or the application of its proceeds of sale, but not including their claims based on disclaimer or estoppel.
4. The appeal be otherwise dismissed.
5. Each party has leave to make written submissions as to the costs of the appeal and of the hearing before the Federal Magistrates Court in accordance with the following timetable: (i) The Drapers may file and serve written submissions on the costs orders (if any) which they seek within 10 days of the date hereof. (ii) The Official Trustee and Mr Carter may file and serve written submissions in response within 17 days of the date hereof. (iii) The Drapers may file and serve written submissions in reply within 20 days of the date hereof. 2 The Drapers duly made their submissions on costs, as did the Official Trustee and Mr Carter. The Drapers made submissions in reply. It is therefore now appropriate to deal with the costs issues arising from the appeal. 3 The Drapers submit that there should be no order for costs of the hearing at first instance and of the appeal. Mr Carter agrees that there should be no costs at first instance and of the appeal. The Official Trustee seeks costs of both the hearing at first instance and of the appeal. 4 The Official Trustee submits that, in substance, on all the issues raised in the hearing at first instance, and on appeal, which directly concerned the Official Trustee, the Drapers were unsuccessful. She correctly points out that the Drapers have not succeeded on the appeal in reversing a number of the conclusions of the Federal Magistrate. Those conclusions were that the Official Trustee had not disclaimed the property at Lot 202 Heaslip Road, MacDonald Park; that the Official Trustee was not estopped from claiming any interest in the MacDonald Park property or in the proceeds of its sale; that the joint interest of the Drapers in the MacDonald Park property was severed by operation of s 58 of the Bankruptcy Act 1966 (Cth) (the Act) upon Mr Draper's bankruptcy; that the sequestration order in respect of Mr Draper's estate was valid and that his bankruptcy should not be annulled; that the Official Trustee was not negligent in the way the Marleston property was dealt with in the bankruptcy administration; and that the more general allegations of impropriety against the Official Trustee and others were not made out. 5 At the hearing before the Federal Magistrate, the Official Trustee and Mr Carter were separately represented. Both the Drapers were cross-examined at the trial by counsel for the Official Trustee and for Mr Carter. Although Mr Carter's counsel cross-examined first in each instance, and focused mainly on the claim that Mrs Draper held all the interest in, or was entitled to, the MacDonald Park property, counsel for the Official Trustee touched upon those issues. That arose because counsel for the Official Trustee properly addressed issues arising from her early communications with the Drapers. 6 However, the Official Trustee also contends that the orders of the Full Court mean that the Drapers cannot contend at the rehearing that Mr Draper held his legal interest in the MacDonald Park property on some form of trust for Mrs Draper. That is not the effect of the Full Court's orders. Nor does it reflect the views of Mansfield J at [16]-[39] especially at [31], and of Rares J at [76], [78]-[84] especially at [84]. 7 In our view, there should be no costs ordered on the appeal. By reason of the Official Trustee's role in the overall events, she was a necessary respondent to the appeal. The Drapers have been successful in part, including on certain issues which directly concerned the Official Trustee. The matters upon which the Official Trustee succeeded on the appeal, bearing in mind the relatively brief period that they occupied in the course of the hearing, can be fairly set off against the time occupied on the hearing of the appeal on those points on which the Drapers succeeded. As noted, the Drapers and Mr Carter are agreed that there should be no costs ordered on the appeal. 8 The Drapers have, in effect, submitted that there should be no costs of the hearing before the Federal Magistrate. So too does Mr Carter. For the same reasons as those referred to above, the Official Trustee submits that she should recover the costs of the hearing at first instance (which, her submission says, have already been taxed and paid). 9 We agree with the Drapers and Mr Carter that, as between themselves, there should be no order for the costs of the hearing at first instance. 10 The position of the Official Trustee is somewhat different. There were significant allegations of negligence and impropriety made against her concerning her administration of the estate of Mr Draper. They were rejected by the Federal Magistrate, and on appeal. In addition, the claim at first instance to have the sequestration order set aside was successfully resisted by the Official Trustee. That issue at trial involved exploring the basis of the judgment upon which the sequestration order was based. Unlike on the appeal, it took a significant part of the hearing before the Federal Magistrate. 11 In our view, the appropriate order as between the Drapers and the Official Trustee in respect of the costs of the hearing in the Federal Magistrates Court is that the Drapers should pay one half of the costs of that hearing to be taxed. That represents a balancing of the extent to which the Drapers failed on issues at first instance (and on appeal) and the extent to which those issues remain alive for further determination. To that extent, the resolution of those remaining issues will lead to a determination of costs on them, so the costs of the further hearing on those issues in the Federal Magistrates Court will be in the discretion of the Federal Magistrate who hears that matter. Accordingly, even though the Drapers appeared in person so that their costs in any event would not include any professional fees, it is also appropriate that one half of the costs of the decision of the Federal Magistrate at first instance be reserved to the discretion of the Federal Magistrate who re-hears and determines the remaining issues. 12 The Drapers' submission points out that the Official Trustee's full costs of the hearing at first instance have been taxed and allowed at $11,515.90. On that basis, the effect of the order is that the Drapers pay to the Official Trustee one half of her costs of the hearing in the Federal Magistrates Court, namely $5,758. If the Drapers have already paid those taxed costs, an appropriate refund will need to be paid by the Official Trustee. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Mansfield & Rares.