Watton v Whitton as Trustee in Bankruptcy Estate of Steven Leonard Watton

Supreme Court of NSW|2017-11-22|Before: Darke J

Judgment

By Summons filed on 12 January 2017 the plaintiff in these proceedings sought the extension of the operation of a caveat over land at Rouse Hill, together with an order that the defendant transfer the property to the plaintiff. The defendant is the trustee in bankruptcy of the former spouse of the plaintiff.
On 3 October 2017 the plaintiff commenced proceedings in the Federal Court of Australia, having come to the view that that Court was the appropriate forum for the parties' substantive dispute by virtue of s 27(1) of the Bankruptcy Act 1966 (Cth).
On 13 October 2017 the defendant filed a Notice of Motion in this Court seeking that the proceedings be dismissed, on the basis that it would undertake to consent to an order for the extension of the operation of the plaintiff's caveat in the Federal Court proceedings. On 20 October 2017 the Court declined to dismiss the proceedings and ordered that the operation of the plaintiff's caveat be extended until the determination of the Federal Court proceedings, and that the proceedings be otherwise dismissed. At that time the parties indicated that they were content for the question of costs to be determined on the papers, on the basis of the written submissions they had provided in relation to the defendant's Notice of Motion.
Before turning to the parties' submissions on costs, it is necessary to briefly summarise the factual background.

Submissions

Although the parties' submissions were primarily directed to the defendant's application for the proceedings to be dismissed, the parties' positions on costs are apparent from the positions they took in relation to the defendant's application.
The plaintiff submitted that it was reasonable and appropriate for the plaintiff to commence proceedings in this Court, and that the plaintiff's proposal for the caveat to be extended by this Court until determination of the Federal Court proceedings was also reasonable and appropriate. The plaintiff submitted that its approach involved no further duplication of costs and had the benefit of the absolute certainty of the power of the Supreme Court to extend the operation of the caveat.
The plaintiff submitted that it was not clear whether the Federal Court would have jurisdiction to order the extension of the operation of the caveat. The plaintiff noted that in Ipandco (Australia) Pty Ltd v Australian Technology Park Precinct Management Ltd [2003] FCA 1322, relied upon by the defendant, it was common ground between the parties that the Federal Court had jurisdiction to extend the operation of a caveat under s 74K of the Real Property Act. The plaintiff referred to Jones v Daniel [2004] NSWSC 517 in which Barrett J (as his Honour then was) made reference to academic commentary querying the jurisdiction of the Federal Court to make orders against the Registrar-General of New South Wales. The plaintiff took the position that although the Judiciary Act 1903 (Cth) might grant power to the Federal Court under s 74K, that was by no means clear.
The defendant's primary submission was that the operation of the plaintiff's caveat could not be extended because the plaintiff had "abandoned her claim for final relief in this Court". It contended that the proceedings should be dismissed as frivolous or vexatious pursuant to Uniform Civil Procedure Rules 2005 (NSW)("UCPR"), r 13.4, and that the plaintiff should accordingly pay its costs.
The defendant further submitted that the proceedings "should always have been commenced in the Federal Court", and that "[t]here can be no doubt that the Federal Court had the power to extend the operation of the caveat", citing Ipandco (supra) and Leroy v Koutavas, Re Koutavas (No 2) [2017] FCA 912.
Finally, the defendant submitted that the plaintiff's delay in commencing the Federal Court proceedings warranted an order for indemnity costs from 13 April 2017 onward, being the date on which the plaintiff first provided its draft Federal Court pleadings to the defendant.

Determination

As I have already noted, the Court did not accede to the defendant's application for the proceedings to be dismissed, and ordered that the caveat be extended until final determination of the Federal Court proceedings. The plaintiff first proposed that course to the defendant on 24 May 2017, and has obtained the orders that it sought. The defendant has opposed that course since August 2017, and filed its application for the dismissal of the proceedings on the basis of that opposition. It was unsuccessful in that application. In my view, that outcome would indicate that the defendant should pay the plaintiff's costs of the proceedings.
There are three matters which might suggest a contrary result. First, one of the orders made on 20 October 2017 was that the proceedings be "otherwise dismissed". Whilst it could be said that, pursuant to UCPR, r 42.20, the plaintiff should therefore pay the defendant's costs of the proceedings in relation to the plaintiff's claim for final relief, I do not think that is the case. The order that the proceedings be otherwise dismissed simply reflects the fact that the plaintiff is now seeking its final relief in the Federal Court, which the parties agree is the proper forum. The plaintiff has not "abandoned" its claim for final relief. The order that the proceedings be otherwise dismissed is to allow these proceedings to be disposed of consequent upon the extension of the operation of the caveat, which was the central matter in dispute.
The second matter is the defendant's submission that the proceedings should always have been commenced in the Federal Court. I am unable to accept this submission. Section 74J of the Real Property Act contains a statement that, where a Lapsing Notice is issued, the caveat will lapse unless an order extending the operation of the caveat is "obtained from the Supreme Court" and lodged with the Registrar-General within 21 days. Although it may sometimes be possible for a caveator to proceed to a federal Court and obtain interlocutory relief to protect its position, I do not think it was at all unreasonable for the plaintiff in the present case to come to this Court given the clear words of the section. That is all the more so because the defendant served the Lapsing Notice on 22 December 2016, three days prior to Christmas. Although there may be good reasons why the lapsing notice was served on that date, that course should be avoided wherever it is possible to do so. It had the result that the 21 days available to the plaintiff fell in the midst of the holiday period, which would have made obtaining instructions and commencing proceedings more difficult. That circumstance further persuades me that it was reasonable and appropriate for the plaintiff to commence proceedings in this Court.
I do not share the defendant's view that there is "no doubt" that the Federal Court has power under s 74K of the Real Property Act to extend the operation of a caveat. As the plaintiff observed, the jurisdiction of the Federal Court was common ground between the parties in Ipandco (Australia) Pty Ltd v Australian Technology Park Precinct Management Ltd (supra) (see at [1]). The plaintiff also observed that Leroy v Koutavas, in the matter of Koutavas (No 2) (supra) concerned s 74MA of the Real Property Act rather than s 74K. I note that the orders in that case were also made with the consent of all active parties. Barrett J did not express any view on the matter in Jones v Daniel (supra), although did refer to In the marriage of Stevens (1991) 15 Fam LR 51. Of course, the provision of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) relied upon in that case (s 4(2)) to give the Family Court jurisdiction under s 74K is of a type that has been held to be unconstitutional, and has been repealed. In my view, the apparent absence of any authority which conclusively establishes the Federal Court's jurisdiction under s 74K further indicates that the plaintiff acted reasonably and appropriately in initially seeking relief in this Court.
The third matter is the plaintiff's delay in commencing its Federal Court proceedings. There has clearly been delay on its part. The draft pleadings were first provided to the defendant on 13 April 2017. The parties agreed that the Federal Court was the appropriate forum for determination of the plaintiff's substantive dispute in late May 2017. On 18 June 2017 the defendant requested the final form of the Federal Court pleadings. On 28 June 2017 the plaintiff confirmed that the pleading provided in April was the final draft document. The defendant then requested on 18 August 2017 that the Federal Court proceedings be filed within 14 days. The lodgement of the pleadings on 1 September 2017 was within that timeframe, albeit without disclosure of the fact that a Financial Hardship Application had been made (which caused further delay). The documents were eventually filed on 3 October 2017.
I accept that the plaintiff could have proceeded with more alacrity to commence proceedings in the Federal Court. Due to the undisclosed Financial Hardship Application, there was a delay in filing of one month beyond the timeframe requested by the defendant on 18 August 2017. The defendant already has the benefit of a costs order for the directions hearing on 22 September 2017 which fell in that month. Because of the Financial Hardship Application, the Federal Court proceedings had not been filed at that time, and the matter was unable to be progressed as a result (apart from the defendant being granted leave to file its Notice of Motion). I do not consider that any other delay which can be attributed to the plaintiff is sufficiently egregious or causative of prejudice to warrant her being deprived of her costs. It must not be forgotten that Mr Watton's bankruptcy concluded in 2010, and the defendant only took his first steps in relation to the plaintiff's caveat in 2015.
In my opinion, the plaintiff has been the successful party in this Court and should have her costs of the proceedings. The Court will order that the defendant pay the plaintiff's costs of the proceedings, save for the plaintiff's costs of the directions hearing on 22 September 2017.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 November 2017

Real Property Act 1900(Cth)

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