CAHILL & CAHILL
[2013] FamCA 339
FAMILY COURT OF AUSTRALIA
| CAHILL & CAHILL | [2013] FamCA 339 |
| FAMILY LAW – COSTS – Interlocutory hearing – Costs for the named persons who successfully obtained orders to set aside subpoenae – Named persons are not parties for costs purposes FAMILY LAW – PRACTICE AND PROCEDURE – Slip rule – Use of rules to amend orders. |
| Family Law Act 1975 (Cth) |
| Brown vBrown (1998) FLC 92-822 |
| APPLICANT: | Ms Cahill |
| RESPONDENT: | Mr Cahill |
| NAMED PERSONS: | Mr Canuzzio & Ms Canuzzio |
| FILE NUMBER: | MLC | 10670 | of | 2010 |
| DATE DELIVERED: | 8 May 2013 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 29 April 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Strum |
| SOLICITOR FOR THE APPLICANT: | Taussig Cherrie Fildes Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Brown SC |
| SOLICITOR FOR THE RESPONDENT: | Lander & Rogers |
| COUNSEL FOR THE NAMED PERSONS: | Dr Ingleby |
| SOLICITOR FOR THE NAMED PERSONS: | Howe Martin & Associates |
Orders
That the husband pay the costs of the named persons on a party and party basis by agreement and in default of agreement, as assessed.
That the subpoenae issued in this dispute all be set aside.
IT IS CERTIFIED:
That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel, including senior counsel to attend.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Cahill & Cahil has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 10670 of 2010
| Ms Cahill |
Applicant
And
| Mr Cahill |
Respondent
And
| Mr Canuzzio and Ms Canuzzio |
Named persons
REASONS FOR JUDGMENT
In this interlocutory hearing, both husband and wife as parties, along with the wife’s brother and mother as persons who had received subpoenae to which they objected, seek orders. Each was represented by counsel and the hearing was conducted on the papers. Four issues were canvassed. They were:
(a)What order for legal costs should be made in favour of the named persons arising out of the order of the Court upholding their objections to subpoenae served upon them?
(b)If an order is to be made in (a) above, when should the amount be paid?
(c)To the extent that the ruling upholding the named persons’ objections to the subpoenae did not deal with all subpoenae relating to their personal financial affairs, should the orders already made be amended under the Slip Rule to encompass all subpoenae including to banks and entities or should those named persons have the right to make an oral application for all of those subpoenae to be set aside? In the alternative, should the material produced under the subpoenae be released after 7 May 2013 if the wife defaults upon her ordered obligations to make discovery?; and
(d)Should a company tax debt be paid out of the funds of the former matrimonial home sale held on trust for the parties in circumstances where a tax liability arises from the sale of an investment property in the name of a company with which both parties have some connection?
In my view, the answers to the four issues is as follows:
(a)there should be an order for party and party costs;
(b)the payment should be made forthwith or within a reasonable time hereafter;
(c)the subpoenae should all be set aside; and
(d)the tax debt should not be paid out of the proceeds of the sale of the home.
The applications and responses together with the supporting affidavit material was all referred to the court by the parties for determination.
The tax debt
The husband sought that a payment of $89,149.11 plus ongoing interest and penalties be paid to the Australian Taxation Office on behalf of B Pty Ltd (“the company”) for a GST liability arising out of the sale of a property in C Street.
There is much suspicion and mistrust by the wife of the husband in relation to this dealing and the submissions of each party made it clear that credit was in issue. I am not in a position to make any findings nor should I do so in an interlocutory hearing.
Doing the best I can, the relevant sequence of events would appear to be as I shall now set out.
The parties separated in October 2009. The wife asserted that the husband, as director of the company, “took control of” it, changed its address and by one means or other, excluded her from accessing information including from the company accountant.
The company owned a property in C Street. That was sold by agreement for $785,000 and the solicitors acting upon the sale calculated the GST liability at $79,833.25. That amount was set aside by the conveyancing solicitors in the conveyancing settlement and two cheques were drawn payable to the Australian Taxation Office (ATO). The settlement of that sale took place on 13 January 2012 but the sequence of events thereafter is somewhat confusing.
It seems that notwithstanding the existence of an integrated client account for the company, the cheques for $79,833.25 were paid to the ATO which accepted them, recording their receipt into what was described as the company’s “income tax account” which for a number of years, had had a nil balance. When the $79,833.25 was paid in, the only other liability of the company to the ATO was the sum of $2560.85. That debt could be found in the ATO integrated client account of the company. The ATO took the $2560.85 from the $79,833.25 and only days after its receipt, refunded the balance of $77,272.40 presumably (although I am unclear) to the company.
The husband’s explanation for the return of the money was that the BAS statement had not been lodged and as such, no liability had arisen.
Upon receipt of the $77,272.40, a deposit was made into an overdrawn bill facility of the company which at that stage stood at $273,400. The deposit reduced the debt to $199,436.The husband said that he was unaware of the deposit having been made yet the wife produced not only a copy of the cheque made payable to the company but also the credit voucher of the company’s bank indicating that on the day of its receipt, the cheque was banked in the company’s bill facility account.
Nothing turns on the question of why the husband could not explain the deposit. The wife gave as a reason for disputing the payment of the tax debt from joint funds, that she has a belief that the debt has been somehow paid. That suspicion seems to me to be without foundation but I make no finding about either that or indeed the payment.
The BAS statement that gave rise to the liability for GST was not apparently lodged until February 2013. On 28 February 2013, the ATO raised a debt of $74,849 and added it to the company’s integrated client account. At that time, the company’s income tax (as distinct from the GST liability) was $48,032 and that had been outstanding since 25 November 2011. That income tax debt of $48,032 was paid in March 2013 leaving the GST amount outstanding. The payment in March 2013 was also only for the capital sum and not the accrued interest. Thus, there is an integrated client account for the company with not only the GST liability plus accruing interest but also unpaid interest on the income tax bill from November 2011.
In an affidavit filed on behalf of the husband by the company accountant, it was said that the refund cheque of $77,272.40 had been endorsed on the company’s records by the ATO as being referrable to the period from 1 July 2004 to 30 June 2005 and that that was a typographical error. Having regard to what I have described above, that does not make sense either. I am not in a position to make any findings about what period applied to which debt and it seems to me that the most plausible explanation is that which I have set out above. That is, at the time that the payment was made to the ATO initially, it saw no reason for the payment and was quite happy to refund it to the company.
I find therefore that the company owes $89,149.11 together with accruing interest and that it arises from the GST liability and unpaid interest including on the company’s taxation bill. The question is whether the parties collectively have a responsibility to pay the company’s debt and if so from what?
It was common ground that C Street was a property owned by the company. A second property that was later sold was the parties’ former matrimonial home and from that sale, approximately $293,000 is in a solicitor’s trust account. It was from that account and that money, that the husband sought that the payment of the company’s tax liability be paid.
Some documents tendered on behalf of the wife indicated confusion as to the name attributed to the owner of that $293,000. It matters little because it was conceded by the wife that the funds were held on behalf of both parties. Those funds were referred to in paragraph 8 of the affidavit of the wife filed 29 April 2013 in which she said that they were held on trust for “me and the husband”. In addition to the funds from the sale of the home was added a modest sum from the sale of a country property.
The evidence is confusing but it would seem that the legal owner of the former matrimonial home at the time of its sale was the wife.
Accordingly, the husband seeks an order from the Court that the company’s ATO liability be paid from proceeds held in a trust account on trust by solicitors for both husband and wife arising out of an asset belonging to the wife. It may be that there is an equitable claim by the husband but on the state of the evidence, I could not so find.
The wife wanted to distance herself from the company. In her affidavit she said that neither she nor the husband were personally responsible for the debts of the company to the ATO. A balance sheet of the company for the year ended 31 December 2012 showed that its only asset was a loan to “WRN”. Six months before the year ended, the debt due by WRN was $540,304 but by December 2012 it had been reduced to $326,411. How that was done was unclear other than by a reduction of losses from the previous financial year. Thus it was suggested that in circumstances where the husband had no personal liability to the ATO, the husband and wife jointly should not be responsible for payment of money by way of a debt out of their personal resources such as the money held from the sale of the former matrimonial home and the country property.
The husband submitted that there was a sufficient nexus between the parties and the company and more importantly, this was the only source of funds from which the payment could be made to the ATO.
The wife submitted that there was no evidence that the ATO was taking any action against the company nor more importantly, against the husband. The wife argued that in any event, this was not a personal debt of the husband.
Mr Strum for the respondent wife directed the Court to the decision of the Full Court in Commissioner of Taxation & Worsnop and Anor [2009] FamCAFC 4 to support the argument that the ATO did not have priority over the interests of the wife. That case held that an intervening third party creditor, such as the ATO, does not acquire additional rights at law purely by virtue of either s 79(2) or 75(2)(ha). However, the ATO is not an intervenor in the present case.
It was submitted on behalf of the wife that she will be seeking to retain all of the $293,000 in the trust account based on a variety of things including the factors in s 75(2) of the Act. She argued that this was the only non-superannuation asset. She submitted that in circumstances where WRN as the family trust owed the company money, the husband should be pursuing that line of recovery first. In addition, she pointed to the husband’s lifestyle as being inconsistent with the impecunious person he asserted he was. She gave some evidence in her affidavit about those circumstances.
Notwithstanding the claim by the husband that the only source of payment was the $293,000, no explanation was given as to why the company’s debtor, WRN, was not being pursued. There is no evidence of pressure for payment by the ATO on the company. There is no indication as to how the $48,000 income tax bill was paid earlier this year. There is no evidence to show how the balance of the bill facility with the Commonwealth Bank into which the $77,272 refund from the ATO was paid, was paid out in August 2012 with a payment of $213,892.
The onus of proof in this application fell upon the husband. The basis of his proposed orders was the nexus between the company debt and the parties together with his argument about impecuniosity. On this evidence, I could not find that either of those matters is proved.
Costs
Rule 15.16 of the Family Law Rules 2004 defines a recipient of a subpoena as a “named person”.
Counsel for the named persons in the subpoenae sought their legal costs on an indemnity basis. Senior counsel for the husband did not dispute that an order should be made.
It was submitted by counsel for the named persons that the Court had found the subpoena exercise was a fishing expedition and as such, the attempt to obtain the documents should not have been made.
The power to make the costs orders was also not disputed but because the entire costs issue was not conceded, the power of the Court must be considered.
Section 117(1) of the Act provides that each party to proceedings shall bear his or her own costs. The named persons are not parties to the proceedings. The power to make any order for costs must therefore lie elsewhere.
There are two heads of power to cover this situation. The first lies in s 117(2) and the second lies in Rule 15.23(3) of the rules which enables the making of an order for the reimbursement of any ‘substantial loss or expense’ incurred. The latter head of power may, in appropriate circumstances, include legal costs (see Markoska & Markoska and Anor (Costs) [2011] FamCA 833; Kelleher & Anderson [2008] FamCA 113; Moriarty & Moriarty [2009] FamCA 369; Fuelxpress Pty Ltd v L M Ericsson Pty Ltd (1987) 75 ALR 284).
Under s 117(2), costs may be awarded at either an interlocutory stage or a final stage of proceedings. This broad power is not limited to the parties to the proceedings and may be made against third parties (see Re JJT and Others;Ex parte Victoria Legal Aid (1998) 195 CLR 184). If applied, the provisions of s 117(2A) must normally be considered. That is unnecessary here because the husband, through his counsel, conceded that an order should be made. The issues are whether it should be an indemnity costs order and when should it be paid.
The exercise of the power is discretionary and broad. (see Penfold v Penfold (1980) 144 CLR 311; Jensen v Jensen (1982) FLC 91-263; McAlpin v McAlpin (1993) FLC 92-411; Brown vBrown (1998) FLC 92-822).
Rule 15.23(3) provides that a named person may apply to be reimbursed money if that person incurs a substantial loss or expense. On the face of the rule, the named person could seek to be reimbursed all their incurred costs, that is, indemnity costs. No guidance is provided as to how the application for reimbursement should be approached. An obligatory and absolute reimbursement of all expenses including legal costs would fly in the face of the philosophy of the Act and the rules. Reasonableness is the benchmark referred to in the costs area (see Clause 6.19(c)) and I see no reason why it should not apply to named persons claiming even substantial expenses.
The named persons’ argument for costs was always directed towards a costs order rather than a reimbursement of expenses so in my view, the s 117(2) approach is preferable.
Despite the view that the category of cases warranting an indemnity order has not closed, such orders have generally been reserved for cases where the applicant shows circumstances “of the exceptional kind”; Kohan and Kohan (1993) FLC 92-340; Yunghanns v Yunghanns (2000) FLC ¶93-029. The well-known statement by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 makes clear that an award of indemnity costs is “a very great departure from the normal standard”. The husband pursued an extensive amount of material from the named persons some of which was made available and I was critical of the steps taken before discovery by the wife was completed. I take into account that this exercise not only caused costs to be incurred but also inconvenience to persons whose privacy should be protected. Inconvenience is something that society has to bear as the price for a functioning judicial system so it is the expense rather than the inconvenience that the Court should consider important. Whilst the course adopted by the husband should not be encouraged, I am not persuaded that this is a case which falls into the category of a very great departure from the normal standard.
Thus, the order for costs should be by agreement and in default, as assessed, taking into account the certification for counsel.
An associated issue concerned when the costs should be paid. There was little argument that senior counsel for the husband could make to support an order for payment to be delayed. The husband had argued that he was unable to pay a company taxation debt as mentioned in these reasons and that the only source of that payment should be the parties’ trust funds. Counsel for the named persons wryly observed that he sat patiently through 75 minutes of that argument and noted the husband was maintaining to be impecunious. He submitted it was inappropriate for the named persons to have to wait for the payment of costs if the whole idea was to end the issue of his clients’ involvement now. As the husband was able to have the benefit of senior counsel and solicitor attend court and bearing in mind my findings about the tax issue, I do not consider it reasonable or proper to order a stay of the costs payment.
Should all subpoenae be set aside?
The issue for determination here is whether the Court had not encompassed its reasoning by the production of the orders made on 26 March 2013. In essence, the parties who were the objectors had complained about an invasion of their privacy and insisted that the husband establish relevance. There may have been a misunderstanding in the way the matter was argued but it is clear that the dispute was about not only the subpoenae directed to the named persons but also to banks and organisations having access to or control over the documents of the named persons. In relation to the reasons I gave at the time, I said:
In my view, these subpoenae were an abuse of process and must be set aside despite one lot of documents being offered by the subpoenaed parties which they have agreed to produce.
I remarked:
33.It was submitted that the husband was not interested in the personal wealth of the recipient of the subpoena. That is little comfort to the recipient particularly in a family law matter but it is also indicative that the focus was not on the issues in dispute relating to the property dispute between husband and wife, or, in other words, it was too widely drawn.
34.Having regard to the husband’s own words, I could not find that this was a focussed approach. I find the subpoena:
· was issued before discovery was completed and/or enforced against the wife.;
· encompassed entities which the husband knew or should have known did not involve the wife;
· was widely drawn encompassing entities without any apparent connection with the wife other than by family association.
35.The husband was not able to show any, let alone any sufficient, relevance in relation to some (but not all) of the requested documents.
…
37.On the basis that there were documents sought that could not be justified because of relevance, the onus being on the husband to show that, I find the subpoenae are oppressive. I find that it was not necessary for the proper conduct of the proceedings for the subpoena to have been issued in the form they were.
Thus, it should be clear that I found in favour of the objectors yet I did not set aside all of the subpoenae.
Slip rule
Rule 17.02 of the Family Law Rules is headed “Errors in Orders” but is sometimes referred to as the “slip rule”. Rule 17.02 arises where a party claims there is an error in the order. As such, the named persons do not have the entitlement under the rule to seek to rely upon it because they are not parties. That is overcome by rule 1.09 which permits the Court to make such order as is necessary where there is no practice or procedure set out in any legislation. I am satisfied that situation arises here but there must still be a power to make the order sought.
An important authority supporting the use of the “slip rule” is Newmont Yandale Operations Pty Ltd v The J Aron Corporation and the Goldman Sachs Group Inc[2007] NSWCA 195; (2007) 70 NSWLR 411 where Spigelman CJ examined authorities dealing with the inherent power of a superior court to amend its orders. Circumstances where the “slip rule” has been applied include amendments to permitting a proper calculation of interest (Ninnis v Miller [1905] VicLawRp 99; [1905] VLR 669) , altering a wrong date or figure in orders where the correct figure had been available (Re J W Challand Pty Ltd(1945) 62 WN (NSW) 166) and the limitation on the time of an injunction (Shipwright v Clements[1890] WN 134). I applied it in Bulleen [2011] FamCA 253 and Boland J discussed it in Vance & Vance [2011] FamCAFC 17.
The Family Court does not have an inherent jurisdiction derived from the common law; its powers are contained in legislation conferring jurisdiction and where the power may be implied by statutes (see DJL v Central Authority[2000] HCA 17; (2000) 201 CLR 226).
The two identifiable circumstances where the “slip rule” may be invoked are where there is a clerical mistake and where there is an accidental slip or omission. Those clerical errors or accidents are best viewed by examining whether the orders reflected either the intention of the court or, in certain circumstances, the intention of the parties themselves. Having regard to the reasons given for the orders I made, it is clear that the named persons argued the matter on the basis that all of the subpoenae were intrusive and not just those directed specifically to them and I found that, in respect of the latter, that was right. Whilst the orders set aside the specific subpoenae directed to the named persons, that was for the reasons mentioned earlier. The failure to set aside all of the subpoenae was therefore an unintended slip. The power of the Court to rectify that “slip” can therefore be exercised but then the issue as between the husband and wife arose as to whether the power to set aside the subpoenae should be exercised. The husband raised a new issue.
Senior Counsel for the husband submitted that the very basis of the criticism of the husband had been that discovery had not been completed before the subpoenae were sought and issued. He observed that the banks had complied and the material was filed at the Court. It was submitted therefore that if the wife had not complied with her obligations which were created by an order of 8 March 2013, that subpoena route would have been the next for the husband to pursue. Indeed, it was submitted that the husband should simply be entitled to seek the release of that material in default of compliance by the wife with discovery.
Counsel for the named persons described this conflating of the steps as an attempt to “salvage the sunken raft” which was a “backdoor” way of appealing against the Court’s orders. To follow the proposed steps of the husband would require the named persons to remain in the proceedings and for an indefinite time, because their documents would be being held pending the completion of some obligation of the wife. Counsel submitted that was unreasonable having regard to the husband’s claim of impecuniosity.
A subpoena is a court order. The Court relies heavily on legal practitioners not to request the issuing of subpoenae which would be oppressive or an abuse of a court’s process. The Court endeavours to protect against such abuse or any unnecessary orders in the case of unrepresented litigants who do not have that knowledge and responsibility by requiring a registrar to determine whether it is appropriate to issue such subpoenae (see Rule 15.18). The Court therefore retains control of its process.
The consequences of non-compliance by a named person include being dealt with for contempt of court (see s 112AP of the Act).
A subpoena once issued, but before service, may be amended. The reference to amendment prior to service makes it clear that it should not be amended thereafter and as a court order, the whole of the stated obligations must be complied with.
All of these things indicate that subpoenae are not just an administrative process but indeed a serious and important part of any litigation.
Although all modern courts involved in civil procedure have a power to set aside a subpoena in whole or in part, if a court determines that the exercise for which the subpoena was sought and issued was “fishing” or an abuse of the process, it is the order that is inappropriately issued. Excusing that or justifying it by pointing to another purpose later does not detract from the fact that it was an abuse of the process in the first place and that should not be countenanced by the court.
Having regard to the findings I made on the substantive hearing, all of these subpoenae should be set aside.
I certify that the preceding Fifty Four (54) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 7 May 2013.
Associate:
Date: 8 May 2013
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