FEDERAL COURT OF AUSTRALIA Citibank Ltd, in the matter of Stivactas v Parker [2000] FCA 1914 BANKRUPTCY – costs of setting aside a 139ZQ notice – whether the successful applicant should have their costs met by the Official Receiver or the Trustee in Bankruptcy – whether the Official Receiver should have its costs paid by the applicant or the Trustee in Bankruptcy where there was no evidence of defect in the formal parts of the notice – where the s 139ZQ notice was set aside by consent Bankruptcy Act 1966 (Cth) ss 139ZQ & 139ZS Re Wedgwood ; Ex parte Bank of New Zealand (1993) 116 ALR 153 followed Terry v Official Receiver (Cooper J, 18 September 1998, unreported) distinguished Ramirez v Sandor's Trustee (No 2) (Young J, 23 October 1997, unreported) followed Trustees of the Property of Zoltan Sandor, a Bankrupt v Ramirex [1999] NSW CA 261 followed IN THE MATTER OF SPIROS STIVACTAS CITIBANK LIMITED v ROBERT COLIN PARKER (TRUSTEE OF THE ESTATE OF SPIROS STIVASTAS) AND OFFICIAL RECEIVER FOR THE DISTRICT OF SOUTH AUSTRALIA N 7623 OF 2000 TAMBERLIN J SYDNEY 22 DECEMBER 2000 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7623 OF 2000 IN THE MATTER OF SPIROS STIVACTAS BETWEEN: CITIBANK LIMITED APPLICANT AND: ROBERT COLIN PARKER (TRUSTEE OF THE ESTATE OF SPIROS STIVACTAS) FIRST RESPONDENT OFFICIAL RECEIVER FOR THE DISTRICT OF SOUTH AUSTRALIA SECOND RESPONDENT JUDGE: TAMBERLIN J DATE OF ORDER: 22 DECEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The first respondent should pay the applicant's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7623 OF 2000 IN THE MATTER OF SPIROS STIVACTAS BETWEEN: CITIBANK LIMITED APPLICANT AND: ROBERT COLIN PARKER (TRUSTEE OF THE ESTATE OF SPIROS STIVACTAS) FIRST RESPONDENT OFFICIAL RECEIVER FOR THE DISTRICT OF SOUTH AUSTRALIA SECOND RESPONDENT JUDGE: TAMBERLIN J DATE: 22 DECEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application for costs brought by Citibank Limited ("Citibank") against the Official Receiver and the Trustee of the Bankrupt Estate of Spiros Stivactas ("the Trustee"). It arises from the setting aside by consent of a notice ("the Notice") under s 139QZ of the Bankruptcy Act 1966 (Cth) ("the Act"). The Notice was issued against Citibank by the Official Receiver on the request of the Trustee. It was issued on 11 July 2000 and required the payment of an amount of $115,553.96 to the Trustee. The repayment was claimed to reverse a voidable transaction. The facts and circumstances relied on to support a contention that the transaction was void under the Actwere set out in a Schedule to the Notice ("the Schedule"). An accompanying letter from the Official Receiver, Ms Tragauer, dated 20 June 2000, confirmed that the Notice was issued by her as Official Receiver on behalf of the Trustee, Mr Robert Parker. 2 There is nothing on the face of the Schedule to indicate in any way that there is no basis for the Trustee's claim. Nor is it suggested that the Official Receiver should have been on notice of any deficiency in the case sought to be made by the Trustee to recover the money. 3 An application to set aside the Notice was filed by Citibank on 18 July 2000. On 1 August the Official Receiver entered an appearance and before Registrar Quinn submitted to any orders save as to costs. On 1 September 2000 the representative of the Trustee stated that he did not propose to file any evidence to support the Notice. The Official Receiver, at the request of the Trustee, revoked the s 139ZQ Notice. There is no suggestion that the Notice issued by the Official Receiver was defective as to form. Rather, it appears that a decision was taken by the Trustee that there was insufficient evidence to proceed with the matter. 4 Section 139ZQ of the Act relevantly provides: "(1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver: (a) if the Official Trustee is the trustee – on the initiative of the Official Receiver; or (b) if a registered trustee is the trustee – on application by the trustee; may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received. (2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee." 5 Section 139ZS confers power on the Court to set aside a Notice under s 139ZQ in these terms: "(1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice. (2) A notice that has been set aside is taken not to have been given." costs of citibank 6 Costs are at the discretion of the Court but that discretion must be exercised judicially. The general rule is that costs follow the event. There is no special rule as to the costs of an Official Receiver or Trustee in the context of bankruptcy and it is necessary to closely examine the circumstances of each case. 7 As Young J in the Supreme Court of New South Wales observed in Ramirez v Sandor's Trustee (No 2) (23 October 1997, unreported): "… there is no special rule as to the payment of costs to or by an Official Trustee or liquidator. Ordinarily, such people will not sue unless they either have sufficient funds to discharge their obligations in the litigation, or they have an indemnity as to costs from interested creditors. As a general rule, liquidators or Official Trustees who proceed without covering their costs in this way are at risk, see Ex parte Angerstein [1874] 9 Ch App 479." 8 In that case his Honour ordered that the unsuccessful respondent trustee should pay the costs of the plaintiff. The decision of Young J in this respect was upheld by the New South Wales Court of Appeal: see Trustees of the Property of Zoltan Sandor, a Bankrupt v Ramirex [1999] NSW CA 261 at par 71-76. 9 My attention has been directed to authorities where the Court has awarded costs against a trustee in circumstances where a s 139 ZQ Notice has been set aside: see for example Re Wedgwood ; Ex parte Bank of New Zealand (1993) 116 ALR 153. In that case the respondent trustee had argued that he should not have been made a respondent to the application but that the proper respondent was the Official Receiver whose decision to issue the Notice was only reviewable by way of administrative review. Cooper J rejected this argument and said at 161-162: "Section 139ZS of the Act gives to the applicant a right to come to this court to set aside the notice. Where the notice is procured at the initiative of the trustee (s139ZQ(1)(b)) and the trustee is the person to receive the value of the property (s 139ZQ(1) and (7)) and the person entitled to sue for the recovery of it as a debt (s 137ZQ(8), the trustee, is in my view the proper respondent who, being the beneficiary of the notice has the necessary interest to appear and argue in support of validity of the notice. That is what occurred in the instant case. Having failed on the application the trustee ought to pay the applicant's costs." 10 Those observations, in my view, are apposite in the present circumstances. In a subsequent decision of Terry v Official Receiver (Cooper J, 18 September 1998, unreported) his Honour ordered the Official Receiver to pay the costs of a Notice which had been set aside. In that case, the solicitors for the applicant had written to the trustee outlining formal defects in respect of the Notice issued by the Official Receiver and challenging the basis on which it was asserted that the trustee was entitled to have the transaction set aside. In his reasons Cooper J refers to the fact that it was the trustee who had decided not to proceed further in resisting the application. It does not appear that the trustee was a party in Terry and accordingly the only party against whom the costs could have been awarded was the Official Receiver. However, the case is distinguishable from the present where there is no suggestion of any formal defect in the Notice or any fault or oversight on the part of the Official Receiver. 11 In Re Pearson; Ex parte Wamsley v Pearson (1993) 46 FCR 55 a Notice under s 139ZQ was issued by the Official Receiver at the request of a trustee of the bankrupt estate. After hearing argument his Honour made a declaration that the transfer challenged was not void as against the trustee and ordered the trustee to pay costs. More recently in Norton v Halse (Trustee of the Bankrupt Estate of Payne) (1996) 137 ALR 593, Carr J set aside a notice issued by the Official Receiver under s 139ZQ of the Act. The Official Receiver was a respondent. The trustee was also a respondent. Having held that the notice should be set aside his Honour ordered the applicants' costs including any reserved costs were to be paid by the trustee. There was no costs order against the Official Receiver. 12 In the circumstances of this case the normal rule should apply and the costs should follow the event. Citibank should be awarded costs. The question is against whom? The real party with an interest in the issue of the Notice was clearly the Trustee. The Notice was issued on behalf of the Trustee by the Official Receiver and required payment to the Trustee of the moneys claimed under the allegedly void transaction. The Official Receiver made it clear that the Notice was issued at the request of the Trustee. As was appropriate in the circumstances the Official Receiver made it clear that she did not intend to take any active part in the proceedings. The authorities to which I have referred to above proceeded on the basis that the Trustee is the real party with an interest in the proceedings and in my view the present is not a case where the Official Receiver should be ordered to pay costs. Although the Act provides that the issue of a Notice under s 139ZQ is discretionary (by using the word "may") it does not follow that the Official Receiver ought to suffer the burden of costs where the Notice is issued and the Trustee is unable to make out the position for which he contends. The position may be otherwise in circumstances where it could be shown that there was some default on the part of the Official Receiver, such as issuing a notice in an incorrect form, which led to its being set aside or where it was manifest on the facts set out as part of the Notice that there was no basis for the claim to be made out. However, it is not necessary, in my view, for the Official Receiver to embark on a detailed investigation as to the factual or legal merits of the claim which forms the basis of the request for the Notice. 13 Therefore I consider that costs should be awarded in favour of Citibank against the Trustee but not against the Official Receiver. costs of official receiver 14 The Official Receiver submitted that as a result of the way in which the matter was conducted, necessitating additional work on her behalf, she should recover her costs from either Citibank or the Trustee. I am not satisfied that any ground has been made out for such a conclusion. There is an assertion in the correspondence that it was only through the persistent communication from the solicitors for Citibank that the Official Receiver was obliged to appear beyond its submitting appearance. However it was not necessary for the Official Receiver to accede to these proposals. In my view neither Citibank nor the Trustee should have to pay any part of the costs of the Official Receiver. 15 Therefore I order that the Trustee pay the costs of Citibank in relation to the application to set aside the s 139ZQ Notice. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 22 December 2000 Counsel for the Applicant: S D Epstein SC Solicitor for the Applicant: Deacons Counsel for the Respondent: Sullivans Solicitors Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 14 December 2000 Date of Judgment: 22 December 2000