Mango Boulevard Pty Ltd v Whitton

REASONS FOR JUDGMENT 1 On 2 November 2015, I dismissed the applicants' application, brought under s 30 of the Bankruptcy Act 1966 (Cth), for review of resolutions passed by creditors of the bankrupt estates of the second and third respondents; and, under s 178, for review of a decision of the first respondent ("the trustee"): Mango Boulevard Pty Ltd v Whitton [2015] FCA 1169. 2 The parties have now made submissions as to costs. 3 The trustee submits that the applicants should pay his costs of the proceeding, including reserved costs and his application for directions filed on 16 March 2011. 4 The second and third respondents submit that the applicants should pay their costs on an indemnity basis. 5 The applicants accept that they should pay the respondents' costs, with two exceptions, on a party and party basis. The first exception is the reserved costs of an interlocutory application filed on 24 October 2013. The second exception is the costs of the trustee's application for reopening of his case. The applicants also submit that there is no basis for an order for costs on an indemnity basis. 6 It follows that what is in dispute is: (a) the reserved costs of the application of 24 October 2013; (b) the costs of the trustee's application for reopening; (c) whether costs should be awarded on a party and party basis or on an indemnity basis. 7 As to the first of these issues, on 24 October 2013 the second and third respondents filed an application seeking relief including further discovery, security for costs and the production of documents in respect of which the applicants had claimed privilege. The only part of the application that proceeded was for production of documents. The applicants' claims of privilege were ultimately upheld by Greenwood J, and costs were reserved: Mango Boulevard Pty Ltd v Whitton [2014] FCA 324. 8 Rule 40.03 of the Federal Court Rules 2011 (Cth) provides that reserved costs follow the event unless a further order is made. The second and third respondents submit that reserved costs are governed by the usual rule that costs follow the event unless good reason is shown to the contrary. In my opinion, there is good reason why the second and third respondents should be ordered to pay the reserved costs of the application filed on 24 October 2013, namely that they were wholly unsuccessful in their interlocutory application. 9 As to the second issue, on 22 October 2015, the trustee made an oral application to reopen his case on the basis of events that had occurred after I reserved my judgment. The trustee, supported by the second and third respondents, submitted that the new events meant that the applicants no longer had standing to bring the proceeding and also provided additional discretionary reasons why relief should be refused. The application for the reopening was unsuccessful. 10 The trustee submits that he took a "neutral role" in the proceeding and should not be ordered to pay costs. He says that he made the oral application for reopening in that neutral capacity because he considered that the new events ought to be drawn to the attention of the Court. Accepting that the position of the trustee can be regarded as neutral, the trustee still made the application for reopening, made submissions as to why the proceeding against the trustee should be dismissed and failed in his application. Part of the reason why the trustee failed was that he had delayed for about two months in bringing the application. In the circumstances, it would not be fair for the applicants to pay the respondents' costs of the application for reopening, nor for the applicants to be left to bear their own costs of that application. The first respondent should pay the applicants' costs of the application for reopening. There should be no order as to the second and third respondents' costs of the application for reopening. 11 The second and third respondents submit that their costs should be paid on an indemnity basis because: (a) the proceedings were conducted for a collateral purpose; (b) the institution and conduct of the proceedings was unreasonable; (c) the proceedings were conducted in a manner which caused wastage of time for the Court and the respondents; (d) there was an imprudent refusal of an offer of compromise. 12 Rule 40.01 of the Federal Court Rules provides if an order is made that a party pay costs or be paid costs without any further description of the costs, the costs are to be costs as between party and party. This reflects the position that costs are normally awarded on a party and party basis. The Dictionary in Schedule 1 of the Federal Court Rules defines costs as between party and party as "only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation." 13 Rule 40.02 of the Federal Court Rules provides that a party or person who is entitled to costs may apply to the Court for an order that costs awarded in their favour be paid other than as between party and party. An indemnity costs order ought only be made where special or unusual features of the case justify such an order: LPD Holdings (Aust) Pty Ltd v Phillips Hickey and Toigo [2013] QCA 305 at [22]. 14 The second and third respondents' argument concerning "collateral purpose" relies on an offer made by the first applicant to the trustee after the proceedings had been commenced. In a letter dated 9 January 2011, the first applicant said that if the trustee was prepared to enter negotiations for the sale of 25 shares in Kinsella Heights Developments Pty Ltd ("KHD") held by the third respondent's estate, the first applicant would not press the application for the reinstatement of the former trustees. The second and third respondents submit that the letter makes it clear that the first applicant's purpose was not related to the administration of the bankrupt estates, but, rather, the acquisition of the 25 shares. They submit that the collateral purpose of the proceeding warrants the award of indemnity costs. 15 The second and third respondents argued the same point in the principal proceeding, but did not explain precisely why the asserted collateral purpose was improper, and did not support their argument by reference to any authority. It was unnecessary to decide that argument because they were successful on other grounds. The second and third respondents' submission has not been developed any further in their application for indemnity costs. 16 The second and third respondents' argument appears to be that there was an abuse of process because the proceedings were brought for a collateral or improper purpose. A proceeding is an abuse of process if the predominant purpose of bringing a proceeding is not a legitimate purpose: Williams v Spautz (1992) 174 CLR 509 at 529. However, a litigant is entitled to pursue proceedings so as to take advantage of a benefit which the law gives the litigant in the event that the proceedings are successful: Williams v Spautz at 526. 17 The obvious and immediate purpose of the applicants in bringing the principal proceeding was that they were dissatisfied by the decision of the trustee and dissatisfied with the resolution of the creditors which they challenged. They were dissatisfied because the decision and the resolution affected their financial interests. Their financial interests were affected because the decision and the resolution made it more difficult for the applicants to acquire the 25 shares. The fact that the ultimate goal of the applicants was to acquire the 25 shares, does not mean that they were not dissatisfied with the decision and the resolution. Nor does it mean that they were disentitled from bringing the principal application and seeking that the decision and resolution be set aside. The second and third respondents have not demonstrated any abuse of process. 18 The second and third respondents submit that the institution and conduct of the proceedings was unreasonable. They submit that, in particular, the applicants unreasonably alleged an improper purpose on the part of the creditors, and failed to lead any evidence capable of establishing the allegation. They submit that the proceeding was doomed to fail. 19 It is true that a proceeding is an abuse of process if it is foredoomed to fail: Walton v Gardiner (1993) 177 CLR 378 at 393. The fact that the argument was unsuccessful does not mean that it was not reasonably arguable. At an early stage of the proceeding the second and third respondents failed in an application for summary judgment, Greenwood J holding that the applicants' case was reasonably arguable: Mango Boulevard Pty Ltd v Whitton (2011) 198 FCR 211 at [118]-[119]. There was no application for leave to appeal against that judgment. The arguments made by the second and third respondents provide no reason for me to depart from the view taken by Greenwood J. Further, the second and third respondents do not allege that the applicants' case against the trustee was not reasonably arguable. 20 The second and third respondents submit that the applicants' conduct in relation to discovery and the preparation of a trial bundle was unreasonable and vexatious. They complain about a very lengthy list of documents and a CD provided with the list that was numbered differently from the hard copy of the list so that it was impossible to cross-check without looking at each individual document. While regrettable, the additional work that the second and third respondents' lawyers have had to do will no doubt be reflected in the assessment of costs on a party and party basis, if the taxing officer considers that is appropriate. 21 The trial bundle originally placed before the Court was certainly unnecessarily and excessively large. The trial bundle was eventually reduced in size, with encouragement from the Court. Again, the work done by the second and third respondents' lawyers in relation to the trial bundles will be reflected in an assessment of party and party costs if the taxing officer considers it appropriate to do so. The second and third respondents have not shown that the applicants' conduct of the proceeding should result in an award of costs on an indemnity basis. 22 Finally, the second and third respondents submit that costs should be awarded on an indemnity basis because on 6 September 2012, their lawyers made an offer that the applicants discontinue their application and pay 50% of "our standard costs" up to that date. They submit that the applicants should have accepted the offer and discontinued the proceeding. 23 In Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, Sheppard J indicated at 233 that "an imprudent refusal of an offer to compromise" may warrant the exercise of the discretion to award indemnity costs. However, there is no presumption that a party refusing an offer of compromise should pay the offeror's costs on an indemnity basis if the offeree receives a less favourable result: Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [19]-[20]. The critical question is whether the non-acceptance was reasonable in the circumstances: Hazeldene's Chicken Farm at [23]. 24 I do not think that the applicants acted unreasonably in rejecting the offer of settlement. This is particularly so in circumstances where there were good grounds for thinking that the trustee had, contrary to statements in his correspondence to the applicants' lawyers, objected to the second and third respondents' discharge from bankruptcy for the purpose of allowing them to put proposals for compositions to their creditors. There was also reason for the applicants to think that the trustee had not genuinely objected for the purpose of encouraging the second and third respondents to disclose their income details. Further, it was quite unclear what the bankrupts' lawyers meant by "our standard costs": they could have been referring to the standard fees they charged clients; or perhaps to costs assessed on the standard basis as provided for under the Uniform Civil Procedure Rules 1999 (Qld), which are not applicable in this Court. It was not unreasonable for the applicants to refuse the offer of compromise. 25 For these reasons, I generally accept the applicants' submissions as to costs. I propose to make orders accordingly. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah.

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