Crowley and Pappas & Anor (Costs)
[2014] FamCA 477
•4 July 2014
FAMILY COURT OF AUSTRALIA
| CROWLEY & PAPPAS AND ANOR (COSTS) | [2014] FamCA 477 |
| FAMILY LAW – COSTS – Applicant sought an order that the first respondent pay his costs of the proceedings and if so whether costs should be on an indemnity basis – Order that fist respondent pay applicant’s costs up to 15 August 2014 on a party/party basis – Order that the first respondent pay the applicant’s costs from 16 August 2014 on an indemnity basis – Such costs to include the costs of the applicant in respect of the costs application FAMILY LAW – COSTS – Applicant sought an order that the second respondent pay his costs as and from when the second respondent became involved in the proceedings – Application dismissed |
| Family Law Act 1975 (Cth) ss 117(2), and 117(2A) Foots v Southern Cross Mines Management Pty Ltd (2007) 234 CLR 52 |
| APPLICANT: | Mr Crowley |
| 1st RESPONDENT: | Mr Pappas |
| 2nd RESPONDENT: | Mrs Pappas |
| INTERVENOR: |
| FILE NUMBER: | TVC | 1044 | of | 2011 |
| DATE DELIVERED: | 4 July 2014 |
| PLACE DELIVERED: | Hobart |
| PLACE HEARD: | Hobart |
| JUDGMENT OF: | Benjamin J |
| HEARING DATE: | 1 July 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Keegan |
| SOLICITOR FOR THE APPLICANT: | Ross Lawyers |
| COUNSEL FOR THE 1ST RESPONDENT: | No appearance |
| SOLICITOR FOR THE 1ST RESPONDENT: |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr O’Kane |
| SOLICITOR FOR THE 2ND RESPONDENT: | Kevin O’Kane & Co |
Orders
Mr Pappas (the first respondent) pay the costs of Mr Crowley (the applicant) of these proceedings.
Such costs to be calculated:-
(a)up to 15 August 2012 on a party/party basis; and
(b)as and from 16 August 2012 on an indemnity basis (to be assessed in accordance with the Family Law Rules but on an hourly rate set out in the costs agreements referred to in the reasons and barrister’s fees referred to in the exhibits referred to in the reasons); and
(c)such costs to include the costs of the applicant in respect of the costs application.
The application that the second respondent pays the costs of the applicant is dismissed.
All outstanding applications in a case are dismissed.
IT IS CERTIFIED
Pursuant to Rule 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Crowley & Pappas and Anor (Costs) 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 HOBART |
FILE NUMBER: TVC 1044 of 2011
| Mr Crowley |
Applicant
And
| Mr Pappas And Mrs Pappas |
Second Respondent
REASONS FOR JUDGMENT
INTRODUCTION
Mr Crowley (“the applicant”) and Mr Pappas (“the first respondent”) have been engaged in proceedings in this Court relating to property. Those proceedings were commenced in December 2011.
There have been two substantive parts to the proceedings in the Family Court. The first being a determination by Tree J in October 2013 (following a hearing in June 2013) declaring that the parties were in a de facto relationship from March 1987 until January 2011.
The second part being the property proceedings between the parties and the second respondent, where reasons were delivered and orders were made on 15 April 2014 after a hearing before me in Townsville in March 2014.
The proceedings heard by Tree J in 2013 were conducted between the applicant and first respondent. Once that preliminary determination had been made (confirming that the parties were in a same sex de facto relationship which had broken down) the property proceedings were able to be progressed. Those proceedings included the disputes between the applicant and first respondent as to the division of property together with an application pursuant to set aside a loan agreement and mortgage entered into between the first respondent and his mother, the second respondent.
In the substantive proceedings the loan and mortgage between the first and second respondent were set aside pursuant to s 106B(1) of the Family Law Act 1975 (Cth) (“the Act”) and property orders were made as between the primary parties.
The matter was complex as the first respondent had lodged a debtor’s petition on 22 October 2012 and become a bankrupt. The Trustee of his bankrupt estate elected not to participate in these proceedings.
ISSUES
In so far as the dispute between the applicant and first respondent was concerned, the first question was whether there ought to be an order for costs, and if so, whether that order ought to be on an indemnity basis.
In so far as the issue between the applicant and the second respondent (the first respondent’s mother) was concerned, the applicant sought a costs order as and from when she (the second respondent) became involved in the proceedings (15 August 2012) and the conclusion of the hearing excluding the proceedings heard before Tree J. The applicant sought costs on an indemnity basis against the second respondent.
The general background of the parties was set out in my reasons of April 2014 being paragraphs 16 to 42[1] which are set out below:-[2]
[1] See Crowley & Pappas and Anor [2014] FamCA 241
[2] Original footnotes omitted.
16.[Crowley] and [Pappas] are both aged 54. They commenced a de facto relationship in March 1987 and that relationship broke down as a result of their separation on 15 January 2011. As a consequence this Court has jurisdiction to determine the property issues between the parties.
17.[Mrs Pappas] is [Pappas’s] mother. She is aged 79 and is in poor health. She asserts, and it is not in dispute, that she advanced to [Pappas] $190,000 between December 2010 and July 2012. That annexure did not include the final payment of $50,000 made to [Pappas].
18.The nature of her alleged earlier advances is in issue as to whether they are secured loans, unsecured loans or advances by way of gift to [Pappas]. The details of those amounts and the recent loans are set out in the affidavit of [Mrs Pappas] filed 21 June 2013. From the evidence of [Mrs Pappas] and the evidence of [Pappas] (the evidence of whom is significantly compromised) I am satisfied that the advances made by [Mrs Pappas] to [Pappas] from December 2010 were loans. Given the circumstance and determinations made by me elsewhere in these reasons, such loans are unsecured.
19.The recent advance made by [Mrs Pappas] to [Pappas] in December 2010 was an amount of $20,000 and it was an unsecured loan. This sum was used to reduce arrears of rent in the business operated by [Crowley] and [Pappas] through their corporate structures.
20.The remaining subsequent loans appeared to have been applied by [Pappas] in payment of legal fees and perhaps living expenses. [Pappas] did not provide receipts nor did he provide accounts in relation to those fees.
21.In addition to these loans totalling $190,000, [Mrs Pappas] claims there are debts outstanding to her by her son of about $161,000. She says these loans had been made by her to [Pappas] over many years. There was no issue that the sum of either $10,000 or $20,000 had been advanced to [Pappas] in about March 1988, however, the evidence of [Pappas] was that that debt was repaid and [Mrs Pappas] had no recollection as to whether it was repaid or not. As such I have treated it as paid and I have had regard to that loan in terms of contribution.
22.The second grouping of loans was an amount of about $50,000 which [Mrs Pappas] said she paid towards the medical expenses of [Pappas] in 1992 when he suffered a stroke. It was not in issue that no claim was made for those alleged loans until March 2011. I did not accept that these sums were loans for which [Pappas] was liable, they were funds advanced to [Pappas] to which I have had regard in terms of contribution
23.The remainder of that amount namely $111,000 or $121,000 were assertions of advances made by the second respondent to [Pappas] over the years but without any detail or particularisation and there was no objective support in relation to that material. I have no doubt that from time to time the second respondent provided financial assistance to [Pappas], however, given the findings elsewhere in these reasons, I do not accept, on the evidence before me, that they could be treated as loans. I have had regard to the financial assistance provided by [Mrs Pappas] in terms of contribution.
24.At the time [Crowley] and [Pappas] commenced their relationship in March 1987 [Crowley] was employed full time as a [financial services] officer and remained in that employment until 1992. [Pappas] held sales positions with a number of companies.
25.In February/March 1988 [Mrs Pappas] and her late husband sold their house at [SS] to [Pappas]. There was an issue as to the consideration paid. [Pappas] asserted that the property was sold at far less than its market value, although no retrospective evidence as to the value of the property was provided. It was not in issue that [Pappas] paid a deposit of $100,000 from his savings at that time, and he borrowed $60,000 from Westpac. At that time, or soon afterwards, he borrowed $10,000 or $20,000 from [Mrs Pappas] and perhaps his late father. It is clear that [Pappas] paid between $160,000 and $170,000 for that property. The $10,000 or $20,000 loan was paid off over the following years. I am satisfied that this repayment was by way of a joint contribution by both [Crowley] and [Pappas].
26.[Crowley] and [Pappas] lived together in [SS] until September 1990 when they purchased a property at [RR], New South Wales in their joint names. That property was owned as to 75 per cent by [Crowley] and 25 per cent by [Pappas]. I accept the evidence of [Crowley] that the division of the property was to maximise the parties entitlements from low interest loans from [Crowley’s] then bank employer.
27.In August 1992 [Pappas] suffered an aneurysm. He was unable to go back to work for a period of about 12 months and he suffers some ongoing disability. [Pappas] says, and I accept, that he manages very well.
28.In November 1992 the parties resumed living at [SS] and in January 1993 they sold the [RR] property. There was a profit of about $15,000 on the sale of that property.
29.In November 1993 the parties moved to [T] and purchased a property [T] ([not the 2P] Street property). [Crowley] and [Pappas] purchased a two-thirds share in that property and the other one-third was purchased by the parents, [Mr] and [Ms C]. [Crowley] and [Pappas] resided in that property with the parents for many years.
30.Initially after moving to [T], [Crowley] and [Pappas] operated a [horticultural] business.
31.In November 1995 the parties signed a loan agreement with Westpac Bank for $125,000 which was secured against the [SS] property. That loan agreement was dated 2 August 1995. In that loan agreement [Crowley] acknowledge that he was responsible for making equal contributions to the loan repayments to Westpac Bank (which secured the parties purchase of their two-thirds interest in [the T property]) and imposed an obligation on [Crowley] to continue making equal repayments in respect of that loan. The loan agreement noted that the parties had made equal contributions thus far. [Pappas] repudiated that which he had previously asserted in that agreement and he claimed that all of the repayments had been made by him. Given my comments on his evidence elsewhere in these reasons I reject the repudiation asserted by [Pappas].
32.In September 1996 the parties formed a company, [PC] Pty Ltd, and in November 1996 [Crowley] and [Pappas] purchased a [retail] business in [T] using the company as the vehicle to acquire and operate the business. The acquisition cost was $290,000. That expense was secured by way of a loan over [the T property].
33.At about the same time [Crowley] and [Pappas] sold their two-thirds share in [the T property] to the parents for $126,000. There was an issue as to whether it was sold at a reduced price. Tendered in evidence (without objection) was a letter from a real estate agent and a residential valuation in respect of that property. Given that evidence, and in the absence of any cogent expert evidence to the contrary, I find that the consideration for that sale was at market value.
34.The parents provided their property as security for the business loan. [Crowley] and [Pappas] resided in that home for the following eleven years. I have treated the provision of that guarantee of the loan and the accommodation as contributions made by or on behalf of [Crowley].
35.In February 2008 [Pappas] sold [the SS property] and a number of debts were paid out. A company loan was reduced and [Pappas] received about $122,000.
36.Those funds were used to enable the parties to purchase a property at [CC], New South Wales which they purchased and sold about one year later with a profit. In October 2004 their [Q Business] was sold for $80,000. During this period [Pappas] withdrew funds from the business to ‘pay himself back’ some purported Director’s loans.
37.In January 2007 [Pappas] purchased [P] Street for $235,000 [Crowley] and [Pappas] began planning for the development of that site and building works commenced in 2009. There were apparently two premises on that property once it had been completed. Over this period [Crowley’s] son lived with the parties on a regular basis.
38.In June 2010 [Crowley] and [Pappas] commenced living at [P] Street which they did as a couple until separation on 15 January 2011.
39.As I have indicated elsewhere in these reasons, each of the parties put about $20,000 into the company in December 2010.
40.From separation until possession was taken by Westpac Bank [Pappas] resided at [P] Street and [Crowley] resided at his parents at [the T property].
41.In April 2011 [Pappas] ceased to operate the business and [Crowley] attended to winding down the business. He sold the fittings, fixtures, computer equipment and stock. [Crowley] said, and I accept, that he used that to reduce the liabilities of the business and in addition he has paid some money since that time. The liabilities had been reduced by about $100,000 although it is not clear how much came from the earnings of [Crowley] or from the sale of the assets of the business.
42.In April 2011 the mortgage to [Mrs Pappas] was registered on the title of [P] Street. In 2012 the parties had engaged in negotiations and had reached an ‘in principal’ settlement of these proceedings. However, before those terms could be implemented, [Pappas] lodged a debtor’s petition and on 22 October 2012 he became a bankrupt. In that petition he asserted, wrongly, that his mother, [Mrs Pappas] had demanded payment of the monies due to her. In his application, [Pappas] noted the liabilities of Mr and Mrs [C] (as guarantors of the business loan) as unsecured liabilities.
Subsequent to that background there was the hearing before Tree J in 2013 referred to above and the hearing before me in 2014 referred to above.
THE EVIDENCE
The applicant relied upon his trial affidavit filed 3 October 2012, the affidavit of the first respondent filed 9 January 2014, his application in a case filed
13 May 2014 and the affidavit of his solicitor, Ms Walquist of 13 May 2014.
In addition he relied upon the primary judgment of Tree J Crowley & Pappas [2013] FamCA 783 and of me Crowley & Pappas & Anor [2014] FamCA 241.
The applicant relied upon written submissions from his counsel filed 14 May 2014.
The second respondent relied upon an affidavit of her solicitor, Kevin O’Kane, filed 26 June 2014 and the second respondent’s submissions as to costs filed 30 June 2014.
THE LAW
An application for costs is discretionary, such discretion is to be guided by the judicial officers sense of what is ‘just’ having regard to the factors set out under s 117A of the Act.
In Penfold v Penfold (1980) 144 CLR 311 the plurality of that Court said that s 117(1) of the Act is not paramount to s 117(2) of the Act. In determining the question of costs the court has a wide discretion.
The costs application made by the applicant against the second respondent
In so far as the dispute between the applicant and first respondent is concerned, it is clear that they reached an agreement in August 2012 which would have saved the parties considerable money, expense and trouble had that agreement been put into place. The parties signed Heads of Agreement and consent orders were prepared.
In October of 2012 the first respondent became a bankrupt, as set out above. Since that time there have been two trials, one over two days in June 2013 and the second over three days in March 2014.
The first respondent made an offer to settle the proceedings in January 2014[3] and the first respondent made an offer to settle the proceedings in January 2014[4] and the second respondent sent a facsimile proposing a resolution of the matter.[5]
[3]Exhibit A.
[4] Exhibit B.
[5] Exhibit C.
In determining the question of costs I am conscious of the approach adopted by Murphy J in Donaghey & Donaghey (Costs) [2012] Fam CA 231 at [31] that each factor has its own weight and only one factor may need to be present.
In terms of the factors between the applicant and first respondent I accept the submissions of the applicant that both he and the first respondent were, at the time of the trial, in full time employment. The first respondent has been self-represented since September 2012 (shortly before his bankruptcy).
The first respondent is impecunious, in terms of property. That in itself is not a disentitling factor (see McAlpin v McAlpin [1993] FLC 92-411 at 80,212-80,213).
I accept that at separation the applicant was responsible for the debts of the business and has incurred substantial legal costs as a result of the proceedings.
Section 117(2A)(b) whether the 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;
None of the parties are in receipt of legal aid.
Section 117(2A)(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 the pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
I accept that the first respondent has conducted, in many ways, a vexatious proceeding. He asserted that the parties were not in a de facto relationship during the relevant period but clearly they were.
He asserted that the applicant made little or no contribution to the real estate at P Street where there were such contributions. The first respondent abrogated his responsibility for the debts of the business.
The parties had been in a relationship for almost twenty four years and separated in January 2011.
After separation the first respondent entered into a deed with his mother and then subsequently borrowed from her the sum of $190,000 to fund these proceedings.
When the matter came close to settlement the first respondent filed a debtor’s petition.
Tree J rejected the respondent’s assertion that the parties were not in a de facto relationship and in the second hearing I found that the first respondent had adopted an economically destructive course when the impact upon him was limited.[6]
[6] At paragraph 56.
Section 117(2A)(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
The first respondent was wholly unsuccessful in the proceedings before Tree J and was unsuccessful in his claim in relation to the proceedings before me although, it could not be said he was wholly unsuccessful.
Section 117(2A)(f) whether either party to the proceedings made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
The first respondent’s offer made to the applicant in Exhibit A was hardly relevant.
As to the offer made by the applicant to the first respondent in Exhibit B it was different to that which was determined by the Court particularly in relation to the superannuation.
Section 117(2A)(g) such other matters as the court considers relevant.
The circumstance that the first respondent is bankrupt is relevant. I accept the submissions of the applicant that the Bankruptcy Act 1966 (Cth) does not prevent the making of a costs order.
An order made after a person has entered into bankruptcy is not a provable debt. In Foots v Southern Cross Mines Management Pty Ltd (2007) 234 CLR 52 the High Court considered this issue and majority comprising of Gleeson CJ, Gummow, Haynes and Crennan JJ concluded at [67]:-
…However, the order was made only after bankruptcy had already intervened, and the appellant’s liability to meet that order did not arise from an obligation incurred before bankruptcy. Thus, it was not a provable debt, and the stay contained in s 58(3) of the Bankruptcy Act was not engaged. His Honour was therefore entitled to make the costs order against Mr Foots.
I accept that he is unable to use the Bankruptcy as a shield against a costs order.
Given each of those circumstances and the approach that the first respondent adopted in both hearings and in the proceedings generally I am satisfied that there ought to be an order that the first respondent pay the applicant’s costs of the proceedings and of this costs application on, at least, a party/party basis.
Indemnity costs as against the first respondent
The Full Court in Prantage v Prantage [2013] FamCAFC 105; (2013) 49 Fam LR 197 discussed the question of indemnity costs.
The Full Court set out the settled law relating to indemnity costs.[7] I accept that indemnity costs are not the usual order and are only made in ‘exceedingly rare situations’.
[7] At paragraphs 76 to 86.
In considering whether an indemnity costs order ought to be made in relation to these proceedings the matters I have taken into account include:-
§The first respondent entering into the agreement with his mother in early 2011 and borrowing significant funds to promote the proceedings in circumstances where there was a limited pool of assets.
§The first respondent entering into an agreement and then filing a creditors petition before the heads of agreement were implemented.
§The first respondent continuing to conduct the proceedings despite his bankruptcy and including asserting that the parties had not been in a long term de facto relationship.
To that end there was an ulterior motive on the part of the first respondent. The proceedings were pursued by him in wilful disregard of the facts to which the first respondent was aware.
The first respondent prolonged the case and put the applicant to enormous expense in these hearings.
I have had regard to the costs agreements that exist between the applicant and his solicitors. I am satisfied that the hourly rates as sought by the applicant’s solicitors are, in all of the circumstances, reasonable.[8]
[8] These are set out in Exhibits D, E and F.
It is significant but not unexpected that the work conducted up to March 2014 amounted to some $113,489.[9]
[9] Exhibit F.
Given the particular circumstances in this matter and the criticisms of the first respondent in the judgments referred to earlier, I am satisfied that there ought to be an indemnity costs order as and from 15 August 2012.
That indemnity costs order should be calculated in accordance with the costs agreements set out in Exhibits D, E and F.
The costs application against the second respondent
The second respondent is an entirely different aspect in terms of the costs order against her.
Section 117(2A) the financial circumstances of the second respondent
In the affidavit material filed on behalf of the second respondent it is clear she is aged 79 and is in poor health. Her financial circumstances have markedly deteriorated as a result of her involvement in the dispute and as a result of significant money and property provided by her to the parties (directly and indirectly) over the 24 year period of their relationship.
I accept that she is likely to need to move to a residential high care facility in the near future and that her resources are, in all of her circumstances, significantly reduced.
Section 117(2A)(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 the pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
I make little or no criticism of the second respondent’s involvement in these proceedings. She loaned her son (the first respondent) considerable funds pursuant to a deed and mortgage which he asked her to sign and pursuant to which she has suffered significant loss.
I accept her belief that the T property belonged to her son given her provision of significant property to her son through the SS property earlier in the relationship.
The second respondent made an offer shortly before the hearing which was not accepted. The second respondent was criticised by the applicant for the loan and mortgage.
I have dealt with that earlier but I note that as a consequence of those documents she has lost about $190,000.
The second respondent has provided monies to the parties throughout their relationship particularly after the first respondent became ill earlier in their relationship.
Section 117(2A)(f) whether either party to the proceedings made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
Given all of the circumstances of this case in relation to the applicant and the second respondent and having regard to the broad discretion with regard to costs, I determine that there ought not be a costs order made against the second respondent and as such that will be dismissed.
I certify that the preceding fifty six (56) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Benjamin delivered on.
Associate:
Date: 4 July 2014
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