James v Commonwealth Bank of Australia

REASONS FOR JUDGMENT 1 David Anthony James was bankrupted in the Federal Circuit Court on the petition of the Commonwealth Bank ("CBA"). He has appealed from the judgment and orders of that Court, contending that the judge erred in numerous respects, including by failing to adjourn the hearing of the petition until after proceedings challenging the default judgment upon which the bankruptcy notice was founded (and which was subject to a stay at the time) had been determined in the New South Wales Court of Appeal. 2 On 11 June 2015, pending the determination of the appeal, on an interlocutory application brought by Mr James, I made orders, amongst other things, suspending the operation of the sequestration order to the extent necessary to permit Mr James to prosecute a number of proceedings in the Supreme Court and Court of Appeal. I also made an order to the effect that costs should follow the event. Upon the publication of my reasons, however, counsel for the CBA, immediately applied for the order to be revoked in order to give him the opportunity to make submissions on his client's behalf against the making of such an order. I acceded to that application immediately, no application for costs having been made in the interlocutory application or in submissions in support. I invited written submissions from the parties and indicated, without objection, that I would deal with the CBA's application on the papers. 3 The CBA applied for an order that the costs of Mr James's interlocutory application be the parties' costs in the cause or, alternatively, that costs be reserved until after the determination of the appeal by the Full Court. Mr James contended that there is no good reason why the usual order (that costs follow the event) should not be made. 4 First, the CBA submitted that Mr James's application "evolved" during the course of the hearing. The interlocutory application he filed sought "an order that all proceedings and action under [the sequestration order] be stayed pending the determination of [the appeal]". Indeed, the orders were refined for the last time in submissions in reply. 5 Secondly, the CBA submitted that the application for the stay depended in part on the identification of a reasonably arguable point in the proposed appeal. The CBA relies on my observation in the reasons for judgment that the notice of appeal required substantial amendment. It also submitted that it was not until the oral submissions made by senior counsel for Mr James at the hearing that the real issues in the proposed appeal were identified. 6 Thirdly, the CBA submitted, in effect, that because of the extent of Mr James's overall indebtedness, the appeal may well be dismissed despite the alleged errors in the judgment below. 7 It is convenient to deal with these arguments in reverse order. 8 I accept Mr James's submission that the matters concerning his overall indebtedness should not affect the exercise of the Court's discretion in relation to costs. Both the CBA and the two supporting creditors, who were heard orally against the interlocutory application, pressed these matters upon the Court as reasons why no order should be made. Their arguments were taken into account but did not prevail. 9 I also reject the CBA's submission that the real issues on the appeal were not identified until the hearing of the stay application. While it is true that the current notice of appeal is prolix and in need of amendment, it is untrue that the real issues were not identified until the hearing. On 15 May 2015 a 24 page submission was filed by Mr James in support of the appeal and an order for an interim stay. Paragraph 3 of those submissions identified the central issues in the appeal and the CBA could not have been in any doubt as to the nature and extent of Mr James's grievances. Those submissions were honed after senior counsel was briefed and a five page supplementary submission limited to the stay application was circulated on 24 May 2015, the day before the hearing. 10 Nevertheless, the interlocutory application, which was filed on 18 May 2015, differed substantially from both the amended interlocutory application, which was filed in Court on 25 May 2015 and the draft short minutes of order which were handed up in Court at the hearing. It sought one order only: that all proceedings and action under the sequestration order be stayed pending the determination of the appeal. The orders I made were much more limited. Moreover they were made on the undertaking given to the Court by Mr James during the hearing the effect of which was to enable his trustees in bankruptcy to proceed with the administration of the estate. 11 Mr James submitted that his supplementary submission was "in response to and necessitated" by the three notices issued to the trustees under s 60 of the Bankruptcy Act 1966 (Cth) of the various actions he had brought, one of which was the CBA's notice. That submission cannot be accepted as each of those three notices was served well before the interlocutory application was filed and the trustees, Andrew Scott and Mark Robinson, wrote to him advising him of their receipt of those notices on 30 April and 8 May. The letter relating to the notice issued by the CBA's lawyers was one of two letters dated 30 April. This was more than three weeks before the supplementary submissions were circulated and two weeks before the original submissions were filed. 12 Given the vigour with which Mr James's application was opposed, it may be doubted whether an early refinement of the application would have made any difference at all to the CBA's attitude. On balance, however, the changes to the application made at the hearing are significant enough to persuade me that the order the CBA seeks should be made. Costs should therefore be costs in the cause, that is to say, the costs that are awarded will depend on the outcome of the appeal. If Mr James wins the appeal and is awarded costs, his costs of the interlocutory application will be part of his costs of the appeal and vice versa. I am fortified in reaching this conclusion by the following authorities. 13 In Boscolo v TCN Channel Nine Pty Ltd (No 2) (unreported, Sup Ct, NSW, Eq Div, 24 July 1985), in dealing with an application for the costs of an interlocutory injunction, Young J (as his Honour then was) said: Although costs are always in the discretion of the court, the usual rule that is applied in the exercise of the court's discretion is that if a person succeeds in getting an interlocutory injunction costs should be costs in the cause 14 On the other hand, in Devereaux Holdings Pty Limited v Pelsart Resources NL (No 2) (unreported, Sup Ct, NSW, Eq Div, 24 July 1985), while observing that there were no definitive rules, his Honour stated: (a) If the material before the Judge on the interlocutory hearing discloses that there is an arguable or prima facie case and it is more or less conceded in argument that such is the case so that an interlocutory injunction is granted, then costs of the interlocutory injunction are costs in the cause, though sometimes they may be made plaintiff's costs in the cause; (b) If in the situation set out in (a), the defendant does not concede the inevitability of an interlocutory injunction being granted, then the proper order is that the plaintiff's costs be his costs in the cause, or even that the defendant pay the plaintiff's costs in any event … (Emphasis added) 15 In Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 ("Ausino") at [55] Campbell J (as his Honour then was) stated: The usual order which is made as to costs concerning interlocutory processes, is that if the plaintiff is the applicant, and succeeds, then the costs of the interlocutory process become the plaintiff's costs in the cause, while, if the plaintiff is the applicant, and loses, the usual order is that the plaintiff pay the defendant's costs of that application. 16 The effect of an order that costs be the plaintiff's costs in the cause is that if the plaintiff wins, he or she recovers the costs of the interlocutory application, but that in the event that the plaintiff fails in the substantive proceeding, he or she does not have to pay the opponent's costs of the interlocutory application: Dal Pont GE, Law of Costs (3rd ed, LexisNexis Butterworths, 2013) at [14.24]. 17 In Ausino, Campbell J went on to explain at [56]: The rationale for that arises from the way that interlocutory proceedings are intended to advance the final hearing. If a plaintiff has a victory on the way to a final hearing, whether that victory is ultimately one which is fruitful will depend upon whether the plaintiff succeeds in the final hearing. However, if the plaintiff brings an interlocutory application and loses, then that interlocutory hearing is one which will, irretrievably, have cost the defendant money, and the justice of the situation is that the defendant should be indemnified for those costs, regardless of the outcome of the proceedings. 18 In Petar v The Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 at [26]: Beazley, Giles and Hodgson JJA said that Campbell J's exposition reflected the practice in the Equity Division of the Supreme Court. Having reviewed the authorities, the Court concluded at [27]: Applications for interlocutory injunctions are commonplace. If there is nothing to distinguish an application from the typical case that comes before the court, then the underlying jurisprudence relating to the exercise of the discretion may warrant the making of what is referred to in the legal vernacular as the "usual order", whether that be costs in the cause or the plaintiff's costs in the cause. The making of such an order does not displace the exercise of the court's discretion. Rather, it is a shorthand form of giving effect to the principles that govern the court's discretion in circumstances where there are no countervailing or different circumstances to warrant the exercise of the discretion in a different manner. (Emphasis added.) 19 Earlier, at [21] the Court explained that: The rationale for making of an order that costs be costs in the cause is that, at the stage of granting an interlocutory injunction, the court is not in a position to adjudicate on the ultimate outcome of the proceedings. Rather, provided there is a reasonable case to be tried, the Court's focus in deciding whether to grant the application for interlocutory relief is on other considerations and, in particular, on determining whether, on the balance of convenience, an injunction ought to be granted. Accordingly, if a plaintiff who applies for an interlocutory injunction is not ultimately successful in the proceedings, that plaintiff should not receive the costs of the application for an injunction which, when the matter is considered in overview cannot be sustained. However, as already explained, each case must depend upon its own facts. 20 The costs discretion of this Court, like that of the NSW Supreme Court, is at large. The default position under the Federal Court Rules 2011 (Cth), however, is that if on an interlocutory application no order as to costs is made and an order is made in favour of a party, then costs will follow the event, but if no order is made in favour of any party, the costs are taken to be the costs in the cause of the successful party: r 40.04. The CBA could reasonably have expected, therefore, that upon Mr James succeeding on his interlocutory application, he would recover his costs. But Mr James did not succeed on his interlocutory application; he succeeded on the basis of amendments which were neither made nor foreshadowed until all the CBA's costs in defending the application had been incurred. 21 Upon reflection, in these circumstances, and having regard to the underlying rationale of an order for costs in the cause, it seems to me that I should have made such an order at the time of judgment. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.