Lin v Official Trustee in Bankruptcy (No 2) [2002] FMCA 1 (14 January 2002)

Last Updated: 26 June 2002

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SIEW FONG LIN v OFFICIAL TRUSTEE IN BANKRUPTCY (No. 2)

[2002] FMCA 1

BANKRUPTCY -Costs-all inclusive offers not "Calderbank" offers and do not entitle party to indemnity costs-application for taxation under Federal Court rules-scheme of Federal Magistrates Rules as to costs explained-application granted in case of considerable complexity.

Bankruptcy Act 1966 (Cth) s 37 (1)

Federal Magistrates Court Rules Pt 21 rr 16.06, 21.02, 21.10, 21.11

Federal Court Rules O 62

Parsons and Parsons v McBaine [2001] FCA 376

Maevida Horman v Distribution Group Limited [2001] FMCA 74

Dr Martins Australia Pty Limited v Figgins Holding Pty Limited (2) [2000] FCA 602

Calderbank v Calderbank [1975] 3 All ER 333

Brady v Official Trustee in Bankruptcy (2) [2001] FMCA 87

Applicant:

SIEW FONG LIN

Respondent:

OFFICIAL TRUSTEE IN BANKRUPTCY

File No:

WZ 35 of 2001

Delivered on:

14 January 2002

Delivered at:

Perth

Hearing Date:

21 December 2001

Judgment of:

Raphael FM

REPRESENTATION

Solicitors for the Applicant:

Mr P Williams of Williams & Co Lawyers

Solicitors for the Respondent:

Mr A Aristei of Carles Solicitors

ORDERS

(1) Applicant granted leave to apply for a variation of the order as to costs made in the proceedings.

(2) Order for costs contained in the reasons for judgment vacated.

(3) Costs of the proceedings other than this hearing to be taxed pursuant to Order 62 of the Federal Court Rules.

(4) Applicant's costs of this application be paid by the respondent pursuant to rule 21.10 of the Federal Magistrates Court Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

WZ 35 of 2001

SIEW FONG LIN

Applicant

And

OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

REASONS FOR JUDGMENT

1. I gave judgment in this matter which I heard on 11 October 2001 on 31 October 2001.

2. I made an order for costs pursuant to Part 21 Rule 21.10 of the Federal Magistrates Court Rules in favour of the applicant. An application for a hearing on costs was made by the applicant's solicitors on 10 December 2001 and a video hearing was arranged for 21 December 2001. In the mean time I received written submissions from both parties.

3. The hearing, which was conducted in Perth, took approximately one day. The matter was complex both in its facts and in law. The judgment which I gave found me distinguishing the case from a recently decided matter before the Full Bench of the Federal Court, namely Parsons and Parsons v McBaine [2001] FCA 376. I believe that the point upon which I decided the case was novel, although to date I have not received notification that it has been appealed. The matter was argued by two QC's known for their eminence in the field of personal insolvency in the states of Victoria and Western Australia. I am now advised that prior to the hearing negotiations had taken place between the parties and offers of settlement had been made. The applicant states that four offers of settlement, one in the sum of $2,000 and three in the sum of $5,000 were made. The respondent says that all those offers were "all up offers", i.e. inclusive of costs. Indeed the respondents say the offers went further and sought complete releases.

4. The applicant seeks a variation of my original costs order so that her costs are either payable on a solicitor and own client basis or on a party and party basis pursuant to the Federal Court Rules. The applicant is under the impression that she would secure more from taxation under the Federal Court Rules than she might under the rules of the Federal Magistrates Court.

5. Prior to the matter commencing there was some dispute as to whether or not the orders in the case had been entered. If they had been entered then it was arguable that I was precluded from making any variation to my order save in the limited context of FMCA rule 16.06. When the matter came on I specifically addressed this question to the advocates for both parties. The respondents were unable to produce any evidence that the order had been entered, and the applicant's solicitor firmly denied that this had occurred. I accept that it has not occurred and proceed on that basis.

6. There is no doubt that the Court has power to vary its orders in bankruptcy under the provisions of section 37 (1) of the Bankruptcy Act 1966, and that an order for costs made in the absence of any knowledge of offers passing between the parties would certainly be an order which it would be appropriate to vary in certain circumstances.

7. The applicant submits that she made a number of offers to the respondent to dispose of these proceedings which were in the nature of a Calderbank offer. The first of these offers was contained in a letter dated 8 September 1999, some two years before the hearing. A copy of the letter in which that offer was made is in evidence and the form of the offer is as follows:

"Without reiterating the contents of our letter of 9 November 1998, we are instructed that our client to tender the sum of $2,000 (sic) in full and final settlement of any claim that the official trustee in bankruptcy may have against our client or the subject property."

8. On 23 May 2001 another offer was made in the following terms:

"Our client is in a position to borrow up to $5,000 from family members, and proposes settlement on this basis, namely:

1. Payment directly to you in the sum of $4,000 (within 28 days of acceptance of this offer) on the basis that you will agree not to further fund any litigation by the official trustee in bankruptcy in relation to our client's interest in the property on condition that the official trustee in bankruptcy accepts this agreement and the following terms;

2. Payment of the sum of $1,000 to the official trustee in bankruptcy forthwith upon consent orders being made for a declaration in the Federal Court protecting our client's interest as registered proprietor of the property;

3. The Federal Court proceedings then be dismissed with no order as to costs."

10. I am advised that two other offers of $5,000 were made on 16 August 2001 and 5 September 2001 in mediation conferences. I do not know the terms of those offers, but it is not denied by the applicant's solicitor that they were all inclusive offers.

11. All the offers were rejected.

12. The applicant seeks to persuade me that the offers which were made were offers of the type found in Calderbank v Calderbank [1975] 3 All ER 333, and they sought to support this argument by reference to the authority of Federal Magistrate McInnis in Brady v Official Trustee in Bankruptcy (2) [2001] FMCA 87. The applicant argues that in all the circumstances of this case, and in particular the following matters, costs should be awarded on an indemnity basis. The matters she particularly points to are:

(i) the correspondence annexed to Mr Williams' affidavit between 1998 and 1999 accurately predicting the results of the case

(ii) the fact that the law in the case was well known before hand

(iii) that the respondents knew that any issue of a section 139 ZQ notice would be resisted and the basis of that resistance

(iv) the respondent was represented at all times and retained senior counsel

(v) the personal circumstances of the applicant.

These reasons are in addition to the existence of the offers made.

13. The law in relation to "Calderbank" letters in the federal Court has been refined quite considerably since 1975. I reviewed these matters and in particular the situation where what could be described as "an all encompassing offer" was made in Maevida Horman v Distribution Group Limited [2001] FMCA 74. I decided in that case that I should follow the Federal Court authorities which may well not have been put to Federal Magistrate McInnis in Brady, particularly the decision of Goldberg J in Dr Martins Australia Pty Limited v Figgins Holding Pty Limited (2) [2000] FCA 602. I determined to follow Goldberg J in that case, and I can find nothing to distinguish Horman from the one presently before me. Indeed, I would adopt the submission of the solicitors for the respondent that the offers put may well have been very difficult for an Official Trustee to accept as they appeared to require a general release from all claims. The applicants solicitor argues strongly that this was a matter of little concern because there were no other claims than the one for the bankrupt's interest in the property. I am not in a position to make any finding on this, but I do believe that the suggestion of a general release is a matter that could reasonably affect the decision of an Official Trustee in Bankruptcy.

14. It is the existence of a valid but spurned Calderbank letter that triggers the right to indemnity costs. Whilst it is always open to a Court to exercise its discretion and grant indemnity costs in other circumstances, I do not think it is appropriate to do so here. I say this mainly because there should be consistency between Courts in relation to these matters, and I am happy to follow the Federal Court. But I would also say that I do not accept the argument put by the applicant that this was a case which the respondent should not have run in the face of the offer or indeed at all.

15. I do not consider that the respondent continued the proceedings in wilful disregard of known facts and clearly established law. The case is important and complex. A Trustee in Bankruptcy, particularly the Official Trustee, occupies a position slightly different from that of an ordinary litigant. The Trustee is an officer of the Court. The Official Trustee is in charge of a department which manages a number of insolvent estates. He is entitled to seek the assistance of the Courts in determining complex matters of law. That does not relieve him from responsibilities for costs if he is not successful, but it does not mean that he should be obliged to pay indemnity costs unless there are exceptional circumstances. The existence of these offers, which do not amount to Calderbank offers and which may well have contained the requirements for a general release which would have been most unwise of the Official Trustee to give, does not, to my mind, constitute such special circumstances.

16. This disposes of the issue of indemnity costs. I would not make such an order. I am left with the application that in place of the order for costs made under the Federal Magistrates Court Rules I should substitute an order for costs under the Federal Court Rules. The Federal Magistrates Court is not the Federal Court. It is a separate Court created under Chapter III of the Constitution of Australia. Its judicial officers have coextensive jurisdiction with the judicial officers of the Federal Court in bankruptcy. All are described as "judges in bankruptcy" for the purposes of the Bankruptcy Act. The Court has endeavoured to ensure that so far as possible proceedings in the Federal Magistrates Court in bankruptcy proceed in the same way as they would do in the Federal Court. For that reason the rules are almost identical, as are many of the forms. The Courts share Registrars.

17. Recently it was discovered that if costs were awarded under rule 21.10 of the Federal Magistrates Court Rules in relation to the hearing of a simple bankruptcy petition, a petitioning creditor would end up with a higher fee than under the scales in the Federal Court. Following this discovery, the Registrars of the Court and the Federal Magistrates where necessary, made orders that the costs of a petitioning creditor would be taxed pursuant to the Federal Court Rules. It is intended that during the course of the next year uniform rules in bankruptcy will be produced by the Federal Court and the Federal Magistrates Court. When that occurs it is expected that this anomaly and any others relating to costs will be dealt with.

18. But because the Courts are different, whilst sharing the same jurisdiction, it does not mean that all orders for costs made in the federal jurisdiction of the Federal Magistrates Court should be based upon the rates and scales found in the Federal Court. The District and Supreme Courts of all states share jurisdiction but their scales of costs are not the same. The Federal Magistrates Court was created to deal with less complex matters. It is instructed by its legislation to deal with matters speedily. It provides early hearings, and to date has managed to ensure that all cases coming before it (with very few exceptions) are completed within six months.

19. It was in the knowledge of these qualifications on its jurisdiction that the Federal Magistrates Court promulgated its own rules including rules as to costs. It set out to promote a fixed cost system throughout its jurisdiction. Cognisant of the fact that most state jurisdiction have abandoned taxation in favour of assessment, it did not produce a scale for the purposes of taxation as has been produced by the Federal Court. It intended that most costs orders would be dealt with under schedule 1 of the Federal Magistrates Court Rules. The Court did accept that there might be cases in which the schedule would not be appropriate. The Court provided under rules 21.10 and 21.11 for a party to make application to the Court to tax costs and then for a penalty to apply if the taxed costs did not exceed the amount of costs calculated in accordance with schedule 1 by twenty percent.

20. The absence of its own scale of costs does not make these rules ineffective. Rule 21.02 (2) states:

21.02 Order for costs

(2) In making an order for costs in a proceeding the Court may

(a) set the amount of the costs; or

(b) set the method by which the costs are to be calculated; or

(c) refer the costs or taxation under Order 62 of the Federal Court Rules ...

21. This provision is the only relevant provision for taxation. If one steps back from the rules one can see a logical process revealed. The Court has provided for fixed scales of costs which it intends to be the norm in proceedings before it. The Court accepts that there will be cases outside the norm for which different orders should apply. The Court provides machinery whereby an application can be made for a different order for costs. That different order in Federal Law matters is taxation under Order 62 of the Federal Court Rules. Order 62 carries through to a scale of fees which the Registrars acting as taxing masters should apply. Registrars have the same discretion in relation to taxation of a bill in the Federal Magistrates Court as they would a bill in the Federal Court, e.g. the discretion concerning the care and conduct item.

22. This is the scheme of the rules, and applying that scheme to this case I would accept the applicant's application as an application under rules 21.02 and 21.10 for an order referring the costs for taxation under Order 62 of the Federal Court Rules.

23. I believe that this case does warrant a special order for costs, but I do not believe it warrants that order for the reasons given by the applicant. It is true that the applicant broadcast well in advance the form of argument it would make in any hearing. In certain circumstances that may well be a good reason for granting a special order, but the circumstances are more likely than not to be those in which the law is well known and unambiguous. I do not think that the existence of an offer of settlement which falls short of a Calderbank offer as interpreted by the Federal Court is itself a reason for such an order. In Horman it was reason for an order that costs which had not been ordered should be ordered. In this case the applicant received its costs in any event. I do not believe that the personal circumstances of the applicant have any relevance whatsoever. Nor do I consider that the fact that the parties were represented by senior counsel is itself a reason.

24. What I do consider to be a good reason for such an order is the complexity of the matter. I am satisfied that the matter was complex. I am not convinced that the law was clear and unambiguous, and as I have already said, I do not consider it unreasonable that it was argued by two experts in the field. One of the major cases relied on by the applicant, Parsons and Parsons v McBaine, was only heard by the Full bench of the Federal Court this year, and could therefore not have been in her solicitors' thinking when they wrote the letters they did in 1998 and 1999 in any event. I distinguished the case from Parsons and did so on the basis of my understanding of submissions made by the applicant's leading counsel. I would therefore accede to the applicant's application and order that the costs of proceedings be taxed pursuant to Order 62 of the Federal Court Rules. The costs of today should be the subject of a normal order pursuant to rule 21.10 of the Federal Magistrates Court Rules.

I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 14 January 2002