Hathway (Liquidator), in the matter of Tightrope Retail Pty Ltd (in liq) v... [2017] FCA 1198 | Case summary

Hathway (Liquidator), in the matter of Tightrope Retail Pty Ltd (in liq) v... [2017] FCA 1198 | Case summary | Zoe

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MARKOVIC J: 1 On 18 May 2015 Stephen Hathway in his capacity as liquidator of Tightrope Retail Pty Limited (in liquidation) (Tightrope Retail) and Tightrope Wholesale Pty Limited (in liquidation) (Tightrope Wholesale), Tightrope Retail and Tightrope Wholesale commenced proceedings against six defendants including John Tripolitis (John) as first defendant, Kristiana Tripolitis (Kristiana) as second defendant and Robyn Tripolitis (Robyn) as fourth defendant. John and Robyn Tripolitis were husband and wife and Kristiana is one of their daughters. 2 In summary, in their originating process the plaintiffs sought orders and declarations in relation to alleged insolvent trading, unfair preferences, uncommercial transactions, voidable transactions and unreasonable director-related transactions, including declarations that Tightrope Retail and Tightrope Wholesale had an equitable interest in certain real properties owned by John and/or Robyn. 3 On 17 November 2015 John was declared bankrupt and on 2 June 2016 the Court granted leave to the plaintiffs, pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth), to take fresh steps in and to continue the proceeding against John. Thereafter the trustees of John's bankrupt estate (Trustees) participated in the proceeding. 4 The proceeding was resolved by consent as between the plaintiffs and Robyn on 29 May 2017 and as between the plaintiffs and the balance of the defendants on 15 June 2017. On 15 June 2017 orders were also made permitting the Trustees to file and serve any submissions and evidence upon which they proposed to rely in seeking from Kristiana and Robyn the costs reserved of their appearances on 16 and 29 November 2016, 6 December 2016 and 9 and 16 March 2017 and for Kristiana and Robyn to file and serve any evidence and submissions in reply. 5 The Trustees and Kristiana have filed submissions and, in the case of the Trustees, an affidavit pursuant to the orders made on 15 June 2017. Robyn has not filed any submission or affidavit. The parties have agreed that the Trustees' application for the costs of their appearance on each of the abovementioned dates can be determined on the papers without the need for an oral hearing pursuant to s 20A of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act). I am satisfied that determination of the matter would not be significantly aided by an oral hearing.

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relevant facts 6 On 16 and 29 November 2016, 6 December 2016 and 9 and 16 March 2017 the proceeding was listed for case management. A summary of the events leading up to each of those case management hearings and what occurred at each hearing is set out below. 7 On 15 September 2016 the plaintiffs, John (through the Trustees), Kristiana, Robyn and the Deputy Commissioner of Taxation participated in a mediation at the conclusion of which each of the parties, apart from Robyn and the Deputy Commissioner of Taxation, executed a heads of agreement. The plaintiffs' lawyers subsequently prepared draft settlement documents which were provided to the defendants' solicitors. 8 On 5 October 2016 Robyn's lawyers informed, among others, the plaintiffs' lawyers that they had been unable to take instructions from their client "given her current mental health status" and that they understood that an application for guardianship and financial management was being prepared by the family, although they were unable to confirm the status of any such application. 9 On 7 November 2016 the proceeding was listed for case management hearing. On that date the Court was informed that, several weeks prior, a guardianship application for Robyn had been filed. The proceeding was stood over to 16 November 2016 for a further case management hearing. 10 On 8 November 2016 Kristiana's lawyers provided a copy of the guardianship application in relation to Robyn, which they said had been filed by Kristiana on 5 October 2016, to, among others, the plaintiffs' lawyers. 11 At the case management hearing on 16 November 2016 the Court was informed that the guardianship application for Robyn was returnable before the New South Wales Civil and Administrative Tribunal (NCAT) in the following two weeks and that orders would be made at the first return date. Accordingly, the proceeding was adjourned for a further case management hearing to 6 December 2016. 12 On 18 November 2016 the plaintiffs' lawyers sent an email to, among others, Kristiana's lawyers. In that email they sought, among other things, that Kristiana's representatives "update the parties with respect to the status of the Guardianship Application". It seems that no response was received to that inquiry and on 23 November 2016 the plaintiffs' lawyers contacted the guardianship division of NCAT in order to confirm whether an application had in fact been filed in respect of Robyn and, if so, when it was set down for hearing. 13 Upon making those inquiries, the plaintiffs' lawyers were informed that there was nothing in NCAT's system for Robyn. The plaintiffs' lawyers then contacted Kristiana's lawyers by telephone and email. It is not necessary to set out the substance of those communications. However, as a result of those communications, the plaintiffs' lawyers had the proceeding restored to the list for a case management hearing on 29 November 2016. 14 According to Aaron Kam, a solicitor in employ of the plaintiffs' lawyers, in his affidavit sworn 28 November 2016, which was prepared for the purposes of the case management hearing on 29 November 2016 and on which the Trustees rely in this application, an application was filed with NCAT on behalf of Robyn on 24 November 2016. That is, it appears that it was filed one day after the plaintiffs' lawyers informed Kristiana's lawyers that NCAT did not have a record of the application, despite having been purportedly sent to NCAT on 5 October 2016. 15 On 29 November 2016 the Court made the following orders: 1. By 4.00 pm on 2 December 2016 [Kristiana] is to file and serve an affidavit setting out: (a) when an application was made to the New South Wales Civil and Administrative Tribunal (the Tribunal) concerning Mrs Robyn Tripolitis; (b) the basis upon which the Court was informed on 7 November 2016 that an application had been made by her to the Guardianship Division of the Tribunal in early October; (c) the basis upon which the Court was informed on 16 November 2016 that such application would be returnable before the Tribunal in the next two weeks; (d) where Mrs Robyn Tripolitis is currently resident and whether she remains, as the Court was informed on 7 November 2016, in a "mental institution"; (e) the current status of the application that appears to have been filed with the Tribunal on 25 November 2016; and (f) the steps taken by [Kristiana] for the hearing and determination of that application. … 3. Subject to the review of the affidavit of [Kristiana] referred to in Order 1 and the outcome of any cross examination of her, on 6 December 2016 the Court will list the proceeding for hearing on a convenient date in 2017 and make directions for the preparation of the matter for hearing. 4. Costs of today are reserved. 16 On 6 December 2016 the matter was once again listed for a case management hearing. By that time Kristiana had sworn an affidavit in accordance with the Court's orders made on 29 November 2016 and Kristiana was cross-examined by senior counsel for the plaintiffs. No orders were sought or made in relation to that cross-examination. However, the Court made orders for the preparation of the matter for hearing; listing the matter for hearing commencing on 29 May 2017; reserving the costs of the case management hearings of 16 and 29 November 2016 and 6 December 2016; that the liquidator's application for his costs was to be determined on 9 March 2017; and standing the proceeding over for a further case management hearing on 9 March 2017. 17 On 9 March 2017 the Court was informed that the proceeding had resolved in principle and it was stood over for a further case management hearing to 16 March 2017. 18 When the matter was listed before the Court on 16 March 2017, an issue arose about who properly represented Robyn's interests. On that occasion Mr Webeck, who had appeared for Robyn until that date, appeared for Robyn, as did Mr Fernon of counsel, but instructed by a different solicitor who had filed a notice of appearance on 15 March 2017. The Court was informed that a litigation guardian had been appointed for Robyn and that there was an application to be heard the following week in a proceeding in the Family Court of Australia (Family Court) in relation to the removal of that litigation guardian. On that occasion the Court made the following orders in anticipation of the hearing of the proceeding: 1. Any parties' costs application as against the second or fourth defendant in respect of the following appearances be reserved: a. 16 March 2017; b. 9 March 17; c. 6 December 2016; d. 29 November 2016; e. 16 November 16. 2. The time for the defendants to file and serve a defence be extended to 17 April 2017. 3. The defendants are to file any lay and expert evidence by 28 April 2017. 4. A copy of the financial management order issued by the NSW Civil and Administrative Tribunal issued to the second defendant and requested by the first defendant by letter dated 10 March 2017 be provided to each of the parties to this proceeding by 20 March 2017. 5. The matter be listed for case management hearing before me at 9:30 am on 2 May 2017. 6. The parties have liberty to apply on 2 days' notice. 19 As noted above, with the exception of the issue of the reserved costs the subject of this application and another unrelated issue, the proceeding settled as between all parties.

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Statutory framework 20 Pursuant to s 43 of Federal Court Act the Court or a Judge has jurisdiction to award costs in all proceedings before the Court other than those in respect of which the Federal Court Act or any other Act provides that costs must not be awarded. The award of costs is in the discretion of the Court or a Judge. Section 43(3) relevantly provides: 43 Costs (3) Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following: (a) make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial; (b) make different awards of costs in relation to different parts of the proceeding; … (d) award a party costs in a specified sum; (e) award costs in favour of or against a party whether or not the party is successful in the proceeding; … 21 The discretion under s 43 of the Federal Court Act is to be exercised judicially. It is a broad power that is not to be read down otherwise than by judicial principle conformable with its amplitude: see DSE (Holdings) Pty Ltd v InterTAN Inc (2004) 51 ACSR 555; [2004] FCA 1251 at [14]. 22 In support of their application for costs the Trustees also rely on ss 37M and 37N of the Federal Court Act which relevantly provide: 37M The overarching purpose of civil practice and procedure provisions (1) The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes: (a) according to law; and (b) as quickly, inexpensively and efficiently as possible. (2) Without limiting the generality of subsection (1), the overarching purpose includes the following objectives: (a) the just determination of all proceedings before the Court; (b) the efficient use of the judicial and administrative resources available for the purposes of the Court; (c) the efficient disposal of the Court's overall caseload; (d) the disposal of all proceedings in a timely manner; (e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. (3) The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose. … 37N Parties to act consistently with the overarching purpose (1) The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose. (2) A party's lawyer must, in the conduct of a civil proceeding before the Court (including negotiations for settlement) on the party's behalf: (a) take account of the duty imposed on the party by subsection (1); and (b) assist the party to comply with the duty. … (4) In exercising the discretion to award costs in a civil proceeding, the Court or a Judge must take account of any failure to comply with the duty imposed by subsection (1) or (2). …

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Should a costs order be made against Kristiana? 23 The Trustees seek an order that Kristiana pay their costs of the case management hearings on 16 and 29 November 2016 and 6 December 2016. 24 The Trustees submitted that each of these appearances was a consequence of conduct that failed to have regard to the overarching purpose set out in s 37M of the Federal Court Act. 25 The Trustees further submitted these appearances were necessitated by Kristiana's conduct, namely, that she had instituted the proceeding in NCAT so as to effect a heads of agreement on behalf of her mother, Robyn, previously executed by her on 15 September 2016. The Trustees contended that there was an irresistible inference to be drawn from the matters deposed to by Mr Kam in his affidavit sworn 28 November 2016 that Kristiana had not lodged an application with NCAT until 24 November 2016, the day after her lawyers had been informed by the plaintiffs' lawyers that NCAT did not have a record of the application purportedly sent on 5 October 2016. The Trustees further contended that, having regard to the contents of Kristiana's affidavit sworn 2 December 2016, Mr Kam's affidavit and the cross-examination of Kristiana, the faith of the representations previously made by Kristiana and her legal representatives about the progress of an application to NCAT was seriously brought into question and necessitated further appearances to explain those representations. 26 Finally, the Trustees submitted that, even if Kristiana's motivations were not found to be mala fide, her conduct was delinquent in the sense that it unnecessarily delayed the proceeding and necessitated close Court supervision. 27 I am not persuaded to make the costs order sought by the Trustees against Kristiana. I am not able to draw the inference that the Trustees seek to draw from the affidavit of Mr Kam in circumstances where Kristiana filed an affidavit rebutting any such inference. The Trustees acknowledged the content of Kristiana's affidavit in their submissions but offered no reason why her sworn evidence should be rejected. The Trustees only go so far as to suggest that, given the contents of Kristiana's affidavit and the cross-examination on it, the faith of her representations about the progress of a guardianship application before 7 November 2016 is "seriously brought into question". 28 Kristiana contended that her sworn evidence, maintained under cross-examination, was that the application was posted to NCAT on or about 5 October 2016. She further contended that the fact that, according to the hearsay evidence of a lawyer for the plaintiffs, someone at NCAT subsequently said that they could not find a record of having received the application should not result in a finding that it was therefore not sent. The Court was not asked to and did not make any findings at the time of Kristiana's cross-examination about her evidence. It is not appropriate that I make any findings about Kristiana's evidence now. 29 Nor am I able to find that Kristiana's conduct was delinquent. The events that unfolded required an explanation, which was given. Kristiana was cross-examined but no application was made as a consequence of that application. There is no basis to find that any costs have been wasted or thrown away.

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Should a costs order be made against Robyn? 30 The Trustees seek an order that Robyn pay their costs of the case management hearings on 9 and 16 March 2016. Again, the Trustees submitted that each of the appearances were a consequence of conduct of Robyn that failed to have regard to the overarching purpose set out in s 37M of the Federal Court Act. 31 The Trustees submitted that these appearances were wasted as a consequence of Robyn deciding to take a step in the proceeding, without satisfactory or cogent explanation, which caused the settlement reached under the apparent authority of Glenn Thompson and her financial manager, Kristiana, to derail. 32 Although evidence has not been provided to substantiate all of the matters set out in the Trustees' submissions, they say that the following events occurred which underpin this submission: (1) on 8 March 2017 the Family Court, over objection of the Trustees, made an order that Mr Thompson be appointed as litigation case guardian for Robyn. That evening Mr Thompson and Kristiana executed the heads of agreement on behalf of Robyn which had been earlier executed by the balance of the parties on 15 September 2016; (2) as a result of the executed heads of agreement the parties informed the Court on 9 March 2017 that the matter had resolved in principle and the proceeding was stood over to 16 March 2017; (3) on 15 March 2017 Robyn's new representatives filed a notice of appearance. On 16 March 2017 the Court was informed that there was an issue as to who properly represented Robyn's interests. The Trustees contended that it was clear by that stage that Robyn no longer gave authority or never did give authority to enter into the heads of agreement; (4) Robyn then proceeded to apply to remove Mr Thompson as her case guardian in the Family Court; and (5) in the meantime, the Trustees, acting bona fide in the interest of creditors, were prejudiced by not further advancing their defence of the case, in the interests of not wishing to incur further legal costs, such that the matter required a truncated and urgent timetable when ultimately the guardianship application was granted on 11 January 2017. That was relevantly not disclosed by Kristiana until about March 2017 when she sought an application that Mr Thompson be appointed. 33 I am equally not persuaded to make the costs order sought against Robyn. As noted above, Robyn has not provided any submissions or evidence in response to this application. Notwithstanding that, I am of the opinion that it would not be appropriate to make the order sought by the Trustees. 34 The Court was informed that a guardianship application had been made because of Robyn's mental health. The date on which that application had been made and its status became an issue that was explored through evidence given by Kristiana. However, there is no evidence before me of the events which occurred on 8 March 2017 as recorded in the Trustees' submissions. It is not clear why a case guardian was appointed for Robyn and why, one week later, she sought to remove the case guardian. Nor is there any evidence that the guardianship application was granted by NCAT on 11 January 2017 but not disclosed by Kristiana until about March 2017. 35 In any event, the fact that Robyn may have changed her mind and sought independent legal advice does not lead me to conclude that the appearances on 9 and 16 March 2016 were wasted. Nor would I conclude that Robyn's conduct failed to have regard to the overarching purpose in s 37M of the Federal Court Act. She sought to protect her interests by the appointment of lawyers to act for her. While the timing of doing so could be described as coming at the "heel of the hunt" and, possibly, causing the matter to be in a state of flux or uncertainty for a short period, it does not amount to conduct that would result in the making of the order sought.

Hathway (Liquidator), in the matter of Tightrope Retail Pty Ltd (in liq) v Tripolitis

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