Bacall and Zagar (No. 2)

[2020] FamCA 598

FAMILY COURT OF AUSTRALIA

BACALL & ZAGAR (NO. 2) [2020] FamCA 598

FAMILY LAW – INDEMNITY COSTS – relevant principles – applicant wholly successful for purposes of s 117(2A) – applicant achieving an outcome more favourable than any settlement offer put by the respondent – indemnity costs payable.

Family Law Act 1975 (Cth) ss 75(2), 79, 117(1), 117(2A)

Calderbank v Calderbank [1975] 3 All ER 333
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
Commonwealth of Australia v Gretton [2008] NSWCA 117
Cutts v Head [1984] 1 All ER 597
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397

Gordon & Gordon [2017] FCCA 2899
Guild & Stasiuk (No. 3) [2020] FamCA 564

Leichhardt Municipal Council v Green [2004] NSWCA 341
Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15
PBF & TRF (2005) 33 Fam LR 123

APPLICANT: Ms Bacall

RESPONDENT: Mr Zagar

FILE NUMBER: SYC 8282 of 2017

DATE DELIVERED: 23 July 2020

PLACE DELIVERED: Melbourne

PLACE HEARD: On the papers

JUDGMENT OF: The Honourable Justice Wilson

DATE OF FINAL SUBMISSION: 20 July 2020

REPRESENTATION

COUNSEL FOR THE APPLICANT: Not applicable

SOLICITOR FOR THE APPLICANT: O’Sullivan Legal

COUNSEL FOR THE RESPONDENT: Not applicable

SOLICITOR FOR THE RESPONDENT: Neil Jamieson & Associates

Orders

1. The respondent (now appellant) pay the applicant’s costs of and incidental to the proceeding, save for any costs thrown away on 19 June 2019, on an indemnity basis, to be assessed by a registrar of this court.

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 Bacall & Zagar 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 MELBOURNE

FILE NUMBER: SYC 8282  of 2017

Ms Bacall

Applicant

And

Mr Zagar

Respondent

REASONS FOR JUDGMENT

Introduction

1. In these reasons issues of costs are determined –

   a)of the proceeding; and

   b)those reserved on 19 June 2019.

2. Pursuant to paragraph 17 of my orders made 18 June 2020, issues of costs are to be determined on the papers.  The applicant and respondent (now appellant) filed written submissions in accordance with my orders.  The respondent, now the appellant, has appealed my 14 May 2020 reasons and the orders subsequently pronounced, and he sought a stay of orders requiring him to file costs submissions until the hearing and determination of his appeal.  I refused that application as it is my duty to determine all issues so as to bring to a close the trial of this proceeding.  These costs orders do just that.

3. In essence, the applicant sought an order that the appellant pay her costs of and incidental to the property proceeding. She relied on s 117(2A) for that application. Assuming an order in her favour were to be made in respect of costs she sought their assessment on an indemnity basis according to well known principles espoused in cases such as Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd,[1] Colgate-Palmolive Co v Cussons Pty Ltd[2] and others.

   [1] (1988) 81 ALR 397.

   [2] (1993) 46 FCR 225.

4. The appellant’s written submissions on the question of costs were perfunctory, to say the least, and of little utility.  On behalf of the appellant it was submitted that no order for costs should be made on the basis that it was “the usual rule that each party pay their own costs”. Beyond that submission, the appellant contended that “there is little point in making further submissions in respect to the matters in Section 117(2A)”.  No authorities were cited by the appellant.

Synopsis

1. For the reasons that follow, in my judgment the respondent (now appellant) should pay the applicant’s costs of and incidental to the proceeding, save for any costs thrown away on 19 June 2019, on an indemnity basis, to be assessed by a registrar of this court.

Relevant context

1. The appellant’s overall position in this litigation fluctuated in relation to the percentage of the property to which the appellant said he was entitled.  In his response he contended it was 98.8% of net assets, in his amended response he asserted it was 100% of the net assets found at trial and in his final claim the appellant said he was entitled to 90% of the net assets found at trial.  At trial his contentions fluctuated again.  All of the appellant’s contentions on the percentage by which the property was to be divided failed as he was ordered to pay the applicant 40% of the total property pool of $5,300,000 which converted to $2,120,000.

2. The applicant has invoked s 117(2A) of the Family Law Act in contending she should have her costs.  She relies on two bases for that contention.  First, she says she was wholly successful by reason of her achieving an order altering property interests in a proportion that eclipsed the proportions contended for by the appellant.  The second basis is that she says she achieved a more favourable outcome than were contained in offers to settle the case.

3. In my view she is correct on both grounds.

4. As was held in PBF & TRF,[3] it is not necessary for more than one factor to exist under s 117(2A) before it is competent for a judge to enliven s 117(2A) so as to make a costs order that departs from the general principle set out in s 117(1) of each party bearing his or her own costs. In this case the applicant relied on the two bases set out above. In my view, an order for the appellant to pay the applicant’s costs is appropriate under s 117(2A) of the Family Law Act.  Further in view of the appellant’s rejection of the applicant’s settlement offers, costs should be assessed on an indemnity basis.

   [3] (2005) 33 Fam LR 123.

Relevant position adopted by the appellant

1. In his response to the applicant’s initiating application sealed 30 January 2018 the appellant contended that the applicant’s s 79 application should be dismissed.  The appellant maintained that position in his amended response sealed 26 July 2018.  In his outline of case dated 17 October 2019 prepared by the appellant’s Senior Counsel, the appellant asserted that “the upper limit of any finding as to contribution by the wife would be 5% of its equity”.

2. In paragraph 86 of the appellant’s written submissions dated 19 December 2019, the appellant’s Senior Counsel advanced the proposition that a 5% adjustment in the applicant’s favour was appropriate.

3. The reasons handed down on 14 May 2020 revealed a 40% adjustment in favour of the applicant.

4. In those circumstances, the question became whether the applicant was “wholly successful” for the purposes of s 117(2A)(e). It will be recalled that the appellant’s position advanced throughout the interlocutory phases of this case up to the respondent’s opening at the trial amounted to a concession that the applicant was entitled to nothing. That moved to a concession by the appellant that the applicant was entitled to a 5% adjustment in the appellant’s outline of case dated 17 October 2019. In written final submissions dated 19 December 2019 the appellant persisted in the 5% adjustment.

5. My finding that the applicant was entitled to a 40% adjustment represented a conclusion that she had been “wholly successful”. Compared to the position adopted by the appellant, her success was eight times the outcome urged by the appellant. On that basis alone, a costs order was open under s 117(2A).

An offer to settle

1. Under s 117(2A)(f) it is relevant to consider whether either party has made an offer in writing to the other party and the terms of the offer.  In July 2016 the appellant’s solicitors made an offer to the applicant’s solicitors proposing a resolution of the litigation on the basis that the appellant pay to the applicant $60,000.  In that letter the appellant calculated the net pool to be $542,844 less expected capital gains tax of $271,000, leaving a total of $271,844.  The $60,000 figure was slightly above the offer of 10% of the net pool of assets with no s 75(2) adjustments, being $27,184.40.  That proposal was rejected. 

2. On 17 March 2017 the applicant’s then solicitors wrote to the appellant’s solicitors with the applicant’s counter proposal.  It involved an adjustment in the applicant’s favour on a 30% basis in favour of the wife.  In that proposal the property values were $9,261,958 as to assets and $3,482,085 as to liabilities.

3. The counter proposal in response was made by the appellant’s solicitors dated 12 September 2018.  In it the appellant proposed the dismissal of the wife’s application, there being no payment to the wife at all.

4. On 17 March 2019 the wife’s new solicitors (her current solicitors) put forward another counter offer thereby causing the 12 September 2018 offer to lapse, in case it had not already lapsed by reason of its not having been accepted within 7 days as the proposal stipulated.

5. The 17 March 2019 proposal involved the wife expressing her willingness to accept 20% of the $4,000,000 pool agreed at mediation being $800,000.  The offer remained open for 14 days. 

6. On 25 March 2019 the appellant put forward a counterproposal involving his payment to the wife of $300,000.  That was rejected by the wife’s solicitors by letter dated 12 April 2019.  By that letter the wife’s solicitors reinstated their 12 March 2019 proposal.  No acceptance date was limited by that letter.  Some confusion emerged in correspondence dated 12 and 15 April 2019 passing between the solicitors.  However, soon prior to the commencement of the trial of this proceeding, on 21 October 2019 the appellant’s solicitors proposed a payment from the appellant to the applicant of $650,000.  The following day, that is to say on 22 October 2019 the applicant’s solicitors rejected the proposal for the payment of the sum of $650,000 and then proposed a counteroffer that the wife would accept a payment to her of $1,386,000 from the appellant.

7. No agreement was reached.  All settlement proposals lapsed. 

8. The offers in the form of the proposals and counterproposals recorded above did not take the form of what are colloquially called “Calderbank offers” after the UK decision in Calderbank v Calderbank[4] or “Cutts v Head offers” after the later UK decision in Cutts v Head.[5]  It seems therefore that despite various offers and counteroffers having been exchanged, none were fruitful and in the end the appellant ran the case on the basis of a 5% adjustment, as opened, and a 5% adjustment as submitted in final address.

   [4] [1975] 3 All ER 333.

   [5] [1984] 1 All ER 597.

9. On that basis, having regard to the provisions of s 117(2A)(e) and (f), I am entitled to have regard to the “wholly successful” provisions and to conclude that the applicant was in fact wholly successful in obtaining judgment for an amount substantially greater than the 5% contended for throughout the trial of this proceeding. 

10. It follows that it is appropriate to make a costs order in favour of the applicant.

11. The next issue is the basis on which costs should be assessed in this case.

Indemnity costs

1. The applicant contended that she was entitled to costs on an indemnity basis.  Mr O’Sullivan, the applicant’s solicitor relied on a collection of authorities to support his client’s claim for indemnity costs.  Mr O’Sullivan cited the locus classicus of Colgate-Palmolive Co v Cussons Pty Ltd[6] and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd.[7]  In Guild & Stasiuk (No. 3)[8] I extensively reviewed the authorities on indemnity costs.  The passages in that authority are too lengthy to insert into these reasons.  However, they should be taken to be incorporated by reference into these reasons.

   [6] (1993) 46 FCR 225.

   [7] (1988) 81 ALR 397.

   [8] [2020] FamCA 564.

2. At paragraph 43 of my reasons in Guild & Stasiuk (No. 3) I addressed the stream of learning emanating from Colgate-Palmolive Co v Cussons Pty Ltd in relation to the grounds on which it is legitimate to make an order for indemnity costs.  One ground is the imprudent refusal of an offer of compromise. 

3. In this case the appellant rebuffed every approach made by the applicant to resolve this litigation.  In the earlier passages of these reasons I have recited the applicant’s offer made 12 March 2019 that she would accept $800,000.  That was rejected by the appellant’s counteroffer of $300,000.  The applicant’s counteroffer was made by letter dated 22 October 2019 pursuant to which Mr O’Sullivan stated on behalf of the applicant that she would accept payment by the appellant of $1,386,000.  That proposal did not culminate in a resolution.  In my view it was imprudent of the appellant to have rejected that proposal.  That of itself is a proper basis on which to make an order for the payment of costs on an indemnity basis.

4. The underlying rule in relation to Calderbank offers and the costs consequences that follow from a deviation of the public policy associated with the encouragement of settlements was explained in Commonwealth of Australia v Gretton[9] in the following terms by Hodgson JA –

   In my opinion, underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant’s responsibility because the plaintiff was caused to incur costs by the defendant’s failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled (footnote omitted). Departures from the general rule that costs follow the event are broadly based on a similar approach.[10]

   [9] [2008] NSWCA 117.

   [10] [2008] NSWCA 117 at [121].

5. In slightly different terms, Beazley JA in Monie v Commonwealth of Australia (No 2)[11] said the following –

   …there is both a private interest and a public policy in the encouragement of settlements. One of the reasons these proceedings have not been finalised and are now to be the subject of at least a sixth judicial determination, is because the Commonwealth did not accede to an offer which has been exceeded by the Court’s determination of damages in respect of two of the appellants.[12]

   [11] [2008] NSWCA 15.

   [12] [2008] NSWCA 15 at [29].

6. No two offers will be the same.  However, for this area of the law the offer must be a genuine offer of compromise, as was held in Leichhardt Municipal Council v Green.[13]  It falls to the court assessing the compromise proposal to ascertain whether a particular offer represented a genuine attempt to reach a negotiated settlement rather than it being merely a trigger to any cost sanctions, as Santow JA held in that case.[14]

   [13] [2004] NSWCA 341.

   [14] [2004] NSWCA 341 at [39].

7. I order the appellant to pay the costs of the applicant of and incidental to the proceeding, save for any costs thrown away on 19 June 2019 on an indemnity basis.

8. So far as that order reflects reserved costs, having regard to the ground raised in the appellant’s stay application that I allegedly did not address reserved costs, these are my reasons.

9. On 19 June 2019 McEvoy J heard an application to adjourn the trial of the proceeding, then fixed for three days commencing on 3 July 2019.  McEvoy J granted the adjournment application and reserved any costs thrown away by the appellant.

10. No evidence of any costs thrown away by reason of the orders made 19 June 2019 was put before me.  If that evidence had been put before me it may have been possible to have assessed whether and to what extent costs were in fact wasted by the trial being adjourned from 3 July 2019.  Counsels’ preparation was ultimately used when the trial began. 

11. It falls to a registrar to assess costs.

12. The costs order I make is that the appellant pay the applicant’s costs of the proceeding on an indemnity basis, save for the appellant’s costs thrown away as a result of the adjournment application on 19 June 2020.

I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson delivered on 23 July 2020.

Associate: 

Date:  23 July 2020