Scott (Trustee) v Maher, in the matter of bankrupt estate Maher

Federal Court of Australia|2024-08-15|Before: Neskovcin J

The parties bear their own costs of the proceeding.
The costs of the Referee appointed by order of the Court made on 8 September 2023 be shared equally by the applicant and the second to fourth respondents. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 The four respondents were partners in a farming partnership, the Maher Bros Partnership. The Partnership was conducted on and from numerous parcels of land that are registered in the names of the four respondents as tenants in common (Properties). 2 The Partnership was dissolved after the first respondent, Thomas Maher, was made bankrupt on 16 November 2021. 3 The applicant, Andrew John Scott, was appointed Trustee in bankruptcy of the bankrupt estate of Thomas Maher. 4 The Trustee commenced this proceeding to obtain orders for the sale of the Properties under ss 225 to 232 of the Property Law Act 1958 (Vic). The Trustee also sought ancillary orders regarding the application of the proceeds of sale. 5 The Trustee's claim was resolved by consent of the parties. By consent, on 15 July 2024, the Court made orders that the Properties be divided into four parcels. One parcel was allocated to the Trustee with a power of sale and one parcel was allocated to the fourth respondent, Gerard Maher, with a power of sale. The Trustee and Gerard Maher agreed to transfer the two remaining parcels to the second and third respondents, Anthony Maher and David Maher. 6 There are two outstanding issues which the parties have agreed the Court should determine on the papers: (a) the costs of the proceeding; and (b) the costs of the referee who was appointed to value the Properties. 7 For the reasons set out below, it is my view that: (a) each party should bear their own costs of the proceeding; and (b) the costs of the referee should be shared equally as between the Trustee, Anthony, David and Gerard Maher. 8 On 12 April 2024, Gerard Maher filed an interlocutory application (Gerard Maher's application) seeking the appointment of a receiver over the assets and undertakings of the Partnership, and any sale proceeds or income, pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). On 30 July 2024, I published reasons granting Gerard Maher's application: Scott (Trustee) v Maher, in the matter of bankrupt estate of Maher [2024] FCA 831. On 13 August 2024, I made orders by consent that Anthony and David Maher pay the costs of and incidental to Gerard Maher's application. For the avoidance of doubt, the orders I have made as to the costs of the proceeding does not include the costs of Gerard Maher's application.

BACKGROUND 9 As mentioned above, the Partnership was a farming partnership that was operated on and from the Properties, which are registered in the names of Thomas, Anthony, David and Gerard Maher as tenants in common. 10 The Partnership was dissolved by the bankruptcy of Thomas Maher: s 37 of the Partnership Act 1958 (Vic). However, the Partnership had become dysfunctional before the dissolution due to irreconcilable differences between the partners. 11 The Trustee commenced this proceeding to obtain orders for the sale of the Properties and ancillary orders regarding the application of the proceeds of sale. The Trustee was forced to do so because agreement could not be reached in relation to the realisation of Thomas Maher's interest in the Properties. 12 Anthony and David Maher actively opposed the Trustee's claim and the sale of all of the Properties. They filed a statement of opposition stating, among other things, that they sought a physical division of the land, although they did not identify how the land might be divided. They also filed an interlocutory application on 22 August 2023 (Anthony and David Maher's application) seeking orders for the appointment of a referee, to inquire and report on the value of the Properties, and partial sale of the Properties. 13 Gerard Maher did not oppose the Trustee's claim, except as to whether the Trustee or a third party should be appointed to sell the Properties. 14 On 8 September 2023, Justice Beach made orders pursuant to r 28.62 of the Federal Court Rules 2011 (Cth) and s 54A(1) of the FCA Act appointing Wes Ridd of Preston Rowe Paterson Shepparton Pty Ltd as a referee (Referee) to inquire and report in relation to the individual and collective market value of the Properties. 15 On 27 November 2023, the Referee lodged reports valuing the Properties (Reports). 16 On 14 December 2023, Justice Beach made orders that the Referee's Reports be adopted in whole by the Court pursuant to s 54A of the FCA Act as findings of the Court. 17 Anthony and David Maher's application was subsequently dismissed by consent after their Counsel informed the Court that the application was not pressed as it had been "overtaken" by the proceeding.

PARTIES' SUBMISSIONS AS TO COSTS 18 The Trustee submitted that: (a) each party should bear their own costs of the proceeding in the circumstances where a final determination by the Court in relation to the sale or division of the Properties had not been required and Anthony and David Maher had actively raised claims regarding the Properties, some of which were abandoned; (b) the costs of the Referee should be shared equally as between the Trustee, Anthony, David and Gerard Maher because: (i) Anthony and David Maher had sought a physical division of the Properties, without identifying the division; (ii) s 229(1) of the Property Law Act limited the Court's jurisdiction to a sale of the Properties in the absence of evidence that it was "more just and fair" to divide the Properties; (iii) the Referee's function was a necessary element to Anthony and David Maher's desired outcome; (iv) the Trustee sought an order for the sale of the Properties, and application of the proceeds of sale, and had no need of the referee or valuation evidence; and (v) nonetheless, the Trustee supported the Referee's appointment for the determination of co-ownership as an alternative way forward. 19 Anthony and David Maher submitted that: (a) their costs of the proceeding should be paid by the Trustee because: (i) the Trustee's application to sell all of the Properties was excessively heavy handed because the value of the Properties far exceeded the amount required to discharge the debts of the bankrupt estate; (ii) they were compelled to resist the Trustee's claim, which included land on which they had lived and worked for decades; (iii) the orders disposing of the Trustee's claim were made by consent after an extended period of negotiation; and (iv) they have averted a sale of the Properties, retained one half share of the Properties, and successfully resisted the Trustee's claim; (b) alternatively, there should be no order as to costs because the litigation has been overtaken by the consent of the parties: Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (McHugh J); and (c) the costs of the Referee should be costs of administering the bankrupt estate: Riak v Anyar [2022] FCA 819 (Snaden J). 20 Gerard Maher submitted that: (a) each party should bear their own costs of the proceeding; (b) the Trustee should bear the costs of the Referee because: (i) it was incumbent on the Trustee, in carrying out his duties under the Bankruptcy Act 1966 (Cth), to take steps to realise Thomas Maher's interest in the co-owned Properties, which necessarily included obtaining a valuation of that interest; (ii) costs of sale are generally costs of administering the bankrupt estate, rather than costs to be borne by a non-bankrupt co-owner: Sellers, in the matter of Paksoy [2022] FCA 822 (Snaden J) and the cases cited there; and (c) alternatively, he should not be required to pay the costs of the Referee.

CONSIDERATION 21 The Court's power to make an order for costs is discretionary: s 43 of the FCA Act. The power must be exercised judicially, not arbitrarily or capriciously or on grounds unconnected with the litigation, having regard to relevant principle and the justice of the case in all the circumstances: Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Mukiza [2022] FCAFC 105 at [4] (Markovic, Thawley and Cheeseman JJ). 22 Generally, costs follow the event. An order for costs is intended to compensate the successful party against the expense to which that party has been put by reason of the legal proceedings: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [25] (Gaudron and Gummow JJ). In the present case which has been resolved, however, there was no hearing on the merits, such that the Court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. 23 Although the Partnership was dissolved on the bankruptcy of Thomas Maher, it had already become dysfunctional due to irreconcilable differences between the partners. The Trustee was forced to commence the proceeding because Anthony, David and Gerard Maher did not put forward an offer to the Trustee in relation to the sale or partition of the Properties. Anthony and David Maher actively opposed the Trustee's claim and raised other concerns about the Partnership. It is likely that the issues for resolution in the proceeding would have involved more than the sale or division of the Properties, if it had not settled. 24 The proceeding was resolved by the consent of the parties on terms that involved dividing the Properties into four parcels and allocating those four parcels amongst the Trustee and the solvent partners. The resolution has effectively achieved the outcome that was sought by the Trustee and each of the solvent partners. It is a reasonable inference that the division of the Properties and resolution of the proceeding would not have been possible without the valuation by the Referee. 25 The resolution of the proceeding on a consensual basis has avoided the time and expense that would have been involved in a trial. While a consensual outcome is to be encouraged, the commencement of the proceeding was unavoidable because the parties had been unable to resolve their differences beforehand and the resolution was only achieved after an extended period of negotiation. 26 In my view, the outcome as to costs that is fair in all of the circumstances is an order that each party bear their own costs of the proceeding. 27 Furthermore, in my view, the costs of the Referee should be shared equally as between the Trustee, Anthony, David and Gerard Maher. In other cases, the costs of sale have been held to be costs of administering the bankrupt estate: see, for example, Anyar and Paksoy. However, in this case, it is a reasonable inference that the Referee's Reports were integral to the resolution of the proceeding, which was otherwise opposed, and the amicable division of the Properties, which has effectively achieved the outcome that was sought by the Trustee and each of the solvent partners. Moreover, two of the solvent partners, who had opposed the Trustee's claim, had intended to seek orders for the appointment of a referee. In those circumstances, the costs of the Referee should not be visited on one particular party and should be shared equally.

CONCLUSION 28 For the above reasons, I will make orders that each party bear their own costs of the proceeding and the costs of the Referee be shared equally as between the Trustee, Anthony, David and Gerard Maher. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Neskovcin.

SCHEDULE OF PARTIES VID 214 of 2023 Respondents Fourth Respondent: GERARD HARDS MAHER

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