D and D

[2004] FCWA 180

JURISDICTION:

FAMILY COURT OF WESTERN AUSTRALIA

ACT: FAMILY LAW ACT 1975

LOCATION: PERTH

CITATION: D and D [2004] FCWA 180

CORAM: THACKRAY J

HEARD: 27 AUGUST 2004

DELIVERED: 24 DECEMBER 2004

FILE NO/S: PT 1268 of 1992

BETWEEN: D

Applicant/Wife

AND D

Respondent/Husband

Catchwords:

APPEAL - from Court of Summary Jurisdiction

COSTS - enforcement proceedings - abuse of process - costs awarded against solicitors and party - indemnity costs

BANKRUPTCY - discharged bankrupt lacks standing to pursue enforcement proceedings

Legislation:

Family Law Act 1975, s 4(1), s 79, s 96(4), s 117 (1), s 117(2A)

Bankruptcy Act 1966 s 116(2), s 134(1)(j)

Category: Not Reportable

Representation:

Counsel:

Applicant : Mr A Dungey

Respondent : Ms C McKenzie

Solicitors:

Applicant : Macdonald Rudder

Respondent : McKenzie Lalor

Case(s) referred to in judgment(s):

Audet v Audet; Official Trustee in Bankruptcy (Intervener) (1995) FLC

92–607

Cassidy v Murray (1995) FLC 92-633

Colgate- Palmolive Company and Anor. v. Cussons Pty. Limited (1993)

46 FCR 225

Cummings v Claremont Petroleum NL (1996) 185 CLR 124

Dougherty v Dougherty (1987) 163 CLR 278

Guirguis v Guirguis and Official Trustee in Bankruptcy (1997) FLC 92-

726

Kohan and Kohan (1993) FLC 92-340

Kowalski & Kowalski (1994) FLC 92-501

Mullane v Mullane (1983) FLC 91-303

Munday & Bowman (1997) FLC 92-784

O’Neill v O’Neill (1998) FLC 92-811

Official Receiver v Schultz (1990) 170 CLR 306

Page & Page (No 2) (1982) FLC 91-241

Reed & Reed (1990) FLC 92-105.) Robinson and Willis (1982) FLC 91-215

Stobbart v Mocnaj (Supreme Court of Western Australia Civ 1096 of

1994)

Walton v Gardiner (1993) 177 CLR 378

1Before the Court is the wife’s appeal from an order made in the Court of Petty Sessions, Kalgoorlie, requiring each party to pay their own costs. The wife seeks an order that the husband and his solicitors pay her costs on an indemnity basis. The husband seeks an order that the appeal be dismissed.

Background

2The husband and wife resolved the division of their property by consent orders made in the Family Court of Western Australia in February 1995.

3The orders provided inter alia for the husband to transfer his interest in various mining tenements to the wife. In the event that the wife later received a royalty she was to pay the husband 10% of the amount received. Provision was also made for further payments to the husband in the event the tenements were sold for more than a specified sum.

4The transfers of the interests in the tenements were duly effected. In due course the wife and one PM applied for, and were granted, mining leases in relation to the tenements.

5In February 1998 the husband became bankrupt on his own petition. In July 2000, whilst still bankrupt, the husband filed caveats against the mining leases. He made a statutory declaration in support of the caveats, claiming to have an interest in the leases pursuant to the Family Court order.

6 The husband was discharged from bankruptcy in February

2001.

7As a result of disagreements between the wife and PM, the wife filed plaints in the Coolgardie Warden’s Court in September

2002 seeking that the leases be sold. In order to do this, the

husband’s caveats needed to be removed. In October 2002 the wife filed plaints in the Warden’s Court seeking orders for the removal of the caveats.

8On 18 November 2002, the husband’s solicitors, McKenzie Lalor, filed a Form 46 enforcement summons (“the summons”) in the Kalgoorlie Court of Petty Sessions. The summons claimed that the wife was in default of her obligation to make payments pursuant to the Family Court order concerning the tenements. McKenzie Lalor also filed a Form 8 application on behalf of the husband, seeking an injunction to restrain the removal of the caveats, or in the alternative to restrain the wife from dealing with the mining leases.

9The husband’s summons and Form 8 application were set down for hearing on 24 February 2003 at Coolgardie, at the same time as the wife’s proceedings in the Warden’s Court. On the day of the hearing, the wife made an offer in writing to the husband to settle the dispute by making a payment to him of $2,722. The offer was not accepted. The matter was not completed on the day, and was re-listed for further hearing in October 2003.

10On the day of the February 2003 hearing, the wife informed her solicitors that the husband had previously been bankrupt. They confirmed this by a search conducted in March 2003. On 10 July

2003 the wife’s solicitors wrote to the husband’s solicitors drawing attention to the husband’s bankruptcy and indicating that their

“preliminary view is PM (sic) may have no standing to bring these proceedings. We will be making enquiries with Mr D’s Trustee in

Bankruptcy.” They sought a response to their correspondence within 14 days. No reply was received.

11The wife’s solicitors wrote to the husband’s solicitors again on 8 September 2003. On this occasion they were firmer in stating their view that the husband did not have standing to pursue the summons and Form 8 application. They drew attention to an authority that suggested the solicitors themselves could be ordered to pay costs if the matter was pursued.

12There being no response to this correspondence, the wife filed an application on 17 September 2003 seeking that the summons

and Form 8 application be struck out as an abuse of process. Indemnity costs were sought against McKenzie Lalor, or alternatively the husband. The husband filed a response seeking that the wife’s application be dismissed with costs. The matter was set down for hearing on 9 October 2003. After hearing argument, the learned Magistrate reserved his decision until 17 October 2003.

13In the meantime both parties had been negotiating with the Official Trustee to acquire what had formerly been the rights of the husband pursuant to the terms of the Family Court order. On 16

October 2003 the Official Trustee sold the husband’s rights to the wife for $2,000. Having been informed of this development, the Magistrate dismissed the summons and the Form 8. The wife then

sought costs. The argument on that issue was set down for hearing later in October.

14On the same day the summons and application were dismissed, the husband’s solicitors sought an urgent relisting before the Magistrate to “clarify our position in relation to the matter”. The proceedings were relisted a few days later, at which time the solicitors for the husband advised the Magistrate that their client was not consenting to the dismissal of the summons and Form 8 application but “was merely not contesting the dismissal of those applications”.

15After hearing further argument on 29 October 2003, and receiving written submissions, the Magistrate reserved his decision. He delivered judgment on 15 December 2003. Apart from confirming earlier orders requiring the husband to pay $250 in relation to certain interlocutory applications, the Magistrate determined that each party should bear their own costs.

The Law

16The wife’s appeal against his Worship’s decision proceeds by way of a hearing de novo, pursuant to s 96(4) of the Family Law Act, 1975.

17The nature of an appeal by way of a hearing de novo was considered by the Full Court in Robinson and Willis (1982) FLC

91-215. Fogarty J explained the nature of such an appeal as follows (at 77,163):

“In my view, it ought to be characterised not as an appeal in any real sense, but as a process enabling a party to have in

evidence adduced then and the relevant law at that time. The power under sec. 96(4)(a) to receive any record of evidence given below is facilitative only. The Judge is not reviewing the decision below to find error but is examining afresh the issues before him and exercising his own discretion.”

18The statutory provision relevant to this appeal is s 117 of the Family Law Act 1975. S 117(1) provides that, subject to subsection (2), each party to proceedings under the Family Law Act

1975 shall bear his or her own costs. Subsection (2) provides that if the Court is of the opinion there are circumstances that justify

doing so, the Court may, subject to subsection (2A), make such orders as to costs as it considers just.

19 Subsection 117(2A) provides as follows:

“In considering what order (if any) should be made under sub- section (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, in accordance with section 117C or otherwise, 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”.

The issue

20It is common ground that the husband’s contingent entitlement to payment of money pursuant to the Family Court order vested in the Official Trustee. Where the Official Trustee succeeds to a chose in action, such as the right to receive funds in the future, the Trustee is entitled to the benefit of the entitlement, even if it does not mature until after the bankrupt’s discharge: Official Receiver v Schultz (1990) 170 CLR 306.

21It is therefore also common ground that the husband would have received no monetary benefit from a successful outcome of the summons and Form 8 application.

22The wife accordingly submits the husband did not have standing to initiate proceedings, and that the proceedings therefore amounted to an abuse of process. She asserts the Magistrate should have made an order for costs, as the husband’s application could never have succeeded.

23The husband asserts that as a party to the substantive property proceedings he had standing to pursue the enforcement action. He goes so far as to say that the Official Trustee lacked standing. He alleges that had it not been for the wife having acquired the rights from the Official Trustee, the enforcement proceedings may have been successful, albeit he would have received no personal benefit. In these circumstances he claims the Magistrate was justified in dismissing the wife’s application for costs.

Did the husband have standing?

24This is the first matter to determine, since counsel for the wife conceded that if the question is answered in the affirmative, the appeal must fail.

25 The husband relies upon two main propositions: -

•That there is no provision within the Family Law Act 1975 to allow any person other than the husband to enforce the wife’s obligations pursuant to the orders;

•That the enforcement of the wife’s obligations “is a matrimonial cause which is not property which vests in the Official trustee pursuant to the Bankruptcy Act”.

Absence of express provision for Official Trustee to enforce

Official Trustee to enforce monetary obligations owed to the bankrupt, there is no need for such a provision. The requisite standing for the Trustee is conferred by the Bankruptcy Act 1966. Section 134(1)(j) of that Act provides the Trustee may “bring, institute or defend any action or other legal proceeding relating to the administration of the [bankrupt] estate”. There is no provision in the Bankruptcy Act to suggest that moneys owed pursuant to orders by way of property settlement in the Family Court are any different to any money judgment in other Courts.

27The husband placed emphasis on Order 33, Rule 2 of the Family Law Rules 1984 (which was the applicable rule at the time the enforcement proceedings were commenced). This provided that: -

“Where a person ordered to pay maintenance or money to the benefit of a party or child fails or refuses to make the payment proceedings for the enforcement of the payments may be taken by the other party or the child for whose benefit the order was made on behalf of that party or child by a person entitled to do so under the Act or regulations.”

28However, this Rule was facilitative only. It did not confer substantive rights on the husband that he otherwise did not possess. As the Full Court made clear in Kowalski & Kowalski (1994) FLC

92-501, the rule making power conferred on the Judges by s 123 of

the Family Law Act 1975: -

“does not extend to the curtailment of substantive rights or obligations of parties to proceedings bestowed or imposed by the Act, nor to the creation of substantive rights or obligations additional to those created or imposed by the Act”.

29I therefore regard the husband’s first submission as being misconceived.

Enforcement of order as a “matrimonial cause”

30The High Court has authoritatively stated that a bankrupt has no right to bring or prosecute proceedings to protect, enhance or add to the property of which he has been divested on bankruptcy: Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 136. The summons was clearly a proceeding in this category. The Form

entitlements under the Family Court order. Unless there is something special about Family Court orders, Cummings v Claremont Petroleum NL makes clear that the husband did not have standing to initiate either the summons or the Form 8.

31The husband, in effect, asserts that there is something special about Family Court orders, because of limitations associated with the institution of “matrimonial causes”. However, the fundamental flaw in the husband’s argument is the belief that “matrimonial causes” may only be instituted by parties to a marriage. It is true that most matrimonial causes are required to be between parties to a marriage, however, there is an important exception. (See the discussion in Dr Anthony Dickey’s text Family Law (4th edition) at pages 64 and 65, and the various decisions of the High Court Australia referred to in footnote 85 of the same work.)

32Section 4(1) of the Family Law Act 1975 defines “matrimonial causes”. Having catalogued 10 specific types of proceedings as “matrimonial causes”, s 4 goes on, in sub-paragraph (f), to provide the following catchall definition: -

“(f)any other proceedings (including proceedings with respect to the enforcement of a decree or the service of process) in relation to concurrent, pending or completed proceedings of a kind referred to in any of paragraphs (a) to (eb)…”;

33It will be noted that this sub-paragraph, which specifically deals with enforcement of decrees, does not contain any reference to the proceedings being between parties to the marriage. In this respect it may be contrasted, for example, with s 4(1)(ea), which deals with the enforcement of maintenance agreements. In my view both the summons and the Form 8 are proceedings within the ambit of s 4(1)(f), as they are “proceedings with respect to the enforcement of a decree”.

34I do not accept the husband's submission that the Form 8 application comes within the definition of “matrimonial cause” in s

4(1)(ca), the relevant portion of which is in the following terms:

“(ca) proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings—

(i) arising out of the marital relationship;

(ii)in relation to concurrent, pending or completed proceedings between those parties for principal relief…”

35The Form 8, although relating to the property of the parties to the marriage, is not a proceeding which arises “out of the marital relationship” in the sense intended by s 4(1)(ca)(i). Dougherty v Dougherty (1987) 163 CLR 278 at 286. Nor are the proceedings in relation to proceedings for “principal relief”. The Form 8 is most appropriately characterised as an application with respect to the enforcement of a decree, for which express provision is made in sub-paragraph 4(1)(f). It is thus not a proceeding that can only be instituted by one of the parties to the marriage.

36The husband sought to bolster his argument by asserting that because a bankrupt can pursue property settlement proceedings under the Family Law Act, the bankrupt must also be able to take proceedings to enforce property orders made under the Act. In my view that proposition does not stand up to scrutiny.

37Section 79 proceedings cannot be continued against a bankrupt, since the bankrupt’s interest in any property of any significance vests in the Official Trustee. (This proposition must be understood in the context of the availability of claims concerning the bankrupt’s entitlement to receive any surplus remaining in the estate: see Reed & Reed (1990) FLC 92-105. It must also be read subject to the provisions of s 116(2) of the Bankruptcy Act relating to exempt property.)

38On the other hand, a bankrupt may initiate or continue property settlement proceedings against a non-bankrupt spouse. He can do so because it is well established that such a right is personal to the bankrupt, and not capable of assignment: Page & Page (No

2) (1982) FLC 91-241, Reed (supra at 77,697) and Audet v Audet; Official Trustee in Bankruptcy (Intervener) (1995) FLC 92–607. However, in my view, once the bankrupt’s entitlements are crystallised by an order of the Court, his rights are no longer personal. They are no longer dependent on the exercise of judicial discretion pursuant to s 79. Rather, they are proprietary rights, which are capable of assignment. (Albeit some such proprietary rights are defeasible on assignment – see Mullane v Mullane (1983) FLC 91-303 at 78,072).

point, in my view there can be no doubt that the position of a bankrupt in enforcement proceedings is analogous to that of a bankrupt appealing against orders made in s 79 proceedings. As was said by Brennan CJ, Gaudron and McHugh JJ in dismissing the appeal in Cummings v Claremont Petroleum NL (supra at 137):

-

“Although we would not regard the right to appeal as property of the respective bankrupt appellants…the bankruptcy of the appellants leaves them without such an interest in the judgment against them as would support their institution of an appeal in their own names”.

40This test to determine whether a bankrupt litigant has standing, namely the extent of the bankrupt’s interest in the judgment, was adopted and applied in an appeal to the Full Court of the Family Court of Australia in Guirguis v Guirguis and Official Trustee in Bankruptcy (1997) FLC 92-726.

41A differently constituted Full Court expressed some reservations about this decision. In O’Neill v O’Neill (1998) FLC

92-811, the Full Court having noted that: -

“it would appear to remain good law that a bankrupt spouse may initiate and prosecute property settlement proceedings during the course of his or her own bankruptcy - although any property acquired would have to vest in the trustee by virtue of s 58(1)(b) of the Bankruptcy Act...:”

went on to say (at 89 and 90) :-

“However, and perhaps somewhat anomalously the Full Court decision in Guirguis has established that in light of the High Court decision in Cummings, a bankrupt spouse cannot appeal property settlement orders unless he or she can establish some interest in the property which is the subject of the orders, and such interest will not be able to be established if the property which is the subject of the orders is vested or will vest on receipt in the trustee in bankruptcy. The fact that a successful appeal may result in a surplus in which the bankrupt would have a contingent interest will apparently not provide the

his or her own name.

This in our view is not an entirely satisfactory situation. But we are not persuaded that we should not follow and apply Guirguis in this case given that certain of the orders ultimately sought to be appealed in this case are so similar to those sought to be appealed in Guirgius and given also that Guirguis would seem correctly to apply the High Court decision in Cummings”.

42It may be true that there appears to be an anomaly in the different approach taken in relation to appeals pursued by bankrupts, compared to their position in pursuing claims under s

79. However, it is not at all anomalous that while a bankrupt is able to pursue inchoate, personal rights arising under a discretionary system of division of property, he is not able to

enforce the fruits of the claim once they have crystallized. The entire bankruptcy system is dependant upon the Official Trustee stepping into the shoes of the bankrupt. He assumes responsibility

for collection of the bankrupt’s assets. Any system that permitted both Trustee and bankrupt to pursue such rights simultaneously would lead to chaos.

43The husband had no interest in the outcome of the summons and Form 8 application. He therefore lacked standing to initiate the enforcement proceedings. Even had the wife not acquired the husband’s interest under the Family Court order, the summons and application should have been dismissed as an abuse of the process of the Court.

Section 117(2A)

44I now turn to consider the matters that Section 117(2A) directs me to take into account when determining whether an order for costs should be made.

S 117(2A)(a) – the parties’ financial circumstances

45The wife is 60 years old and in receipt of social security. She claims to have minimal assets and substantial debts (see paragraphs

4, 5 and 9 of her affidavit sworn 18 March 2004). An affidavit the husband sought to adduce concerning the wife’s real estate came far too late and was not admitted. I conclude that the payment of the substantial costs the wife has incurred in the litigation would be

a severe burden on someone in her financial position.

husband “has no significant assets, lives off a disability pension…and has child support debts. I am not aware of my ex- husband having any employment, whether in the mining industry or otherwise”. The husband gave no evidence at all concerning his financial circumstances.

47The husband was described in the submissions prepared by his solicitors as “not a wealthy man, but neither is he impecunious”. Later in the submissions they asserted, “There is no evidence the husband is currently impecunious”, which of course is an entirely different proposition. They went on to claim that he is “employed within the mining industry on a full-time basis”.

48These propositions in the joint submissions filed on behalf of the husband and the solicitors were made without any evidence to support them. They appear primarily to have been advanced in response to the wife’s submission that the husband’s solicitors should pay the wife’s costs, inter alia because a costs order against the husband is likely to go unsatisfied. This highlights the unsatisfactory nature of the solicitors representing themselves and their client when costs orders are sought against both.

49In view of the failure of the husband to provide any evidence of his financial position, I intend to take the unusual course of drawing two, mutually inconsistent, inferences. In dealing with the claim for costs against the husband I intend to presume he has the means to satisfy a costs order. If he wanted to persuade me to the contrary he should have produced evidence of his position. The inference is supported by the fact the husband appears to have been able to keep his solicitors in funds to conduct what appears to have been quite expensive litigation.

50In dealing with the claim for costs against the solicitors, I intend to presume that there may be difficulty in enforcing a costs order against the husband. If the solicitors wanted to persuade me to the contrary they should have ensured evidence was available to the court. The inference is supported by the fact that the husband has only fairly recently been discharged from bankruptcy.

S 117(2A)(b) – Legal Aid

51This sub-paragraph is not relevant, as neither party was in receipt of legal aid.

related to the assertion that the husband’s applications could never have succeeded, and thus constituted an abuse of process.

53I am not satisfied that this is the type of conduct to which the provisions of sub-paragraph s 117(2A)(c) are directed. The sub- paragraph contains a list, which although not purporting to be exhaustive, indicates the type of conduct that may be relevant to costs. Examination of those matters suggests that the sub- paragraph is primarily directed to the manner in which the parties conducted the litigation, rather than the substantive position they adopted. The substantive position of the parties is more properly considered pursuant to sub-paragraphs (e) and (g).

54There was only one aspect of the husband’s conduct of the proceedings I considered relevant to costs. The wife acquired the rights under the Family Court order from the Official Trustee, but even then the husband would not consent to the dismissal of his summons and application. Rather he simply did not contest the dismissal. This was undoubtedly unreasonable conduct, since the Magistrate was left with no alternative other than to dismiss the summons and application. It is unclear whether the approach adopted by the husband resulted in any significant increase in the costs. It is noted, however, that there was a special hearing just for the husband’s solicitors to make it clear they were not consenting to the dismissal. This hearing was convened after the summons and application had already been dismissed!

S 117(2A)(d) - Failure to comply with previous orders of the court

55The husband submitted that the proceedings were necessitated by the failure of the wife to comply with the original Family Court order. However, even on the husband’s own case, the breach did not disadvantage him.

56Counsel for the wife accurately described the husband’s role in the proceedings as that of an “officious bystander”. As Mason CJ, Deane and Dawson JJ said in Walton v Gardiner (1993) 177

CLR 378 at 393: -

“…it has long been established that, regardless of the propriety of the purpose of the person responsible for their institution and maintenance, proceedings will constitute an abuse of process if they can be clearly seen to be foredoomed to fail”.

to have heard evidence on this point but he was not prepared to

make any findings (see page 6 of the Transcript). The fact the wife was prepared to pay the Official Trustee $2,000 to acquire the

husband’s rights under the orders does not lead inevitably to a conclusion that she was in breach of her obligations.

S 117(2A)(e) - Wholly unsuccessful in the proceedings

58The husband was wholly unsuccessful in the proceedings because the wife acquired the rights under the Family Court order, and his summons and application were dismissed Although the husband claims he could have been “successful” if the matter had proceeded, the fact the wife could acquire the rights without his agreement shows the futility of him having taken proceedings in the first place.

S 117(2A)(f) - Offers in writing

59The husband did not respond to the wife’s offer to pay the husband $2,722. In one respect this is fortunate, since the rights under the Family Court order were not the husband’s to sell. Any money he may have received from the wife pursuant to the offer would have been payable to the Official Trustee for distribution to the creditors.

60The husband made no offer of settlement. Again, in one respect this may be seen as appropriate, since he was not the person entitled to the benefit of the fruits of the litigation and therefore had no authority to compromise. However, this once again highlights the utter futility of him enforcing a claim in which he had no interest. It demonstrates why such litigation must inevitably be seen as an abuse of the court’s process.

61I do not accept the submission that the wife’s offer of settlement should be seen as some kind of admission that she was in breach of the orders. Parties frequently offer sums of money to avoid the expense and trauma associated with litigation. This is especially so in cases such as the present, which appears to have been about a paltry amount of money. It would be unusual for a party to be prejudiced in a costs argument because they offered to pay more than the other party ultimately received.

processes of the Court. Parties who abuse the processes of the court can usually expect to be on the receiving end of a costs order.

63However, counsel for the wife candidly conceded that the “penny did not drop” when his client first informed him that the husband had become bankrupt after the Family Court orders were made. It was only at a later stage he realised the significance of the husband’s earlier bankruptcy. The husband and his solicitors could therefore scarcely be strongly criticised for proceeding under the same misapprehension.

64But the wife’s solicitors did ultimately realise the significance of the husband’s bankruptcy. They took appropriate steps by drawing the matter to the attention of the husband’s solicitors on 10

July 2003, and again on 8 September 2004. Although the issue is not one that arises regularly in the course of legal practice, once it

was raised, the husband’s solicitors should have acknowledged that the enforcement proceedings could not succeed. Instead the claim

was maintained, and even at the hearing of the costs argument it was asserted the husband was justified in pursuing the action.

65The husband relies upon the fact that the costs of the Family Law Act proceedings will be difficult to ascertain because they were entangled with the proceedings in the Warden’s Court. I accept the submission of counsel for the wife that this is a problem for the taxing officer, and should have no bearing on the question of determining liability for costs.

66The husband asserted that at the time of making the application, he believed he had an entitlement to do so. In the submissions filed on his behalf it was asserted that the husband “believed he had successfully acquired the rights to the proceeds of the Court Orders”. There is no evidence to support this proposition An affidavit from the husband’s solicitor touched on this issue but I did not admit the affidavit into evidence, given it was sought to be filed far too late. . It is also asserted on behalf of the husband that he believed that on being discharged from bankruptcy he retained the benefit of rights under the Family Court order. His mistaken belief is no basis for denying the wife compensation for the costs she incurred in defending proceedings the husband had no right to bring.

67 According to paragraph 9(c) of the affidavit of Mr N, sworn

19 September 2003, (to which no objection was taken), the Official

to purchase the rights under the Family Court order. By that stage

the husband was clearly aware he did not own the rights and yet he persisted with the litigation to the bitter end, presumably in the

hope that in the meantime he might be successful in acquiring the rights from the Official Trustee.

Conclusion

68I am satisfied that there are circumstances in this case that justify the Court in making an order for costs. The husband lacked standing to bring the proceedings. The litigation was therefore an abuse of the processes of the Court. The husband knew earlier in

2003 he did not own the rights and yet persisted with the litigation. He would not even consent to the dismissal of his summons and Form 8 after the wife acquired the Official Trustee’s interest in the Family Court order. He made no offer of settlement and did not bother to respond to the wife’s offer. Although the husband was advised by his solicitors he had standing to proceed, that advice was wrong. The wife should not be required to pay costs for proceedings which would not have been commenced had the husband been properly advised.

Are indemnity costs warranted?

69The wife proposes that the husband pay her costs on an indemnity basis. The husband says any costs awarded should be on a party and party basis only.

70 I adopt with respect the following observations of Holden CJ

in Munday & Bowman (1997) FLC 92-784, where his Honour said:

-

“The authorities were conveniently summarised by Sheppard J in Colgate-Palmolive Company and Anor. v. Cussons Pty. Limited (1993) 46 FCR 225. His Honour in that case summarised the position as follows:

"(a)The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis.

(b) This has been a settled practice for centuries in England.

It is a practice which is entrenched in Australia. Either

Rules of Court) or a decision of an intermediate Court of

Appeal or of the High Court would be required to alter it.

(c)In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course."

His Honour then went on to note some of the circumstances which have been thought to warrant the exercise of the discretion to award costs on an indemnity basis. Some examples which may be of relevance to the present case are as follows:

(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) ….”

71It will be noted that the first in the list of examples given by Holden CJ related to cases where a party has commenced or continued an action in circumstances where a party properly advised should have known that he had no chance of success. It follows from what I have said above that the husband should have known that his application had no chance of success. However, indemnity costs do not automatically follow from such a finding. As Shepherd J said in Colgate Palmolive Company and Anor. v Cussons Pty Limited (1993) 46 FCR 225 at 234: -

"It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily

obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge."

72I do not consider it would be appropriate to consider ordering indemnity costs for the earlier part of the proceedings, when both

solicitors had knowledge of the husband’s prior bankruptcy, but did not appreciate the significance of that fact. The wife’s solicitors properly concede that the fundamental flaw in his claim did not become apparent to them until part way through the proceedings.

73However, different considerations apply after the defect in the husband’s case became apparent to the husband’s solicitors. A client properly advised should have filed a notice of discontinuance and faced up to the prospect of a costs order. The husband’s failure to do so might give rise to a presumption that the proceedings were continued for an ulterior motive. That motive appears to have been to give the husband time to conduct secret negotiations with the Official Trustee, in what turned out to be a vain attempt to acquire the rights under the Family Court order, in the hope this would patch up the defect.

74I consider the arguments for and against an award of indemnity costs (after the defect was drawn to the attention of the husband’s solicitors) were fairly evenly balanced. However, there was one defect in the wife’s case that would have prevented me from ordering indemnity costs, had I otherwise been satisfied costs on that basis were appropriate. This was the absence of evidence about the extent to which the indemnity costs would have exceeded costs on the normal basis. See Kohan and Kohan (1993) FLC 92-

340 at 79,611 and Munday and Bowman (supra at 84,661).

75In these circumstances I have determined that it would be inappropriate to award costs on an indemnity basis.

Costs against the husband’s lawyers

76The wife’s primary application for costs is against the husband’s solicitors, as she fears any order against the husband will not be able to be enforced.

77In Cassidy v Murray (1995) FLC 92-633, the Full Court summarised the position in relation to claims for costs against solicitors as follows (at 82,365): -

“1.Pursuant to s. 117(2) Family Law Act, the Court has jurisdiction to make an order for costs against a solicitor…

2. …

3.The Court may make an order for costs against a solicitor without the necessity to establish that the solicitor has been guilty of serious professional misconduct.

interests of justice whilst at the same time attending to the needs of the solicitor's client.

5.A mistake or error of judgment would not justify an order for costs against a solicitor. However, misconduct, default or negligence, any of which are found by a Court to be of a serious nature, may be sufficient to justify an order.

6. The jurisdiction is compensatory.

Whilst the English cases talk of the conduct needing to be “serious or gross”, it adds nothing to set the threshold at “serious or gross”, rather than at “serious”, “gross” being a more extreme term than “serious”. We think that this represents an appropriate balance between the competing public interests involved, namely, the concern that lawyers should not be deterred from pursuing their clients' interests for fear of being made personally subject to orders for costs, and the principle that innocent parties should not be occasioned costs, for which they would not otherwise be liable, as a result of the inappropriate conduct of solicitors.

…

We believe the test is wider than that suggested by French J in Da Sousa & Anor v Minister of State for Immigration, Local Government and Ethnic Affairs (1993) 114 ALR 708 at 712 namely:

"There has to be something which amounts to a serious dereliction of duty; Edwards v. Edwards [1958] P 235 at 248. It is not necessary to ground the power to order costs against a solicitor in the existence of any duty to the opposing party and whether it can be so grounded is open to doubt."…”

78The fact that the husband may be unable to pay the costs order personally is a very important consideration for the wife, but an irrelevant consideration for the Court in determining whether or not there are grounds to justify a costs order against the solicitors. The issue is whether or not there was something more than a mere “mistake or error of judgment”.

solicitors were mistaken in advising the husband to pursue the litigation. They knew he had been bankrupt. They were, in fact, one of his creditors. Their written submissions indicate that even after they had “researched the law” they advised him he had an entitlement to proceed. In their written submissions they also make the bald proposition that they “were not aware that the husband had not secured the rights at the time the proceedings were instituted”. Had they turned their mind to the issue at the time of receiving their instructions they would undoubtedly have sought advice from their client as to whether he had acquired the rights from the Official Trustee. Had they been instructed he had acquired the rights they would surely have ensured he said so in his first affidavit in support of the enforcement action. However, the husband’s affidavit of 13 November 2002 makes no reference at all to the husband’s bankruptcy, or the fact that he had allegedly acquired rights from the Official Trustee.

80Although I consider the solicitors erred in accepting instructions to commence proceedings, their initial error in my view could not be described as “misconduct, default or negligence…of a serious nature” sufficient to justify an order for costs against them personally. This fact is highlighted by virtue of the fact that the wife’s own solicitors took some time to realize the significance of the husband’s bankruptcy on his claim. I also take account of the fact that the interface between the family law and bankruptcy jurisdictions is not free of complexity.

81The argument in favour of costs being awarded against the solicitors is not quite as strong as it was in Stobbart v Mocnaj (Supreme Court of Western Australia Civ 1096 of 1994). In that case the defendant’s solicitors knew of his bankruptcy, but failed to inform the plaintiff’s solicitors for over seven months. There could have been no doubt in those proceedings that the proceedings were effectively stayed by the bankruptcy. In the present case there was a degree of doubt because of the solicitors’ confusion about whether the right to enforce may have been a right personal to the bankrupt, in the same way as his right to pursue a s 79 property claim was personal to him.

order against them personally becomes much more tenuous in the period after they realized the necessity for the husband to acquire from the Official Trustee the very rights he was enforcing in the Court of Petty Sessions. They had already realized there was a problem before the wife’s solicitors drew the matter to their attention. They said in their written submissions that the husband sought assistance from them to: -

“conclude the acquisition of his rights to the proceeds of the Court Orders. The husband’s solicitors were made aware of the husband’s bankruptcy by the husband before being advised by the wife’s solicitors. They had already entered into negotiations with the Official Trustee’s solicitors on the husband’s behalf to acquire the rights to the proceeds of the proceedings before the issue was raised by the wife’s solicitors”.

83In such circumstances the appropriate course of action was to file a notice of discontinuance and commence fresh proceedings if and when the husband acquired the rights. Instead they kept quiet and conducted secret negotiations with the Official Trustee in what turned out to be the vain hope the husband would acquire the rights, thus giving him some monetary interest in the outcome of the proceedings. Such conduct in my view is sufficiently serious to make it appropriate for the husband’s solicitors to bear part of the financial burden that has been imposed upon the wife by the continuation of proceedings that were an abuse of process.

84I have therefore determined that the husband’s solicitors should be responsible for the wife’s costs (at scale) from the date on which they first became involved in the negotiations with the Official Trustee to acquire the husband’s rights under the Family Court order.

Orders

85 For these reasons there will be the following orders:

1. The appeal be allowed.

2.McKenzie Lalor shall pay the wife’s costs of the proceedings commenced by the husband in the Court of Petty Sessions, Kalgoorlie on 18

became involved in negotiations with the Official Trustee to acquire the husband’s rights under the order of the Family Court of Western Australia.

3.The husband shall pay the balance of the wife’s costs of the proceedings.

4.The costs to be paid pursuant to this order shall be calculated on a party and party basis at scale.

5.The wife have liberty to apply to the court for specification of the date referred to in paragraph 2 of this order.

6.The proceedings be remitted to the Court of Petty Sessions, Kalgoorlie for any taxation of costs that may be required.

Costs of the appeal

86There will no doubt be an issue concerning the costs of the appeal.

87I am presently minded to order the husband and McKenzie Lalor to each pay one half of the costs of the appeal. However, I am unaware whether there may have been an offer of settlement to compromise the costs argument. I will therefore delay making any formal order for costs until the parties have had an opportunity to make further submissions. In the event neither party has sought the relisting of the matter for argument on the question of costs of the appeal prior to 27 January 2005, I will relist the matter of my own motion. I will then make an order for the costs of the appeal as foreshadowed.

I certify that the preceding [87] paragraphs are a true copy of the reasons for

judgment delivered by this Honourable Court

Associate