El-Debel v Micheletto

order made by: MARKOVIC, DERRINGTON AND COLVIN JJ DATE OF ORDER: 17 august 2021

1. The appellant pay 95% of the respondents' costs of and incidental to the appeal such costs to be assessed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 The trustees of the bankrupt estate of Mr Bachar El-Debel (Trustees) brought proceedings seeking declarations that certain interest in four properties formed part of the property divisible amongst the creditors of the estate. The claims were brought on the basis that the bankrupt had made contributions to the properties in circumstances that gave rise to a resulting trust in his favour. Orders were made by the primary judge declaring the existence of resulting trusts. Two appeals were brought as to different aspects of the decision of the primary judge. Each appeal resulted in orders allowing the appeal in part: El-Debel v Micheletto (Trustee) [2021] FCAFC 117. Issues arise as to the appropriate exercise of the Court's discretion as to costs.

General principles 2 The principles to be applied are well established and were not in issue. The award of costs is discretionary: s 43 of the Federal Court of Australia Act 1976 (Cth). The discretion is unconfined, but must be exercised judicially, that is according to relevant considerations and taking account of the contextual features and facts of the litigation: Kazar (Liquidator) v Kargarian; In the matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; (2011) 197 FCR 113 at [4]. 3 Settled principle guides the exercise of the discretion: Oshlack v Richmond River Council (1998) 193 CLR 72 at [65] (McHugh J, Brennan CJ agreeing), [134] (Kirby J). Generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25]; and Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 at [6]. The exercise of the discretion involves the making of a broad evaluative judgment and factors other than success may have a significant claim on the exercise of the discretion: Gray v Richards (No 2) [2014] HCA 47 at [2]. If there is some disentitling conduct on the part of the successful party then a different order may be made but it is not done to punish the party: Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; (2016) 247 FCR 61 at [303]-[305]; and Snedden v Republic of Croatia (No 2) [2009] FCAFC 132 at [3]-[4]. 4 Where there has been mixed success three aspects generally assume significance in guiding the exercise of the discretion. First, an assessment as to whether one party has enjoyed real practical success. Second, a reluctance on the part of the Court to assess costs on an issue by issue basis because the Court has an eye to the interests of justice in bringing finality to the dispute and the diminishing returns involved in expending further time and costs in identifying the extent to which costs related to particular aspects of the conduct of the proceedings. Third, a preference for adjustments by way of percentage reductions made on a broad brush approach taking account of the degree of success and the likely extent of costs associated with that aspect of the case. As to these matters, see Firebird at [6]; Les Laboratoires at [297]-[305]; and Fuchs Lubricants (Australasia) Pty Ltd v Quaker Chemical (Australasia) Pty Ltd (No 2) [2021] FCAFC 114 at [15].

First Appeal 5 The First Appeal (as so described in the principal judgment), was brought by the bankrupt, his mother (Mrs El-Debel) and a person described at various points in the evidence as the bankrupt's wife (Ms Ayad). Although brought as a single appeal dependent upon a course of events common to all three parties, the claims concerned two separate properties; one the subject of a claim of ownership by Ms Ayad and the other the subject of a claim of ownership by Mrs El-Debel. 6 It is common ground that the part of the appeal that concerned Ms Ayad was not successful. 7 As to the part of the appeal that concerned Mrs El-Debel it was successful to the extent of a 20% interest in the property. For Mrs El-Debel it is submitted that she should not be made liable for costs for two reasons. First, the partial success. Second, the response by the Trustees to an offer of settlement dated 28 April 2021 (about one month before the hearing of the appeal). The offer was rejected preemptorally. It was not submitted that the offer was on a par or more favourable to the Trustees than the outcome in the appeal with the result that the rejection of the offer was thereby disentitling conduct for the purposes of the exercise of the discretion as to costs. Rather, the submission made was that the Court should infer that the appellants had made a genuine attempt to resolve the proceedings amicably which was not reciprocated. 8 There is a further procedural respect in which the First Appeal was successful. It did not result in any practical success. Quite properly that aspect was not relied upon by the appellants in the First Appeal to support their submissions as to costs. 9 The rejection of the offer has been vindicated by the outcome in the appeal. It is to be hoped that the terms in which the rejection of the communication of the offer was expressed are regretted by the lawyer involved. It was expressed in terms which are not countenanced. However, it is not a matter that should have a disentitling effect. The submission advanced was, in effect, a submission that there should be a form of punishment to the Trustees by reason of the manner in which the response to the offer was formulated. As has been indicated, the Court does not exercise its discretion as to costs to achieve such a purpose. 10 Therefore, in the case of Ms Ayad the appeal was unsuccessful and in the case of Mrs El-Debel the appeal was only successful to a limited extent. Many grounds of appeal were ultimately not pressed on appeal but had to be addressed by the Trustees in preparation and in filing written submissions. It was submitted that the Court's reasons rejected parts of Mrs El-Debel's appeal that were not advanced. Those parts were not identified. In circumstances where various grounds were abandoned in the course of oral argument such a contention is not a factor that should affect the exercise of discretion. 11 Overall, we would characterise Mrs El-Debel as having had modest success, but that in practical terms, given the extent of the issues raised and the extent of the claimed interest the subject of the appeal, it is the Trustees that were, for practical purposes, the successful party viewing the claims made by Mrs El-Debel as a whole. 12 Taking into account the overall success by the Trustees and the limited success of Mrs El-Debel and the manner in which the First Appeal was conducted, the appropriate order is for the appellants in the First Appeal to pay the Trustees' costs of the appeal jointly and severally, save that the liability of Mrs El-Debel shall be limited to 80% of those costs. The costs should be assessed if not agreed.

Second Appeal 13 The Second Appeal (as so described in the principal judgment) was successful to the extent that the ownership interest claimed by the appellant, Fallow Investments Pty Ltd (Fallow), in one of the two properties the subject of the appeal was successful to the extent that the resulting trust interest was reduced from 43% to 38.04%. The extent of the success was properly characterised in submissions for Fallow as 'some success on appeal, albeit on extremely limited grounds'. It was also recognised, quite properly, that the time arguing the ground on which there was success was limited. Indeed, it involved a very small amount of time in the conduct of the issues as a whole. 14 Fallow proposed an order that would deprive the Trustees of 20% of their costs. We consider a more appropriate order is that the Trustees be awarded 95% of their costs to be assessed if not agreed. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Markovic, Derrington and Colvin.