Carvana v State of New South Wales (No 2)

On 15 March 2024, I delivered judgment in respect of Mr Carvana’s claims against the State of New South Wales for malicious prosecution, false imprisonment and trespass to goods: Carvana v State of New South Wales [2024] NSWSC 254.

Although it was unknown to me at the time of delivering judgment, Mr Carvana filed a bankruptcy petition and his debtor’s petition was accepted on 20 November 2023, after judgment was reserved in this matter on 8 November 2023 and before judgment was delivered on 15 March 2024.

As a result of the acceptance of his petition, under s 57A of the Bankruptcy Act 1966 (Cth), Mr Carvana became a bankrupt on 20 November 2023. By virtue of s 149(1)(b) of the Bankruptcy Act Mr Carvana will, subject to any objection to discharge from bankruptcy, be discharged from bankruptcy after 19 November 2026. Thus, he has been since 20 November 2023, and currently is, an undischarged bankrupt.

On 8 February 2024, Mr Carvana wrote an email to my Associate, which was not copied to the legal representative of the State, as follows:

On the same day, my Associate responded to Mr Carvana, copying both Mr Carvana’s email and the response to the State’s legal representative, as follows:

By email of 12 March 2024 from my Associate, the parties were informed that the matter was listed for judgment on 15 March 2024. On the same day, Mr Carvana replied by email, copied to the legal representatives of the State:

Later on 12 March 2024 and as part of the same email chain as the emails referred to in the preceding paragraph, Mr Carvana wrote an email which included:

My Associate responded that Mr Carvana was permitted to appear by email and he would be provided with relevant link in due course and Mr Carvana responded thanking my Associate.

At no point during the email correspondence between my Associate and Mr Carvana prior to the delivery of judgment did he give any indication that he had petitioned for bankruptcy or that he was a bankrupt.

As noted above, judgment was delivered on 15 March 2024 and Mr Carvana appeared by audiovisual link. The orders made on that occasion were:

On 19 March 2024, Mr Carvana sent an email to the legal representatives of the State and to my Tipstaff, which was copied to Mr Carvana’s trustee in bankruptcy, which was in the following terms:

Subsequently, there was correspondence between the legal representatives of the State and Mr Tonks, the trustee in bankruptcy. In that correspondence, the trustee raised the question of whether the proceedings were stayed pursuant to s 60 of the Bankruptcy Act.

In order to consider the implications of Mr Carvana’s bankruptcy and the question of costs, the matter was listed for hearing on 30 May 2024. One issue which concerned me was, if the whole or part of the proceedings were stayed by operation of s 60(2) of the Bankruptcy Act at the time I purported to deliver judgment on 15 March 2024, I might be required to withdraw the whole or part of my judgment and await a decision of the trustee as to whether he wished to elect to prosecute or discontinue the action.

At the hearing on 30 May 2024, there was no appearance by Mr Carvana or the trustee in bankruptcy, but Ms Jaffray of counsel appeared for the State. On that occasion, a letter from Mr Tonks to the solicitors for the State, copied to my Associate, was before the Court which noted the steps taken by Mr Carvana after becoming a bankrupt and noting it was a matter for the Court whether this amounted to continuing the proceedings under s 60(4) of the Bankruptcy Act.

On 30 May 2024, the following orders were made:

Notice was served on the trustee in bankruptcy by the State, as envisaged in order (1). The trustee did not elect to continue the proceedings, or any part of the proceedings, within 28 days of receiving notice under s 60(3) of the Bankruptcy Act.

Eventually, the matter came on for further hearing on 18 September 2024, rather than 6 September 2024 as specified in order (4). On that day, there was once again no appearance by Mr Carvana or his trustee in bankruptcy. At the end of the hearing on 18 September 2024, I reserved my decision.

There are, in essence, two issues that are to be determined:

Section 60 of the Bankruptcy Act relevantly provides:

In addition, s 116 of the Bankruptcy Act relevantly provides:

Sections 60 and 116 of the Bankruptcy Act operate in the context of the general rule in s 58 to the effect that property, other than after-acquired property, vests forthwith in the official trustee or the trustee in bankruptcy. The purpose of s 60 is to deal with what is to happen with pending proceedings commenced by a bankrupt before his or her bankruptcy. Section 60(4) accommodates the circumstance that not all property of the bankrupt vests in his or her trustee in bankruptcy and is divisible amongst creditors by virtue of s 116(2). Consequently, under s 60(4), where the relevant property is a chose in action, founding a claim to recover damages for personal injury or wrong which is being enforced in pending proceedings, a bankrupt may continue those proceedings in his or her own name. The operation of these provisions has recently been discussed by the Court of Appeal of Western Australia in Lee v The State of Western Australia [2023] WASCA 165 (Lee) at [15] et seq (Vaughan and Hall JJA).

A purpose of ss 60(4) and 116(2)(g) was explained in Lee at [20] as being:

In addition, in that same paragraph, it was emphasised that ss 60(4) and 116(2)(g) focus on the substance of the claim in question rather than the form of the action and that the exception applies to that narrow class of action where the injury is one to the bankrupt's person, character or feelings as opposed to claims where the primary and substantial right of action is direct pecuniary loss to the property or estate of the bankrupt. The comment of Dixon J in Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721; [1935] HCA 48, although in relation to an earlier form of the bankruptcy legislation, remains applicable. His Honour there said:

In the present case, Mr Carvana’s claims were for malicious prosecution, false imprisonment and trespass to goods.

Damages for malicious prosecution are generally confined to damages for injury to the plaintiff’s reputation, to the plaintiff’s person to the extent that the plaintiff’s “life, limb or liberty” was adversely affected and to the plaintiff’s property where the plaintiff was forced to expend funds defending the charges: Rock v Henderson [2021] NSWCA 155 at [13] (Brereton JA, with Bell CJ agreeing) and [109] (Wright J, with Bell CJ agreeing). Mr Carvana’s malicious prosecution claim was essentially of this nature; it was not primarily or substantially a claim for direct pecuniary loss to his property or estate. These considerations lead to the conclusion that Mr Carvana’s claim for malicious prosecution falls within s 60(4) of the Bankruptcy Act and thus the cause of action in that regard did not vest in the trustee. John Dixon J reached a similar conclusion that a claim for malicious prosecution fell within s 116(2)(g) in Sheehan v Brett-Young (No 3) (2016) 50 VR 467; [2016] VSC 39.

In relation to the tort of false imprisonment, it has been held that its principal function is to provide a remedy for injury to liberty and that damages are awarded to vindicate personal liberty: Lewis v Australian Capital Territory (2020) 271 CLR 192; [2020] HCA 26 at [14] (Kiefel CJ and Keane J). Thus, a claim for false imprisonment will generally be an action relating to rights to the person rather than an action relating to rights concerning property. In Mr Carvana’s case, his claim for false imprisonment was primarily concerned with vindication of his right to personal liberty and any claim for damage to property was purely derivative and indirect. Accordingly, in those circumstances, I conclude that Mr Carvana’s false imprisonment claim also falls within s 60(4) of the Bankruptcy Act.

Mr Carvana’s claim for trespass to goods related to his being deprived of possession of his mobile telephone for a number of days. It was noted in the judgment delivered on 15 March 2024 that trespass to goods is a wrong to possession but, where the goods have been detained and returned undamaged, the damages recoverable for trespass to goods may be nominal. Since the subject matter of the claim was property rather than the person or reputation of Mr Carvana, this part of his proceedings appeared to be an action relating to rights concerning property rather than an action relating to rights to the person. If so, it would not fall within s 60(4). The State argued that it should be taken to be an action relating to injury to the person because the subject matter of the claim was Mr Carvana’s telephone which, it was said, would not vest in the trustee because s 116(2)(b)(i) of the Bankruptcy Act excluded from vesting “the bankrupt’s household property that is … of a kind prescribed by the regulations” and reg 27(2) (j) and (3)(g) of the Bankruptcy Regulations 2021 (Cth) provided that “one telephone” or “telephone equipment” was prescribed for those purposes. Apart from the difficulty in seeking to construe a provision of the Bankruptcy Act such as s 60(4) by reference to regulations made under that Act and made for the purposes of a different section, it was far from clear on the evidence in the principal proceedings that Mr Carvana’s telephone in question was “household”, as opposed to “business”, property of Mr Carvana. The finding at [277] of the 15 March 2024 judgment that “the proceedings were apparently conducted on the basis that the telephone was owned by Mr Carvana and not by Emplus Solutions Pty Ltd or some other entity” does not mean that the telephone was household rather than business property of Mr Carvana, especially in light of his assertions that he needed the telephone to conduct one or more of his businesses. In all the circumstances, I do not accept that Mr Carvana’s claim for trespass to goods was an action in respect of any personal injury or wrong done to him.

As noted in the judgment delivered on 15 March 2024, a claim for aggravated or exemplary damages was not expressly articulated in relation to the trespass to goods claim or any other claim. Further, I held that even if a claim for such damages had been articulated, it would have been unsuccessful for the reasons given at [249]-[255].

Since, however, the substance of Mr Carvana’s trespass to goods claim could also be seen to amount to claim in detinue, I assessed compensatory damages (contingently on the assumption that I was otherwise wrong and Mr Carvana was entitled to damages) on the assumption that the claim was a claim in detinue. The amount of damages so assessed was only $1,000. Compared to the claims in malicious prosecution and false imprisonment, the claim for trespass to goods was verging on the minimal.

Thus, even if the claim for trespass to goods should not be characterised as an action relating to rights of the person and was an action relating to property rights, in my view, it was not of such consequence that it should lead to the conclusion that Mr Carvana’s proceedings otherwise did not fall withing s 60(4) of the Bankruptcy Act.

As a practical matter, it might be thought inappropriate to sever the trespass to goods claim from the other claims in the proceedings and deal with them differently under the s 60 of the Bankruptcy Act. Nonetheless, bearing in mind the conceptual distinctions inherent in s 60(2) and (4) of the Bankruptcy Act, the preferable course is notionally to sever the trespass to goods claim from the rest of the proceedings for the purposes of s 60. For this reason, I shall consider that part of the proceedings separately.

In respect of the malicious prosecution and false imprisonment claims, I am of the view that they fall within s 60(4) of the Bankruptcy Act and, consequently, Mr Carvana was entitled to continue those proceedings and the relevant choses in action did not vest in the trustee in bankruptcy.

I am satisfied that, by writing the emails to my Associate enquiring about the progress of the matter, by failing to inform the Court of his bankruptcy before judgment and by appearing on 15 March 2024 for delivery of judgment, Mr Carvana continued his proceedings, as he was entitled to under s 60(4) at least in so far as they related to the malicious prosecution and false imprisonment claims. Furthermore, so far as the proceedings related to the malicious prosecution claim and the false imprisonment claim, the proceedings were not to that extent stayed by virtue of s 60(2) of the Bankruptcy Act. Accordingly, there is no reason why my judgment of 15 March 2024 should not stand in those respects and it is necessary to consider the issue of costs of those parts of the proceedings.

Accepting for the reasons given above, that the part of Mr Carvana’s proceedings relating to the claim for trespass to goods should be severed from the other parts, in my view, the trespass to goods part of the proceedings was, from 20 November 2023, stayed by operation of s 60(2). Furthermore, in light of the notice given by the State to the trustee in bankruptcy under s 60(3) and his failure to elect to prosecute the relevant part, or any part, of the proceedings, the trustee is deemed to have abandoned the action, by virtue of s 60(3). Such a deemed abandonment does not, however, operate to dismiss that aspect of the proceedings: Moran v Minco Holdings Pty Ltd (in Liquidation) [2022] WASCA 93 (Moran) at [10] and [12]. Nonetheless, in the absence of any reason to allow that aspect of the proceedings to remain on foot, especially in light of my findings and conclusion in the 15 March 2024 judgment, and to the extent that it may be necessary, it is appropriate in my view to dismiss that aspect of the proceedings. In these circumstances, it will be also necessary to consider the question of costs in respect of that part of the proceedings, on the basis that it has been abandoned and dismissed.

Before turning to the questions of costs, however, it is appropriate to address briefly the consequences of the conclusion concerning the trespass to goods claim for the judgment of 15 March 2024. Since the part of the proceedings dealing with trespass to goods claim was stayed from 20 November 2023 and now is taken to have been abandoned, it may have been appropriate not to have included that aspect of the proceedings in the judgment delivered on 15 March 2024, if I had been informed of Mr Carvana’s bankruptcy prior to the judgment being delivered. However, given that I was not informed of Mr Carvana’s bankruptcy prior to judgment and the judgment was, as a result, delivered dealing with all claims made by Mr Carvana and since the order would not be different if the trespass to goods claim were not included and the reasons for judgment provide useful information in order to understand these reasons, in my view, it is appropriate to let the 15 March 2024 reasons for judgment and orders stand without alteration or deletion.

As to the costs of the part of the proceedings dealing with the trespass to goods claim, which have been deemed to have been abandoned, the Court may order that costs be paid notwithstanding s 58(3) of the Bankruptcy Act, for the reasons given by the Western Australian Court of Appeal in Moran at [14]. The relevant principles and approach to whether costs should be ordered after a deemed abandonment under s 60(3) and dismissal were considered in Moran at [16]-[19] where it was held:

Adopting the same approach, Mr Carvana should be ordered to pay the State’s costs of that aspect of the proceedings which is deemed to have been abandoned and which, to the extent necessary, is to be dismissed. Furthermore, given the way in which the proceedings were conducted and the fact that the plaintiff’s bankruptcy occurred after judgment was reserved, in my view, the costs of the part of the proceedings dealing with the trespass to goods claim should be dealt with together with, and in the same way as, the costs of the other aspects of the proceedings.

On all the plaintiff’s claims, the State has been entirely successful and there were no factors which suggested that costs should not follow the event.

The State, however, sought indemnity costs relying on a number of offers of compromise and Calderbank offers. It is sufficient in the circumstances to refer to the first of those. By letter sent by email on 21 March 2022, the State served on Mr Carvana an offer of compromise stated to be under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) which included judgment for the defendant with no order as to costs and was open for 28 days. The covering letter explained the nature of the offer, why it involved a reasonable compromise and the consequences if it was not accepted and Mr Carvana achieved a no more favourable result. Mr Carvana did not accept the offer and he has been completely unsuccessful. He has also become liable for costs.

Under r 42.15 of the UCPR, in such a situation, unless the Court otherwise orders, the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis as from the beginning of the day following the day on which the offer was made, because the offer was made before the first day of the trial in this matter.

There were no grounds identified why the Court should otherwise order. Nor was I satisfied that Mr Carvana’s impecuniosity or the fact that he was a litigant in person would justify the Court taking such a course in the present matter.

For these reasons, it is appropriate to order that Mr Carvana pay the State’s costs of the proceedings on the ordinary basis up to and including 21 March 2022 and thereafter on an indemnity basis.

Finally, the State has sought a gross sum costs order in respect of those costs.

The principal purpose of a specified gross sum costs order under s 98(4)(c) is to avoid the expense, delay and aggravation likely to be involved in a contested costs assessment process: Ahern v Aon Risk Services Australia Ltd (No 2) [2022] NSWCA 39 (Ahern) at [15] (Meagher, White and Brereton JJA). In addition, in the present case it is significant that there is a very substantial risk that the unsuccessful party, Mr Carvana, will be unable to meet any liability for costs likely to result from an assessment. Thus, in order to avoid requiring the State to incur further substantial costs on a costs assessment, a gross sum costs order is more appropriate than might otherwise be the case.

It is well established that the power to make a gross sum costs order under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) should only be exercised when the Court considers that it can do so fairly between the parties, and that includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Gabrielle v Abood (No 4) [2023] NSWCA 100 (Gabrielle) at [6] (Bell CJ, Kirk and Adamson JJA).

In determining the quantum of a gross sum costs order, the Court is not required to undertake a detailed examination of the kind that would be appropriate for a formal costs assessment: Hamod v State of New South Wales [2011] NSWCA 375 (Hamod) at [819] (Beazley JA, Giles and Whealy JJA agreeing); Gabrielle at [6].

The quantum of a gross sum costs order should be based on an informed assessment of the actual costs having regard to the information before the Court (for example, by way of costs estimates or bills) and the approach taken must be logical, fair and reasonable: Hamod at [820]; Ahern at [18].

It will often be appropriate for the Court making a gross sum costs order to adopt a “broad-brush” approach to quantification and to apply an “impressionistic” discount to the costs actually incurred or estimated in order to take into account the contingencies that would be relevant in any formal costs assessment: Hamod at [814] and [820]; Ahern at [18]; Gabrielle at [6].

As I observed in Zarfati v McMillan [2023] NSWSC 839 at [9(5)]:

The last comment in the quotation above applies with some force in the situation where a gross sum costs order is being made in respect of costs to be paid on an indemnity basis.

The State put before the Court information as to the costs actually incurred and likely to be incurred by way of the affidavits of Mr Clohesy affirmed on 28 March 2024 and 22 July 2024. Based on that information, I am satisfied that the Court can proceed fairly to determine a gross sum costs order in the present case.

Those affidavits establish that the State has been billed a total of $300,127.55 in costs with a relatively small amount, in the order of $4,000, yet to be billed. In addition, Mr Clohesy estimated that the application in relation to the Bankruptcy Act and costs would involve the State incurring further costs of slightly more than $11,500. A detailed exposition of the various components of these costs has been provided. Mr Clohesy has also sought to include interest on costs in his calculations. I have reviewed the rates charged for the various solicitors and counsel involved and they appeared to me to be reasonable or even modest. The time spent did not appear unreasonable given the nature of the issues and the length of the hearing.

For the purposes of the State’s gross sum costs application, Mr Clohesy put forward an amount of $285,000.00 as an appropriate figure calculated on the basis of broadbrush discounts so as to recover 65% on an ordinary basis, 85% on an indemnity basis and a reduction of 5% on disbursements and assuming an order for indemnity costs from 21 March 2022. That amount was calculated as follows:

Applying a broadbrush, having regard to the circumstances of, and contingencies in, the present case and giving credit for the avoidance of the costs of an assessment, I determine that a gross sum costs order should be made in the sum of $250,000.00.

Judgment has already been ordered for the defendant on 15 March 2024 and there has been no application to have that order rescinded or varied, nor do I consider it necessary or appropriate to do so on any grounds. As noted above, however, if the part of the proceedings relating to the claim for trespass to goods were effectively stayed when judgment was given on 15 March 2024, it may be necessary for that part of the proceedings to be dismissed now. If it is so necessary because the earlier judgment for the defendant would not include that aspect of the proceedings (about which I have some doubt), an order specifically dealing with the trespass to goods claim should be made, without seeking to detract from the earlier judgment for the defendant.

For all these reasons, the orders of the Court are: