Connor and Langton (Costs)

[2012] FamCA 896

FAMILY COURT OF AUSTRALIA

CONNOR & LANGTON (COSTS) [2012] FamCA 896

FAMILY LAW – Costs – Indemnity Costs – costs against a solicitor -

Family Law Act 1975 (Cth)

Anstis & Anstis and Anor (No 2) (2000) FLC 93-014
Botany Municipal Council v Secretary, Department of Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412; 27 ALD 481 at 484
Cassidy & Murray (1995) FLC 92-633
Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225;
In the Marriage of Kohan(1992) 16 Fam LR 245; (1993) FLC 92–340 (FC)
JEL v DDF (Repayment on Appeal, and Costs) (2001) 28 Fam LR 119; FLC 93–083
In the Marriage of Munday and Bowman(1997) 22 Fam LR 321
NMFM Property Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480
Starkey v Starkey (2009) 41 Fam LR 177
Stephens v Stephens (2010) 44 Fam LR 117
White & Tulloch White (1995) 19 Fam LR 696

APPLICANT: Ms Connor

RESPONDENT: Mr Langton

FILE NUMBER: SYC 5094 of 2008

DATE DELIVERED: 31 October 2012

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Le Poer Trench J

HEARING DATE: 17 August 2012

REPRESENTATION

COUNSEL FOR THE APPLICANT:

SOLICITOR FOR THE APPLICANT:

COUNSEL FOR THE RESPONDENT:

SOLICITOR FOR THE RESPONDENT:

Orders

1. The wife’s application for costs of the adjournment granted on 21 June 2011 is dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Connor & Langton has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC

Ms Connor

Applicant

And

Mr Langton

Respondent

REASONS FOR JUDGMENT

Introduction

1. On 28 March 2012, I made orders for final property settlement between the parties and provided reasons for those orders. The matter had been heard on 20 and 21 June 2011 and again from 28 February until 2 March 2012.

2. On 21 June 2011, I granted an adjournment of the proceeding, which at that time was in its second day of final hearing. The adjournment was applied for by the husband, and in granting that adjournment, I made the following order “The wife’s costs of the adjournment are reserved.”

3. The wife pursues the costs of the adjournment granted on 21 June 2011. On 17 August 2012, I made directions for each of the parties to file written submissions.  The wife’s submissions were provided on or about 28 September 2012 and the respondent husband solicitor’s submissions were provided on or about 19 October 2012. The submissions made on behalf of the husband were received on 26 October 2012.

4. As stated earlier, I delivered a judgment stating the reasons for granting the adjournment of the hearing at the application of the husband on 21 June 2011. I here incorporate that judgement as background to the consideration of the current application. As will be seen from those reasons, I deferred any determination of the wife’s application that the husband pay the wife’s costs of the adjournment until the conclusion of the hearing.

5. In support of her application for costs, the applicant wife tenders copies of correspondence and relies on orders of the Court made during the lead-up to the final hearing. It is alleged that the husband failed to comply with the orders (in the nature of directions) in that he did not provide financial information required by the single expert, Mr BB for the preparation of his 2^nd report which addressed valuation issues in respect of corporations in which husband had an interest. It was the valuation evidence of the husband’s interests in particular entities which prompted his application for adjournment of the hearing on 21 June 2011. In particular, a conclusion that the discounted value of the future loan repayment to the husband by O Pty Ltd, a corporation owned by him, was nearly $1.6 million. Further, Mr BB identified a contingent benefit which may accrue to the husband arising from the ability to carry forward $883,000 worth of tax loss in that company.

6. In a letter dated 22 December 2010 from the wife’s solicitors to the husband’s solicitors the issue of the value to the husband of his loan account with O Pty Ltd was squarely stated. The wife’s solicitors said “Our position remains as previously advised and we will assert that the loan has a value.”

7. As will be seen from the Court record, I had closely case managed this case since 23 February 2010. On that day, I made orders for the preparation of a draft balance sheet, a chronology of non-contentious facts and, a list of issues of fact to be determined by the trial judge. The matter was further listed on 1 April 2010.

8. On 1 April 2010, further directions were made, including the appointment of single experts to value any item on the draft balance sheet which had been dated 1 April 2010 where there was no agreement as to value. Further directions were made requiring the parties to do certain things which were designed to eliminate issues which had emerged at that time. On that day, there was a complaint by the wife’s solicitor that the husband was failing to make disclosure in a timely manner. On that day, I made the following direction “I direct that each of the solicitors cause the matter to be listed before me if there is any significant failure by the other to process in a timely manner the orders made today.” The matter was adjourned to 3 June 2010 from that date.

9. On 3 June 2010, I made orders which included extending the time for the husband to comply with a number of the orders I had made on 1 April 2010. I noted the parties had been able to agree on the appointment of single experts to value items on the balance sheet.

10. The matter next came before me on 3 November 2010. On that day, I made orders for the filing of evidence. The matter was adjourned to 18 January 2011 with a view to allocating trial dates if the parties had complied with all outstanding directions. On that date, the parties had filed their evidence, and the matter was listed for hearing to commence 20 June 2011 for three days. I listed the matter in chambers before myself on 30 May 2011 for the purposes of making directions in relation to case outline documents, objections and the like. Such an occasion did not require the attendance of either of the parties.

11. On 6 May 2011 I made an order in chambers for mention before me on 20 May 2011 “for further directions at the request of the applicant wife due to non-compliance by the respondent with my directions made 18 January 2011.”

12. On 20 May 2011, there was no appearance by the husband, however, if my recollection serves me correctly, the solicitor for the wife mentioned the matter with agreement from solicitor for the husband. The matter was adjourned to 30 May 2011 for further mention with provision made for the husband’s solicitor to attend by telephone. Further directions were made requiring the husband to provide the wife within seven days financial documents specified in the order relating to O Pty Ltd. Other orders were made requiring the husband to provide specific information to the wife’s solicitors. A further order was made requiring the parties to cause the single expert Mr BB to update his valuation report in respect of the parties’ interest in O Pty Ltd. I reserved the wife’s costs of attendance in Court on that day.

13. On 30 May 2011, both parties’ solicitors attended. I noted that orders 2, 3, and 4 made by me on 20 May 2011 had not been complied with by the husband, although the husband anticipated being able to comply with those orders within a further 48 hour period or by the end of that week at the latest. I otherwise adjourned the matter to 20 June 2011, the first day of the trial.

14. On 31 May 2011 I made directions in chambers requiring the preparation of specific documents for the purpose of the trial.

15. When the trial commenced on 20 June 2011, the husband sought to file in Court an affidavit which had been sworn by him on 19 June 2011. He then sought to rely on that affidavit. That Application to rely on the affidavit was declined pending the receipt of the evidence of the single expert Mr BB.

16. On 21 June 2011, the husband’s application for adjournment was granted and the wife’s costs of the application adjourned.

17. On 4 July 2011 I made further orders which were consent orders and which required the husband within 28 days to cause the final accounts for the company O Pty Ltd to be completed and served for the year ended 30 June 2010. Further, by 31 August 2011, the husband was to serve the final accounts for the O Pty Ltd for the year ended 30 June 2011. Similar orders were made in relation to corporations in which the wife held an interest.

18. When the matter was relisted before me on 7 October 2011, I reserved four further days for hearing to commence 28 February 2012.

19. Some of the correspondence tendered in support of the applicant’s costs application includes the following:

    a)Letter dated 16 February 2011 to the husband’s solicitors noting that orders made 17 January required provision of certain financial information by 15 February 2011 and noting no such provision had occurred;

    b)Letter dated 3 March 2011 to the husband’s solicitors referring to the orders of 17 January 2011 and noting there was still no financial information provided pursuant to those orders;

    c)Letter dated 22 March 2011 to the husband’s solicitors complaining of failure to comply with the orders made on 18 January 2011;

    d)Letter dated 25 March 2011 to the husband’s solicitors advising that a relisting was being requested as no information as requested had been provided;

    e)Letter dated 30 March 2011 acknowledging receipt of a facsimile from the husband’s solicitor of 28 March 2011 enclosing financial information. The letter points out there is still outstanding information to be provided including reconciliation of assets sold by the husband or the corporation since separation.

    f)Letters were sent during April and May of 2011 by the wife’s solicitors to the husband’s solicitor requesting information. The information was not provided, and at the request of the wife’s solicitor the matter was listed before the court on 20 May 2011;

    g)Letter dated 19 May 2011 from the husband’s solicitor to the wife’s solicitor providing information in the nature of reconciliation in relation to the sale of part of the O property.

    h)Letter dated 8 June 2011 from wife’s solicitor to the Husband’s solicitor complaining that orders made on 20 May 2011 still in part remained outstanding to be satisfied by the husband.

    i)Letter dated 14 June 2011 answering a letter from the husband’s solicitors of 10 June 2011 which sought to have portions of the draft letter of instruction to Mr BB, the single expert, struck out

20. The letters tendered by the applicant wife show a stream of complaint by her about the lack of timely provision of information to her by the husband. On a number of occasions, the failure to produce information/documents was in breach of orders made by the Court.

21. As the wife sought an alternate order for costs which included the respondent’s solicitor being responsible jointly and severally to pay the applicant’s costs, the respondent’s solicitor provided submissions in relation to that claim against him.

22. The respondent husband’s solicitor seeks that the application for costs, which includes himself, be dismissed.

23. The submission of the solicitor for the husband, supported by evidence annexed to the submissions (copies of letters), illustrates that the updated report of Mr BB was not received by the parties until 17 June 2011, some few days before the trial was due to the commence. It seems apparent that after examining the report, the husband swore his affidavit on 19 June 2011 identifying aspects of the report which he said did not reflect the actual financial position of either the relevant company or himself. In particular, a sum of $483,000 of trade debtors was identified in the accounts and picked up in the valuation of Mr BB. The husband, in his Affidavit sworn 19 June 2011, claimed they were recoverable only to 10 per cent. Further, the husband asserted that the sum of $614,000, appearing in the valuation as expenditure on a unit complex in N Town, was in fact expenditure on improvements on the O property. If those assertions proved to be true, then there was the potential for significant change to the valuation evidence of the single expert.

24. In relation to the alleged tardiness in complying with directions of the court to provide information and/or documents by the husband to the wife, the husband’s solicitor says this arose, in significant part, because documents could not be obtained from the husband’s accountants in a timely manner.

Submission on behalf of the husband

1. The husband provided lengthy written submissions in response to the Application for costs made by the wife in this matter. The respondent husband in those submissions notified that he was seeking an order for the wife’s application to be dismissed.

2. From Paragraph 26 in the submissions, the husband addressed the issue of “the second [BB] Report”. Under that heading, he set out a detailed history commencing with the order being made on 20 May 2011 for the parties to cause the single expert, Mr BB, to update his valuation report in relation to the parties’ interest in O Pty Ltd. Following the making of that order, and by agreement between the parties’ legal representatives, the wife’s solicitor provided a draft letter of instruction for signature by the husband. That draft letter was dated 10 June 2011. At the time of providing the letter the wife’s solicitors had already provided to Mr BB copies of the respondent husband’s financial documents in relation to the O Pty Ltd.

3. Although it is not relevant to the subject application under consideration, I pause here to note that the practice of one solicitor/party having direct contact with a jointly appointed single expert is contrary to the Rules and the practice usually adopted by parties who engage a single expert in Family Law proceedings. Further the provision of documents and/or information by one party to a single expert, where that information or document is unsolicited by the expert or provided without the express consent of the other party is contrary to the Rules and usual practice. The potential for an expert to be compromised or to be seen to depart of impartiality by such conduct on the part of one party is significant. Rule15.59(3) includes the following:

   The expert witness has a duty to:

   (a) give an objective and unbiased opinion that is also independent and impartial on matters that are within the expert witness’s knowledge and capacity

4. The duty referred to in 15.59 is to the court. Communication by one party with a single expert, without the specific authority of the other party, has the potential to affect the single experts’ ability to act impartially and may give rise to the allegation of bias or raise the perception of same.

5. The husband’s solicitor signed the letter of instruction and returned it to the wife’s solicitor on 10 June 2011. However, prior to returning the document, the husband’s solicitor struck out two “dot point” paragraphs which appeared on page 2 of the draft letter. Those two paragraphs read as follows:

   j)When preparing your report we request that you consider the following matters:

   i)The value to the husband of his loan account assuming that the loan would be repaid over time and what discount, if any, would be applicable to that loan;

   ii)That based on the assumption that the company will continue to trade and return to profitability and that the husband would, over a period of time, be repaid the monies due to him by way of loan free of any taxation impost;

6. On 14 June the wife’s solicitor responded, joining issue with the strike out of the abovementioned paragraphs. Reasons were stated and the original letter was again returned for execution and to be sent of to Mr BB. That letter was met with the response sent by email from the husband’s solicitor on 15 June 2011 stating disagreement with the contents of the letter of instruction.

7. On 16 June 2011, the wife’s solicitor proposed a method to deal with the controversy which would see the paragraphs which offended the husband struck out of the letter of instruction to Mr BB, and alongside that, the wife’s solicitor would request of the single expert the answer to specific questions.

8. It appears that the letter signed by both parties was sent to Mr BB on 16 June 2011.

9. In the letter from the husband’s solicitor to Mr BB of 16 June 2011, the following appears:

   We referred to the letter of today’s date written to you by Stuart and Mills. We do not endorse your consideration of the questions expressed in that letter for the simple reason that in cases of this nature, the Family Court determines the value of the parties’ assets and does not endeavour to project what may or may not be the value of any asset at some indefinite time in the future. Specifically, there is simply no basis for the assumptions which you have been invited to make in the paragraph numbered 2.

10. The abovementioned statement of law made by the husband’s solicitor to the single expert is not supported by any reference to a section of the Family Law Act, any reference to any other relevant legislation, or any reference to a relevant decision of the Family Court. I do not accept that the statement made in the letter by the husband’s solicitor accurately reflects the law.

11. In the consideration of a property application, one of the matters which the court needs to take into account, as prescribed by s 79 of the Act, is the provision of s 75(2) of the Act. That section, in my view, is wide enough to require the Court to take into account any financial benefit which may accrue to a party at any future time. The remoteness of the accrual, the amount of the accrued benefit and all other relevant facts surrounding same would be taken into account in determining the weight which might be given to such a future/prospective benefit.

12. An example of circumstances in which the Court has taken into account a prospective/future benefit to a party can be seen in cases where a party is named as a beneficiary under the will of a person who has not yet died. In this regard see White & Tulloch White (1995) 19 Fam LR 696. In that matter, the Full Court (Fogarty, Kay and Hilton JJ) were asked to determine whether the wife’s mother could be required to produce under subpoena documents relating to the wife’s future inheritance from the wife’s mother’s estate. The Full Court held that future inheritance could not be treated as a financial resource under s 75(2)(b) of the Act, but, depending on the facts of the case, could be taken into consideration under s 75(2)(o)., their Honours said:

    We do not consider there is any absolute rule. The ultimate criterion is whether the evidence is, or may be, relevant to the just and equitable process under s. 79. An expectancy of inheritance will not be relevant in many s. 79 proceedings. In the end, relevance must depend upon the nature of the claims being put forward and the facts of the particular case. For example, if the claims were based entirely upon contributions, it could not be suggested that an issue of expectancy could be relevant because no s. 75(2) factors would be involved. Where the claim includes s. 75(2) factors, the nature or degree of suggested relevance between those specific claims and the expectancy in question would need to be analysed. That is to say, there must be a worthwhile connection between a specific element of the party's case and the suggested expectancy.

13. Other examples where the Court may take into account future benefits would include a circumstance where a trust had a vesting date which was known, and where the consequence of such vesting in respect of one of the parties can be reasonably calculated.

1. The husband in his submission then outlined that the report was made available on 17 June 2011 to the parties by Mr BB. This occurred only a short number of days before the trial commenced on 20 June and where 18 and 19 June 2011 were weekend days.

2. The husband asserts that none of the delay in the preparation of Mr BB’s second report can be reasonably attributed to him.

3. As stated earlier in the submissions made on behalf of the respondent husband’s solicitor, delay did occur in relation to the provision of some accounts for O Pty Ltd however, that arose because the accountant for the company did not provide the documents (which needed to be created) in the time span that had been anticipated at least by the husband and his solicitor.

Costs orders against solicitors

1. Section 117 of the Family Law Act 1975 (Cth) (”the Act”) grants the court power to make an order for costs. The section states:

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.

(4)  However, in proceedings in which an independent children's lawyer for a child has been appointed, if:

(a)  a party to the proceedings has received legal aid in respect of the proceedings; or

(b)  the court considers that a party to the proceedings would suffer financial hardship if the party had to bear a proportion of the costs of the independent children's lawyer;

the court must not make an order under subsection (2) against that party in relation to the costs of the independent children's lawyer.

(5)  In considering what order (if any) should be made under subsection (2) in proceedings in which an independent children's lawyer has been appointed, the court must disregard the fact that the independent children's lawyer is funded under a legal aid scheme or service established under a Commonwealth, State or Territory law or approved by the Attorney-General.

1. Rule 19.8(1)(b) of the Family Law Rules 2004 (Cth)(“the Rules”) states:

FAMILY LAW RULES 2004 - Rule 19.08
Order for costs

(1)   A party may apply for an order that another person pay costs.

(2)   An application for costs may be made:

(a)    at any stage during a case; or

(b)    by filing an Application in a Case within 28 days after the final order is made.

(3)   A party applying for an order for costs on an indemnity basis must inform the court if the party is bound by a costs agreement in relation to those costs and, if so, the terms of the costs agreement.

Note 1    The court may make an order for costs on its own initiative (see rule 1.10).

Note 2    A party may apply for an order for costs within 28 days after the filing of a notice of discontinuance by the other party (see subrule 10.11 (4)).

Note 3    A party may apply for an extension of time to make an application (see rule 1.14).

(4)   In making an order for costs, the court may set a time for payment of the costs that may be before the case is finished.

Rule 19.10 – Costs orders against lawyers

(1)   A person may apply for an order under subrule (2) against a lawyer for costs thrown away during a case, for a reason including:

(a) the lawyer's failure to comply with these Rules or an order;

(b)    the lawyer's failure to comply with a pre-action procedure;

(c)    the lawyer's improper or unreasonable conduct; and

(d)    undue delay or default by the lawyer.

(2)   The court may make an order, including an order that the lawyer:

(a)    not charge the client for work specified in the order;

(b)    repay money that the client has already paid towards those costs;

(c)    repay to the client any costs that the client has been ordered to pay to another party;

(d)    pay the costs of a party; or

(e)   repay another person's costs found to be incurred or wasted.

Indemnity costs generally

1. In the Marriage of Kohan(1992) 16 Fam LR 245; (1993) FLC 92–340 (FC) and In the Marriage of Munday and Bowman(1997) 22 Fam LR 321; FLC 92–784 are the leading authorities on indemnity costs in the Family Court. In these cases the Full Court of the Family Court emphasised that it should not lightly depart from the ordinary rules relating to costs between parties and that the circumstances justifying the departure “should be of an exceptional kind”, indemnity costs being “still an exception in this and other jurisdictions”: Kohan at Fam LR 258; FLC 79,614.

2. The authority of Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 is discussed in Munday and Bowman and gives the following examples where indemnity costs might properly be awarded at [250]:

   (xii) The question must always be whether the particular facts and circumstances of the case warrant the making of an order for payment of costs other than on party and party basis. Circumstances warranting the exercise of the discretion to award indemnity costs include:

   (a)  Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts: see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 .
   (b)  Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud: see Fountain Selected Meats (Sales) Pty Ltd .
   (c)  Evidence of particular misconduct causing loss of time to the court and to other parties: see Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (Fed C of A, French J, 3 May 1991, unreported).
   (d)  The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions: see Ragatta Developments Pty Ltd v Westpac Banking Corporation (Fed C of A, Davies J, 5 March 1993, unreported).
   (e)  An imprudent refusal of an offer to compromise.

3. These principles have also been followed in JEL v DDF (Repayment on Appeal, and Costs) (2001) 28 Fam LR 119; FLC 93–083 and Starkey v Starkey (2009) 41 Fam LR 177.

1. A recent example of the Full Court’s reluctance to order indemnity costs is in Stephens v Stephens (2010) 44 Fam LR 117; [2010] FamCAFC 172. At 73 the Full Court relevantly said:

An order for costs may be made on an indemnity basis, subject to a judicial determination capable of being made that there ought to be a departure from the usual basis that costs be payable on the party and party basis.

1. At [118] the Full Court discussed the Federal Court decisions of Botany Municipal Council v Secretary, Department of Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412; 27 ALD 481 at 484 and NMFM Property Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480.

2. In Botany Municipal at 415 Gummow J stated that "I accept that the discretion conferred by s43 [of the FCA Act] is not so circumscribed that an order of this character [for indemnity costs] may be made only against an ethically or morally delinquent party."

3. Lindgren J qualified this statement in NMFM Property at [54] by stating that “His Honour [Gummow J] was saying only that the presence of ethical or moral delinquency is not an essential condition of a valid exercise of the discretion.” The Full Court notes that Lindgren J made clear at [56]: “The conduct of a party that is relevant to the issue of indemnity costs is the party’s conduct as litigant.”

Indemnity costs in relation to the conduct of solicitors

1. Having established the parameters of where the Court will grant indemnity costs, it is appropriate that analogous cases in which indemnity costs against solicitors to parties to proceedings

2. In Cassidy & Murray (1995) FLC 92-633, the solicitor for the wife wrote a negative letter, addressed to several parties and professional entities and referring to the judge in his client’s matter, after the matter had been determined but before a costs application and a stay application pending an appeal had been heard. The judge subsequently disqualified herself from the matter. The case was moved to another judge, who ordered that the wife’s solicitors pay the husband’s costs associated with the transfer of the matter on an indemnity basis. The solicitor appealed.

3. In their judgment, Fogarty, Kay and Hase JJ stated (at 505-506):

   The order in this case is not appropriately seen as made for the purpose of punishing the appellant, but rather as protecting the respondent from loss. We think that though the effect of any costs order is obviously punitive in one sense, and though the order in this case was made only because of conduct of which the court disapproved, the rationale behind the making of the order is the requirement that the innocent party be compensated for expenses caused by a solicitor.

   The case of Latoudis v Casey (1990) 170 CLR 534 raised the issue whether a successful defendant in summary proceedings could receive an order for costs against the informant. Though those circumstances are fundamentally different from the ones with which we are concerned, the nature of the costs order is essentially the same. Mason CJ said at 543:

   If one thing is clear in the realm of costs, it is that, in criminal as well as civil proceedings, costs are not awarded by way of punishment of the unsuccessful party. They are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings: Cilli v Abbott

   In the same case, McHugh J said at 567:

   The rationale of the order is that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred. The order is not made to punish the unsuccessful party. Its function is compensatory.

   Reflecting that proposition, a court would not make an order for costs against a solicitor who had been guilty of seriously negligent conduct if that conduct caused no loss to another.

   In Ridehalgh v Horsefield, Bingham MR said at 866:

   As emphasised in Re a Barrister (wasted costs order) (No 1 of 1991) [1992] 3 All ER 429, ; [1993] QB 293, the court has jurisdiction to make a wasted costs order only where the improper, unreasonable or negligent conduct complained of has caused a waste of costs and only to the extent of such wasted costs. Demonstration of a causal link is essential. Where the conduct is proved but no waste of costs is shown to have resulted, the case may be one to be referred to the appropriate disciplinary body or the legal aid authorities, but it is not one for the exercise of the wasted costs jurisdiction.

   We think that confusion may arise from the fact that it is reproachable conduct by the solicitor which leads to the order against him or her. The confusion subsides, however, once that requirement is seen in context.

   Almost any act done by a solicitor in connection with proceedings gives rise to costs, which are generally to be borne by one, some or all of the parties to proceedings – that is expected by parties who engage solicitors. Where those costs are appropriately incurred in the performance of a solicitor's responsibilities, the solicitor cannot fairly be called upon to meet them.

   It is only when there is something relevantly inappropriate about the incurring of those costs that it will be proper to attach liability to the solicitor. It is for that reason that the conduct of the solicitor is called into issue. It is not that the court seeks to punish the solicitor for his or her conduct. Whether the appellant's conduct in this case could constitute a contempt of court is not a matter upon which we express a view, but any question of punishment would more appropriately be addressed by proceedings of that nature.

   In cases of this type, causation alone cannot be the test of whether a solicitor should be held liable for parties’ expenses. Only the solicitor's improper conduct can provide a ground for the making of such an order against him or her. But the basis of the order is the concern that the innocent party should not bear costs which arise only out of the improper conduct of the solicitor, and not the improper conduct itself.

4. What may be drawn from this judgment is that costs against a solicitor relates to the costs which arise out of a solicitor’s behaviour and not to the inappropriate behaviour itself.

5. The facts in the matter of Anstis & Anstis and Anor (No 2) (2000) FLC 93-014 are significantly more analogous Mullane J stated (at 87258-87259):

   (c) Conduct of the Parties to the proceedings in relation to the proceedings

   27. One relevant matter under this paragraph is the conduct of the solicitors. There are two areas where this is important. One is the conduct of the solicitors in failing to return to the husband his passports once he commenced proceedings against them seeking an order that they do so.

   28. The conduct of the solicitors was unlawful. The husband was entitled to possession of his passports and the solicitors' conduct in resisting his request must be presumed to have occurred with knowledge that such conduct was unlawful. Indeed, their retention of the Australian passport without reasonable excuse is a criminal offence under paragraph 9A(d) of the Passports Act 1938, punishable by a fine of up to $5,000 or imprisonment for up to two years.

   29. Clearly the proceedings initiated by the husband would not have been necessary if the solicitors had acted in accordance with the legal obligations and surrendered his passports to him on demand. Once the proceedings were commenced and they were served with the application, they also had the option of surrendering the passports to him in order to avoid the need for the husband to continue to seek an order for them to do so.

   30. The second aspect of the conduct of the second respondent involves the adjournment of the costs application when the orders for return of the passports were made, and also the subsequent two adjournments of the costs issue. The first adjournment apparently arose in circumstances where the second respondent failed to inform the wife of the need for her to be present when the judgment was delivered in anticipation of the costs application. In addition, despite the notice given by the husband's legal representatives in correspondence before commencement of the proceedings and at the hearing that the husband would in the first instance be seeking an order for costs against the solicitors, the solicitors failed to advise the wife of this and of her need to be separately represented when the judgment was delivered. It was these matters of conduct which led to the adjournment to 19 April.

   31. Then for nearly a month the solicitors continued in their failure to properly advise the wife of the need for separate representation on 19 April and also failed to advise her of the matter being adjourned to that date. It was only at 5pm on 14 April that the solicitors finally notified the wife that the matter had been adjourned to 19 April and that she needed to have separate representation. This late notice to the wife prevented her counsel from obtaining a transcript of the decision. If she had been notified promptly after the delivery of the judgment, a request could have been made for the transcript to be available and it could have been made available in ample time before the matter came to court on 19 April.

   32. Accordingly, the adjournment on 19 April occurred because of the conduct of the second respondent in failing to properly inform the wife of the adjournment and of the need for separate representation.

Conclusion

1. In the judgment delivered on 28 March 2012, I did not include in the balance sheet, the value to the husband of his loan account in the O Pty Ltd, nor the tax losses sitting in that company which it was said could provide a substantial benefit to the husband in the future. I did, however, take those matters into account under s 75(2) of the Act.

2. I accept that the report of Mr BB provided to the parties on 17 June 2011 presented for the husband a significant problem in relation to evidence he had not had an opportunity to put before the Court. The matters that concerned him related to the amount of trade debtors and appropriation within the accounts of expenditure as against a unit development in N Town, where in fact part of that expenditure related to the rural property, O.

3. I accept that the husband’s failure to comply with some of the directions made by the Court requiring him to provide financial documents in respect of various entities was not capable of being complied with on his part because the accountants engaged by him to perform the work necessary to produce the documents had not been able to do that.

4. As set out above, s 117 provides, prima facie, and subject to various other specified sections of the Act, each party to proceedings under the Act shall bear his or her own costs. Section 117(2A) sets out the matters which the court shall have regard to when considering what order, if any, should be made in relation to costs. I now turn to consider s 117(2A).

5. The financial circumstances of each of the parties was well canvassed in the judgment delivered by me on 28 March 2012.

6. Neither of the parties to the proceedings is in receipt of assistance by way of legal aid.

7. The wife relies on conduct of the husband in the lead-up to the hearing commencing on 20 June 2011 as constituting the basis on which the Court may consider making an order for costs in her favour against the husband. In particular, the wife relies on the failure on the part of the husband to make a timely disclosure of all relevant documents. Further, the wife says that the husband failed to comply with directions of the Court with regard to procedural matters, and that failure either caused the late production of the updated valuation by Mr BB or at least contributed to it.

8. In relation to the preparation of the report by Mr BB, the husband solicitor denies that there was any loss of time in the preparation of the updated report as a result of actions or omissions on the part of the husband or the husband’s solicitor. It is to be noted that it was 20 May 2011 that an order was made requiring Mr BB to update his valuation report in respect of the parties’ interest in O Pty Ltd. That left very little time in any event for the parties to be able to consider any updated report of Mr BB’s.

1. To understand the importance of the evidence of Mr BB, it is important to look at the comparison between his valuation of the husband’s interest in O Pty Ltd as at 15 September 2010 and his valuation of the husband’s interests in the same entity as a 17 June 2011, and the amendment to that report dated 22 June 2011. In the first report, Mr BB reported that the husband’s interest in the shares and loan account in the O Pty Ltd had no value. In the detail of that valuation at paragraph 5.2.2, Mr BB said the following:

   The company, up to 30 June 2009, has accumulated accounting losses of $2,616,258, income losses of $2,744,112 and capital losses of $4929. The income tax losses, should they be recoverable, would have a tax benefit of $823,233. This is only in the event of their recoupment as against the company’s ability to generate future income. This is a questionable proposition in view of past and current circumstances and, if at all, will be over a long period of time under the circumstances.

2. At paragraph 5.2.5 of the same report, Mr BB reports as follows

   The company’s current and non-current liabilities amount to $4,321,457 of which $2,046,671 is owed to third parties. The company’s bankers are owed $1,923,759 of this amount. The husband is owed the balance of $2,274,786.

   5.2.6 I am advised that the principal source of loan funds from the husband were primarily from the sale of water rights previously held in his name.

   5.2.7 From my review of the information made available to me, the loan owing to the husband is due and payable by the company. On the assumption that the bankers and other third party creditors are secured or will be discharged in full in preference to the husband, then, currently, the company is incapable of discharging his loan in full or in part. Excluding the loan owing to the husband, there is a shortfall of assets available to discharge the other creditors to the extent of $337,717.

3. In the report of Mr BB dated 17 June 2011 there was a different result. In that report, Mr BB valued the husband’s interest in O Pty Ltd as

   a)Shares: nil value

   b)Loan account: $1,217,600

   c)Discounted value of future loan repayment: $1,591,986.

4. Mr BB also added an additional heading “contingent benefits”. Under that heading the following appears “Tax benefits of carry forward tax losses of $2,946,281 at 30% = $883,884.” That second report was amended slightly by Mr BB on 22 June 2011; that amendment for the purpose of this argument is immaterial.

5. As can be seen, there is a very substantial difference in the value attributed to the husband’s interest in O Pty Ltd between the first valuation of Mr BB’s and the second valuation. Thus the husband and his legal advisors were presented with an entirely different prospective balance sheet for the parties’ assets, liabilities and resources on the first day of the trial, namely 20 June 2011. It was, inter alia, that substantially different position which understandably motivated the husband to investigate further the underlying figures upon which assumptions were made by Mr BB in reaching his conclusion. The limited time available to the husband and his legal representatives between the date of the update report, 17 June 2011 and the date of hearing, 20 June 2011, was insufficient for any reasonable investigation of the nature the husband sought to undertake. It was sufficient to be able to identify some particular entries in the accounts of the company which may not represent reality and which may not have had any real value. It is those matters that were principally addressed by the husband’s legal counsel on 20 June 2011 when he made his application for adjournment.

6. In my view, the conduct complained of by the wife in respect of the husband did not contribute to the necessity of the adjournment in any substantial way. The fact of the late ordering of an update report and the proximate delivery of the report to the commencement of the trial were in my view, the matters which principally led to the circumstances giving rise to the husband’s application for an adjournment.

7. The balance of the considerations required to be taken into account under s 177(2A) do not have any real application in the subject determination.

8. In my view, there is no basis upon which the court could reasonably order that the husband pay the wife’s costs of the adjournment granted on 21 June 2011. Given the proximity of the hearing to the date upon which the update report from Mr BB was ordered, in retrospect, it was an ambitious plan and would only have been of assistance if there was no substantial change in the value attributed to either party’s interest from that attributed in the earlier report by Mr BB.

9. As a consequence of the above, I would dismiss the wife’s application for costs of the adjournment granted on 21 June 2011.

I certify that the preceding seventy-one (71) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench delivered on 31 October 2012.

Associate:

Date:  31 October 2012