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[2002] FCA 351
Federal Court of Australia
2002-03-28
Katz J, Emmett J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 On 31 August 2001, Pauline Marie Saville ("the Petitioner") presented to the Court a creditor's petition under s 244 of the Bankruptcy Act 1966 (Cth) ("the Act"). The petition related to the estate of the Petitioner's former husband, Osmond James Saville ("the Deceased"). The respondent to the petition was Dianne Lenore Romer, the executrix of the will of the Deceased ("the Executrix"). The Petitioner claimed that the Deceased was indebted to her in the sum of $27,282.62 plus interest pursuant to orders for costs made in favour of the Petitioner by the Family Court of Australia on 24 May 1990 and 14 May 1992. 2 On 19 October 2001, the petition was set down for hearing on 22 November 2001 before Katz J. However, on 25 October 2001, the full amount of the debt claimed, together with interest to the date of payment, was paid to the Petitioner. Accordingly, when the petition came on for hearing before Katz J on 22 November 2001, the Petitioner indicated that she would consent to the dismissal of the petition subject to the question of the costs of the petition. 3 His Honour heard full argument on the question of costs. However, His Honour will now not in a position to give judgment and the parties have agreed that I decide the question of costs on the papers and on the basis of further written submissions by the parties. I have now had the benefit of submissions on behalf of the Petitioner dated 8 and 21 March 2002 and submissions on behalf of the Executrix dated 14 March 2002. 4 The debt owed by the Deceased to the Petitioner arose out of Family Court proceedings between them following their separation and the dissolution of their marriage. It is unnecessary to examine all the circumstances that gave rise to those orders. However, on 13 July 1985, after an order nisi dissolving the marriage had been pronounced on 4 February 1985, the Petitioner commenced proceedings in the Family Court of Australia for orders relating to property. It was as a result of those proceedings, including an appeal, that the orders for costs were made in favour of the Petitioner against the Deceased. 5 When he died on 22 April 2001, the Deceased had not paid the costs. Probate of the will of the Deceased was granted to the Executrix on 22 June 2001 and on 30 July 2001 a certificate of taxation in respect of the costs orders was forwarded to the solicitors for the Executrix by Messrs Ebsworth and Ebsworth ("Ebsworths"). On 24 August 2001, after further correspondence, the Executrix's solicitors returned the certificate of taxation to Ebsworths, saying that the document should be "served upon the solicitor on the record" in the Family Court proceeding. On 27 August 2001, Ebsworths forwarded the certificate of taxation direct to the Executrix by post. 6 On 31 August 2001 Ebsworths wrote to the Executrix's solicitors demanding payment of the sum of $27,294.01 plus interest at the rate of $3.80 per day. The letter ended by saying that if payment was not received by 5 pm on 7 September 2001, "action will be taken to recover this debt". On the same day the petition was presented to the Court. There was no response to the letter of 31 August 2001 and there was no payment of the amount demanded. The petition was served on the Executrix personally on 14 September 2001. 7 The return date of the petition was 5 October 2001. On that day, a registrar stood the petition over for directions before Katz J on 12 October 2001. Katz J stood the petition over to 12 October 2001, when his Honour set the petition down for hearing on 22 November 2001. The Petitioner contended before Katz J that she should have an order in her favour. The contention of the Executrix was that it would be appropriate for His Honour to make no order as to the costs of the petition. 8 Ordinarily, costs are in the discretion of the Court. Section 32 of the Act provides that the Court may, in any proceedings before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit. Further, under s 43 of the Federal Court of Australia Act 1976 (Cth), the Court has a general jurisdiction to award costs in all proceedings before the Court. The award of costs in any proceeding is in the discretion of the Court. 9 In the course of argument before Katz J, His Honour raised the question of the applicability of s 51 of the Act. Sections 51 and 109(1)(a) relevantly provide as follows: "51 Costs of prosecuting creditor's petition Subject to section 109, the prosecution of a creditor's petition to and including the making of a sequestration order on the petition shall be at the expense of the creditor. ……………………… 109 Priority payments (1) Subject to this Act, the trustee must, before applying the proceeds of the property of the bankrupt in making any other payments, apply those proceeds in the following order: (a) first, in the order prescribed by the regulations, in payment of the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee and the costs of any audit carried out under section 175;…" 10 I do not consider that s 51 is concerned with the discretion of the Court to order a party to pay the costs of another party. It simply provides that a debtor is not to be liable for costs incurred in relation to the administration of the estate, as a consequence of the actions of a creditor. That is to say, solicitors and counsel retained by a creditor have no claim on a debtor in respect of when a petition is presented. On the other hand, a creditor who has incurred liability to solicitors and counsel in respect of a petition will be entitled, pursuant to s 109, to be paid out of the estate of a bankrupt the amount of costs incurred by the creditor in bringing about the sequestration and the administration of the estate for the benefit of all creditors. Section 109 of course says nothing about costs when a petition is dismissed. 11 Where, as in the present case, a petition has been dismissed, the question is whether the Court should, in the exercise of the discretion conferred upon it, require a debtor to pay the costs of a petitioner, notwithstanding that the petition has been dismissed. There is a long standing practice of this Court, and courts previously exercising bankruptcy jurisdiction, to order a debtor to pay a petitioner's costs where the debt upon which a petition is founded is paid in full and the petition is, as a consequence, dismissed. Ordinarily, in such circumstances, the petition will be based upon an act of bankruptcy. If, of course, there were no act of bankruptcy and therefore no ground for presenting a petition in the first place, the debtor would be entitled to an order for costs upon dismissal of the petition. 12 The petition in the present case, however, was not based upon an act of bankruptcy. Section 244 has no such prerequisite. Section 244 appears in Part XI of the Act, which is concerned with the administration of estates of deceased persons in bankruptcy. Section 244(1)(a) provides that, subject to s 244, where a debt of not less than $2,000 was owing by a deceased person at the time of his death to a creditor, the creditor to whom the debt is owing may present a petition to the Court for an order for the administration of the estate of the deceased person under Part XI. 13 Under s 244(11), at the hearing of the petition, the Court must require proof of: · the matters stated in the petition; · service of the petition; and · the fact that the debt to which the petition relates is still owing.
If the Court is satisfied with the proof of those matters, the Court may make an order that the estate be administered under Part XI. Under s 244(12), if the Court is not satisfied with the proof of any of those matters or is of the opinion that, for other sufficient cause, the order sought ought not to be made, the Court may dismiss the petition. 14 As I have said the power and jurisdiction of the Court to make an order under Part XI is not predicated upon the commission of an act of bankruptcy. In that regard, the position is to be contrasted with a proceeding brought under Part IV of the Act. In a proceeding brought under Part IV, it is a necessary, under s 43(1)(a) of the Act, that the Court be satisfied, before making an order on a petition by a creditor, that the debtor has committed an act of bankruptcy. 15 Even if an act of bankruptcy has been committed, the Court may, under s 52(2)(a) of the Act, dismiss the petition if the Court is satisfied that the debtor is able to pay his or her debts. Under s 52(2)(b) the Court may also dismiss the petition if it is satisfied that, for other sufficient cause, a sequestration order ought not to be made. There is no equivalent of s 52(2)(a) in Part XI, although there is an equivalent of s 52(2)(b), to be found in s 244(12) to which I have already referred. 16 Thus, if the debt claimed by the Petitioner had not been paid, it would have been open to her to press for an order under s 244 and it would have been within the power and jurisdiction of the Court to make such an order. Whether the Court, in its discretion would have made such an order in this case is a different matter altogether. However, once the debt had been paid it would not have been possible for the Petitioner to prove that the debt to which the petition related was still owing. Accordingly, when the matter came before Katz J on 22 November 2001, the only course open to the Court would have been to dismiss the petition. Accordingly, it would be appropriate for me to dismiss the petition. The only question remaining is the question of costs that was argued before Katz J. 17 The question that arises when the Court is called upon to exercise a discretion in circumstances such as these is whether the Petitioner acted reasonably in taking the step of presenting the petition. No basis has been advanced for suggesting that there was any doubt as to the indebtedness of the Deceased to the Petitioner at the time of the presentation of the petition. It is necessary, therefore, to examine the communications between the parties prior to the filing and service of the petition. 18 No step was taken by the Petitioner to press for payment of the costs orders prior to the death of the Deceased, notwithstanding the lapse of periods of 11 and 9 years respectively. It was only after the death of the Deceased that the Petitioner took steps to assess the costs and to obtain a certificate of taxation from the Family Court. 19 A narrative of the relevant events should begin with a letter of 10 May 2001 from Ebsworths to the Executrix. By that letter, Ebsworths referred to the costs orders and to correspondence that had been exchanged in 1992. They enclosed "by way of service" a bill of costs. The letter said that the Petitioner was prepared to forego certain rights to interest and other claims against the estate of the Deceased provided an unconditional written undertaken from the Executrix to pay the sum of $22,500 was received no later than 25 May 2001. The Executrix's solicitors replied to Ebsworths on 21 May 2001, asking for a copy of the orders made by the Family Court and indicating that the issues raised would require investigation. There was no direct response to that letter. However, on 23 July 2001, Ebsworths applied for a certificate of taxation in respect of the costs orders and, under cover of a letter of 30 July 2001, they sent the certificate of taxation to the Executrix's solicitors "by way of service". 20 In the meantime, on 12 June 2001, Ebsworths, in their capacity as solicitors for the children of the marriage between the Petitioner and the Deceased ("the Family Provision Claimants"), wrote to the solicitors for the Executrix, giving notice of intended applications under the Family Provision Act 1982 (NSW) on behalf of the Family Provision Claimants and requesting an undertaking that the Executrix would not sell or dispose of any part of the estate without the written consent of the Family Provision Claimants. No mention was made of the previous demand that Ebsworths had made on the Executrix on behalf of the Petitioner. 21 On 15 June 2001, the Executrix's solicitors replied to Ebsworths, saying that the Executrix would undertake not to dispose of the assets of the estate. On the same day, Ebsworths acknowledged receipt of that undertaking and requested that they be informed when probate was granted so that the claim under the Family Provision Act could be filed as soon as practicable. 22 Under cover of a letter dated 4 July 2001, the Executrix's solicitors sent a copy of the probate to Ebsworths and said that the Executrix would proceed to deal with the assets of the estate in strict accordance with her executorial duties and having regard to the advice that it was intended to make a claim under the Family Provision Act. That letter was acknowledged by a letter of 6 July 2001 in which Ebsworths said that they were obtaining instructions as to the filing of a summons and affidavit in support of the foreshadowed claim under the Family Provision Act. The letter finished: "Obviously we will also be raising with [sic] the question of a continuing undertaking regarding non-distribution of the estate whilst the Family Provisions proceeding are [sic] in place, and are being pursued." 23 That was followed by a letter of 10 July 2001 in which Ebsworths requested an undertaking on behalf of the Family Provision Claimants that none of the assets of the estate would be sold or distributed or dealt with in any manner except by consent of the Family Provision Claimants or pursuant to any court order. The letter threatened an application for an injunction if no such undertaking were given. 24 On 11 July 2001, the solicitors for the Executrix wrote to Ebsworths in response to the letter of 4 July 2001. After referring to certain assets and liabilities of the estate, they said that the Deceased had, prior to his death, listed a parcel of land for sale and that the Executrix was of the opinion that the realisation of that asset should proceed, to assist in the liquidation of the pressing debts. The letter said that the Executrix saw no alternative to that course. There does not appear to have been any response by Ebsworths to that letter. 25 By letter of 7 August 2001, the Executrix's solicitors replied to Ebsworth's letter of 30 July 2001. After referring to the service on the Executrix of the bill of costs prior to the grant of probate, the letter asserted that the Executrix had been "diligently attempting to realise assets of the estate to discharge the significant liabilities of same". The letter also went on to make observations about the apparent conflict between the interests of the Petitioner on the one hand, in seeking to have her debt paid and the interests of the Family Provision Claimants, on the other hand, seeking to prevent realisation of assets. 26 Ebsworths responded by letter of 10 August 2001, purporting to justify their actions concerning service of the bill of costs and observing that it was for them to decide whether they had a conflict of interest in acting for both the Petitioner and the Family Provision Claimants. They wrote again on 17 August 2001, referring once more to the letter of 7 August 2001 and saying that, notwithstanding that the costs were due and payable immediately, the Petitioner was willing to postpone payment until after the finalisation of the claim by the Family Provision Claimants upon condition that the Executrix: · withdrew from sale any real property forming part of the estate; · gave a written undertaking not to sell any real property of the estate until after the Family Provision Act claim had been finalised.
27 The Executrix's solicitors responded on 24 August 2001, saying that the contents of the letter of 17 August 2001 had been referred to their client. The letter went on to say that the Executrix did not concede that the costs had been properly taxed, as no bill of costs had been properly served and that the Executrix did not concede that interest applied as claimed. The letter also said that the Executrix was prepared to withdraw from sale any real estate property forming part of the estate provided that the Petitioner agreed not to make any claim for interest on the costs orders. By another letter of the same day, they sent back to Ebsworths the certificate of taxation, saying that the document should be served on the solicitor on the record in the Family Court proceeding. 28 On 27 August 2001, Ebsworths wrote again to the Executrix personally, enclosing "by way of service" a copy of the certificate of taxation. The letter asserted that there was no solicitor for the Deceased named on the record of the Family Court. The Executrix's solicitors replied by letter of 30 August 2001 pointing out that there was, in fact, a solicitor on record for the Deceased. It was in that context that Ebsworths sent their letter of 31 August 2001 asserting that the Petitioner was entitled to immediate payment in accordance with the certificate of taxation. 29 The exchange of correspondence that I have summarised gives rise to no inference that the estate of the Deceased would not be administered by the Executrix diligently and according to law. No explanation has been proffered on behalf of the Petitioner for the delay of eleven years before deciding to enforce one costs order and nine years before deciding to enforce the second costs order. There is no evidence of any reason for any urgency in enforcing the orders after the death of the Deceased. There is nothing to suggest that the assets of the estate would not have been fully adequate to meet any liability for the costs. I can see no justification whatsoever for resort to the Bankruptcy Act as a means of enforcing the Petitioner's right to be paid costs pursuant to the orders of the Family Court. 30 Even when demand for immediate payment was made by the letter of 31 August 2001 and a threat was made of action to recover the debt, no hint was given that the action would be by way of a petition under the Act. The petition appears to have been served on the Executrix without any prior indication to her or her solicitors of the intention to present it or to proceed under the Act. Indeed, it is curious that the threat of action if payment was not received by 7 September 2001 was made on the same day as the petition was presented. 31 Further, after the letter of 31 August 2001, Ebsworths and the solicitors for the Executrix continued to engage in correspondence concerning possible compromise of the claim under the Family Provision Act. Indeed, the undertakings not to realise assets of the estate pending the resolution of that claim stood in the way of discharge of liabilities of the Deceased. 32 The presentation and service of the petition without any prior warning was precipitate. On the other hand, the solicitors for the Executrix appear to have been less than totally cooperative in relation to the formalities of service of the certificate of taxation. In all the circumstances, I do not consider that the Petitioner should be given her costs against the Executrix. Nor should there be an order in favour of the Executrix. The petition should be dismissed. There should be no order as to the costs of the petition. There should be a certificate pursuant to s 10 of the Federal Proceedings (Costs) Act 1981 (Cth)in favour of each party in respect of all costs incurred after 22 November 2001. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Solicitor for the Respondent: Galland Elder Lulham
Saville
Romer