FEDERAL COURT OF AUSTRALIA Lawman v Queensland Building Services Authority (No 2) [2000] FCA 174 BANKRUPTCY - priority of costs in distribution of bankrupt's estate - costs of petitioning creditor and trustee in annulment proceedings - charges and expenses of the administration of the bankruptcy - trustee incurring substantial expense Bankruptcy Act 1966 (Cth) ss 32 and 109 RAYMOND MICHAEL LAWMAN v QUEENSLAND BUILDING SERVICES AUTHORITY AND GRAHAM ROSS BENDEICH, TRUSTEE Q 213 OF 1999 HEEREY, DRUMMOND AND DOWSETT JJ 25 FEBRUARY 2000 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 213 OF 1999 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: RAYMOND MICHAEL LAWMAN APPELLANT AND: QUEENSLAND BUILDING SERVICES AUTHORITY FIRST RESPONDENT GRAHAM ROSS BENDEICH, TRUSTEE SECOND RESPONDENT JUDGES: HEEREY, DRUMMOND AND DOWSETT JJ DATE OF ORDER: 25 FEBRUARY 2000 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The first respondent's costs be paid out of the bankrupt's estate with the same priority accorded by s 109(1)(a) the Bankruptcy Act 1966 (Cth) to the trustee's costs. 2. The second respondent's costs be paid out of the bankrupt's estate. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 213 OF 1999 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: RAYMOND MICHAEL LAWMAN APPELLANT AND: QUEENSLAND BUILDING SERVICES AUTHORITY FIRST RESPONDENT GRAHAM ROSS BENDEICH, TRUSTEE SECOND RESPONDENT JUDGES: HEEREY, DRUMMOND AND DOWSETT JJ DATE: 25 FEBRUARY 2000 PLACE: BRISBANE REASONS FOR JUDGMENT THE COURT: 1 When the Court ordered that the appeal be dismissed, it intimated that both respondents, the petitioning creditor and the trustee, should have their costs out of the bankrupt's estate with priority according to s 109(1)(a) of the Bankruptcy Act 1966 (Cth), but gave the parties the opportunity to make submissions on costs. 2 Submissions have been received from the trustee that he will be unfairly prejudiced unless he is given priority for his costs of the annulment proceedings over the petitioning creditor in view of the deficiency in the estate of the bankrupt. 3 On further consideration, it appears that s 109(1)(a) does not authorise any payment out of the proceeds of the property of the bankrupt of the costs of the petitioning creditor of the annulment proceedings. "The taxed costs of the petitioning creditor" in s 109(1)(a) refers only to the creditor's costs in connection with the obtaining of the sequestration order: see reg 6.01 and Item 5 of Sch 3 to the Regulations. 4 The "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 s 175" referred to in s 109(1)(a) include the liability incurred by the trustee to his legal representative in connection with the annulment proceedings: they are "expenses of the administration". The trustee is entitled to payment of his legal costs under s 109(1)(a) in the priority fixed pursuant to reg 6.01(1) and Item 3 of Sch 3 to the Regulations and to payment of his entitlement to remuneration for work done by him in connection with the annulment proceedings in the priority fixed by reg 6.01(1) and Item 6 of Sch 3. 5 Though the Act, by s 109(1)(a), makes express provision for the priority in which the costs to which the trustee is entitled in respect of the annulment proceedings are to be paid, that provision is expressed to be "subject to this Act", ie, subject to s 32. Under s 32 of the Bankruptcy Act, the Court has a wide power with respect to costs orders. This would extend in an appropriate case to ordering that a party to proceedings in bankruptcy entitled to the costs of those proceedings should have those costs out of the estate in a particular priority. The petitioning creditor was plainly not acting only in its own interest. The petitioning creditor, by successfully resisting the bankrupt's annulment application, has preserved the bankrupt's property, such as it is, for distribution among the creditors generally. It can therefore be said to have a claim to payment out of the estate of its costs of doing that in the same priority which s 109(1)(a) accords to the trustee's costs of the annulment proceedings. This consideration, in our opinion, entitles the petitioning creditor to be put in the same position so far as priority of payment of his costs is concerned as is the trustee. The fact that the trustee has incurred expenses substantially in excess of what was expected is not conclusive against the result we have reached. 6 The order as to costs will therefore be that the first respondent's costs be paid out of the bankrupt's estate with the same priority accorded by s 109(1)(a) to the trustee's costs. There should also be an order that the costs of the second respondent be paid out of the bankrupt's estate. It is unnecessary to deal with the priority in which the trustee's costs are to be paid because that matter is, for the reasons given, already covered by s 109(1)(a). I certify that the preceding six (6) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. Associate: Dated: 25 February 2000 Counsel for the Appellant: The Appellant appeared in person. Counsel for the First Respondent: Mr MD Martin Solicitor for the First Respondent: Gregg Lawyers Solicitor for the Second Respondent: Morgan Connolly Date of Judgment: 25 February 2000