Mann v Condon

2. The applicant pay the respondent's costs of the hearing of the separate questions on 30 March 2016 (including the preparation of written submissions), to be taxed if not agreed.
3. Otherwise, each party bear his or her own costs of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MOSHINSKY J: 1 On 18 May 2016, I published reasons and made orders in relation to separate questions that arose in the proceeding: Mann v Condon [2016] FCA 532 (the Reasons). The parties have now settled the balance of the proceeding. They agree that there should be an order that the proceeding be dismissed, but there is a dispute about the appropriate costs order. The applicant (Ms Mann) seeks an order that there be no order as to costs. The respondent (the Trustee) seeks an order that Ms Mann pay the Trustee's costs of the proceeding, including any reserved costs, to be taxed in default of agreement. 2 For the reasons that follow, I consider the appropriate costs orders to be that: (a) Ms Mann pay the Trustee's costs of the hearing of the separate questions on 30 March 2016 (including the preparation of written submissions), to be taxed if not agreed. (b) Otherwise, each party bear his or her own costs of the proceeding. 3 These reasons should be read together with the Reasons. I adopt the definitions used in the Reasons. 4 The factual background relevant to the costs issue may be briefly stated as follows. 5 This proceeding was commenced by application dated 12 January 2016. The final orders sought by Ms Mann in the application were: On the grounds stated in the supporting affidavit or statement of claim, the applicant seeks the following orders under section 178 of the Bankruptcy Act 1966 (Cth) … 1. the objection to the discharge from bankruptcy QLD 2420/11/0 of the applicant filed by the respondent with the Official Receiver in Bankruptcy on or about 10 November 2015 be declared invalid and set aside; 2. the applicant be discharged from bankruptcy QLD 2420/11/0 from 9 March 2015 (or such other date as the Court deems fit); 3. the respondent pay the applicant's costs of this proceeding. 6 At the first case management hearing, following discussion with counsel for both parties, an order was made for the separate hearing of certain questions (see r 30.01(1) of the Federal Court Rules 2011) on the basis that, depending on how these questions were determined, it may obviate the need for a lengthy, fact-intense hearing. 7 The hearing of the separate questions took place on 30 March 2016. In advance of the hearing, each side provided a written outline of submissions. The Trustee did not file any evidence in relation to the separate questions. There was no dispute about the facts relevant to the separate questions, which were dealt with in the affidavits filed on behalf of Ms Mann. 8 The first separate question was determined in favour of the Trustee. I declined to answer the second separate question. It is fair to say that the bulk of the time in argument was devoted to the first separate question. 9 Had the first separate question been determined in favour of Ms Mann, it would have obviated the need for a hearing of the balance of the proceeding. However, because the first separate question was determined in favour of the Trustee, and because I declined to answer the second question, the balance of the proceeding remained to be tried. 10 The matter was listed for case management hearings on a number of occasions in the period May to September 2016. On each occasion, the hearing was adjourned by consent. The context was as follows. Following the determination of the separate questions and correspondence from Ms Mann, the Inspector-General in Bankruptcy conducted a review of the decision of the Trustee to file the Second Objection to the discharge of Ms Mann's bankruptcy. On 21 July 2016, a delegate of the Inspector-General cancelled the Second Objection. The Trustee did not apply for review of the Inspector-General's decision and, on 22 August 2016, Ms Mann was discharged from bankruptcy. 11 On 7 October 2016, at a case management hearing, the parties informed the Court that they agreed that the matter should be dismissed, but there was a disagreement as to costs. A timetable was made for the provision of written submissions on costs, with the issue to be determined on the papers. 12 Ms Mann's submissions can be summarised as follows: (a) The usual order for costs is that costs follow the event. But if there has been no hearing on the merits, the court is deprived of the factor that usually determines whether and how it will make a costs order. In such a case, it is appropriate that there be no order as to costs, provided the parties acted reasonably in commencing and continuing with the litigation. See Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 625; Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201. (b) Here, there has been no hearing on the merits. The only issue that has been decided was a narrow issue of statutory construction. It was decided as a preliminary question in accordance with modern case management principles of narrowing the issues in dispute. (c) The fact that the Trustee's construction of the relevant provisions of the Bankruptcy Act 1966 (Cth) was accepted does not make him the successful party. If the Inspector-General had not cancelled the Second Objection, it would have been necessary for the proceeding to go to trial on the merits. It is only because of that supervening event that it is no longer necessary for the trial to proceed: see One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at [6] per Burchett J. (d) There can be no suggestion that Ms Mann acted unreasonably in commencing the proceeding or in the way the proceeding was conducted. (e) It was reasonable for Ms Mann to have agreed to the hearing of the separate questions. Doing so is good case management. If either of the questions had been resolved in her favour, judgment would have followed and a costly trial would have been avoided. Ms Mann should not face an adverse costs order for agreeing to a process that promotes the efficient use of the Courts. If an applicant did risk such a costs order on the hearing of a preliminary question, then she or he may prefer to have all issues determined at trial. (f) If Ms Mann had not commenced the proceeding, there was nothing to stop the Trustee from issuing a third objection to discharge of bankruptcy (noting he had already issued two objections) and so on. The proceeding served a necessary and useful purpose in bringing the issues between the parties to a head, which facilitated their resolution. (g) In the alternative, if the Court decides to award the Trustee his costs in relation to the separate questions, then any such costs should be limited to the costs incurred by the Trustee on the first question, because the second question was not answered. 13 The Trustee's submissions can be summarised as follows: (a) As a matter of principle, generally the discretion to award costs is exercised in favour of the successful party. Here, costs should follow the event and be ordered in favour of the Trustee. (b) Ms Mann instituted and pursued proceedings against the Trustee despite an alternative course being open to her. The Trustee identified at the outset of this proceeding that the proper course for the applicant was, initially, the administrative process for review by the Inspector-General: see the Trustee's letter dated 22 January 2016. Ms Mann continued to pursue a determination in this Court. (c) After failing on the preliminary question, Ms Mann adopted the course initially proposed by the Trustee and sought review by the Inspector-General. The outcome of that process was that the Inspector-General decided to cancel all the grounds of objection made by the Trustee in the Second Objection. (d) Ms Mann now seeks, in effect, to discontinue the proceeding on the basis that she has now obtained the relief she sought in her application to this Court. (I note that the footnote to this contention refers to a letter dated 1 September 2016 from Mercantile Legal, the solicitors for the Trustee, to Ms Mann's solicitors. The letter is marked "without prejudice, save as to costs". A copy was attached to the Trustee's written submissions. Ms Mann in her reply submissions objects to reliance on this letter in circumstances where it was marked "without prejudice" and directed to resolving the dispute about costs. Alternatively, Ms Mann submits that, if regard is to be had to the letter, then regard should be had to the whole of the without prejudice communications between the parties on costs. Those communications have not been provided. I do not think it is necessary to resolve this issue because the proposition in the Trustee's submissions to which this footnote is attached is an uncontentious fact; it is therefore unnecessary to have regard to the Trustee's solicitors' letter.) 14 The Court's jurisdiction to award costs is conferred, relevantly, by s 43 of the Federal Court of Australia Act 1976 (Cth) and s 32 of the Bankruptcy Act 1966 (Cth). The principles applicable to the award of costs are well established. The usual rule is that costs follow the event, although there may be circumstances where the "event" is contestable, and also circumstances where it is appropriate to adopt an issue-based approach. See Latoudis v Casey (1990) 170 CLR 534 at 567 per McHugh J; Ruddock v Vardarlis (No 2) (2001) 115 FCR 229 at [11]-[12] per Black CJ and French J; Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370 at [11], [16]-[18] per Dowsett, Middleton and Gilmour JJ. However, where there has been no adjudication on the merits, it may be appropriate, depending on the circumstances, for there to be no order as to costs: see Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 625 per McHugh J; Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201 per Hill J. 15 In my view, it is appropriate that costs follow the event in relation to the hearing of the separate questions. The Trustee was substantially successful in relation to that hearing. The Trustee was completely successful in relation to the first question. I declined to answer the second separate question, but, as noted above, the bulk of the hearing concerned the first question. I do not accept Ms Mann's submission that there has not been a "hearing on the merits"; in relation to the separate questions, there was a hearing on the merits. In these circumstances, Ms Mann should pay the Trustee's costs of the hearing of the separate questions (including the preparation of the written submissions). The Trustee did not file any evidence in connection with the hearing of the separate questions. If there were costs involved in preparing for the hearing of the separate questions, I see these costs as included in the order that Ms Mann pay the Trustee's costs of that hearing. 16 However, in respect of the other issues raised by the proceeding, there has been no hearing on the merits. It is unclear how those other issues would have been resolved, had a trial been necessary. I do not think Ms Mann acted unreasonably in bringing the proceeding or in its conduct. I do not think the decision of Ms Mann to raise the matter with the Inspector-General following the determination of the separate questions made the further conduct of the proceeding unreasonable. This may have been a matter bearing on the discretion to grant relief, had the matter gone to a final hearing. At a practical level, it has led to the dispute being resolved without the need for a lengthy Court hearing. In these circumstances, in my view, the appropriate order is that each party bear his or her own costs in relation to the balance of the proceeding. This will include the costs which have been incurred since the determination of the separate questions, as well as the costs incurred in relation to the first case management hearing on 5 February 2016. 17 For these reasons, I will make an order (by consent) that the proceeding be dismissed, and I will make costs orders as set out in [2] above. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.