Campo & Masterson and Commission of Taxation (No 2)
[2022] FedCFamC1F 517
•11 August 2022
Federal Circuit and Family Court of Australia
(DIVISION 1)
Campo & Masterson and Commission of Taxation (No 2) [2022] FedCFamC1F 517
File number(s): LNC 580 of 2019 Judgment of: MCGUIRE J Date of judgment: 11 August 2022 Catchwords: FAMILY LAW – COSTS – Application by intervenor Commissioner for Taxation seeking an order that the wife pay the costs of the substantive proceedings to be agreed, and if not agreed, to be assessed, on an indemnity basis from 13 February 2021 being seven days from an offer of settlement made by the intervenor Commissioner for Taxation – Application opposed by the wife – Application in the alternative by the wife that the husband be responsible for 40 per cent of any costs order made against her – Order that the wife pay the costs of and incidental to the proceedings of the intervenor Commissioner for Taxation as and from 13 February 2021 such to be agreed or assessed pursuant to the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) and on a party and party basis – Order that the wife’s application that the husband be proportionately responsible for the costs order be dismissed Legislation: Family Law Act 1975 (Cth) ss 90AE(1)(b), 117(1) and (2), and 117(2A),
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)
Cases cited: Calderbank v Calderbank [1975] 3 All ER 333
Colgate–Palmolive Company & Cussons Pty Ltd (1993) 46 FCR 225
Federal Commissioner of Taxation v Tomaras (2018) 265 CLR 434
JEL & DDF (No.2) (2001) FLC 93-083
Kohan & Kohan (1993) FLC 92-340
Motor Trades Association of Australia Superannuation fund Pty Ltd v Rickus [2007] FCA 1878
Munday & Bowman (1997) 22 FamLR 321
Penfold & Penfold (1980) 144 CLR 311
Prantage & Prantage (2013) FLC 93-544
Yunghanns & Ors & Yunghanns & Ors (2000) FLC 93-029
Division: Division 1 First Instance Number of paragraphs: 40 Date of hearing: 7 July 2022 Place: Melbourne Counsel for the Applicant: Mr Duhig Solicitor for the Applicant: HWL Ebsworth Lawyers Counsel for the Respondents: Ms Trezise Solicitor for the Respondents: Andrea Trezise, Barrister & Solicitor Solicitor for the Respondents: Mr Masterson in Person ORDERS
LNC 580 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: THE COMMISSIONER OF TAXATION
Applicant
AND: MS CAMPO
First Respondent
MR MASTERSON
Second Respondent
order made by:
MCGUIRE J
DATE OF ORDER:
11 August 2022
THE COURT ORDERS THAT:
That the wife, Ms Campo, pay the costs of the intervenor Commissioner of Taxation of and incidental to these proceedings as from 13 February 2021 such to be agreed or assessed pursuant to the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) and on a party/party basis.
That the wife's application that the husband, Mr Masterson, be proportionately responsible for the costs order is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym of Campo & Masterson and Commissioner of Taxation has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
MCGUIRE J
APPLICATION
The substantive proceedings were in relation to financial issues. The Commissioner of Taxation intervened in those proceedings in circumstances where the applicant wife, Ms Campo, sought a Substitution Order pursuant to s 90AE(1)(b) of the Family Law Act 1975 (Cth) (‘the Act’) in respect of the substantial liabilities in the name of the wife and a company of which the wife was sole director. She sought an order that the husband, Mr Masterson, be proportionally liable for her liabilities to the intervenor. That application was opposed by both the husband and the intervenor. Ultimately the application was unsuccessful (although I did find that the taxation liabilities, albeit in the name of the wife personally and as director, were debts of the marriage and hence that the husband assume some responsibility).
The intervenor now seeks its costs on an indemnity basis from 13 February 2021 which is seven days from an offer of settlement made by the intervenor to the wife which was not taken up by the wife.
Costs are sought on an indemnity basis such to be agreed or assessed pursuant to the Rules[1] of this Court.
[1] Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
The application is opposed by the wife. Alternatively, if an award of costs is made on any basis to the intervenor then the wife asks for an order that the husband be responsible for 40 per cent of those costs proportioned in accordance with the distribution of the property of the parties.
Both the intervenor and the wife were represented in this application. The husband represented himself as he did at the Trial. He is ambivalent as to the application now between the intervenor and the wife. He opposes any order for him to contribute to any costs order against the wife.
THE INTERVENOR’S CASE
The intervenor says that his argument against the substitution application was consistent and exposed at an early date most notably in an offer of settlement made 5 February 2021.
The property proceedings between the parties had been of relative long-standing. An interlocatory application was made pursuant to s 90AE(1)(b) by the wife on 15 October 2020. An order was made inviting the intervention of the intervenor who was duly served and did intervene on 7 December 2020. At that mention the legal representative for the intervenor advised in open court that the intervenor intended to seek costs if successful in resisting the application for a Substitution Order. That submission and notice was subsequently repeated on at least two later mentions of the matter.
On 5 February 2021 the intervenor made a written settlement offer on seven days’ notice consistent with Calderbank v Calderbank.[2] Further notice of an application for costs was included. The offer was not accepted.
[2] [1975] 3 All ER 333, ‘Calderbank’.
The settlement offer is annexed to an affidavit of Mr Duhig affirmed 22 April 2022. The letter is dated 5 February 2021. It is comprehensive covering some four pages including detailed reference to the authority of Federal Commissioner of Taxation v Tomaras[3] where the High Court considered the operation of s 90AE of the Act and, in particular, the identified difficulties in an application for Substitution Order in respect of taxation liabilities.
[3] (2018) 265 CLR 434, ‘Tomaras’.
Despite being armed with the settlement offer and complete exposure of the intervenor's argument, inclusive of authorities, in respect of the Substitution Order application, such application was prosecuted by the wife, but unsuccessfully, and with the Court's heavy reliance upon Tomaras.
The husband did not participate substantially in this application, although against which he was quite obviously opposed where a Substitution Order would immediately make him liable for a proportion of the debts which were substantial and in the region of $857,000.
Consequently, the intervenor’s argument here at its purest is that the wife, properly advised on exposed notice to the intervenor's argument, should not have proceeded with the application in the face of no realistic prospect of success. Alternatively, and as was ultimately found and ordered, the wife had recourse to the more common argument that the Court determine the liabilities of the wife and the Company to be “matrimonial debt” thereby effectively obligating the husband but without the need for a Substitution Order.
The intervenor argues that attendance by solicitor and counsel was necessary throughout the Trial by reason of the wife’s failure to accept the Calderbank offer.
The intervenor argues that an award of costs on an indemnity basis is appropriate in the circumstances of this matter where:
(a)the litigation was persisted with in the face of the intervenor’s argument, assisted by recent authority, being exposed to the wife; where, therefore, there were limited if any prospects of success given the High Court authority; and
(b)where an offer of settlement supported by exposure of the relevant authorities was refused.
THE WIFE’S CASE
The wife's opposes the application. She provides an affidavit sworn 5 July 2022. She is represented in this application by the same counsel representing her at the trial.
The thrust of the wife's affidavit is in respect of an argument against costs on an indemnity basis and, secondly, that the husband should bear responsibility for at least a portion of any order for costs. At [9] – [10] of her affidavit the wife states:
[9]Throughout the course of my negotiations with the Respondent, he did not accept the taxation debts as liabilities of the marriage for the purposes of Section 79. In that circumstance, I was left with no alternative (emphasis added) but to seek a Substitution Order from the Commissioner of Taxation in addition to arguing that the taxation debts were liabilities of the marriage. I felt I had no option, in the circumstances of the Respondent's position, but to seek an Order that he be substituted as a debtor to the Commissioner of Taxation for a part of the significant tax liabilities I had incurred both in the name of the company, [H Pty Ltd], and myself personally.
[10]I accept that I was wholly unsuccessful with the application for a Substitution Order, but in the circumstances of my personal position, where the question as to whether the taxation debts were to be included as liabilities of the marriage was being defended by the Respondent and where there were concerns that, inclusive of penalties and interest, there may be as an insufficient property pool in value to meet the tax debts, I proceeded with the Application for Substitution Order notwithstanding advice that there were issues with the merit of that Application.
THE HUSBAND’S CASE
The husband's submissions were brief. He did not wish to be heard in respect of the application now between the intervenor and the wife. He argued that he should not be responsible for any portion of a costs order made against the wife with the inference being that he accepted (noting there has been no appeal) the Court’s finding that the taxation liabilities constituted a “matrimonial debt” and with the further implication that the wife's argument for a Substitution Order was therefore an exercise in futility.
THE RELEVANT LAW – COSTS
The general rule at s 117(1) of the Act is that each party to proceedings shall bear his or her own costs subject to s 117(2), subsections 45A(6) and 70NFB(1), s 117AA and s 117AC, whereby the Court may make an order for costs if there are justifying circumstances.
Subsection (2A) provides:
In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(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 Penfold & Penfold[4] the High Court held that s 117(1) is not paramount to subsection (2) and where their Honour said:
Sub-section (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order. Beyond this, there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs. Consequently, with respect to their Honours in the Family Court, we do not agree with the suggestion made in the judgment under appeal that an order can only be made under s 117(2)in “a clear case”.
[4] (1980) 144 CLR 311.
The considerations under subsection (2A) are mandatory although the weight to be afforded to any of the considerations is wholly discretionary and hence the Court has a wide discretion when considering any application for costs.
CONSIDERATIONS – COSTS
Section 117(2A)(a) the financial circumstances of each of the parties to the proceedings
This is not to a matter where the financial circumstances of any of the parties seems relevant. No submissions were made by or in respect of any party as to financial circumstances. The general evidence before me is that the wife is in a position to meet a costs order.
Section 117(2A)(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
This is not to a matter where any of the parties are in receipt of a grant of legal aid.
Section 117(2A)(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
No specific submissions were made to me in respect of the conduct of the parties to the proceedings although it is implicit in the argument of the intervenor that his continued participation in what were effectively inter partes proceedings between the husband and the wife was unnecessary in light of the wife's rejection of a settlement offer.
Section 117(2A)(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court
This is not to a matter where any party has failed to comply with relevant orders.
Section 117(2A)(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings and s 117(2A)(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
The thrust of the intervenor’s argument is in respect of subparagraphs (e) and (f) of subsection (2A). Put simply, and in respect of the discrete application for a Substitution Order, that application was wholly unsuccessful. This is conceded by the wife in her affidavit. Further, the application was prosecuted in the face of a Calderbank offer and, still further, prosecuted in the face of comprehensive exposure by the intervenor as to the argument to be mounted against the application including notification as to recent relevant High Court authority. Indeed, the case summary of the wife herself noted the potential difficulty of the intervenor executing any order in respect of the husband given his claimed impecuniosity being ultimately a consideration on the application for a Substitution Order and consistent with the authority of Tomaras (supra). It follows, in my view, that the wife, properly advised, and acting prudently should not have pursued this discrete application. Indeed, her own affidavit at [10] discloses that she was so advised where she says “… notwithstanding advice that there were issues with the merit of that Application.”
In all of those circumstances I am of the view that there are justifying circumstances for an award for costs in favour of the intervenor and that given the relevant considerations under s 117(2A) it is proper to make such an award.
I note that no issue was taken as to the entitlement of the intervenor to seek an order for costs but where I am easily satisfied, in any event, that the intervenor was invited to and then properly intervened in the proceedings where the wife sought an order that would impact on the intervenor's entitlement and ability to secure that entitlement.[5]
[5] Motor Trades Association of Australia Superannuation fund Pty Ltd v Rickus [2007] FCA 1878 (Flick J).
THE RELEVANT LAW- INDEMNITY COSTS
Generally and historically it has been the case that a court should not readily depart from the ordinary rule relating to costs being on a party and party basis and any circumstances justifying such a departure “should be of an exceptional kind”.[6]
[6] Munday & Bowman (1997) 22 FamLR 321 at [84,661] and Prantage & Prantage (2013) FLC 93-544.
In Munday & Bowman (supra) the Court considered relevant authorities in relation to indemnity costs including the decision of the previous Full Court in Kohan & Kohan[7] noting that the Court “did not give any indication of what might be regarded as exceptional circumstances”. Holden CJ then turned to consideration of the leading decision in Colgate–Palmolive Company & Cussons Pty Ltd[8] where the Court assisted by identifying circumstances that might warrant an award for the costs on an indemnity basis but without this being an exhaustive list:
(a)Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts…
(b)Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud…
(c)Evidence of particular misconduct causing loss of time to the court and to other parties …
(d)The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions…
(e)An imprudent refusal of an offer to compromise.
[7] (1993) FLC 92-340.
[8] (1993) 46 FCR 225.
A later Full Court decision of Yunghanns & Ors & Yunghanns & Ors[9] emphasised that the category of circumstances to satisfy an order for indemnity costs is not closed where it said at [31]:
It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed, and that it is not a condition precedent to the exercise of the discretion that some collateral purpose or species of fraud be established against the party against whom such an order is sought. All that is required is that the Court asked to exercise the discretion be satisfied that some “particular facts and circumstances of the case in question warrant the making of an order for the payment of costs other than on a party and party basis”: …
[9] (2000) FLC 93-029
Relevantly, yet another Full Court in JEL & DDF (No.2)[10] again noted that the category of cases in which it would be appropriate to make an order for indemnity costs is not fully defined but did hold that the failure to accept an offer of compromise was, alone, insufficient to justify the making of a costs order on an indemnity basis. Their Honours stated:
[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…
[10] (2001) FLC 93-083 per Kay, Holden and Guest JJ.
CONSIDERATION – INDEMNITY COSTS
It is important to understand that an award for indemnity costs, or indeed any costs, is not designed as a punishment for continuing a case which is ultimately unsuccessful. Uncertainty as to result is the very crux of disputed litigation. Hence, there remains a clear discretion in a court to make any award for costs with the extension that an award for costs calculated on an indemnity basis should be exceptional rather than the norm.
The crux of the intervenor's argument for indemnity costs is summarised as to the application being wholly unsuccessful and made in the face of a Calderbank offer. Indeed, these are the factors to be considered in respect of a more general award for costs on a solicitor/client basis as set out to at s 117(2A) and as considered above.
In my view, it is proper and relevant to consider the background to the wife's application albeit one ultimately unsuccessful. My findings show the parties to have worked together in a business established by the husband where the husband had significant history and expertise in that business. To the contrary, the wife was naïve and inexperienced in the business. It is reasonable to assume that the wife was nominated as sole director of the company and thereby leaving herself exposed to both personal and director’s tax liabilities but where the husband was prima facie protected. Ultimately, I found that the husband should be liable for the taxation liabilities in the form of a “matrimonial debt” where I found that he both participated in and benefited from the company structure. Further, the husband claimed at all times to be personally impecunious. Consequently, and where the wife's exposure to the taxation liabilities was prima facie hers alone and in the quantum of some $850,000 then the application for a Substitution Order is both understandable and factually based although ultimately suffering the difficulties shown in the judgment in Tomaras (supra).
In these circumstances, the wife's has suffered a costs order in its more usual form by reason of her not accepting the Calderbank offer and then being wholly unsuccessful. These were considerations discussed at subsection (2A).
However, and again noting the consideration of the Full Court in JEL & DDF (No.2) (supra) I am of the view that there must be something more than the wife's simple failure to accept the offer of settlement. The background set out above shows a rationale and bona fides in the argument and certainly it cannot be put that the wife prosecuted this application with any mala fides. In all of those circumstances, I am not persuaded that the wife's unsuccessful prosecution of her application is such that my discretion should be exercised in favour of an award for costs on an indemnity basis.
Consequently, there will be an order that the wife pay the costs of the intervenor on a party/party costs basis such to be agreed or taxed. Where the proffering of and refusal to take up the settlement offer sits at the basis of my discretion being exercised towards a costs order in favour of the intervenor then it is proper that such costs be calculated from the 13th of the February 2021 and I will order accordingly.
The wife's application that the husband share proportionately in the costs order
Having made an award for costs against the wife in favour of the intervenor, the wife now argues that the husband should be responsible for 40 per cent of those costs to be assessed or agreed. The husband opposes that application.
The wife's application here seems to be based on the fact that the husband denied that the taxation liabilities were a “matrimonial debt” in circumstances where I ultimately found them to be so. She says that it therefore follows that she was “left with no alternative but to seek a Substitution Order”. This is the fallacy of the wife's argument. As set out above, she did have an alternative available to her and one where the Court ultimately made finding. To my mind, the wife confuses her argument with the fact that her application for Substitution Orders was a discrete one and ultimately unsuccessful where she herself had the alternative to argue more commonly that the taxation debts were “matrimonial debts”. She made this decision. The husband passively opposed the Substitution Order application. Consequently, I find no merit in the wife's argument that the husband bear some responsibility for the costs order. That application will be dismissed.
I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McGuire. Associate:
Dated: 11 August 2022
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