Re James Andrew Baker Ex Parte: the Official Trustee In Bankruptcy; James Andrew Baker; Art Holdings Pty Ltd As Trustee of the Contemporary Art Trust and Goodglint Pty Ltd (Now Known As the Contemporary Arts Collection Limited) [1990] FCA 509 (18 December 1990)

FEDERAL COURT OF AUSTRALIA

Re: JAMES ANDREW BAKER
Ex parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY; JAMES ANDREW BAKER; ART HOLDINGS
PTY. LTD. AS TRUSTEE OF THE CONTEMPORARY ART TRUST and GOODGLINT PTY. LTD.
(now known as The Contemporary Arts Collection Limited)
No. NB72 of 1990
FED No. 716
Bankruptcy - Costs

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Pincus J.(1)

CATCHWORDS

Bankruptcy - order for costs for legal advice and representation sought - costs to be paid out of sale of assets in dispute before title determined - form of order only in question - whether to apply scale of costs under Bankruptcy Rules considered.

Costs - costs of a party sought out of property in dispute - whether costs can be ordered before dispute decided.

Bankruptcy Act 1966, ss.30, 31A, 32, 167

HEARING

BRISBANE
18:12:1990

Counsel for the applicant: Mr C. Newton

Solicitors for the applicant: Australian Government Solicitor

Counsel for the respondents: Mr R.W. Gotterson, QC and

Mr J.D. Batch

Solicitors for the respondents: Q.D. George Hillhouse and Co.

ORDER

The undertaking and order given and made in these proceedings on 28 August 1990 be varied as follows:

i. Goodglint Pty. Ltd., the third respondent, may use monies
realised in carrying out such functions as are mentioned in the
said undertaking and order in payment of legal costs (including
outlays) in respect of proceedings to which the Official Trustee
in Bankruptcy is a party concerning the ownership of and
interests in the objects of art referred to in the said
undertaking and order.
ii. Goodglint Pty. Ltd. may from time to time apply by letter to the
District Registrar for orders for costs in accordance with the
following directions.
iii. Goodglint Pty. Ltd. shall present in support of any such
applications such documents and information as the District
Registrar requires.
iv. In determining any such application, the District Registrar may
inform himself as he sees fit and may make such written order for
payment of Goodglint Pty. Ltd.'s costs as he thinks reasonable.
v. Goodglint Pty. Ltd. may pay costs to its solicitors out of monies
mentioned in para (i) only in accordance with such orders.
vi. The District Registrar shall send to the Official Trustee a copy
of any order for costs made under para (iv).
vii. Costs of the hearing which resulted in this present order shall
be costs in the proceedings.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

DECISION

These reasons relate to a question concerning costs, arising in bankruptcy proceedings. Mr J.A. Baker presented a debtor's petition under the Bankruptcy Act 1966 on 16 January 1990 and it was accepted on the same day. There is evidence that shortly after that, a company called Art Holdings Pty. Ltd., in which a valuable art collection made by Mr Baker was then said to be vested, caused title in the collection to pass to the third respondent, Goodglint Pty. Ltd., which says the collection is held in trust (not for Mr Baker). The Official Trustee in Bankruptcy does not accept that the collection is vested in Goodglint subject to the trust which Goodglint sets up. It appears that it will be necessary, unless the matter is otherwise resolved, for the Court to determine whether the Official Trustee has any interest in the items composing the collection. There has been some discussion as to the way in which that question should be raised; the Official Trustee will be obliged to deliver a statement of claim setting out the basis upon which he asserts an interest in the collection.

2. In the meantime, Goodglint (which is, it says, penniless) has instructed solicitors who have engaged senior and junior counsel. The solicitors wish to have an order made to enable the costs of their legal work in connection with the dispute I have outlined to be paid out of the proceeds of sale of items in the collection.

3. To be more specific, the question raised before me by counsel for Goodglint is whether an order I made on 28 August 1990 should now be varied so as to permit the disposition of items from the collection "for paying for such reasonable sums as may be required by the third respondent for legal advice and representation in these proceedings". The Official Trustee does not object to the principle of having items sold and monies paid for the purpose just mentioned, but there is a major disagreement about the form of order.

4. General power to make orders as to costs is included in s.32 of the Bankruptcy Act and there seems no reason to doubt that an order along the lines sought is within the Court's jurisdiction. Goodglint's is, however, an unusual proposal insofar as provision is sought to be made for payment of costs from the assets in dispute, whatever the outcome of the case. If it is held that Goodglint owns the whole collection subject to the trust it sets up, then no doubt Goodglint will obtain an order for costs. If Goodglint were unsuccessful, it would ordinarily have to pay costs, as well as meeting its own; but, it is said, Goodglint has no money.

5. It is common enough in disputes as to the ownership of funds to make an order, in appropriate circumstances, that costs come out of the funds in issue; but that is ordinarily done only at the end of the case. Here, it is agreed that Goodglint should have an order at the outset, when it is not known whether Goodglint will win or lose, or even whether it (or, for that matter, the Official Trustee) has an arguable case. I have found no authority in which an order of the kind sought has been made. But for the acquiescence of the Official Trustee, I am not sure that I would make an order giving Goodglint costs right from the outset.

6. As to form, Goodglint wants an order enabling it to use funds arising from sale of the property in dispute, without limit, to such extent as it thinks reasonable, for payment of its legal costs. It seems to me plain that an order having that effect would not be a proper one.

7. Section 167 of the Bankruptcy Act has the effect that, in general, bills of costs rendered "in respect of the estate of a bankrupt" must be taxed. The proposal put forward on behalf of Goodglint would dispense with taxation or any equivalent to taxation. It appears to me that to do so would be contrary to the policy of the bankruptcy law as exemplified by s.167. The policy it evinces is that legal costs shall not be paid out of the estate unless they are justified by a taxation, and it seems to me right to apply that policy, so far as practicable, where the costs relate to a dispute about property which may be, for all one knows, part of the bankrupt's estate. It would seem incongruous if, in the event of the Official Trustee being successful, his costs must be taxed under s.167 but the unsuccessful party would have its costs fixed without any involvement on the part of the Court, on the basis of claims made by its solicitors.

8. On the other hand, as counsel for Goodglint point out, to make an order preventing disbursement of any costs unless and until they are taxed would tend to hamper the conduct of its case. For this reason, a full taxation of costs, in the ordinary way, would not be practicable.

9. Rule 162 of the Bankruptcy Rules has the effect that, in general, "solicitors are entitled to charge and be allowed costs as set forth in Schedule 3". It was argued for Goodglint that the costs set out in Schedule 3 are at a level which is entirely inappropriate for proceedings of this kind.

10. It is certainly odd that the costs under the Bankruptcy Rules are at a substantially lower level than those prescribed by the Second Schedule to the Federal Court Rules. It seems to me evident that some of the figures prescribed are unrealistically low. But whether it is practicable for solicitors to do bankruptcy work under the Bankruptcy Rules scale is something I am unable to determine. As far as I know, there has never been a thorough, independent study done in Australia on the level at which legal charges must be fixed to make litigation reasonably profitable.

11. It is permissible, under r.162(1), to order a departure from the scale in Schedule 3. The assumption upon which a departure was asked for here was no doubt that the matter before me is likely to be very complex. If that be so, then one would expect its complexity to be reflected in the number of hours spent. It appears to me that the scale should apply, but under the order which will be made, it may be applied broadly rather than in detail.

12. I propose to make an order placing the responsibility to fix costs on the District Registrar; his decisions may be reviewed under s.14(5). There is power under s.31A(1) of the Bankruptcy Act to direct that the Court's power to make an order as to costs be exercised by the Registrar in relation to a proceeding; see also s.30(1)(b) and s.30(2). It will not be necessary, under the order, for the Registrar to conduct a formal taxation. He may fix the costs by estimation and shall, of course, take into account the reasonableness of (for example) the time spent on tasks.

13. It will be ordered that the undertaking and order given and made in these proceedings on 28 August 1990 be varied as follows:

(i) Goodglint Pty. Ltd., the third respondent, may use monies realised
in carrying out such functions as are mentioned in the said
undertaking and order in payment of legal costs (including
outlays) in respect of proceedings to which the Official Trustee
in Bankruptcy is a party concerning the ownership of and interests
in the objects of art referred to in the said undertaking and
order.
(ii) Goodglint Pty. Ltd. may from time to time apply by letter to the
District Registrar for orders for costs in accordance with the
following directions.

(iii) Goodglint Pty. Ltd. shall present in support of any such

applications such documents and information as the District
Registrar requires.
(iv) In determining any such application, the District Registrar may
inform himself as he sees fit and may make such written order for
payment of Goodglint Pty. Ltd.'s costs as he thinks reasonable.
(v) Goodglint Pty. Ltd. may pay costs to its solicitors out of monies
mentioned in para (i) only in accordance with such orders.
(vi) The District Registrar shall send to the Official Trustee a copy
of any order for costs made under para (iv).

(vii) Costs of the hearing which resulted in this present order shall be

costs in the proceedings.