Principal Strategic Options Pty Ltd, in the matter of Coshott v Coshott

APPLICATIONS RE COSTS ORDERS 16 The application before me in respect of costs orders are as follows: (a) Mr Coshott seeks an order that Strategic Options pay his costs in respect of the petition up to the date when Shipton Thoroughbreds was substituted as petitioning creditor and thereafter that Shipton Thoroughbreds pay his costs of the petition; (b) Strategic Options seeks an order that Mr Coshott pay its costs of the petition and in respect of the appointment of the trustee; (c) Shipton Thoroughbreds seeks an order that Mr Coshott pay its costs of the petition as the creditor substituted for the original petitioning creditor; (d) Mr Coshott opposes the making of an order that he pay any of the costs of the trustee; he contends that Strategic Options should pay the costs of the trustee.

CONSIDERATION 17 Section 32 of the Act provides: "The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit." 18 The Court has a very wide discretion with respect to the making of orders as to costs. The discretion must, of course, be exercised judicially. 19 The general rule in bankruptcy proceedings, as in proceedings before the Court generally, is that costs should follow the event (Re Skase; ex parte Donnelly (1992) 37 FCR 509 per Drummond J at 522). In Re Skase, Drummond J treated as applicable to bankruptcy proceedings certain propositions propounded by Wilcox J in Cummings v Lewis [1992] FCA 334. Drummond J in Re Skase set out those propositions as follow: "(a) The Court has an unfettered discretion as to its costs order: here see s 32 of the Bankruptcy Act. (b) But, because of the usual practice of the court, a successful respondent has a reasonable expectation of recovering costs, in the absence of special circumstances. (c) In considering the matter of costs, the court is entitled to look beyond the actual conduct of the case and have regard to the circumstances out of which it arose. (d) However, there must be a limitation on the weight to be put on pre-litigation conduct, lest the exception overwhelm the rule. If too much emphasis is placed upon the circumstance that the litigation would not have arisen but for an action of the defendant, few successful defendants would recover their costs. (e) The court may take into account the conduct of the litigation by the successful party. Where a successful party has put the opposing party to significant expense in connection with an issue on which that party failed, it may be reasonable to take that matter into account by awarding something less than full party-party costs. (f) There is no difference in principle between the case of a successful plaintiff and that of a successful defendant." 20 I am also of the view that the above propositions provide useful guidance in bankruptcy matters as in other matters. 21 Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372 illustrates well the application of proposition (c) above in a bankruptcy proceeding. Mr Sarina was a person well able to pay his debts, but who did not pay his debts. A petition for his bankruptcy was dismissed by the learned primary judge. However, Mr Sarina was ordered to pay the petitioning creditor's costs of the proceeding up to and including the day on which Mr Sarina first claimed that he was able to pay the debt owing to the petitioning creditor. The primary judge considered that the petitioning creditor could not be criticised for failing to anticipate a defence of solvency. The Full Court of this Court dismissed an appeal from the order dismissing the petition and further dismissed a cross-appeal against the costs order made by the primary judge. 22 Application of the general rule as to costs would result in the costs order sought by Mr Coshott in respect of the costs of the petition being made. The question is whether the circumstances out of which the petition arose and the conduct of the parties are such that the general rule should be departed from. It is necessary for the respective positions of Strategic Options and Shipton Thoroughbreds to be considered separately. 23 Strategic Options obtained judgment in the Supreme Court in proceedings initiated by it. The bankruptcy notice upon which the petition was based claimed payment of the judgment debt and interest thereon. Mr Coshott had defended the proceeding in the Supreme Court and filed a Notice of Appeal in respect of the judgment entered against him in a timely way. Strategic Options was on notice throughout that Mr Coshott denied any liability to it. 24 Limited weight, in my view, is to be attached to Mr Coshott's initial failure to seek an order staying execution of the Supreme Court judgment. An order for a stay will not be made as a matter of course. Prima facie a successful party is entitled to the benefit of a judgment obtained by it (Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 (CA); Powerflex Services Pty Ltd v Data Access Corp (1996) 67 FCR 65 (FC)). It was, of course, open to Strategic Options, as well as to Mr Coshott, to apply to have the hearing of the appeal expedited. 25 Nor do I think that significant weight is to be given to Mr Coshott's failure to apply to this Court to have the time within which he was required to comply with the bankruptcy notice served on him extended. While the judgment of the Supreme Court remained on foot, Mr Coshott was not able to pay all of his debts. Had he obtained an order extending the time within which he was required to comply with the bankruptcy notice issued by Strategic Options, it seems likely that a fresh bankruptcy notice would have been served on him by another of his creditors. Mr Coshott's decision to commit an act of bankruptcy by failing to comply with the bankruptcy notice but to oppose the making of a sequestration order cannot in the circumstances, in my view, be characterised as inappropriate or blameworthy conduct. 26 The judgment of the Court of Appeal reveals that, although Mr Coshott was technically indebted to Strategic Options between the date of the Supreme Court judgment and the date that the Court of Appeal set that judgment aside, the claims made by Strategic Options against Mr Coshott in the Supreme Court were not legally sustainable. In the circumstances little significance attaches, in my view, to the fact that bankruptcy proceedings are not merely inter partes proceedings but may serve the public purpose of ensuring the equitable distribution of the assets of a debtor amongst his or her creditors. Absent the judgment debt, the public purpose of ensuring equitable distribution of Mr Coshott's assets amongst his creditors did not arise as Mr Coshott had sufficient assets to pay his creditors in full. 27 In any event, Strategic Options plainly enough commenced the bankruptcy proceeding in an endeavour to ensure, so far as possible, satisfaction of the judgment debt. I am not able to accept that it was motivated, other than perhaps incidentally, by a desire to advance the public purposes that underlie the law of bankruptcy. 28 The appropriate order between Strategic Options and Mr Coshott in the bankruptcy proceedings is, in my view, that Strategic Options pay Mr Coshott's costs of the proceeding up to and including 7 September 2000, the date upon which Shipton Thoroughbreds was substituted as the petitioning creditor. I reject the submission of Mr Coshott that, by reason of the undertaking as to damages given by Strategic Options in the s 50 proceeding, Strategic Options should pay all of Mr Coshott's costs of the bankruptcy proceeding. Mr Coshott's costs of the bankruptcy proceeding are not in my view attributable to the actions of Strategic Options in seeking and obtaining the order under s 50 of the Act. 29 I turn to consider the position of Shipton Thoroughbreds so far as the costs of the bankruptcy proceeding are concerned. As is mentioned above, the amended creditor's petition filed by Shipton Thoroughbreds relied upon a final judgment obtained on 7 July 1999. By an affidavit filed on 9 April 2001 in the bankruptcy proceeding, Mr Coshott acknowledged his indebtedness to Shipton Thoroughbreds. 30 Mr Coshott's failure to make payments to his creditor after the date upon which Strategic Options obtained judgment against him in the Supreme Court is understandable in the context of his being insolvent while the judgment remained in force. There was a risk that the payment in full of any creditor would have resulted in that creditor being unduly advantaged over other of Mr Coshott's creditors. However, Mr Coshott's earlier failure to pay, or to make satisfactory arrangements for settlement of, his admitted debt to Shipton Thoroughbreds has not been explained. 31 However, had Strategic Options not obtained judgment against Mr Coshott in the Supreme Court, it seems that Mr Coshott would at all relevant times have been able to establish his solvency. That is, in the circumstance hypothesised, had Shipton Thoroughbreds presented a creditor's petition against Mr Coshott his solvency would, in all likelihood, have rapidly become apparent. 32 In all of the circumstances I consider that the appropriate order to be made as between Mr Coshott and Shipton Thoroughbreds with respect to the costs of the bankruptcy proceeding is that Mr Coshott pay Shipton Thoroughbreds' costs of and incidental to its obtaining the order that it be substituted as the petitioning creditor in the bankruptcy proceeding. In my view, no other order ought, in the circumstances, be made as between Mr Coshott and Shipton Thoroughbreds with respect to the costs of the bankruptcy proceeding. Mr Coshott is not, in my view, entitled to an order requiring Strategic Options to indemnify him in respect of the costs payable by him to Shipton Thoroughbreds. As is mentioned above, I do not regard the undertaking as to damages given by Strategic Options in the s 50 proceeding as having any relevance to the costs of the bankruptcy proceeding. 33 Shipton Thoroughbreds has made it plain that it seeks no order for costs against Strategic Options. 34 I turn to consider the costs of the s 50 proceeding. Strategic Options contends that Mr Coshott should pay its costs of the s 50 proceeding including the costs of the trustee. It places weight on the fact that, for an order to be made under s 50 of the Act, the Court must be satisfied that such an order is in the interests of the creditors generally. Strategic Options also places weight on the benefits in fact obtained by Mr Coshott's creditors following the making of the s 50 order. That is, the payments that they will receive out of the moneys of which the trustee took control. 35 It is plain that on 29 June 2000 the Court was satisfied, on the evidence then before it, that an order under s 50 of the Act was in the interests of the creditors of Mr Coshott generally. However, that evidence included evidence of the judgment debt. Indeed, the bankruptcy notice which founded the application for the order under s 50 of the Act was itself based on the judgment debt. Plainly enough, were it not for the existence of the judgment debt on 29 June 2000, the order under s 50 of the Act would not have been made. The judgment which gave rise to the judgment debt has now been set aside in the circumstances outlined above. 36 Moreover, the order under s 50 of the Court was made upon Strategic Options giving the usual undertaking as to damages. While the usual undertaking as to damages may not, by reason of its terms, have a direct relevance to the issue of costs, the fact that the Court required Strategic Options to give it as a condition of the making of the order placed Strategic Options on notice that it was to bear the risk of the order ultimately proving unsustainable. As the parties have now acknowledged, the order became unsustainable when the judgment which gave rise to the judgment debt was set aside by the Court of Appeal. In the circumstances, in my view, Strategic Options must bear its own costs of the s 50 proceeding and meet the trustee's expenses and remuneration. Neither Mr Coshott nor Shipton Thoroughbreds sought an order for costs in his or its favour in the s 50 proceeding.

SUMMARY 37 The following orders will be made on the application for orders for costs: In the bankruptcy proceeding (N 7558/00) - (a) Strategic Options pay Mr Coshott's costs of the proceeding up to and including 7 September 2000; and (b) Mr Coshott pay Shipton Thoroughbreds' costs of and incidental to its obtaining the order that it be substituted as the petitioning creditor. In the s 50 proceeding (N 7559/00) - (a) There be no order as to costs; and (b) Strategic Options pay the expenses and remuneration of the trustee. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate: Dated: 6 June 2001 Solicitor for the Applicant: Mr Francis

Solicitors for the Applicant: Watkins Tapsell

Solicitors for the Respondent: CKB Partners

Solicitor for Shipton Thoroughbreds: Ms T Kyriazis

Solicitors for Shipton Thoroughbreds: Roper & Steggall