Askey and Askey

[2007] FamCA 548

FAMILY COURT OF AUSTRALIA

ASKEY & ASKEY [2007] FamCA 548

FAMILY LAW - COSTS - Between parties - Offers of settlement

Family Law Act 1975 (Cth) Sections 117(1); (2); (2A); (2A)(f); (2A)(g)

APPLICANT: Mrs Askey

RESPONDENT: Mr Askey

FILE NUMBER: SYF 2210 of 2005

DATE DELIVERED: 6 June 2007

PLACE DELIVERED: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 14 December 2006

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mrs Druitt

SOLICITOR FOR THE APPLICANT: Penhall & Co Lawyers

COUNSEL FOR THE RESPONDENT: Mr Mater

SOLICITOR FOR THE RESPONDENT: John R. Quinn & Co

Orders

1. That the husband pay 80% of the wife’s costs accruing from and after 1 June 2006 until the conclusion of the final hearing on a party/party basis, as agreed or assessed. 

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 2210 of 2005

Mrs Askey

Applicant

And

Mr Askey

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. The wife has filed an Application in a Case on 13 November 2006 seeking an order (inter alia) in the following terms:-

   That the respondent husband pay the applicant wife’s costs accruing from and after 24 May 2006 until conclusion of the final hearing for property division.

2. Section 117(1) Family Law Act (“FLA”) provides that each party to proceeding shall bear his or her own costs.

3. Section 117(2) FLA provides that if the Court is of the opinion that there are circumstances that justify doing so, the Court may make an order as to costs. The relevant matters to be taken into account are contained in s.117(2A) FLA.

SIGNIFICANCE OF OFFERS

1. Normally offers are made in writing pursuant to s.117(2A)(f) FLA.

2. The purpose and effect of s 117(2A)(f) was summarised by Nygh J in Robinson and Higginbotham (1991) FLC 92-209 at 78,417:

   ... paragraph (f) does not have any particular priority, but its importance must surely be weighed in the light of all the circumstances of the case ... when one looks at paragraph (f) it is quite clear that the purpose of that provision is to ensure that offers to settle, if made seriously, are considered seriously, to ensure that the cost of litigation is avoided, the workload of this Court is lightened, and one other consideration is certainly that a party with greater wealth is not placed in a position whereby he or she can wear out the other by simple attrition.

3. The Full Court (Kay, Coleman and Warnick JJ) in Browne v Green (2002) FLC 93-115 stated at 89,163 that:

   57. We think that whilst s 117(2A) does not provide any direct guidance to where weight should be given in any one particular case, it is very important for the Court to give proper consideration to written offers of settlement that have been made. The insertion of s 117C into the legislation is a clear indication of the desire of Parliament to enable parties to avoid unnecessary litigation by indicating to the other party an appropriate basis upon which litigation can be settled. The failure to heed a reasonable offer in circumstances where there is adequate knowledge of the parties at the time the offer is made to give it a proper consideration, is something to which very significant weight indeed ought normally be given.

4. The Full Court (Nicholson CJ, Barblett DCJ and Faulks J) in Pennisi v Pennisi (1997) FLC 92-774 stated at 84,547 that:

   ...it is not the law that an offer of greater or equivalent value to that which results from the Court will lead to an order for costs in favour of the offeror - Harris and Harris (1991) FLC ¶92-254. We would also add that just because an offer is marginally less than the amount ordered by a Court does not mean that it is not a factor to be taken into account in determining whether costs should be awarded...

   …The plain words of the paragraph [s 117(2A)(f)] do not limit a Court's attention to offers which are greater than the amount awarded. Nor does the paragraph state what consequences flow from whether the offer is greater or lesser than the amount awarded, or how much that is the case. Words of limitation should not be imported into the provision and nor should it be read as though offers in proceedings under the Act carry the same consequences as payments into Court in common law matters.

   We do however, consider that the closer the offer is to the award when the offer is under the amount awarded by the Court, the more weight that should be given to this factor in considering the question of costs. The principle must not, however, be rigidly applied. Offers must be seen in the context of the case and the extent of the offeree's knowledge of the parties financial circumstances while the offer is live. In the family law jurisdiction, it is not uncommon to find relationships where one party, often the wife, has significantly less grasp of the parties' financial arrangements, or the financial circumstances are so complex that it would be premature to accept an offer. There are also cases where the contents of the offer are in themselves the subject of disputed value and legitimate subject matter for determination. These and other features of the context of offers must be taken into account when considering whether it was reasonable or not to accept an offer, no matter how close to the ultimate result the offer may be.

THE HUSBAND’S WRITTEN OFFER OF 5 MAY 2006

1. Tendered in evidence before me was a letter from John R. Quinn & Co to Messrs Penhall & Co dated 5 May 2006. 

2. That letter contains a comprehensive offer by the husband to the wife to settle the outstanding issues in respect of alteration of property. 

3. The effect of the offer was for the wife to receive 50% of the net proceeds of the sale of the five properties held by the parties. The husband would have transferred to him the share in the T Unit and pay the wife $2,500 (one half of it’s value). An order would be made pursuant to s.90MT(1)(b) FLA whereby the wife would be entitled to be paid 42% of any splittable payment in the husband’s interest held in the C Superannuation Scheme whenever that splittable payment or payments were made to the husband. The balance of the property, except as otherwise provided, would remain in the sole legal and beneficial ownership of the person who was then currently in the possession or control of that property (such property included motor vehicles).

4. In short, the husband was offering a 50/50 percent split of the net non superannuation assets and a 57/43 percent split of the superannuation assets.

THE WIFE’S ORAL OFFER IN LATE MAY 2006

1. The solicitor for the wife, Mr Penhall in an affidavit sworn on 9 December 2006 (at paragraph 2) says that in late May 2006 he telephoned Mr Quinn, solicitor for the husband, and had the following conversation with him:-

   GNP:  ‘“I am ringing about the matter of [Askey].  I am instructed to make an offer to settle the case on the basis that my client receive 55% of the pool of assets and 45% of your client’s superannuation’.

   JQ:  ‘I will seek instructions’.

2. Mr Penhall says a few days later in a telephone discussion with Mr Quinn the following conversation took place:-

   GNP:  ‘Have you received any instructions concerning my client’s settlement offer?’

   JQ:  ‘Yes, it is rejected’.

3. These conversations are not in dispute.

4. Annexure A to the affidavit of the wife’s solicitor is a letter dated 9 June 2006 which is in the following terms:-

   About two weeks ago the writer telephoned Mr Quinn on instructions and offered to settle this matter on the following basis:

   1.The wife receives 55% of the net pool of property and the husband receives the balance;

   2. The wife receives 45% split of the husband’s superannuation and the husband receives the balance.

   Within a few days later Mr Quinn indicated by telephone his instructions to reject the offer.

5. I find that the conversations that took place between Mr Penhall and Mr Quinn in late May 2006 need to be understood in the context of the offer made by the husband’s solicitor on 5 May 2006. 

6. I find that both solicitors would have understood that what the wife’s solicitor was saying to the husband’s solicitor was that:

   17.1.Instead of 50% of the net proceeds of the five properties the wife would settle the matter if she received 55%;

   17.2.Instead of a splitting order of 42% she would settle the matter if she received a splitting order of 45%. 

THE HUSBAND’S POSITION AT THE HEARING

1. At hearing the husband’s position in relation to the non superannuation asset pool was that it should be divided 52.5% to him and 47.5% to the wife and that the superannuation should be split as to 43% to the wife and 57% to the husband.  The husband sought as part of what he retained by way of non superannuation assets the interest in the T Unit. 

THE RESULT

1. In my reasons for judgment of 16 October 2006 the wife received 57.5% of the non superannuation assets.  In what I described as a generous concession, the wife received a splitting order of 45% of the husband’s superannuation which is what she applied for in respect of the superannuation assets. 

THE WIFE’S SUBMISSIONS

1. Counsel for the wife’s submissions on this costs application were very short.  They were to the effect that, on the face of it, the wife did better at the end of the defended hearing than her offer of late May 2006 and consequently she should have her costs from or after 24 May 2006.  There is no evidence before me that specifically dates the wife’s oral offer.  The best I have is that it was “in late May”. 

2. Although Counsel for the wife was not specific about the section that she relied upon when relying upon the wife’s oral offer I assume it was s.117(2A)(g) FLA “such other matters as the court considers relevant”. This is because, as Counsel for the husband pointed out, s.117(2A)(f) only relates to offers that have been made “in writing”.

HUSBAND’S SUBMISSIONS

Weight to be placed on an oral offer

1. Counsel for the husband said that no weight could be placed on s.117(2A)(f) FLA because the offer was an oral one and that subsection required an offer “in writing”. The effect of the submission was that oral offers needed to be heavily discounted given that s.117(2A) FLA specifically refers to written offers and not oral offers.

2. That submission is not consistent with what the Full Court (Kay, Warnick and Waddy JJ) said in Kilich and Wood (2003) FLC 93-169. In that case the Full Court held at 78,725 that the Court could have regard to an oral offer of settlement pursuant to s 117(2A)(g) which allows for ‘such other matters as the court considers relevant’  though they cautioned:

   32. However, before we leave the question of the status of oral offers in respect of applications for costs, we stress the likely difficulties associated with the proof of the terms of oral offers. It is highly undesirable that at the end of a trial an application for costs raises yet further factual dispute.

3. As the Full Court says, written offers are preferable because they eliminate disputes in relation what words had been used when conveying the offer. There is, however, in this case no dispute as to the conversations that took place between the legal representatives of each of the parties. 

4. Rule 10.06 Family Law Rules provides that in a property case each party must make a genuine offer to settle.  That rule does not require that the offer be in writing.  Neither the husband’s written offer nor the wife’s oral offer strictly complied with r.10.06(3) but clearly both parties had fulfilled the spirit of r.10.06. 

5. In my view it is clear that the terms of the oral offer of the wife in late May 2006 can be taken into account by me as an important matter under s.117(2A)(g) FLA: “such other matters as the court considers relevant”.

FINANCIAL POSITION OF THE PARTIES

1. Counsel for the husband submitted that the financial positions of the parties were comparable.  No submission was made by Counsel for the wife in relation to the financial circumstances of each of the parties to the proceedings and I do not place any weight on that matter. 

CLARITY OF THE ORAL OFFER

1. The next submission of Counsel for the husband was that the offer of the wife lacked clarity. 

Did the wife’s offer take capital gains tax into account?

1. The allowance for capital gains tax at the hearing was in the sum of $95,874.  Counsel for the husband submits that the capital gains tax liability was not specifically referred to in the wife’s oral offer in late May 2006.  It is, however, referred to in the husband’s solicitors letter of 5 May 2006.  That letter makes it clear that the 50/50 split of non superannuation assets is after payment of capital gains tax on the sale of the B, U, C and S properties (see paragraphs 2(a) on page 3 and 3(d)(i) on page 5).

2. The amount of the capital gains tax in respect of the first three properties was not known and in the letter of 5 May 2006 the solicitor for husband proposed the appointment of a agreed accountant to do the calculations.  Capital gains tax in relation to S could not be calculated at the time because the sale had not yet happened.

3. I reject Counsel for the husband’s submission that capital gains tax was not clearly taken into account in the wife’s offer.  By implication the wife was not in any way cavilling with how the capital gains tax issue should have been treated.  The 55% offered by the wife in my view clearly related to the net non superannuation pool of assets after capital gains tax had been paid.  I reject the submission that the oral offer lacked clarity.  The oral offer made by the wife has to be seen in the context of the extensive written offer made by the husband in the letter of 5 May 2006.  In that context the offer is a clear one.

ADD BACKS

1. Counsel for the husband next referred to the fact that there were a number of items added back at trial by agreement. These items were as follows:

4.   T Unit certificate	5,000.00
5.   Add back of legal expenses paid by wife to current solicitor	7,863.00
6.   Add back of legal expenses paid by wife to previous solicitor	8,000.00
7.   Add back for wife’s motor vehicle	21,500.00
8.   Add back of motor vehicle traded by husband	8,500.00
9.   Add back of wife’s unpaid rates	509.00
$51,372.00

1. Counsel for the husband made the point that these items were not taken into account in the offers that were made between the parties in May 2006. 

2. The offer of the husband in his letter of 5 May 2006 does in fact have each party retaining their own motor vehicle. 

3. The husband however says that the words of the wife’s offer “55% of the pool of assets” has to be considered on the basis that these assets are part of the pool of assets.

4. The husband received the following add backs:

   4.    T Unit   $5,000

   8.    Motor vehicle traded by husband   $8,500

   Total   $13,500

5. The wife received the following add backs:

   5.Legal expenses paid by wife to current solicitor              $7,863

   6.    legal expenses paid by wife

   to previous solicitor  $8,000

   7.    Wife’s motor vehicle  $21,500

   9.    Wife’s unpaid rates  $509

   Total  $37,872

6. Therefore when the add backs are taken into account the wife received $24,372 more than the husband ($37,872 – $13,500).

7. As a proportion of the overall net non superannuation assets that is a percentage of 3.5% (24,372/635,665). 

8. Whilst the argument was not presented by the husband during submissions in mathematical terms, the husband’s argument would be when that 3.8% is added to the 55% referred to in the wife’s oral offer, the percentage becomes 58.3%.  This is higher than what the wife actually received at the end of the defended hearing (57.5%). 

9. As the Full Court in Pennisi made clear, an offer which is marginally less than the amount ordered by the Court does not mean that it is not a factor to be taken into account in determining whether or not costs should be awarded.

10. I bear in mind that the offer that had been made was rejected out of hand.  There was no indication by the husband that he would be prepared to accept an offer that was marginally better than the amount that was offered.  The offer needs to be seen in the context of the overall financial circumstances of the parties at the time and the point at which the litigation between them had reached.  The costs of the trial could have been avoided if the husband had either accepted the offer or seriously responded to the offer.

INDEMNITY COSTS

1. The wife’s application is supported by an affidavit of Gary Penhall sworn 9 December 2006.  Paragraph 12 of that affidavit sets out the quantum of the costs thrown away by the wife in the sum of $15,470.60.  It makes clear that those costs are calculated in accordance with a fee agreement, which provides for hourly rate charges of $350 per hour inclusive of GST. 

2. In JEL v DDF (No 2) (2001) FLC 93-083 the Full Court (Kay, Holden and Guest JJ) considered the issue of when costs should be awarded on an indemnity basis as opposed to a party/party basis and stated at 88,442 that:

   68. We accept the proposition that the objective of the statutory provision in relation to written offers is to encourage settlements and to reduce the cost of litigation to the parties and the community. That, however, does not mean that the failure to accept an offer will necessarily result in an order for indemnity costs.  

   69. As the Full Court said in Kohan  (supra ): 

   `` Insofar as an unaccepted offer of compromise which exceeds a judgment may justify an order for costs, the general practice in this jurisdiction so far has been to order no more than costs on a party and party basis. Even in cases where there has been dishonest concealment of assets or income as in Penfold v Penfold (1980) FLC ¶ 90-800 and Oriolo and Oriolo (1985) FLC ¶ 91-653, no more than party and party costs have been awarded.''

   70. In our opinion, the failure to accept an offer which in retrospect, perhaps, should have been accepted is without more, insufficient to justify the making of a costs order on an indemnity basis. The rejection of the offer must be at the very least imprudent. We express no opinion as to when the rejection of an offer may be so classified.

3. It is not appropriate in this case to order costs on an indemnity basis.  I have no information as to what the wife’s costs would be on a party/party basis. 

OTHER MATTERS UNDER SECTION 117(2A)

1. There are no other considerations under s.117(2A) which are relevant to my determination.

CONCLUSION

1. Given the offer the wife made in late May 2006, I find there are circumstances that justify making an order that the husband pay a substantial portion of the wife’s costs after the time her oral offer was rejected.  That order should be for 80% of the wife’s costs incurred on or after 1 June 2006 on a party/party basis, as agreed or assessed. 

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts

Associate: 

Date:  6 June 2007

IT IS NOTED that this judgment for all publication and reporting purposes be referred to as ASKEY & ASKEY