Federal Court of Australia Kimber v Clark in his capacity as trustee of the property of Kimber (No 2) [2023] FCAFC 88 Appeal from: Clark and Aravanis in their capacity as joint and several trustees of the property of Kimber v Owners Corporation SP48216 (No 2) [2021] FedCFamC2G 62 File number: NSD 1373 of 2021 Judgment of: BROMWICH, CHEESEMAN AND MCEVOY JJ Date of judgment: 7 June 2023 Catchwords: COSTS – question of costs reserved after appeal proceedings – where costs of proceedings before the Federal Circuit and Family Court of Australia (Division 2) are to be determined due to a costs order being set aside for clarity reasons – whether costs below should be to be paid out of the estate of the formerly bankrupt appellant in priority pursuant to s 109(1) of the Bankruptcy Act 1966 (Cth) – whether the respondents are entitled to costs from the appellant personally for the appeal proceedings – whether the second respondent was a non-party – whether costs should be assessed on a lump sum basis – held: costs awarded in favour of the respondents, to be paid out of the estate for the proceeding below, and personally for the appeal, both to be assessed on a lump sum basis. Legislation: Bankruptcy Act 1966 (Cth) ss 116(4), 109(1) Federal Court Rules 2011 (Cth) rr 40.03, 40.04 Costs Practice Note (GPN-Costs) cl 4.1 Cases cited: Frigger v Trenfield (No 11) [2022] FCA 326 James George Turner v Official Trustee in Bankruptcy [1997] FCA 1505 Kimber v Clark in his capacity as trustee of the property of Kimber [2022] FCAFC 198. Life Therapeutics Ltd v Bell IXL Investments Ltd (No 2) [2008] FCAFC 158; 170 FCR 595 Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 19 Date of last submissions: 24 February 2023 Date of hearing: Determined on the papers Counsel for the Appellant: Mr H Sonmez (pro bono) Solicitor for the Appellant: Craddock Murray Neumann (pro bono) Counsel for the First Respondent: Ms M Castle and Mr J Rodgers Solicitor for the First Respondent: Daniela Fazio Lawyers Pty Ltd Solicitor for the Second Respondent: Mr D Radman of Grace Lawyers Pty Ltd (appearing as counsel) ORDERS NSD 1373 of 2021 BETWEEN: JANELLE KIMBER Appellant AND: ALEXANDER DAVID CLARK AND ANDREW ARAVANIS IN THEIR CAPACITY AS JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF JANELLE MARY KIMBER, A REGULATED DEBTOR Respondent order made by: BROMWICH, CHEESEMAN, MCEVOY JJ DATE OF ORDER: 7 June 2023 THE COURT ORDERS THAT: 1. The appellant pay: (a) the first and second respondents' costs of the application before the Federal Circuit and Family Court of Australia (Division 2); and (b) the costs and expenses of removing and disposing of any personal property on Unit 110, 450 Pacific Highway, Lane Cove in the State of New South Wales, being the whole of the land contained in Certificate of Title Folio Identifier 110/SP 48216 (the Property), such costs to be paid out of the estate of the appellant in priority pursuant to s 109(1) of the Bankruptcy Act 1966 (Cth), and to be assessed on a lump sum basis by a registrar of this Court. 2. The appellant pay the first and second respondents' costs of the appeal proceedings, to be assessed on a lump sum basis by a registrar of this Court. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT THE COURT: Introduction 1 This is the determination of the question of costs arising from the Full Court's judgment delivered on 16 November 2022: Kimber v Clark in his capacity as trustee of the property of Kimber [2022] FCAFC 198. The appeal was mostly resolved against the appellant, Ms Kimber, and in favour of the first respondents, Alexander David Clark and Andrew Aravanis, in their capacity as Joint and Several Trustees of the Property of Janelle Mary Kimber, and the second respondent, the Owners Corporation SP48216. The costs relating to that appeal were reserved, including the costs in the Federal Circuit and Family Court of Australia (Division 2) of Australia (Federal Circuit Court). 2 Ms Kimber sought to appeal the orders made by a judge of the Federal Circuit Court, pursuant to a limited grant of leave given by Rares J by orders made on 8 February 2022. The appeal, while being dismissed, did result in minor amendments being made to the primary judge's orders, and the deletion of the costs order made below, so as to enable a single set of costs orders to be made after the appeal. 3 The competing positions of the parties may be summarised as follows: (a) Ms Kimber seeks that no order for costs is made against her in favour of either the Trustees or the Owners Corporation. (b) The Trustees seek that: (i) No costs order be made against Ms Kimber personally, but that Ms Kimber's estate pay the costs and expenses of the application before the Federal Circuit Court with an order, in substance, in the following form: The applicants' costs and expenses of this application and the costs and expenses of attending to remove and dispose [of] any personal property on the Property be paid as a cost and expense of the bankrupt estate and paid in priority pursuant to s 109(1) of the Bankruptcy Act 1966 (Cth). and; (ii) Ms Kimber pay the Trustees' costs personally for the appeal proceedings, as a lump sum determined by referral to a Registrar. (c) The Owners Corporation also seeks an order that Ms Kimber pay its costs of the appeal personally, following the event. 4 The principles regarding costs were conveniently summarised by Greenwood, Rares and Moshinsky JJ in Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158 as follows: [9] Section 43(3)(e) of the Federal Court of Australia Act 1976 (Cth) provides that an award of costs may be made in favour of, or against, a party whether or not that party is successful in the proceeding. The approach usually taken is that costs follow the outcome of an appeal: see Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; see also Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [303]; Oshlack v Richmond River Council (1998) 193 CLR 72 at [66]-[68]. [10] In Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370, Dowsett, Middleton and Gilmour JJ, after referring to Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 and State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174, said at [11] that these decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs, but contemplate at least three distinct categories of situation in which a successful party might be deprived of costs, or even ordered to pay the costs of the other side. These were identified as follows: One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party's conduct of the case. [11] After referring to the decision of Finkelstein and Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Dowsett, Middleton and Gilmour JJ in Queensland North Australia then said at [18]: [Section 43 of the Federal Court of Australia Act] does not mention costs following the event. In Ruddock, Bowen Investments and Sportsbet, the Court proceeded on the basis that ordinarily, the successful party may reasonably expect to receive its costs, whether that outcome be described as costs following the "event" or otherwise. The question of costs is within the Court's discretion. As we have said, relevant factors include the extent of a party's success, the extent of its success or failure on individual issues and its conduct of the proceedings. Costs of the Federal Circuit Court proceeding 5 The primary judge made orders in favour of the Trustees and the Owners Corporation. The respondents do not seek costs against Ms Kimber personally, conceding that the matter before the primary judge would have proceeded to bring the administration of her estate to a close, even if she had not taken up her opportunity to be heard and participated in the proceeding. 6 Ms Kimber also concedes that the course proposed by the Trustees relating to the costs of the Federal Circuit Court proceeding, in accordance with s 109(1) of the Bankruptcy Act 1966 (Cth) is appropriate. 7 Section 109(1)(a) relevantly provides: Subject to this Act, the trustee must, before applying the proceeds of the property of the bankrupt in making any other payments, apply those proceeds in the following order: (a) first, in the order prescribed by the regulations, in payment of the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee and the costs of any audit carried out under section 175; 8 In these circumstances, noting that the respondents do not seek costs against Ms Kimber personally in relation to the Federal Circuit Court proceeding, the appropriate order is that the costs of the Trustees and of the Owners Corporation are paid out of the bankrupt estate in priority, and accordingly, the substance of the order proposed by the Trustees at [3(b)(i)] above should be made. Costs of the appeal proceeding 9 Both the Trustees and the Owners Corporation seek an order for costs against Ms Kimber personally in relation to the appeal proceeding on the basis that, as a general rule, costs follow the event. They rely on the operation of rr 40.03 and 40.04 of the Federal Court Rules 2011 (Cth), which provide: 40.03 Costs reserved If the Court reserves the question of costs, and no further order is made, costs follow the event. 40.04 Costs on interlocutory application or hearing If no order for costs is made on an interlocutory application or hearing, the costs of the application or hearing: (a) if an order is made in favour of any party--follow the event; or (b) if no order is made in favour of any party--are taken to be costs in the cause of the successful party to the proceeding. 10 Ms Kimber submits that the appeal proceeding was not commenced unmeritoriously, given that leave was granted for the appeal to proceed. In addition, she argues that the deletion by this Court of order 11 made by the primary judge could be characterised as substantive success in the appeal, as the Trustees no longer seek an order requiring costs to be paid from the net proceeds of sale from Unit 110, 450 Pacific Highway, Lane Cove, Sydney, New South Wales, being the whole of the land contained in Certificate of Title Folio Identifier 110/SP 48216, being the property that was once owned by Ms Kimber (the Property). This submission cannot be accepted. The grant of leave to appeal is not ordinarily any measure of a party's ultimate success and certainly was not in this case. Moreover, it was made abundantly clear in the Full Court's judgment at [43] that order 11 was set aside only for lack of clarity. 11 Ms Kimber further submits that a personal costs order is likely to deprive her of the benefit of her protected monies payment, as the costs of the Trustees would exceed this payment and frustrate the legislative intent of s 116(4) of the Bankruptcy Act to protect personal injury compensation monies. The response to that is that Ms Kimber, having been discharged from bankruptcy, decided to maintain this appeal. She cannot be heard to complain if she is required to compensate the respondents for their costs incurred in successfully defending her appeal. In those circumstances, it is appropriate that the ordinary rule is applied and accordingly that costs follow the event. 12 All of Ms Kimber's substantive arguments on appeal failed, and there is no principle which confines the trustee in bankruptcy only to recovery from the bankrupt estate. To the contrary, as Jackson J observed in Frigger v Trenfield (No 11) [2022] FCA 326 at [28]: There are various cases in which costs have been ordered against a bankrupt who was unsuccessful in litigation 'personally', that is, on the basis that recourse may be had to assets that do not form part of the bankrupt estate: see e.g. Fitzpatrick v Keelty (No 2) [2008] FCA 742 at [11], [14] (Moore J); Morris Finance Ltd v Free (No 2) [2017] NSWSC 1514 at [30], [32] (Ward CJ in Eq, as she then was). An order of that kind may be made in favour of a trustee in bankruptcy who is successful in litigation against the bankrupt: see Mehajer v Weston in his Capacity as Trustee of the Bankrupt Estate of Salim Mehajer [2019] FCA 1713 at [72] (Lee J). 13 Further, we are unable to accept Ms Kimber's submission that requiring her to pay costs out of her protected monies payment would be in conflict with s 116(4) of the Bankruptcy Act. In James George Turner v Official Trustee in Bankruptcy [1997] FCA 1505, Ryan, Einfeld and Foster JJ found that there is no general principle which limits the wide discretion relating to the award of costs provided by s 42 of the Federal Court of Australia Act 1976 (Cth) and observed at p 7 that: The fund of "protected money" which will come into existence when the Trustee makes an appropriate determination under s 116(4) is vested in the Trustee along with the proceeds of sale. Although the Trustee has an obligation to make payment to the bankrupt, this is not inconsistent, in our view, with the Trustee, when empowered by an order of the Court so to do, abstracting from that sum an appropriate amount for costs before the payment of the balance to the bankrupt. We are, accordingly, satisfied that the Court had power to make an order affecting the "protected money". … 14 Accordingly, this Court has the power to order that Ms Kimber pay the Trustees' costs for the appeal proceeding personally, and it is appropriate in all the circumstances given the result. Owners Corporation's costs 15 The Owners Corporation seeks costs from Ms Kimber following the event on the ordinary basis. Ms Kimber submits that the Owners Corporation is a creditor in the bankrupt estate rather than a party to the proceeding. She submits that only in exceptional circumstances, such as where a non-party's participation in a matter is warranted in order to protect an interest not common with the parties to the proceeding, should a non-party be granted an order for costs in their favour, citing Life Therapeutics Ltd v Bell IXL Investments Ltd (No 2) [2008] FCAFC 158; 170 FCR 595 at 599–600. 16 The second respondent seeks to distinguish Life Therapeutics upon the basis it was a case where the "non-party" status was attributed to directors of a company who were not parties to the proceedings but had appeared at the final hearing in anticipation of a personal costs order being sought against them. They submit that the question of exceptional circumstances does not arise because they are the second respondent in these proceedings, not a non-party. That submission should be accepted, noting that the Owners Corporation had much of the ordinary and typical involvement in litigation as a party, albeit not as the principal respondent, including the instruction and appearance of a legal representative, with submissions made at the case management hearing and in the appeal. 17 It follows that the ordinary rule that costs should follow the event, there being no compelling reason why that rule should not be followed. Ms Kimber should therefore be ordered to pay the costs of the Owners Corporation personally. Should the costs be assessed on a lump sum basis? 18 The Trustees seek a lump sum costs order, which Ms Kimber opposes, without giving any clear reason. There is no apparent reason to depart from the Court's preference for making a lump-sum costs order where it is practicable to do so in accordance with cl 4.1 of the Court's Costs Practice Note (GPN-Costs). A lump-sum assessment will avoid the expense and delay of conventional taxation, with the inevitable additional costs that would entail. Conclusion 19 Ms Kimber must pay the respondents' costs following the event for the appeal, and out of the bankrupt estate for the application before the primary judge, on a lump sum basis to be assessed by a Registrar of this Court. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Bromwich, Cheeseman, McEvoy. Associate: Dated: 7 June 2023