CHARNY & CHARNY

[2020] FamCA 237

FAMILY COURT OF AUSTRALIA

CHARNY & CHARNY [2020] FamCA 237

FAMILY LAW - COSTS – Indemnity costs

Family Law Act 1975 (Cth) ss 106B, 117

Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited [1993] FCA 536
Kohan & Kohan (1992) 16 Fam LR 245
Penfold v Penfold (1980) 144 CLR 311
Prantage & Prantage (2013) FamCAFC 105
Stephens & Stephens [2010] FamCA 184

APPLICANT: Ms Charny

RESPONDENT: Mr Charny

FILE NUMBER: SYC 8819 of 2019

DATE DELIVERED: 16 April 2020

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Henderson J

HEARING DATE: In Chambers

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Johnston

SOLICITOR FOR THE APPLICANT: Gadens Lawyers

COUNSEL FOR THE RESPONDENT: Ms Mattar

SOLICITOR FOR THE RESPONDENT: Elias Gates & Associates Pty Ltd

Orders

(1)The wife’s solicitors be entitled to deduct the sum of $66,000 from the monies held by them in trust by way of paying the wife’s costs of this application which is assessed by me in the sum of $66,000.

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 Charny & Charny 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 8819 of 2019

Ms Charny

Applicant

And

Mr Charny

Respondent

REASONS FOR JUDGMENT

1.This is a costs application made by the wife consequent upon an interim application filed by the wife and heard on 13 January 2020 and 11 February 2020.

2.The wife seeks her costs be paid on an indemnity basis or in the alternative, on a party/party basis. The wife says the husband was wholly unsuccessful in his interim application and she was forced to bring the application as a consequence of the husband’s conduct.

3.The husband seeks that the wife’s costs application be dismissed.

Material Relied Upon

4.The material I read is as follows:

a)For the wife:

i)Affidavit with exhibits annexed thereto of the wife’s solicitor, Paul Lewis, affirmed and filed on 25 February 2020;

ii)Affidavit with exhibits annexed thereto of the wife filed 20 December 2019; and

iii)Written submissions received in Chambers on 25 February 2020.

b)For the husband:

i)Affidavit with exhibits annexed thereto of the husband’s solicitor, George Elias, affirmed on 9 March 2020 and filed on 10 March 200;

ii)Affidavit of the husband with exhibits annexed thereto affirmed 6 February 2020; and

iii)Written submissions received in Chambers on 10 March 2020.

Short Chronology  

5.The wife was born on … 1974 and is 45 years old.

6.The husband was born on … 1966 and is 53 years old.

7.The parties commenced cohabitation in 1998.

8.The parties married on … 2001.

9.The date of separation is 7 July 2019.

10.There are two children of the marriage, being X born … 2004 and Y born … 2008.

The Evidence

11.The husband’s conduct leading to this matter being required to be heard in Court is regrettable at many levels.

12.On or around 27 August 2019, the husband contacted his solicitor seeking assistance to enter into settlement negotiations to resolve the matter amicably between the wife and himself.

13.On 4 October 2019, a letter was received by the husband from the wife’s solicitors at the time, C Lawyers, requesting that the parties engage in mediation and that the husband undertake not to deal with the matrimonial properties pending a final property settlement.

14.Letters were sent between solicitors requesting disclosure from each another.

15.On 29 October 2019, the husband’s solicitor sent a letter to the wife’s solicitors refusing to sign any undertaking for the following:

a)That there is no serious issue at hand;

b)There is no intention by the husband to encumber and/or dissipate the assets of the parties;

c)If there is any such wish or intention it would be put to the wife for her agreement;

d)No harm was caused to the wife; and

e)It was inappropriate and inconvenient in the circumstances to seek such an injunction.

16.On 8 November 2019, the husband’s solicitors sent a further letter to the wife’s solicitors requesting disclosure with a view to resolving the matter.

17.At paragraph 9 of the husband’s solicitor’s Affidavit:

On 4 December 2019 Mr Charny attending our office, without an appointment, he presented to the office as very distressed and depressed to the point that he was suicidal. Mr Charny informed us that he could no longer continue to instruct our office to act for him as he could not afford our fees. He also said he had sold the property at Suburb B for $1,100,000.00, the caravan for $15,000.00 and the boat he had gifted his son Mr Z. Mr Charny told me he was going to tell Ms Charny about the sales of the assets the following day.

18.The husband’s actions were in stark contradiction to his solicitor’s letter of 29 October 2019, including that he had sold the jointly owned property without notifying the wife.

19.The wife’s new solicitors, Gadens Lawyers, conducted a title search of the Suburb B property on 11 December 2019 which revealed that the husband had transferred ownership of the Suburb B property to his neighbours Mr E and Mr F.

20.On 11 December 2019, the wife’s solicitors sent a letter to the Elias Gates & Associates requesting information in relation to the sale of the Suburb B property.  

21.A response was received on 12 December 2019, where it was confirmed that the firm no longer held instructions in relation to the matter and did not act on the sale.

22.On 13 December 2019, the wife’s solicitors emailed the husband seeking information in relation to the sale, the whereabouts of the sale proceeds, seeking an undertaking that the proceeds of sale be preserved and foreshadowing an application to the Court if the undertaking was not provided.

23.On 17 December 2019, the husband responded as set out at paragraph 12 of the wife’s Affidavit:

In response to your correspondence on Friday the 13th, 2019, I am unable to do much. This is because I am financially broke and cannot afford a lawyer. Secondly, my mental health has deteriorated to the extent that I am dysfunctional. I have seen my family doctor and am seeking specialist psychological help. I am in no position to make any rational decisions currently until further notice. Sent from my iPhone.

24.The husband’s email of 17 December 2019 also included a photo of a medical certificate from Dr G stating that the father is, “severely depressed and dysfunctional and is in no condition to make rational or useful decisions. He is a risk of harm and I’m monitoring and helping him urgently. He is on medication and will seek specialised psychological help.”

25.The wife then instructed Mr H to value the Suburb B property via a letter of instruction sent on 13 December 2019. Mr H’s report attributes a value based on an external inspection of $1,500,000 to the property.

26.On 20 December 2019, the wife files an Initiating Application, Financial Statement and Affidavit seeking urgent ex parte injunctive Orders in an attempt to preserve the proceeds of sale of the Suburb B property. That application was listed and heard on 13 January 2020.

27.On 13 January 2020, Orders were made restraining the husband from dealing with the proceeds of sale of the Suburb B property in any way and requiring him to provide the balance of the net proceeds of sale to the Gadens Trust account. The matter was then listed on 11 February 2020 for possible interim hearing.

28.On 13 January 2020, the husband re-engaged his solicitors.

29.On 24 January 2020, correspondence, including an offer of settlement was sent the wife’s solicitors advising that the net proceeds of sale had been transferred to the husband’s two adult children, Ms C and Ms D, in the sums of $450,000 and $530,000, respectively. This is the first the wife heard of the whereabouts of the net proceeds of sale.

30.On 10 February 2020, the wife amended her application to include Ms C and Ms D as second and third respondents and sought to set these transactions aside pursuant to s 106B of the Family Law Act 1975 (Cth) (“the Act”) and joined parenting proceedings.

31.On 11 February 2020, the husband was cross-examined about the transfers of monies to his daughters. Both daughters were contacted by telephone, each gave evidence and agreed to pay the moneys they had received to Gadens Trust Account.

32.During the hearing, Ms D indicated she had transferred approximately $30,000 to her father on his request.

33.The husband was cross-examined as to the whereabouts of this $30,000. His evidence was he had been very, “upset” and “angry” about the breakdown of the marriage and that he “blew it”.

34.On 12 February 2020, Ms C emailed the wife’s solicitors stating that $200,000 had been returned by Ms C’s husband to the husband on 7 January 2020. In her email, Ms C noted, “I had assumed this had already disclosed by Mr Charny.” This transaction was not disclosed by the husband at any time.

35.On 13 February 2020, Ms D emailed the wife’s solicitor stating he had complied with the Orders of the Court of 11 February 2020 as best she could as, “It should be noted that in addition to a cash withdrawal of $30,000 paid to the respondent, Mr Charny, an additional sum of $20,000 was transferred online to the respondent’s account with the National Bank of Australia on the 17^th of December, 2019.” This transaction was not disclosed by the husband at any time.

36.On 14 February 2020, the husband’s solicitor sent a letter to the wife’s solicitor indicating that a sum of $50,000 from the net sale of proceeds had been placed in the husband’s solicitor’s trust account from four separate transactions on 16, 17, 23 and 24 January 2020. These transactions were not disclosed by the husband at any time.

37.The husband provided a signed authority to the wife’s solicitors on 19 February 2020 in compliance with Order 8 of the Orders dated 11 February 2020 in respect of the payment of the rent from the Suburb K property. This only occurred after a letter requesting same had been sent to his solicitors on 18 February 2020.

38.On 18 February 2020, Ms D transfers the sum of $475,186.55 into the Gadens Trust account. This is an amount of $24,813.45 less than the ordered sum.

The Law

39.It is correct that in the Family Court of Australia each party bears their own costs however the Court retains a discretion to order costs be paid by one party pursuant to section 117(2)[1] of the Act.

[1]Family Law Act 1975 (Cth), s 117(2).

40.It is a correct statement at law that indemnity costs are only ordered in exceptional circumstances.

41.The first task is to determine whether or not to exercise the discretion under section 117(2) to order costs given the usual order in this Court is each party bears their own costs. The relevant matters under section 117 are as follows:

(1)  Subject to subsection (2), subsections 45A(6) and 70NFB(1) and sections 117AA and 117AC, each party to proceedings under this Act shall bear his or her own costs.

(2)  If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A), (5) and (6) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.

(2A)  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.

42.In this matter neither party is in receipt of legal aid.

43.The husband says his financial situation is dire and he is unable to work. Impecuniosity is no reason to not make an Order for costs and in any event, satisfaction of any costs Order can be made from his share of the matrimonial assets the husband liquidated and which are now held by Gadens Lawyers.

44.This is a matter where it is clear that I should exercise my discretion to make a costs Order given the conduct of the husband in having sold a matrimonial asset by at least 4 December 2019 when he had on 29 October 2019 informed the wife’s solicitors he would not undertake to not sell such assets and would inform her if he intended so to do.

45.The wife has been required to come to Court and seek Orders to preserve what was left of the proceeds of sale of the Suburb B property sold without her knowledge by the husband.

46.The conduct of the husband in relation to these proceedings looms large as a factor in relation to costs. On 8 November 2019, the husband still retained lawyers and was seeking mediation, yet by 4 December 2019 he had sold the Suburb B property without the wife’s knowledge and placed money from this sale with his daughters.

47.This is not how family law proceedings are conducted and it is only the husband’s conduct that necessitated the wife bringing the application she did. While the Suburb B property was solely in his name, the property and the net proceeds were simply not his to deal with as he pleased as they were a matrimonial asset.

48.The issue of whether I ought order indemnity costs is now the matter that I will consider. There is voluminous case law in relation to this issue set out in matters such Prantage,[2] Stephens,[3] Penfold,[4] and Kohan. [5]

[2]Prantage & Prantage (2013) FamCAFC 105.

[3]Stephens & Stephens [2010] FamCA 184.

[4]Penfold v Penfold (1980) 144 CLR 311.

[5]Kohan & Kohan (1992) 16 Fam LR 245.

49.In the decision of Kohan,[6] the Full Court consisting of their Honours Strauss, Lindenmayer and Bulley found the following:

[6] Above, note 12.

In an appropriate case the court has discretion to order costs on an indemnity basis and such costs may be awarded where there have been incurred under a costs agreement which departs from usual scale of costs.

50.      That is the case here.

51.      Their Honours went on to say:

However, it is fundamental to the exercise of that discretion in the Family Court that the Judge should not only understand that such an order is a very great departure from the normal standard but also that the judge should know what the terms of the agreement along, to what extent it exceeds the parameters set by the scale, and what its likely impact will be on the financial position of each of the parties.

52.The cost sought by the wife is a significant departure from the scale, however, as their Honours set out in Kohan[7]:

[7] Above, note 12.

…where the justice of the matter requires, the court may make such order as it considers just. It may depart from the scale prescribed in the Rules but should not depart lightly from the ordinary Rules relating to costs between party and party and the circumstances justifying the departure should be of an exceptional kind.

53.      The principle set out in the decision of Colgate-Palmolive[8] are also relevant:

[8]Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited [1993] FCA 536.

Are there special or unusual features in a matter and in this case to justify my departure from the norm in order for indemnity costs?

54.      His Honour Sheppard J went on to say:

It is the ordinary rule is that where the court orders the cost of one party to litigation to be paid by another, the order is for payment of those costs on a party/party basis.

This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation or decision of an intermediate Court of Appeal or of a High Court report would be required to alter it.

In consequence of the settled practice which exists the Court ought not usually make an order for payment of costs on some other basis other than the party/party basis. The circumstances the case must be such as to warrant the Court in departing from the usual order.

55.      His Honour went on to observe some of those circumstances as follows:

a)Irrelevant allegations of fraud;

b)Misconduct the causes a loss of time to the Court and other parties;

c)Whether proceedings were commenced or continued for an ulterior motive;

d)The undue prolongation of the case on groundless contention; and

e)Wilful disregard of known facts in clearly established law.

56.The question in this matter is whether the conduct of the husband is exceptional or special in the circumstances.

57.The wife says in her costs submissions the husband’s conduct of the negotiations was in bad faith and he the intention to deprive the wife of her entitlement in the equity of the home. There is much force in that submission.

58.The husband says in his costs submissions that he personally notified the wife at the end of 2019 of what he had done and there was no intention on the part of the husband to exclude the wife from her property settlement. That submission cannot stand on the evidence.

59.On 4 October 2019, the wife’s solicitors requested that the husband sign an undertaking not to deal with the matrimonial property and that the parties engage in mediation.

60.On 29 October 2019, the husband refused to sign any undertaking and stated he had no intention of dealing with any matrimonial property and if his intention changes in any way, he will seek the wife’s agreement to any proposal.

61.On 8 November 2019, the husband’s lawyers send another email to the wife requesting the parties enter into negotiations and then by 4 December 2019, less than a month later, the husband had sold the Suburb B property, all without the knowledge, let alone consent of the wife.

62.It was only when the wife’s solicitors conducted a title search on 11 December 2019 that they discovered the property had been transferred to Mr E and Mr F, the parties neighbours and the husband at no time told the wife what he had done let alone what he intended to do. This conduct is both exceptional and egregious given the negotiation the husband was exhorting the wife to entertain to settle the matter. The husband perpetrated a subterfuge on the wife and her lawyers by his conduct

63.The husband egregious conduct continued when he ceases to instruct this lawyers and in his letter of 17 December 2019 fails to respond to the wife’s lawyers request for information as to the whereabouts of the net sale proceeds or give an undertaking not to deal with the monies. This was the appropriate time for the husband to have informed the wife of his “gifting” of the net proceeds of sale to his adult children, Ms C and Ms D which occurred on 29 November 2019 and 6 December 2019.

64.The husband submits he was not in a good mental state and due to cultural difficulties, he was not aware of how things were done in Australia. The husband was represented by lawyers when he took this action and I reject his submission in that regard. The issues of his mental health have not been pleaded sufficiently to satisfy me he was so suffering. In fact the chronology tells me the husband knew exactly what he was doing when he transferred money to his daughters.

65.The husband submits the net proceeds of sale were never dissipated and that he transferred the funds to his daughters for safekeeping. This submission is an affront to the orderly conduct by parties in negotiating the consequences of the breakdown of their marriage. No funds should have been dissipated by one party in these circumstances and this submission does not assist the husband’s position at all.

66.The reality is that significant funds have been dissipated. The husband agreed in the witness box that he had “blown” $30,000 of monies Ms D sent to him at his request. Additionally, he left it to his daughter Ms D to disclose to the wife’s lawyers on 13 February 2020, that she transferred an additional sum of $20,000 to the husband, at his request on 17 December 2019. This is $50,000 and the husband did not reveal this to the Court at the hearing in February 2020 or the wife at any time.

67.The husband left it to Ms C to reveal to the wife’s solicitors on 12 February 2020 that she transferred $200,000 to the husband on 7 January 2020. This transaction was not disclosed in Court, in his material or to the wife at any time. In fact, the husband was adamant he did not have the net proceeds of sale at the time of the hearing in February and had transferred everything to Ms C and Ms D. This evidence was and is entirely untrue.

68.In the husband’s submissions he is critical of the wife’s solicitor for amending their application on 10 February 2020, one day before the interim hearing. This submission is wholly without merit and indicates the husband has lost sight of whose conduct is at issue in this matter. It is disingenuous of the husband to be critical of the wife in this regard as the events the husband set in train were being revealed piecemeal by her lawyer’s herculean efforts to determine who had purchased the property, the purchase price and where the sale proceeds were placed. To criticise the wife’s legal team for the husband’s failure to provide information only he knew is breathtaking in its audacity and is frankly offensive.

69.Only the husband had been in total control of the sale and all transactions in relation to the net proceeds of sale. He knew he had transferred the money to Ms C and Ms D and he chose not to disclose any of those transactions until well after they had occurred. He embarked on a course of conduct to keep the wife entirely in the dark about what had occurred in relation to the sale of the Suburb B property. In essence, the wife was forced to play catch-up. He knew exactly the case he was going to have to meet as he was the author of it.

70.When the matter came before the Court on 11 February 2020, the husband was represented, however, there was still a lack of openness and frankness on his part. The husband had transferred $50,000 into his solicitors’ trust account. This was not disclosed in his material or in the witness box. Ms D had transferred approximately a further $20,000 to the husband from the net proceeds, on top of the $30,000 the husband disclosed in the witness box. This transaction was also not disclosed. Ms C had transferred $200,000 to the husband on 7 January 2020. This transaction was also not disclosed by the husband in his material or in cross-examination.

71.The husband had numerous opportunities to be full and frank about everything that had happened, and at every turn he has chosen not to do so. From the commencement of proceedings through to 11 February 2020, the husband has simply failed to disclose material evidence that the wife was entitled to know. It was not his property to sell and not his net proceeds of sale to do with as he pleased.

72.The husband submits he made an offer to settle and the wife refused to accept. The wife says the home was sold significantly under value and this will be a matter for trial.

73.The husband’s submission that the wife’s solicitors need to remind themselves of their role as practitioners and did not attempt to notify the husband’s lawyers prior to filing is patently wrong.

74.On 11 December 2019, prior to filing any application, the wife’s solicitors emailed the husband’s solicitors requesting information about the sale of the Suburb B property and were met with a response on 12 December 2019 that the firm no longer held instructions to act for the husband. The wife’s solicitors then wrote to the husband with the same query on 13 December 2019 only to be met with yet another unhelpful response by him on 17 December 2019. This submission did not help the husband.

75.On these facts, the husband’s conduct is conduct that is exceptional and egregious and warrants that I make an Order for costs not limited to party/party, scale or solicitor/client, but rather approaching indemnity costs. This entire legal proceedings arose due to the husband’s unlawful conduct in selling a matrimonial asset by subterfuge and then when caught out, failing to comply with his obligation of full and frank disclosure and the wife ought not be out of pocket in these circumstances.

76.I find the husband’s behaviour and conduct gives rise to exceptional circumstances in respect of the wife’s application for indemnity costs and submission by his Counsel has not assisted me to otherwise find.

77.It is important that I assess or have regard to the fact that the costs claimed which are $77,257 by way of indemnity costs are significantly above scale costs, party/party costs or solicitor/client costs. I accept that given the egregious conduct of the husband that the wife ought not be limited to scale, party/party or solicitor/client costs, however an assessment must be conducted by me as to the basis of the indemnity costs claimed.

78.Going to the wife’s costs being claimed.

79.The wife seeks $77,257 by way of indemnity costs comprised as follows:

a)Professional fees billed by her lawyers, $55,575 from 11 December 2019 24 February 2020 in accordance with the costs agreement she has entered into;

b)Barrister’s fees, $15,950;

c)Expert valuation fees J Valuers, $4,400;

d)Filing fee, $690; and

e)Property searches, conduct money, service fees, et cetera, $642.

80.I do not accept that the entirety of the claim for work done by her lawyers form part of the application for indemnity costs. These proceedings would have been commenced at some point in time, work would have been done by her lawyers whether the husband behaved as he had or not and the work that her lawyers have carried out has not been lost in its entirety as these proceedings have just commenced to progress through the Court system.

81.In those circumstances I have assessed that a sum of $45,000 is an appropriate amount for the work carried out by her lawyers necessitated solely by the egregious conduct of the husband and I will allow this sum as her solicitors costs.

82.Barrister’s fees at $15,950 are allowed in their entirety as it was necessary having regard to the conduct of the husband and what was at stake that Counsel be briefed on each occasion and those costs are allowed in full, they being an appropriate disbursement.

83.I will allow the disbursement claimed for the expert valuation in the sum of $4,400. Given the early stage of their present these proceedings there would have been no necessity to obtain a valuation at this time. This only occurred due to the husband’s egregious conduct and that disbursement is allowed in full.

84.I will not allow the filing fee that would have been paid when the wife commenced proceedings in the normal course.

85.I will allow the wife the disbursement for property searches and conduct money at $642 given the extensive searches and service of subpoenaed and other documents required by the wife to make out her case in face of the husbands; failure to make full and frank disclosure and in which she has been wholly successful.

86.This is a total claim of $65,992 or rounded up $66,000.

87.I find the wife is entitled to be reimbursed in the amount of $66,000 being the relevant costs on an indemnity basis incurred by her in bringing this application.

88.I order that her solicitors be entitled to deduct the sum of $66,000 from the monies held by them in trust by way of paying the wife’s costs of this application on an indemnity basis which is assessed by me in the sum of $66,000.

I certify that the preceding eighty-eight (88) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Henderson delivered on 15 April 2020.

Associate:

Date: 16 April 2020