Australia and New Zealand Banking Group Ltd v Pandher [2011] NSWSC 1462

Supreme Court New South Wales

Medium Neutral Citation: Australia and New Zealand Banking Group Ltd v Pandher [2011] NSWSC 1462 Hearing dates: 29 November 2011 Decision date: 09 December 2011 Jurisdiction: Common Law Before: Davies J Decision: 1. The Second and Third Defendants are to pay the Third Cross-Defendant's costs of the Cross-Claim up to and including 18 August 2011. 2. Thereafter, the Trustee Michael Jones, is to pay the Third Cross-Defendant's costs of the Cross-Claim. Catchwords: PROCEDURE - costs - Trustee in bankruptcy elects to proceed to prosecute claim - election disputed - trustee subsequently abandons claim - reasons for abandonment not relevant - trustee should pay costs Legislation Cited: Bankruptcy Act 1966 Cases Cited: Trustees of the Property of Zoltan Sandor, a Bankrupt v Ramirez [1999] NSWCA 261 Category: Costs Parties: Michael Gregory Jones (Applicant) City Plan Services Pty Ltd (Third Cross-Defendant) Representation: W Washington (Applicant) M Izzo (Third Cross-Defendant) Benjamin & Khoury Solicitors (Applicant) McCabe Terrill Lawyers Pty Ltd (Third Cross-Defendant) File Number(s): 2009/297021

Judgment 1These proceedings commenced on 18 November 2009 with the Plaintiff claiming possession of a property in Terrigal and seeking the payment of an amount said to be owing to the Plaintiff for loans that had been made by the Plaintiff to the Defendants. 2On 17 February 2010 the Defendants filed a Cross-Claim in the proceedings against (inter alia) City Plan Services Pty Ltd. On 2 May 2011 the Cross-Claim was amended by the adding of a further Cross-Defendant. 3On 1 July 2011 the Second and Third Defendants, who were also Cross-Claimants, became bankrupt. Michael Gregory Jones of Jones Partners was appointed their Trustee in Bankruptcy. 4On 8 July 2011 McCabe Terrill, the solicitors for City Plan Services forwarded a letter requiring the Trustee, pursuant to s 60(2) Bankruptcy Act 1966, to provide McCabe Terrill in writing his intention to prosecute or discontinue the Cross-Claim against their client within 28 days of the letter. 5On 28 July 2011 Benjamin & Khoury, solicitors for Mr Jones, wrote referring to the letter of 8 July 2011 saying that Mr Jones would be pursuing the Cross-Claim against City Plan Services. 6On 2 August 2011 McCabe Terrill sent a letter in identical terms to that of 8 July 2011 to the Trustee. It is said that the letter was sent in error. 7On 17 August 2011 McCabe Terrill wrote again to the Trustee referring to their letter of 8 July 2011, and saying that they had not received confirmation in writing of an election to prosecute the action. The letter went on to say that since no election was made within 28 days "the action" is deemed to have been abandoned. 8That prompted a reply on 19 August 2011 from Benjamin & Khoury enclosing a copy of their letter of 28 July 2011 and saying that they confirmed compliance in accordance with s 60 Bankruptcy Act . 9McCabe Terrill wrote on the same day to Benjamin & Khoury saying that they did not accept that the letter of 28 July was compliance with the Trustee's obligations under s 60 for the following 4 reasons: 1. the statement contained in the letter does not constitute notice; 2. the "notice", such as it was, was not given by the Trustee as required by the Act; 3. in any event, the letter did not express that the firm was retained by or authorised to communicate notice on behalf of the Trustee; 4. on 5 August McCabe Terrill were verbally advised by the Trustee that no election had been made. 10That letter in turn prompted a letter from the Trustee directly to McCabe Terrill of the same day which said: I confirm that I have instructed Benjamin & Khoury Solicitors ... to represent me on behalf of the Second and Third Cross-Claimants' Bankrupt Estates with regards to the Cross-Claim set out in the Amended Statement of Cross-Claim filed 5 May 2011. Benjamin & Khoury's letter to you dated 28 July 2011 was clear in stating my intentions to elect to prosecute and to continue to use the instructing solicitors. .... 11On the same day another letter went from Benjamin & Khoury to McCabe Terrill enclosing an unfiled Notice of Motion and an affidavit of William Musgrave sworn 19 August 2011. The Notice of Motion sought only these orders: 1. The appointed Trustee in Bankruptcy, Mr Michael Jones, on behalf of the Bankrupt Estates of the Second and Third Cross-Claimants in case number 2009/297021 seeks to move the Court to grant leave for him on behalf of the aforesaid bankrupt estates to continue in prosecuting the claim set out in the First Cross-Claim Statement of Amended Cross-Claim filed 2 May 2011 in the Supreme Court of New South Wales against the Third and Fifth Cross-Defendants only. 2. Any other Order the Court deems fit. 12On 22 August 2011 the proceedings were before me for further directions. Mr Washington of counsel, who had previously appeared for the Second and Third Defendants/Cross-Claimants, again appeared. He informed me that Mr Jones had been appointed the Trustee in Bankruptcy of the Second and Third Defendants and went on to say: they will not be proceeding further with any defence to the claim brought by the ANZ Bank. They remain - and I will be taking your Honour to it in due course, to their position in the matter, through their Trustee, as regards the cross claim. That will be their only active part. ... The trustee proposes to continue the proceedings. There may be some issue between my friend, Mr Izzo, and my clients in relation - I now appear for the trustee. ... It is a cross claim which seeks damages against the second and third cross-defendants in due course by the bankrupt trustee [sic], which may then produce funds that will enable the bankrupts to discharge their obligations to the plaintiff. The position of the bankrupts, and their trustee, is that the defence to the claim by the bank was misconceived and has been discontinued. ... I seek your Honour's leave to file in court a Notice of Motion by virtue of which Michael Gregory Jones, the Trustee in Bankruptcy of Mr and Mrs Pandher seeks leave to continue the prosecution of the cross claims. 13On 24 August 2011 the Trustee wrote to McCabe Terrill making reference to McCabe Terrill's letter of 2 August 2011. The letter from the Trustee said (inter alia): Notwithstanding that such notice has already been given to you on 28 July 2011 and our letter to you dated 19 August 2011 through my solicitors, Benjamin & Khoury Solicitors, and as a matter of abundant caution to eliminate any doubt in your mind, I hereby notify you of my election in continuing to prosecute these proceedings ... on behalf of the bankrupt estates of the Cross Claimants. 14On 6 September 2011 Benjamin and Khoury wrote to McCabe Terrill making reference to the Directions hearing on 22 August 2011. The letter went on to say this: We have been instructed by Mr Michael Jones, the appointed trustee in the bankrupt estates of the second and third cross-claimants, that he will not be electing to prosecute the cross claims commenced by the second and third Cross-Claimants, and therefore will not be proceeding with the current Notice of Motion to be heard on 8th September 2011 before His Honour Mr Justice Davies. Mr Jones therefore will be filing a Notice of Motion for the discontinuance of the cross claims against the five Cross-Defendants. We would be grateful for your client's consent to the above discontinuance. The letter enclosed a proposed Notice of Motion to achieve that result. 15McCabe Terrill's response of 7 September 2011 in substance was to require the Trustee to pay their client's costs from 19 August 2011. 16On 8 September 2011 I dismissed the Cross-Claim by the Second and Third Defendants. I was informed that there was a dispute about who should pay the costs and it was the Cross-Defendant's (City Plan's) application for costs that I heard on 29 November 2011. 17There is no dispute with regard to the costs prior to 19 August 2011. The Cross-Defendant seeks an order that the Second and Third Defendants/Cross-Claimants should pay those costs. Initially it was suggested that such costs should be provable in the bankruptcy of the Second and Third Defendants. However, I do not understand that the Trustee now pursues that. I do not consider it is appropriate that I should make any order about what is or is not provable in the bankruptcy. I consider, however, that the Second and Third Defendants should pay the Cross-Defendant's costs up to and including 18 August 2011. 18The Trustee resists an order for costs thereafter. He does so principally because he submits that the position that he has adopted at various times has been brought about by what McCabe Terrill has done. In particular, the Trustee points to the letter of 2 August 2011 and the letter of 19 August 2011 from McCabe Terrill denying that there had been a valid election under s 60, as justifying the view that, in the first place, the Cross-Defendants should pay the Trustee's costs. That position was modified to suggesting that there should be no order against the Trustee for costs. The Trustee submits that the issue of the second notice on 2 August 2011 was such a confusing procedural event that the Trustee was forced to file a Notice of Motion that it served under cover of its letter of 19 August. 19He also seeks, in his affidavit read on this present application, to explain his decision not to proceed with the Cross-Claim by reason of what he describes as the conduct of McCabe Terrill with regard to the s 60 notices. 20In my opinion none of the Trustee's submissions should be accepted. From the time he was required to elect, he elected to proceed with the Cross-Claim. When McCabe Terrill asserted that he had not elected in accordance with s 60 he not only asserted that he had complied, he re-iterated that he intended to prosecute the Cross-Claim, and his solicitors forwarded a Notice of Motion, albeit then unfiled, which sought an order from the Court that he should be given leave to do just that. Subsequently on 22 August his counsel informed me at the directions hearing that the Trustee intended to prosecute the Cross-Claim and sought to file the Notice of Motion to achieve that. Again, on 24 August the Trustee sent a further letter to McCabe Terrill confirming that that was the position. 21On 6 September the Trustee decided not to proceed. He says that this was because of the way McCabe Terrill had acted in disputing his election made on 28 July and subsequently. This caused him to incur extra costs. He says that had it not been for this he would have continued to prosecute the Cross-Claim. It is, quite frankly, difficult to understand the connection between how McCabe Terrill have acted and the pursuit or otherwise of the Cross-Claim. However, this evidence was not challenged, and for present purpose I am prepared to accept it. 22In Trustees of the Property of Zoltan Sandor, a Bankrupt v Ramirez [1999] NSWCA 261 Sheller JA (with whom Meagher and Beazley JJA agreed) said: [72] In Ex parte Angerstein (1874) LR 9 ChApp 479 Mellish LJ said that it was quite right that, in a case where a trustee in bankruptcy had made an unsuccessful application to the Court for payment of a sum of money, which the trustee alleged to belong to the bankrupt's estate, the trustee should be ordered to pay the other party his costs of the application. His Lordship said at 479-480: "The reason for ordering the trustee to pay costs is, that applications of this kind to the Court of Bankruptcy are in substitution for actions at law. In an action at law a trustee in bankruptcy would be liable in the same way as any other plaintiff. In a case where a trustee makes an application the success of which is doubtful, he ought, before making it, to get from the creditors an indemnity against the costs, if he knows there are no assets out of which they can be paid." [73] The rule so stated still applies in Australia; see McDonald, Henry & Meek, Australian Bankruptcy Law and Practice , 5th ed, at 134.1.80. Subject to s105 which relieves the official trustee or a registered trustee from personal liability for costs in relation to an application to review a decision made by the official trustee under s 102(1), s 102(3) or s 102(4) in respect of a proof of debt, unless, in the case of a registered trustee, the Court is of opinion that there are special circumstances that justify an order that the trustee be personally liable, a trustee in bankruptcy who takes up the defence of an action begun against a bankrupt puts itself entirely in the bankrupt's place with respect to costs; Watson v Holliday [1882] 20 ChD 780 at 785. ... [75] Applying the rule in Ex parte Angerstein his Honour was not prepared to limit the trustee's liability to pay the plaintiff's costs to the assets in Mr Sandor's estate. I see no error in the exercise of this discretion. 23Accordingly, unless there is some good reason for not doing so the Trustee should pay the costs. I do not consider that the reasons put forward by the Trustee for not proceeding provide any basis for not so ordering. There are many reasons why a party chooses not to continue to prosecute an action. A realisation that costs are mounting is a common one. A difficult opponent who takes every point (and I am not suggesting that that is the position here), with what that means for costs, is no doubt another. 24To determine the costs question I do not have to decide whether the Cross-Defendant was right or wrong in asserting that that there was no election in accordance with s 60. The proceedings did not reach the stage of such a determination before the trustee decided not to proceed. If the election was not properly made that would not relieve the trustee from liability for costs incurred. The position would be analogous to a solicitor acting without instructions who commenced proceedings. 25It was the Trustee's decision to abandon the claim. His reasons for so doing are irrelevant. Until he did so he repeatedly confirmed his decision to proceed. That resulted in the Cross-Defendant incurring costs. It is not suggested that there was wrongdoing (in the sense of moral turpitude) on the Cross-Defendant's part in taking the stance it did with regard to the Trustee's notice. In accordance with what was said in Zoltan Sandor the Trustee should pay those costs. 26I make the following orders: (1) The Second and Third Defendants are to pay the Third Cross-Defendant's costs of the Cross-Claim up to and including 18 August 2011. (2) Thereafter, the Trustee Michael Jones, is to pay the Third Cross-Defendant's costs of the Cross-Claim.