Cvitanovic & Anor v Arnautovic & Anor (No.2) [2011] FMCA 30 (2 February 2011)

Last Updated: 4 February 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CVITANOVIC & ANOR v ARNAUTOVIC & ANOR (No.2)

[2011] FMCA 30

BANKRUPTCY – Transfer of property declared void against trustee – costs follow the event.

Federal Magistrates Act 1999 (Cth), s.34(4)

Cvitanovic & Anor v Arnautovic & Anor [2010] FMCA 888 Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd & Ors (1988) FCA 202; (1988) 81 ALR 397 Hamod v State of New South Wales (2002) 188 ALR 659 John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd & Anor (No.2) (1996) 70 FCR 236 Ogawa v Spender [2006] FCAFC 68; (2006) 151 FCR 228

First Applicant:

DANIEL I CVITANOVIC AS TRUSTEE OF THE BANKRUPT ESTATE OF ADRIAN LAWRENCE ROSEE

Second Applicant:

DANIEL I CVITANOVIC AS TRUSTEE OF THE BANKRUPT ESTATE OF KYLIE ROSEE

First Respondent:

SULE ARNAUTOVIC AND RODERICK MACKAY SUTHERLAND T/AS JIRSCH SUTHERLAND & CO (ABN 42 156 835 691)

Second Respondent:

JOHN KUKULOVSKI IN HIS CAPACITY AS LIQUIDATOR OF ROSEE ROAD HAUL PTY LTD (IN LIQUIDATION) (ACN 103 475 976) AND PROTRANS TRANSPORT SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 129 867 705)

File Number:

SYG 768 of 2010

Judgment of:

Smith FM

Date of last submission:

24 December 2010

Delivered at:

Sydney

Delivered on:

2 February 2011

REPRESENTATION

Solicitors for the Applicants:

Meehans Solicitors

Solicitors for the Respondents:

ERA Legal

THE COURT ORDERS THAT

(1) Order 5 made on 1 December 2010 is vacated.
(2) The respondents must pay the first applicant’s costs including reserved costs as agreed or taxed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SYG 768 of 2010

DANIEL I CVITANOVIC AS TRUSTEE OF THE BANKRUPT ESTATE OF ADRIAN LAWRENCE ROSEE

First Applicant

DANIEL I CVITANOVIC AS TRUSTEE OF THE BANKRUPT ESTATE OF KYLIE ROSEE

Second Applicant

And

SULE ARNAUTOVIC AND RODERICK MACKAY SUTHERLAND T/AS JIRSCH SUTHERLAND & CO (ABN 42 156 835 691)

First Respondent

JOHN KUKULOVSKI IN HIS CAPACITY AS LIQUIDATOR OF ROSEE ROAD HAUL PTY LTD (IN LIQUIDATION) (ACN 103 475 976) AND PROTRANS TRANSPORT SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 129 867 705)

Second Respondent

REASONS FOR JUDGMENT

1. On 1 December 2010 I published a judgment in this matter, explaining orders which upheld Mr Cvitanovic’s claim against Mr Kukulovski for $35,000 (see Cvitanovic & Anor v Arnautovic & Anor [2010] FMCA 888). I gave the parties liberty to file written submissions in relation to costs. Mr Cvitanovic has filed a submission seeking costs on an indemnity basis. Mr Kukulovski has filed a submission arguing that no order for costs should be made in favour of either party. Mr Kukulovski has also filed an appeal which challenges all the findings and reasoning in my judgment, but clearly I must address costs upon an assumption that my judgment was correct.
2. In support of an indemnity costs order, Mr Cvitanovic makes the following points:
   • Mr Cvitanovic’s demands for the money were made prior to the commencement of the litigation, and Mr Kukulovski’s responses made no claim to hold a security interest in the funds until after the proceedings were commenced. The deeds of guarantee upon which this assertion was based were not produced until after the proceedings were commenced.
   • Mr Cvitanovic’s demands were resisted upon denials by Mr Kukulovski of knowledge of Mr Rosee’s insolvency at the relevant times, which were not maintained at the hearing.
   • Mr Cvitanovic offered to settle the matter for $30,000 inclusive of costs at a mediation on 10 September 2010, and in a “without prejudice offer to settle the proceedings” made and rejected on 22 October 2010.
   • The Court should take the view “that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs” (citing Jessup J in Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42 and Gray J in Hamod v State of New South Wales (2002) 188 ALR 659 and 665).
3. There is no admissible evidence of an offer of compromise made during mediation (see Federal Magistrates Act 1999 (Cth), s.34(4)).
4. The offer made by letter on 22 October 2010 is not in evidence, and its full terms are obscure to me. Mr Kukulovski’s submissions on costs do not deny such an offer was made and rejected on that day. If so, it was made after a pre-hearing directions listing before me on 14 October 2010, and before the parties filed their written submissions for the hearing on 8 November 2010. I shall assume that it was framed as a ‘Calderbank’ offer requiring immediate acceptance.
5. Mr Kukulovski’s submissions on costs make the following points:
   • Not all the issues addressed in my judgment were raised by Mr Cvitanovic’s pleadings which initiated the matter.
   • There was ‘wasted’ preparation by Mr Kukulovski’s lawyers as a result.
   • Mr Cvitanovic’s offers were made before the service of his written submissions, which raised issues in reply to Mr Kukulovski’s defences relying on the deeds of guarantee. The submission asserts: “The decision of the Respondents to reject any offers made by the Applicants was made on the validly held but ultimately erroneous assumption that the Applicants’ case as put at the hearing would reflect the filed pleadings”.
   • The offers were not “a genuine offer of compromise” and the Court should not be satisfied that “the offeree acted unreasonably in refusing the offer” (citing various authorities).
6. I am not satisfied that Mr Kukulovski incurred any ‘wasted’ legal expenses, nor that there is any other reason why the principle that costs should normally follow the event should not be applied in this case.
7. It is correct that the issues debated at the hearing and addressed in my judgment emerged less than clearly from the pleadings, affidavits, and written and oral submissions. Mr Kukulovski may have been partly to blame for this, by delaying discovery of the deeds and other tactics. However, I do not regard either party or their representatives as being so clearly in default in relation to any procedure which would have better identified and focused the issues genuinely in dispute prior to the hearing, as to justify a special costs order against them.
8. In Ogawa v Spender [2006] FCAFC 68; (2006) 151 FCR 228 at [29] the Full Court said:
   • 29 It is established that indemnity costs may be appropriate where it appears that an action has been commenced or continued in circumstances where a litigant, properly advised, should have known there was no chance of success. In such a case, an ulterior motive must be presumed, or wilful disregard for the known facts or established law. See Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) FCA 202; (1988) 81 ALR 397 at 401; John S Hayes & Assocs Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 203 and MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236.
9. The two judgments they cited refer to well-known general discussion on the award of indemnity costs, and I have taken that discussion into consideration. The two judgments also stand as authorities for the proposition that “the mere making of an offer by Calderbank letter and its non-acceptance followed by a result more favourable to the offeror (less favourable to the offeree) than that represented by the offer will not automatically lead to the making of an order for payment of costs on an indemnity basis” (per Lindgren J in MGICA (supra) at 239).
10. In the present case, I am not persuaded that it should have been apparent to Mr Kukulovski at the time when he rejected Mr Cvitanovic’s offer, or earlier, that he had no chance of success in defending the proceedings. The outcome of the case was by no means apparent when I reserved judgment at the end of the hearing.
11. Essentially, I consider that this is a relatively small claim involving a complex area of law, which has regrettably not been able to be compromised by the parties. I consider that it has none of the special qualities which the authorities have indicated are needed before a losing party is ordered to pay the winning party its legal costs on an indemnity basis.
12. Costs should be awarded and taxed on a party/party basis in accordance with the Bankruptcy Rules.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Smith FM

Date: 2 February 2011