Chang and Trustees of the Mr Settlement

[2010] FamCA 846

FAMILY COURT OF AUSTRALIA

CHANG & TRUSTEES OF THE MR SETTLEMENT [2010] FamCA 846

FAMILY LAW – COSTS

APPLICANT: Mr Chang

RESPONDENT: Trustees of the MR Settlement

FILE NUMBER: SYC 1553 of 2009

DATE DELIVERED: 7 September 2010

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: The Hon. Justice Cohen

HEARING DATE: 7 September 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Morris

SOLICITOR FOR THE APPLICANT: Barkus Doolan Kelly

SOLICITOR FOR THE RESPONDENT:

Mr Brand,

Bartier Perry

Orders

1. That the trustees of the MR Settlement pay the husband’s costs:

a)of the said trustees’ Application in a Case filed 23 November 2009; and

b)of the costs application heard today

as taxed or agreed to be paid within 30 days of such taxation or agreement.

IT IS NOTED that publication of this judgment under the pseudonym Chang & Trustees of the MR Settlement is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER:  SYC 1553 of 2009

MR CHANG

Applicant

And

TRUSTEES OF THE MR SETTLEMENT

Respondent

REASONS FOR JUDGMENT

1. This is an application for costs.  The application was filed on 14 July 2010 in relation to a judgment which was delivered on 9 June 2010, so it might be said to be out of time by five days.  However, in the orders I made I reserved costs.  In my view, the simple phrase "costs are reserved" or the like takes the matter out of the provision in the rules which is to the effect that an application for costs is to be made within 28 days.  I think that that provision applies if there is no specific order reserving costs.

2. However, in the event that I am wrong, I should say that to be five days out of time is of such little moment that it would seem to me completely unjust to refuse leave to apply to extend time.  So what I shall do for a specific precaution, particularly because my reservation of costs might mislead somebody into believing they did not need to apply within 28 days if in fact they did, I shall make an order extending the time for filing the application for costs to and including 14 July 2010.

3. The application for costs is by the husband against incorporated trustees of a trust which were served with subpoenas to produce, among other things, the memorandum of wishes of the instigator of the trust.  The trustees produced the document in answer to the subpoenas but applied to this Court to set aside the relevant parts of each subpoena so they could take the memorandum back without it having been inspected by the husband or the wife. 

4. The trust had assets of more than $630 million to be distributed in or before 2031 among seven discretional beneficiaries, including the wife.  The husband claimed, and I held, that the memorandum of wishes was relevant in deciding what the wife might receive by way of distributions from the trust after the section 79 proceedings are completed, and accordingly, he said it is highly relevant as a section 75(2) factor to his case, especially because of the extraordinarily wide range of possibilities created by the exceedingly large sum held by the trust.

5. One could speculate on the wife receiving between nothing and virtually the whole of or even more than the $630 million which was in the trust in about 2009.  The wife had received $18 million from it already, 2.9 million in the last known distribution before the hearing, the distribution being in 2009. 

6. The trustees opposed the subpoena because they said the memorandum was not binding on them in the exercise of their discretion and is therefore irrelevant.  They also relied on authority which they submitted is to the effect that if a memorandum of wishes was intended by the instigator of or donor to the trust to be confidential, it should remain confidential from the beneficiaries and, of course, complete strangers to it, as the husband is.  I dismissed the trustee's application and permitted both the husband and wife to inspect the memorandum produced in answer to the subpoenas, provided they made an undertaking to the Court not to convey the contents of the memorandum to anyone except to get legal advice or in the conduct of the section 79 proceedings.  There has been no appeal from my decision.

7. The husband argued that the proceedings were not those which are usual in the Family Court of Australia - that is, between a husband and wife - and therefore are not of the type of proceedings to which the main thrust of section 117(1) of the Act, which is that parties bear their own costs, applies.  In fact, the trustees, it was submitted, could not be said to be parties except in relation to their application to set aside the subpoenas in their relevant parts. It was said on behalf of the husband that because the trustees chose to intervene and are not parties to the proceedings between the husband and wife, the circumstances are such that the Court is justified in making an order for costs, subject to section 117(2)(a) of the Act. 

8. Mr Brand, for the trustees, argued that section 117 negates any principle that costs follow the event.  This was, he said, enunciated in Collins & Collins (1985) FLC 91603.  Mr Brand relied upon that case and said that there are no circumstances here which justify a cost order and that each party to the issue over the subpoenas should bear his or its own costs.

9. He pointed out that the trustees had sought to deny both the husband and wife access and therefore were not favouring one party over the other and were only acting in a manner which, he says, was their obligation to act because of their obligations as trustees.  He pointed out that it is usually the case that trustees, if asked by the creator of a trust to maintain confidentiality, have the obligation to do so, and that they did no more than act on the basis of such obligation. 

10. He further pointed out that there had been a previous application in the Supreme Court of New South Wales by a beneficiary for the trustees to be required to disclose the memorandum of wishes and that in that case, the entitlement of the trustees to uphold its confidentiality was upheld.  That case was dealt with in my judgment.  In my judgment, it was distinguished on the ground that it was a beneficiary who was seeking to have the trustees dismissed who was seeking to obtain the memorandum of wishes. I held that, in those circumstances, the issues were somewhat different. I also pointed out that in the three judgments in which the conclusion was reached that the trustees were not obliged to disclose the memorandum of wishes each judge relied upon different reasons, but the majority had held that in certain circumstances there should be disclosure despite the ordinary obligation of the trustees to maintain the confidentiality of a memorandum of wishes.

11. It is my conclusion that because the dispute was between a party to section 79 proceedings and a stranger to the marriage, the real reason for section 117(1) does not exist here.  That section is to ensure that the level of animosity between parties who may have children and who were once members of the same family should not be exacerbated by a costs order against one in favour of the other except in exceptional circumstances. 

12. Collins & Collins does not provide that there should never be a costs order in family law proceedings.  It could not do so, because section 117 provides that there can be.  All it provides is that it does not automatically follow the event that there is a costs order.  In fact, it is the exception rather than the rule that the event should determine the issue of costs. 

13. I have to consider whether this is one of those cases where there is an exception. I regard the fact that the issue was more in the nature of a commercial dispute which might ordinarily be determined in the Supreme Court Equity Division in New South Wales as making it one where it is appropriate to say that the circumstances warrant departure from the principal thrust of section 117, which is in subsection (1), that costs follow the event.  This is a case where I should consider whether or not to order costs by considering the matters specified in the Act as a result of section 117(2) and set out in section 117(2A).

14. The husband argued four reasons for ordering costs in his favour. Firstly, he said there was a significant financial disparity between the parties. This submission, in my view, was misconceived if it is suggested that the disparity is between the wife and the husband.  The parties to the application for costs are the trustees and the husband. 

15. There is no evidence about the trustees' financial circumstances.  However, the law indicates that there is no real reason why there should be evidence, because the trustees, if ordered to pay costs, will not ultimately meet the burden of those costs.  It is an element of trusteeship which I cannot imagine could be departed from here, that the trustees are entitled to be indemnified by the trust for any order for costs against them in legal proceedings.  Thus, it will be the trust, which has assets of more than $630 million, in all probability and possibly considerably more by now, which will ultimately meet the costs if ordered.

16. In those circumstances, there is a notional enormous financial disparity between the trust and the husband as a possibility.  One does not know what the wife will receive under the trust, one does not know what the husband will receive under section 79 and what will be left for the wife, but one does know that because there are other beneficiaries, despite the fact that it is perfectly possible that the trustee will give the wife nothing further or will give the wife all of what is left in the trust as somewhere between these extremes, it is likely that she will get something like a one‑seventh share. The husband will get, in all probability, a part of that, although a small part, because it will not have been paid to the wife by the time the section 79 proceedings are heard.  Currently the husband’s and wife's combined assets are about $12 million.  The husband's interest in those assets at law is less than half of that.  It might seem rather foolish to say so, but this is a relatively small amount compared with the value of the trust, despite the fact that it is not a small amount in itself.

17. The next argument of the husband is that the trustees were wholly unsuccessful as interveners, because the order that they opposed was made.  Mr Brand, on behalf of the trustees, argued that is not the case, in that they did have some success in that, when I ordered the disclosure of a memorandum of wishes, I did it on condition that both the husband and wife make a written undertaking to the Court not to disclose what they learn from the memorandum to anybody except in the conduct of the section 79 proceedings or to get advice on those proceedings of a legal nature.

18. In my view, the husband was wholly successful.  He was prima facie entitled to issue the subpoena and have an inspection of the relevant document, because it was held to be relevant.  It was for the trustees to satisfy the Court that he should not see these documents, nor should the wife.  If they had chosen to do so, they could have offered to allow the husband and/or wife to see the documents on condition that they entered into a memorandum of confidentiality or make undertakings to the Court of nondisclosure. In fact, the Trustee had already obtained from both the husband and wife a written agreement from them that they would not disclose the information about the trust in relation to other documents that the Trustee did disclose to the husband and wife.  Their failure to take this course leads me to the conclusion that they were ultimately wholly unsuccessful, because there is no doubt that had they offered the husband and wife the opportunity to see the memorandum on making a nondisclosure contract or undertaking to the Court, the husband and wife would have made those undertakings.

19. The husband did not suggest that the conduct of the trustees was wrongful in any way.  He simply said it was misguided, because they did not follow the law.  The trustees argued, as I have said, that they did what they felt was their obligation, and they were strengthened in that stance by the previous finding that the wife's brother could not have access to the memorandum of wishes which he sought through the Supreme Court.  It is not suggested that there was any conduct in the proceedings themselves by the trustees that was inappropriate. 

20. In my view, the trustees' conduct was justified, but ultimately they did not follow the law.  Their arguments were not unreasonable, and it could not be said that they had no reasonable prospects of success.  So they were justified, and in being justified, it was their duty to bring the proceedings, despite their ultimate failure in them. However, that is but one of a number of matters that I have to consider.

21. Finally, the husband relied upon the fact that the respondents; that is, the trustees, were not parties to the substantive proceedings and they should be treated as though the litigation between the husband and the trustees was ordinary litigation which might be seen in an Equity Court or in the Equity Division of the Supreme Court, and in those circumstances, the costs should follow the event.

22. Before I decide, I must consider all of the provisions of section 117.  Firstly, there are the financial circumstances of each of the parties to the proceedings.  I have already referred to these, including the financial circumstances of the wife and of the trust itself which are not parties to the costs proceedings.  I have said, however, what I think ought to be said about that, and it is a very strong consideration in favour of the husband that the trust is so unusually wealthy.

23. The next issue relates to the assistance by way of Legal Aid.  I have not seen many cases where Legal Aid was less necessary.  It has not been involved in these proceedings.  The next matter I have to consider under the Act is the conduct of the parties in a general way, including their conduct in relation to the conduct of the proceedings by way of pleadings, particulars, discovery, inspection, directions, etcetera.  I have said what is necessary to be said about that already.

24. The next matter I have to consider is whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the Court.  In fact, here there was no such cause for the proceedings. In fact, the trustees at all times upheld their legal obligations.  What they did is produce the relevant document under subpoena and properly put on an application to discharge them from having to disclose those documents by continuing production. 

25. The next thing that I must consider is whether any party has been wholly unsuccessful.  I have already considered that. 

26. The next matter is whether or not there has been an offer in writing to the other party to settle the proceedings and the terms of such offer.  On 15 January 2010, the husband's solicitors wrote to the solicitors for the trustees after having issued the subpoenas and gave reasons why the letter of wishes was relevant - asserting their relevance, in my view correctly, and asking the trustees to make the memorandum of wishes available in order to avoid further costs in any dispute over their production.

27. This was not really an offer, the subpoena had already been issued, but it was to some extent a vehicle which should have made the trustees consider carefully their status in deciding whether or not to refuse to accept that they should produce the memorandum of wishes.  The law in this Court is relatively clear and should have become clear to the trustees.  It is as set out in White & White & Tulloch (1995) 19 Fam LR 696, and it was binding on me. Although the situation was not quite the same as the situation in these proceedings, it was certainly analogous to it.

28. In the circumstances, although there was no offer in writing, there was some writing notifying the other side of the fact that the memorandum of wishes was relevant, and although the case was not mentioned by either party, both should have been in a position to appreciate that that case was important in their determination of what the law was.  The failure by the respondent to act in accordance with that case together with their failure to act in accordance with the overall law, seems to me to be another factor which I should regard as relevant.

29. Weighing all of the matters, but particularly giving weight to the enormous financial resources of the trust and the fact that the trustees will be indemnified by it compared with the amount of costs involved, leads me to consider that, overall, the trustees ought to pay the husband's costs as taxed or agreed. I shall order that that payment be made within 30 days of such taxation or agreement.  That order for costs shall include the costs of today and all relevant costs from the issue of the subpoenas that are relevant here.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cohen delivered on 7 September 2010.

Associate:     

Date:              24 September 2010