McCracken v Phoenix Constructions

THE COURT 1 On 18 April 2013, the Court made the following orders: 1. The appeal is allowed. 2. The sequestration order and the order for costs made by the Federal Magistrate on 14 September 2011, are set aside. 3. The creditor's petition of 11 August 2011, stands dismissed. 4. The respondent is to pay the appellant's costs of the hearing before the Federal Magistrate and on the appeal. 2 On the same day shortly after the orders were announced, Phoenix Constructions (Queensland) Pty Ltd's (Phoenix) solicitors emailed the associates of the members of the Court stating that Phoenix wished to be heard in relation to the order that it pay the appellant's costs in the Court below and on appeal. They also asked the District Registrar to refrain from entering the orders until the parties were heard. In making that request, Phoenix said that in its outline of argument at the hearing of the appeal Phoenix "sought to be specifically heard in relation the question of cost orders made consequent upon any decision of the court, in particular costs orders in relation to the conduct of the proceeding below". 3 On 22 April 2013, the parties were advised that the order as to costs was amended to "[t]he court will hear the parties on the question of costs". 4 Phoenix was permitted to provide a written submission as to costs, which it did and to which the appellant replied. 5 In its written submissions, Phoenix sought the following orders: (a) an order that the matter be remitted to Federal Magistrate (now Judge) Coker in the Federal Magistrates (now Federal Court Circuit) Court for determining the costs of the proceeding ("the proceeding below") in the Federal Magistrates Court ("the Court below"); (b) in the alternative to (a), and for the reasons which follow:- (i) an order that McCracken pay Phoenix' costs of the Federal Magistrates Court proceeding, on the indemnity basis, from commencement of the proceeding below to 18 May 2012; (ii) an order that Phoenix pay McCracken's costs of the Federal Magistrates Court proceeding, on the standard basis, from 18 May 2012 to conclusion of the proceeding below; and (c) an order that Phoenix pay McCracken's costs, on the standard basis, of and incidental to the appeal. 6 The third order sought by the respondent was in fact the order made by the Full Court when judgment was handed down. However, the order was apparently sought in case the appellant sought a more beneficial order. 7 The appellant did indeed seek a variation of the orders for costs made and sought the following orders: 1. The Appellant seeks an order that the Respondent pay his costs of and incidental to the appeal on an indemnity basis from 3 July 2012 until the date of the decision of this Honourable Court and that all other costs of an[d] incidental to the bankruptcy proceedings between the parties be paid by the Respondent to the Appellant on a standard basis. 2. Alternatively, the Appellant seeks an order that the Respondent pay his costs of and incidental to these bankruptcy proceedings on the standard basis; and 3. The Appellant seeks an order that all costs of the trustee appointed by the Respondent be paid by the Respondent. 8 On 10 May 2013, Mr Steven Mosch, apparently a partner in MacDonnells Law, sent an email to the associates of the members of the Court advising that he acted on behalf of Dennis Offermans and Michael Brennan, who were appointed the joint and several trustees in bankruptcy of the bankrupt estate of the appellant pursuant to a sequestration order made on 14 September 2012 (the joint trustees). 9 He recited the orders made and said that there were two issues of concern to his clients as the now former joint and several trustees in bankruptcy of the appellant's estate. 10 He referred to s 153B of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act), which provides for a power to annul a bankruptcy, and to the question of his client's costs, charges and expenses of the administration of the estate. 11 The joint trustees were permitted to file and serve submissions in support of the concerns identified in the email. The joint trustees served submissions via email but did not file those submissions on 21 May 2013, to which the appellant and respondent separately responded on 28 May 2013. 12 This proceeding and this appeal have been bitterly contested, and the parties have been put to greater expense than they should have been put. This Court should not permit the parties to be put to further expense that can be avoided. 13 The time for Phoenix to make the applications, which it now has made, was at the hearing of the appeal. The practice of this Court has been for some time that if a party seeks an order for costs, other than that the costs should follow the event, that party should make that application and should provide the party's submissions in support of that application at the time of the hearing of the appeal: Newman v New Zealand (No 2) (2012) 295 ALR 1 at [24]; Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 572 at [2]; Arico Trading International Pty Ltd v Kimberley-Clark Aust Pty Ltd [1999] FCA 275 at [2]-[3]; Johnston v Cameron [2002] FCA 301 at [35]. 14 Phoenix provided written submissions at the hearing of the appeal. Those submissions did not address the question of costs should the appeal succeed. In the written submissions, Phoenix identified the orders it sought as: 1. The Appeal be dismissed. 2. The parties make written submissions as to orders as to costs. 15 In the appellant's written submissions, the appellant sought the following orders: 34. The appeal should be allowed with costs. 35. The respondent's creditor's petition filed 211 (sic) August 2011 should be dismissed and the respondent should pay the appellant's costs of and incidental to the hearing of the creditor's petition and this appeal. 36. Further the respondent should pay the costs of the trustees appointed by the respondent for the period since the sequestration orders were made. 16 Nothing further was said as to costs by either party in their oral submissions. A party who merely claims that the parties should be entitled to address costs in writing after the appeal has not complied with the Court's practice, which is identified in the authorities already mentioned. 17 The Court's practice developed before the introduction of Part VB of the Federal Court of Australia Act 1976 (Cth) (FCA). However, the practice is consistent with the injunctions contained in that Part. The Court has a duty to exercise its powers in a way that best promotes the overarching purpose of the civil practice and procedure provisions. The overarching purpose is contained in s 37M(1) of the FCA: s 37M(3). The Court must provide a just resolution of a dispute according to law as quickly, inexpensively and efficiently as possible. The parties and their lawyers have the same obligation: s 37N. 18 Unless there is a good reason to the contrary, the parties should address all of the orders for which the parties contend, including any order as to costs, in their written submissions on the appeal and in their oral submissions at the hearing of the appeal. There may be circumstances where that cannot be done, for example where one party has made an offer to the other on the appeal and it would be inappropriate to bring that offer to the attention of the Court before the appeal is decided. But usually, however, the parties must comply with the practice of the Court and any party who fails to do so cannot expect the Court to necessarily entertain any application as to costs after the appeal has been determined. 19 Phoenix has not complied with the practice and no reason has been given for that non-compliance. 20 The appellant also seeks orders not articulated at the hearing of the appeal. The appellant relies upon an offer made to Phoenix before the creditor's petition was heard by the Federal Magistrate (now a Federal Circuit Court Judge). There is no reason why this Court could not have been advised of that offer at the hearing of the appeal. The terms of the offer did not contain any admission by the appellant that Phoenix's claim had merit. Indeed the offer was couched in terms that Phoenix's creditor's petition was entirely without merit, which was always the appellant's case after the Court of Appeal set aside the judgment upon which the bankruptcy notice and creditor's petition vested. 21 Neither the appellant nor Phoenix addressed the trustees' costs on the hearing of the appeal. The appellant's suggested order in that regard is apparently a reaction to the trustees' solicitors' letter and the submissions that have followed. 22 The history of this proceeding is referred to in the judgment of this Court in McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41 and need not be repeated. 23 The original creditor's petition, which was filed on 11 August 2011, relied upon six separate acts of bankruptcy for the sequestration order that was sought. 24 The six separate acts of bankruptcy were that the appellant departed Australia at a time when Phoenix was attempting to effect service upon the appellant of a bankruptcy notice and an enforcement hearing summons; the appellant remained out of Australia at a time when Phoenix was attempting to effect service of those documents; the appellant departed from his dwelling house at a time when Phoenix was attempting to effect service of those documents; the appellant departed from his usual place of business at a time when Phoenix was attempting to effect service of those documents; the appellant absented himself at a time when Phoenix was attempting to effect service of those documents; and the appellant began to keep house at a time when Phoenix was attempting to effect service of those documents. 25 On 18 October 2011, Phoenix filed an amended creditor's petition, having been given leave to add two further acts of bankruptcy, being: 4A. The following act of bankruptcy was committed by the respondent debtor within six (6) months before presentation of this petition, that is to say a failure to comply by 31 August 2011 with the Bankruptcy Notice served 10 August 2011. 4B. The Respondent's acknowledgement of a failure to comply with Bankruptcy Notice BN219 of 2011 which was served on 27 January 2011 therefore creating an act of bankruptcy on 17 February 2011 for failing to comply with the said Notice. 26 On 14 September 2012, a Federal Magistrate made a sequestration order against the estate of the appellant. It was made on the ground contained in paragraph 4A of the amended creditor's petition, relying upon an act of bankruptcy by the appellant in failing to comply with a bankruptcy notice served on 10 August 2011. 27 It is not entirely clear from the Federal Magistrate's reasons, but it would appear that Phoenix continued with a claim as an act of bankruptcy that the appellant kept house. The other acts of bankruptcy are mentioned in the Federal Magistrate's reasons. 28 In the end result, the Federal Magistrate relied upon the claim of an act of bankruptcy in failing to comply with the bankruptcy notice. He said: 48. It is clear, in my assessment, that the failure to pay the moneys called upon to be paid pursuant to the judgment of 15 June 2011 and sought in the bankruptcy notice served upon the respondent is and of itself an act of bankruptcy upon which sequestration can and should properly be made. I intend, therefore, to make the sequestration order sought in relation to this matter. 29 The Federal Magistrate then said: 49. It is not specifically necessary for me to comment upon whether, in fact, another act of bankruptcy has arisen as a result of the provisions of section 40(1)(c) of the Bankruptcy Act. I would note, however, that the significant amount of evidence provided in relation to the matter and not now challenged would, in my assessment, clearly satisfy the court that the debtor acted specifically with an intent to defeat or delay his creditors. 50. It was clear that notice had, by numerous means, come to the attention of the respondent that the process server was seeking to communicate with him for the purpose of service of documentation. The respondent absented himself on repeated occasions, many of them in dangerous circumstances, which clearly, in my assessment, constituted a direct attempt to absent himself and thus, clearly, that constituted an act of bankruptcy, upon which a sequestration order could properly be made. 30 Those comments were unnecessary. However, Phoenix did not rely upon those findings for the sequestration order. The appeal was concerned only with the question whether the Federal Magistrate was right to make a sequestration order on the ground that the appellant had not complied with the bankruptcy notice. 31 The judgment debt upon which the act of bankruptcy relied was set aside by the Court of Appeal in Queensland on 18 May 2012. At the time of setting aside the judgment debt, the Court of Appeal made a certain costs order in favour of Phoenix. Phoenix has never had those costs assessed. It did not rely upon those costs orders in its bankruptcy notice, nor could it of course because those orders were made subsequent to the service of the bankruptcy notice upon the appellant. 32 Phoenix has filed a 10-page submission in support of the orders sought, together with an annexure which lists 22 separate documents including 14 affidavits, which it asks the Court to read for the purpose of this application. 33 It has contended that the matter should be remitted to the Federal Magistrate for the Federal Magistrate to make an order as to costs in relation to the hearing before the Federal Magistrate or, alternatively, the appellant should pay Phoenix's costs on an indemnity basis from the date of commencement of the proceeding below to 18 May 2012, and after that time have its costs from Phoenix on a party and party basis. 34 This remarkable submission, that the party against whom the sequestration order should not have been made should pay the costs of the petitioning creditor, is based upon what is said to be the conduct of the appellant in the proceeding below. It is said that those orders should follow because the appellant sought to avoid service of both the bankruptcy notice and the creditor's petition. The appellant, it is said, continued to assert through the whole of the period that service of the bankruptcy notice and the creditor's petition had been ineffective. Phoenix contended that the Federal Magistrate had found that the appellant had engaged in conduct which might have amounted to keeping house and "constituted an act of bankruptcy, upon which a sequestration order could properly be made". 35 It is also said that the appellant had behaved inappropriately by claiming that he was solvent and a finding should be made, we suppose, by this Court, on the affidavit material before the Court below, that such a claim could not be maintained. 36 Phoenix claims that on the hearing of the appeal in the Court of Appeal, which resulted in the judgment debt being set aside, the appellant advanced contentions not previously advanced and not contained in the outline of argument filed in the Court of Appeal. 37 It is very difficult to understand how an unsuccessful party on an appeal in this Court could claim that the opposing party should pay the costs of the hearing in the Court below for succeeding on an argument in the Court of Appeal in Queensland. If there was anything at all in the submission made by Phoenix, that was a matter to put to the Court of Appeal, not to this Court. The Court of Appeal reached the conclusion that the judgment debt could not stand and set it aside. That, as far as this Court is concerned, is an end to the matter. 38 Phoenix cannot contend that it is entitled now to prove the other acts of bankruptcy so as to obtain a costs order, indeed an indemnity costs order, in its favour. The time for proving those acts of bankruptcy was when the creditor's petition was before the Federal Magistrate. When those acts were not relied upon as acts of bankruptcy for the purpose of the sequestration order that it sought, in our opinion, it gave up its right to costs in respect of the appellant's conduct. 39 On this application, Phoenix has relied upon a number of facts not known to this Court and not proved on the application. Those facts ought to be ignored. 40 Phoenix was on notice immediately after the Court of Appeal set aside the judgment debt upon which Phoenix relied, that it did not have a judgment debt which was capable of supporting a sequestration order. Notwithstanding, Phoenix continued the proceeding in the Federal Magistrates Court (now the Federal Circuit Court) and obtained the order, which was the subject of the appeal. 41 When the appellant appealed against that sequestration order, Phoenix made an application in the appeal proceeding to dismiss the appeal on the grounds that the appellant had no reasonable prospect of successfully prosecuting the appeal; that the appeal was frivolous or vexatious; that no reasonable cause of action was disclosed; and that the appeal was an abuse of process of the Court. Phoenix also sought security for costs. Those applications were dismissed: McCracken v Phoenix Constructions (Queensland) Pty Ltd [2012] FCA 1410. 42 This Court decided that a sequestration order should not have been made because at the hearing of the respondent's creditor's petition the debt relied on in the creditor's petition was not still owing and Phoenix was not entitled to rely upon an earlier judgment debt, which had been discharged by an order of the Court of Appeal in Queensland: McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41. 43 There is nothing, in our opinion, in the submissions made by Phoenix on the question of costs which should cause this Court to revisit the costs order in favour of the appellant in the reasons of this Court published on 18 April 2013. 44 In our opinion, Phoenix's applications in relation to costs should be dismissed. 45 The appellant, in support of his application for indemnity costs, relied on an affidavit sworn by his solicitor, Mr Spencer Slasberg on 29 April 2013, to which was exhibited a letter written by the appellant's solicitors to Phoenix's solicitors after the judgment which Phoenix relied upon for its creditor's petition was overturned by the Court of Appeal in Queensland. 46 In that letter, the appellant's solicitors informed Phoenix's solicitors that "your client does not currently have a liquidated debt capable of sustaining its petition" and that the creditor's petition would have to fail. 47 They wrote: In an attempt to commercially resolve the above matter, our client proposes that your client discontinue its petition against him and that the proceedings be dismissed by the consent of the parties, with no order as to costs. This offer will remain open for fourteen (14) days from the date of this letter, at which time it will lapse. We ask that you take your client's instructions in relation to this offer and revert to us with same. In the event your client does not accept the above offer we shall of course rely on this correspondence in relation to the question of costs. 48 The appellant advised Phoenix in that letter on 3 July 2012 that it did not have a judgment debt upon which it could rely for a sequestration order following upon the decision of the Court of Appeal in Queensland. He offered to settle the application and the creditor's petition by having the petition discontinued and the parties bearing their own costs. Phoenix should have accepted that offer. If it had, neither of the parties would have incurred any of the costs which have been incurred since that time. The trustees would not have been appointed and would not have been put to the costs and expenses which they have incurred. 49 Moreover, if Phoenix had accepted that offer and thereafter had its costs in the proceeding in the Supreme Court of Queensland assessed, it could have relied upon a certificate of the Registrar of the Court if the costs were not paid by the appellant. It chose not to do what it should have done. 50 In those circumstances, the appellant should have his costs on an indemnity basis in the proceeding before the Federal Magistrate from 11.00am on 5 July 2012 until the date of the sequestration order and prior to that time period on a party and party basis: Federal Circuit Court Rules 2001, r 1.05 and sch 3 pt 2; Federal Court Rules 2011, r 25.14(3). 51 The appellant should also have his costs of the appeal on an indemnity basis. 52 All of the costs subsequent to the decision of the Court of Appeal setting aside the judgment debt have been occasioned by the fault of Phoenix. 53 Therefore, the appellant's costs should include the costs associated with the submissions made subsequent to the Court's judgment on 18 April 2013. 54 That leaves the question of the trustees' submissions. The trustees in bankruptcy, if they wished to obtain orders of the Court, should have applied to become parties to the appeal proceeding so that they could have agitated for any orders that they seek. 55 Even now they do not seek to become parties to obtain the orders sought, but merely ask for the Court to make those orders. 56 That is most unsatisfactory. If a person wishes to have the Court make an order, the person must either bring a proceeding or seek to be joined in a proceeding to have the orders made. It is not permissible for a non-party (except perhaps an intervener who, of course, would still need to be joined as an intervener) to ask a Court to make orders. 57 For that reason alone, the trustees' submission that the orders that it seeks ought to be made should be refused. 58 There is no suggestion that the trustees were unaware of the appeal and that the appellant was seeking an order that the sequestration order made by the Federal Magistrate be set aside. 59 In those circumstances, the trustees ought to have applied prior to the hearing of the appeal to be heard on the appeal if the trustees wished to have orders made in their favour or to compensate them for the costs incurred by the trustees as a result of the order made by the Federal Magistrate. 60 The trustees referred to Pattison v Hadjimouratis (2006) 155 FCR 226 in which the Court held that upon a sequestration order being set aside the Court could make an order annulling the bankruptcy. But that was a case that was concerned with the rehearing of a proceeding before a Registrar where the Registrar had made a sequestration order. 61 That case would have been known to the trustees before the hearing of this appeal. If they had wished to argue on this appeal that this Court was empowered by reason of s 153B of the Bankruptcy Act to make an order annulling the bankruptcy at the same time as setting aside the sequestration order, then that argument should have been presented at the hearing of the appeal. 62 The Court was not called upon to consider the trustees' costs and expenses at the hearing of this appeal, and it seems to us it is too late for the trustees to now claim that orders ought to be made relating to those matters. 63 The trustees should take whatever proceedings they may be advised in relation to the matters referred to in their submissions. 64 We would not make any orders for the reasons that the trustees are not parties to the proceeding; they have not identified the orders which they seek; and they should seek their relief in separate proceedings. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of this Honourable Court.