Tse v Evans as trustee in bankruptcy for Ngo

Federal Court of Australia|2024-09-04|Before: Perry J

The applicants' submissions filed on 9 July 2024 be taken as an application for costs against Mr Viet Trung Ngo personally.
The application for costs against Mr Ngo be dismissed.
There be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 This is an application for costs brought by the applicants in the present proceeding, Gordon Kar Ming Tse and Tiehong Chen, against a non-party, Viet Trung Ngo. The respondent to this proceeding is Fleur Evans and David Sampson as trustees in bankruptcy for Mr Ngo (the Trustees). 2 The applicants were successful in applying for leave under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to proceed against Mr Ngo in Supreme Court of New South Wales proceeding No. 2023/00231043. The Trustees neither consented to nor opposed the application for leave: see notation 4 to the orders made on 3 July 2024. 3 The background to this proceeding and my reasons for granting leave are set out in Tse v Evans as trustee in bankruptcy for Ngo [2024] FCA 787 (Tse (No 1)). 4 The applicants do not seek an order for costs against the Trustees. I consider this appropriate in circumstances where the Trustees took a neutral position in the proceeding. Instead, in their written submissions filed on 9 July 2024, the applicants seek an order for costs of the application against Mr Ngo personally, on a party-‍party basis. I take this as an application for costs. The Trustees filed brief written submissions on this issue. 5 I consider that costs should not be awarded against Mr Ngo for the following reasons.

LEGAL PRINCIPLES 6 Section 43(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act), relevantly, provides that "[t]he Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs must not be awarded." This power includes a discretion to award costs against a non-party: Court House Capital Pty Ltd v RP Data Pty Ltd [2023] FCAFC 192 at [10]. 7 Similarly, s 32 of the Bankruptcy Act also confers a power on the Court to make an order for costs against a non-party: Re Ayre; Ex parte Deputy Commissioner of Taxation (1995) 130 ALR 648 at 651 (Drummond J). Section 32 provides that "[t]he 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." 8 As such, it is uncontroversial that the Court has the power to make the order sought by the applicants. However, the "the prima facie general principle is that an order for costs is only made against a party to the litigation": Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192 (Mason CJ and Deane J; with Gaudron J agreeing at 205). Nonetheless, as Thawley J held in Hardingham v RP Data Pty Limited (Third Party Costs) [2023] FCA 480 at [21], it is "not particularly helpful to state that a third party costs order is rare and exceptional". The Full Court in Court House Capital at [12]-[13] agreed with the statement of principle by Thawley J on appeal from the decision in Hardingham. 9 The Full Court in Court House Capital at [10] also held that "the power to order costs against a third party will only be exercised in circumstances where a non-party has a connection to the litigation which is sufficient to warrant the exercise of power" (emphasis added). Another way of considering whether a non-party has a sufficient connection to a proceeding is whether the non-party was "the 'real party' to, or the 'real instigator' of the litigation": M v D (1994) 122 FLR 449 at 453 (Murray J). 10 A further and related factor which is relevant to the issue of whether to grant costs against a non-party is whether "there is a causal connection between the non party and the incurring of the costs": Bischof v Adams [1992] 2 VR 198 at 204 (Gobbo J). Ordinarily, a non-party would not be made liable for costs if "those costs would in any event have been incurred even without such non-party's involvement in the proceedings": Dymocks Franchise Systems (NSW) Pty Ltd v Todd and Others (No 2) [2004] UKPC 39; [2004] 1 WLR 2807 at [20]. 11 Finally, even where a sufficient connection has been established, the Court retains a discretion as to whether or not to award costs against the non-party.

THE APPLICANTS' SUBMISSIONS 12 The applicants' submissions can be summarised as follows. 13 First, the applicants submit that, while the Trustees are the respondent to this proceeding, rather than Mr Ngo, this is a matter of form rather than substance. This is because: (1) the Trustees attended the hearing of the application for leave to proceed and were provided with an opportunity to make submissions on the application of costs; and (2) the Trustees stand in the bankrupt's shoes so as to call in his assets and pay off his debts. 14 Secondly, to the extent that Mr Ngo can be viewed as a non-party, the applicants submit that he has a sufficient connection with the litigation to warrant the Court exercising its jurisdiction to make a costs order against him for two reasons: (1) the Supreme Court proceeding concerns a partnership suit against Mr Ngo; and (2) the applicants submit that Mr Ngo is the "real instigator" of this proceeding. 15 In relation to the second proposition, the following facts are relevant: (1) On 9 February 2024, Mr Ngo gave an undertaking in the Supreme Court not to dispose of a property in relation to which a declaration was sought in that proceeding that the property was partnership property (the Chester Hill Warehouse). (2) Between 21 February 2024 and 6 March 2024, Mr Ngo was in contact with the Trustees regarding entering bankruptcy and associated steps. (3) On 7 March 2024, Mr Ngo filed a voluntary petition for bankruptcy. See Tse (No 1) at [6]. 16 The applicants submit that, by declaring bankruptcy, Mr Ngo triggered s 58 of the Bankruptcy Act with the effect of taking the matter out of the Supreme Court's control. This was after the applicants had incurred significant costs in the Supreme Court proceeding. 17 Further, Mr Ngo's conduct paved the way for the Trustees to take a position that the undertakings given in the Supreme Court were rendered nugatory. As a result, the applicants had to seek a fresh undertaking from the Trustees in respect of the Chester Hill Warehouse. 18 The applicant submits that without declaring bankruptcy when he did, the applicants would not have needed to seek leave to proceed and, therefore, there is a direct link between Mr Ngo's conduct and the applicants' costs associated with this proceeding. 19 Thirdly, prior notice to the non-party is not a prerequisite to a non-party costs order being made: Re ACN 607 358 887 (formerly known as Carzapp Pty Ltd) (No 4) [2020] NSWSC 417 at [32] (Kunc J) (Carzapp No 4). However, in the event that I considered it relevant, the applicants proposed that prior notice could be given to Mr Ngo and/or the Court could provide Mr Ngo with an opportunity to make written submissions on the costs application.

DISPOSITION 20 I consider that the appropriate order is that there be no order for costs for the following reasons. 21 First, I do not consider that the Trustees can be treated as "stand[ing] in [Mr Ngo's] shoes" for the purposes of holding that there is a connection between Mr Ngo and the proceeding. There is no evidence that Mr Ngo instructed the Trustees in this proceeding as his proxy and, indeed, the Trustees submit that this was not the case. Further, the Trustees are not empowered to deal with debts that are not provable in the bankrupt estate. Any costs order made against Mr Ngo personally in this proceeding would not be a debt provable in Mr Ngo's bankruptcy: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [67] (Gleeson CJ, Gummow, Hayne and Crennan JJ). 22 Secondly, the applicants' submission is effectively that there is a sufficient connection between Mr Ngo and the litigation because Mr Ngo engineered the timing of the bankruptcy in order to thwart the Supreme Court proceeding. The applicants, understandably, may suspect that this was Mr Ngo's motivation. However, I do not consider that the applicants have discharged their burden of proof to establish that this was, in fact, Mr Ngo's motivation for entering the bankruptcy. 23 In this regard, there is no direct evidence in this proceeding regarding Mr Ngo's motivations. Instead, the applicants seek for the Court to infer Mr Ngo's motivations by reference to the timing of his conduct. 24 Given, therefore, that the applicants' case is circumstantial only, the relevant approach is that explained by the High Court in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5, namely: it is enough [if] the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture …. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then though the conclusion may fall short of certainty it is not to be regarded as mere conjecture or surmise… 25 Thus, as Gageler J held in Henderson v Queensland [2014] HCA 52; (2014) 255 CLR 1 at [89], in order to succeed, an applicant must discharge their onus: by adducing evidence of some fact the existence of which, in the absence of further evidence, is sufficient to justify the drawing of an inference that it is more likely than not that the event occurred or that the state of affairs exists. The threshold requirement for the party bearing the burden of proof to adduce evidence at least to establish some fact which provides the basis for such a further inference was explained by Kitto J in Jones v Dunkel [(1959) 101 CLR 298 at 305]: "One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests … that in that actual case a specific event happened or a specific state of affairs existed." 26 The Court is, therefore, not bound to accept the applicants' case in the absence of evidence to the contrary: if the evidence is insufficient or competing inferences are equally available, the Court must dismiss the application for want of proof: see, eg, Bailey v Repatriation Commission [2019] FCA 1840 at [39] (Anastassiou J) (quoting Rhesa Shipping Co SA v Edmunds and Another: The Popi M [1985] 2 All ER 712 at 718 with approval in demonstrating the error in the Mr Sherlock Holmes' statement that "when you have eliminated the impossible, whatever remains, however improbable, must be the truth?"). 27 In addition, I consider that the allegation made by the applicants is a serious one. In arriving at a state of satisfaction in civil proceedings that a case has been proved on the balance of probabilities, s 140(2) of the Evidence Act 1995 (Cth) provides that: (2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account: (a) the nature of the cause of action or defence; and (b) the nature of the subject-matter of the proceeding; and (c) the gravity of the matters alleged. (Emphasis added.) 28 The considerations which s 140(2) of the Evidence Act now requires a court to take into account align with Dixon J's consideration in Briginshaw v Briginshaw (1938) 60 CLR 336 of how the civil standard of proof at common law operates: see, eg, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 at [31]; see also Gageler J in Henderson at [91]. Thus, in an oft-quoted passage at 362 from Briginshaw, Dixon J observed that: reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency. 29 In other words, as explained by the High Court, the "degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved": Rejfek v McElroy (1965) 112 CLR 517 at 521. This principle, as Flick and Perry JJ observed in Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93; (2014) 226 FCR 555 at [99], "is ultimately founded upon principles of fairness and common sense". 30 While one inference on the documentary evidence is that Mr Ngo entered bankruptcy when the Supreme Court proceeding was well-progressed in order to subvert the Supreme Court's jurisdiction, another inference at least equally open on the evidence is that Mr Ngo entered bankruptcy at that time because he genuinely believed that he could not repay his debts to creditors. This is particularly so where the allegation sought to be proved is of such gravity. As such, I consider that the applicants' submissions rise no higher than suspicion and they have failed to discharge their burden of proof. 31 Thirdly, I accept that there is a causal connection between Mr Ngo's conduct and the applicants' costs in this proceeding, and that this is a factor potentially weighing in favour of the exercise of my discretion to award costs. Where a debtor has become bankrupt, a creditor requires leave of a bankruptcy court to "commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding": s 58(3)(b) of the Bankruptcy Act. Section 27 of the Bankruptcy Act confers concurrent jurisdiction in bankruptcy on this Court and the Federal Circuit and Family Court of Australia (Division 2). Accordingly, once Mr Ngo entered bankruptcy, leave was required from a bankruptcy court in order for the applicants to continue to pursue the Supreme Court proceeding against Mr Ngo. I therefore accept that if Mr Ngo had not entered bankruptcy, the applicants would not have needed to incur costs in bringing this application. However, in circumstances where I have not accepted that Mr Ngo entered bankruptcy to subvert the Supreme Court's jurisdiction, I do not consider that this factor is determinative. Among other things, if the applicants' submission were accepted, this would always be determinative on a non-party costs application, against a bankrupt, with respect to an application for leave to proceed in a case of voluntary bankruptcy. 32 Fourthly, I consider that the fact that Mr Ngo is not on notice of the application for costs weighs against granting the orders sought. Indeed, Kunc J in Carzapp No 4 at [32] (cited by the applicants) considered that while notice was not a prerequisite for granting a costs order against a non-party, "the absence of such notice can be… a matter that will weigh against the exercise of the Court's undoubted discretion." While I made orders timetabling the filing of written submissions in relation to costs, those orders were made at a time when it was unclear what orders for costs the applicants intended to seek. Once it became apparent to the applicants that they intended to seek costs against Mr Ngo, it was open to them to file an interlocutory application seeking to have him joined as a party to the application for costs or otherwise to put him on notice of the application. This has not occurred. 33 While the applicants submit that if "all that stands in the way of a costs order is Mr Ngo's appearance, the Applicants respectfully submit that this can be catered for by appropriate programming orders", the parties have filed fulsome submissions on the issue of costs and the matter is presently reserved before me. The only possible explanation for why notice was not provided at an earlier stage is that the applicants do not have a physical address for service for Mr Ngo. However, it is unclear whether the applicants have other means, such as email, for contacting Mr Ngo and no explanation was provided as to why the applicants did not inquire with the Trustees as to Mr Ngo's contact details at an earlier stage. The overarching purpose of civil practice and procedure provisions, as set out in ss 37M and 37N of the FCA Act, includes the facilitation of the just resolution of disputes "as quickly, inexpensively and efficiently as possible": s 37M(1)(b). I do not consider that it would serve the overarching purpose in ss 37M and 37N to allow the applicants a further opportunity to provide Mr Ngo with notice of the application for costs.

CONCLUSION 34 The application for costs against Mr Ngo be dismissed and I make no order as to costs in this proceeding. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perry.

Bankruptcy Act 1966(Cth)ss 27, 2, 58(3)(b)

Evidence Act 1995(Cth)s 140(2)

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