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District Court 12 June 2020

Xu v Jiang

[2020] NSWDC 302

Other
PRACTICE AND PROCEDURE PLAINTIFF DECLARES HIMSELF BANKRUPT GROSS SUM COSTS ORDER FOR $41,762.53

Citation: Xu v Jiang [2020] NSWDC 302
Court: District Court of New South Wales
Date: 12 June 2020
Judge: Gibson DCJ

Background

The plaintiff commenced proceedings against the defendant seeking repayment of an alleged loan. The defendant filed a defence asserting the claim was fraudulent and brought a separate application for security for costs, on the basis that the plaintiff was ordinarily resident in China.

Before the security for costs application was determined, the plaintiff was declared bankrupt on 2 April 2020. The plaintiff's trustee in bankruptcy, after being notified of the proceedings, communicated to the court that no election had been made to continue the proceedings under s 60 of the Bankruptcy Act 1966 (Cth). Under that provision, a failure to elect within 28 days of receiving notice is deemed to constitute abandonment of the action.

The defendant then filed a notice of motion seeking summary dismissal of the proceedings and a gross sum costs order. The plaintiff did not appear, and the trustee in bankruptcy confirmed it would not participate further.

  • Whether the proceedings should be dismissed following the trustee in bankruptcy's deemed abandonment under s 60 of the Bankruptcy Act 1966 (Cth)
  • Whether a costs order following the event can be made where proceedings are abandoned by reason of bankruptcy, with no determination on the merits
  • Whether a gross sum costs order under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) was appropriate, and whether the court had sufficient information to determine the quantum

Decision

Summary dismissal. Gibson DCJ was satisfied that the trustee's failure to elect to continue the proceedings within the statutory 28-day period constituted a deemed abandonment under s 60 of the Bankruptcy Act. The proceedings were accordingly dismissed pursuant to r 12.7(1) of the UCPR.

Costs following the event. The absence of a merits determination did not, in the court's view, preclude an ordinary costs order. Drawing on Cole v Challenge Bank Ltd [2002] FCAFC 200 and the Victorian Court of Appeal's recent decision in Yue'e Zhao v Suzhou Haishun Investment Managing Co Ltd [2020] VSCA 34, Gibson DCJ accepted that costs should follow the event where a party has, in effect, surrendered or capitulated to the other. The plaintiff's bankruptcy and the trustee's non-election was treated as equivalent to such a capitulation. The costs order was made against the plaintiff personally, because the trustee, while holding the vested estate, was not a party to the proceedings.

Gross sum costs order. Gibson DCJ found it appropriate to exercise the discretion under s 98(4)(c) of the Civil Procedure Act 2005 to make a gross sum costs order, rather than require a formal assessment. This approach avoids the additional cost and delay of assessment, particularly where a bankrupt plaintiff is unlikely to pay in any event and further proceedings to tax costs would simply increase the defendant's losses. The court reviewed the itemised costs in detail.

Quantum. The solicitors' profit costs were allowed at $30,000, representing a reduction from the itemised sum to reflect what might be allowed on assessment. Disbursements totalling $9,012.53 were allowed in full, as they were considered reasonable and disbursements are rarely reduced significantly on assessment. A modest future costs component of $2,750 was allowed, reduced from the estimated $3,500 due to limited supporting information. The total gross sum costs order was $41,762.53.

Orders Made

  • The proceedings were dismissed with costs pursuant to r 12.7(1) UCPR.
  • A gross sum costs order was made against the plaintiff pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) in the total amount of $41,762.53, comprising:
  • Profit costs: $30,000
  • Disbursements: $9,012.53
  • Future costs: $2,750
  • The court directed that the plaintiff be notified of the orders by forwarding a copy to the trustee in bankruptcy.

Key Takeaways

  • Where a plaintiff's trustee in bankruptcy fails to elect to continue proceedings under s 60 of the Bankruptcy Act 1966 (Cth), the action is deemed abandoned and the court proceeds to finalise the matter, including costs, on that basis.

  • A costs order following the event remains available even without a determination on the merits, where the deemed abandonment following bankruptcy is treated as equivalent to a surrender or capitulation by the plaintiff.

  • Under Cole v Challenge Bank Ltd and Frigger v Rowe Bristol Lawyers, costs in these circumstances are properly ordered against the bankrupt plaintiff personally, not the trustee, because the trustee is not a party to the proceedings.

  • The District Court confirmed that gross sum costs orders under s 98(4)(c) of the Civil Procedure Act 2005 are particularly appropriate in cases involving bankrupt plaintiffs, where a formal costs assessment would only further increase an irrecoverable loss for the defendant.

  • In fixing a gross sum, the court applied a modest reduction to profit costs to reflect likely assessment outcomes, allowed disbursements in full where they were reasonable and itemised, and applied a greater proportional reduction to future costs estimates that were supported only by limited information.

Legislation and Cases Referenced

Legislation
- Bankruptcy Act 1966 (Cth), s 60
- Civil Procedure Act 2005 (NSW), s 98(4)(c)
- Uniform Civil Procedure Rules 2005 (NSW), rr 12.7 and 29.7

Cases
- Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
- Cole v Challenge Bank Ltd [2002] FCAFC 200
- Yue'e Zhao v Suzhou Haishun Investment Managing Co Ltd [2020] VSCA 34
- Frigger v Rowe Bristol Lawyers Pty Ltd [2020] WASC 5
- Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681
- Bechara trading as Bechara and Company v Bates [2016] NSWCA 294
- Hamod v State of New South Wales and Anor [2011] NSWCA 375
- Harrison & Anor v Schipp (2002) 54 NSWLR 738
- Penson v Titan National Pty Limited (No 3) [2015] NSWCA 121
- Auspine Ltd v Australian Newsprint Mills Ltd [1999] FCA 673; (1999) 93 FCR 1
- Idoport Pty Limited v National Australia Bank Limited & Ors [2007] NSWSC 23
- Tim Barr Pty Ltd & Anor v Narui Gold Coast Pty Ltd [2011] NSWSC 11
- Star Diamond v Diamond (No 4) [2013] NSWCA 811
- Vumbaca v Sultana (No. 2) [2013] NSWDC 195