Costanza and Costanza

[2008] FamCA 294

FAMILY COURT OF AUSTRALIA

COSTANZA & COSTANZA [2008] FamCA 294

FAMILY LAW – COSTS – Held that costs order against wife in favour of each of the administrators/liquidators and the trustee warranted on party and party basis, being third parties involved in the proceedings solely upon the instigation of the wife – No conduct on behalf of the third parties was other than reasonable in the circumstances – Section 117 Family Law Act 1975 (Cth) cited – Costs order can be satisfied from the monies received and/or receivable by wife from resolution of substantive matrimonial dispute or, should such monies be found by another court to be property of the wife’s parents, by agreement or by application to bankrupt the wife.

Family Law Act 1975 (Cth)
Bankruptcy Act 1966 (Cth)
Corporations Act 2001 (Cth)

APPLICANT: Mrs Costanza

1^st RESPONDENT: Mr Costanza

2^nd RESPONDENT: Mr B

3^rd RESPONDENT: Ms G

4^th RESPONDENT: T Costanza

5^th RESPONDENT: Mr A

THIRD PARTY

LIQUIDATORS/ADMINISTRATORS:

RT and AD

FILE NUMBER: PAF 1550 of 2005

DATE DELIVERED: 11 April 2008

PLACE DELIVERED: Parramatta

PLACE HEARD: Parramatta

JUDGMENT OF: COLEMAN J

HEARING DATE: 4 APRIL 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Campton

SOLICITOR FOR THE APPLICANT: Mark Brown & Associates

SOLICITOR FOR THE 5^TH RESPONDENT

(TRUSTEE):

Mr Steven Mullette

Bartier Perry

COUNSEL FOR THE THIRD PARTY

ADMINISTRATORS/LIQUIDATORS:

Mr McGrath

SOLICITOR FOR THE THIRD PARTY

ADMINISTRATORS/LIQUIDATORS:

Christopher Dunn

Matthews Folbigg Pty Ltd

COUNSEL FOR THE WIFE’S PARENTS: Mr Durston

SOLICITOR FOR THE WIFE’S PARENTS: James Pappas Solicitors

Orders

1. That the wife pay the 5^th respondent and the third parties’ costs of and incidental to the proceedings as agreed or assessed on a party and party basis.

2. That the husband indemnify the wife with respect to her liability pursuant to Order (1) of these orders.

3. That execution of Order (1) be stayed until the later of:

   (a)       The period of 28 days from this date; or

   (b)       the determination of proceedings in a Court of competent jurisdiction by the parents of the wife in relation to the beneficial ownership of the sum of $95 000 received and/or receivable by the wife pursuant to orders of this Court of 28 August 2007.

4. That the injunctive orders currently in force and effect in this Court be discharged without further order of this Court upon the happening of the relevant event referred to in Order (3)(b).

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

FAMILY COURT OF AUSTRALIA AT PARRAMATTA

FILE NUMBER: PAF 1550 of 2005

MRS COSTANZA

Applicant

And

MR COSTANZA

1^st Respondent

MR B

2^nd Respondent

MS G

3^rd Respondent

T COSTANZA

4^th Respondent

MR A

5^th Respondent (Trustee)

RT AND AD

Third Party
Administrators/Liquidators

REASONS FOR JUDGMENT

1. The proceedings with which the Court is concerned involve applications for costs by two third parties, the first being RT and AD, (“the administrators / liquidators”) the second being Mr A (“the trustee”), who are seeking orders for costs of and incidental to the substantive proceedings against Mrs Costanza (“the wife”) which concluded in 2007. The wife opposes any order for costs against her, whether made jointly and severally with Mr Costanza (“the husband”) or solely against her.

2. The husband has not appeared at any material time. It is common ground that the husband is a man of straw, hence the desire of the administrators/liquidators and the trustee to secure an order for costs against the wife (who may have assets) and the wife’s desire to avoid such an order notwithstanding that, on the evidence relied upon by her learned counsel, the wife would clearly be entitled to an order that the husband indemnify her with respect to any costs which she was ordered to pay to either the administrators/liquidators and/or the trustee.

3. It is common ground that, by virtue of resolution of complicated substantive proceedings involving the husband, the wife and others in 2007, the only property of the husband and wife with respect to which any order for costs made against either or both of them could possibly be recovered are funds received and/or receivable by the wife totalling $95 000.

4. Although not a participant in the dispute as such, the wife’s parents have a keen pecuniary interest in the outcome of the dispute, in that they claim to have a charge over any funds to which the wife may be entitled pursuant to orders of this Court which, if confirmed, would exceed the totality of any such funds.

5. Without having any idea of the likely quantum of costs sought by the administrators/liquidators and/or the trustee, there seems little doubt that, if awarded on any basis, those costs would consume a significant proportion of the $95 000 which the wife is entitled to receive as a result of the resolution of the substantive proceedings, being the matrimonial cause and other disputes associated with the matrimonial cause.

6. Although not the subject of a claim in this Court, it is apparent that the wife’s parents claim that the $95 000 to which the wife is entitled pursuant to the resolution of the substantive proceedings is impressed with a trust or charge or other equitable interest in their favour and, as such, not property against which any order for costs made in favour of the administrators/liquidators and/or the trustee might be recoverable.

7. It is common ground that, if costs orders are made in favour of the administrators/liquidators and/or trustee in this Court, there will be proceedings in another court in which the wife’s parents’ claim with respect to the funds will be agitated. That dispute has a number of possible outcomes about which this Court could not usefully speculate. It is sufficient to record that there is at least tacit agreement that the injunctive orders currently on foot in this Court relating to the monies receivable by the wife should continue for a time after the date of any orders by this Court awarding costs to the administrators/liquidators and/or the trustee against the wife.

8. Some dates and events provide a helpful background to the costs issue. Counsel for the trustee has provided, in table form, a concise history of relevant events in this Court, the substance of which is reproduced below.

Material Facts

1. On 28 September 2005 the wife filed an application in proceedings between herself and the husband seeking relief pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”).

2. On 18 July 2006 the husband signed a statement of affairs and authority pursuant to s 188 of the Bankruptcy Act 1966 (Cth) appointing the trustee as controlling trustee for the purpose of Part X of the bankruptcy legislation. The husband at that time also submitted a proposal to creditors for the purpose of entering into a personal insolvency agreement (“PIA”).

3. On 19 July 2006 the trustee recovered $58 798.17 from the proceeds of sale of property at B.

4. On 24 July 2006 the wife filed the first of a series of amended applications in this Court, pursuant to which she sought, inter alia, the setting aside of the B property sale pursuant to s 106B of the Act. The respondent to that application was the purchaser of the property, Mr B.

5. On 26 July 2006 the trustee recovered the sum of $60 507.70 from the proceeds of sale of the property at P.

6. On 8 August 2006 the wife filed her second amended application in which she sought relief, the effect of which, if granted, was that monies received by the trustee would be paid to the wife. On 10 August 2006 the wife abandoned her claim for injunctive relief against the trustee in the terms recorded by her solicitors on 7 August 2006. It had been foreshadowed that the wife would seek to have held in her solicitor’s trust account all monies received by the trustee on behalf of the husband.

7. Also on 10 August 2006 the trustee issued a report to creditors of the husband as required by s 189A of the Bankruptcy Act 1966.

8. On 11 August 2006, on the application of the wife, the trustee was joined in the proceedings in this Court. In essence, by her application, the wife sought to recover from the trustee all funds held by the latter previously belonging to the husband to the exclusion of the husband’s creditors. On that same day orders were made that the trustee be entitled to deduct his remuneration and expenses in accordance with the provisions of s 189AC of the Bankruptcy Act 1966.

9. On 18 August 2006 the wife listed herself as a creditor of the husband and lodged a Statement of Claim and proxy so as to vote at a meeting of the husband’s creditors. On 21 August 2006, at a meeting of the husband’s creditors, the creditors resolved pursuant to s 204(1) of the Bankruptcy Act 1966 that the husband execute a PIA pursuant to the provisions of Part X of that act. The wife rejected the proposal that she receive a lump sum from the funds available to creditors by voting against the PIA. On 7 September 2006 the PIA was executed and the trustee became trustee of such PIA.

10. On 2 November and 24 November 2006 directions were made in this Court to facilitate the 10-day hearing of the pending matrimonial causes pursuant to the Act and disputes associated with such causes.

11. On 20 February 2007 the wife filed her third amended application in which, amongst other things she sought to deny the trustee the ability to deduct remuneration and expenses from the trust fund held by him as and from 12 August 2006, seeking in lieu that such monies be paid to her in priority to any payment of costs of either the trustee or any creditor of the husband’s PIA (Order 33).

12. On 6 March 2007 a further $10 000 was received by the trustee and retained pursuant to the PIA.

13. On 16 July 2007 the wife’s solicitors advised the trustee that the claim that the trustee’s costs after 12 August 2006 not be paid would not be pursued.

14. On 28 August 2007, the first day of the hearing of the substantive proceedings in this Court, the wife’s third amended application was further amended by the deletion of Order 33, the effect of which has been indicated above.

15. There followed correspondence between the trustee and the wife’s solicitors in which, for the first time, it was suggested that the monies receivable by the wife pursuant to the resolution of the substantive proceedings earlier that month was asserted to be subject of a charge in favour of her parents.

16. The costs issue came before the Court on 4 September 2007, 5 November 2007 and 19 February 2008, ultimately being agitated on 4 April 2008.

17. So far as the administrators/liquidators’ involvement in the proceedings are concerned, their learned counsel, in a comprehensive and extremely helpful document dated 4 April 2008, outlined the basis of the claims sought to be advanced on their behalf. Included in that document was a background to the involvement of the administrators/liquidators in the proceedings before this Court. As with the chronology supplied by learned counsel for the trustee, the accuracy of the background there provided has, sensibly and fairly, not been disputed by learned counsel for the wife. It is appropriate to briefly record material facts relating to the involvement of the administrators/liquidators in the proceedings in this Court.

18. On 12 May 2006 the administrators/liquidators were appointed under the Corporations Act 2001 (Cth) as administrators of two corporations, A Pty Ltd and B Pty Ltd. These corporations were owned by the husband and/or the wife. There is no suggestion, at least for the purpose of the current costs dispute, that prior to any relevant corporation being placed in administration and/or liquidation, the wife had exercised any control, legal or otherwise, over the actions of those corporations. For the purpose of these proceedings, prior to control of any relevant corporation passing to the administrators/liquidators, the husband can be regarded as having had sole and effective control of such corporations.

19. At about this time the administrators/liquidators were also appointed liquidators of C Pty Ltd a related corporation.

20. The document of learned counsel for the administrators/liquidators then records:-

    4.Pursuant to a Deed of Company Arrangement approved by resolution of [A Pty Ltd’s] creditors, [the administrators/liquidators] received an Administration Fund to be directed to payment of administrator’s costs and participating creditors (excluding the parties to the marriage and related parties). … The fund was dissipated by inter alia payments for legal costs and administrators fees in respect of professional services of and incidental to these proceedings, leaving a shortfall to genuine creditors.

    …

    6.In the course of their administrations and / or liquidations of the above-mentioned corporations, [the administrators/liquidators] were subpoenaed to produce all of the papers of [A Pty ltd] and [B Pty Ltd] and the administrators’ own working papers … and orders and injunctions were sought against the corporations of which they were the administrators / liquidators and against the administrators themselves. … [The administrators/liquidators] were joined and / or orders were sought against them, not in their personal capacities, but in their representative capacity as administrators or liquidators of the family companies of the parties to the marriage.

    7.On 11 August 2006, orders by consent were made against [the administrators/liquidators] and they were excused from the proceedings and their costs and expenses were reserved. …

    8.Each of the corporations has significant debts and liabilities to the ATO, trade creditors and employees and there was a shortfall to genuine creditors and employees. Some employees are out of pocket in the order of tens of thousands of dollars for unpaid wages or superannuation. …

    9.[The administrators/liquidators’] fees and expenses have been approved by creditors from time to time and paid out of the funds of the corporations in the course of administration or liquidation. (Written Outline Submissions of Administrators/liquidators, page 3, pars 4, 6 – 9).

21. The basis of the claim on behalf of the administrators/liquidators was articulated in the following terms:-

    10.What is sought by [the administrators/liquidators] is that such of their costs and expenses as relate to their involvement in these proceedings in the Family Court of Australia be paid by the wife. Funds available to creditors were dissipated, by their involvement in the court process at the instigation of the wife. (Written Outline Submissions of Administrators/liquidators, page 3, par 10).

22. The practical significance of the relief sought on behalf of the administrators/liquidators is encapsulated in the following statement from their learned Counsel’s written submissions to the Court:-

    11.The order is sought for the benefit of employees and bona fide creditors of the corporations. For example, in respect of [B Pty Ltd] (which employed a number of unrelated persons as factory workers), employees will receive from any costs order a small part payment only (for their unpaid wages / superannuation), the ATO will receive a small payment and trade creditors will receive nothing. … (Written Outline Submissions of Administrators/liquidators, page 4, par 11).

discussion

1. With his customary candour, learned counsel for the wife, who has appeared without the prospect of pecuniary recompense on a number of occasions in relation to the costs issue, traversed in detail a number of relevant events. For reasons which will emerge it is unnecessary to reciprocate that detail in these reasons for judgment. The matters to which learned counsel for the wife referred the Court leave little scope for doubting the following: -

   (a)As between herself and the husband, the wife was an innocent bystander given that whatever financial predicament the husband and/or relevant corporation found himself/itself in, there is not a shred of evidence to suggest that to have been referrable to anything done or not done by the wife;

   (b)That an order for costs against the husband would, on the evidence, be readily justifiable by reference to the provisions of s 117(2A) of the Act;

   (c)That, if any order for costs were to be made against the wife, the wife would be entitled to an order that the husband indemnify her with respect to any such order; and

   (d)That any order for indemnity against the husband with respect to any costs ordered against the wife would in all probability be worthless.

2. As is clear beyond doubt, the trustee and the administrators/liquidators became “involved” in the proceedings in this Court as a result of steps taken by or on behalf of the wife. As is also not in doubt, the wife’s endeavours to secure any orders or relief in any form in this Court from or against the trustee and/or the administrators/liquidators were “wholly unsuccessful”.

3. Whilst these factors do not of themselves necessarily provide a sufficient foundation for forming the requisite opinion by reference to s 117 of the Act, they have particular significance in a costs dispute involving third parties who, it is clear, but for the wife having done so, would never have become involved in the proceedings in this Court and would not, in the course of their discharge of their functions pursuant to the Bankruptcy Act 1966 and the Corporations Act 2001 respectively, not have thereby been obliged to reduce the funds held by them for the benefit of the creditors of the husband and/or his corporations. As noted earlier, by reference to the submissions of learned counsel for the administrators/liquidators, it is apparent that the creditors of the husband’s corporations include former unpaid workers.

4. Whilst it may appear an oversimplification to suggest that, absent something to indicate conduct by or on behalf of the trustee or the administrators/liquidators which would disincline the Court to exercise its discretion to make an order for costs in their favour, should such an order in the circumstances be made, justice and reality imply that the wife in this case should bear an evidentiary onus in those terms.

5. Without referring to his submissions in detail, nothing relied upon by learned counsel for the wife establishes that the trustee or the administrators/liquidators at any material time acted other than in accordance with the due discharge of their duties pursuant to the legislation which governed their appointments and the discharge of their respective duties pursuant to such appointments. Nor does the evidence establish that, whether under the cloak of any legislative protection or otherwise, the trustee or the administrators/liquidators acted unreasonably in their dealings with the wife and those advising her, or otherwise failed to co-operate in any reasonable way with those advising the wife, whether pursuant to a statutory power, duty or otherwise. Nor does anything to which the Court has been referred establish that any information supplied at any material time by the trustee or the administrators/liquidators was other than substantially accurate.

6. The wife’s ultimate withdrawal of her claims against each of these persons is confirmatory of the reality that the wife ultimately accepted that nothing done by any of these third parties could be legitimately impugned in the proceedings in which she had chosen to involve them.

7. The Court has considerable sympathy for the wife who clearly, as between herself and the husband, was innocent of wrongdoing. On the other hand, albeit with the benefit of hindsight, to have drawn third parties who were subject to onerous statutory duties and responsibilities, with no apparent motive for breaching such duties, into the web of proceedings in this Court was always attended with risks and should have been seen to be so. Also with the benefit of hindsight, bringing the applications and taking the steps in this Court which the wife did as against the trustee and/or the administrators/liquidators was ill-advised and premature. The financial consequences, particularly for former employees of the husband’s corporations, and other legitimate creditors are potentially significant.

1. A number of the submissions made by learned counsel for the wife were directed less to the broader issue of liability for costs than to the extent of any liability which may flow as a result of the making of a costs order. Without referring to it in detail, a number of the matters raised by learned counsel for the wife could be expected to reduce the quantum of the wife’s liability for costs to the trustee and/or administrators/liquidators were a costs order to be made. In fairness, a number of those matters appear to have been at least tacitly acknowledged by counsel for those third parties.

2. With all due respect to learned counsel for the wife, the Court does not perceive its function in determining a costs dispute such as this to, in effect, make or decline to make orders with respect to discreet parts of the proceedings. That, in the absence of the parties being able to reach a sensible agreement in that regard where such agreement should be readily possible, is a matter for the assessment process.

3. Relevant matters in this case, as identified by learned counsel for the wife, are the reality that, by terminating the involvement of the trustee and the administrators/liquidators sooner than she might, the quantum of any costs which the wife might have to pay will be substantially reduced. It is inconceivable that the wife would be ordered to pay the costs of any occasion when the trustee and/or the administrators/liquidators appeared in Court on occasions when the wife’s attorneys had sensibly advised them that they did not need to. There are other matters to which learned counsel for the wife referred which fall into this category. It is unnecessary to refer to them.

4. Whilst the Court accepts without question that the wife at all times acted bona fide and, no doubt as matters appeared at the time, had few practical options given the husband’s control of the events which gave rise to the appointments of the trustee and/or the administrators/liquidators, the reality is that her involvement of those third parties in the proceedings in this Court did have a significant, and detrimental, impact upon the funds available to them for the benefit of creditors and can be seen, through the complete absence of success, as having been unjustified.

5. The wife is in difficult financial circumstances, although the Court cannot ignore the reality that, on her own case, she will never receive any of the $95 000 to which she is entitled by virtue of her indebtedness to her parents. At the risk of oversimplifying the matter, in circumstances where the wife will never obtain any part of the $95 000 to which she would otherwise be entitled, and has no other assets from which she could satisfy all or the balance of her indebtedness to her parents, it is difficult to see how the wife’s financial circumstances could assist resistance of the present costs claims.

6. As noted earlier in these reasons, given the reality that the third party claimants were involved in the proceedings in this Court at the wife’s instigation and that she was wholly unsuccessful in her endeavours to obtain any orders against or benefits from those third parties, in the absence of facts or circumstances which militate against exercising the discretion to award costs in their favour, the Court is minded to do so.

7. For the reasons which have been thus given the Court forms the opinion required by s 117. There will accordingly be orders for costs in favour of the trustee and the administrators/liquidators. Those orders will be against the wife.

8. Whilst there may be no real difference between the orders being made against the husband and wife jointly and severally, it may, although it is difficult to see how, practically advantage the wife if the wife has the benefit of an indemnity order against the husband. Whatever the reality, she could not be in a worse position than she would be if the order were made against the husband and wife jointly and severally.

9. Although learned counsel for the administrators/liquidators cogently argued that the discretion to award indemnity costs should be enlivened, the Court is not so persuaded. Nothing to which this Court has been referred establishes the kind of exceptional circumstances which are the touchstone of awards for indemnity costs. Indeed, the matters outlined by learned counsel for the wife provide a comprehensive basis for declining to award other than party and party costs.

10. As noted at the outset, the question of whether or not the wife beneficially owns the only fund from which the trustee and/or the administrator/liquidators could hope to secure the fruits of their success in this litigation gives rise to difficulties. That issue remains to be determined by another Court in proceedings which have yet to be commenced. Fairly, counsel for the trustee and for the administrators/liquidators, did not object to their ability to access the funds which the wife has, or is entitled to receive by reason of the finalisation of the substantive dispute in this Court, being curtailed until the wife’s parent’s claim to beneficially own the monies received and/or receivable by the wife is determined. On the other hand, that curtailment ought not continue indefinitely.

11. To the extent that it is controversial, and it is less than clear that it is, the Court concludes that the most appropriate order to make would be that, provided the wife’s parents commence proceedings in a court of competent jurisdiction in relation to the beneficial ownership of the $95 000 received and/or receivable by the wife within 28 days, the orders for costs in favour of the trustee and the administrators/liquidators should be enforceable in the usual way. Assuming, as is probable, that the wife’s parents commenced proceedings in a court of competent jurisdiction, the outcome of those proceedings will be potentially determinative of the fate of the wife’s monies.

12. If the wife’s parents are successful in what the Court understands to be the substance of their claims with respect to the $95 000, those monies would not be property of the wife and the costs orders in favour of the trustee and the administrators/liquidators would go unsatisfied. Where the claim fails in its entirety or fails insofar as anything more than a debt is concerned, the extent to which any of the interested parties is paid would presumably fall to be determined by agreement or, failing agreement, a court exercising jurisdiction in bankruptcy upon any of the three interested entities causing the wife to be made bankrupt.

I certify that the preceding forty nine (49) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman

Associate: 

Date:  11 April 2008