Nilant (Trustee) v Macchia [2003] FCAFC 95

FEDERAL COURT OF AUSTRALIA

Nilant (Trustee) v Macchia [2003] FCAFC 95

COSTS – section 7 of the Federal Court Proceedings (Costs) Act 1981 (Cth) – whether there can be a present inability to pay a costs order for the purposes of that Act, where the obligation to pay the costs has been released

Federal Court Proceedings (Costs) Act 1981 (Cth) ss 6, 7, 8, 12 Bankruptcy Act 1966 (Cth) ss 178, 179 Federal Court Rules O 62 r 45, O 62 r 46 Minister for Immigration and Multicultural Affairs v Wang [2003] HCA 11 cited Re CHARLES PHILIPPE LOUIS NILANT as trustee of the bankrupt estate of Mario Silverio Macchia No WAG 51 of 1997 SPENDER, CARR, FINN JJ PERTH 19 MAY 2003 IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY WAG 51 OF 1997

BETWEEN: CHARLES PHILIPPE LOUIS NILANT as trustee of the bankrupt estate of Mario Silverio Macchia

APPLICANT

AND: MARIO SILVERIO MACCHIA

RESPONDENT

JUDGES: SPENDER, CARR, FINN JJ

DATE OF ORDER: 19 MAY 2003

WHERE MADE: PERTH

THE COURT DECLINES to grant to Charles Philippe Louis Nilant a costs certificate pursuant to s 7 of the Federal Proceedings (Costs) Act 1981 (Cth), in respect of Appeal No WAG 51 of 1997. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY WAG 51 OF 1997

BETWEEN: CHARLES PHILIPPE LOUIS NILANT as trustee of the bankrupt estate of Mario Silverio Macchia

APPLICANT

AND: MARIO SILVERIO MACCHIA

RESPONDENT

JUDGES: SPENDER, CARR, FINN JJ

DATE: 19 MAY 2003

PLACE: PERTH

REASONS FOR JUDGMENT THE COURT: 1 This is a notice of motion by Charles Philippe Louis Nilant ("the trustee") filed in Appeal WAG 51 of 1997 seeking an order: "Pursuant to section 7 of the Federal Proceedings (Costs) Act 1981, the Full Court of the Federal Court grants to the appellant to appeal WAG 51 of 1997 a costs certificate in respect of that appeal, the certificate to state that in the opinion of the Full Court it would be appropriate for the Attorney-General to authorise a payment under this Act to the appellant in respect of the costs incurred by the Appellant in relation to that appeal." Section 7 of the Federal Proceedings (Costs) Act 1981 (Cth) ("the Act") provides: "Costs certificates for appellants – Federal appeals 7. (1) Subject to this Act, where: (a) a respondent to a Federal appeal is, in pursuance of an order of a court, required to pay to an appellant any costs (in this section referred to as the 'relevant costs') incurred by the appellant in relation to the appeal; and (b) under subsection 6(1) or (2), the respondent is entitled to apply to the court for a costs certificate in respect of the appeal; the court, on the application of the appellant, may, if it is satisfied that: (c) the respondent is, by reason of lack of means, unable to pay the relevant costs or a part of the relevant costs; (d) the payment of the relevant costs or a part of the relevant costs would cause the respondent undue hardship; or (e) the whereabouts of the respondent are unknown; grant to the appellant a costs certificate in respect of the appeal. (2) The certificate that may be granted under subsection (1) by a court to an appellant to a Federal appeal is a certificate stating that, in the opinion of the court, it would be appropriate for the Attorney-General to authorize a payment under this Act to the appellant in respect of: (a) where paragraph (1)(c) applies – the whole of the relevant costs or that part of the relevant costs that the respondent is unable to pay; (b) where paragraph (1)(d) applies – the whole of the relevant costs or that part of the relevant costs the payment of which would cause the respondent undue hardship; or (c) where paragraph (1)(e) applies – the relevant costs." 2 The circumstances of this application for a costs certificate are somewhat unusual. 3 The appeal the subject of the present application was heard on 14 July 1997 by the Full Court as presently constituted, which ordered on 15 September 1997: "(1) the appeal be allowed; (2) the orders made on 11 April 1997 be set aside and the matter be remitted to Lee J for further consideration; (3) the respondent pay the appellant's costs of the appeal and of the proceedings before Lee J to date." 4 Pursuant to that order, the appellant's costs of the appeal were deemed to have been taxed at $9,000, in accordance with O 62 r 46(3) of the Federal Court Rules. Pursuant to O 62 r 45 by an order entered on 3 March 2000, Mr Macchia, the unsuccessful respondent to the appeal, was ordered to pay to the trustee the sum of $9,000. The costs of the proceedings before Lee J to that date were similarly deemed to have been taxed at $3,600. By order entered also on 3 March 2000, Mr Macchia was ordered to pay to the trustee the sum of $3,600. The amounts owing by way of those costs were not paid by Mr Macchia to the trustee. 5 The trustee obtained the issue by the Official Receiver of a bankruptcy notice against Mr Macchia alleging a debt of $12,600 as a consequence of the costs order of the Full Court in appeal WAG 51 of 1997. 6 After the determination of that appeal, the respondent made a further application to Lee J resulting in a further judgment in favour of Mr Macchia in the year 2000. That judgment was again the subject of a successful appeal by the trustee in Nilant v Macchia [2000] FCA 1528. The trustee's bill of costs in respect of the proceedings before Lee J in the year 2000 was in the amount of $8,158; and his bill of costs in respect of the 2000 appeal $20,598. Those bills of costs have not yet been taxed. 7 After the service of the bankruptcy notice on him, Mr Macchia applied to the Federal Court for orders extending the time for compliance with, and the setting aside of the bankruptcy notice, as well as damages against the trustee. This application was the subject of a judgment by French J in Macchia v Nilant [2001] FCA 7. Insofar as damages were claimed against the trustee under ss 178 and 179 of the Bankruptcy Act 1966 (Cth), that application was dismissed. Mr Macchia commenced proceedings by Writ 1470 of 2001 in the Supreme Court of Western Australia claiming damages against the trustee. 8 In 1998 in the Supreme Court of Western Australia, the trustee had supported an application to have the Public Trustee appointed as administrator of the deceased estate of Mr Macchia's mother, which application was unsuccessfully opposed by the respondent. In 1997 the trustee had sought to have himself appointed as administrator of Mr Macchia's mother's estate. The trustee's costs of those two Supreme Court probate actions were taxed on 10 December 1998 at $2,305.99 and $1,968 respectively. 9 In the bankruptcy proceedings before Lee J in 1997 and 2000, and in the Full Federal Court appeals of 1997 and 2000 from those proceedings, the trustee was represented by Carles Solicitors. In the action in relation to the damages claims against the trustee before French J in the Federal Court and the Supreme Court proceedings in 2001, the trustee was represented by Freehills and subsequently by a firm Pynt McKay, being solicitors engaged by the trustee's professional indemnity insurer. 10 The Full Court as presently constituted on 9 October 2000 granted a costs certificate to Mr Macchia in respect of the 1997 Full Federal Court appeal: see Nilant v Macchia [2000] FCA 1414. The orders the Court made were: 1. Pursuant to s 6(1) of the Federal Proceedings Costs) Act 1981, the Full Court of the Federal Court grants to the respondent to appeal WAG 51 of 1997 a costs certificate in respect of that appeal, stating that in the opinion of the Full Court it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent in respect of: (a) the costs incurred by the respondent in relation to that appeal; and (b) any costs incurred by an appellant in relation to that appeal that have been, or are required to be, paid by the respondent to the appellant in that appeal in pursuance of an order by the Full Court. 2. Pursuant to s 8(1) of the Federal Proceedings (Costs) Act 1981, the Full Court of the Federal Court grants to the respondent to appeal WAG 51 of 1997 a costs certificate in respect of the new trial, stating that in the opinion of the Full Court it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent in that appeal, in respect of such part as the Attorney-General considers appropriate, of the costs incurred by that party in relation to the new trial. 11 The respondent in those orders was Mr Macchia and the appellant was the trustee, Mr Nilant. 12 The position is that the Court has already granted a costs certificate in relation to the trustee's entitlement to the payment of costs by Mr Macchia in relation to the costs incurred by the trustee in relation to the trustee's appeal: par 1(b) of the orders referred to above. It may be, therefore, that the Attorney-General has paid something to Mr Macchia in respect of the relevant part of his costs obligation to the trustee, namely the costs incurred by the Trustee in relation to the appeal. It seems to us an odd consequence if, having recommended to the Attorney-General to pay out an amount to Mr Macchia in respect of his obligation to pay to the costs of the trustee in relation to the trustee's appeal, the court should then recommend that the Attorney General pay an amount for the costs incurred by the trustee in relation to the trustee's appeal direct to the trustee, when Mr Macchia may have retained the moneys paid by the Attorney-General to him on that account. 13 Consideration might be given to an amendment of the Federal Proceedings (Costs) Act 1981 so that the opinion of the Full Court in respect of the costs referred to in s 6(1)(b) would be that it would be appropriate for the Attorney-General to authorise a payment under the Act to the appellant. It might be necessary further to provide that any such payment would be a discharge pro tanto of any obligation by a respondent to an appellant in respect of costs of an appellant that had been ordered to be paid by a respondent to an appellant. 14 For the reasons given in that case, but perhaps unnecessarily, the present application has been dealt with, after notice to Mr Macchia and written submissions by him, on the papers, by the Full Court as constituted for the appeal WAG 51 of 1997. "The court that heard the appeal" in s 6(1), and s 8(1), and "the court" in s 7, is the Federal Court of Australia: see Minister for Immigration and Multicultural Affairs v Wang [2003] HCA 11, particularly at [30] and [31] per McHugh J, and [61] per Gummow and Hayne JJ. It seems, therefore, that s 12 of the Act, which provides that "[t]he jurisdiction conferred on a court by this Act to grant costs certificates may be exercised by a member of that court sitting in Chambers" authorises any member of the Federal Court of Australia sitting in Chambers to grant a costs certificate under the Act. 15 A difficulty for the present application is a Deed of Settlement and Release entered into on 30 May 2002. Pursuant to that deed, the trustee agreed to pay a net amount to Mr Macchia, and the trustee agreed as follows: "(a) he will not seek costs orders in relation to the Federal Court Action No. 7028 of 2000; (b) he will not pursue the costs of $9,000.00 awarded to him in Federal Court Action No WAG 51 of 1997; (c) he will not pursue the costs of $3,600.00 awarded to him in Federal Court Action No WAG 729 of 1991; (d) he will not seek nor enforce any costs orders against Macchia and in particular will not enforce the costs orders in: (i) Federal Court Action No. WG7007 of 1996; (ii) Federal Court Action No. W62 of 2000; and (e) he will contemporaneously with the execution of this Document provide a minute of Proposed Consent Orders executed by his solicitors agreeing to the bankruptcy notice against Macchia dated 7 March 2000 being set aside with no order as to costs." Item (b) concerns the costs the subject of the present application for a certificate. 16 In consideration of the payment of the settlement sum and the trustee's agreement as set out above, each party released and discharged the other party from "… all liability now existing or which might, but for this Document arise, in respect of, relating to, or in connection with: (a) the Dispute; or (b) any legal or other costs, charges, fees or expenses in respect of the Dispute." 17 The "Dispute" there referred to appears from Schedule 1 to the Deed dated 30 May 2002: "Dispute: Macchia has sued Nilant in the Federal Court Perth Registry, Action No 7028 of 2000, and in the West Australian Supreme Court, Action No. CIV1470 of 2001 seeking damages and alleging, inter alia, breach of sections 178 and 179 of the Bankruptcy Act and negligence in relation to Nilant's role as trustee in bankruptcy of Macchia. Nilant denies all liability. Nilant successfully struck out the claims pursuant to sections 178 and 179 of the Bankruptcy Act in the Federal Court Action. Argument on orders in relation to the costs of that strike-out application was adjourned and has not been heard." 18 Notwithstanding the breadth of the release, clause 4.3 of the deed of settlement and release provided: "Nothing in this Deed in any way limits or extinguishes Nilant's right to apply for costs certificates under the Federal Proceedings (Costs) Act 1981 in respect of any Federal Court proceedings relating to Macchia's 1991 bankruptcy." Mr Macchia warranted, in clause 5 as follows: "5.1 Macchia warrants that, apart from the assets described in his statutory declaration provided on or before the execution of this Document, he does not have any assets or funds with which to pay or meet any costs which have been or which may be awarded to Nilant in any Federal Court proceedings relating to or arising from Macchia's 1991 bankruptcy. 5.2 Macchia acknowledges that Nilant and his insurer have relied upon the above warranty in entering into this Deed. 5.3 Macchia further agrees to provide a current sworn statutory declaration setting out his assets and liabilities on or before his execution of this Document." 19 The warranty in clause 5.1 and an affidavit of Mr Macchia of 20 May 2002 suggest that if the Deed of Release had not been entered into, Mr Macchia would not have the financial means to pay the costs, or at least a very large part of them. 20 The Trustee submits that, in these circumstances, he: "…would have been entitled to seek a costs certificate in those circumstances. It is submitted that the right of the Appellant to apply for a costs certificate should not be prejudiced by the Deed of Release. The Respondent would have little or no funds remaining from the settlement amount received by him after payment of the various costs incurred by him in the various proceedings which took place in both the Supreme Court and the Federal Court." 21 The grant of a costs certificate is not to be determined by hypothetical considerations, but by the provisions of the Act. The grant of a certificate under s 7 of the Act is premised, relevantly, on the ground that "the respondent is, by reason of lack of means, unable to pay the relevant costs or a part of the relevant costs". It is not an accurate description of the present factual position to say that the respondent "is unable" to pay the relevant costs: rather, by reason of the Deed of Release, the position is that he is discharged from any obligation in respect of those costs. 22 Notwithstanding the reservation in clause 4.3 of the Deed concerning the trustee's "right to apply" for a costs certificate, the necessary requirement for the grant of a certificate under s 7 is absent. 23 We decline to recommend as sought by the application. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, Carr and Finn .