Child Support Registrar & Kanavos
[2010] FamCAFC 244
•10 December 2010
FAMILY COURT OF AUSTRALIA
| CHILD SUPPORT REGISTRAR & KANAVOS AND ORS | [2010] FamCAFC 244 |
| FAMILY LAW - APPEAL – APPLICATION FOR LEAVE TO APPEAL – Application for leave to appeal under s 107A of the Child Support (Registration and Collection) Act 1988 (Cth) – Where applicant has established error of principle by Federal Magistrate – Application granted. FAMILY LAW - APPEAL – COSTS – SECTION 117AB – Mandatory order for costs – Whether the Federal Magistrate erred in failing to consider and apply s117AB of the Family Law Act 1975 (Cth) – Consideration of the meaning of “knowingly” – Consideration of Sharma & Sharma (No 2) [2007] FamCA 425 – Where the Federal Magistrate found that the father knowingly made false statements to the Court regarding his financial position – Where in such circumstances the application of s 117AB is mandatory – Appealable error established. FAMILY LAW - APPEAL – COSTS OF APPEAL – Father wholly unsuccessful – Father to pay the Registrar’s costs of and incidental to the appeal. |
| Acts Interpretation Act 1901(Cth) s 15AB Child Support (Registration and Collection) Act 1988 (Cth) ss 104(1), 107A, 113 Evidence Act 1995 (Cth) s 140 Family Law Act 1975 (Cth) ss 117, 117AB Federal Magistrates Act 1999 (Cth) s 79(1) Federal Magistrates Court Rules 2001(Cth) Family Law Rules 1984 (Cth) |
| Browne v Green (2002) FLC 93- 115 Charles & Charles [2007] FamCA 276 Hendy v Deputy Child Support Registrar (2001) 27 Fam LR 641 Magill v Magill (2006) 231 ALR 27 Penfold v Penfold (1980) 144 CLR 311 Ran & Car [2006] FamCA 73 Robinson & Higginbotham (1991) FLC 92-209 Sharma & Sharma (No 2) [2007] FamCA 425 Sleight v Stevenson [1943] 4 DLR 433 Wild v Ballard (1997) FLC 92-771 |
| APPELLANT: | Child Support Registrar |
| 1ST RESPONDENT: | Mr Kanavos |
| 2ND RESPONDENT: | Ms Kanavos |
| 3RD RESPONDENT: | W Pty Ltd |
| FILE NUMBER: | SYC | 3565 | of | 2007 |
| APPEAL NUMBER: | EA | 154 | of | 2009 |
| DATE DELIVERED: | 10 December 2010 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Boland J |
| HEARING DATE: | 10 August 2010 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 25 November 2009 |
| LOWER COURT MNC: | [2009] FMCAfam 1476 |
REPRESENTATION
| SOLICITOR-ADVOCATE FOR THE APPELLANT: | Mr Markus |
| SOLICITOR FOR THE APPELLANT: | Australian Government Solicitor |
| SOLICITOR -ADVOCATE FOR THE 1ST, 2ND & 3RD RESPONDENTS: | Mr Chegwidden |
| SOLICITOR FOR THE 1ST , 2ND & 3RD RESPONDENTS: | Graham Chegwidden |
Orders
The application for leave to appeal is granted.
The appeal is allowed.
The orders made by Federal Magistrate Altobelli on 25 November 2009 be set aside.
The application by the Child Support Registrar for costs is remitted for rehearing in the Federal Magistrates Court before Federal Magistrate Altobelli.
The father pay to the Child Support Registrar the costs of the appeal as agreed and failing agreement as assessed under Chapter 19 of the Family Court Rules 2004 (Cth).
IT IS NOTED that publication of this judgment under the pseudonym Child Support Registrar & Kanavos and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| IN THE APPELLATE JURISDICTION OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 154 of 2009
File Number: SYC 3565 of 2007
| Child Support Registrar |
Appellant
And
| Mr Kanavos and Ms Kanavos and W Pty Ltd |
1st, 2nd & 3rd Respondents
REASONS FOR JUDGMENT
Introduction
By Notice of Appeal filed on 23 December 2009 the Child Support Registrar (“the Registrar”) sought leave to appeal, and if leave was granted, to appeal orders made by Federal Magistrate Altobelli on 25 November 2009. Those orders dismissed an application for costs made by the Registrar at the conclusion of enforcement proceedings commenced initially against Mr Kanavos (“the father”). The father’s present wife, Ms Kanavos (“the wife”) was later joined as a party to the proceedings as was a company, W Pty Ltd.
The gravamen of the Registrar’s appeal was that as the Federal Magistrate had found the father had knowingly failed to make a full and frank disclosure of his financial position to the Court and had knowingly made false statements in the proceedings, that his Honour should have ordered him to pay part or all of the costs of the proceeds under s 117AB of the Family Law Act 1975 (Cth) (“the Act”). In the alternative, it was submitted that the Federal Magistrate had erred in the exercise of his discretion in failing to award costs in favour of the Registrar under s 117. In support of this ground it was asserted that a failure to award costs when the enforcement proceedings were necessitated by the failure of the father to pay child support was against public policy.
The Registrar sought that the appeal be allowed, and that I re-determine the costs issue by awarding indemnity costs under s 117AB or, in the alternative, costs under s 117 at the scale of costs applicable under the Federal Magistrates Court Rules 2001 (“the FM rules”). In the event I did not re-determine the matter, the Registrar sought that I should remit the costs issue for rehearing before the Federal Magistrate.
The father, who was represented by his solicitor, resisted the appeal. There was no separate appearance on behalf of the wife or W Pty Ltd which is readily understandable as the submissions before the Federal Magistrate primary sought costs against the father. I observe however, that the father’s solicitor also represented the wife and W Pty Ltd in the proceedings.
This appeal was heard by me as a single judge exercising the appellate jurisdiction of the Court pursuant to a direction of the Chief Justice, the Honourable Justice Bryant, under s 107A of the Child Support (Registration and Collection) Act 1988 (Cth) (“the Registration and Collection Act”).
At the hearing of the appeal the father sought, in the event the appeal was allowed and I re-determined the matter, to rely on an affidavit he swore on 3 August 2010.
The Registrar also sought to rely on further evidence in the event the appeal was allowed and I re-determined the matter. That evidence was an affidavit by Ms P, affirmed 9 August 2010, in which she set out the basis of costs claimed at scale under the FM rules in the sum of $30,393.24.
In these reasons I will refer to some brief background material. Thereafter I will consider the costs judgment, and the relevant parts of the Federal Magistrate’s substantive reasons before discussing the relevant statutory provisions and the two grounds of appeal.
Background
The following material emerges from the Federal Magistrate’s reasons delivered on 28 August 2009 (“the substantive judgment”) and is uncontroversial.
At the date of the substantive hearing the father was aged 51 years.
In 1986 the father married Ms B. The marriage ended in 1997.
There are three children of the marriage, H aged 22 years at the date of the substantive judgment, L then aged 20 years and T then aged 17 years.
Child support assessments issued and child support was noted by the Federal Magistrate to have been paid until October 2000.
Proceedings were initiated by the Registrar in the Local Court, Family Matters in 2001. Those proceedings resulted in an appeal to the Family Court of Australia heard by Lawrie J in 2004.
In March 2003 the father and the wife married. They have two children, M aged 7 years and A aged 5 years at the date of the hearing before the Federal Magistrate.
W Pty Ltd is a metal fabrication business associated with the manufacture, supply and installation of commercial refrigeration. The Federal Magistrate noted that W Pty Ltd and a number of named companies had employed the father from time to time and he had been a director and shareholder of them.
The proceedings were conducted before the Federal Magistrate on 17 September 2007, 20 November 2007, 26 February 2008, 9 April 2009 and 3 and 4 June 2009. His Honour delivered reserved reasons for judgment on 20 August 2009.
The quantum of the child support debt was not disputed in the substantive proceedings. It stood at $270,881.77 as at 2 June 2009 comprising $170,892.47 in arrears and $99,989.30 in late payment penalties.
The Federal Magistrate noted that the father, the wife and W Pty Ltd did not oppose the making of a declaration as to the quantum of the child support arrears and penalties.
Following delivery of the Federal Magistrate’s substantive judgment, his Honour made orders that any application for costs was to be filed within 21 days, written submissions of no greater than 500 words were to be served within the same timeframe and a reply, also limited to 500 words, be filed within 21 days thereafter.
Written submissions in respect of costs were filed by the Registrar on 4 September 2009 and by the father, wife and W Pty Ltd on 9 November 2009.
His Honour delivered oral reasons (“the costs judgment”) on 25 November 2009 and made orders dismissing the Registrar’s application for costs.
The costs judgment
His Honour commenced his reasons referring firstly to the long history of the litigation, and noting that the costs issue was dealt with by way of written submissions.
At paragraph 2 of his reasons, his Honour referred to s 117 of the Act as being the general provision dealing with costs.
His Honour then went on to refer to s 117AB. Given the significance of this paragraph in this appeal I set out paragraph 2 in full. It provides as follows:
An application for costs is, of course, governed by s.117 of the Family Law Act. Section 117 starts with the general proposition that each party to proceedings shall bear his or her own costs. Subsection 2 provides that if the court is of the opinion that there are circumstances that justify it, the court may, subject to various subsections, make an order as to costs as the court considers just. Section 117(2)(a) [semble s 117(2A)] and also s.117AB provides some further guidance about when a costs order should be made.
At paragraph 3 of his reasons, his Honour explained he had decided it was not appropriate to make an order for costs saying “the reason for that is it really comes down to matters that were referred to in the submissions for the respondents”.
In paragraph 1 of his reasons for judgment, the Federal Magistrate had noted he incorporated the written submissions of the parties into his reasons.
His Honour went on, in paragraph 3, to explain:
… Were it not for the fact that the Child Support Registrar had raised the issue of a secret trust at a relatively late stage of the proceedings, I am satisfied that this matter could have and probably would have settled. Indeed, the submissions that were made and the concessions made on behalf of the respondents at the hearing or during the last few days of the hearing confirm this. The issue of the secret trust was a matter raised almost at the last moment by the Registrar and, as I have indicated in the judgment, it was an argument that was probably doomed to fail on the evidence.
At paragraph 4 of his reasons, his Honour explained he had recognised that he had made adverse findings against the father “and even [the wife] to a certain extent”. He went on to say:
… Nonetheless, I think that an application for costs does need to be dealt with objectively, and to this extent, the applicant was entirely unsuccessful in relation to the secret trust. I appreciate the submission that it was successful as regards other matters but, as I have indicated before, I am satisfied that those other matters could have been dealt with either by consent or by using far less of the court’s time and resources compared to what in fact took place.
Accordingly, his Honour dismissed the application for costs.
The substantive judgment
I have already noted that the matter proceeded before his Honour over six hearing days and that his Honour delivered reserved reasons for judgment. His Honour made 26 orders on 20 August 2009. It is unnecessary that I set every order made out. Rather, I propose to broadly summarise the effect of the orders.
The Federal Magistrate made a declaration that, as at 2 June 2009, there was owing to the Commonwealth in respect of the registered maintenance liabilities of the father the sum of $270,881.77. Order 2 of his Honour’s orders provided that the father pay that sum to the Registrar. That payment is to be made by instalments of not less than $2,000.00 per month commencing on 7 September 2009 and monthly thereafter, with the whole of the remaining balance of the debt payable as a lump sum on or before 7 September 2012 (Order 3).
His Honour additionally caused a garnishee order to be made against W Pty Ltd causing that company to pay directly to the Registrar payments on a monthly basis and fixing the protected earnings rate in relation to the father in the sum of $300.00 per week.
The father was ordered to notify the Registrar in the event he ceased or altered his terms of employment or commenced employment with any new person or entity.
Order 7 of his Honour’s orders was a garnishment order against customers of W Pty Ltd.
An order was made restraining the father and all officers of W Pty Ltd from engaging in business, issuing any invoices for work, services, products or materials except under the name and payable to W Pty Ltd (Order 13).
Restraining orders were made against the father, the wife or any person acting on their behalf or at their request or any company or entity controlled by them, from dealing with, or engaging in any business transaction with customers of the business conducted by W Pty Ltd for a period of two years (Order 14). The father, the wife and any person, company or entity acting as agent, or at their request W Pty Ltd, were restrained, except in the ordinary course of business, from selling or disposing of the business of W Pty Ltd, including the sale of any equipment, stock or the like (Order 15).
Orders 18 and 19 of the Federal Magistrate’s orders required the wife to transfer shares held by her in W Pty Ltd to the father and the debt owing under the orders was charged over the shares of W Pty Ltd.
In his substantive judgment, the Federal Magistrate noted that the father, the wife and W Pty Ltd did not oppose the making of the declaration but they did oppose an order that they pay the sum of $270,881.77 to the Registrar. At paragraph 6 of the substantive judgment, the Federal Magistrate noted that they also opposed the making of an order for costs.
At paragraph 7, the Federal Magistrate set out what ultimately became Order 3 of his orders and explained that the “[t]he respondent’s position here is somewhat unclear”.
Altobelli FM went on to explain that counsel for the father had consented to the making of an order which required W Pty Ltd be the subject of a garnishee order to make payments of the child support debt of the father pursuant to the enforcement summons and any costs of those proceedings. Accordingly, his Honour concluded that while the father, wife and W Pty Ltd agreed that the payment of child support should be by garnishment of the income of W Pty Ltd, they did not agree to the precise terms of the orders sought by the Registrar.
His Honour also noted that the father, wife and W Pty Ltd were prepared to consent to an order that the business conducted by W Pty Ltd be sold and to make payment (presumably from the net proceeds of sale) of the child support debt of the father and any costs of the proceedings.
His Honour then, in the following ten paragraphs, dealt with orders which were sought by the Registrar which were either opposed or consented to by the father, wife and W Pty Ltd.
At paragraph 20 of the substantive judgment, his Honour first turned to the question of an asserted secret trust in relation to the estate of the father’s mother. He recorded “[t]his is clearly an issue in this case”.
At paragraph 23 under the heading “The issues”, the Federal Magistrate explained that the real issue in dispute was how the debt to the Registrar was to be paid. He also identified, in paragraph 24, there was an issue about the estate of the late mother of the father, and whether a secret trust arose in respect of her estate.
In paragraphs 25 and 26, the Federal Magistrate recorded the thrust of the case made by the Registrar, namely, that the father and his wife had entered into sham transactions or created alter egos of themselves “so that the cash flow and profits of the business are seen not to be controlled by [the father]”. He also explained that part of the Registrar’s case was that the evidence of the father, wife and W Pty Ltd and their witnesses were not to be believed and that they had not made a proper disclosure to the Court.
In paragraph 36, his Honour set out extracts of the submissions made on behalf of the Registrar, including paragraph 20 of Lawrie J’s reasons for judgment where her Honour said:
….this example sheds considerable light on the milieu and business culture in which [the father] operates. In it records can be manipulated to assist people (even when they are breaking a law about making false statements to financial institutions in the hope of getting financial advantage) and the real business transactions are happening without any reference to documentation. This is consistent with [the father’s] actions in moving the business from [R] to [M] and then “disposing” of [M]. (original emphasis)
In the same paragraph, his Honour set out an extract of written submissions of the Registrar, which submissions summarised key findings of Lawrie J, and included the following:
29. But the key findings of her Honour were:
a) that the First Respondent had failed to make a full and frank disclosure of his resources at [40];
b) that his tax returns did not accurately reflect his true income at [41];
c) that the First Respondent had deliberately set out to avoid paying periodic child support at [47]
d) that the First Respondent had the same earning capacity and that the grounds of the appeal had not been established. (original emphasis) (footnote omitted)
The submissions went on to note that an issue estoppel arose in respect of these findings. At paragraph 37, his Honour accepted an issue estoppel arose and he adopted the findings made by Lawrie J in respect of the period October 2000 to March 2002.
At paragraph 38, his Honour set out in full Order 33 of the Family Law Rules 1984 which he noted applied by virtue of r 1.05(2) and (3) of the FM rules. No challenge was made to the correctness of the rule as set out in his Honour’s reasons for judgment.
I observe that in hearing this appeal I was referred by counsel for the Registrar to Schedule 5 of the FM rules which sets out the Family Law Rules 1984, Order 33, modified. I note r 25B.05 of the FM rules, together with the accompanying note provides as follows:
Order 33 of the Family Law Rules 1984, in the modified form set out in Schedule 5, applies to family law and child support proceedings.
Note: Text of O 33 is contained in the notes to these rules in Sch 5 at p 51, 405
At paragraph 40, his Honour commenced a discussion about the alleged non-disclosure by the father, wife and W Pty Ltd and cited a passage from the decision of the Full Court in Weir & Weir (1993) FLC 92-338 at 79,593.
At paragraph 42, his Honour referred to the decision of the High Court in Voges v Monaghan (1954) 94 CLR 231 where Fullagar and Kitto JJ cited a passage from French v French (1902) 1 IR 172 as to the nature of secret trusts.
After referring to Brightman J in Ottaway v Norman (1972) 1 CH 698 at 711 his Honour turned, at paragraph 45 under the heading “Credit, disclosure and findings”, and made, inter alia, the following findings:
·that he did not accept the evidence of the father and the wife in relation to financial matters and the operation of the business;
·that he had grave reservations about any financial documents prepared on the instructions of, or based on source materials prepared or supplied by the father and/or the wife for the reasons he then gave. Those reasons included that the father and the wife were “unimpressive witnesses whose testimony lacked credibility, even putting aside the documents that demonstrated the inconsistencies in their evidence”;
·that the wife was for all practical purposes “the puppet” of the father and had no interest in W Pty Ltd;
·that the father’s suggestion he had a limited role in W Pty Ltd should not be accepted and “was clearly put forward to support his contention that he was only an employee of [W] Pty Ltd”;
·the father’s claim that he did not know when W Pty Ltd started or how long it had traded under that name was inconsistent with evidence given by his nephew, C. Further, his Honour noted although the father confirmed the company was sold to the wife by his nephew for $5,000.00 that he had no idea when his nephew became a director of the company. His Honour found “[i]f the testimony of [C] is accepted the Court must conclude that this evidence was false”;
·that the father was “able to masquerade as a mere employee of [W] Pty Ltd”;
·the father, by pretending he was a mere employee, “maintained the charade that he was unable to meet his child support obligations while having full and free access to the funds of [W] Pty Ltd”;
·that the father was clearly responsible for the administration of the business;
·the father and the wife’s evidence about their income was inconsistent and misleading;
·that the income declared in the father’s income tax returns was “so minimal as to raise real questions as to why a person with the experience [the father] obviously had would tolerate and accept income of this level, unless those amounts were fictional and engineered to avoid his child support responsibilities”. His Honour found the inference was clearly open that the amounts disclosed were considerably less and inconsistent with the asserted average amount of $600.00 per week that the father said he paid;
·that “[the father] had not disclosed his true level of income to the Court or the recourse he had to the very significant funds which were generated by the business of [W] Pty Ltd”;
·that the father was less than frank in his evidence about the changes in the business and the company, W Pty Ltd; and
·that the father’s suggestion he was not involved when W Pty Ltd commenced trading and that his nephew was a director in light of the evidence of his nephew “patently false”.
At paragraph 46, his Honour set out his conclusions as follows:
The totality of the evidence leads me to not only make the conclusions about credit referred to above, but also to conclude that all of the companies that feature in this case were merely convenient entities for [the father] to use to structure his affairs and cash flow with a view to protecting himself, and his new family, from the claims of creditors of the business and personal creditors such as the Child Support Registrar. I reach this conclusion notwithstanding the emphatic submissions on behalf of [the father, the wife and W Pty Ltd] to the effect that whilst there may be some anomalies in the accounts, viewed objectively there was no fabrication in relation to income and expenses. I simply cannot accept this submission. The voluminous financial material produced by [the father, the wife and W Pty Ltd] late in this litigation when it suited their purpose, but not earlier when it was required by [the Registrar], creates an almost irresistible inference of non-disclosure as well as fabrication of evidence to justify blatant anomalies. I cannot accept anything other than [the father’s] desire, demonstrated capacity and willingness to do almost anything to sacrifice the interests of third parties such as [the Registrar] as part of his zealous pursuit of his own interests. Quite frankly the Court has no idea whatsoever what is the true extent of the financial circumstances of [the father]. He has chosen not to disclose the same. Accordingly I am entitled to take a robust approach in dealing with his evidence, and the matters before the court. I am certainly comfortable in making the findings I have referred to above but I cannot help but feel there remain undisclosed assets and resources controlled by [the father] that he has not placed before the Court.
Under the heading “The mother’s estate and the secret trust”, his Honour set out the relevant facts concerning the father’s late mother’s Will. He noted the Will was dated 16 August 2001, that the father was not a beneficiary but the wife was a beneficiary.
The Federal Magistrate recorded the wife’s evidence that she first met the father’s mother in 1999 and thereafter saw her frequently. He also noted that the wife asserted she was not aware of the contents of the Will until after the father’s mother died.
In paragraph 47 his Honour went on to note that following the resolution of a dispute with other beneficiaries, the wife was entitled to a one-third interest in a property at Marrickville. His Honour explained later in that paragraph:
… There is a suggestion in the evidence that it was [the father] who took his late mother to her solicitor in Marrickville in order to change her will in August 2001, to exclude him as a beneficiary, but to include his wife. I cannot make findings about this, on the evidence before me.
His Honour then went on to record that counsel for the Registrar submitted there was enough circumstantial evidence to find a secret trust, but that he determined the evidence, even taken at its highest, did not persuade him to the relevant level of satisfaction. He noted it was not even put to the wife that she had the relevant knowledge “which is an essential component of establishing a secret trust”. His Honour concluded:
Whilst I have my suspicions about the circumstances in which [the wife] came to be beneficiary of the estate, there is no evidence to justify the imposition of a secret trust. (paragraph 49)
His Honour then concluded his reasons by dealing with the most appropriate form of enforcement.
The law
The substantive application heard by his Honour was an application for enforcement under s 113(1)(b)(i) and (c)(i) of the Registration and Collection Act. Those provisions enable the Registrar to sue to recover a debt due to the Commonwealth either in a court having jurisdiction for the recovery of debts up to the amount of the debt, or a court having jurisdiction under the Registration and Collection Act - in this case the Federal Magistrates Court. Section 104(1) of the Registration and Collection Act confers jurisdiction on the Federal Magistrates Court. Section 105 of the Registration and Collection Act provides that when the Court is exercising jurisdiction under that Act, the provisions of the Family Law Act (other than Part X) apply.
Part 6, Division 7 of the Federal Magistrates Act 1999 (Cth) (“the FM Act”) deals with costs, however s 79(1) of the FM Act makes it clear that that section does not apply in family law and child support proceedings. Part 21 of the FM Rules governs costs. Rule 21.02(1) and (2) provides as follows:
(1) An application for an order for costs may be made:
(a) at any stage in a proceeding; or
(b) within 28 days after a final decree or order is made; or
(c) within any further time allowed by the Court.
(2) In making an order for costs in a proceeding, the Court may:
(a) set the amount of the costs; or
(b) set the method by which the costs are to be calculated; or
(c) refer the costs for taxation under Order 62 of the Federal Court Rules or under Chapter 19 of the Family Law Rules; or
(d) set a time for payment of the costs, which may be before the proceeding is concluded.
Rule 21.03(1) and (3) are also relevant. They provide as follows:
(1) The Court may specify the maximum costs that may be recovered on a party and party basis:
(a) by order at the first court date; and
(b) of its own motion or on the application of a party.
(2) However, an amount specified must not include an amount that a party is ordered to pay because the party:
(a) has failed to comply with, or has sought an extension of time for complying with, an order or with any of these Rules; or
(b) has sought leave to amend a document; or
(c) has otherwise caused another party to incur costs that were not necessary for the economic and efficient progress of the proceeding or hearing of the proceeding.
(3) The Court may vary the maximum costs specified if, in the Court's opinion, there are special reasons and it is in the interests of justice to do so.
The relevant provisions of the Act are s 117 and 117AB. Those sections provide, so far as is relevant to this appeal, as follows:
Section 117 - Costs
(1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AB, 117AC and 118, 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) and (5) 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.
(3) To avoid doubt, in proceedings in which an independent children’s lawyer for a child has been appointed, the court may make an order under subsection (2) as to costs or security for costs, whether by way of interlocutory order or otherwise, to the effect that each party to the proceedings bears, in such proportion as the court considers just, the costs of the independent children’s lawyer in respect of the proceedings.
...
Section 117AB - Costs where false allegation or statement made
(1) This section applies if:
(a) proceedings under this Act are brought before a court; and
(b) the court is satisfied that a party to the proceedings knowingly made a false allegation or statement in the proceedings.
(2) The court must order that party to pay some or all of the costs of another party, or other parties, to the proceedings. (my emphasis)
Before commencing my discussion of the grounds of appeal, it is important that I refer to the general principles which govern the broad discretion to award costs under s 117. Those principles are clearly explained in Penfold v Penfold (1980) 144 CLR 311 as follows:
It is an accurate description of s. 117 (1) to say that it expresses a general rule, provided that it is firmly understood that the sub-section is not paramount to s. 117 (2). As sub-s. (1) is expressed to be subject to sub-s. (2) the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs.
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”.
Sub-section (2) does not in our view as a matter of law require the judge to specify the circumstances which justify the making of an order. It does not expressly say so, and in the context of the making of an order for costs there is no sufficient basis for making an implication. Judges very frequently make orders for costs without giving reasons or making findings, even when costs are in issue. The absence of reasons or findings does not in itself indicate that a judge has erroneously exercised his discretion to award costs, though it will place an appellate court in the position of examining the circumstances and of determining for itself whether the circumstances show that the discretion was erroneously exercised (Kent v. Kent). Accordingly, in the absence of some positive legislative indication we should not attribute to Parliament the requirement that a judge must make particular findings in relation to an order for costs. (footnote omitted)The “broad brush” approach to the question of costs is well recognised (see Browne v Green (2002) FLC 93- 115) and although an appellate court will be reluctant to interfere with an costs order (or failure to make a costs order) under s 117 of the Act, it will do so if the discretion was exercised on wrong principles or if the result is plainly unjust (see Robinson & Higginbotham (1991) FLC 92-209 per Nygh J at 78,417).
As the principal challenge in this appeal is to his Honour’s asserted failure to apply s 117AB it is necessary to refer to that provision.
Section 117AB was inserted into the Act in 2006 and commenced operation on 1 July 2006.
As there is no test or criteria in the section as to what is required to establish that a false allegation or statement has been made “knowingly” it is appropriate to refer to the Revised Explanatory Memorandum (see s 15AB(2)(e) Acts Interpretation Act 1901(Cth).
Paragraphs 226 and 227 of the Revised Explanatory Memorandum are as follows:
Item 41 inserts a new provision section 117AB after section 117 which is the section that deals with costs. The new provision provides that a court must order a party to pay some or all of the costs of another party, or other parties to the proceedings, where the court is satisfied that that party has knowingly made a false allegation in the proceedings. This provision implements recommendation 10 of the LACA Report. It attempts to address concerns that have been expressed, in particular that allegations of family violence and abuse can be easily made and may be taken into account in family law proceedings. The provision is broader than family violence or abuse allegations and would apply to any false statement knowingly made.
The LACA Report noted that this approach avoids the need for separate criminal proceedings for perjury which may not be appropriate given that parents need to maintain an ongoing parenting relationship. Perjury can also be difficult to establish given it is a criminal process. The provision ensures a message to the courts that a penalty should be imposed at the same time as the court determination rather than relying on the possibility of protracted criminal proceedings at a later date. The penalty does not prevent criminal prosecution in appropriate cases. The court must be satisfied on the balance of the probabilities that a party has knowingly made a false allegation.
On 2 March 2006 when the Family Law Amendment (Shared Parental Responsibility) Bill 2005 was returned to the House of Representatives from the Main Committee, the then Attorney-General, the Honourable P Ruddock said during the debate on proposed amendments to the Bill the following:
The member for Gellibrand also flagged Labor’s concern that the incidence of using costs within the family law jurisdiction risks turning family law into a costs jurisdiction. I suspect that many parties before our courts at the moment would be very surprised to learn that it is not a costly jurisdiction. The question is: who should pay those costs? In cases where proceedings are the result of a party’s disregard of court orders or of false allegations of violence, the government thinks it only just that costs orders should be able to be made where appropriate against the party responsible.(p 25)
…
The bill seeks to address concerns about false allegations and false denials by the inclusion of the new cost provision that applies where a person has knowingly made false allegations or a false statement – and this clearly also covers false denials. This provision implements a committee recommendation. It is appropriate, given the high test that must be satisfied: a person must knowingly make the false statement. In such circumstances criminal penalties could also be applied. (p 46)
Discussion
As I have already explained, the principal challenge to his Honour’s refusal to make an order for costs was directed to the Federal Magistrate’s failure to consider and apply s 117AB.
It is appropriate that I set out again that part of his Honour’s costs judgment dealing with s 117AB. In the last sentence of paragraph 2 of his oral reasons the Federal Magistrate said “Section 117(2)(a) [semble s117(2A)] and also s 117AB provides some further guidance about when a costs order should be made”. His Honour did not otherwise discuss the section.
The application for costs was dealt with by way of written submissions. In paragraph 3 of the Registrar’s written submissions (filed 4 September 2009), it was pointed out that s 117AB is mandatory in its terms if a court is satisfied that a party “has knowingly made a false allegation or statement in the proceedings”.
In paragraph 4 of the submissions, the Registrar summarised seven findings of the Federal Magistrate which were described as findings “adverse as to credit” or demonstrated that the Federal Magistrate “rejected” the father’s evidence in relation to financial matters in his substantive reasons. The particulars supplied were as follows:
4.The Court made a number of adverse findings as to the credit of the First Respondent […] and has rejected his evidence in relation to financial matters ([2009] FMCAfam 871 at [45]) holding that:
4.1the evidence lacked credibility and was inconsistent with documentary evidence (at [45](1));
4.2he masqueraded as a mere employee of the Third Respondent ([45](7)), which was used to structure his affairs and to protect himself from claims of creditors such as the Applicant ([45]);
4.3he was responsible for the administration of the business which stood at odds with the assertion he was a mere employee ([45](8));
4.4his evidence as to his income was inconsistent and misleading ([45](9));
4.5he had not disclosed his true financial circumstances and an inference was to be drawn of fabrication of evidence to justify blatant anomalies ([46]);
4.6he had not produced financial documents when they were sought ([46]);
4.7acceptance by the Court of the evidence of [C] had the consequence that the evidence [the father] gave in relation to the inception of the Third Respondent, its operations, and its sale to his wife (the Second Respondent) was false ([45](6)(i)).
The section received cursory attention in the submissions filed in opposition to the application for costs by the solicitor for the father, the wife and W Pty Ltd. At paragraph 5, he submitted:
5.It is submitted that the Court has not found that any party has knowingly made a false allegation or statement in the proceedings. (Respondents’ submissions filed 9 November 2009)
I was referred by counsel for the Registrar at the hearing of the appeal to the following parts of the substantive judgment:
·paragraph 45(1) where his Honour made an adverse credit finding about the father and the wife;
·paragraph 45(6)(d) where his Honour found the father should not be accepted on his evidence that he only had a limited role in the operation of W Pty Ltd;
·paragraph 45(6)(i) where his Honour said if he accepted the evidence of C (which he later found to be “patently false”) that the father’s evidence about his lack of knowledge about the commencement of the company, W Pty Ltd or how long it had traded under that name must be false;
·paragraph 45(7) where the Federal Magistrate found that the father pretended he was a mere employee of W Pty Ltd, but this was a charade as he had “full and free access to the funds of [W] Pty Ltd”;
·paragraph 45(9) where his Honour found that the father and the wife’s evidence about their income was inconsistent and misleading, having regard to large amounts to cash transferred by the father to the wife’s credit from W Pty Ltd and thus his Honour found that the inference was clearly open that the income disclosed in the father’s and wife’s personal tax returns was “fictional and engineered to avoid his child support responsibilities”;
·paragraph 45(9)(h) where his Honour accepted that the father “had not disclosed his true level of income to the Court or the recourse he had to the very significant funds which were generated by the business of [W] Pty Ltd”;
·paragraph 45(10) that the father was “less than frank in his evidence about the changes in the business and the company [W] Pty Ltd”.
There is little authority in this Court on the interpretation of what is required to satisfy a court that an allegation has been “knowingly made” for the purposes of s 117AB.
I was referred to the decision of Cronin J in Charles & Charles [2007] FamCA 276.At paragraphs 22 and 23, his Honour explained that s 117(1) must be read as subject to s 117AB. I concur with that view.
At paragraph 24 his Honour discussed the word “knowingly” and said:
“Knowingly” imports a serious subjective element into the question. In respect of many findings of fact as in this case, a trial judge determines which of two versions, sometimes diametrically opposed to one another, he or she believes on the balance of probabilities. Such a finding is not necessarily a statement that one version is patently untrue or that a person is lying; it may simply be that one version is more probable than another. For a court to be satisfied that a person knowingly made a false allegation or statement in the proceedings must mean that a court can be comfortable in finding that the person lied. It would not simply then be a balancing act between two versions. To be satisfied that a lie has been told and to so find requires a careful analysis of two things. The first is that the proffered version of fact is untrue but the second is that it is put knowing it to be untrue. A court must then be cautious about such a finding because of the mandatory consequence. The finding must be elevated above the “probable” level set out in s 140(1) of the Evidence Act 1995 to consider the matters contemplated in s 140(2) of that Act. That is, the Briginshaw test applies. [footnote omitted] (original emphasis)
Thereafter his Honour referred to the use of the word “knowingly” in civil proceedings with particular reference to that word in relation to the tort of deceit as discussed by the High Court in Magill v Magill (2006) 231 ALR 27. His Honour also referred to the Revised Explanatory Memorandum, which I have earlier set out and parts of the Attorney-General’s second reading speech. I have earlier, in these reasons, set out the relevant extracts from Hansard.
I was also referred to the decision of Ryan J in Sharma & Sharma (No 2) [2007] FamCA 425 where her Honour considered, among other matters, whether the new provision, which was introduced as part of the suite of reforms in the Family Law Amendment (Shared Parental Responsibility) Act 2006, amended the otherwise discretionary position the Court exercises in respect of costs under s 117. Her Honour explained that the application of s 117AB is mandatory provided the criteria in s 117AB(1) are satisfied. I also concur with her Honour’s conclusions in respect of s 117AB.
At paragraph 13 of her reasons, Ryan J said:
My finding that some of the wife’s allegations are fabrications introduces the mental element which turns a wrong statement into a deliberate falsehood. This means I am satisfied she knowingly made a false allegation or statement. Again this was a central issue. So that there can be no doubt that the wife adopted her complaints and allegations made to police in these proceedings, at paragraph 112 I find:
“At the close of her case, the mother maintained the veracity of each and every allegation made against the father post 30 April 2004. That is, not only that she has accurately reported the children’s complaints but that the father behaved in the manner described”.
The word “knowingly” is considered in Words and Phrases Judicially Defined (4th Edition, Lexis Nexis Butterworths, 2007) at 1313 with reference to various statutes. While many of the examples cited in this text must be read in the context of the statute under discussion, I think the discussion of the meaning of the word by Kellock JA in Sleight v Stevenson [1943] 4 DLR 433 at 441 is helpful in the facts relevant to this appeal. In dealing with a case under a statute pertaining to insurance, his Honour said “I think ‘knowingly’ in the statute is used in the sense that the applicant is in possession of information that what is in fact stated in the application is untrue or does not disclose the truth” (see also Stroud’s Judicial Dictionary of Words and Phrases 7th Edition, Thomson Sweet Maxwell, 2006, at 1449). In other words, I concur with Ryan J there is a conscious mental element involved in the making of a statement.
In this case I accept that the credit findings by his Honour that the father and the wife were “unimpressive witnesses” and that there were inconsistencies in their evidence, were of themselves insufficient to satisfy the criteria of a knowingly made false statement or allegation.
However, his Honour found the father’s evidence about the commencement of the activities of W Pty Ltd and the directorship of C, was “patently false”. The implication arising from his Honour’s consideration of the father’s declared income in his income tax returns is that the income declared was “fictional and engineered to avoid his child support liabilities”. Further, his Honour’s findings about production of documents late in the proceedings led him to find “an irresistible inference of non-disclosure as well as fabrication to justify blatant anomalies”. This must mean that his Honour was satisfied under the provisions of s 140 of the Evidence Act 1995 (Cth) that the allegations by the father about his financial position made to the Court were knowingly fraudulently made. Those findings do not permit the inference that the father’s statements were mistakenly or even recklessly made.
I am comfortably satisfied that his Honour’s detailed and careful findings meant that he found the father had both lied to the Court by knowingly giving false evidence about the operations of W Pty Ltd, and his income. Having made these findings it was mandatory for his Honour to apply s 117AB. Thus his Honour was in error in his explanation that s 117AB “provides some further guidance about when a costs order should be made” without considering the requirements of that section in light of his findings. Accordingly I am satisfied that the Registrar has established appealable error and that his Honour’s order dismissing the application for costs must be set aside.
In these circumstances, it is unnecessary that I consider whether his Honour erred in the exercise of his discretion in dismissing the costs application under s 117.
Before leaving my discussion of the grounds of appeal, I note the father’s solicitor raised at the hearing of the appeal that it was not clear against whom the Registrar sought an order for costs. That assertion which I do not consider of direct relevance to the grounds of appeal may be disposed of shortly. Counsel for the Registrar made it abundantly clear, in paragraph 5 of the written submissions provided to the Federal Magistrate, that the costs order was sought against the father. That position was further supported by paragraphs 6 to 8 of the submissions.
Leave to appeal
The Registrar sought, as is mandatory under the Registration and Collection Act, leave to appeal the Federal Magistrate’s dismissal of the costs application. I am satisfied that the Registrar has established error of principle by his Honour. In accordance with established authority (see Wild v Ballard (1997) FLC 92-771, at 84,488; Hendy v Deputy Child Support Registrar (2001) 27 Fam LR 641) leave should be granted, and the appeal allowed.
Re-determination or remission for a rehearing
Before me, the Registrar sought either that I re-determine the issue of costs or that the matter be remitted before his Honour for re-determination.
The father sought to put further affidavit evidence before me in the event that I re-determined the issue of costs either under s 117AB, or if I found that section was not applicable, under s 117. The Registrar sought to adduce evidence of the quantum of costs incurred in the event I found costs should be awarded on a party/party basis.
I make the following observations. First, s 117AB, whilst mandatory if one of the criteria in s 117AB(1) is established, requires a court to make an order for the payment of “some or all of the costs”.
I do not have the advantage of having all the material which was before the Federal Magistrate in respect of the substantive hearing, nor do I have the transcript of those proceedings. The submissions made to me by the solicitor for the father call into controversy when the issue of the secret trust arose in the proceedings. In these circumstances, it would be difficult for me to properly determine what proportion of the Registrar’s costs should be payable by the father and or the wife, or on what basis. The affidavit on which the father seeks to rely in respect of the redetermination is untested and, in those circumstances, little or no weight could be afforded to it. I have therefore determined that the issue to costs must be remitted to Altobelli FM for rehearing.
Costs of the appeal
Before me, the Registrar sought in the event the appeal was allowed that the father should pay the costs of and incidental to the appeal. The father’s solicitor submitted that if the appeal was allowed each party should pay their own costs of and incidental to the appeal. Neither party sought a certificate under the provisions of the Federal Proceedings (Costs) Act 1981 (Cth) in the event I determined that s 117(1) should apply.
The father has unsuccessfully resisted the appeal. He has been wholly unsuccessful in that endeavour, and the matter will be remitted for rehearing.
I am satisfied, in those circumstances, there should be a departure from s 117(1) of the Act and the father should pay the Registrar’s costs of and incidental to the appeal.
I certify that the preceding ninety seven (97) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Boland delivered on 10 December 2010
Associate:
Date: 10 December 2010
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