ARKWRIGHT AS TRUSTEE FOR THE BANKRUPT ESTATE OF MERCER & HASS
[2020] FamCA 981
•24 November 2020
FAMILY COURT OF AUSTRALIA
| ARKWRIGHT AS TRUSTEE FOR THE BANKRUPT ESTATE OF MERCER & HASS | [2020] FamCA 981 |
| FAMILY LAW – COSTS – Application for costs – Indemnity costs – Party and party costs – Agreement that applicant should pay respondent’s costs – Whether costs should be awarded on an indemnity basis – Conduct of the proceedings by the parties – Orders made for party/party costs in a fixed amount to be paid by the applicant for part of the proceedings and otherwise on an indemnity basis – Indemnity costs to be assessed by a Registrar. |
| Family Law Act 1975 (Cth) ss 117, 117(1), 117(2), 117(2A) Family Law Rules 2004 rr 19.09(2), 19.09(3) Federal Circuit Court Rules 2001 rr 4.03(3), 21.02(2), 21.05(3), Sch 1 |
| Kohan & Kohan (1993) FLC92-340 Yunghanns & Ors & Yunghanns & Ors & Yunghanns (2000) FLC 93-029 Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 187 J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch & Anor (No 2) (1993) 46 IR 301 |
| APPLICANT: | Mr Arkwright (as Trustee for the Bankrupt Estate of Mr Mercer) |
| RESPONDENT: | Ms Hass |
| FILE NUMBER: | ADC | 5280 | of | 2017 |
| DATE DELIVERED: | 24 November 2020 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Adelaide |
| JUDGMENT OF: | Mead J |
| HEARING DATE: | 4 & 8 May 2020 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Rowley |
| SOLICITOR FOR THE APPLICANT: | Charlton Rowley Legal |
| COUNSEL FOR THE RESPONDENT: | Mr McGinn of Counsel |
| SOLICITOR FOR THE RESPONDENT: | Dentons Australia Limited |
Orders
That Mr Arkwright (as Trustee for the Bankrupt Estate of Mr Mercer) pay:
(a)the respondent’s costs of these proceedings for the period from the commencement of same up to 3 May 2018 on a party/party basis fixed in the sum of $2,698.50, together with fees and disbursements for that period as agreed or as taxed by the Registrar pursuant to Chapter 19 of the Family Law Rules 2004; and
(b)the respondent’s costs of and incidental to these proceedings as and from 3 May 2018 (excluding any costs arising from or incidental to the Initiating Application filed herein on 21 December 2018) on an indemnity basis in an amount to be assessed by a Registrar pursuant to Chapter 19 of the Family Law Rules 2004.
That these proceedings be certified as fit for counsel.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Arkwright as Trustee for the Bankrupt Estate of Mercer & Hass has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: ADC 5280 of 2017
| Mr Arkwright (as Trustee for the Bankrupt Estate of Mr Mercer) |
Applicant
And
| Ms Hass |
Respondent
REASONS FOR JUDGMENT
Background
On 21 December 2017 Mr Arkwright (as Trustee for the Bankrupt Estate of Mr Mercer) (hereinafter referred to as “the trustee”) filed an Initiating Application for settlement of property naming Ms Hass as the respondent (hereinafter referred to as “the respondent”).
Mr Mercer (hereinafter referred to as “the former de facto husband”) and the respondent lived together in a de facto relationship from 1986 to somewhere between October 2015 and 17 December 2015[1] or, sometime in December 2015[2].
[1] Respondent’s Affidavit filed 3 May 2018, paragraphs 44 – 47 inclusive
[2] Applicant’s Affidavit filed 21 December 2017, paragraph 4.3
The trustee sought the following orders in his Initiating Application namely:
(1)That in full and final satisfaction of any claim that either party may have against the other for settlement of property or alteration of interests pursuant to Part VII of the Family Law Act 1975 (Cth) (as amended) in the past, in the present, or in the future, the assets of the relationship be divided as deemed just and equitable by this Honourable Court.
(2)That any superannuation interest held in the C Super Fund be split equally between the Applicant and the Respondent.
(3)Any such further or other order as this Honourable Court deems fit.
The application was supported by an Affidavit wherein the trustee deposed to having been appointed as Trustee for the Bankrupt Estate of Mr Mercer.
He deposed in paragraphs 4 to 8 inclusive of that Affidavit to:
·the background of the relationship between the former de facto husband and the respondent;
·the time prior to the relationship;
·details as to the commencement of the relationship;
·the breakdown of previous relationships; and
·the commencement of cohabitation,
as informed to him by the former de facto husband.
Paragraphs 9 to 17 of the Affidavit went to what he had been informed by the former de facto husband as to:
·the former de facto husband’s interest in companies and trusts prior to separation;
·assets acquired during the relationship;
·B Company;
·financial contributions;
·non-financial contributions;
·sale of assets after separation; and
·Financial Statement.
A Financial Statement was filed contemporaneously with the aforementioned Initiating Application and Affidavit.
On page 1 of 13 it was identified that the Financial Statement was prepared by a lawyer, Mr Luke Rowley. On that same page “Part A” of the Financial Statement headed “About you” identified that the Financial Statement related to the former de facto husband.
The application and accompanying documents were prepared by and filed by Charlton Rowley Legal as solicitors for the trustee.
The application was filed in the Federal Circuit Court and made returnable for Tuesday 13 February 2018 at 10.00 am in a Hearing Duty List.
In paragraph 63 of an Affidavit filed by the respondent on 3 May 2018 she deposed to having been served with the Initiating Application, Financial Statement and Affidavit to which I have referred on or about 17 January 2018, and in paragraph 64 of the same Affidavit to having received no prior notice of the application from either the trustee or the former de facto husband.
At the hearing on 13 February 2018 the trustee was represented by Mr Rowley, solicitor of Charlton Rowley Legal, and the respondent by Mr Bullock of Counsel instructed by Fisher Jeffries solicitors. Procedural orders were made by consent as to the filing of additional documents. The matter was adjourned to 8 May 2018.
No Amended Initiating Application or Financial Statement was filed as required by paragraph 1 of the order of 13 February 2018.
On 2 March 2018 an Affidavit was filed by the trustee pursuant to that order. He deposed to having provided certain documents to the respondent’s solicitors with respect to the financial position of the former de facto husband, as requested by those solicitors on 13 February 2018.
On 16 April 2018 Fisher Jefferies filed a Notice of Address for Service for the respondent.
On 3 May 2018 an Application in a Case was filed on behalf of the respondent by Fisher Jefferies.
The orders sought in the Application in a Case were as follows:
(1)That the Initiating Application filed 21 December 2017 be dismissed by reason of it having been issued by a party that has no standing to institute the within proceedings.
(2)That pending the determination of paragraph 1 of this application the Respondent be excused from filing a financial statement and responding affidavit.
(3)In the alternative, that the time within which the Respondent is to file responding documents be extended to a date and time to be fixed by this Honourable Court.
(4)That the application for dismissal be set down for argument at such date and time as this Honourable Court deems fit and proper.
(5)That within 14 days the Applicant file and serve an affidavit including full and detailed information about the costs and disbursements incurred and/or paid to date by the Applicant in his capacity as Controlling Trustee pursuant to Part X of the Bankruptcy Act 1966 (Cth) and as Trustee of the Bankrupt Estate of Mr Mercer and exhibiting all minutes of creditors meetings and advice and reports to creditors since December 2016.
(6)Costs.
Notwithstanding that the respondent sought a listing for the hearing of her application for dismissal of the Initiating Application filed 21 December 2017, she also sought extensive information in relation to the conduct of the Trustee in Bankruptcy regarding his administration of the Bankrupt Estate.
The respondent filed an Affidavit in support of her application comprising some 64 paragraphs wherein she deposed to:
·the history of the relationship between the former de facto husband and the respondent;
·the financial aspects of that relationship;
·the parties self-managed superannuation fund;
·the circumstances of their separation;
·her current financial position; and
·comments as to the status of the Bankrupt Estate.
In paragraph 2 the respondent deposed to the purpose of the Affidavit being “…in support of my Response filed contemporaneously with this affidavit seeking final orders for the dismissal of the initiating application and ancillary interim orders.”
The Affidavit was not filed contemporaneously with a Response but rather with the Application in a Case to which I have referred, and did not go to the question of the primary order sought in the Application in a Case. No Response to the Initiating Application was ever filed by the respondent.
On 4 May 2018 an Application in a Case was filed on behalf of the former de facto husband by WBH Legal. The former de facto husband sought the following orders in that application namely:
(1)That leave be granted to make the Applicant a party to the proceeding ADC5280/2017 between Mr Arkwright (as Trustee for the Bankrupt Estate of Mr Mercer) and Ms Hass.
(2)That the superannuation interests held in the C Superannuation Fund and D Superannuation fund be equally divided between the Applicant and Ms Hass.
(3)That Ms Hass obtain a full independent valuation of the assets held in the C Superannuation Fund.
(4)That Ms Hass pay the Applicant weekly spousal maintenance as the honourable court deems fit.
(5)That any other order that this honourable court deems fit.
An Affidavit and Financial Statement were filed by the former de facto husband in support of that application. The former de facto husband deposed to having declared bankruptcy on 5 October 2016 and to Mr Arkwright having been acting as his Trustee in Bankruptcy since that date.
In his Affidavit he deposed to the following topics:
·his relationship with the respondent;
·cohabitation;
·C Superannuation Fund;
·assets brought into the relationship;
·assets during the relationship;
·financial contribution;
·other contributions;
·transfer of properties;
·his current circumstances;
·the respondent’s current circumstances.
On 8 May 2018 Mr Rowley, solicitor, appeared for the trustee. Mr McGinn of Counsel instructed by Fisher Jefferies appeared for the respondent and Mr Dostizada, solicitor, appeared for the former de facto husband.
The following orders were made:
(1)That the application in a case filed herein on 3 May 2018 and the application in a case filed herein on 4 May 2018 both be listed for argument on the papers on 5 October 2018 at 2:15pm (2 hours allowed).
(2)That on or before 14 September 2018 [the] applicant in the substantive proceedings provide to the respondent’s counsel, the proposed intervener’s counsel and the Associate to Judge Mead a summary of argument including any authorities on which he intend[s] to rely.
(3)That on or before the 28 September 2018 counsel for the respondent in the substantive proceedings and counsel for the applicant in the proposed intervener application provide to the counsel for the trustee and to the Associate to Judge Mead and to the other of them a summary of argument including any authorities on which they intend to rely.
As a result of administrative adjournments the matter eventually came before the Court on 3 December 2018.
The trustee and the respondent were represented by Mr Anderson of Counsel and Mr Wells QC with Mr McGinn of Counsel respectively, with the former de facto husband represented by Mr Dostizada.
The following consent order was made:
(1)That the Initiating Application of the trustee in bankruptcy filed 21 December 2017 be dismissed.
(2)That the husband's Application in a Case filed 4 May 2018 by the de facto husband do stand dismissed.
(3)That the said trustee in bankruptcy do pay the de facto wife's costs of these proceedings.
(4)
That the question of whether the costs to be paid on a solicitor/client
or indemnity basis be adjourned to 15 February 2019 at 3:15pm (40 minutes allowed).
The outstanding issue as to the nature of costs as between the trustee and the respondent referred to in the order of 3 December 2018 was eventually transferred to the Family Court of Australia and listed for hearing before me on each of 4 and 8 May 2020. Some submissions were made before Judge Kari in the Federal Circuit Court on 14 February 2020 prior to the transfer. A transcript of that hearing was before me as exhibit W3.
It was the position of the trustee that “ordinary rules”[3] should apply when considering the application for costs and that accordingly they should be ordered on a party/party basis and proceed to a taxation.
[3]Kohan & Kohan (1993) FLC 92-340 at p 79,614
It was the position of the respondent that the costs order should be met on an indemnity basis from the outset of the proceedings or in the alternative, costs should be paid on a solicitor/client basis until 3 May 2018 and thereafter on an indemnity basis.
Relevant legislation
The issue of costs is determined in accordance with the provisions of section 117 of the Family Law Act 1975 (Cth) (“the Act”). Parties to proceedings ordinarily bear their own costs.[4] Section 117(2) however provides that if the Court “…is of opinion that there are circumstances that justify it in doing so…” it may make an order as to costs and security for costs.
[4]Family Law Act 1975 (Cth) s.117(1)
If the Court determines that circumstances merit the making of an order for costs such order is subject to the provisions of subsections (2A), (4A), (5) and (6) of section 117 and the applicable rules of Court.[5] It is only the provisions of section 117(2A) that are applicable to the circumstances of this case. That subsection specifies the matters the Court shall have regard to if considering making an order for costs but in addition, permits the Court to take into account such other matters as it considers relevant.
[5] Federal Circuit Court Rules 2001
Submissions
It was submitted on behalf of the respondent that the trustee had no ability or power to institute proceedings on behalf of a de facto spouse for property settlement under the Act.
In the Summary of Argument filed on behalf of the trustee in relation to the respondent’s application for dismissal of the Initiating Application filed on 21 December 2017, the lack of standing on his part to institute those proceedings was conceded.
It was submitted however that the matter could be remedied by way of the Court deeming the former de facto husband, by way of his Application in a Case filed 4 May 2018, to be the “applicant” in the proceedings and the trustee a respondent to that application.
It was further submitted that:
·such an order was open to the Court pursuant to the terms of Part 11 of the Federal Circuit Court Rules 2001 relating to parties to the proceedings;
·that in the event the proceedings were dismissed the trustee would be deprived of the opportunity to argue that some of the former de facto husband’s debts should be paid from the property of the non-bankrupt respondent;
·that the trustee has an equitable interest in the respondent’s property or otherwise the option of a “claw-back” under the provisions of sections 120, 121 or 122 of the Bankruptcy Act 1966 (Cth);
·that the assets of the C Superannuation Fund (or part thereof) are subject to section 106B of the Act and further; and
·that such a course of action would not be prejudicial to the respondent noting the limited documents filed by her to that date.
In the Summary of Argument provided by the solicitors for the former de facto husband it was submitted that the interests of the former de facto husband in the superannuation funds do not vest in the trustee and that their client had an entitlement to make a claim with respect to that fund.
It was further submitted that the Application in a Case filed by the former de facto husband seeking to be joined to the proceedings and thereafter orders by way of settlement of property with respect to superannuation entitlements, together with an order for spousal maintenance, was not filed out of time because the Initiating Application seeking property settlement orders against the respondent had been commenced by the former de facto husband’s Trustee in Bankruptcy within the two year limitation period, referring to the period of separation of the respondent and the former de facto husband.
In the alternative it was submitted that if the Court was against that submission, leave should be granted to the former de facto husband pursuant to section 44(6) of the Act, as he would suffer hardship if leave was not granted to make those claims against the respondent. It was not clear from the submissions whether the argument with respect to an extension of time to file proceedings was intended to apply to the Application in a Case then before the Court, or to a “yet to be filed” Initiating Application.
The submissions in the alternative on the part of the former de facto husband and the trustee were abandoned at the hearing on 3 December 2018. Both the Initiating Application filed by the trustee and the Application in a Case filed by the former de facto husband were dismissed by consent.
Counsel for the respondent submitted in his Summary of Argument that the trustee had no ability or power as the Trustee of the Bankrupt Estate of Mr Mercer to institute proceedings against the respondent for settlement of property or otherwise.
As previously stated, that argument was conceded in the Summary of Argument of the solicitor for the trustee, whose submissions then concentrated on the application of the former de facto husband.
Counsel for the respondent submitted that the defect in the trustee’s Initiating Application could not be remedied by orders as sought in the Application in a Case filed by the former de facto husband. That point was conceded in the consent dismissal of that application at the hearing on 3 December 2018.
Counsel for the respondent argued that costs should be awarded against the trustee on an indemnity basis.
In considering the parties competing arguments as to the basis on which costs should be calculated, I find that it is important to carefully consider the steps taken by each of the parties from the time of the filing of the Initiating Application on 21 December 2017.
The orders sought were clear on the face of that document. The applicant was the Trustee in Bankruptcy of Mr Mercer.
The final orders sought in the Initiating Application included an order for settlement of property or alteration of interests in the assets of the relationship as between the former de facto husband and the respondent. The application specified that the claim was made pursuant to “Part VII of the Family Law Act 1975 (Cth) (as amended)”.
Part VII of the Act relates to orders concerning children and the powers of the Court with respect to parenting matters and is headed “Children”. De facto property settlement disputes are determined in accordance with the provisions of Part VIIIAB of the Act.
A further order was sought with respect to an equal division of the interests of the former de facto husband and the respondent in the C Superannuation Fund. Such an order could have been sought by the former de facto husband by way of Initiating Application. He filed such application together with an application for leave to apply out of time on 21 December 2018.
That application was the subject of a judgment of Judge Coates in the Federal Circuit Court delivered on 26 August 2019. A Notice of Discontinuance with respect to that application was ultimately filed on 15 November 2019.
Section 44(5) of the Act headed “Proceedings in relation to de facto relationships” provides that a party to a de facto relationship may apply for an order pursuant to, inter alia, section 90SM of the Act with respect to alteration of property interests following the breakdown of a de facto relationship.
Although section 90SM(1)(b) provides for the Court to alter the interests of a Bankruptcy Trustee in the vested bankruptcy property, there is no provision in the Act that confers any ability on the part of a Trustee in Bankruptcy to commence proceedings pursuant to the Act for settlement of property on behalf of the bankrupt.
The respondent’s evidence to which I referred earlier herein is that the Initiating Application filed on 21 December 2017 that was served on her on 17 January 2018, without prior notice from the former de facto husband or his Trustee in Bankruptcy, was returnable for 13 February 2018.
As of that date the respondent had not filed a Response, Affidavit in support or Financial Statement. The due date for the filing of those documents pursuant to Rule 4.03(3) of the Federal Circuit Court Rules 2001 was the following day, namely 14 February 2018.
Nothing turns on that date however, as at the hearing on 13 February 2018 when both parties were represented, orders were made by consent determining the progress of the matter insofar as the filing of further documents was concerned.
No issue was raised at that hearing by the respondent’s counsel as to the competency of the Initiating Application. The consent order provided for the trustee to file and serve an Amended Initiating Application, Affidavit and Financial Statement within 14 days, for the respondent to file and serve responding documents within 28 days thereafter and for mutual informal discovery.
On 26 February 2018 the respondent’s solicitors forwarded correspondence to the trustee’s solicitors referring to the orders made by consent on 13 February 2018. The letter specified the information their client expected to be contained in the Amended Initiating Application, Affidavit and Financial Statement that the trustee had been ordered to file pursuant to paragraph 1 of the order of 13 February 2018.[6]
[6] Affidavit of Luke John Charlton Rowley sworn 12 February 2019, annexure “LJCR1”
Paragraph 2 of the letter stated that the purpose of the correspondence was “…to limit the extent of further correspondence between the parties and minimise the need for discovery in order to deal with the matter in as expeditious and cost‑effective manner as possible.”
In paragraph 3 the respondent’s solicitors noted that the Court “…must consider the parties’ contributions and the section 75(2) factors,” “…in determining what property settlement order (if any) should be made under section 79 of the Family Law Act 1975 (Cth).”
The former de facto husband and the respondent had never married. No reference was made in the correspondence to the sections of the Act that regulate property settlement disputes as between de facto parties.
Reference was made to the Court assessing parties contributions, and in paragraph 5 of the letter there was reference to section 75(2)(ha) of the Act with respect to “…the effect of any proposed order on the ability of a creditor of a bankrupt party to recover the creditor’s debt.” This again is a reference to a section of the Act relating to property disputes as between parties to a marriage.
Paragraphs 6 and 7 of the letter related to the importance placed by the respondent’s solicitors on the need for the further Affidavit and Amended Financial Statement to “…include detailed information about the property vested in the Trustee, contributions to be made by the Bankrupt, creditors, the Trustee’s remuneration and report on the realisation of assets and any likely dividends to creditors.”
Paragraph 8 of the said letter referred to the need for the trustee’s Affidavit to “…include the Notice of Bankruptcy, the Bankrupt’s Statement of Affairs, Reports to Creditors, Remuneration Notices and Notices of Proposal to Creditors for approval of Trustee’s Remuneration.”
The order of 13 February 2018 required the trustee to file and serve the Amended Initiating Application, Affidavit and Financial Statement by 27 February 2018. That did not occur.
On 2 March 2018 the trustee filed a further Affidavit.
On 2 March 2018 the respondent’s solicitors forwarded email correspondence to the trustee’s solicitors referring to paragraph 1 of the order of 13 February 2018 and enquiring whether the trustee intended to file and serve further materials.[7]
[7] Affidavit of Karen Nadiene Thomas sworn 1 February 2019, annexure “KNT-1”
By response email of 8 March 2018 the trustee’s solicitors advised the respondent’s solicitors that their client did not feel it necessary to do anything other than rely on his Affidavit sworn 1 March 2018 and further, that the trustee also contemplated that the former de facto husband would participate in the proceedings.[8]
[8] Affidavit of Karen Nadiene Thomas (supra)
On 6 April 2018 two further pieces of correspondence were forwarded to the trustee’s solicitors by the respondent’s solicitors.
The first is annexed to the Affidavit of Luke John Charlton Rowley sworn 12 February 2019.[9] It referred to a caveat that had been placed by the trustee over property owned by the respondent. In paragraph 5 thereof the respondent’s solicitors advised that they required “…full particulars of the financial and non‑financial contributions to the acquisition, maintenance and improvement of the Caveated Properties by the Bankrupt relied on in claiming the Caveat.”
[9] Annexure “LJCR2”
In paragraph 6 they advised that they would take instructions to commence proceedings to warn the Caveat if satisfactory particulars as sought had not been provided within seven days, unless the Caveat was withdrawn first. Paragraph 7 of the correspondence contained a warning as to “…costs with respect to any proceedings to warn the Caveat.”
The second item of correspondence of the same date is contained in annexure “LJCR3” to the Affidavit of Mr Charlton Rowley to which I have just referred and again refers to the orders of 13 February 2018, the Affidavits of the trustee sworn on each of 21 December 2017 and 1 March 2018 and reiterates the request for information sought in the previous correspondence to which I have referred dated 26 February 2018.
In paragraph 3 the respondent’s solicitors describe the evidence contained in the Affidavits of the trustee to which I have referred as being “insufficient and dated” and in paragraph 4 they reiterate that they require information as sought in the previous correspondence to be able to finalise their client’s Response.
In paragraph 5 they request advice as to any further Advices or Reports provided to Creditors by the trustee. Paragraph 6 refers to a meeting of Creditors held on 13 December 2016 and seeks further information about that meeting and the minutes of that meeting.
Paragraph 7 of the correspondence is headed “Liabilities”. Therein the respondent’s solicitors seek detailed information as to:
…costs and disbursements…incurred by the Trustee both in his capacity as Controlling Trustee pursuant to Chapter X of the Bankruptcy Act 1966 (Cth) from 26 August 2016 to 4 October 2016 and as Trustee of the Bankrupt Estate of Mr Mercer from 5 October 2016…
They also seek further information as to whether such costs have been approved and/or paid.
In paragraph 8 advice is sought from the trustee’s solicitor as to “…whether there have been any receipts or payments to date in the Bankrupt Estate.” In paragraph 9 further information is sought with respect to “…the current amount and status of debts of the Bankrupt Estate including details of which debts have been admitted to proof, rejected or withdrawn or disputed.” In paragraph 10, information is sought with regard to “…surplus cash paid by the CBA into the Supreme Court Suitor’s funds…”
By further correspondence dated 9 April 2018 from the respondent’s solicitors to the trustee’s solicitors, reference is made to the Affidavit of the trustee sworn 1 March 2018 and to the correspondence of 6 April 2018. Clarification is sought with respect to exhibit “[A]-5” to that Affidavit and “…a copy of any previous statement of affairs prepared by the bankrupt at your earliest convenience,” is sought together with minutes of a meeting held on 30 September 2016 and referred to in exhibit ‘[A]-5” to the Affidavit of the Applicant sworn 1 March 2018.[10]
[10] Affidavit of Luke John Charlton Rowley sworn 12 February 2019, annexure “LJCR4”
On 16 April 2018 Fisher Jefferies solicitors filed a Notice of Address for Service for the respondent.
On 3 May 2018 the Application in a Case to which I have referred in paragraphs 17 and 18 hereof was filed on behalf of the respondent. This was the first time the question of the standing of the trustee to bring an application for property settlement had been raised by the respondent’s solicitors.
To the contrary, the consent procedural orders of 13 February 2018 and the voluminous correspondence thereafter to which I have referred indicated that the application of the trustee was being responded to in the context of it being a competent application.
The information sought by the respondent’s solicitors was very detailed. The references in the correspondence to wanting to deal with the matter cost‑effectively, to minimise the need for discovery, the reference to the Court needing to assess contributions of the parties and the response sought as to the bankrupt’s contributions to properties caveated by the trustee all indicate that advice to the respondent as to her Response to the Initiating Application did not include any question as to the competency of the application.
On 4 May 2018 the Application in a Case to which I have referred in paragraphs 22 to 24 hereof was filed by the former de facto husband.
Both Applications in a Case were made returnable on 8 May 2018, being the adjourned date of the hearing on 13 February 2018. They were listed for argument before me on 5 October 2018 but were subsequently administratively adjourned to 3 December 2018.
By correspondence dated 17 May 2018[11] the trustee’s solicitor requested of the respondent’s solicitor that she “…advise the relevant legislation or authority relied upon to make this submission,” in reference to a comment by the respondent’s counsel at the hearing on 8 May 2018 to “trite law” with respect to the trustee’s Initiating Application for property settlement as filed and to the trustee not having the “power” to institute the proceedings.
[11] Affidavit of Luke John Charlton Rowley (supra), annexure “LJCR5”
Annexure “LJCR6” to the Affidavit of Mr Rowley sworn 12 February 2019 was a copy of correspondence from the respondent’s solicitors to the trustee’s solicitors dated 5 June 2018 in response to that request.
After setting out the response to the specific enquiry, the letter concluded with the following two paragraphs:
The Respondent’s position remains that the proceedings are misconceived and ought to be dismissed on the grounds that the applicant did not have standing to institute the Proceedings with orders as to costs in favour of our client.
The position on the matter is clear and you should not need to seek our advice on such a fundamental proposition of law. Accordingly, our client reserves her position including with regard to costs on an indemnity basis.
By order of 8 May 2018 the trustee, the respondent and the former de facto husband were required to prepare and exchange Summaries of Argument, including authorities, directed to the issues set for argument ultimately on 3 December 2018.
Those of the trustee were due to be provided to the respondent’s counsel, the former de facto husband’s counsel and my Associate on or before 14 September 2018.[12]
[12] Order of Judge Mead made 8 May 2018, paragraph 2
Those on behalf of the respondent and the former de facto husband were to be provided to the trustee’s counsel and, in the case of the former de facto husband, to counsel for the respondent on or before 28 September 2018.[13]
[13] Order of Judge Mead (supra), paragraph 3
Those dates were relevant to the original listing date of 5 October 2018 and were designed to give all parties ample time to consider their respective positions.
On 25 September 2018 the parties were advised by email that the matter was administratively adjourned to 2 November 2018. It was further administratively adjourned and ultimately heard on Monday 3 December 2018.
None of the parties complied with the terms of paragraphs 2 and 3 of the orders of 8 May 2018. The email from the Court to the parties’ solicitors of 25 September 2018 as to the adjournment of the hearing made no reference to any extension of time for the exchange of Summaries of Argument.
The Summary of Argument on behalf of the former de facto husband was provided to the Court and to the legal representatives for the trustee and the respondent by email on Tuesday 27 November 2018. The Court was advised in that email that the solicitors for the former de facto husband had not received the Summaries of Argument from either the trustee or the respondent by that date.
On Friday 30 November 2018 at 4.06 pm the Summary of Argument was filed in the Court on behalf of the trustee. The hearing was listed for the following Monday 3 December 2018 at 2.45 pm.
The Summary of Argument on behalf of the respondent was provided to the Court, the trustee’s legal representatives and those of the former de facto husband by email at 11.35 am on the day of the hearing.
I consider it important in the circumstances of this case to set out in what might appear to be unnecessary detail the progress of compliance with procedural orders, as I find failure by all parties but in particular the trustee and the former de facto husband to comply with those orders had a significant impact on the costs incurred by each of the parties.
The Summary of Argument provided on behalf of the former de facto husband went to, inter alia:
·the issue of the right of an undischarged bankrupt to pursue orders relating to superannuation interests;
·to such interests not being property that is divisible among the bankrupt’s creditors pursuant to the provisions of the Bankruptcy Act 1966 (Cth);
·to his understanding that his application seeking orders with respect to superannuation interests was filed on the same day as the Initiating Application of the trustee;
·to filing an intervening Application in a Case on 4 May 2018;
·to not being out of time with respect to that application because of the substantive proceedings against the respondent being commenced by his Trustee in Bankruptcy “within the 2 year limitation period”;
·to the issue of the former de facto husband being granted leave if “out of time”[14] and issues of hardship to the former de facto husband if such leave was not granted;
·that the former de facto husband had not sought proper legal advice about his rights under the Act; and
·that he was confused as to what authority he needed from his Trustee in Bankruptcy to institute any proceedings.
[14] Section 44(6) of the Act
The submissions contained therein were as a whole unhelpful and did not assist the position of the former de facto husband.
In the Summary of Argument filed on behalf of the trustee late on 30 November 2018 the issue of the trustee not having standing to institute the proceedings on 21 December 2017 was conceded. Had that concession been known to the respondent’s legal representatives by the date ordered for the Summary of Argument, namely 14 September 2018, costs need not have been incurred by the respondent for the purpose of her counsel preparing the extensive Summary of Argument provided to the Court on the day of the hearing. That is particularly so against the backdrop of the correspondence referred to in paragraphs 86 to 88 of these reasons.
It is clear from the summary of the respondent’s counsel that significant research was involved in preparing such fulsome and detailed submissions including the extensive list of authorities to be relied on at the hearing. As the respondent’s counsel submitted in oral argument, the case faced by the respondent was “novel”, and in that regard submissions were also directed to:
·the expediency of the former de facto husband being deemed by the Court to be the “applicant” in the proceedings in place of the trustee who should then be deemed to be a respondent, and
·the prejudice to the trustee if the application was dismissed.[15]
·the issue of the lack of the Court’s jurisdiction:
“…to consider and determine a property settlement commenced by the de facto husband’s trustee in bankruptcy involving the adjustment of property rights in favour of the bankrupt de facto husband (and therefore his bankrupt estate)”[16]
and
·“…the ability to institute property settlement proceedings under the FLA is not ‘property’ that vests in a trustee in bankruptcy.”[17]
[15] Submissions of the Applicant filed 30 November 2018, paragraphs 2.2 and 2.4
[16] Outline of Submissions of Respondent provided 3 December 2018, page 1
[17] Outline of Submissions of Respondent (supra), page 3
The submissions contained in paragraphs 61 to 81 of that document were persuasive and clearly assisted in the resolution of the matter on 3 December 2018.
Nature of costs order
The Court must now determine whether the respondent’s costs of the proceedings should be paid by the trustee on a solicitor/client or indemnity basis rather than the more usual party/party basis.
The costs incurred in these proceedings were primarily incurred in the Federal Circuit Court of Australia.
The costs issue was subsequently transferred to the Family Court of Australia to be heard by me only in circumstances where the proceedings to which I have already referred in these reasons were conducted before me in the Federal Circuit Court.
Rule 21.05(3) of the Federal Circuit Court Rules 2001 provides “unless the court from which the proceeding is transferred otherwise orders, costs before the transfer must be in accordance with this Part.”
Rule 21.02(2) of the said Rules is in the following terms:
In making an order for costs in a proceeding, the Court may:
(a)set the amount of the costs; or
(b)set the method by which the costs are to be calculated; or
(c)refer the costs for taxation under Part 40 of the Federal Court Rules or under Chapter 19 of the Family Law Rules; or
(d)set a time for payment of the costs, which may be before the proceeding is concluded.
The respondent entered into a Costs Agreement with her solicitors Fisher Jefferies. This is a matter to be considered in determining whether indemnity costs should be ordered.
A copy of the Costs Agreement annexing a Legal Costs Estimate was forwarded to the respondent by email and ordinary mail attached to correspondence dated 8 February 2018.
The Schedule of Legal Costs Estimate encompassed what was described in the correspondence as “Current Instructions” and appeared to be work related to preparing responding documents after taking proper instructions, giving advice and retaining counsel to appear at the hearing on 13 February 2018.
A copy of that Costs Agreement comprises the annexure marked “KNT-1” to the Affidavit of the respondent’s solicitor filed 6 February 2020. The hourly rates (excluding GST) range from a high mark of $550 for work done by a Senior Partner to a low mark of $175 for work done by a Law Clerk.
Annexure “KNT-2” comprises correspondence from the respondent’s solicitor to the trustee’s solicitor dated 25 January 2019 confirming advice given to the trustee’s representatives on 3 December 2018 that the respondent’s costs incurred were estimated to be in the order of $95,000.00 including disbursements and GST. It further advised that since that discussion on 3 December 2018, counsel and senior counsel’s “fee notes” had been received and the outstanding fees excluding preparation for the hearing as to the question of the nature of the costs to be ordered totalled $91,373.31.
In submissions on 4 May 2020 counsel for the respondent confirmed that figure to be the amount sought by way of costs up to and inclusive of 25 January 2019. A further order was sought for indemnity costs of and incidental to the application for costs as well as an order that the matter be certified “fit for counsel”.
Orders made by courts for the payment of costs in the usual course of events are made on a party/party basis. In this case the consent order entered into between the parties on 3 December 2018 acknowledged that the issue of whether the costs ordered should be paid on another basis should be argued on a later date.
Paragraphs 82 and following in the Summary of Argument prepared by the respondent’s counsel for the hearing on 3 December 2018 concerned the issue of costs. In paragraph 86 counsel submitted that there were circumstances that justified the Court making an order for costs in favour of the respondent where:
·the trustee has been wholly unsuccessful;
·the Initiating Application was instituted without merit; and/or
·notice was given to the trustee that the application was unmeritorious.
It was further submitted in paragraph 87 that costs should be awarded on an indemnity basis.
In Yunghanns & Ors & Yunghanns & Ors & Yunghanns (2000) FLC 93-029 at p 87,471 the Full Court of the Family Court said in [31]:
…It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed, and that it is not a condition precedent to the exercise of the discretion that some collateral purpose or species of fraud be established against the party against whom such an order is sought. All that is required is that the Court asked to exercise the discretion be satisfied that some ‘particular facts and circumstances of the case in question warrant the making of an order for the payment of costs other than on a party and party basis’: per Shepherd J in Colgate-Palmolive Company v Cussons Pty Ltd(1993) 46 FCR 225 at 233.
The costs sought by the respondent on an indemnity basis were costs incurred by her pursuant to the Costs Agreement.
It was acknowledged in the further Summary of Argument on behalf of the respondent prepared by the respondent’s solicitor subsequent to the hearing on 3 December 2018 and received by the Court on 15 February 2019 in anticipation of the costs argument, that the usual position of costs being ordered on a party/party basis should not be lightly departed from, but that in the particular circumstances of this case there were features that would justify the Court “in departing from the ordinary practice.”[18]
[18]Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225, 233 (Sheppard J)
It was submitted inter alia on her behalf:
·that her application for dismissal of the Initiating Application was wholly successful;
·that the Initiating Application was hopeless for want of capacity/standing in the trustee from the outset;
·that the trustee should have known and had the capacity to know that he lacked capacity/standing and/or could have sought proper advice on his standing to issue the Initiating Application before giving instructions so to do;
·that his lack of capacity/standing could not be cured by the joining and/or substitution of the former de facto husband; and
·that in those circumstances it was unreasonable for the trustee to persist with the proceedings until the date of dismissal of the Initiating Application.[19]
[19] Outline of Submissions prepared by Respondent’s solicitor Karen Thomas received by the Court on 15 February 2019 – paragraphs 11.2, 11.3 and 11.6
The categories in which the Courts may exercise their discretion to order costs to be paid on an indemnity basis are not closed.[20]
[20]Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 187
In J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch & Anor (No 2) (1993) 46 IR 301 at 303 French J in considering the question of indemnity costs said as follows:
The BTA has moved for indemnity costs. It is not necessary for me now to recite the principles upon which such costs are ordered in the Federal Court. I had occasion to consider them in some detail in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (citation omitted). In substance such costs may be ordered whenever it appears that an action has been commenced in circumstances where the applicant properly advised should have known it had no chance of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1998) 81 ALR 397. Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.
As I have said previously, by way of written submission provided to the respondent’s solicitors on 30 November 2018 the trustee’s counsel conceded the lack of standing on the part of the trustee to file the Initiating Application. The issue of the inability to cure the lack of capacity and/or standing of the trustee by way of substitution of the bankrupt de facto husband was not conceded until the hearing on 3 December 2018.
I am satisfied in the circumstances of this case that at least as and from 3 May 2018 the trustee “persist(ed) in what should on proper consideration be seen to be a hopeless case”[21] and the Court’s discretion to award indemnity costs should be enlivened.
[21] J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch & Anor (supra)
I am not so satisfied however with respect to costs incurred between service on the respondent of the Initiating Application on 17 January 2018 and the filing of the respondent’s Application in a Case on 3 May 2018 at which time the issue of the trustee’s capacity to institute the proceedings was raised for the first time.
In addition, the respondent’s Affidavit in support of that application did not go to the question of the primary order sought in that Application in a Case, nor had the issue been raised by the respondent’s counsel at the first return date of the Initiating Application on 13 February 2018.
What might be regarded as “standard” first return date orders were made by consent at that hearing as referred to in paragraphs 57 and 58 hereof. The order of 13 February 2018 provided that within a further 14 days thereafter the parties make disclosure of all documents in their possession, custody or control relevant to the parties competing financial applications.
The content of the voluminous correspondence from the respondent’s solicitors to the trustee’s solicitors to which I have referred earlier herein made no reference to the competency of the application. They also sought extensive further and better particulars from the trustee with respect to the administration of the bankrupt’s estate and the costs of such administration and consistently referred, as had the Initiating Application filed by the trustee, to family law legislation that was not relevant to the determination of property settlement issues as between parties to a de facto relationship.
I find that neither party was initially well advised following the filing of the Initiating Application by the trustee on 21 December 2017 until, in the case of the respondent, sometime between 9 April 2018 being the date of the last relevant correspondence from the respondent’s solicitors to the trustee’s solicitors referred to earlier herein and 3 May 2018, the date on which the Application in a Case was filed on behalf of the respondent seeking inter alia a dismissal of the Initiating Application.
I accept the submission made by counsel for the respondent that it was not the responsibility of the respondent’s legal representatives to educate the trustee’s solicitors as to the failings of their client’s case, as requested by them in correspondence to the respondent’s solicitors dated 17 May 2018.
I have significant concerns however as to the approach taken by the respondent between being served with the Initiating Application on 17 January 2018 and filing an Application in a Case on 3 May 2018 seeking the dismissal of that application.
There would have been a significant saving of costs for the respondent if an Application in a Case seeking the dismissal of the Initiating Application and a brief Affidavit in support thereof had been filed sooner after service, thereby avoiding extensive costs incurred over several months. I am mindful that the respondent had entered into the Costs Agreement with her solicitors in early February 2018.
I do not consider that the Court’s discretion with respect to the ordering of indemnity costs is enlivened in respect of any costs incurred by the Respondent until 3 May 2018. The respondent’s costs for the period prior to 3 May 2018 should be fixed on a party/party basis in accordance with Schedule 1 to the Federal Circuit Court Rules 2001, notwithstanding the Costs Agreement entered into by the respondent with her solicitors. I find that the matter should be certified fit for counsel.
Item 1 of Schedule 1 specifies costs arising from “Initiating or opposing an application up to the completion of the first court date”. The amount specified in Item 1 for that work in family law proceedings is $2,241 (including GST) together with the daily hearing fee mentioned in Item 13 that applies to the hearing. Item 13 allows costs for a short mention, a half day hearing or a full day hearing.
I find that the matter was dealt with by way of a short mention on 13 February 2018. In addition to the amount allowed of $305 for this category of hearing, there should be a 50 per cent advocacy loading as outlined in Item 12.
In those circumstances I find that the appropriate amount to allow by way of the respondent’s costs of and incidental to the proceedings up to 3 May 2018 is the amount prescribed in Item 1, namely $2,241 together with the hearing fee on 13 February 2018 being $305, increased to $457.50 as a result of the 50 per cent advocacy loading.
I intend to make an order to fix the costs for that period on a party/party in the sum of $2,698.50, together with fees and disbursements as agreed or as taxed by the Registrar at the same time as the taxation of the indemnity costs which I also intend to order.
This is a case where the substantive argument relating to the competency of the application was determined, ultimately by consent, in the Federal Circuit Court of Australia.
Rule 21.02(2)(c) of the Federal Circuit Court Rules 2001 enables the Court to refer costs for taxation under Part 40 of the Federal Court Rules 2011 or under Chapter 19 of the Family Law Rules 2004.
The matter was transferred to the Family Court of Australia from the Federal Circuit Court of Australia only in relation to costs.
Rule 19.09(2) of the Family Law Rules 2004 enables the Family Court to make an order for costs in a case transferred to it from another court. Rule 19.09(3) provides that the order may specify the amount to be allowed or that the whole or part of the costs is to be calculated in accordance with the Family Law Rules 2004 or the rules of another court.
Having found that from 3 May 2018 costs should be ordered on an indemnity basis I intend to refer the matter to a Registrar for taxation in accordance with the provisions of Chapter 19 of the Family Law Rules 2004.
The parties were in dispute as to the reasonableness of the respondent’s costs pursuant to the terms of the Costs Agreement to which I have referred.
I accept the submission of counsel for the respondent that ultimately this matter increased in complexity in circumstances where counsel for the trustee was advancing a “novel” case with respect to the capacity of the trustee to institute proceedings on his own behalf or, in the alternative, to be substituted as a respondent in circumstances where he was proposing that the former de facto husband be deemed to be the “applicant” in the proceedings.
I have already referred to the substantial amount of unnecessary work of a complex nature required to be undertaken by counsel representing the respondent. The lack of capacity on the part of the trustee was only conceded at the close of business on the last working day before the hearing. The “novel” argument of the replacement of the trustee by the former de facto husband was only conceded at the hearing on 3 December 2018.
I am satisfied that the matter in its entirety should be certified as fit for counsel.
There is no doubt that the Costs Agreement entered into between the respondent and her solicitors resulted in charges to the respondent significantly higher than those provided for on an “event” basis in Schedule 1 of the Federal Circuit Court Rules 2001 and that the hourly charge for the work performed by lawyers on behalf of the respondent was significantly higher even than the rate provided for in Schedule 3 to the Family Law Rules 2004.
Nevertheless, indemnity costs are awarded in cases where the Court is satisfied that the amount of a costs order should be calculated on a basis other than the usual party/party basis. This usually arises where the Court has determined that the circumstances of the particular case involve one party or another being put to unnecessary expense because of the actions of the other party. I am satisfied that this was the position the respondent found herself in with respect to the trustee’s application.
The issues referred to in paragraphs 145 to 149 hereof are relevant to the Registrar’s determination of the amount to be awarded by way of indemnity costs.
For the reasons to which I have referred I find that it is appropriate that the respondent’s costs be taxed on an indemnity basis for the period 3 May 2018 to 25 January 2019.
In addition, I find that it is appropriate that the trustee pay the respondent’s costs of and incidental to the hearings on 14 February 2020 and each of 4 and 8 May 2020 on an indemnity basis. I will refer taxation of those costs to a Registrar pursuant to Chapter 19 of the Family Law Rules 2004.
I find that the costs dispute flowed from the “…particular facts and circumstances…”[22] of this case and “…warrant the making of an order for payment of costs other than on a party and party basis.”[23]
[22]Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225, 234 (Sheppard J)
[23] Ibid
For these reasons I make the orders as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and fifty-four (154) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Mead delivered on 24 November 2020.
Associate:
Date: 24 November 2020
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