Primelife Corporation Limited v Bufalo [2008] FCA 1742 | Case summary

THE APPEAL/APPLICATION IN THE SUBSTANTIVE MATTER 2 Section 178(1) of the Bankruptcy Act reads as follows: If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. The act of the trustee of which the respondent complained under s 178 was its refusal to assign to him - … the choses in action constituted by reference to the rights arising in respect of or in connection with Supreme Court proceeding 6668 of 1999 and the subject matter of that proceeding as set out in the third amended statement of claim filed therein. The Supreme Court proceeding referred to had been commenced in August 1999 by the respondent by his father, by his brother, and by their company, Bufalo Corporation Pty Ltd ("Bufalo Corp"), against the now appellants. 3 The appellants (as I shall for the sake of convenience describe them) were, on their own application, joined as respondents to the proceeding in the Federal Magistrates Court. The basis of their interest was, it seems, threefold. First, as respondents in the Supreme Court, they would have been affected if the respondent were, as the result of the assignment which he sought, enabled to re-commence the prosecution of the proceeding in that court. Secondly, they (the appellants) sought the assignment to themselves, rather than to the respondent, of the choses in action (doubtless with a view to ensuring that that proceeding was never again prosecuted against them). Thirdly, as creditors who had proved in the respondent's bankruptcy, they had an interest in the way the trustee disposed of assets of the estate. 4 In the period leading to the commencement of the proceeding in the Federal Magistrates Court, the respondent had been engaged in negotiations with the trustee as to the terms upon which the choses in action might be assigned to him. The trustee was not satisfied with any of the terms proposed by the respondent, and had refused to assign. The appellants supported the trustee, and contended that it should not be ordered to make the assignment requested by the respondent. The trustee and the appellants were successful: the Federal Magistrate made no order (save as to costs) other than that the respondent's application be dismissed. Yet the appellants have appealed (or have purported to appeal) from that judgment. 5 In order to understand why the appellants now seek to challenge what appears to have been a successful outcome for them, it is necessary to say something about the nature of the appellants' case before the Federal Magistrate. They went further than merely to provide support for the trustee's decision to refuse to assign the choses of action. They contended that the causes of action which underlay the choses were "hopeless" in the sense that there was no prospect that the Supreme Court proceeding could produce a successful outcome for whoever had title to prosecute it. They submitted that the power of the trustee to assign an asset of a former bankrupt could not, or at least should not, be used where the asset was a chose in action which was manifestly hopeless. In this respect they relied on the following passage in the judgment of the Full Court in Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550, 565: The foregoing authorities do not deny that in a case where it is clear that the claim sought to be pursued by the bankrupt or other proposed assignee is frivolous or vexatious, the trustee or the court should not allow the assignment to occur. A claim with no reasonable prospect of success would be a frivolous one, and the prosecution of such a claim would be vexatious. As earlier noted, in most cases it will not be clear that an alleged claim has no reasonable prospect of success. However when a clear case arises, the trustee as an officer of the Court, and the Court itself, in the public interest, should not allow the assignment to occur, even where an immediate sum of money is offered as consideration that would benefit the estate of the bankrupt. Importantly, the appellants applied (orally, it seems) to the Federal Magistrate for an order that the trustee be directed never to assign the choses in action to the respondent. 6 The Federal Magistrate held that the choses in action - while they had rather obvious difficulties - were not hopeless. Thus his Honour refused to make the order sought by the appellants. In his reasons for judgment, his Honour made it clear that the trustee should not feel inhibited on account of hopelessness from engaging in future negotiations with the respondent for the assignment of the choses in action. The appellants contend that the hopelessness point was judicially determined against them by the Federal Magistrate, and that they have both standing and an entitlement to appeal: see Driclad Pty Ltd v Commissioner of Taxation (1968) 121 CLR 45, 64-65 and Landsal Pty Ltd (in liq) v REI Building Society (1993) 113 ALR 643, 651-652. 7 A question which arises at the outset is whether the appellants have an appeal as of right at all. The respondent contends that they do not. It is submitted on his behalf that the order made by the Federal Magistrate was interlocutory, and that an appeal lies only by leave: see Federal Court of Australia Act 1976 (Cth), s 24(1A). It is convenient to turn immediately to that question. 8 In Freeman v National Australia Bank Ltd [2004] FCAFC 318 the Full Court held that an order made by a Judge of the court dismissing a bankrupt's application under s 178 of the Bankruptcy Act for an order that his trustee be required to commence proceedings against the bank was interlocutory. Freeman was not legally represented, and the Full Court provided no explanation as to why the order in that case was interlocutory. But their Honours did refer (without elaboration) to Hall v The Nominal Defendant (1966) 117 CLR 423. There it was held that an order refusing an application for an extension of time within which to commence proceedings against the nominal defendant was interlocutory. In a judgment with which Owen J agreed, Taylor J regarded as "unexceptionable" the test stated by Alverstone CJ in Bozson v Altrincham Urban District Council [1903] 1 KB 547, 548-549, namely, whether the order sought to be appealed from finally disposed of the rights of the parties (117 CLR at 439-440). His Honour continued (117 CLR at 440-441): The order in the present case was made in proceedings preliminary to the bringing of an action and although it deprived the appellant of the benefit of the order of the learned judge of first instance, it did not operate to prevent him from making a further application for an extension of time. No doubt its practical effect was that any further application would have been fruitless unless supported by additional relevant facts but the order made by the Full Court did not of its own force conclude his right to bring an action. Windeyer J considered that it was necessary - … to look at the consequences the order itself and to ask does it finally determine the rights of the parties in a principal cause pending between them. (117 CLR at 443). One may take it, therefore, that the Full Court in Freeman considered that the order made at first instance in that case did not finally dispose of the rights of the parties in the sense explained in Hall. 9 However, what is not clear from the judgment in Freeman is whether their Honours took the view that all applications under s 178 of the Bankruptcy Act were, of their nature, interlocutory (because they could not finally dispose of the rights of the parties), or whether their view was limited to the particular application in that case. I was not referred to any other occasion upon which it has been held that an order made under s 178 is, of its nature, interlocutory. Such would represent a very extreme position. The wide range of circumstances in which s 178 may be invoked was referred to by French J in Macchia v Nilant (2001) 110 FCR 101, 114-116 [36]-[38]. By the terms of the section, it is necessary only that some person be affected by an act, omission or decision of the trustee. The act etc does not have to be such as would determine - or even affect - the rights or obligations of the person. The act etc might be such as has, when done by the trustee, a purely instrumental or administrative character but which, when reviewed by a Ch III court under s 178, demonstrates its "chameleon quality of becoming judicial" (Macchia, 110 FCR at 115 [38]). On the other hand, it is also well within the contemplation of s 178 that the court may be called upon to ascertain and declare legal rights in the most conventional sense. For example, a trustee might be proposing to sell an item of property which he or she believes to be part of the bankrupt estate. A third party may assert ownership of, or an interest in, the property. The determination of such a dispute by a court, in a way that led to a declaration as to the ownership of the property or as to the nature of the trustee's interest in it, would almost inevitably involve a disposition of the rights of the parties in the sense intended in Hall. By contrast, the actual decision made by the court at first instance in Freeman could not be regarded as disposing of any rights. 10 I do not believe that Freeman stands for the proposition that every order made on an application under s 178 of the Bankruptcy Act will, of its nature, be interlocutory. Had the Full Court intended to articulate such an absolute proposition, I consider that their Honours would have done so in terms. When their Honours said that the decision then purportedly under appeal was interlocutory, they meant, in my view, no more than that the decision not to compel the trustee to commence proceedings against the bank was interlocutory. 11 Returning to the present case, the act of the trustee with respect to which the respondent applied under s 178 was the trustee's refusal to assign the choses in action defined by reference to the Supreme Court proceeding. That refusal did not affect the existence of the choses as assets of the estate. Neither, as the Federal Magistrate made clear, did it preclude the respondent from negotiating with the trustee for such an assignment on terms which may have been more attractive to the trustee. As between the respondent and the trustee, all that happened below is that the Federal Magistrate ruled, in effect, that he would not interfere to alter how the trustee was otherwise disposed to administer the estate. It is hard to see how his Honour finally disposed of any rights existing as between these parties. 12 As between the appellants and the trustee, the Federal Magistrate rejected the former's application that the latter never assign the choses in action to the respondent. It is likewise hard to see how this finally disposed of the rights of the appellants at all, save in the narrow (and, in the context of the distinction between interlocutory and final orders, irrelevant) sense that it meant that the application actually made would fail. Indeed, his Honour's decision did not deal with the rights of the appellants at all; nor even with the rights of the trustee apropos the appellants. The appellants did not assert a right to the property in question. The proceeding did not even involve a refusal by the trustee to assign to them. They were parties, and were permitted to make an application, only because they had a legitimate interest in how the trustee dealt with that property. Such an interest, however, is a thing quite different from a legal right in the sense intended in Hall. 13 However, the appellants put the proposition that the decision of the Federal Magistrate dealt with their rights in an alternative, and somewhat more sophisticated, way. They submitted that the Federal Magistrate's holding that the choses in action were not hopeless, and that an assignment to the respondent should not be restrained on that ground alone, was itself a judicial determination by which they were bound. Never again, they submitted, would they be able to resist such an assignment on the hopelessness ground. Further, if ever the Supreme Court proceeding came to be litigated again, and they (the appellants, the respondents in that proceeding) sought summary judgment on the ground that no reasonable cause of action was disclosed, the question would have to be regarded as res judicata because of the judgment of the Federal Magistrate. It was in this sense, according to the appellants, that that judgment disposed of their rights. 14 I consider that each of the premises upon which the appellants' submission is based is unsound. As to the major premise, I do not agree that the refusal by the Federal Magistrate to order that the choses in action not be assigned involved a determination which would thereafter make the question whether the respondent had a reasonable or viable cause of action in the Supreme Court proceeding res judicata. In essence, the task of the Federal Magistrate was to consider whether it was just and equitable to require the trustee not to assign. His Honour was not persuaded that it was. That was the question which his Honour answered. It was the res which became judicata by his Honour's judgment. In not being persuaded that the choses in action were hopeless, his Honour was judicially determining nothing. No more so was this circumstance a binding judicial determination than the corresponding one whereby a court rules on an application for summary judgment that a case has reasonable prospects of success. At most, here the Federal Magistrate was recognising that the choses in action had such prospects, or, more accurately perhaps, that the contrary had not been established. In no sense have the appellants' rights been finally disposed of by the judgment they seek to challenge. 15 As to the minor premise, even if the Federal Magistrate might be regarded as having judicially determined a particular question which related to the prospects of the Supreme Court proceeding, I do not consider that it would follow that his Honour's order should thereby be regarded as final rather than interlocutory. There will be many unarguably interlocutory occasions when a court is called upon to make a legal determination of some kind. For example, when considering the balance of convenience on an application for an interlocutory injunction, it is not uncommon for the court to be required to determine an incidental legal point which relates to the parties' obligations towards each other. The fact that such a determination is made - and not merely on a prima facie case basis - would not convert the occasion into a non-interlocutory one simply because parties are bound by the determination. In the present case, the question arising under s 24(1A) of the Federal Court Act is whether the judgment is interlocutory. The "judgment" in this sense is the order made by the Federal Magistrate. That the appellants sought to obtain a different order by reference to a particular legal proposition which was decided against them is not sufficient, in my opinion, to make the order dismissing the respondent's application a final, rather than an interlocutory, one. 16 In the circumstances, and for the reasons stated above, I take the view that the judgment of the Federal Magistrates Court was an interlocutory one, and that leave to appeal is required. The appeal must therefore be dismissed as incompetent. The appellants conditionally applied for leave. The questions which arise on such an application are whether the judgment below is attended by sufficient doubt to warrant its reconsideration on appeal and, if so, whether substantial injustice would result if leave to appeal were refused, supposing the judgment below to be wrong: see Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, 398-399. 17 Dealing first with the question of sufficient doubt, the starting point must be the identification of the choses in action which the respondent wished to have assigned to himself. That takes one to the Third Amended Statement of Claim in the Supreme Court proceeding, the subject matter of which, according to the respondent, gave content to the choses. Here there is an immediate complication. The respondent was not a party to that pleading. As I have said, the proceeding was commenced in August 1999, and on 18 November 1999 the then applicants, including the respondent, filed their Second Amended Statement of Claim. However, no further statement of claim had been filed by 19 March 2002, when the respondent became bankrupt. In response to an inquiry by solicitors for the appellants about the status of the Supreme Court proceeding, in a letter dated 3 July 2003, the solicitors for the trustee said: In our view the [trustee] is deemed to have abandoned the action in respect of Giuseppe Bufalo and [the respondent] pursuant to section 60(3) of the Bankruptcy Act 1966 ('the Act'). This is because the [trustee] failed to make an election within 28 days of receipt of your letter dated 8 May 2002 giving notice of the proceeding and requesting that an election be made. However, the liquidator of Bufalo Corp adopted the Supreme Court proceeding and, in April 2004, it was that company alone that filed the Third Amended Statement of Claim. That pleading, which was before the Federal Magistrate, involved a complete re-casting of the Second Amended Statement of Claim, and contained no claim for relief on behalf of the respondent. 18 Notwithstanding that circumstance, counsel for the respondent submitted both before the Federal Magistrate and in this court that it was the subject matter identified in the Third Amended Statement of Claim, rather than the actual claims of the respondent then extant (ie as set out in the Second Amended Statement of Claim) which gave content to the choses in action. I was cautioned by counsel for the appellants not to be beguiled into treating a chose in action of the company's as a chose in action of the respondent's. That caution was both valid and, in the complex and at times confusing sea of allegations that were made in both sets of pleadings, justified. I propose to be guided by it. Subject to it, however, the starting point must still be the Third Amended Statement of Claim. 19 It seems that, in 1998, interests associated with Bufalo Corp and the first appellant proposed to develop various properties for use as aged care facilities. In relation to some of these properties, it was alleged that Bufalo Corp would carry out building works pursuant to joint venture agreements. However, one property was in a different category: a supported residential service at 57 Raglan Street, Sale. That property was owned by Confalo Enterprises Pty Ltd ("Confalo"), and the business conducted there - called "Manor Gardens Retirement Home" - was owned by Newpark Pty Ltd ("Newpark"). The respondent and one Frank Cotronea ("Cotronea") held the shareholding in each of these companies, and were the directors of them. The respondent and Cotronea fell out, the result of which was that both companies went into liquidation. According to the pleading, in October 1998 the respondent's father discussed the Raglan Street property with the second appellant, and informed him that the respondent intended to purchase Cotronea's interest in Confalo and Newpark. The second appellant proposed that the first appellant should be permitted to purchase that interest, so that it and Bufalo Corp would then in effect be equal shareholders in those companies. 20 To give that plan definition, on 23 October 1998 the first appellant and the respondent entered into a written agreement, which provided that - (a) the first appellant would lend the respondent the sum of $1.125m to enable the latter to purchase Cotronea's interest in Confalo and Newpark; (b) to secure that loan, the respondent would grant the first appellant a mortgage over his existing 50% shareholding in Confalo and Newpark, together with signed transfers, in registrable form, in respect of those shares; (c) the respondent would enter into a purchase contract with the liquidators of Confalo and Newpark and with Cotronea; (d) the respondent and the first appellant would execute formal agreements to document these arrangements; (e) upon settlement of the purchase contract, the respondent would refinance the purchase in the name of Confalo and Newpark and apply the proceeds to repay the loan, engage the first appellant to sell the property and the business, engage the first appellant under a marketing and management agreement and enter into a 50/50 profit share agreement with the first appellant; (f) the respondent would procure Confalo and Newpark to undertake improvements to the property at Raglan Street; and (g) each party would do all things necessary to give effect to the terms of the agreement. It is not apparent from the pleading how the agreement of 23 October 1998 gave effect to so much of the earlier proposal as provided for the first appellant to acquire a 50% shareholding in Confalo and Newpark. 21 The Third Amended Statement of Claim then deals with the engagement of a solicitor to represent Bufalo Corp, the respondent, his brother and his father (to which and to whom I shall refer as "the Bufalo parties"). Peter Mark Darrer ("Darrer"), of the firm Darrer Muir Fleiter was recommended by the first appellant. As alleged, Darrer was in fact the (or a) solicitor for the first appellant throughout and, although ostensibly attending to the interests of the Bufalo parties, was in reality serving the first appellant. It is alleged that it was from the first appellant, rather than the Bufalo parties, that Darrer received his instructions as to the formal documentation for the transfer of ownership in the Raglan Street property and business. It is alleged that the first appellant did not instruct Darrer as to the agreement of 23 December 1998. It is alleged that Darrer attended a meeting (as did the respondent, "later", as alleged) at the office of the first appellant's solicitors at which agreement was apparently reached with Cotronea and the liquidators for Confalo and Newpark. After that, the first appellant "advanced funds", and effectively took over the conduct of the Manor Gardens Retirement Home. On about 22 January 1999, the Bufalo parties attended at the first appellant's office and executed a suite of documents - all dated 21 December 1998 it seems - to give legal effect to the financing and like arrangements that had been agreed to. Those documents included a loan deed between the first appellant and the respondent, a mortgage by the respondent of the shares held by him in Confalo and Newpark in favour of the first appellant, guarantees and indemnities given by the respondent's brother and father, a debenture charge by Bufalo Corp in favour of the first appellant, a mortgage by Bufalo Corp of its shares in Confalo and Newpark in favour of the first appellant and other documents. 22 A significant aspect of the allegations in the Third Amended Statement of Claim is that the Bufalo parties believed that the documents they executed on 22 January 1999 reflected the agreement of 23 October 1998, that they assumed that the first appellant would have arranged for effect to be given to that agreement in good faith, that they also assumed that Darrer was acting for them and in their interests and had approved, as proper to be executed by them, the documents which they did execute on 22 January 1999. It is alleged, however, that those documents did not reflect the agreement of 23 October 1998 in a number of respects. In part these relate to the fact that those documents had the effect that the first appellant acquired a 51% interest in Confalo and Newpark without being obliged to pay Bufalo Corp or the respondent anything. In part it is said that there ought to have been a documentation of what was said to be an obligation on the first appellant and Bufalo Corp to borrow on the security of the Raglan Street property to allow the respondent to repay his loan from the first appellant. 23 The pleading alleges that settlement of the transfers of shares in Confalo and Newpark occurred as agreed with the liquidators on 2 March 1999. However, also in the first half of 1999, relations between the parties soured and all joint ventures and similar arrangements were terminated. On 29 June 1999, the first appellant asserted that the documents executed on 22 January 1999 remained binding, and that unless Bufalo Corp and the respondent performed their obligations thereunder, the first appellant would enforce the guarantee, the debenture charge and the mortgage of securities. On 1 July 1999, the first appellant gave notices to pay under the loan deed and guarantees to the respondent as borrower and to Bufalo Corp and the respondent's brother and father as guarantors. On 7 July 1999, the first appellant gave notices to pay to the respondent pursuant to the mortgage of his shares in Confalo and Newpark and to Bufalo Corp pursuant to the debenture charge, each demanding payment of the sum of $1,129,004.64. 24 The balance of the Third Amended Statement of Claim in the Supreme Court proceeding is substantially concerned with the grievances and claims of Bufalo Corp, including allegations against the receiver and manager appointed to it by the first appellant in August 2000. The relief sought in that proceeding was extensive. The equitable jurisdiction of the Supreme Court was invoked in many respects. A fundamental aspect was Bufalo Corp's challenge to the documents executed on 22 January 1999, to the extent that they related to that company. A declaration that those documents were invalid, alternatively an order setting them aside, was sought. 25 In the proceeding before the Federal Magistrate, the respondent was pressed to particularise the choses in action which he sought to have assigned to himself. Pursuant to a direction by his Honour, on 8 August 2007 the respondent's solicitors sent correspondence which indicates that their client proposed to sue in conspiracy, conversion, deceit, fraud, misrepresentation (both at common law and under legislation), negligence, unconscionable conduct (including pursuant to legislation) and breach of contract. They identified many paragraphs of the Third Amended Statement of Claim (travelling well beyond the scope of the summary set out above) as containing the "facts and wrongful conduct" on which their client would rely. 26 Although not referred to in the Third Amended Statement of Claim or the respondent's solicitor's letter, the fact is that the respondent did not repay the loan which, according to the appellants, arose under the loan agreement executed on 22 January 1999. The first appellant moved to enforce its securities, constituted by the mortgages of the respondent's shares in Confalo and Newpark. On 18 August 2000, the first appellant applied in the Supreme Court (in a separate proceeding) for orders that share transfers in its favour be registered. It obtained those orders. Each of two orders made that day by Senior Master Mahony was endorsed as follows: The Court held that the validity and enforceability of the instrument entitled "Mortgage of Securities" and between the secondnamed defendant as mortgagor and the plaintiff as mortgagee is not an issue in the proceeding No. 6668 of 1999 in this Court [ie the Supreme Court proceeding]. In consequence the provisions of the instrument operated to entitle the plaintiff as attorney of the secondnamed defendant to execute as transferor the transfer of his share in the firstnamed defendant and oblige him to procure registration of the transfer. The Court is satisfied that his and the thirdnamed defendant's refusal to register the transfer was without just cause. 27 In September 2004 (about five months after the service of the Third Amended Statement of Claim by Bufalo Corp), the appellants sought orders in the Supreme Court proceeding that the claims of the respondent, his father and his brother be dismissed. On 29 October 2004, Mandie J ordered that the proceeding by those persons as against the then respondents (including the now appellants) be dismissed. That order was made in the absence of the trustee and of the respondent. On 20 September 2006, Hargrave J ordered that the respondents by counterclaim (including the respondent) file and serve, by 4:00pm on 22 September 2006, "any application that the order of the Honourable Justice Mandie made 29 October 2004 be set aside". The respondent made no such application. 28 The Federal Magistrate identified the bases upon which the appellants submitted that the causes of action underlying the choses in action were hopeless, namely, res judicata, the operation of s 5 of the Limitation of Actions Act 1958 (Vic) ("the Limitation of Actions Act"), issue estoppel and abuse of process. According to his Honour, the res judicata point was based upon the dismissal of the respondent's action in the Supreme Court by Mandie J on 29 October 2004. There was some uncertainty as to the basis upon which Mandie J had dismissed the action, since his Honour provided no reasons. By their Interlocutory Process dated 14 September 2004, the appellants sought a declaration that the proceeding was deemed to have been abandoned pursuant to s 60(3) of the Bankruptcy Act and an order that the proceeding of the respondent be dismissed, but Mandie J ordered only that the proceeding be dismissed. The Federal Magistrate was not satisfied that Mandie J's judgment constituted a judicial determination of the substance of the respondent's action, and was not prepared to hold, therefore, that the order made the choses in action res judicata. His Honour said: I cannot be satisfied that his Honour gave consideration to and evaluated the merits of the applicant's case against the respondents when he dismissed the proceeding in the absence of the applicant and without hearing evidence going to the merits of the applicant's claims. In these circumstances, I am of the view that it cannot be said that the proceeding in the Supreme Court is res judicata. 29 The appellants also contended before the Federal Magistrate that any new action by the respondent on the choses in action which he sought to have assigned to him would be statute-barred. His Honour dealt with this point at two levels. First, he referred to the provisions of r 46.08 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) ("Rules of the Supreme Court"), which provides for the setting aside of an order affecting a person where the person did not attend the hearing of the application upon which the order was made. According to his Honour below, if the respondent made such an application, and succeeded, the existing Supreme Court proceeding would be revived, and there would be no issue with respect to any limitation period. The appellants pointed out to his Honour that Hargreave J had fixed a time within which any application under r 46.08 should be made by the respondent. His Honour responded: Be that as it may, there may well be, although I was not given any detail as to how it might be put, a successful application to the Supreme Court to set aside the dismissal. It may be difficult, but it is not for this court to evaluate that where the obligation placed on me is to determine whether the applicant's case is manifestly hopeless. I note that the onus of proof in this regard falls squarely on the respondents, and in that regard they have failed. Secondly, he said that the "strength and merits" of the appellants' limitations points were best left to the Supreme Court, should the trustee ever determine to assign the choses in action to the respondent. 30 The appellants' issue estoppel point depended upon the orders made by Senior Master Mahony on 18 August 2000. They submitted to the Federal Magistrate that the existence and enforceability of the loan agreement, and of the securities provided by the respondent in that regard, were fundamental to the choses in action which he sought to have assigned to him. They contended that the Senior Master's order, and the endorsement to which I have referred, involved a direct judicial determination of issues which were fundamental to the choses in action, and that the respondent was bound by them. In rejecting this submission, the Federal Magistrate said at pars 74-75: Whilst these matters might reflect a difficulty in [the respondent's] case, I cannot be certain that [the respondent's] case is fatally flawed and hopeless. I note the whole basis of proceedings in the Supreme Court is to challenge the transfer of shares in related companies that were offered as security for the alleged loan which, should the challenge be successful, would result, in effect, in setting aside Master Mahoney's orders made that day. In addition, as highlighted by counsel for [the respondent], the nature of the process undertaken by Master Mahoney could be properly described as simply putting the [first appellant] in a position where it could enforce the mortgages if it was so entitled. … The Master it would appear left open the question of entitlement, which is an issue that goes to the subject of the Supreme Court litigation. Once again, the [appellants] bear the onus of proof in this regard, and once again they fail. 31 According to the Federal Magistrate, the appellants' point as to abuse of process was not really a separate point at all, but, rather, involved the proposition that, because the causes of action upon which the respondent proposed to rely were hopeless, in the sense of being doomed to fail, it would be an abuse of process for the trustee to make the assignments which he sought. Because of the way that his Honour dealt with the appellants' other points, he was against them in this respect also. 32 In their application for leave to appeal, the appellants' first, and fundamental, ground was that the Federal Magistrate was in error not to have determined the issue whether the choses in action were statute-barred. It was not, they contended, sufficient for his Honour to say that such matters were "best left to the Supreme Court". His Honour did not make it clear in exactly what respect the point was controversial (since it seems to be common ground that the causes of action had arisen by August 1999 at the latest), but, in this court, counsel for the respondent drew my attention to the relief sought, or proposed to be sought, by the respondent in the Supreme Court proceeding, which included remedies of an equitable kind. He submitted that the Limitation of Actions Act did not apply directly to claims for such remedies. My attention was drawn to the provisions of s 5(8) of that Act, which provide as follows: This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the enactment corresponding to that provision was applied before the repeal of that enactment by the Limitation of Actions Act 1955. Counsel for the appellants argued that the causes of action upon which the respondent proposed to sue would inevitably be regarded as analogous to corresponding actions at law, and that they would be held to be statute-barred under s 5(8). I do not regard that proposition as at all self-evident. I was not addressed in detail as to the approach which the Supreme Court would take under s 5(8) to a claim to set aside a document, the execution of which is alleged to have been attended by unconscionable conduct on the part of a joint venturer, nor as to the extent to which any time limit applies to a proceeding in which remedies under s 87 of the Trade Practices Act 1974 (Cth) are sought. These reservations, however, are strictly beside the point. What matters here is that the extent to which equitable claims are to be treated in the same way as the claims at law to which they are said to be analogous is a matter which can only be decided on the facts of the case in question, and by the court called upon to determine whether a limitation period applies. In advance of such a determination, it is not possible for another court to hold that a particular period of limitation would inevitably be held to apply by analogy, and that therefore any attempt to litigate the underlying causes of action would be bound to fail. This is presumably the kind of matter that the Federal Magistrate had in mind when he observed that questions arising under the Limitation of Actions Act were best resolved by the Supreme Court. I agree. 33 It follows that, so far as the limitations point is concerned, I take the view that the Federal Magistrate's judgment is not attended by sufficient doubt to warrant reconsideration on appeal. However, there was another means by which the respondent could, his counsel submitted, avoid what would otherwise be the operation of the Limitation of Actions Act. It was said that the respondent could apply under r 46.08 of the Rules of the Supreme Court to have Mandie J's order dismissing the proceeding set aside. As I have said, the Federal Magistrate accepted that submission. Before me, counsel for the appellants submitted that his Honour was in error to have done so. Since the r 46.08 point arose only as a possible means by which the respondent might effectively sidestep the Limitation of Actions Act, and was in that sense an alternative to reliance upon s 5(8) thereof, it is strictly unnecessary for me to deal with it. However, in deference to the very detailed argument which I received on the point, I shall briefly address the merits of it. 34 The appellants contended that any attempt to revive the Supreme Court proceeding under r 46.08 would inevitably fail. It was submitted that the Federal Magistrate had erred in not deciding this question for himself. It is to be noted that r 46.08 gives a Judge of the Supreme Court a discretion to set aside an order made in the absence of a party. My attention was drawn by the appellants to the judgment of Kaye J in Winn v Blueprint Printing Pty Ltd [2007] VSC 397. His Honour said (at [6]): Generally, where such an order has been made, the applicant who seeks to have it set aside must show, firstly, a reason why he or she did not attend and, secondly, that the applicant has an arguable case why a different order might be made than was made in his or her absence. In addition, any such application must be made without undue delay and issues of prejudice to the respondent are relevant …. It was submitted that any application by the respondent under r 46.08 could not succeed when account is taken of the discretionary considerations to which Kaye J referred. With reference to the second such consideration, the appellants submitted that the respondent could on no view be regarded as having an arguable case that a different order might well have been made if he (or the trustee on his behalf) had appeared before Mandie J on 29 October 2004. 35 As I understand it, the appellants' case in this respect is that, the trustee having abandoned the Supreme Court proceeding (pursuant to the admitted operation of s 60(3) of the Bankruptcy Act), there could, as a matter of law, have been no outcome other than that the proceeding be dismissed. The appellants' submission requires consideration of the nature and consequences of such an abandonment. Subsections (2) and (3) of s 60 are as follows: (2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. (3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action. Although not concerned with subs (3) as such, and although concerned with appeals rather than original proceedings, in Fuller v Beach Petroleum NL (1993) 43 FCR 60, 68 the Full Court said of s 60: It is consistent with the policy of the Act that after sequestration of the estates of unsuccessful litigants the successful party not be put at the risk of sustaining further costs of appellate litigation. The respondent to the appeal should not be left to seek what may turn out to be an inadequate order for security for costs. It is also in the interests of the orderly administration of the estate of the bankrupt that it be for the trustee to decide whether appeals of the nature involved here be instituted or continued. I read this passage as recognising that it is a policy of s 60 that a respondent to a proceeding previously commenced by a bankrupt should not be subjected to the risk of sustaining further costs in that proceeding. It follows, in my view, that the abandonment of such a proceeding under subs (3) should, as a matter of law, be regarded as bringing it to an end finally, without any prospect of revival. If it were possible, notwithstanding such an abandonment, for the trustee of a bankrupt estate (or the bankrupt himself or herself after discharge) to apply for the reinstatement of the proceeding, the respondent could never confidently close the file, as it were. 36 However, in the present case the Federal Magistrates opined that it was "trite law that a proceeding dismissed because of abandonment can be revived". His Honour did not provide any authority for that proposition. His Honour may have had in mind the principle to which Drummond J referred in Re Gargan [1995] FCA 663. His Honour noted that it had long been the law that - … this deemed abandonment of an action by the trustee is no bar to him commencing a fresh action on the same cause of action the subject of the abandoned proceedings. That is to say, the cause of action survives the abandonment of the action. Drummond J was unable to accept as a true statement of the law an obiter dictum by Pincus JA and White J in Theissbacher v MacGregor Garrick & Co [1993] 2 Qd R 223, 230 to the effect that an abandonment under s 60(3) of the Bankruptcy Act "[destroyed] the trustee's right to pursue the action absolutely". Counsel for the appellants in the present case submitted that Drummond J had failed to appreciate the distinction between the action to which s 60(3) refers (ie the proceeding) and the underlying cause of action. It was only the former, according to counsel, that Pincus JA and White J were referring to when they said that the right to pursue the action was destroyed absolutely. I accept that submission, and note that it finds support in the judgment of Katz J in Campbell v Metway Leasing Ltd (2001) 188 ALR 100. His Honour said of Theissbacher (188 ALR at 113): Nor (although I acknowledge that others have construed their Honours' joint reasons for judgment differently: see, for example, Abeyratne v Trkulja (1998) 90 FCR 253 at 259 (North J)) do I understand their Honours, in that passage, to have been intending to deal with the effect of the deemed abandonment on the cause of action which had been sued on in the action, but only with the effect of the deemed abandonment on the action itself. To the extent that the respondent in the present case should be understood as contending that s 60(3) would not affect the existence or integrity of such underlying cause of action that he may have, it is clear that that would not suit his purpose, as the bringing of a fresh action would encounter the very problems under the Limitation of Actions Act that recourse to r 46.08 would be designed to avoid. 37 For these reasons I have reservations about the Federal Magistrate's acceptance of the respondent's proposition that such limitations problems as he might otherwise encounter could be sidestepped by applying to have Mandie J's order set aside. In that respect, I consider that the appellants have succeeded in casting sufficient doubt on his Honour's reasons to justify reconsideration on appeal. However, as I have held above, I would not reach the same conclusion with respect to the respondent's reliance on s 5(8) of the Limitation of Actions Act. 38 For the sake of completeness, I shall mention also what the appellants submitted with respect to the other discretionary considerations to which Kaye J referred in Winn. The appellants submitted that the trustee was aware of the appellants' application before Mandie J, and apparently made a conscious decision not to attend. They submitted that there had been "inordinate delay" on the part of the respondent. In this respect, the appellants referred to the order made by Hargreave J on 1 September 2006 in the Supreme Court proceeding, and to the respondent's failure to make an application under r 46.08 within the time limited thereby. It was also said that the appellants would be prejudiced by the granting of any application to have the orders of Mandie J set aside, because of the effect which the passage of time had on the memory of witnesses, the age and health of the second appellant, and the first appellant having acted on the costs orders made by Mandie J on 29 October 2004 by lodging a proof of debt for its costs. 39 On their face, these appear to be persuasive reasons to anticipate that the Supreme Court would be most unlikely to set aside the orders made by Mandie J. However, at the end of the day, whether the Supreme Court does so will be a matter which lies in the discretion of the Judge before whom an application is made. I do not think that the trustee must necessarily be regarded as having acted wrongly to decline to anticipate the exercise of that discretion, or that the Federal Magistrate necessarily erred by taking a similar approach. It is quite possible that the principles to which Kaye J referred would speak somewhat differently, or at least with a different emphasis, in a situation in which the person who later comes to be entitled to the relevant choses in action was not, at the time of the making of the orders sought to be set aside, in a position to participate because of his or her bankruptcy. I appreciate that the respondent must be taken to be bound by the acts and decisions of the trustee in relevant respects, but that proposition does not necessarily, in my view, entirely exclude the prospect that a Judge of the Supreme Court may view the non-attendance of the respondent (or of the trustee) in a light different from that which would be cast upon a similar application in a non-bankruptcy context. 40 The appellants also submitted that it was the trustee, rather than the respondent, who would have the right to apply under r 46.08 (since the choses in action were presently vested in the trustee). That is true, but it begs the question. The issue is whether, if the choses were assigned to the respondent, an application by him under r 46.08 would necessarily fail. If they were so assigned, he would then have standing to apply under that rule. The appellants also submitted that the respondent had never sought the assignment to himself of the right to make an application under r 46.08. For the same reason, however, such a right is appurtenant to the choses themselves: the respondent would have the right if he became the assignee of the choses. 41 The appellants' final point in support of their application for leave to appeal was that the Federal Magistrate had been in error in not ruling that the orders made by Senior Master Mahony on 18 August 2000 set up an issue estoppel with respect to the validity and enforceability of the securities which the respondent had given in relation to the loan which he (ostensibly at least) secured from the first appellant. As I understand the appellants' case, it is that, if such an issue estoppel had been recognised by the Federal Magistrate, it would inevitably have led to the conclusion that a core element of the choses in action which the respondent sought to have assigned was utterly without prospects. The Federal Magistrate recognised that the orders made by the Senior Master might "reflect a difficulty" in the respondent's case, but his Honour was not certain that that case was "fatally flawed and hopeless". His Honour noted that the whole basis of the Supreme Court proceeding was to challenge the transfer of shares that were offered as security, and that such a challenge, if successful, would effectively result in "setting aside Master Mahony's orders made that day". 42 This point of the appellants is not that an action by the respondent in reliance upon the choses in action sought to be assigned would not lie at all. It is that a particular issue, or set of issues, in such an action would inevitably be decided against the respondent. Even if that proposition is correct, it would, in my view, require a considerable leap therefrom to reach the point at which it might be said that any such action would clearly have no reasonable prospect of success. Moreover, although presently identified rather generally, it is apparent that the claims that might be open to the respondent if he followed the approach taken in the Third Amended Statement of Claim have the potential to travel well beyond the matters dealt with by the Senior Master. The view may be taken that the validity and enforceability of the securities upon which the first appellant proceeded before the Senior Master are not inconsistent with the kind of equitable remedies that the respondent presumptively seeks against the appellants for their alleged role in procuring him to execute the documents upon which those securities were based. 43 It may be, with respect, that the Federal Magistrate was stretching a long bow when he effectively upheld the respondent's position on the issue estoppel point on the basis that the whole object of the action contemplated would be to have Senior Master Mahony's orders set aside. I suppose it is within the realm of the kind of litigation that the respondent has foreshadowed that those orders might be set aside on the ground that they had been procured by fraud, but counsel for the respondent did not so submit in this court. Rather than follow the approach of the Federal Magistrate, I take the view that, even if those orders stand (and perhaps all the more so because they stand) the respondent has shown that he has causes of action which have the potential to be viable in equity and which cannot be dismissed as hopeless. The result is that I do not regard the Federal Magistrate's conclusion, as distinct from his reasoning, on the issue estoppel point as attended by sufficient doubt to warrant reconsideration on appeal. 44 For reasons which I have attempted to explain above, only with respect to the availability of r 46.08 am I persuaded that the judgment of the Federal Magistrate in the present case was attended by sufficient doubt to justify reconsideration on appeal. That point, however, arose as one of two arguments, put by the respondent in the alternative, in response to the appellants' point that the choses in action were statute-barred. As I have held that there is insufficient doubt about the way that the Federal Magistrate dealt with the respondent's other point, the r 46.08 point becomes effectively moot. Overall, the appellants have not established that his Honour's judgment is attended by sufficient doubt to warrant reconsideration on appeal. 45 However, since the matter was comprehensively argued before me, I shall say something briefly on the subject of substantial injustice. The essence of the appellants' case was that the Federal Magistrate was in error not to have held that the Supreme Court proceeding, if hereafter prosecuted by the respondent, would have absolutely no prospect of succeeding. But this very proposition, if sound, is the proposition which would entitle the appellants to summary judgment in the Supreme Court. That being so, the refusal of the Federal Magistrate to make the orders which the appellants sought could not have worked any substantial injustice upon them. They remained, and they remain, able to advance the same arguments before the Supreme Court and, if those arguments are as sound as they submitted here, they will succeed. As I have made clear in an earlier section of these reasons, I do not accept the appellants' proposition that, upon an application for summary judgment, the Supreme Court would regard the matter as res judicata. Accordingly, were I of the view that, in some respects, the judgment of the Federal Magistrate was attended by sufficient doubt to warrant reconsideration on appeal, I would not have been satisfied that substantial injustice would be visited upon the appellants if leave to appeal were refused. 46 For the above reasons, I propose to order that the application for leave to appeal be dismissed. The appellants should pay the costs of the respondent and of the trustee (if any) of that application and of their incompetent appeal.

THE COSTS APPEAL 47 The respondent's application under s 178 of the Bankruptcy Act was filed in the Federal Magistrates Court on 14 February 2007. That application came to the attention of the appellants' solicitors on 23 February 2007. They subsequently foreshadowed an intention to seek to be joined as respondents to the application. By letter dated 2 March 2007, the respondent's solicitors stated that, until the appellants' solicitors had set out on oath the basis upon which they asserted that their client was entitled to be joined as a party, and had issued their application in that regard, they (the respondent's solicitors) were unable to indicate whether their client consented to the application for joinder. An application for joinder was filed on behalf of the appellants in the Federal Magistrates Court on 2 March 2007, and was supported by their solicitor's affidavit affirmed on the same day. In that affidavit, the solicitor explained the nature and progress of the Supreme Court proceeding, and exhibited copies of the first appellant's proofs of debt in the respondent's bankruptcy. He said that, if joined as parties to the proceeding (ie in the Federal Magistrates Court), the appellants would seek orders that the respondent's application be dismissed. 48 The s 178 application came before the Federal Magistrate on 5 March 2007. The appellants were represented, and advanced their arguments as to why they should be joined to the proceeding. There was, it seems, at that time a proposal that the choses in action might be assigned by the trustee to the first appellant, which gave rise to some discussion as to the advisability of adjourning the proceeding to permit that proposal to be developed. Counsel for the respondent indicated a reluctance to incur costs in litigation against the appellants if, at the end of the day, the trustee was going to make an assignment to them. He indicated that the respondent would not "do a deal with the official trustee" without the appellants having the opportunity to be heard. The Federal Magistrate said that he had "no doubt" that the appellants should be joined for the reasons advanced on their behalf, but wondered whether there would be some advantage in adjourning the matter of the joinder, and the question of the procedural directions provisionally sought by the appellants, pending resolution of the question whether the trustee would assign the choses in action to the appellants in any event. In the result, his Honour adjourned the proceeding until 8 May 2007. In so doing, his Honour said: … Without question, the interveners [ie the appellants] are entitled to be joined. They have a clear interest in the outcome and are directly affected. However, in balancing the facts and circumstances, particularly the fact that it has been suggested that it may resolve between the interveners and the Official Trustee in the next 3 to 4 weeks, perhaps it is appropriate to allow that to take place before the joinder. If that happens, there could be significantly changed circumstances, and further proceedings, which can be dealt with by orders. 49 The hearing of the respondent's application resumed not on 8 May 2007, but on 8 June 2007. On that occasion, counsel for the respondent asserted that the appellants had "no legitimate interest in those choses in action". The Federal Magistrate referred to his previous indication that the appellants should be joined to the proceeding. He said they had "a significant interest in the outcome of it all". Counsel for the trustee said that the appellants should be joined. Counsel for the respondent opposed the joinder. When asked what was the basis of that opposition, counsel said: Because we say, your Honour, that it's our application, it's a matter between us and the respondent in relation to claims which legitimately remain with us; and the proposed respondents Ted Centre and Prime Life, the only purpose for their participation or their application to intervene and for their dealings in negotiations with the respondent is to defeat our attempts to procure the protection and preservation of our interests in this litigation and we don't believe that they should be in any way involved in that proceeding, your Honour. They are my instructions, your Honour, at least at this stage ion [sic] any event. It may be that on the next occasion they can - no, I withdraw that, your Honour. They are my instructions, your Honour. In deciding the issue, the Federal Magistrate said: It is manifestly obvious, in my view, that the proposed interveners, Prime Life [sic] Corporation Ltd and Eduoard Christian Cente [sic] are intimately involved in all of the background to this matter. They also have an interest as to the outcome of the matter, which interest ought to be afforded an opportunity of being represented at the hearing. To deny them that opportunity would be potentially the cause of some injustice to the proper conduct of the matter that, in my view, requires them to be joined as parties to the proceeding, and I do intend to join then, as set out in Mr Warren's proposed order. On the same day, the Federal Magistrate made an order that the appellants be joined as parties to the proceeding. His Honour also ordered that the respondent file and serve particulars of the choses in action which he sought to have assigned to him. His Honour set the proceeding down for hearing on 13 August 2007, with an estimate of two days. 50 The proceeding was next mentioned before the Federal Magistrate on 3 August 2007, apparently at the initiative of the appellants. Their purpose was to complain about the sufficiency of the respondent's particulars of the choses in action which he sought to have assigned to him, as provided in accordance with the orders made by his Honour on 8 June 2007. Counsel for the respondent contended that he had complied with the order. On that aspect, his Honour said: I think there needs to be an identification of the choses in action which comes [sic] within the purview of the official trustee to decide, clearly identified. So that would save time ultimately in the running of the hearing. In saying that though of course I think it is right and proper that a party to a proceedings [sic] ought to have a clear identification of the issues they have to answer. The Federal Magistrate made an order in the following terms: The applicant [ie the respondent] by 4.00 pm on 8 August 2007 provide to the Court and the respondents [ie the trustee and the appellants] an exhaustive list of each of the choses-in-action which have vested in the first respondent upon the applicant's bankruptcy pursuant to s.58 of the Bankruptcy Act 1958 and which the applicant, by his application dated 14 February 2007 herein seeks to have assigned to him by the first respondent; such list: (a) to refer in a summary way to each material fact giving rise to each such chose-in-action; (b) to describe the legal nature of each such chose-in-action; (c) to state [against] which person(s) each such chose-inaction is said to subsist; (d) to give sufficient particularity to enable the Court and the respondents to determine when each such chose-in-action is said to have arisen; and (e) to describe how the proposed assignment of the identified chose(s)-in-action is or are to be effected. 51 Also on 3 August 2007, a deal of time was occupied with an application by the respondent for the adjournment of the date previously fixed for the substantive hearing of the application, 13 August 2007, upon the ground, it seems, that his counsel would not have the opportunity to put himself in full command of the materials in the case within the time allowed, particularly, as I read his submissions, if his client were to be ordered to provide the particulars of the choses in action which the appellants had sought. As to that application, the Federal Magistrate ruled as follows: On the question of the adjournment I'm not prepared to grant the adjournment. To get a final hearing date in the court at the moment of any duration is an extremely difficult thing. Parties are meant to organise their affairs around final hearing dates. There appears to be no good reason in my view why the particulars now been [sic] sought weren't provided in the first instance. Even today there is resistance to providing them where I believe it's quite clear that they need to be provided and there is a reliance on what has already been given by way of response to the orders I made even today, which is far from adequate. The denial of natural justice in my view is an argument that can't be sustained. As I said, the final hearing date has been fixed, all the parties were aware of that. The orders haven't been complied with in their spirit and form that I made in relation to providing details of the choses in action, the issues centred around the identification of choses in action that I articulated last night. M Blogg [sic] was very anxious to understand what it was that he was meant to assign. It was clearly identified yet it has come to this that it now has to be again addressed. I have allowed extra time asked for by Mr Wilson to Wednesday, 8 August. To my mind the issues, as I understand it, as [sic] are not that complex. It wouldn't take much to master that which is required to provide the detail. I think there is some merit in focussing at the moment on exactly what the issues are and I clarified that and I think that 8 August is ample time to do that. This is an application where the applicant is dragging his feet, so to speak, and is now asking for the indulgence of the court to extend the hearing date. For reasons of proper management of the court's list, for reasons that I have already alluded to - that I believe there is ample time to address this quite simple issue in my view. There might be an extensive history of litigation in other courts but that to my mind makes the issue much easier to identify. So be it as it may I intend not to grant an adjournment. In the result, his Honour adhered to 13 August 2007 as the date for the hearing of the respondent's substantive application under s 178. 52 The respondent's application came on before the Federal Magistrate on 13 August 2007. At the commencement of the hearing, his Honour was informed by counsel for the respondent that the respondent had applied for leave to appeal against the order that he provide particulars of the choses in action which he sought to have assigned. Counsel for the respondent referred also to an affidavit on behalf of the trustee which had only recently been received, in which the deponent referred to conditions upon which the trustee might be willing to transfer the choses in action. A third matter which was mentioned to his Honour was that the respondent had recently served upon the other parties notices to produce relating, it seems, to the content of the negotiations between the trustee and the appellants with respect to the possible assignment of the choses in action to them. Each of these circumstances was a justification for the submission then made on behalf of the respondent that the hearing of the application under s 178 should not then proceed, but should be adjourned. This made it necessary for his Honour to receive submissions from the trustee and the appellants as to the matters raised by the respondent, and as to their attitude to the conduct of the application generally. In the course of that, counsel for the appellants spent some time explaining to the Federal Magistrate what was the basis of the submission, which they proposed to make, that the choses in action were "hopeless", as they described them. Both the appellants and the trustee asserted that the particulars provided by the respondent on 8 August 2007 (see par 25 above) were inadequate, but were prepared to continue with the hearing nonetheless. The position of the respondent, at base, was that it would be "quite improper to proceed today whilst the application for leave is on foot and the only matter that can be properly dealt with is the matter of the notices to produce". 53 The matters to which I have just compendiously referred occupied the Federal Magistrate until the luncheon adjournment on 13 August 2007. Before rising, his Honour indicated that he would give his "decision on the matter" at 2:15pm. When he resumed after lunch, counsel for the appellants made further submissions, as a result of some work they had done during the adjournment. Those submissions related to the question whether the Federal Magistrate should decline to proceed simply because an application for leave to appeal from an interlocutory judgment had been filed. At 3:13pm, the Federal Magistrate gave judgment upon the procedural questions which had been raised before him. The terms of his Honour's reasons are not before the court, but what his Honour did was to set aside the respondent's notices to produce and to refuse to adjourn the further hearing of the proceeding. His Honour did not commence to hear the respondent's application then and there, but indicated that he would do so the following day. 54 The substantive hearing of the respondent's s 178 application commenced on 14 August 2007, and concluded the following day. The Federal Magistrate reserved his judgment. 55 In his judgment on the substantive application given on 14 December 2007, the Federal Magistrate reserved to the appellants and the respondent liberty to apply with respect to the matter of costs. He did receive submissions from them on that subject, and, by a further judgment given on 28 February 2008, made the following orders: (1) The applicant pay the first respondent's costs of and incidental to the proceeding (including all reserved costs), save for: (i) two-thirds of the costs of and incidental to the hearing; and (ii) the costs of and incidental to the joinder of the second and third respondents. (2) The second and third respondents pay the first respondent's costs of and incidental to their application to be joined to the proceeding and two-thirds of the first respondent's costs of and incidental to the hearing. (3) The second and third respondents pay the applicant's costs of and incidental to their application to be joined to the proceeding and two-thirds of the applicant's costs of and incidental to the hearing. In short, the Federal Magistrate held the appellants responsible for the costs of their application to be joined as respondents in the proceeding, and for two-thirds of the costs of the hearing. He held the respondent responsible for none of the costs incurred by the appellants. 56 The appellants challenged the orders at a number of levels. At the highest level, they submitted that the position for which they contended in the proceeding before the Federal Magistrate (that the trustee should not be required to assign the choses in action to the respondent) had prevailed, and that their costs should be paid by the respondent upon the principle that costs follow that event. Alternatively, they challenged four particular aspects of these orders. First, they challenged so much of the orders that required them to pay any of the trustee's costs, arguing that neither the trustee nor the respondent had contended for such an outcome. Secondly, they challenged so much of the orders as required them to pay the costs of their successful application to be joined as parties. They pointed out that the respondent opposed that application, and was unsuccessful in doing so. Thirdly, they challenged the Federal Magistrate's conclusion that their unsuccessful argument as to the hopelessness of the choses in action was responsible for two-thirds of the time occupied at the hearing on 13, 14 and 15 August 2007. Fourthly, they challenged the Federal Magistrate's omission to require the respondent to pay their costs in any respect, even for those interlocutory hearings which were rendered necessary by the respondent's "unreasonable actions", or in relation to which the respondent lost on a discrete point. 57 Both parties to the costs appeal accepted that the decision of the Federal Magistrate involved the exercise of a discretion, and would be interfered with on appeal only upon the identification of some error made in the exercise of that discretion, such as acting upon a wrong principle, taking account of extraneous or irrelevant matters, mistaking the facts, failing to take account of a material consideration, or the like: House v The King (1936) 55 CLR 499, 504-505. In conducting their case on appeal, the appellants sought to bring themselves within the constraints of these principles. 58 There is, in my view, no substance in the omnibus submission that the Federal Magistrate ought to have given the appellants their costs generally, simply upon the basis that they were a party to a proceeding in which the respondent had failed to secure the remedy which he sought. The proceeding before his Honour was much more complex than that. His Honour rightly recognised that there were different questions of real substance which contributed to the complexity of the matters with which the parties had to deal, and to the time occupied in the proceeding, both within the hearing and elsewhere. Further, as the appellants made clear in their appeal on substantive matters, although the only order made by the Federal Magistrate was that the s 178 application be dismissed, his Honour effectively dismissed also the appellants' application for a direction that the trustee not assign the choses in action to the respondent. In this sense, it is a considerable over-simplification to contend that the respondent was alone in being a losing party as a result of the determination of the s 178 application by the Federal Magistrate. His Honour's choice to deal with the matter of costs other than by requiring the respondent, as the nominal losing party, to pay the costs of all other parties was, in my view, not only open to him as a matter of discretion but an obviously appropriate course to adopt. 59 Turning to the particular aspects of his Honour's orders as to which the appellants made complaint, the first relates to his Honour's requirement that the appellants pay the trustee's costs in two respects - the costs of their application for joinder and two-thirds of the costs of the hearing. To the extent that those aspects relate to the axis of controversy between the appellants and the respondent, I shall deal with them below, but I would hold now that the fact that neither the trustee nor the respondent applied for the appellants to pay the costs of the trustee should not be regarded as a circumstance precluding his Honour from making the orders that he did. The trustee sought that its costs be paid, and, according to his Honour, the other parties did not resist that position. The respondent was the party who initiated the application against the trustee, and who, prima facie, ought to have paid the trustee's costs when his application failed. But, as I have indicated, there were several layers to the issues dealt with by his Honour. It was well within the scope of his discretion, if otherwise he were minded to require the appellants to pay costs in relation to issues upon which they had failed, for his Honour to apply that conclusion to the trustee's, as well as to the respondent's, costs. Strictly perhaps, the question might have been resolved in accordance with Bullock v The London General Omnibus Co [1907] 1 KB 264, but, had it been, the result would not have differed in substance from that arising under the orders in fact made by his Honour. 60 The appellants' next point relates to his Honour's treatment of their application to be joined as parties in the proceeding. Relevantly to that aspect, the Federal Magistrate's reasons were as follows: At the hearing the respondents were supportive of the trustee's position but, in pursuit of their own interests, went a great deal further. Principally, the respondents argued that the choses-in-action sought to be assigned were hopeless for various reasons as set out in the judgment. The carriage of the proceeding at the hearing was principally done by the respondents in pursuit of the assertion of hopelessness. Their contentions in this regard proved unsuccessful. It is not unfair to say that in pursuit of the principal interests of the respondents the proceeding took, in my view, two days more than it needed. The position of the trustee was clear and the justiciable issue between the parties was narrow. The involvement of the respondents, in my view, unnecessarily expanded the issues and prolonged the hearing. The respondents joined the proceeding, in circumstances where it was not necessary, in order to prosecute their own interests. As a consequence they should bear the costs themselves of their own joinder. It was an expense and an involvement the respondents assessed as being necessary in their own interests, and they should carry the burden of the costs associated with it. Any argument that the applicant should bear their costs associated with the resisted application to join, in my view, is without substance. I am bound to say, with respect, that the Federal Magistrate here appears to have been guided by considerations which were irrelevant to the question of costs with respect to the hearing and disposition of the appellants' application for joinder. I do not consider it to be a relevant factor that, because of the appellants' participation, the proceeding took two days longer than was needed. Perhaps the more important aspect, however, is his Honour's reliance upon the circumstance, as he perceived it, that the appellants had joined the proceeding in order to prosecute their own interests where that joinder, or their participation generally, was not "necessary". 61 His Honour did not identify from where he derived the criterion of necessity, or why it came to be appropriate to resolve the question as to who should pay the costs of the appellants' application for joinder. There are, it seems to me, two possibilities. His Honour might have had in mind r 11.01(1) of the Federal Magistrates Court Rules 2001 (Cth), under which "a person whose participation is necessary for the Court to completely and finally determine all matters in dispute in a proceeding must be included as a party in the proceeding". If so, the pertinent fact was that his Honour had joined the appellants to the proceeding, in what he appears to have regarded as a fairly clear case. If his Honour is to be regarded as implicitly referring to r 11.01(1) in his recourse to the concept of necessity, he ought, in my respectful view, have recognised that his joinder of the appellants implied that their participation was necessary in the circumstances. As it happens, I think it unlikely that his Honour was implicitly referring to r 11.01(1). The appellants' application for joinder arose under r 11.03, which gives a broad discretionary power not limited to the mandatory circumstances prescribed by r 11.01(1). When his Honour made the order joining the appellants, at least so far as the evidence before this court discloses, he made no reference to the notion of necessity. 62 The other possibility is that his Honour might have had in mind the principle by reference to which an unsuccessful intervener might be ordered to pay all or some part of the costs of other parties to a proceeding. In City of Burnside v Attorney-General (SA) (1994) 63 SASR 65, 67-68, Debelle J said: There appears to be no reason why as a matter of general principle an unsuccessful intervener should not be subject to the general rule that costs follow the event. However, it is not appropriate to apply that general rule without qualification. If a successful intervener is not entitled to his costs where his interests are adequately protected by an existing party to the action, it would be inequitable for an unsuccessful intervener to be liable to costs in like circumstances. However, an unsuccessful intervener might be liable for costs if his intervention has substantially extended the hearing or put the successful party to unnecessary cost. In such circumstances, the intervener might be liable to pay a portion of the successful party's costs, that portion being determined by the extent to which the hearing has been lengthened by the intervention. Such a rule is consistent with the principle that, generally speaking, an intervener must take the action as he finds it. I would make two comments about the relevance of that principle to the circumstances of the present case. First, the appellants were not interveners: they were parties. Secondly, City of Burnside commences with the recognition that, normally, costs should follow the event, and qualifies that (in the case of an intervener) by adding an additional requirement that the successful party has been put to unnecessary cost. In the present case, the essence of the question was whether the Federal Magistrate should have regarded as "the event" the opposed application for joinder (in which case the appellants should have had their costs thereof), the outcome of the proceeding as a whole (in which case the appellants should again have had their costs thereof) or the fate of the substantial argument advanced by the appellants (in which case they should have paid the costs of the other parties). None of these issues, it seems to me with respect, either obliged or entitled his Honour to dispose of the costs point by reference to his view, formed after the event, as to the necessity for the appellants to have been joined as parties to the proceeding. 63 As I read the reasons of the Federal Magistrate, that view involved no more than that, in order to advance their own interests, the appellants had themselves joined to the proceeding and then ran a series of arguments which failed. I do not consider that to be a sufficient basis upon which to mulct the appellants in costs beyond those which would, in his Honour's discretion, be payable by them as parties which lost on those arguments. I cannot accept the criticism implicit in his Honour's reasons that the appellants should never have been parties at all. At the time of joinder, the Federal Magistrate appears to have regarded it as self-evident that the appellants had a legitimate interest in the proceeding, and were to be regarded as proper parties thereto. It is true that their propositions with respect to hopelessness were not accepted, but that does not, in my view, justify the Federal Magistrate in propounding that their participation had, from the outset, been unnecessary. Further, for the reasons already set out, I take the view that the notion of necessity, in the context used by his Honour, was jurisprudentially irrelevant to the question whether the appellants should pay the other parties' costs of their application to be joined. In the circumstances, I take the view that his Honour's discretion did miscarry with respect to the disposition of that question. 64 That conclusion requires me to consider for myself how that question should be resolved. I was not referred to any authority on the matter, but I am disposed to think that, where a person, not already a party to a proceeding, seeks to become a respondent thereto, and does so in the protection of his or her own interests, he or she should meet the costs incurred by any existing party to the proceeding in the determination of his or her application for joinder. Such a conclusion may not be appropriate, I recognise, in a case where it is clear that someone who ought to have been a respondent has, by design or culpable oversight, been omitted from the proceeding in the first place. But this was not such a case. The respondent was, in my view, entitled to challenge the conduct of the trustee under s 178 without joining the appellants. There was nothing in the facts disclosed to the court which ought to have put the respondent on notice, originally, that it would have been unfair or unjust to omit the appellants from participation in the proceeding. Upon becoming aware of the proceeding, the appellants were entitled to seek to be joined as respondents, but I can think of no reason why the then existing parties should be out of pocket as the result of such an initiative on their part. 65 That is not the end of the matter, of course, since the appellants rely upon the fact that the respondent actively opposed their application to be joined, caused themselves (and the trustee) to incur additional costs as a result of that opposition, and then lost the point. The court is at something of a disadvantage in assessing the merits of the appellants' submission in this respect. It is true that the appellants had, by correspondence, first invited the respondent to recognise the appropriateness of them being joined to the proceeding. It is also true that, on being invited to do so by the respondent, the appellants had gone on their solicitor's affirmation as to the circumstances upon which they would rely in this regard. However, when the matter was first dealt with by the Federal Magistrate on 5 March 2007, I note that, according to the transcript, counsel for the respondent pointed out that the appellants' application had been short-served. This point was, apparently, regarded by counsel for the appellants as something of a technical one, and possibly even as opportunistically made, but I do not have the benefit of knowing what the Federal Magistrate thought of it. The transcript which has been placed before the court omits the terms of his Honour's reasons for judgment on that day, and the summary of the hearing set out in the affidavit of the appellants' solicitor affirmed on 6 June 2007 omits reference to so much of his Honour's reasons as dealt with the issue of short-service. 66 It seems clear that the appellants' application to be joined as parties, which was served on Friday 2 March 2007 and was returnable on Monday 5 March 2007, was short-served: see Federal Magistrates Court Rules, rr 4.08 and 6.19(a). However opportunistically counsel for the respondent relied on that circumstance, the fact is that he did so and, so far as the materials before this court reveal, the appellants did not seek to justify the short service. Accordingly, I consider that the appellants should pay so much of the respondent's costs as related to the hearing of their application for joinder on 5 March 2007. The trustee did not take the short service point, and did not oppose the joinder. In those circumstances, I consider that its costs of 5 March 2007, to the extent that they related to the appellants' application, should be paid by the appellants. 67 The next time the matter came before the Federal Magistrate was on 8 June 2007, when his Honour ordered that the appellants be added as parties to the proceeding. Notwithstanding the passage of three months since the appellants had made their application for joinder, the respondent's opposition thereto was quite undeveloped and, I would have to say, devoid of substance. I agree with the Federal Magistrate that, from the outset, the case for joinder was an obvious one. I consider that the respondent's opposition to it was unreasonable. I propose to order that the respondent pay so much of the appellants' costs as related to the hearing of their application for joinder on 8 June 2007. 68 The next matter concerns the way in which the Federal Magistrate dealt with the costs of the hearing on 13, 14 and 15 August 2007. To an extent, his Honour had anticipated how he would rule in relevant respects in the passage which I have set out in par 60 above. There, his Honour expressed the view that the participation of the appellants caused the proceeding to take two days more than were needed. Dealing specifically with the matter of the responsibility for the costs of the three days of hearing, his Honour said: The respondents submit that the first day of the hearing was wasted over the issues arising from the applicant's notice to produce; which notice was set aside. Whilst there is some merit in this, the reality was that the respondents sought to be joined in circumstances that ultimately proved unjustified. Their involvement caused an unnecessary prolongation of the hearing. I am not persuaded that I should make any adjustment in my assessment because the first day was occupied by argument between the applicant and the respondents on the merit of the notice. Under the heading "What proportion of trustee's costs should be met by the respondents", his Honour continued: As indicated, it is my strong view that two days of the hearing were unnecessarily taken up by the prosecution, and response to that prosecution, of the respondents' allegations concerning the hopelessness of the choses-in-action. The respondents, therefore, should bear the trustee's costs to the extent of two-thirds of the costs associated with and incidental to the actual hearing. In addition, the respondents should pay the trustee's costs of and incidental to the respondents' application to be joined, such as they might be. In this respect, the appellants did not contend that the Federal Magistrate had taken an irrelevant circumstance into account. Rather, it was submitted on their behalf that his Honour was factually wrong to have concluded that two of the three days of the hearing were occupied upon the appellants' "hopelessness" point. 69 The appellants argued that the first day of the hearing (13 August 2007) was wholly or substantially concerned with procedural matters raised by the respondent with respect to which he failed. As will be apparent from what I have set out in pars 52-53 above, there is considerable force in that submission. Rather than commence the prosecution of his own application on the morning of 13 August, the respondent sought to have the hearing adjourned, substantially because he had filed an application for leave to appeal from the Federal Magistrate's earlier direction that he provide particulars. He also moved upon notices to produce which had been served on his behalf, and which were set aside. The hearing of the substantive application did not commence until the following day, largely, it seems, on account of these unsuccessful manoeuvres by the respondent. The appellants then say that the hearing occupied two days, and accept that it would have finished within a single day if they had not been parties and made the submissions which they did. On any view, however, according to the appellants, the hearing would have occupied that day. In the result, only one day should have been attributed by his Honour to the unsuccessful arguments advanced by them. 70 At this point I should say that it would rarely be appropriate to interfere with a discretionary costs order where the only criticism that could be made of it was that the maker did not recognise that the party who was ultimately unsuccessful had succeeded on some points. Generally, "the event" which costs follow is the result of the determination of the application or proceeding as a whole, not the determination of various points raised, usually in the alternative, in the course of argument. But here there were two ultimate outcomes which the appellants sought. One was the rejection of the respondent's application, in which respect they succeeded. The other was an order that the choses in action not be assigned to the respondent at all, in which respect they failed. The Federal Magistrate's approach to the matter of the costs of the 3-day hearing recognised those two elements. So the issue is not whether his Honour was in error to have required the appellants, as the losing parties, to pay all the respondent's costs. His Honour did not do that. The issue is whether his Honour was in error in the basis and justification of the apportionment which he undertook. 71 As appears from the passage of the Federal Magistrate's reasons set out in par 68 above, his Honour did consider the appellants' proposition that the whole of the first day was occupied with the respondent's notice to produce. How did his Honour deal with that argument? He recognised that there was "some merit" in it, but said that "the reality" was that the appellants had sought to be joined "in circumstances that ultimately proved unjustified". With respect to his Honour, this observation was irrelevant to the appellants' point. I consider it to have been an error on his Honour's part to have dealt with the matter of apportionment by reference only to the ultimate failure of the main part of the appellants' arguments. That failure was a given: the question with which his Honour was presently concerned was the extent to which the hearing was prolonged by the need to deal with those arguments. His Honour appeared to have no difficulty with the factual proposition that the first day was occupied by issues for which the respondent was wholly responsible. I agree with that view, and would add, in addition to the respondent's notice to produce, a reference to the submission made on his behalf that the proceeding should be adjourned by reason of his having lodged an application for leave to appeal. In those circumstances, it is, with respect to the Federal Magistrate, impossible to see the sense in his view, strongly expressed though it was, that the hearing was extended by two days by reason of the arguments raised by the appellants. 72 For the reasons indicated above, I accept the appellants' submission that the Federal Magistrate erred in concluding that the time occupied by the hearing was two days longer than would otherwise have been the case, because of the participation of, and the arguments advanced by, the appellants. Specifically, I cannot accept the circumstance that his Honour described as "the reality" as a justification for such a conclusion. That "reality" was, in my respectful view, irrelevant to the matter under consideration. I accept the appellants' case on appeal that they were responsible for a prolongation of the hearing by one day only, and that the costs orders made by the Federal Magistrate ought to have reflected that factor. 73 There remains the question of the appellants' own costs, and the extent to which those costs should have been ordered to be paid by the respondent. In this respect, the Federal Magistrate said: It follows from my earlier assessment of the justification for the involvement of the respondents, that the applicant should not bear any of the costs associated with or incidental to the interlocutory proceedings concerning the joinder of the respondents. For their own reasons, the respondents chose to pursue what they thought was in their best interest in circumstances where it was unnecessary. The determination of the justiciable issue could have been done without the respondents' involvement. There should be no order, in those circumstances, in favour of the respondents for costs against the applicant. In the same vain [sic], the applicant also incurred costs unnecessarily because of the respondents' involvement. The respondents should pay the costs of the applicant to that degree. I should also set out the concluding two paragraphs in his Honour's reasons, which appeared under the heading "Conclusion": The involvement of the respondents in this proceeding was unnecessary, prolonged the hearing and ultimately proved to be of no value; save for a determination that the proceedings were not hopeless as alleged - a finding that goes against the general contention of the respondents; which contention they argued justified their involvement in the proceeding. In that regard they were proved wrong and to that extent the costs follow the event. That is to say, they bear their own costs and should pay all costs associated with the joinder proceedings, including the applicant's and the trustee's, and two-thirds of the costs of the applicant and trustee in relation to the hearing. The applicant should pay the trustee's costs of and incidental to the proceeding, save for those properly payable by the respondents as set out above. 74 Taking first the interlocutory hearings before the Federal Magistrate, I have already dealt with 5 March and 8 June 2007 to the extent that those hearings related to the appellants' application for joinder. The hearing on 3 August 2007 was called on by the appellants in order to complain about the sufficiency of the respondent's particulars. The Federal Magistrate made an order generally in favour of the appellants, but reserved costs. Ultimately, he ordered neither the appellants nor the respondent to pay the other's costs of that day. Although, in one sense, the appellants then prevailed, they did so in relation to a matter upon which, in his Honour's view, they ultimately failed. Nothing put to me by the appellants has persuaded me that his Honour was in error not to have ordered the respondent to pay the appellants' costs of 3 August 2007. 75 Turning to the hearing on 13, 14 and 15 August 2007, the essence of the appellants' complaint was that, having apportioned responsibility for the costs of the hearing on a 2/3 - 1/3 basis as he did, the Federal Magistrate omitted to make an order which would have represented the other side of the coin, as it were, and required the respondent to pay some proportion of the appellants' costs. For my own part, I cannot find the place in the Federal Magistrate's reasons where his Honour specifically considered that question. His Honour dealt with "the costs associated with or incidental to the interlocutory proceedings concerning the joinder of the [appellants]." His Honour also treated the appellants as the unsuccessful party in a number of respects, who should pay the costs of the successful party on the basis that costs follow the event. A consequence, according to the Federal Magistrate, was that the appellants should "bear their own costs", presumably generally. As appears from passages to which I have referred, his Honour was influenced generally by his view that what he described as "the involvement" of the appellants "was unnecessary, prolonged the hearing and ultimately proved to be of no value". 76 With respect to the Federal Magistrate, I would say two things about his Honour's implicit disposition of the question of the appellants' costs of the hearing. First, I would reiterate what I have said above, namely that the question of the necessity for the appellants to be parties to the proceeding should not have been regarded as relevant to the issue of costs, or to the extent to which that issue depended upon an identification of the "event" for the purposes of the usual rule. Neither can I understand how a judgment by his Honour as to the "value" of the appellants' participation should have been regarded as relevant. Secondly, I would have to say that I cannot find in his Honour's reasons any recognition either that the appellants, then legitimately parties to the proceeding, were for their own part detained by a day of the hearing which was occupied by unsuccessful procedural manoeuvres on the part of the respondent or that an aspect of their case (not the principal aspect, admittedly) was to support the trustee in resisting the order which the respondent sought under s 178 of the Bankruptcy Act, a resistance in which they ultimately prevailed. Each of these circumstances ought, in my view, to have been regarded not only as relevant, but also as quite fundamental, to the Federal Magistrate's discretionary determination of the costs question which arose before him. I consider, with respect, that it was an error on his Honour's part not to have taken these considerations into account and to have placed them on the scales for such value as they had. 77 Again I am required to decide for myself what order should have been made with respect to the appellants' costs of the 3-day hearing before the Federal Magistrate. Consistently with what I have decided in par 71 above, I consider that the respondent should be regarded as the losing party with respect to the notional single day which was occupied on his s 178 application (ie absent the additional time required to deal with the "hopeless" point advanced by the appellants). I consider also that it is as clear as may be that the first day of the hearing was effectively wasted by procedural applications made unsuccessfully by the respondent. The appellants were, at the time, a party to the proceeding in every sense, and were, in accordance with normal principles, entitled to have their costs for those two days. 78 For the above reasons, I propose to order that the costs appeal be allowed to the extent necessary to reflect my conclusions that the respondent should pay the appellants' costs of so much of the interlocutory hearing on 8 June 2007 as related to the appellants' application for joinder (and that the appellants should not pay the respondent's costs thereof) and that the apportionment of liability for the costs of the hearing on 13, 14 and 15 August 2007 should reflect the view, which I take, that the respondent's losing claim was responsible for two-thirds, and the appellants' losing claim was responsible for one-third, of the time occupied by that hearing. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.

Primelife Corporation Limited v Bufalo

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Judgment (11 paragraphs)

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