Smits v Shirlaw [2011] FMCA 948 (12 December 2011)

Last Updated: 16 December 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SMITS v SHIRLAW

[2011] FMCA 948

COSTS – Consideration where applicant seeks indemnity costs by reason of a successful application to set aside a bankruptcy notice as an abuse of process.

Applicant:

LEONARDUS GERARDUS SMITS

Respondent:

ANDREW CHARLES SHIRLAW

File Number:

BRG 314 of 2011

Judgment of:

Burnett FM

Hearing dates:

30 June 2011 & 2 September 2011

Date of Last Submission:

2 September 2011

Delivered at:

Brisbane

Delivered on:

12 December 2011

REPRESENTATION

Counsel for the Applicant:

Mr D. Skennar

Solicitors for the Applicant:

Morgan Conley Solicitors

Counsel for the Respondent:

Mr J. Davies

Solicitors for the Respondent:

Rodgers Barnes & Green

ORDERS

(1) That there be no order as to costs.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BRG 314 of 2011

LEONARDUS GERARDUS SMITS

Applicant

And

ANDREW CHARLES SHIRLAW

Respondent

REASONS FOR JUDGMENT

1. The applicant in this instance was successful in his application to set aside a bankruptcy notice which had been issued and served upon him. Ultimately the bankruptcy notice was set aside on the basis that its issue could be characterised as having been premised upon an abuse of process.
2. The applicant seeks his costs on an indemnity basis by reason of my ultimate finding that the notice ought be set aside as an abuse of process. The respondent contends to the contrary, submitting that an issue by issue approach ought be taken and that given the applicant failed in two of the three issues advanced, the respondent should have its costs for the issues it succeeded upon and that the applicant’s costs be confined to the issue on which it succeeded.
3. The usual order is that costs follow the event. In this case, save for a costs order dealing with a discrete event on 1 June 2011, the costs sought are in respect of reserved costs for 11 May 2011 and 26 May 2011 together with the costs for the hearing on 15 June 2011.
4. In considering any application for costs and accepting the general rule, the fact remains that the court has a very wide discretion in respect of costs, which discretion must be exercised judicially.
5. While prima facie the applicant succeeded, I accept the respondent’s submissions that its success was by reason of a matter which became evident late in the application and which had not been agitated in the earlier stages, they being the stages when the application was adjourned. So much is evident from the principal affidavit in support of the application, the affidavit of Leonardus Gerardus Smits filed 4 May 2011 which was substantially directed to issues relevant to the judgment granted in support of the original bankruptcy notice and efforts by the applicant to have the judgment reviewed on appeal. To that point the applicant had principally relied upon rights, including appeal rights which he maintained he had in respect of the judgment supporting the bankruptcy notice. That included a subsequent application for leave to appeal to the High Court following receipt of judgment from the New South Wales Court of Appeal in respect of his appeal from the original District Court judgment.
6. As the respondent correctly submits the thrust of the applicant’s case can be discerned from the reasons for judgment as being directed principally to that matter and to the prospects of cross claim. To that end I accept as correct the respondent’s submissions concerning the approach that ought to be adopted in this case as one where issues which can be discretely separated ought be the subject of separate costs orders.
7. However it is also plain from the material and ought to have been plain from an early time (at least from the filing of an affidavit of Leonardus Gerardus Smits on 11 May 2011) that the applicant himself was a man of some substance and having regard to his affidavit as to solvency, including his short form balance sheet, there were real issues underlying the motivation for the issue of the bankruptcy notice. That is to say that although the creditors were initially within their rights in seeking the issue of the bankruptcy notice based upon the judgment they had obtained, notwithstanding the debtor having sought to appeal the underlying judgment, it ought to have been evident to the creditors from the time of the debtor’s affidavit as to solvency that he was probably not insolvent and that recourse by execution against assets ought have been available. Having been armed with that information, the creditors intent on pursuing bankruptcy proceedings without first having sought to exercise other rights of enforcement commencing with an oral examination, lends support to the debtor’s contention that other motives were at play. It is unnecessary for me to make any finding in respect of that matter beyond that observation. In any event, it lends support to the conclusion expressed in my reasons for judgment at paragraphs [86] and [87] that the issue of the notice in this instance constituted an abuse of process. Accordingly he might be entitled to an order for indemnity costs. In particular it was contended for him that the fact that the bankruptcy notice was set aside as an abuse of process did in these circumstances constitute the special or unusual circumstance warranting the departure from the usual order and the imposition of an indemnity costs order.
8. Overall this application has involved substantial success on the part of the creditor in justifying the issue of the bankruptcy notice but also its substantial loss in that the notice was set aside as an abuse of process. The matter giving rise to the abuse was not vigorously prosecuted until further material in support of that contention was filed in the application on the day of hearing. Overall, in the circumstances, I am of the view that the appropriate order in this case is that there be no order as to costs.

Order

9. No order as to costs.

I certify that the preceding 9Error! Style not defined.!Syntax Error, !Error! Style not defined.Error! Style not defined.!Syntax Error, !ninenine (9) paragraphs are a true copy of the reasons for judgment of Burnett FM

Date: 12 December 2011