Vaucluse Hospital 
v Phillips/ Paul Pattison/ (No.2) [2006] FMCA 664 (10 May 2006)
This trustee is the corrupt Paul Pattison who was protected by Veronique Ingram Inspector General in Bankruptcy and Bankruptcy Regulations at ITSA. Pattison was eventually de-registered as a trustee and was made a bankrupt himself
Last Updated: 24 May 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COSTS – BANKRUPTCY – Trustee joined as party to proceedings – application brought by each party for costs – agreement by respondent to pay applicant’s costs – each party’s application for costs refused. |
| Applicant: | VAUCLUSE HOSPITAL PTY LTD |
| First Respondent: | LUKE PHILLIPS |
| Official Trustee in Bankruptcy: | PAUL ANTHONY PATTISON |
| File number: | MLG 1148 of 2005 |
| Judgment of: | Riethmuller FM |
| Hearing date: | Submissions made in chambers |
| Date of last submission: | 28 February 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr G. Bigmore QC |
| Solicitors for the Applicant: | Mendelsons |
| Solicitors for the First Respondent: | KCI Lawyers |
| Counsel for the Official Trustee in Bankruptcy: | Mr R. Randall |
| Solicitors for the Official Trustee in Bankruptcy: | Leonard Legal |
ORDERS
| (1) | That each party’s costs application be refused. |
| (2) | That the executor of the respondent’s estate have leave to apply to set aside Order 1 within 21 days. |
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE |
MLG 1148 of 2005
| VAUCLUSE HOSPITAL |
Applicant
And
Respondent
And
Official Trustee in Bankruptcy
REASONS FOR JUDGMENT
| 1. | The respondent in this matter was successful in his application to review the decision of a Registrar making a sequestration order. The reasons for judgment on the substantive issues are set out in Vaucluse Hospital v Phillips & Anor [2006] FMCA 44. Since the judgment was handed down in the matter, the respondent has agreed to pay the applicants costs (excluding the additional costs incurred as a result of the trustee’s participation in the proceeding) of the application for review. |
| 2. | The terms of the applicants submissions with respect to costs are as follows: |
APPLICANT’S ( VAUCLUSE HOSPITAL P/L) SUBMISSIONS WITH RESPECT TO COSTS
Applicant’s claim for Costs against the Trustee
1. Vaucluse Hospital Pty Ltd (‘the Applicant") seeks an order pursuant to Rule 29.5(3)(a) that Paul Anthony Pattison (‘the Trustee") pay to the Applicant the additional costs caused to it by the granting of leave to the Trustee to be heard in this proceeding.
...
3. The order sought by the Applicant ‘follows the event’. The Trustee applied for an order annulling the bankruptcy of the Respondent which resulted from a Registrar’s sequestration order. The Trustee was wholly unsuccessful.
4. If, contrary to the Applicants submission in paragraph 12 below, the Court is of opinion that the Trustee took the role of assisting the Court (or partly took on that role), as distinct from advancing his own pecuniary interests, then there should, still be no order for the Trustees costs (for the reasons put forward below), but the Applicant should not have its additional ‘costs (or should have only a percentage of them).
Response to Trustee’s claim for Costs against Applicant
5. Although wholly unsuccessful in his request for annulment, the Trustee makes an extraordinary application for an order that the Applicant pay the Trustee’s costs.
6. The Trustee was not a party. Although he was (and remains) at risk of having to pay costs ordered in favour of the other parties or any of them, his application always involved the seeking of an indulgence, that is to say the making of an annulment order which would have had the effect (one assumes) of facilitating his recovery of remuneration and expenses out of the proceeds of realisation of some or all of the Respondent’s property.
7. True it is that s.79 confers a very wide discretion, upon the Court in respect of costs, so wide that modern authority clearly supports the making of costs orders against non-parties standing behind impecunious unsuccessful applicants; cf. Bent v Gough [1992] FCA 267; (1992) 36 FCR 204.
8. However, the Trustee cites no authority that supports the making of a costs order against a party in favour of a non-party. In paragraph 15 of his written submissions on costs, counsel for the Trustee refers to Kallis v Supreme Concrete Pumping and Machinery Pty Ltd [FMCA 1745 as if it bore some resemblance to the present matter. The reference to that decision is misconceived. Kallis is readily distinguishable because, there, an annulment was ordered on the application of the bankrupt – the trustee in bankruptcy was properly a respondent and the petitioning creditor was’ properly notified and (at least) entitled to seek to be heard; see Rules 35.2(2), 35.3(3) and 29.5. The costs order against the creditor was an order made against a non-party (or another party, if the creditor had been added as a party) in favour of a party.
9. In any event, here, the Applicant was not unsuccessful. Although the principal application stands to be dismissed (upon the setting aside. of the Registrars sequestration order pursuant to constitutionally mandated review), that result follows from the fact that the Applicant was paid the whole of the debt owed to it by the Respondent after the sequestration order was pronounced. Where otherwise valid petitions are dismissed because the debtor pays the petitioning creditor’s debt, costs are usually awarded in favour of the petitioner; see for example Re Noye (1956) 18 ABC 77.
10. Here, passing reference has been made to Sarina ( [2006] FMCA 44 @ [80] and see also [82]), but no conclusion has been drawn that the creditors application would have failed on the ground that the Respondent was ready and able, but simply unwilling, to pay his debts as and when they fell due. Indeed, such a conclusion would be contrary to the evidence and contrary to the finding that the Respondent was unable to manage his affairs.
11. Even if the Applicant would, on a hypothetical fully contested hearing, have failed (as the Trustee contends) on Sarina grounds (a rare outcome in bankruptcy cases), the Trustee’s submission that he should be awarded costs (paragraphs 10-12 of his counsel’s written submissions on costs) is reduced to absurdity: In such circumstances, a Trustee firmly believing in the merits of the bankrupt’s application for review would have no prospect of obtaining an order for annulment and should not even contemplate taking up the Court’s time with an application for leave to be heard and thus cause other parties to incur additional costs.
12. In paragraph 13 of his written submissions on costs, Counsel for the Trustee overstates his clients position by imputing to him a role of having assisted the Court. It is clear from [2006] FMCA 44 @ [17] that it was concluded that the Trustee made only an oral application for annulment. Given that no written application was made as required by the Rules (see @ [16]-[17]), that conclusion is unsurprising.
13. The Trustee’s claim for costs against the Applicant should be refused.
| 3. | The substantive arguments relied upon by the trustee, in seeking costs from the applicant or respondent are, as set out in the trustee’s outline: |
8. The trustee properly did not participate in the substantive application but, as it was appropriate, made submissions in relation to the form of order which the Federal Magistrate might make. After all, the trustee is not an ordinary litigant.
His interest arises as he is appointed and charged with duties under the Bankruptcy Act by reason of the order of this Court made by the Registrar. The substance of the submission on behalf of the trustee was that the bankruptcy ought to have been annulled rather than setting aside the sequestration order as this would enable the Court to secure for its officer or pseudo officer, the remuneration and expenses of attending to the administration of the bankrupt’s estate.
...
12. Given the factors referred to in the "Conclusions" of the Federal Magistrate’s judgment, it is axiomatic that Vaucluse has utilised the procedure as a debt collection. Such a contention is reinforced by its willingness to negotiate and accept payment of its debt and costs after the making of the sequestration order in the first instance.
13. As recognised by the Federal Magistrate, it was quite proper for the trustee to be heard in relation to the form of order which would be appropriate. Submissions by the trustee not only propound the trustee’s interest but, more importantly, assist the Court.
14. Vaucluse, upon making the application for the sequestration order, must have reasonably understood that a consequence of the order was that the trustee be appointed and that he be obligated to conduct the administration of the bankrupt estate. In circumstances where Vaucluse continued to resist the application for the review of the sequestration order, it cannot be heard to say it was not proper for the trustee to attend to the appropriate tasks, as is required by the performance standards set out in Schedule 4A to the Bankruptcy Regulations, or to seek to be heard on the application. Vaucluse should bear the risk of costs if it uses the bankruptcy provisions as a debt collection procedure.
15. An order was made requiring the creditor to pay the trustee’s costs in Kallis v Supreme Concrete Pumping and Machinery Pty Ltd [2005] FMCA 1745 per McInnis FM in circumstances where Federal Magistrate McInnis concluded that the difficulties which arose were occasioned by the mistake of the petitioning creditor [25]. Such an approach is consistent with the Federal Magistrate’s reasoning that Vaucluse could have and should have investigated and used other recovery procedures rather than the Bankruptcy Act as a debt recovery vehicle.
16. Alternatively, it is also open to the Federal Magistrate to order that Mr. Phillips pay the trustee’s costs, albeit that he successfully obtained an order setting aside the sequestration order. The Court retains a general discretion with respect to costs. For instance, in Re Horesh; ex parte Edgewater Service Ltd [No. V P808 of 1991 FED No. 466 (Unreported 1 July 1992 per Olney J.)]. Olney J. ordered that the debtor pay 80% of the petitioning creditor’s costs with respect to objections to the petition which were unsuccessful and made no order as to costs in relation to the question of the debtor’s solvency. In this instance the question of whether or not Vaucluse was still the creditor and whether or not Mr. Phillips was solvent did not arise until after 3 November 2005.
17. In support of that application the trustee submits that Mr Phillips:
(a) did not offer any satisfactory explanation as to why the petitioning creditor’s debt remained outstanding for over one year;
(b) did not offer any explanation as to why the judgment debt was not paid prior to the hearing of the application for the sequestration order;
(c) did not offer any explanation as to why he did not seek to set aside the bankruptcy notice;
(d) did not offer any explanation as to why he did not pay the judgment debt before the explanation of the bankruptcy notice;
(e) did not complete a statement of affairs;
(f) did not complete a personal questionnaire;
(g) did not complete a business questionnaire;
(h) failed to provide any books and records to the trustee.
19. Notwithstanding that the Federal Magistrate found that it was difficult to conclude that it was a case of a flagrant, reckless or even negligent disregard for the Court process, if Mr. Phillips had attended to fulfilling the creditor’s requirements prior to the expiration of the bankruptcy notice or prior to the hearing before the Registrar of the Federal Magistrates’ Court, the trustee would not have been placed in the position which ensued.
| 4. | The respondent seeks orders that the trustee pay the respondent’s costs related to the trustee’s application for an amendment order. The respondents outline sets out his submissions as follows: |
3. On the other hand, the trustee appeared at the hearing of the application for review to resist the relief sought by the respondent and to contend that an order ought to be made annulling the bankruptcy. The trustee’s appearance was by no means as amicus curiae, or even as a respondent to the application. Rather, his purpose in appearing was to prosecute his own application for relief, being the relief which would have been afforded to him by s 154 had an order been made annulling the bankruptcy.
4. It is appropriate to review the trustee’s role in the proceedings as, in substance, one of a "cross-applicant".
It is artificial to dismiss the respondent’s claim for costs against the trustee with a trivial observation that he had to appear to prosecute the application for review in any event. Whilst the respondent was required to attend to make his application, in reality the hearing (and ultimately the Court’s reasons for judgment) was almost entirely concerned with the trustee’s application for an annulment order. The respondent was obliged to oppose that application vigorously and with lengthy argument. Ultimately, for the reasons set out in the Court’s judgment, the trustee’ s application failed.
| 5. | The trustee, on making an application in the proceedings became a party. Therefore any orders would not be in favour of a now-party. |
| 6. | The substantive purpose of the trustee’s appearance in the matter was to propound its submissions that an annulment order should be made rather than an order setting aside the sequestration order. In this respect the trustee was unsuccessful in its application before the court. The respondent was successful in this regard. The applicant remained largely unaffected by the question of whether or not orders annulling or setting aside the sequestration order were made. |
| 7. | The purpose of the trustee’s application, in this case, was not to protect the trustee from claims by third parties, but wholly related to the trustee’s pecuniary interests. I see no basis for the applicant or the respondent to be ordered to pay the trustee’s costs and expenses of the hearing given that the trustee attended to seek orders solely for the trustee’s benefit, and the trustee was unsuccessful. |
| 8. | The respondent did incur costs in answering the claims of the trustee. The respondent has been successful in this regard. However the trustee was not the cause of the litigation and had incurred expenses because of the litigation. The respondent remained in the position of a litigant seeking an indulgence of the court. I am not satisfied that the trustee should be ordered to pay the respondents costs in this case. |
| 9. | The applicant and trustee both opposed the respondent’s application, ultimately unsuccessfully. I do not accept that an order for the trustee to pay part of the applicant’s costs ‘follows the event’. The ‘outcome’ was in favour of the respondent: both the applicant and the trustee were unsuccessful in opposing the order sought by the respondent. Neither the applicant, nor the trustee, obtained any orders in their favour, or relief against the other, nor defeated a claim of the other. In this case I am not satisfied that a costs order in favour of the applicant against the trustee is appropriate. |
| 10. | I therefore make no orders for costs beyond the consent orders made on 28 February 2006. |
I certify that the preceding ten (10) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
Associate:
Date:
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