FEDERAL COURT OF AUSTRALIA Naudi, a joint and several trustee of the property of Taylor (a Bankrupt) v Pee Vee Nominees Pty Ltd [2013] FCA 536 Citation: Naudi, a joint and several trustee of the property of Taylor (a Bankrupt) v Pee Vee Nominees Pty Ltd [2013] FCA 536 Parties: ROBERT WILLIAM NAUDI, A JOINT AND SEVERAL TRUSTEE OF THE PROPERTY OF BRENDAN TAYLOR, A BANKRUPT and PETER IVAN MACKS, A JOINT AND SEVERAL TRUSTEE OF THE PROPERTY OF BRENDAN TAYLOR, A BANKRUPT v PEE VEE NOMINEES PTY LTD (ACN 007 974 003) and CAPITAL FINANCE AUSTRALIA LIMITED (ABN 23 069 663 136) File number: SAD 123 of 2012 Judge: LANDER J Date of judgment: 10 April 2013 Catchwords: COSTS – application for indemnity costs PRACTICE AND PROCEDURE – application for leave to file notice of discontinuance Legislation: Bankruptcy Act 1966 (Cth), ss 77C, 81, 120, 121 Corporations Act 2001 (Cth), s 233 Fair Trading Act 1987 (SA), s 87 Federal Court Rules 2011, r 26.12 Cases cited: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 Crossman v Taylor (No 3) [2011] FCA 734 Taylor v Crossman [2011] FCAFC 139 Taylor v Crossman (No 2) (2012) 199 FCR 363 Date of hearing: 4 April 2013 Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 91 Counsel for the Applicants: Mr P Britten-Jones Solicitor for the Applicants: Mellor Olsson Lawyers Counsel for the First Respondent: Mr R Ross-Smith Solicitor for the First Respondent: Fox Tucker Lawyers Counsel for the Second Respondent: The Second Respondent did not appear IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 123 of 2012 BETWEEN: ROBERT WILLIAM NAUDI, A JOINT AND SEVERAL TRUSTEE OF THE PROPERTY OF BRENDAN TAYLOR, A BANKRUPT First Applicant PETER IVAN MACKS, A JOINT AND SEVERAL TRUSTEE OF THE PROPERTY OF BRENDAN TAYLOR, A BANKRUPT Second Applicant AND: PEE VEE NOMINEES PTY LTD (ACN 007 974 003) First Respondent CAPITAL FINANCE AUSTRALIA LIMITED (ABN 23 069 663 136) Second Respondent JUDGE: LANDER J DATE OF ORDER: 10 april 2013 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The first respondent's application for indemnity costs be dismissed. 2. The applicants have leave to discontinue the proceeding against the first respondent. 3. The applicants pay the first respondent's costs on a party/party basis. 4. The first respondent pay the applicants' costs of the first respondent's application for indemnity costs, on a party/party basis. 5. The time within which the first respondent has to appeal from these orders be extended until 14 days after publication of the reasons for these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 123 of 2012 BETWEEN: ROBERT WILLIAM NAUDI, A JOINT AND SEVERAL TRUSTEE OF THE PROPERTY OF BRENDAN TAYLOR, A BANKRUPT First Applicant PETER IVAN MACKS, A JOINT AND SEVERAL TRUSTEE OF THE PROPERTY OF BRENDAN TAYLOR, A BANKRUPT Second Applicant AND: PEE VEE NOMINEES PTY LTD (ACN 007 974 003) First Respondent CAPITAL FINANCE AUSTRALIA LIMITED (ABN 23 069 663 136) Second Respondent JUDGE: LANDER J DATE: 4 june 2013 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This is an application by the first respondent for costs on an indemnity basis as a consequence of the applicants' application for leave to file a notice of discontinuance in this proceeding. 2 The discontinuance of a proceeding is governed by rule 26.12 of the Federal Court Rules 2011, which provides that an applicant may file a notice of discontinuance without the leave of a court or any other party's consent at any time before the return date fixed in the originating application or, if the proceeding is continuing on pleadings, at any time before the pleadings have closed. If the pleadings have closed, a notice of discontinuance can be filed with the opposing party's consent before judgment has been entered in the proceeding. If the pleadings have closed and the other party does not consent, then a notice of discontinuance can only be filed with the leave of the Court: rule 26.12(2)(c). 3 The first respondent, Pee Vee Nominees Pty Ltd (Pee Vee Nominees), has indicated that it does not object to the Court granting leave to the applicants to file a notice of discontinuance, but in the event that leave is granted it seeks an order that the applicants pay its costs on an indemnity basis. 4 Rule 26.12(7) provides "[u]nless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued". 5 The applicants accept that they are liable to pay Pee Vee Nominees' costs but oppose Pee Vee Nominees' application that the costs be on an indemnity basis. The applicants contend that the costs should be as between party and party. 6 The applicants have reached a settlement with the second respondent, Capital Finance Australia Limited (Capital Finance) which agreed to pay the applicants $120,000 in settlement of the applicants' claim. On 6 March 2013, in accordance with the terms of that settlement, the applicants filed a notice of discontinuance, discontinuing the whole of the proceeding against Capital Finance with no order as to costs. 7 On 26 March 2010, Ms Lynette Crossman commenced a proceeding in this Court (SAD 32 of 2010) (the first proceeding) against her former partner Mr Brendan Taylor and White Marina Pty Ltd, seeking orders pursuant to s 233 of the Corporations Act 2001 (Cth) (Corporations Act), and damages pursuant to s 87 of the Fair Trading Act 1987 (SA) (Fair Trading Act) or the Corporations Act (the first proceeding). 8 Mr Taylor was the registered owner of a houseboat named "Flat White". A company which he controlled, Maritime Ten Pty Ltd (Maritime Ten), of which he was the sole director, was the registered owner of another houseboat, "White Water". Each houseboat was subject to a chattel mortgage in favour of Capital Finance. 9 On 30 March 2010, Besanko J made freezing orders in the first proceeding restraining Mr Taylor from dealing with the assets identified in those orders, except in accordance with the order. Importantly, for the purpose of this application, the assets identified in those orders included the two houseboats. 10 On 29 June 2011, after a trial in the first proceeding, Besanko J published his reasons in the first proceeding in which he found that Ms Crossman was entitled to damages including compound interest against Mr Taylor: Crossman v Taylor (No 3) [2011] FCA 734. The freezing orders to which I have just referred were still in place at the time his Honour gave judgment on 29 June 2011. 11 On 11 July 2011, Besanko J entered judgment for Ms Crossman in the amount of $955,305.76 and ordered Mr Taylor to pay her costs. 12 On 14 July 2011, Mr Taylor filed a notice of appeal against the orders made in the first proceeding by Besanko J (the appellate proceeding). 13 On or about 9 August 2011, Ms Crossman served a bankruptcy notice on Mr Taylor. 14 On the next day, Capital Finance served a notice of intention to repossess Flat White relying upon Mr Taylor being in arrears in the sum of $7,036.53. The amount then owing on Flat White was approximately $180,000. 15 On 30 August 2011, Ms Crossman filed an interlocutory application in the appellate proceeding seeking dismissal of the appeal or an order that it be permanently stayed. That application was heard on 28 October 2011, during which Ms Crossman alleged that Mr Taylor's appeal was an abuse of process. 16 During the hearing, Ms Crossman's senior counsel contended: (i) Mr Taylor procured acts that resulted in the sale of two houseboats (one called "Flat White" and the other called "White Water") by the mortgagee in contravention of the freezing orders; and/or (ii) Mr Taylor did so with a deliberate and contumacious intention to defeat his creditors and the freezing orders; and/or (iii) Mr Taylor took the steps he did in relation to the sale of the assets with a view to frustrating the appeal. 17 The application was dismissed by the Full Court on 7 November 2011: Taylor v Crossman [2011] FCAFC 139. However, the Full Court indicated that the sale of the houseboats "certainly invites careful scrutiny": at [31]. 18 The appeal was dismissed by the Full Court on 24 February 2012: Taylor v Crossman (No 2) (2012) 199 FCR 363. 19 On 30 August 2011, Ms Crossman applied ex parte in the first proceeding for orders including an order that Mr Taylor provide an affidavit stating the circumstances in which he sold Flat White. 20 In support of that application, she filed an affidavit in which she deposed that she had spoken to Jamie Ginns, who is employed by the second respondent, on 29 August 2011 and was told of Mr Taylor's sale of Flat White on 22 August 2011. 21 On 2 September 2011, Mr Taylor swore an affidavit which was filed in the first proceeding, in which he said that he was unable to meet the lease payments for Flat White, which were in the sum of $5,945.62 monthly and that, as a result, Flat White was repossessed by Capital Finance and sold. 22 The evidence discloses that Mr Taylor was the registered owner of Flat White, which had been launched in January 2005 and was said by Mr Taylor to have cost $560,000. The evidence was that Mr Taylor's mother is said to have lent Mr Taylor $150,000. The houseboat was the subject of a chattel mortgage with Capital Finance. 23 The chattel mortgage disclosed the cash price of the houseboat at $217,116, which was based on the residual payout figure of the houseboat's previous chattel mortgage, which also had been with Capital Finance. 24 In one of his affidavits filed in the first proceeding, Mr Taylor stated that as at 31 March 2010, the payout sum on the chattel mortgage was $231,260.71. He further stated that he had had the houseboat on the market at an asking price of $675,000. He estimated in that affidavit that the realistic sale price could be anywhere from $450,000 to $650,000. 25 On 9 July 2011, he inserted an advertisement in the Adelaide newspaper, "The Advertiser", which was headed "$425,000 due to forced sale". The advertisement claimed that the houseboat would be sold with over $90,000 confirmed forward bookings. 26 Mr Taylor asserted in a statement of his assets and liabilities that the value of the houseboat was $365,000. On 22 August 2011, Flat White was sold to Pee Vee Nomineees; a company that was controlled by Mr Peter Walker. Pee Vee Nominees, trading as "Fantasy Houseboat Holidays", agreed to lease Flat White back to Mr Taylor for three years at monthly lease payments of $5,133.33. 27 At the time judgment was entered in the first proceeding against Mr Taylor, Maritime Ten was still the registered owner of White Water. Mr Taylor had signed a contract to build White Water in April 2006 and the contract price was said by him to be $660,000. He said a further $40,000 or so was spent on fittings and furnishings. 28 White Water was also subject to a chattel mortgage with Capital Finance. The cash price of that houseboat was stated to be $660,000. The chattel mortgage commenced on 28 September 2006 and was for a period of five years. It provided for a final payment of $264,000 in about September 2011. Mr Taylor stated in an affidavit that as at 31 March 2010 the payout figure was $365,706.39. 29 Both houseboats were sold after judgment was entered for Ms Crossman in the first proceeding, and before the appeal was heard. It was claimed that they were both sold by Capital Finance pursuant to the chattel mortgage. White Water was sold in July 2011. Flat White was sold on 22 August 2011 to Pee Vee Nominees; the first respondent in this proceeding. Both houseboats were sold to persons known to Mr Taylor. Both houseboats were subsequently leased back to Mr Taylor. 30 An officer of Capital Finance made the following notes: Customer stressed he does not want ex to purchase boats. Customer looking not sell through tender process as ex could possibly bid on boats. Valuation – cd brochure on hand Customer wants to understand Sale process. what documents are required by Capital Court order allows flat white to be sold but additional funds over payout need to go to solicitor trust fund. … — Ex taking brendan to Court. — Current $845k legal & freeze Customer assets. — both Contract & Bank frozen. — Capital can take what ever action they deem fit — 30 – 40x legal fee's. — running off credit cards — June – July – Aug — low season little to no income — Sept Oct Nov – cashflow increases charter increases. — Customer wants to put his hands up. 31 The tax invoice for White Water disclosed a sale price of $300,000 made up of two payments each of $150,000. The purchaser was said to be "James Dyer/Jacali Investments Pty Ltd". Mr Taylor did not disclose to Mr Dyer that there were freezing orders in relation to Mr Taylor's asset. 32 It was Mr Taylor's case that both houseboats were sold because he could not keep up the payments. 33 On 5 September 2011, orders were made joining Jacali Investments Pty Ltd (Jacali Investments) and Mr Walker as defendants in the first proceeding. Orders were also made preventing Jacali Investments from dealing with White Water, and Mr Walker from dealing with Flat White. 34 On 10 January 2012, Mr Walker filed an interlocutory application in the first proceeding to discharge and/or vary the freezing order, which was supported by an affidavit of Mr Walker. That application was never heard. 35 On 5 March 2012, a sequestration order was made against Mr Taylor's estate on the judgment obtained by Ms Crossman against Mr Taylor. Mr Naudi and Mr Macks, the applicants in this proceeding, were appointed the joint and several trustees of Mr Taylor's estate. 36 On 16 March 2012, upon the trustees in bankruptcy giving, in the first proceeding, an undertaking to the Court as to damages, the freezing order directed to Mr Walker was continued and Pee Vee Nominees was also restrained from dealing with Flat White. As a consequence of the orders made on that day, the trustees took possession of Flat White and operated the houseboat. An order was made that the trustees pay into Court from time to time the amount of the lease payments which would otherwise have been payable by Mr Taylor to Pee Vee Nominees. 37 On 17 April 2012, an order was made in the first proceeding that the trustees, if they were minded to bring a proceeding under s 120 and/or s 121 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) against Mr Walker, Pee Vee Nominees or Capital Finance, should bring that proceeding by no later than 8 May 2012, failing which the freezing orders would be discharged. 38 On 15 May 2012, the trustees disclaimed the lease from Pee Vee Nominees to Mr Taylor. No proceedings were issued by 8 May 2012 and the freezing orders in the first proceeding were discharged on 18 May 2012. 39 Prior to the issue of this proceeding, those acting for Pee Vee Nominees and Mr Walker advised the applicants that Flat White was not sold to it by the bankrupt Mr Taylor but by Capital Finance; those acting for Capital Finance claimed that Capital Finance never had possession of Flat White and the houseboat was sold by Mr Taylor to Pee Vee Nominees. 40 On 13 June 2012, the applicants commenced this proceeding seeking declaratory orders under s 120 and/or s 121 of the Bankruptcy Act. The applicants filed a statement of claim alleging that the transfer of the houseboat Flat White to Pee Vee Nominees was void by operation of s 120 and s 121 of the Bankruptcy Act. 41 In the further alternative, the applicants claimed that if Capital Finance sold Flat White to Pee Vee Nominees in its capacity as mortgagee, pursuant to the chattel mortgage and not as agent for or at the direction of Mr Taylor, then Capital Finance owed Mr Taylor an equitable duty to act in good faith. It was claimed that Capital Finance breached its equitable duty of good faith as a result of which it failed to obtain the best price appropriate. 42 On 6 July 2012, the applicants filed an amended statement of claim. In paragraph 13 of that amended statement of claim, they claimed that Mr Taylor sold Flat White to Mr Walker and then discharged the chattel mortgage. They alleged that on 1 September 2011, Fantasy Houseboat Holidays, the name under which Pee Vee Nominees carried on business, entered into an agreement to lease Flat White to Mr Taylor for a period of three years with a monthly lease payment of $5,133.33. 43 They claimed in paragraph 16 of the statement of claim that the transfer of the houseboat Flat White to Pee Vee Nominees was void by operation of s 120 of the Bankruptcy Act. 44 Section 120 of the Bankruptcy Act provides that a transfer of property by a person who later becomes a bankrupt to another person is void against the trustee in bankruptcy, if the transfer took place in the period beginning five years before the commencement of the bankruptcy and the transferee gave no consideration for the transfer, or gave consideration of less value than the market value for the property. 45 The applicants alleged that the consideration provided was approximately $180,000 less than the market value of Flat White. 46 They pleaded in the alternative that the transfer of Flat White to Pee Vee Nominees was void by operation of s 121 of the Bankruptcy Act. 47 Section 121 of the Bankruptcy Act deals with transfers to defeat creditors and provides that a transfer of property by a person who later becomes a bankrupt to another person is void against the trustee in bankruptcy, if the property would probably have become part of the bankrupt's estate or probably would have been available to creditors if the property had not been transferred, and the bankrupt's main purpose in making the transfer was to prevent the transferred property from becoming divisible among the bankrupt's creditors or to hinder or delay the process of making the property available for division amongst the bankrupt's creditors. 48 In paragraph 19 of the amended statement of claim, the applicants pleaded that if Capital Finance sold Flat White to Pee Vee Nominees solely in its capacity as mortgagee pursuant to the chattel mortgage, and not as agent for or at the direction of the bankrupt, then Capital Finance owed the bankrupt an equitable duty to act in good faith having regard to the bankrupt's interest in Flat White. They claim that Capital Finance breached that equitable duty and, as a consequence, the houseboat was sold at a price below market value and the bankrupt suffered damage to the extent of $180,000. 49 On 19 July 2012, Pee Vee Nominees filed its defence to the amended statement of claim. It claimed that Capital Finance enforced Capital Finance's rights under clause 11 of the chattel mortgage and, as a consequence, Pee Vee Nominees purchased Flat White from Capital Finance in the sum of $180,000. 50 At the same time, Pee Vee Nominees filed a cross-claim against the applicants claiming payment of a lease payment of $2,908.88, damages for the damage done to Flat White by the trustees, and damages in the amount of $15,399.99 for three months unpaid lease payments. 51 On the same day, Pee Vee Nominees issued a second cross-claim, this time against Capital Finance (second cross-claim). 52 Paragraph 22 of the statement of that second cross-claim said: If this Honourable Court makes the declaration or any other order which affects Pee Vee's quiet enjoyment of Flat White, then Pee Vee respectfully request[s] that an order as to damages against Capital be made by this Honourable Court in favour of Pee Vee, due to Capital's breach of covenant and/or Warranties and/or Condition to Pee Vee that passed good title of Flat White (and therefore quiet enjoyment of Flat White) to Pee Vee at the time of the Purchase. 53 In the alternative, Pee Vee Nominees claimed that Capital Finance had engaged in misleading and deceptive conduct by representing that Capital Finance had title to Flat White and the right to sell Flat White. 54 In paragraph 25 of the statement of the second cross-claim, Pee Vee Nominees alleged that if a declaration were made, as sought by the applicants, against the respondents in the principal proceeding, then the representations made by Capital Finance would be misrepresentations. 55 On 23 July 2012, Capital Finance filed its defence in the principal proceeding. It did not admit that it sold Flat White solely in its capacity as mortgagee. Moreover, it pleaded that it did not breach its equitable duty of good faith to Mr Taylor. It pleaded that any claim against it for breach of any good faith duty vested in the trustees, by reason of Mr Taylor's bankruptcy. It pleaded that the price and terms of the sale were agreed between Mr Taylor on the one hand and Pee Vee Nominees and/or Mr Walker on the other hand. 56 Capital Finance also filed a defence to Pee Vee Nominees' second cross-claim. In that defence it denied that it exercised its rights under the chattel mortgage. It denied that it entered into an agreement with Pee Vee Nominees to sell Flat White to Pee Vee Nominees. It denied that it received the purchase price from Pee Vee Nominees. It said that on 24 August 2011 it received $180,000 and, at the direction of Mr Taylor, it paid those funds as to $173,182.59 in discharge of the chattel mortgage, and as to $6,817.41 into the Federal Court of Australia. 57 The various claims and defences starkly identified the issue for the trustees. On the one hand, Pee Vee Nominees asserted that it purchased Flat White from Capital Finance and, on the other hand, Capital Finance asserted that Pee Vee Nominees purchased Flat White from the bankrupt. In those circumstances, the trustees had no alternative but to bring the proceeding against both Pee Vee Nominees and Capital Finance. They could not have simply brought a proceeding against Capital Finance and run the risk of an adverse judgment and then, in a later proceeding against Pee Vee Nominees, running the risk of a second adverse and inconsistent judgment. 58 On 14 September 2012, Capital Finance filed an amended defence in the principal proceeding, continuing to not admit that it sold Flat White to Pee Vee Nominees in its capacity as mortgagee, and claiming that the price and terms of the sale were agreed between Mr Taylor on the one hand and Mr Walker and/or Pee Vee Nominees on the other. The issue, therefore, remained alive. 59 Capital Finance subsequently filed its evidence for the trial. 60 One of the affidavits filed by Capital Finance for the trial was sworn by Jeffery Singh, who had been employed by Capital Finance as a collections officer and was the person who had had frequent dealings with Mr Taylor in relation to Flat White and dealt with Pee Vee Nominees. 61 He deposed to a number of telephone conversations he had with Mr Taylor between June and August 2011, and in particular a telephone conversation on 22 August 2011, when he was told by Mr Taylor that Mr Walker was willing to pay the payout figure and Mr Taylor authorised Mr Singh to communicate directly with Mr Walker. 62 Mr Singh also deposed to a telephone conversation that occurred later on 22 August 2011 with Mr Walker, as to why Mr Taylor was selling the houseboat. He said in his affidavit at paragraph 43: 43. I believe that $180,000 represented a fair and reasonable sale price for Flat White after taking into account the substantial costs that would have been incurred by Capital were it to have taken physical repossession of Flat White and sold it. Based upon my experience repossessing and selling boats generally those costs would have included transporting Flat White to a secure location, mooring fees, maintenance costs and the costs associated with selling Flat White by auction or tender (the Costs). 63 He then identified the costs, and he said at paragraph 45: 45. After taking into account the Costs, I believe it was unlikely that Capital would have received materially more than $180,000 were it to have repossessed and sold Flat White. 64 In my opinion, that affidavit is evidence in support of Capital Finance's then position that it did not sell the houseboat pursuant to the chattel mortgage. 65 On 5 December 2012, Mansfield J made orders which included an order giving leave to Capital Finance to file and serve a further amended defence (to identify the vendor of the vessel and any consequential amendments) by 21 December 2012. Justice Mansfield also made an order that the proceeding be referred to mediation before a Registrar of the Court to be conducted not before 15 January 2013, but to be concluded by 24 February 2013, and for the Registrar to report by 2 March 2013. 66 However, on 18 December 2012, Capital Finance filed an amended defence in the principal proceeding in which it withdrew its allegation that the price and terms of the sale were agreed between Mr Taylor and Mr Walker and/or Pee Vee Nominees. Instead, it pleaded that Mr Taylor considered $180,000 was a fair and reasonable price for Flat White and had no objection to the sale. 67 The filing of that defence meant that Capital Finance accepted that it sold the boat under the terms of the chattel mortgage. 68 No explanation has been given as to why Capital Finance changed its position between Mr Singh's affidavit and the filing of the amended defence. 69 After receipt of the amended defence, the applicants' solicitors, by letter dated 25 January 2013, advised Pee Vee Nominees' solicitors that the applicants intended to seek leave to discontinue against Pee Vee Nominees. The application seeking leave to discontinue was filed on 7 February 2013. 70 The mediation took place on 12 February 2013. At that mediation, Capital Finance agreed to pay the trustees $120,000 within 14 days, which represented what would otherwise have been the trustees' claim for the breach of the equitable duty owed by Capital Finance in the sale of the houseboat. Pee Vee Nominees agreed to discontinue its cross-claims against the trustees and against Capital Finance without any order as to costs. 71 In this application for indemnity costs, Pee Vee Nominees contends that the trustees failed to make proper inquiries before they brought this proceeding and failed to exercise all of the powers which were available to the trustees which, if exercised, would have established that Capital Finance sold Flat White under the terms of the chattel mortgage. 72 Pee Vee Nominees points to the evidence which was filed in the first proceeding which, if the Court had accepted, would have supported Pee Vee Nominees' claim that it bought the houseboat from Capital Finance. It also argued that the trustees had the opportunity to issue notices under s 77C of the Bankruptcy Act or conduct public examinations under s 81 of the same Act. 73 Pee Vee Nominees' claim for indemnity costs rather rests on the proposition that as it is now known and accepted that Capital Finance sold Flat White to Pee Vee Nominees, that should have been known to the trustees prior to the issue of this proceeding. 74 That is simply not right. Capital Finance claimed, up until the time that it amended its defence on 18 December 2012, that it did not sell Flat White but that Flat White was sold by Mr Taylor to Mr Walker. If that claim had been established by way of defence to the proceeding brought by the trustees against Capital Finance, the applicants would have succeeded in their claim against Pee Vee Nominees either under s 120 or s 121 of the Bankruptcy Act because it seemed beyond doubt that Flat White was sold at an undervaluation. 75 In my opinion, the trustees cannot be criticised for commencing this proceeding in circumstances where that dispute of fact could not be resolved except in a Court in which all three parties were present. 76 There are other reasons why the trustees cannot be criticised for what they have done if regard is had to the circumstances that surrounded Mr Taylor's behaviour after judgment was given against him in the first proceeding. 77 After judgment for nearly $1 million was entered against him and he became liable for costs of many hundreds of thousands of dollars, Mr Taylor claimed that he was unable to make the finance payments on the two houseboats which he then owned. He arranged for two persons known to him to purchase one each of the houseboats at a cost which discharged his liability to Capital Finance, but left him without any amount that would have been available to his creditors, the largest of whom was his former partner, Ms Crossman. Not only did he allow those assets to be surrendered, but the two houseboats were sold to people known to him and immediately upon their sale were leased back to him at a similar cost to that which he was paying under the chattel mortgage. That allowed him to continue to operate those boats for his own benefit. The transactions look very suspicious. Any suspicion was heightened by the fact that Capital Finance said it did not sell Flat White to Pee Vee Nominees, but that Mr Taylor did. If Capital Finance was right about that and the houseboat was sold, as appears to be agreed, at an undervaluation, those suspicions are heightened. 78 Pee Vee Nominees has provided a number of submissions setting out the circumstances in which indemnity costs might be ordered. There is no doubt that the power exists. The principles that govern the exercise of the power were identified in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 and the circumstances in which the power might be exercised were also identified. The categories in which indemnity costs may be ordered are not closed. If a party brings a proceeding against the advice of the party's lawyers, that might be a reason for ordering indemnity costs. If the proceeding is hopeless from the outside, that also might be a reason for ordering indemnity costs. If a party continues a proceeding after the party is either advised or becomes aware that the proceeding cannot succeed, then that might also be a reason for ordering continuing costs. None of that occurred in this case. 79 This proceeding was commenced because, on the advice given to the trustees, Flat White was sold at an undervaluation to the detriment of Mr Taylor's creditors. Because of the respective stands taken by Pee Vee Nominees and Capital Finance, the trustees had to proceed with recovery against both of those parties in the same proceeding. 80 In my opinion, it was reasonable for the trustees to bring this proceeding, and it was reasonable for the trustees to continue to prosecute these proceedings up until the time that Capital Finance amended its defence. 81 When Capital Finance amended its defence, the trustees acted appropriately and advised Pee Vee Nominees that it would seek to discontinue the proceedings against that company. 82 The fact that Pee Vee Nominees consistently maintained that it bought the houseboat from Capital Finance does not mean that the trustees were wrong to start or continue this proceeding, in light of the fact that Capital Finance denied that proposition. If Capital Finance had agreed with that proposition, then this proceeding, of course, should not have been brought nor maintained, but that is not the case, and it was not until Capital Finance filed its amended defence that the issue was resolved. 83 I mentioned earlier that Pee Vee Nominees was joined to the first proceeding and was subjected to the orders to which I have referred. It has also sought costs in that proceeding and indemnity costs against Ms Crossman. That application will be dealt with separately. 84 In this proceeding, Pee Vee Nominees says it has incurred costs of $193,900.79, of which $50,695.32 relate to its counterclaims that were filed in this proceeding and have been abandoned. Therefore, it is said that Pee Vee Nominees' total costs are $143,205.97. Pee Vee Nominees seeks indemnity costs in this proceeding in the amount of $136,045.67. It says that if it were to obtain an order for party and party costs, the costs recoverable would be $50,121.87 less than the indemnity costs claimed. 85 In the first proceeding it says it has incurred costs of $106,143.35, of which it claims $100,836.18 by way of indemnity costs. It says that if it were to be limited to party and party costs, it would receive $37,150.17 less than the indemnity costs sought. 86 It follows, therefore, that this application and the application for indemnity costs in the first proceeding is for about $87,272. 87 I asked and was told that the costs incurred on those applications up to the date of hearing of this application by Pee Vee Nominees are $46,144.64. 88 Those figures raise the question why this application has been made. 89 In any event, I dismiss the claim for indemnity costs. 90 I give leave to the applicants to discontinue the proceeding against Pee Vee Nominees and I order the applicants pay Pee Vee Nominees their costs on a party and party basis. 91 I order Pee Vee Nominees to pay the applicants' costs of this application on a party and party basis. I certify that the preceding ninety-one (91) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander. Associate: Dated: 4 June 2013