BURKETT & NOVACK (No.2)

[2019] FCCA 2286

FEDERAL CIRCUIT COURT OF AUSTRALIA

BURKETT & NOVACK (No.2) [2019] FCCA 2286

Catchwords:
FAMILY LAW – Costs – applicant seeks indemnity costs after property trial – non-disclosure and lack of candour – costs on Family Court scale ordered.

Legislation:

Family Law Act 1975 (Cth) ss.90XT, 117, 117(1), 117(2A), 117C(2)

Family Law Rules 2004 (Cth) sch.3, ch.19

Federal Circuit Court Rules 2001 (Cth)

Cases cited:

Burkett & Novack [2019] FCCA 1362

Colgate-Palmolive v Cussons Pty Ltd (1993) 46 FCR 225

In theMarriage of Munday & Bowman 22 Fam LR 321

Prantage & Prantage [2013] FamCAFC 105

Applicant: MS BURKETT

Respondent: MR NOVACK

File Number: MLC 8541 of 2017

Judgment of: Judge Harland

By way of Written Submissions: 20 June 2019 and 11 July 2019

Date of Last Submission: 11 July 2019

Delivered at: Melbourne

Delivered on: 22 August 2019

REPRESENTATION

Counsel for the Applicant: Ms Colla

Solicitors for the Applicant: Barbayannis Lawyers

The Respondent appearing in person.

ORDERS

1. That the costs of and incidental to the proceedings be calculated by the applicant in accordance with Schedule 3 of the Family Law Rules and if the quantum is in dispute to be determined by a Registrar pursuant to the provisions of Chapter 19 of the Family Law Rules.

2. That pursuant to s.90XT of the Family Law Act1975, there be a splittable payment in the superannuation interest of the respondent in the Mr Novack Superannuation Fund (“the Fund”) in respect of the base amount set out herein and there be a corresponding reduction in the interest of the respondent in that said Fund.

3. That the base amount to be paid to the applicant pursuant to this order be the sum of $20,000.00 of the respondent’s entitlement in the fund.

4. That the operative time for implementation of the orders is 14 days from the date the orders are made.

5. That the trustee of the Fund pay or cause to be paid the base amount to the applicant within 14 days of the date hereof and the respondent to retain the Fund for his own use and benefit absolutely.

6. That within 30 days each party do all things and execute all documents necessary to wind up the company known as Business Pty Ltd.

NOTATION

(A)The respondent is the sole director of the Corporate Trustee of the Fund and procedural fairness has been afforded to him.

IT IS NOTED that publication of this judgment under the pseudonym Burkett & Novack (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 8541 of 2017

MS BURKETT

Applicant

And

MR NOVACK

Respondent

REASONS FOR JUDGMENT

1. The applicant commenced property proceedings on 22 August 2017. The matter initially proceeded to final hearing on 4 March 2019. On this occasion the matter was not reached. The trial ran for two days on 11 and 12 April 2019.

2. On 23 May 2019 I delivered my reasons in this matter. The parties’ full financial and proprietary circumstances are set out in my primary judgment Burkett & Novack [2019] FCCA 1362. Those reasons should be read with these reasons for background.

3. On 23 May 2019 I ordered the applicant to file written submissions in support of her costs application and any minute of orders sought with respect to the respondent’s superannuation and Business Pty Ltd (“Business”) within 28 days. The respondent was ordered to provide written submissions in response 28 days thereafter. The applicant’s solicitors forwarded written submissions to my Chambers on 20 June 2019 and the respondent forwarded submissions in reply on 11 July 2019.

4. The applicant is seeking costs against the respondent on an indemnity basis. She seeks an order from the Court that the respondent pay her costs from the time of issuing her initiating application on 22 August 2017 until judgment delivery on 23 May 2019, including the costs associated with preparation of the costs submissions. Such costs amount to $67,646.77. Annexure C of the applicant’s submissions is a copy of the itemised tax invoices for her solicitor’s fees and Counsel’s fees during this period of time.

5. In the respondent’s submissions he seeks that he retain all his existing and future superannuation monies and that the applicant pay her own costs. He does not address the legislative considerations in s.117 of the Family Law Act 1975 (Cth) (“Family Law Act”). He was unrepresented at the trial and remains so.

6. The particularised orders filed by the applicant merely implements the superannuation split which I found to be just and equitable at paragraphs 91 to 94 of my primary reasons. It is not an exercise of further discretion.

7. The applicant failed to provide a particularised order with respect to winding up of the Business.

8. In the first paragraph of the respondent’s submissions he displays confusion as to why final orders were made on 23 May 2019 despite costs and superannuation remaining undecided. The respondent has misconstrued the effect of my primary reasons in this regard. Orders 6 and 7 allow for both the applicant and respondent to file written submissions in respect to these matters. As mentioned in paragraph 92 of my primary reasons, I could not make any orders in relation to superannuation as they would not have been enforceable. The applicant was unable to particularise a superannuation split “given the husband’s lack of disclosure”.

Attempts to file further evidence

1. Both parties have inappropriately sought to file further evidence with Chambers. I refer to paragraph 121 of my primary reasons which addresses this with respect to the applicant.

2. The applicant filed a further document from Westpac Banking Corporation (“Westpac”) received after I delivered my primary reasons. I have not considered it. The respondent raises matters in his submissions that are irrelevant to the consideration of costs. He further attaches inappropriate annexures. I have not considered these annexures nor will I give them any weight in making my decision. I also do not have any regard to the annexures to the respondent’s submissions that raise issues about his health and financial circumstances.

The wife’s application for costs

1. The applicant’s submissions make reference to the respondent’s conduct throughout the proceedings, namely non-disclosure and the refusal of a settlement offer in November 2017 prior to the final hearing. In her submissions the applicant does not explicitly suggest that the circumstances are exceptional, however, indicates that the length of the trial was increased due to non-disclosure by the respondent with him only making some admission during cross-examination.  

2. Section 117(1) of the Family Law Act provides that each party to proceedings shall bear their own costs. However, in order for the Court to make a costs order in favour of either party, there must be justifying circumstances as set out in s.117(2A) of the Family Law Act:

   (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.

The financial circumstances of each of the parties to the proceedings

1. I referred to the parties’ financial circumstances at paragraphs 74 to 76 of my primary reasons.

2. The applicant refers to paragraph 108 of my reasons where I accept that her financial position is “modest” and that she “is in a worse financial position now than she was at the beginning of the relationship”. I also acknowledge that the respondent’s income is greater than that of the applicant.

3. The respondent submits that he does not “have the resources to pay the costs”. He makes reference to various costs and debts he has incurred over recent months. These include the paying back of funds withdrawn from his superannuation to the Australian Taxation Office, payment arrangements for his credit card, and car payments, as well as funeral expenses. He further submits that he has been unwell and will require surgery on his lower spine, which will impact on his earning capacity as he will not be able to drive for six weeks. This is all inadmissible and was not raised at the trial. The respondent submits that the applicant is aware of his financial records from his “original affidavit”. It is unclear exactly which document he refers to. However, it can be assumed he is referring to his affidavit and financial statement both filed on 8 February 2019.

4. As I said in my primary reasons, the respondent is in a stronger financial position than the applicant. His income is higher. He does have some capacity to pay costs, although it is likely that it may need to be paid in instalments. However that is a separate issue.

Whether any party to the proceedings is in receipt of assistance by way of legal aid

1. Neither party is in receipt of legal aid.

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

1. The applicant’s submissions largely focus on the respondent’s conduct throughout the proceedings, particularly with respect to disclosure.

2. The applicant submits that the respondent failed to disclose where he had dissipated approximately $143,000.00 of his superannuation from his self-managed superannuation fund. She further submits that the respondent also failed to advise where his employer was paying his superannuation and refused to provide taxation returns. Reference is made to paragraph 92 of my reasons where it is mentioned that the respondent did not produce tax returns from the superannuation fund for 2018. This is not the only instance of non-disclosure.

3. The applicant submits that due to complete lack of disclosure she had to issue a subpoena to the respondent’s employer to ascertain where his superannuation was being paid. She issued a subpoena in relation to the dissipation of funds in the respondent’s self-managed superannuation fund and subsequently issued another to attempt to trace the application of such funds through the Commonwealth Bank of Australia. Further reference is made in her submissions to the significant expenditure of funds in issuing the subpoena for the non-disclosed discoverable documents. The applicant also submits that further costs accrued from issuing a subpoena to Victoria Police to obtain information regarding the unauthorised withdrawal of $4,000.00 from her bank account. The respondent was found guilty of such conduct as referred to at paragraph 35 of my primary judgment.

4. The applicant submits that the subpoena she issued to Westpac was complicated by the fact that the bank could not locate who had drawn funds from the Business Westpac business account. Following a complaint to the Financial Ombudsman regarding lack of provision of information from Westpac, the applicant annexes a letter dated 13 June 2019 to her submissions (marked annexure A). With respect to the respondent’s cash withdrawals, this information was not available at the trial. I cannot take into account the context of that letter after delivering my primary reasons. This course of conduct prompted by the respondent’s wastage of funds has “significantly increased her legal costs”. The applicant refers to paragraph 87 of my reasons where I find “on the balance of probabilities that the husband has wasted significant finds that he has failed to account for”.

5. The difficulty with the submissions about subpoenas is that the applicant did not issue many of the subpoenas until after the trial was not reached when it was initially listed for final hearing on 4 March 2019.

6. In her submissions the applicant also makes reference to occasions where the respondent did not provide information until he was under cross-examination. I indicate at paragraph 26 of my reasons that I formed the impression that from the respondent’s evidence during cross-examination about spending $55,000.00 for a side business that he was “making things up as he went along”. The applicant further submits that the respondent disclosed in the witness box for the first time that he spent money from his self-managed superannuation fund on living expenses.

7. The applicant further submits that the letter produced from the respondent’s accountant asserting that his self-managed superannuation fund was compliant could not have been correct in circumstances where taxation returns were not being produced, and where the respondent admitted to withdrawing money from the fund for “living costs”.

8. In her written submissions the applicant refers to the fact that the ongoing failure by the respondent to provide discovery not only significantly increased the applicant’s costs through the issuing of the subpoena, but also through the significant time spent in preparing Court Books to be used as an aide memoire for the Court. She submits that the Court Books could not have been prepared earlier as the applicant was waiting for the respondent to comply with discovery obligations and for subpoena results. In my reasons at paragraph 114 I indicate that the preparation of summaries within the Court Book was “unrealistic and unfair” and a “waste”, in such circumstances where the respondent was unrepresented and the pool size was small.

9. The respondent states in his submissions that “a lever-arch folder was introduced during the final hearing” and that he was expected to familiarise himself with the material. He was not. As I have already mentioned, the Court Book was not accepted as an exhibit, nor were the aide memoires with respect to the financial documents. The applicant’s Counsel did tender some financial documents which she had included in the Court Book after showing these to the respondent and cross-examining him about them. This was appropriate. At paragraph 113 I note that it was:

   “unfair to produce a significant bundle of documents with summaries at the commencement of the trial and expect the other party to be able to study those summaries and the supporting documents to see whether or not the summaries are accurate and will consent to the summaries being tendered.”

Whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court

1. This is not applicable.

Whether any party to the proceedings has been wholly unsuccessful in the proceedings

1. The applicant submits that the respondent has been wholly unsuccessful in the proceedings. With reference to paragraph 90 of my reasons, she submits that I did not find the respondent to be a credible witness and that all of the available funds, including the respondent’s superannuation, were to be released to or remain with her. As in my orders dated 23 May 2019, all of the funds in the Business Westpac account were to be paid to the applicant’s solicitors on behalf of the applicant. Her submission that the respondent has been wholly unsuccessful is supported.

2. The respondent sought in his response filed 1 September 2017 for the funds in the Business Westpac account to be divided equally between the parties and that he not make any spousal maintenance payments to the applicant. At paragraph 110 of my reasons I dismiss the applicant’s application for maintenance, as her affidavit did not adequately address the maintenance threshold requirements. On this ground, the respondent was not wholly unsuccessful. However the applicant was successful with respect to her property claim.

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

1. The applicant submits that an offer of settlement was made to the respondent at the conciliation conference on 15 November 2017. The respondent was not legally represented at the conciliation conference. This offer stated that the respondent retain his superannuation and that she retain her superannuation and all the monies in the Business Westpac account.

2. This offer is evidenced in annexure B, being email correspondence from the respondent dated 17 November 2017. In this email to the applicant’s solicitors, the respondent reaffirms the offer proposed by the applicant, declines to accept the offer and provides a counter offer. The respondent’s counter offer stipulates that each party keep their own superannuation, for him to receive $20,000.00 from the Business Westpac account and for the applicant to retain the balance. The applicant submits that the respondent received less in the orders dated 23 May 2019 than in the terms proposed in her offer.

3. The respondent does not engage with the applicant’s argument surrounding the offer of settlement at the conciliation conference. He submits that he was of the view that discussions that occurred in mediation were to remain confidential. Section 117C(2) sets out the exception whereby offers of settlement can be disclosed when orders as to costs are under consideration:

   (2)  If:

   (a) a party to proceedings to which this section applies makes an offer to the other party to the proceedings to settle the proceedings; and

   (b) the offer is made in accordance with any applicable Rules of Court;

   the terms of the offer must not be disclosed to the court in which the proceedings are being heard except for the purposes of the consideration by the court of whether it should make an order as to costs under subsection 117(2) and the terms of any such order.

4. The offer discussed in the applicant’s submissions falls under the exception in s.117C(2).

5. The applicant’s offer was that she receive the whole of the funds in the Business Westpac account and that they each keep their superannuation. As a result of the trial, the applicant received all of the proceeds in the Business Westpac account, retained her superannuation and received a split of $20,000.00 from the respondent’s superannuation. She effectively received all of the known asset pool.

6. The respondent refers to his poor financial circumstances. In addition to my concerns in my primary reasons, I observe that impecuniosity is not a bar to a court making a costs order.

Indemnity costs: special circumstances

1. When considering whether or not to make an indemnity costs order, it is necessary to know what the departure is from the scale.[1] The applicant’s submissions provide that “in the event that the Court is not prepared to award indemnity costs, an assessment of the costs based on scale can be arranged at the expense of the Applicant’s lawyer.” It is therefore unknown what the quantum of costs pursuant to the Federal Circuit Court Rules 2001 scale are in this matter and subsequently, what the departure is from the scale, which is event based.

   [1] Prantage & Prantage [2013] FamCAFC 105.

2. The applicant acknowledges in her submissions that costs are ordinarily awarded on a scale rather than on an indemnity basis in accordance with Colgate-Palmolive v Cussons Pty Ltd (1993) 46 FCR 225. In theMarriage of Munday & Bowman 22 Fam LR 321 Holden CJ of the Family Court of Western Australia observed that indemnity costs should only be made in exceptional circumstances.

1. Exceptional circumstances may include:

   a)making allegations of fraud knowing them to be false;

   b)evidence of misconduct leading to loss of time to the court and other parties;

   c)the fact that proceedings were commenced for an improper purpose;

   d)proceedings started wilfully disregarding known facts or law;

   e)making allegations which shouldn't have been made or unduly prolonging the case through groundless contentions;

   f)imprudent refusal to accept an offer of compromise;

   g)costs against someone in contempt.

2. These circumstances are not exhaustive.

Conclusion

1. I am satisfied that in the circumstances of this case it is appropriate to order costs against the respondent. His conduct, particularly his failure to disclose documents which required the applicant to issue subpoenas and his lack of candour, increased her costs.

2. However, I am not satisfied that she should receive indemnity costs. Some of her costs, on a brief perusal seem excessive, particularly with respect to Counsel’s preparation of and the costs associated with preparing the summaries and Court Book.

3. However, I am also of the view that applying the Federal Circuit Court scale would not adequately compensate the applicant. It is an event based scale that does not adequately factor in costs such as issuing subpoenas due to the respondent’s failure to provide disclosure. It is of some significance in this case that the respondent failed to explain the dissipation of significant sums of money, thereby diminishing the available pool and disadvantaging the applicant. I have the discretion to order that costs be in accordance with the Family Court scale. The applicant will need to prepare a bill of costs in accordance with that scale. If there is no agreement as to quantum once this has been done then it can be referred to a Registrar for assessment.

I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Judge Harland

Date: 22 August 2019