Davalos & Anor and Davalos

[2016] FamCA 805

FAMILY COURT OF AUSTRALIA

DAVALOS AND ANOR & DAVALOS [2016] FamCA 805

FAMILY LAW – COSTS – Costs proceedings brought by the second and third respondents in the substantive property proceedings – Application that the husband pay costs on an indemnity basis – Where the application is joint but should be considered separately – Where the husband ultimately failed in his application against the second respondent – Where it is appropriate that there be an order for certain costs in relation to the second respondent but not on an indemnity basis – Order that the husband pay certain costs of the second respondent on a party and party basis as taxed or agreed – Where ultimately the husband did not press his application against the third respondent and where there was never a proper basis for that order to be made – Where the appropriate costs order against the husband in favour of the third respondent is on an indemnity basis – Order that the husband pay the costs of the third respondent to be paid on an indemnity basis.

Family Law Act 1975 (Cth) – ss 117

Colgate-Palmolive Co. and Anor v Cussons Pty Limited (1993) 118 ALR 248
Medlon & Medlon (No 6) (Indemnity Costs) (2015) FLC 93-664

1st APPLICANT: Mr A Davalos

2nd APPLICANT: Ms B Davalos

RESPONDENT: Mr Davalos

FILE NUMBER: SYC 6919 of 2011

DATE DELIVERED: 2 September 2016

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Johnston J

HEARING DATE: 2 September 2016

REPRESENTATION

COUNSEL FOR THE 1ST APPLICANT: Mr Lethbridge, SC

SOLICITOR FOR THE 1ST APPLICANT: KD Holmes Solicitors

COUNSEL FOR THE 2ND APPLICANT: Mr Lethbridge, SC

SOLICTOR FOR THE 2ND APPLICANT: KD Holmes Solicitors

COUNSEL FOR THE RESPONDENT: Mr Lloyd, SC

SOLICITOR FOR THE RESPONDENT: Blanchfield Nicholls Partners

Orders

1. That orders are made in accordance with the hand-written Short Minute of Order filed in Court today signed by Johnston J and placed with the Court papers as set out hereunder:-

   1.The husband pay the costs of [Mr A Davalos] of and incidental to the proceedings commenced by the husband against [him] in his Amended Initiating Application filed 7 November 2013 being those costs incurred from the rising of the Court on the 5 February 2014 until 2 September 2016.

   2.That the husband pay the costs of [Mr A Davalos] as ordered in as above on a party/party basis as taxed or agreed.

   3.That the husband pay the costs of [Ms B Davalos] of and incidental to the proceedings commenced by the husband in an Application in a Case filed 25 February 2014.  Such costs to be paid on an indemnity basis.

   4.The Court certifies for Senior Counsel at this hearing.

   5.That the costs of all parties for preparation and presentation of these costs proceedings today is reserved, any such application to be filed within 28 days of quantification and made returnable before me by arrangement with Johnston J’s Associate.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 6919 of 2011

Mr A Davalos

1^st Applicant

And

Ms B Davalos

2^nd Applicant

And

Mr Davalos

Respondent

REASONS FOR JUDGMENT

1. These are costs proceedings brought by the second and third respondents in the substantive property proceedings between Mr Davalos (“the husband”) and Ms Davalos (“the wife”).  The second respondent is Mr A Davalos and the third respondent is Ms B Davalos.  They are adult children of the husband and the wife.

2. The actual order sought was set out in the case outline of the second and third respondents.  It is that the husband pay the costs of the second and third respondents, such costs to be assessed upon an indemnity basis.  So the application is brought as what I perceive is a joint application by the second and third respondents.  But in my view, the applications need to be considered separately because they are different applications.

Application by Mr A Davalos

1. I turn firstly to consider the application by Mr A Davalos.  The costs proceedings in relation to Mr A Davalos have their genesis in the purchase by him, through his company C Pty Ltd Pty Limited, of the property at SS Street, Suburb U. 

2. As indicated in my judgment of 18 August 2015, in November 2007 the wife entered into a guarantee with Westpac Banking Corporation secured over the property then owned by her at in respect of approximately $435 000 of what was approximately $1 815 000 loaned to Mr A Davalos by Westpac Banking Corporation.

3. Westpac subsequently called on the guarantee and the wife had to sell the T Street property, which occurred in April 2009, for $6 450 000.  On completion of the sale, approximately $435 000 of the Westpac loan to Mr A Davalos was discharged.  The practical effect was that the wife paid Westpac approximately $435 000 of the moneys which Mr A Davalos owed in respect of his home loan. 

4. Upon the sale of T Street in approximately April 2009, the wife and the husband, who were not yet separated, moved in to live at the SS Street home unit.  The circumstances of the financial arrangements in respect of that remain, to some extent, murky.  Various witnesses said various things in the proceedings about this and I do not propose to go into the details.

5. What is clear is that the husband and the wife moved into the SS Street property and Mr A Davalos removed himself and his family and lived elsewhere.  The outgoings in respect of the mortgage and other outgoings were then met by the wife. 

6. During the course of the substantive proceedings, the husband filed an Amended Initiating Application (on 7 November 2013), in which he sought, in addition to various property orders, the following order:

   1.These orders are made by way of alteration of property interests pursuant to sections 78 and 79 of the Family Law Act 1975.

   2.That pursuant to section 78 of the Family Law Act 1975, the Court declares that the 10,000 ordinary shares held in the name of [Mr A Davalos] in the company known as [C Pty Ltd], being ACN number …and ABN number …, are beneficially held in the names of [Mr Davalos] and [Ms Davalos] as tenants in common in equal shares.

7. And then the other order sought was at subparagraph 2.1 of the application, and was as follows:

   That upon the declaration sought in Order 2 herein being made, each of the parties forthwith do all things and acts as are necessary to sell the shares in [C Pty Ltd] for the best price reasonably obtainable and to retain the net proceeds of sale in equal shares.

8. On 3 February 2014 I ordered that in these circumstances, Mr A Davalos have standing as a party to the substantive proceedings. 

9. On the first day of the substantive hearing, that is on 5 February 2014, Mr A Davalos filed a Response to the Amended Initiating Application seeking an order that the above application be dismissed.  In an Application in a Case filed on the same day, he sought an order that the application against him be summarily dismissed.

10. On 5 February 2014 Mr Holmes pressed Mr A Davalos’ application for summary dismissal.  I started to deal with that application.  The husband sought to argue that when Mr A Davalos became unable to pay the mortgage and the outgoings on the SS Street property, the husband and wife moved in and lived in the home unit.  It was argued that by reason of the payments which were subsequently made, there must have been an arrangement or agreement between the parties to the effect that the wife would take an interest in the SS Street property.

11. It was strenuously put by Mr Lloyd for the husband that that was a case which the husband, in all the circumstances at that point, was entitled to bring.   The position that was maintained by Mr A Davalos was that the arrangement that he had with his mother was not such as would give rise to her having any interest in the property and that the Court would not be able to find on the evidence that she had any such interest.  I indicated that the evidence did not appear at that point, at the commencement of the trial and when the summary dismissal application was being put, to support Mr Lloyd’s argument.

12. I also indicated at the time that it appeared to me that there would be considerable risk in what Mr Lloyd proposed because if the application was to fail, then the husband would be likely to find himself facing an application for costs.  This, of course, is what has occurred.  Mr Lloyd indicated that he would accept that risk.  The husband was cross-examined on the limited matter of the summary dismissal application on that first day.  After conclusion of the cross-examination, it was submitted by Mr Holmes that the evidence did not enable the Court to make the finding necessary to make the order sought by the husband against Mr A Davalos.

13. At that point, I was not prepared to summarily dismiss the application and Mr A Davalos then found himself in the situation where he remained a party involved in the proceedings between his parents.  To my recollection, the hearing subsequently went on in a number of tranches over a multiplicity of days following that first day.  As it turned out, the husband ultimately failed in his application against Mr A Davalos. 

14. The usual position in relation to costs is that each party to the proceeding shall pay their own costs as is provided by s 117(1) of the Family Law Act 1975 (Cth) (“the Act”). That provision is subject to a power given to the Court by s 117(2) to make a costs order if it considers it just to do so upon a consideration of the relevant matters in s 117(2A) of the Act.

15. The first matter is the financial circumstances of each of the parties to the proceedings.  There was some criticism made about Mr A Davalos’ financial circumstances but there was a financial statement that learned senior counsel endeavoured to bring up to date.  I am satisfied, on the basis of that material, that Mr A Davalos has nil income.  He relies on his wife, Ms IR, to support him, her income being approximately $2000 per week.  His property consists of a one half interest in the SS Street property, a one third interest in a property at Suburb SI and he has savings of approximately $15 000. 

16. Mr A Davalos has a loan which he has made available to his mother which was updated today in the amount of $175 000.  Also he is liable for 50 percent of the mortgage on the SS Street property, which he estimates his 50 percent share as being $720 000.  He has a small credit card liability and he owes approximately $7000 to his solicitor. 

17. On the other hand, the husband’s financial circumstances are that he has nil income.  There was some debate about this matter between myself and senior counsel for the second and third respondents, the suggestion being that the husband continues to earn income.  If this is the case, which I doubt, any such income would be very modest.

18. At part F of the husband’s financial statement headed Expenses Paid by Others for his benefit, it shows that the husband receives an estimated $134 a week from the service company, Davalos Proprietary Limited, which is assisting with a car and some associated expenses.  He is assisted in the estimated amount of $200 a week by the same entity.  He derives some modest benefit from professional training and indemnity insurance which he estimates is $377 a week.  The husband’s personal expenditure, which he estimates as $900 a week, is paid by the same entity.

19. The husband shows in his financial statement that he has property with a value of $109 846.  The major component of this is in the now rather old yacht which was part of the pool of property in the proceedings. 

20. The husband’s liabilities are approximately $15 000.  He includes in the financial statement $157 000, which is described as moneys in trust to pay, apparently legal costs, not only in these proceedings but also in the District Court proceedings in relation to the yacht. 

21. It is also said that the conduct of Mr A Davalos is a matter which is relevant to take into account and I accept those submissions. 

22. It seems to me that there are two periods that I need to consider.  The first period is the period from the time that Mr A Davalos became involved in the proceedings up to the first day of the trial when the summary dismissal application was made.  In my view, in respect of this part of the proceedings, this is not a period in relation to which any costs order would be justified, and the normal position in relation to costs ought to prevail.  I say this because after all, over many years, Mr A Davalos was involved in the financial affairs of the parties and, specifically, in relation to funding the purchase of his home.  My perception is that to some extent his financial circumstances have been enmeshed with those of his parents and particularly of his mother since the breakdown of his parents’ marriage.  In those circumstances, in my view, the possibility of some contest about the guarantee and the circumstances relating to the funding of Mr A Davalos’ property purchase would not be completely unexpected.

23. In my view, by the time of the hearing, the actual situation should have been able to be fairly clear, although I accept Mr Lloyd’s helpful reference to the fact that during the cross-examination, it became clear to the husband that Mr A Davalos had the benefit of some $200 000.  This was certainly news to his father and no reference had been made to this in the affidavit which Mr A Davalos had affirmed in the wife’s case. 

24. But, in any event, by the time of ventilating the summary dismissal application, the situation was fairly clear that the application by the husband in relation to Mr A Davalos would not be successful.  Notwithstanding Mr Holmes urging that I dismiss it at that point, as indicated above, I did not do so.  But as I said, I gave the warning.

25. In my view, in all the circumstances, it was not reasonable for the case to be maintained against Mr A Davalos from that time.  In my view, bearing in mind that matter, the conduct, the financial circumstances of Mr A Davalos and the husband, and, of course, the fact that the husband’s application was wholly unsuccessful, in my view, it is appropriate that there be some order in relation to costs. 

26. I was urged by senior counsel for Mr A Davalos to make an indemnity costs order.  I am not persuaded to do so, despite the references to Medlon & Medlon (No 6) (Indemnity Costs) (2015) FLC 93-664 (“Medlon”), the fact that the husband’s application was wholly unsuccessful and that by the time of the summary dismissal application, it ought to have been clear to the husband upon the advice of those representing him that the application was not going to succeed.  In my view, taking into account the above matters including the husband’s financial circumstances and the reference which Mr Lloyd made to the $200 000, the circumstances are not such as to justify visiting upon the husband an order in a quantum that would indemnify.

27. Accordingly, the costs order I propose will be on the party and party basis.

Application by Ms B Davalos

1. I turn to the case presented on behalf of Ms B Davalos. 

2. After the substantive hearing had commenced, the husband filed an application in a case (that being on 25 February 2014) seeking that Ms B Davalos be joined as a party. 

3. In January 2011, the wife had gifted $200 000 to Ms B.  The wife gifted a further $200 000 to Ms B in May 2011 and there was a further $200 000 gift which was provided by the wife to Ms B in June 2011.  These gifts were provided to her without any notice to the husband. 

4. In his application, the husband sought an order that those dispositions on 17 May and 24 June 2011 be set aside. 

5. On 5 August 2014, Mr A Davalos and Ms B Davalos filed what I would regard as a joint response seeking that the applications for orders sought by the husband against each of them be dismissed.  So clearly the application against Ms B Davalos was opposed.

6. Ultimately, and as things turned out, the husband did not press his application against Ms B. 

7. In my view, there was never a proper basis for the orders sought against Ms B Davalos to be made. And despite some debate between myself and learned senior counsel about this matter, I continue to take the view that at all times during the hearing, there was ample property of the married parties available to enable the Court to make a just and equitable order as required under s 79 of the Act, without the need to set aside any transactions or dispositions.

8. Mr Lloyd takes a different view, and, clearly, his submissions in respect of that matter will appear on the transcript.  He said his client was justified in taking the position that his client did unless the Court had indicated at an early stage that the Court would bring those dispositions into the pool.  I reject that.

9. In my view, the application against Ms B was unnecessary and should never have been made.  And in those circumstances, I accept the submissions based on Medlon and going back to the well-known authorities, particularly Colgate-Palmolive Co. and Anor v Cussons Pty Limited (1993) 118 ALR 248 that the appropriate quantum is indemnity costs.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Johnston delivered on 2 September 2016.

Associate:

Date:              21 September 2016