Baumann and Rushbrooke and Ors (No 2)
[2017] FamCA 293
•10 May 2017
FAMILY COURT OF AUSTRALIA
| BAUMANN & RUSHBROOKE AND ORS (NO 2) | [2017] FamCA 293 |
| FAMILY LAW – COSTS - Where the wife joins the second, third and fourth respondents to the proceedings – Where the substantive proceedings between the husband and the wife were resolved by consent on the third day of hearing –Where the matter did not proceed to a final determination by the Court – Where the second, third and fourth respondents seek costs against the wife – Consideration of section 117(2A) – Where the application for costs is dismissed |
Family Law Act 1975 (Cth), ss 79, 106B, 117, 117(2A), 117(2A)(a), 117(2A)(c), 117(2A)(e), 117(2A)(f), 117(2A)(g)
Family Law Rules 2004 (Cth), r 6.02, r 6.02(1)
| Australian Securities Commission v Aust Home Investments Limited & Ors (1993) 116 ALR 523 |
| APPLICANT: | Mr D Baumann |
| RESPONDENT: | Ms Rushbrooke |
| 2nd RESPONDENT: | Mr Hilton |
| 3rd RESPONDENT: | Ms S Baumann |
4th RESPONDENT: Mr KK Baumann
FILE NUMBER: | SYC | 2032 | of | 2015 |
| DATE DELIVERED: | 10 May 2017 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | McClelland |
| HEARING DATE: | 29 March 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Campton SC |
| SOLICITOR FOR THE APPLICANT: | Uther Webster and Evans |
SOLICITOR FOR THE RESPONDENT: | Michael Conley Lawyers |
| COUNSEL FOR THE RESPONDENT: | Simon White SC |
| SOLICITOR FOR THE 2ND, 3RD AND 4TH RESPONDENTS: | McDonell Milne Toltz Family Lawyers |
COUNSEL FOR THE 2ND, 3RD AND 4TH
RESPONDENTS: Peter Fowler
Orders
That the second, third and fourth respondents’ application for costs as against the wife is dismissed.
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 Baumann and Rushbrooke & Ors 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 SYDNEY |
FILE NUMBER: SYC 2032 of 2015
| Mr D Baumann |
Applicant
And
Ms Rushbrooke
Respondent
And
Mr Hilton
Second Respondent
And
| Ms S Baumann |
Third Respondent
And
| Mr KK Baumann |
Fourth Respondent
REASONS FOR JUDGMENT
Introduction
Mr D Baumann (“the husband”) and Ms Rushbrooke (“the wife”) have been involved in protracted litigation concerning, initially, respective applications for parenting orders and subsequently, respective applications for property orders. Those proceedings were resolved by consent on 29 March 2017, the third day of the final hearing. As a result, the matter did not proceed to a final determination by the Court.
The second, third and fourth respondents are respectively:
a)Mr Hilton (“the second respondent”);
b)Ms S Baumann (“the third respondent”); and
c)Mr KK Baumann (“the fourth respondent”).
The second respondent is a friend of the husband, the third respondent is the husband’s mother and the fourth respondent is the husband’s brother. Each of the second, third and fourth respondents have loaned money to the husband and they have secured those monies by way of a mortgage secured against the former matrimonial home located at H Street, Suburb I in the State of New South Wales (“the former matrimonial home”). The former matrimonial home is owned by the parties as tenants in common with the husband having a 75 per cent interest and the wife a 25 per cent interest.
By way of an Amended Response to an Initiating Application filed 11 November 2016 the wife sought the following orders:
4. That pursuant to section 106B of the Family Law Act 1975, the following dispositions be set aside:
4.1. The mortgage secured on the [Suburb I] property with dealing number: … between the Second Respondent as mortgagee and the Applicant as mortgagor dated 18 March 2016.
4.2. The mortgage secured on the Suburb I property with dealing number: … between the Third Respondent as mortgagee and the Applicant as mortgagor dated 17 May 2016.
4.3. The mortgage secured on the Suburb I property with dealing number: … between the Fourth Respondent as mortgagee and the Applicant as mortgagor dated 28 September 2016.
The parties contentions
On the behalf of the second, third and fourth respondents it was argued that, even though there has been no final determination of the application on its merits, the Court should form the view that the application for the joinder of the second, third and fourth respondents was unnecessary and that the wife had no reasonable prospects of success in obtaining the orders that she sought against them.
In that respect, it was submitted that the monies lent by the second, third and fourth respondents totalled approximately $453 508 which, it was submitted, was less than 10 per cent of the agreed value of the former matrimonial home.
Further, it was submitted, that the wife had no reasonable prospects of success of obtaining orders, pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”), that would have resulted in a division of the matrimonial property such that the distribution to her would have exceeded in excess of 90 per cent of the value of the former matrimonial home.
Accordingly, it was argued that, if the proceedings had not been resolved, the wife would have failed to establish that the mortgages would have been likely to defeat any order of the Court for the distribution of property.
It was further submitted that no evidence had been presented to the Court, by the wife, that the second, third and fourth respondents entered into the mortgages with the intention of defeating an anticipated order for the distribution of the parties’ matrimonial property.
It was further argued that the orders sought by the wife were unnecessary as order 2, as proposed by the wife, provided:
2. Simultaneously with the compliance of the Husband with his obligation under Order 1 hereof [to transfer the Husband’s interest in the former matrimonial home to the wife] the Husband shall discharge all mortgages referred to in order 4 hereof and shall indemnify the Wife in respect to any amounts due or accruing over those mortgages.
In that context, it was submitted that the existence of the mortgages would not have been an impediment to the wife obtaining the orders that she sought. This was because order 2 of her proposed orders required the husband to discharge the mortgages prior to transferring the former matrimonial home to her.
It was further argued that consent orders, entered into by the parties on 16 December 2016, restrained the husband from borrowing in excess of $600 000 against the former matrimonial home. It was noted that the total value of the mortgages was approximately $453 508, which was considerably less than the $600 000 cap on borrowings that the parties had agreed to.
Counsel for the second, third and fourth Respondents referred to Penfold v Penfold[1], to argue that, in considering whether to exercise discretion to require a party to pay the costs of another pursuant to s 117 of the Act, it is not necessary to establish a “clear case” for such and order.
[1] [1980] HCA 4; (1980) 144 CLR 311.
Counsel for the second, third and fourth Respondents also referred to the case of Collins& Collins,[2] to support the submissions that, while the primary position expressed in s 117 of the Act is that each party should bear his or her owncosts, the Court nonetheless has a broad discretion in respect to making an order for costs and that discretion should not be read in a restrictive way.
[2] (1985) FLC 91-603.
Relying on Riznic & Riznic[3], it was submitted that, in exercising its discretion pursuant to s 117, it was appropriate for the Court to have regard to the impact of the proceedings on the second, third and fourth respondents. In particular, it was submitted that the Curt should take into consideration that they were not primary parties to the litigation and had been unwillingly joined to the proceedings.
[3] (1984) 10 Fam LR 385.
In referring to s 117(2A) of the Act, counsel for the second, third and fourth respondents argued that:
a)In terms of s 117(2A)(a) – the Court is aware that, pursuant to the consent orders, the wife will receive a substantial amount of money that is more than sufficient to satisfy an order for costs.
b)In terms of s 117(2A)(c) – it was argued that the Court should have regard to the conduct of the parties in the proceedings. In that respect reference was made to the fact that on 16 December 2016 the wife entered into consent orders restricting the husband’s borrowings to a total amount of $600 000. It was noted that the borrowings from the second, third and fourth respondents have not reached that amount.
c)In terms of s 117(2A)(e) – it was argued that the Court should infer that the wife would have been wholly unsuccessful in obtaining the orders she sought against the second, third and fourth respondents.
d)In terms of s 117(2A)(f) – reference was made to correspondence between the solicitors for the second, third and fourth respondents and the solicitors for the wife. In that correspondence the solicitors for the second, third and fourth respondents articulated why the wife had no reasonable prospects of success against their clients and why it was unreasonable for the wife to continue with the proceedings against them.
e)The correspondence also contained various offers, including one identified as a “Calderbank offer” to resolve the matter. The offers included an offer, made by way of letter dated 10 March 2017, that the proceedings be discontinued against the second, third and fourth respondents with no order as to costs.
f)It was submitted that the reply from the solicitors for the wife dated 14 March 2017 was unreasonably dismissive of the endeavours made by the solicitors for the second, third and fourth respondents to resolve the matter.
g)In terms of s 117(2A)(g) – it was submitted that Order 2 of the orders sought by the wife rendered the wife’s application for orders pursuant to s 106B to be unnecessary.
h)It was also argued that the Court should have regard to the fact that the second, third and fourth respondents were strangers to the marriage and that it was unnecessary for them to be joined in order to resolve the competing claims by the parties in respect to the property proceedings.
On behalf of the wife it was submitted that, in circumstances where the Court has not determined the merits of the wife’s application, the Court should not attempt to predict what would have been the outcome of that application.
On that basis, it was submitted that the Court could not make a determination regarding the wife’s prospects of success in obtaining the orders she sought against the second, third and fourth respondents.
It was submitted that it was not to the point to argue that, to justify joining the second third and fourth respondents, the wife would have needed to have obtained orders which provided for her to receive in excess of 90 per cent of the value of the former matrimonial home.
In that respect, it was contended that any orders that apportioned the matrimonial property such that the wife received an amount in excess of 25 per cent of the value of the former matrimonial home would have necessarily impacted upon the rights of the second, third and fourth respondents. Accordingly, it was argued that, in those circumstances, rule 6.02 of the Family Law Rules 2004 (Cth) (“the Rules”) required the wife to join those respondents as parties to the proceedings.
It was submitted that, irrespective of any possible final distribution, the wife’s application was for orders that the husband transfer the entirety of his interest in the former matrimonial home to the wife. This, it was submitted, impacted upon the rights of the second, third and fourth respondents such that the wife was compelled by rule 6.02 to join them to the proceedings.
It was further submitted that it was not to the point that the wife sought orders for the husband to transfer the former matrimonial home to her and, simultaneously with that transfer, discharge the mortgages. In that respect, it was argued that the Court may not have granted order 2 as sought by the wife. It was further submitted that, in any event, there was doubt regarding the husband’s financial circumstances and whether he had the capacity to discharge the mortgages to the second, third and fourth respondents.
In terms of the specific matters referred to in s 117(2A) it was submitted as follows:
a)In terms of s 117(2A)(a) – the Court is not aware of the financial circumstances of the second, third and fourth respondents. In respect to the financial circumstances of the wife, it was submitted that while the Court is aware that she will receive an adjustment of property as a result of the finalisation of the property proceedings, the Court is not aware of her other demands. These could be expected to include, it was submitted, the requirement to pay legal costs incurred in the proceedings and the challenge of establishing a new household.
b)In terms of s 117(2A)(c) – it was submitted that the wife has acted entirely properly and has acted in accordance with the obligations prescribed by r 6.02 of the Rules in respect to joining parties to proceedings. This is in circumstances where the wife formed the view that the rights of the second, third and fourth respondents may have been directly affected by the relief she was seeking.
c)In terms of s 117(2A)(e) – it was submitted that the Court is not in a position to determine that the wife’s application would have been wholly unsuccessful. This is the case both in respect to the issue as to whether the wife would have obtained orders as sought by her for the husband to transfer to her 100 per cent of his interest in the former matrimonial home and also in respect to the wife’s assertion that the mortgages with the second, third and fourth respondents had been entered into with a view to defeating an anticipated order in the property proceedings. In that respect reference was made to the decision of McHugh J in Re Minister of Immigration & Ethnic Affairs; Ex Parte Lai Quin[4].
d)In terms of s 117(2A)(f) – it was acknowledged that the solicitors for the second, third and fourth respondents had engaged in correspondence with the solicitors for the wife with a view to resolving the wife’s claim for relief against them. It was submitted, however, that the correspondence was not an attempt to reach a compromise in respect to the issue, but rather was a proposal that the wife abandon that part of her claim against the second, third and fourth respondents. In those circumstances, it was submitted that it was understandable that the solicitors for the wife rejected the offers that had been made.
[4] [1997] HCA 6 at [624].
Consideration
In the matter of Baumann and Ors & Rushbrooke and Anor[5], the Court summarised the relevant law in respect to considering an application for costs. I will not repeat those relevant paragraphs save in so far as I note that s 117(2A) provides that in considering an application for costs the Court should have regard to:
[5] [2017] FamCA 175 at [13] – [14].
(a) the financial circumstances of each of the parties to the proceedings;
(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c) the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g) such other matters as the court considers relevant.
In considering s 117(2A)(a) I am not in a position to determine the financial circumstances of the second, third and fourth respondents save other than to note that they had access to sufficient funds to enable them to make the subject loans to the husband.
I am aware that the wife will receive an amount of money as a result of the settlement of the parties’ property proceedings. I am satisfied that, as a result of the resolution of those proceedings, the wife has the capacity to satisfy an order for costs that may be made in respect to the application for joinder of the second, third and fourth respondents.
In terms of s 117(2A)(c), a significant factor in determining the merits of the wife’s action in joining the second, third and fourth respondents to the proceedings is that the wife acted in accordance with what she perceived to be obligations prescribed by r 6.02. Rule 6.02(1) relevantly provides:
(1) A person whose rights may be directly affected by an issue in a case, and whose participation as a party is necessary for the court to determine all issues in dispute in the case, must be included as a party to the case.
In this matter, it was not unreasonable for the wife, on advice, to form the view that the rights of the second, third and fourth respondents may have been directly affected by the orders that she sought for the husband to transfer 100 per cent of his interest in the former matrimonial property to her. In that context it was not to the point that the total amount secured by the mortgages, at approximately $453 508, was less than $600 000 which the parties had agreed was the maximum amount that the husband was permitted to borrow, against the former matrimonial home, pursuant to the consent orders made on 16 December 2016.
In terms of s 117(2A)(e), it is generally accepted that in determining whether an order for costs should be made in circumstances where there is no determination of an application on its merits, including as a result of proceedings being resolved by way of compromise, it is inappropriate “to seek to make a prediction as to the outcome of the proceedings.”[6]
[6] Brook & MacKenzie Pty Ltd v LEL-Gra Engineering Pty Ltd [2015] FCA 1495 at [23]; Minerology v National Native Title Tribunal [1998] FCA 1700 at [11].
In Re Minister of Immigration & Ethnic Affairs; Ex Parte Lai Quin[7] McHugh J said:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily the power is exercised after a hearing on the merits and as a general rule a successful party is entitled to his or costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits however, the court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
[7] [1997] HCA 6 at [624].
In Lai Quin[8],McHugh J further said:
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the costs discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. (references omitted)
[8] Ibid.
One of the authorities referred to by McHugh J in Lai Quin[9] was the decision of Hill J in Australian Securities Commission v Aust Home Investments Limited & Ors[10] wherein his Honour said:
It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial;… This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (references omitted)
[9] Ibid.
[10] (1993) 116 ALR 523.
In this case, consideration of the application would have involved complex questions of fact and law. It is also likely that this consideration would have involved issues of credit. This is particularly so in circumstances where the wife asserted that the second, third and fourth respondents entered into the mortgages with the husband with the intention of defeating an anticipated order of the Court.
In terms of s 117(2A)(f), a matter which causes the Court some concern is the manner in which the solicitors for the wife engaged in correspondence with the solicitors for the second, third and fourth respondents. In that respect, I note that, by way of letter dated 14 March 2017, the solicitors for the wife rejected a settlement proposal from the solicitors for the second, third and fourth respondents in the following terms:
We refer to your correspondence dated 10 March 2017.
Your offer is rejected.
While expressing disappointment in respect to the dismissive nature of that response, having regard to the totality of circumstances to which I have referred, I do not consider it appropriate to make an order for costs against the wife simply on the basis of that response.
Consideration of s 117(2A) factors
In weighing up the totality of considerations set out in s 117(2A) I have had regard to the most significant factor, being that the wife acted reasonably in joining the second, third and fourth respondents to the proceedings as a result of the fact that the wife decided that the rights of the second, third and fourth respondents “may be directly affected” by the orders that she was seeking in the proceedings. Accordingly, the wife was entitled to form the view that, pursuant to r 6.02 of the Rules, she had an obligation to include the second, third and fourth respondents as parties to the proceedings.
The second matter to which I have had regard to is that it would be inappropriate for the Court to hypothetically try an action between the parties with a view to determining the extent to which the wife had reasonable prospects of success against the second, third and fourth respondents.
Those two factors, in my view, outweigh the concerns that I have regarding the inappropriately dismissive response by the solicitors for the wife to the offers made by the second, third and fourth respondents to resolve the wife’s claim against them.
Accordingly, for the above reasons I dismiss the application by the second, third and fourth respondents for an order for costs against the wife.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of the Honourable Justice McClelland delivered on 10 May 2017.
Associate:
Date: 10 May 2017
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