New South Wales Supreme Court CITATION : (1) Chalik v Wales & Ors, (2) Vaysman v Wales & Ors, (3) Brainenberg v Wales & Ors, (4) Damiz Pty Ltd v Woodgate & Ors [2006] NSWSC 129 25/08/05 HEARING DATE(S) : Judgment: 02/09/05 Orders: 08/11/05 Written Submissions: 23/09/05, 22/12/05, 01/03/06 JUDGMENT DATE : 9 March 2006 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Various costs orders CATCHWORDS : PROCEDURE - costs - proceedings against trustee in bankruptcy - application for order for costs against such trustee on basis that costs will be provable in bankruptcy and trustee will not be liable - application at odds with fundamental scheme of bankruptcy - order not made LEGISLATION CITED : Bankruptcy Act 1966 (Cth), s.82(1) Fraser Property Developments Pty Ltd v Sommerfeld (No 2) [2005] QCA 242 CASES CITED : Glenister v Rowe [2000] Ch 76 Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd [2006] QSC 7 1) Igor Chalik - Plaintiff John Andrew Wales - First Defendant Downunder Pte Limited - Second Defendant Dennis Cooney - Third Defendant Giles Woodgate as trustee of the bankrupt estate of John Andrew Wales - Fourth Defendant (2) Leonid Vaysman - Plaintiff John Andrew Wales - First Defendant Downunder Pte Limited - Second Defendant Dennis Cooney - Third Defendant Giles Woodgate as trustee of the bankrupt estate of PARTIES : John Andrew Wales - Fourth Defendant (3) Eva Brainenberg - Plaintiff Giles Woodgate as trustee of the bankrupt estate of John Andrew Wales - First Defendant Downunder Pte Limited - Second Defendant (4) Damiz Pty Limited - Plaintiff Giles Woodgate as trustee of the bankrupt estate of John Andrew Wales - First Defendant Downunder Pte Limited - Second Defendant Igor Chalik - Third Defendant Leonid Vaysman - Fourth Defendant Eva Brainenberg - Fifth Defendant FILE NUMBER(S) : SC (1) 1882/02; (2) 1883/02; (3) 3095/02; (4) 3022/04 Mr F. Gleeson - Igor Chalik and Leonid Vaysman Mr V.R.W. Gray - Eva Brainenberg COUNSEL : Mr M.L. Brabazon - Damiz Pty Limited Mr A.M. Combe - Giles Geoffrey Woodgate Paul Bard - Igor Chalik and Leonid Vaysman John Lloyd & Co - Eva Brainenberg SOLICITORS : McClellands - Damiz Pty Limited TurksLegal - Giles Geoffrey Woodgate IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J THURSDAY, 9 MARCH 2006 1882/02 IGOR CHALIK v JOHN ANDREW WALES & 3 ORS 1883/02 LEONID VAYSMAN v JOHN ANDREW WALES & 3 ORS 3095/02 EVA BRAINENBERG v JOHN ANDREW WALES & 3 ORS 3022/04 DAMIZ PTY LIMITED v GILES GEOFFREY WOODGATE AS TRUSTEE OF THE ESTATE OF JOHN ANDREW WALES & 4 ORS JUDGMENT 1 I am dealing with issues of costs consequent upon my judgment of 2 September 2005, written submissions having been filed. The last submissions were received on 1 March 2006. 2 In 1882 of 2002, the plaintiff, Mr Chalik, seeks an order for costs against the second defendant, Downunder Pte Limited. Mr Chalik was successful in his claim against Downunder Pte Limited and Mr Wales (now a bankrupt) for an order for specific performance. There is no reason why costs should not follow the event. In view of the application made, however, the costs order will be against Downunder Pte Limited only. 3 In 1883 of 2002, the position is exactly the same, save that the plaintiff in that case is Mr Vaysman. A corresponding order will be made. 4 In 3095 of 2002, the plaintiff, Ms Brainenberg, seeks an order for costs against the first and second defendants, that is, Mr Woodgate (as trustee of the bankrupt estate of Mr Wales) and Downunder Pte Limited. As to Downunder Pte Limited, the considerations already mentioned apply. But the claim for a costs order against Mr Woodgate (as trustee of the bankrupt estate of Mr Wales) is resisted and requires examination. 5 Ms Brainenberg's solicitor says in submissions that a costs order is sought against Mr Woodgate as trustee in bankruptcy "so that Mrs Brainenberg can enforce the order only as a creditor in the bankruptcy". The submissions continue: "No order is sought against Mr Woodgate personally. If the bankrupt estate has no assets, there will be no dividend, but if the bankrupt estate has moneys distributable amongst Mr Wales' creditors, then Mrs Brainenberg should be entitled to participate in any dividend." 6 Mr Woodgate's opposition to the making of the costs order sought by Ms Brainenberg is based on the simple proposition that any costs ordered to be paid by Mr Woodgate would be neither provable in the bankruptcy or reimbursable to him out of the bankrupt estate. As is pointed out by Mr Combe of counsel on behalf of Mr Woodgate, the bankrupt estate is, under s.82(1) of the Bankruptcy Act 1966 (Cth), applicable towards debts and liabilities, present or future, certain or contingent, to which the bankrupt was subject at the time of his bankruptcy or to his discharge. 7 Mr Combe notes that the court's power to award costs is discretionary. Accordingly, there is no debt or liability of the s.82(1) kind for costs (even one that is future or contingent) merely by reason of the commencement of proceedings by or against a party who later becomes bankrupt. It follows, according to that submission, that any costs ultimately awarded against that party after the intervention of his or her bankruptcy do not represent a provable debt. 8 I accept these submissions. They are supported by cases to which Mr Combe refers, notably Glenister v Rowe [2000] Ch 76 and Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd [2006] QSC 7. In the latter case, Chesterman J referred to an observation of McPherson JA in Fraser Property Developments Pty Ltd v Sommerfeld (No 2) [2005] QCA 242: "A potential or contingent liability for costs is not a provable debt unless an order for payment of those costs has been made before bankruptcy intervenes." 9 It is thus clear that the objective sought to be achieved by the costs order Ms Brainenberg seeks against Mr Woodgate – that is, that the liability for the costs would be taken into account as a debt in Mr Wales' bankruptcy – is one that is quite at odds with the fundamental scheme of bankruptcy law. Because Ms Brainenberg's application is advanced on that flawed footing, the order will not be made. It is made clear on her behalf that she does not seek an order that would cause Mr Woodgate to be personally liable, that is, in such a way that there would not be full recourse against the bankrupt estate. 10 In 3022 of 2004 the plaintiff, Damiz Pty Limited, seeks an order that the fifth defendant, Ms Brainenberg, pay the costs of the plaintiff to the extent that those costs were increased by or related to issues concerning, first, Ms Brainenberg's contentions that no contract and no enforceable contract arose between her and Damiz Pty Ltd on 11 November 2004, second, that Ms Brainenberg's claims for relief that was inconsistent with that contract as found by the court and, third, her claim effectively to reduce the amount payable by her on completion of the purchase of Lot 9 in SP 66078 by the amount of costs which she claimed against the vendors (the first and second defendants in 3022 of 2004) as secured by lien. Ms Brainenberg does not seek to resist such an order. 11 The orders with respect to costs of the several proceedings are accordingly as follows: 1. In 1882 of 2002, order that the costs of the plaintiff (Mr Chalik), as agreed or assessed, be paid by the second defendant (Downunder Pte Limited). 2. In 1883 of 2002, order that the costs of the plaintiff (Mr Vaysman), as agreed or assessed, be paid by the second defendant (Downunder Pte Limited). 3. In 3095 of 2002, order that the costs of the plaintiff (Ms Brainenberg), as agreed or assessed, be paid by the second defendant (Downunder Pte Limited). 4. In 3022/04, order that the costs of the plaintiff (Damiz Pty Ltd), as agreed or assessed, be paid by the fifth defendant (Ms Brainenberg) to the extent that those costs were increased by or related to issues concerning (a) Ms Brainenberg's contentions that no contract and no enforceable contract arose between her and Damiz Pty Ltd on 11 November 2004; (b) that Ms Brainenberg's claims for relief that was inconsistent with that contract as found by the court; and (c) Mrs Brainenberg's claim effectively to reduce the amount payable by her on completion of the purchase of Lot 9 in SP 66078 by the amount of costs which she claimed against the vendors (the first and second defendants in 3022 of 2004) as secured by lien. 12 There is one further matter. It is submitted on behalf of Mr Woodgate that he should have an order against Ms Brainenberg for the costs of the submissions on costs that Mr Woodgate was compelled to make in response to Ms Brainenberg's application for a costs order against him. Normally, the court is inclined to see subsequent argument on costs as merely part of the overall proceeding not calling for any special or separate treatment. In this case, however, two particular factors are at work. First, the two successful plaintiffs other than Mrs Brainenberg elected to seek a costs order against Downunder Pte Limited only, whereas Ms Brainenberg sought an order also against Mr Woodgate. Second, the basis on which the application against Mr Woodgate was advanced involved a failure to appreciate basic realities of bankruptcy in such a way that it was inappropriate for Mr Woodgate to be put to the trouble of dealing with it. I therefore make the following additional order: 5. In 3095 of 2002, order that the costs of the first defendant (Mr Woodgate) of and incidental to submissions in response to the plaintiff's application for a costs order against the first defendant, as agreed or assessed, be paid by the plaintiff (Ms Brainenberg), such costs not to form part of the costs of the plaintiff referred to in Order 3. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.