Sammut v Paul Leroy As Trustee Of The Bankrupt Estates Of Joanne De Rome & Geoffrey De Rome & Ors (No. 2) [2016] FCCA 573 (24 March 2016)

Last Updated: 29 March 2016

FEDERAL CIRCUIT COURT OF AUSTRALIA

SAMMUT v PAUL LEROY AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME & ORS (NO. 2)

[2016] FCCA 573

Catchwords: COSTS – Application for indemnity costs based on applicant’s rejecting an offer made by the first respondent to resolve proceedings on the basis that the proceedings be dismissed with an order that the applicant pay three-quarters of the first respondent’s costs – whether offer was a genuine compromise – offer was a genuine compromise. COSTS – Application for indemnity costs by second respondent – whether claim made against second respondent hopeless – indemnity costs ordered.

Legislation: Bankruptcy Act 1966 (Cth), s.178 Federal Court Rules 2011, r.7.23

Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 1844 Labocus Precious Metals Pty Limited v Thomas (No 3) [2007] FCA 1346 Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (No 2) [2005] FCA 401 Prosperity Advisers Pty Limited v Secure Enterprises Pty Limited t/a Strathearn Insurance Brokers [2012] NSWCA 192

Applicant:

DANIEL SAMMUT

First Respondent:

PAUL LEROY AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

Second Respondent:

BRETT DE ROME

Third Respondent:

MARK ROUFEIL AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

File Number:

SYG 2528 of 2013

Judgment of:

Judge Manousaridis

Hearing date:

11 March 2016

Delivered at:

Sydney

Delivered on:

24 March 2016

REPRESENTATION

Counsel for the Applicant:

Mr F F F Salama

Solicitors for the Applicant:

Holman Webb

Counsel for the First Respondent:

Mr R D Marshall

Solicitors for the First Respondent:	Bartier Perry
Solicitors for the Second Respondent:	Mr N Dale of Gillis Delaney Lawyers

ORDERS

(1) The application to vary order 2 of the orders made on 26 February 2016 (Orders) is dismissed.
(2) The costs of the second respondent which by order 3 of the Orders the applicant was ordered to pay be assessed on an indemnity basis.
(3) The applicant pay the costs the first respondent and the second respondent incurred in relation to the applications that have been disposed of by orders 1 and 2 of these orders.

FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY

SYG 2528 of 2013

DANIEL SAMMUT

Applicant

And

PAUL LEROY AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

First Respondent

BRETT DE ROME

Second Respondent

MARK ROUFEIL AS TRUSTEE OF THE BANKRUPT ESTATES OF JOANNE DE ROME & GEOFFREY DE ROME

Third Respondent

REASONS FOR JUDGMENT

Introduction

1. On 26 February 2016 I dismissed an application brought by the applicant, Mr Daniel Sammut, under s.178 of the Bankruptcy Act 1966 (Cth) (Act). I also made orders for costs, but reserved liberty to the parties to apply for different costs orders within 21 days. That liberty was exercised by Mr Sammut and by the second respondent, Mr Brett Coulter De Rome.

Costs as between Mr Sammut and the Trustee

2. On 26 February 2016 I ordered that Mr Sammut pay the costs of the first respondent (Trustee) on an ordinary basis up to 10 July 2014, and on an indemnity basis after that date. I made that order because Mr Sammut rejected an offer made in a letter dated 26 June 2014 from the Trustee’s solicitors to Mr Sammut’s solicitors. The offer was as follows:

In order to end our client’s involvement in these baseless proceedings, the first respondent makes an open offer that the following orders be made by consent:

1. The proceedings against the first respondent are dismissed.
2. The applicant pay ¾ of the first respondent’s costs as fixed by the Court under rule 13.01(2) or quantified in accordance with rule 13.01(1) of the Federal Circuit Court (Bankruptcy) Rules 2005.

This open offer may only be accepted in writing before the end of 21 days after the date of this letter.

3. Mr Sammut submits that he should not be ordered to pay any of the Trustee’s costs or, if he is to be ordered to pay any of the Trustee’s costs, he should only be ordered to pay the costs the Trustee incurred after the Trustee served his evidence. Mr Sammut further submits that on no account should the Court order that Mr Sammut pay the Trustee’s costs on an indemnity basis because the Trustee’s offer was not a genuine compromise.
4. The basis of Mr Sammut’s first submission is an exchange of letters between Mr Sammut’s solicitors and the Trustee’s solicitors on 22 October 2013 and 29 October 2013. Mr Sammut’s solicitors sent the letter dated 22 October 2013 after Mr Sammut had filed, but before he had served, the application by which he commenced these proceedings. The letter stated, among other things:
   • Prior to incurring costs however, it would be appropriate for your client to make his file available for inspection. We note that the provision of the file would be to enable our client to review the basis of the decision, which our client may seek to set aside of we elect to serve the application that has been filed. We note that the provision of the file would be in accordance with the principles set out by Allsop J (as his Honour then was) in Labocus Precious Metals Pty Limited v Thomas (No 3) [2007] FCA 1346 at [14] to [18].
5. With the letter, Mr Sammut’s solicitors enclosed a draft of the application. The draft simply set out the orders sought, but not the grounds on which they were sought.
6. The Trustee’s solicitors responded on 29 October 2013 stating that the Trustee would not grant access to the Trustee’s file. The letter noted that Labocus Precious Metals Pty Limited was “not on point” because it did not deal with a request for inspection of a file before the commencement of proceedings; that the file contained “many privileged materials”; and that, in any event, “there has still not been articulated any proper grounds for the relief claimed in the draft Application”.
7. Mr Sammut submits that, had the Trustee provided his file as requested, Mr Sammut may have decided not to proceed. I do not accept that submission. During the pre-trial stages of the proceedings, the Trustee gave verified discovery. It has not been suggested that the Trustee failed to make available for Mr Sammut’s inspection any document which the Trustee ought to have made available. Further, the Trustee gave evidence in advance of the hearing in relation to the decision he made which Mr Sammut unsuccessfully challenged in these proceedings. Yet Mr Sammut continued with his claims to hearing. In those circumstances, I cannot be satisfied there was any measurable prospect that Mr Sammut would not have proceeded with his claim, had the Trustee made available his file to Mr Sammut.
8. Even if, however, I were to accept that Mr Sammut may have not proceeded with his application had the Trustee made available his file, it was not reasonable, at least in the circumstances of this case, for Mr Sammut to have requested the Trustee to make available his file. Mr Sammut did not communicate to the Trustee the grounds on which he claimed he may have been entitled to an order under s.178 of the Act. Nor did he communicate to the Trustee any grounds for suggesting that, within the Trustee’s file, there were documents which could reasonably have assisted Mr Sammut to determine whether he had a viable claim against the Trustee and, if so, whether he should proceed with it. These are necessary preconditions to the exercise of the power to order preliminary discovery against a prospective respondent as provided, for example, under r.7.23 of the Federal Court Rules 2011 (Cth) (FCR). It is difficult to imagine any circumstances outside those provided by rules, such as r.7.23 of the FCR, in which a person could reasonably be expected to give access to documents to a person who is considering taking action against him or her.
9. I also do not accept Mr Sammut’s second submission. It appears to be implicitly premised on the proposition that Mr Sammut could not have reasonably made a decision about whether he should maintain the proceedings until after he became aware of the Trustee’s evidence, and in particular, the Trustee’s evidence of the reasons for which the Trustee decided to enter into the agreement with Mr Coulter De Rome. If that is the premise on which Mr Sammut’s submission is based, I do not accept it. I am not satisfied there was insufficient information available to Mr Sammut before he commenced proceedings to assess his prospects of succeeding on a claim under s.178 of the Act. Mr Sammut had available to him the creditors’ reports and various market appraisals of the property located at 1 Tenalga Street, Nerang, Queensland (Property). Although Mr Sammut may not initially have known of the correct details of the agreement the Trustee made with Mr Coulter De Rome, Mr Sammut had become aware of the true nature of the agreement before he commenced the proceedings. Mr Sammut also was on notice that Mr Coulter De Rome had undertaken work on the Property. It was within Mr Sammut’s power, therefore, to have made a reasonably accurate and comprehensive assessment of his prospects of success.
10. I then turn to Mr Sammut’s submission that the order for indemnity costs that I made on 26 February 2016 should be set aside because, Mr Sammut submits, the Trustee’s offer did not reflect a genuine offer of compromise. It is certainly relevant to determining whether to make an order for indemnity costs, because a party did not accept what purports to be an offer of compromise, whether there was an element of compromise in the offer that was made.^[1] That the offered concession is modest, however, does not necessarily mean that it would prevent the offer from being properly characterised as a genuine offer of compromise. If, for example, the case of the party who did not accept the offer was extremely weak, the modesty of the concession may not count against the offer being characterised as genuine.^[2]
11. The Trustee submits that Mr Sammut’s case was always weak and, at the time the Trustee made the offer, it ought to have been plain to Mr Sammut that his claim was weak. I agree. At the time the Trustee made the offer, Mr Sammut’s evidence had been filed, as had the Trustee’s. It ought to have been apparent to Mr Sammut that, on the state of the evidence that had been filed, Mr Sammut’s case for relief against the Trustee under s.178 of the Act was very weak, especially because there was no evidence which, if accepted, could have proven that Mr Sammut was a person affected by the Trustee’s decision. Thus, given the weakness of Mr Sammut’s case, the offer the Trustee made was a genuine compromise.
12. I do not, therefore, propose to disturb the order for costs I made on 26 February 2016 as between the Trustee and Mr Sammut.

Costs as between Mr Sammut and Mr Coulter De Rome

13. Mr Coulter de Rome submits I should order that Mr Sammut pay his costs on an indemnity basis. Mr Coulter de Rome submits Mr Sammut’s claims against Mr Coulter de Rome were from the outset hopeless and could not have succeeded. Mr Coulter de Rome relies on two matters.
14. First, Mr Sammut did not set out in the application and in the statement of claim any grounds which, if established, could reasonably have entitled Mr Sammut to the relief he claimed against Mr Coulter de Rome. Related to that ground is that Mr Sammut made no allegation of bad faith against Mr Coulter de Rome or any allegation that Mr Coulter de Rome had knowledge or notice of any of the matters upon which Mr Sammut relied in his claim for relief against the Trustee. Second, Mr Sammut did not offer to indemnify Mr Coulter de Rome for the amounts he had expended in performing the agreement he had entered into with the Trustee, and on the faith of the validity of that agreement. In the absence of any such offer, it was impossible for Mr Sammut to have been entitled to the relief which he sought, given no cause of action was alleged against Mr Coulter De Rome.
15. The Court has jurisdiction to make an order for costs on an indemnity basis against a party that institutes and maintains a hopeless case. The words that have been used to identify cases which merit the making of such costs orders have varied. For example, in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (No 2), Finkelstein J referred to a “hopeless case where, when properly analysed as it should be before trial, there is simply no merit in the point”;^[3] and in Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd, Gray J referred to a case that has been maintained “so unreasonably as to warrant the award of indemnity costs”.^[4]
16. In my opinion, the claim Mr Sammut brought against Mr Coulter De Rome, when properly analysed as it should have been before he commenced the proceedings, was hopeless. The statement of claim did not allege facts which, if accepted, could have disclosed a reasonable cause of action by Mr Sammut against Mr Coulter De Rome; and no reasonable cause of action was articulated against Mr Coulter De Rome at the hearing. The only basis on which Mr Sammut joined Mr Coulter De Rome as a party appears to have been that he was a necessary party, given the relief Mr Sammut was seeking. In the absence of any articulated cause of action against Mr Coulter De Rome, however, that by itself afforded Mr Sammut no reasonable justification for bringing the claim against Mr Coulter De Rome.
17. I propose, therefore, to order that the costs I ordered Mr Sammut to pay to Mr Coulter De Rome be assessed on an indemnity basis.

Disposition

18. I propose to:
    1. dismiss Mr Sammut’s application to vacate the orders for costs I made on 26 February 2016 against him in favour of the Trustee; and
    2. order that the costs that on 26 February 2016 I ordered Mr Sammut pay to Mr Coulter De Rome be assessed on an indemnity basis; and
    100. order that Mr Sammut pay the Trustee’s costs of the application Mr Sammut brought to vary the order I made on 26 February 2016; and
    4. order that Mr Sammut pay Mr Coulter De Rome’s costs of his application that Mr Sammut pay Mr Coulter De Rome’s on an indemnity basis.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Date: 24 March 2016

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^[1] The cases are reviewed in G E Dal Pont Law of Costs 3^rd ed 2013 at pages 368-370 [13.7]
^[2] See for example, Prosperity Advisers Pty Limited v Secure Enterprises Pty Limited t/a Strathearn Insurance Brokers [2012] NSWCA 192 at [111]
^[3] [2005] FCA 401
^[4] [2007] FCA 1844 at [26]