FEDERAL COURT OF AUSTRALIA Rasevi Pty Limited v Udowenko [2004] FCA 541 COSTS – payment of costs out of the bankrupt estate where bankrupt moves to set aside sequestration order Bankruptcy Act 1966 (Cth) ss 30 & 109(1)(a) Federal Court Act 1976 (Cth) s 23 Guss v Johnstone [2000] FCA 1584 referred to Stankiewicz v Plata [2000] FCA 1185 referred to RASEVI PTY LIMITED (ACN 002 579 286) v MICHAEL UDOWENKO & HELEN UDOWENKO N 7060 of 2002 JACOBSON J 4 MAY 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7060 of 2002 BETWEEN: RASEVI PTY LIMITED (ACN 002 579 286) APPLICANT AND: MICHAEL UDOWENKO and HELEN UDOWENKO RESPONDENTS JUDGE: JACOBSON J DATE OF ORDER: 4 MAY 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1 The applicant creditor's costs ordered to be paid by orders dated 12 November 2002, 7 February 2003, 26 March 2003 and 2 May 2003 be paid out of the bankrupt estates of the respondents in accordance with s 109(1)(a) of the Bankruptcy Act. 2 The applicant creditor's costs of this motion be paid out of the estates on the same basis. 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 7060 of 2002 BETWEEN: RASEVI PTY LIMITED (ACN 002 579 286) APPLICANT AND: MICHAEL UDOWENKO and HELEN UDOWENKO RESPONDENTS JUDGE: JACOBSON J DATE: 4 MAY 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is a Notice of Motion brought by the applicant for an order that the orders for costs made in its favour on 12 November 2002, 7 February 2003, 26 March 2003 and 2 May 2003 be paid out of the bankrupt estates of Michael Udowenko and Helen Udowenko jointly. Sequestration orders were made against Mr and Mrs Udowenko by Registrar Hedge on 23 July 2002. 2 The reason this application is made is that each of the costs orders to which I have referred provided that Mr and Mrs Udowenko pay the applicant's costs without stating that the costs be taxed and paid out of the bankrupts' estates in accordance with s 109(1)(a) of the Bankruptcy Act 1966 (Cth). 3 The costs orders were made on various Notices of Motion brought by Mr and Mrs Udowenko and their son, Wolodymyr. I made two of the orders, namely the order of 26 March 2003 and the order of 2 May 2003. The order of 12 November 2002 was made by Moore J and the order of 7 February 2003 was made by Lindgren J. 4 The order for costs which I made on 2 May 2003 was made when I refused an application for leave to appeal from a judgment of Lindgren J given on 7 February 2003 dismissing a motion to set aside an order made by Moore J on 12 November 2002. On that date Moore J dismissed a motion to "review" or "strike out" the sequestration order made by Registrar Hedge. Moore J dismissed the motion by reason of the non-appearance of Mr and Mrs Udowenko. 5 The costs order which I made on 26 March 2003 was made when I adjourned the hearing of the application for leave to appeal. 6 The Official Trustee submits to any order the Court may make on the present application. In an effort to save costs in the administration of the estates, the Trustee did not wish to be heard on the application. The Trustee's position is understandable and it was not necessary for the solicitors to attend. 7 I am satisfied that I have power to make the orders sought under s 23 of the Federal Court Act 1976 (Cth) and s 30 of the Bankruptcy Act. 8 Counsel for the applicant referred me to two cases in support of the orders. The first was a decision of a Full Court (Drummond, Sackville & Dowsett JJ) in Guss v Johnstone [2000] FCA 1584 ("Guss"). The second was a decision of a Full Court comprised of the same judges in Stankiewicz v Plata [2000] FCA 1185 ("Stankiewicz"). 9 In Guss at [6] the Court referred to the usual practice under which the primary judge in that case ordered that the costs of the petitioning creditor be taxed and paid in accordance with the Bankruptcy Act. 10 Their Honours said at [7] that it was appropriate that the costs of the substituted creditor be dealt with in the same way on the appeal, that is that the costs should be paid out of the bankrupt's estate in accordance with s 109(1)(a) of the Bankruptcy Act. Their Honours referred to a number of other appeals in which the same course was adopted. 11 In Stankiewicz the bankrupt appealed from a judgment dismissing an application for an annulment of a bankruptcy. The appeal was dismissed and their Honours ordered at [33] that the costs of the creditor should be taxed and paid out of the bankrupt's estate in the priority fixed by s 109(1)(a) of the Bankruptcy Act. 12 It seems to me that the principle which underlies the decisions in Guss and Stankiewicz is that costs properly incurred by a petitioning creditor in successfully resisting an application by a bankrupt to set aside a sequestration order should be paid out of the estate in the priority fixed by the Bankruptcy Act. 13 Each of the costs orders the subject of the present application was made in the applicant's favour on or in relation to an application in which the applicant as petitioning creditor successfully resisted a proceeding to set aside the order of Registrar Hedge. Certificates of the amounts of the costs have now issued except for the order made on 26 March 2003. 14 Although the judge who made each costs order, myself included, did not specifically state that the costs should be paid out of the bankrupt estates of Mr and Mrs Udowenko, I am satisfied that this was the intention of each order. If that were not so, the petitioning creditor would be denied its costs in properly resisting unsuccessful applications to set aside the sequestration order which it obtained. 15 Mr and Mrs Udowenko's son, Wolodymyr, sought leave to appear on their behalf in the application to oppose the orders which are sought. In the unusual circumstances of this case, which I described in some detail in my judgment of 2 May 2003, I thought it was appropriate to grant Wolodymyr leave to appear. 16 He pointed out that the sequestration orders have caused considerable hardship to his parents. Counsel for the applicant accepted that this was so. However, that does not provide a ground for refusing the relief which is sought. The hardship which has been caused to Mr and Mrs Udowenko is an unfortunate consequence of the history of the proceedings. 17 Wolodymyr tendered evidence which he relied upon in opposition to the orders. The evidence included correspondence with the NSW police service and a written statement of Mr Wolodymyr Udowenko in which he contends that the petition was not served on his parents by the process server. Counsel for the applicant objected to the admission of the evidence on the ground of relevance but I admitted it. 18 Wolodymyr submitted that the evidence which he tendered established that the judgment debt was obtained by perjured evidence given on behalf of the creditor. He also submitted that the process server who swore to service of the petition on Mr and Mrs Udowenko has admitted that he did not in fact serve them. 19 However, Lindgren J, having given careful consideration to the matter found that there was no sufficient ground to go behind the judgment which gave rise to the debt and he also accepted the process server's testimony. I refused leave to appeal from his Honour's judgment. 20 The submissions put by Wolodymyr were therefore dealt with in my judgment of 26 May 2003. They are not a ground on which to oppose the relief sought on this application. 21 Accordingly, the orders I will make are that the applicant creditor's costs ordered to be paid by orders dated 12 November 2002 by Moore J, 7 February 2003 by Lindgren J and 26 March 2003 and 2 May 2003, which were made by me, be paid out of the bankrupt estates of Michael and Helen Udowenko in accordance with s 109(1)(a) of the Bankruptcy Act. 22 I also order that the applicant creditor's costs of this motion be paid out of the estates on the same basis. 23 Prior to handing down judgment I received by facsimile a bundle of documents from Wolodymyr. I did not give leave to him to submit the material. However, I have looked at it and there is nothing which alters the views I have reached. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate: Dated: 4 May 2004 Counsel for the Applicant: R D Marshall Solicitor for the Applicant: Nash Allen Williams & Wotton Respondents were self-represented Date of Hearing: 29 April 2004 Date of Judgment: 4 May 2004