Dovgan & Dovgan
[2022] FedCFamC1F 276
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Dovgan & Dovgan [2022] FedCFamC1F 276
File number(s): SYC 866 of 2017 Judgment of: HARPER J Date of judgment: 29 April 2022 Catchwords: FAMILY LAW – COSTS – Costs of third parties to a marriage – Where Second to Fourth Respondent corporate entities seek costs against the Applicant Wife – Where wife discontinued her claim against Second and Fourth Respondents three weeks prior to final hearing – Third parties argue an alternate basis for costs under s 79 of the Judiciary Act 1903 (Cth) and s 98 of the Civil Procedure Act 2005 (NSW) – Where this basis would lead to application of the rule that costs follow the event – Argument rejected because “proceedings under this Act” under s 117 embrace any matrimonial cause and its associated aspects as one justiciable controversy – Costs order intended to compensate, not punish – Where third parties argue wife failed to comply with court orders – Wife’s joinder of the third parties was not unreasonable and made by consent – Although wife foreshadowed discontinuance against Second and Fourth Respondents on 11 July 2020, Notice of Discontinuance was not filed until 23 July 2020 – Delay not substantial such that it would warrant a costs order – Where wife was wholly unsuccessful against the third parties – Four offers in writing made by the third parties – Whether offers reflected a genuine compromise – Wife unreasonable in failing to accept last of the four offers – Court will more readily award costs to a third party – Order for party/party costs for Second and Fourth Respondents up to discontinuance – Order for party/party costs for Third Respondents. Legislation: Family Law Act 1975 (Cth) ss 4, 78, 79, 117
Judiciary Act 1903 (Cth) s 79
Civil Procedure Act 2005 (NSW) s 98
Cases cited: C Pty Ltd & PGW (as liquidator of S Pty Ltd (in liq)) (2011) FLC 93-485; [2011] FamCAFC 231
Cachia v Hanes (1994) 179 CLR 403; [1994] HCA 14
Costigan & Costigan [2017] FamCA 886
D & D (Costs) (No 2) (2010) FLC 93-435 [2010] FamCAFC 64
Dovgan & Dovgan [2021] FamCA 306
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) & Fish and Anor (2005) 33 Fam LR 123; [2005] FamCA 158
Hampton & Farley (No 3) (2013) 52 Fam LR 366; [2013] FamCA 890
Harris & Dewell (No 2) [2018] FamCAFC 180
Klainec & Klainec [2021] FedCFamC1A 44
Kohan & Kohan (1993) FLC 92-340; [1992] FamCA 116
Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59
Limousin v Limousin (Costs) (2007) 38 Fam LR 478; [2007] FamCA 1178
Medlon & Medlon (No 6) (Indemnity Costs) (2015) 54 Fam LR 1; [2015] FamCAFC 157
Moorcroft & Moorcroft (2020) 60 Fam LR 361; [2020] FamCAFC 83
Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11
Prantage & Prantage(Costs) [2014] FamCA 850
Reza & Sadir [2019] FamCA 404
Robinson & Higginbotham (1991) FLC 92-209; [1991] FamCA 5
Skinner & Alfonso-Skinner (Costs) [2010] FamCA 1108
Division: Division 1 First Instance Number of paragraphs: 75 Date of last submission/s: 4 March 2022 Date of hearing: On the papers Place: Sydney Counsel for the Applicant: Mr Cooper, direct brief The First Respondent: No appearance required Solicitor for the Second, Third and Fourth Respondents: Gordon & Barry Lawyers ORDERS
SYC 866 of 2017 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS DOVGAN
Applicant
AND: MR DOVGAN
First Respondent
B PTY LTD ATF C FAMILY TRUST
Second Respondent
D PTY LTD ATF DOVGAN TRUST (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
HARPER J
DATE OF ORDER:
29 APRIL 2022
THE COURT ORDERS THAT:
1.The Applicant Wife (“the wife”) pay the costs of the Second and Fourth Respondents, up to and including 23 July 2020, as agreed or assessed on a party/party basis.
2.The wife pay the costs of the Third Respondent of the proceedings from 17 August 2020, as agreed or assessed on a party/party basis.
3.The proceedings be listed before an appropriate judicial registrar for the purpose of carrying out the assessment of costs in accordance with these orders and the appropriate rules under the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Dovgan & Dovgan has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HARPER J:
INTRODUCTION
The substantive dispute in this matter concerned property adjustment between the Applicant Wife, Ms Dovgan (“the wife”) and the First Respondent Husband, Mr Dovgan (“the husband”).
The Second Respondent, B Pty Ltd as trustee for the C Family Trust (“B Pty Ltd”), the Third Respondent, D Pty Ltd as trustee for the Dovgan Trust (“D Pty Ltd”), and the Fourth Respondent, F Pty Ltd (“F Pty Ltd”) were joined to the proceedings on 20 May 2020, by consent. Collectively, they will be called the “third parties” in this judgment.
The third parties gave disclosure and filed affidavit evidence on 6 July 2020, in accordance with orders made earlier in the proceedings before they had been joined.
The wife filed a Notice of Discontinuance against B Pty Ltd and F Pty Ltd on 23 July 2020 and they were discharged as parties on 6 August 2020. Thus, they were parties for about two and half months.
B Pty Ltd and F Pty Ltd filed an Amended Application in a Case on 3 August 2020 seeking, relevantly:
3. The Applicant pay the costs of the Second Respondent and Fourth Respondent on an indemnity basis with payment to be stayed until 14 days after the making of a final Order pursuant to s79 of the Family Law Act between the Applicant and First Respondent
On 14 May 2021, I delivered final judgment in the substantive proceedings: Dovgan & Dovgan [2021] FamCA 306 (“the primary judgment”) and made orders pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”). The relevant background is set out at [6]–[50] of the primary judgment.
The application for costs by B Pty Ltd and F Pty Ltd was not pressed until after delivery of final judgment.
D Pty Ltd then filed an Application in a Case on 16 June 2021 seeking the following orders:
1. That [Ms Dovgan] pay [D Pty Ltd]’s costs of and incidental to that corporations joinder to proceedings SYC 866/2017 on a solicitor/ client basis as assessed and fixed by the Court.
2. In the alternative to paragraph 1, that [Ms Dovgan] pay [D Pty Ltd]’s costs of and incidental to that corporations joinder to proceedings SYC 866/2017 on a party/party basis as assessed and fixed by the Court.
3. In the alternative to paragraphs 1 and 2, that [Ms Dovgan] pay [D Pty Ltd]’s costs of and incidental to that corporations joinder to proceedings SYC 866/2017 in accordance with the Scale as assessed and fixed by the Court.
4. In the alternative to paragraphs 1, 2 and 3, that [Ms Dovga]n pay [D Pty Ltd]’s costs of and incidental to that corporations joinder to proceedings SYC 866/2017 as from 17 August 2020 on a solicitor/ client basis as assessed and fixed by the Court.
5. That [Ms Dovgan] pay [D Pty Ltd]’s costs of and incidental to this Application in a Case.
On 9 June 2021, the wife filed a Notice of Appeal. Initially, the Court waited for the disposition of the appeal before determining any application for costs. The appeal was abandoned on 16 September 2021.
On 17 January 2022, I made orders by consent for the applications for costs to be dealt with in chambers by written submissions. Although the position of B Pty Ltd and F Pty Ltd regarding costs differed from D Pty Ltd’s position in material respects, the third parties filed collective submissions on 31 January 2022 which largely did not differentiate their positions. The wife’s submissions were received on 16 February 2022.
The third parties filed submissions in reply on 28 February 2022. These submissions made an argument, not previously articulated, for their costs to be awarded under the Civil Procedure Act 2005 (NSW) rather than s 117 of the Act. I will return to this issue below. On 1 March 2022, the wife sought and was granted leave to file further written submissions in relation to this argument.
It should be noted that the wife discharged her solicitors following the final hearing and was self-represented thereafter, although she engaged counsel for the purpose of responding to the costs applications.
THE LAW
Usually, s 117 of the Act is the applicable provision governing arguments about costs in this Court. However, as mentioned, the third parties contended that the primary relief sought by the wife as set out in her Application in a Case filed on 19 May 2020 was equitable relief “…by virtue of a resulting trust or by reason of the principles set out in Barnes & Addy (1874)”, and was also described in that application as consequential relief in equity, the Corporations Act 2001 (Cth), and the Family Law Act. Accordingly, they argued, costs should follow the event because s 79 of the Judiciary Act 1903 (Cth) and s 98 of the Civil Procedure Act 2005 (NSW) should govern costs in relation to the claims made against them.
The third parties relied on Skinner & Alfonso-Skinner (Costs) [2010] FamCA 1108 (“Skinner”). The issue in Skinner concerned the grant of a stay on forum non conveniens grounds. Murphy J accepted the agreed position between the parties that s 117 of the Act did not apply, and that the ordinary rule that costs follow the event, was to apply instead. His Honour found that the Court accrued equitable jurisdiction and, as a result, this jurisdiction could not be described as “proceedings under this Act” for the purposes of s 117 (at [16]). Thus, s 98 of the Civil Procedure Act was “picked up” through s 79(1) of the Judiciary Act.
I do not accept this argument. Section 117 applies to “proceedings under this Act”. A “proceeding” is defined in s 4 as “a proceeding in a court, whether between parties or not, and includes cross‑proceedings or an incidental proceeding in the course of or in connexion with a proceeding.”
The Full Court in C Pty Ltd & PGW (as liquidator of S Pty Ltd (in liq)) (2011) FLC 93-485 (“C & PGW”) has explained that “proceedings under this Act”, for the purposes of s 117, embraced any matrimonial cause and its associated aspects as “one justiciable controversy”. In Hampton & Farley (No 3) (2013) 52 Fam LR 366 (“Hampton”), Le Poer Trench J pointed out Skinner would not now be followed (at [144]) and elucidated the decision in C & PGW as follows:
164. The decision of the Full Court of the Family Court in C Pty Ltd v S Pty Ltd is binding on trial judges. It also resolves the dilemma which is created by the words “proceedings under this Act” as the words appear in s 117 of the FLA.
165. Once “a proceeding” is a “matrimonial cause”, as defined by the definition of matrimonial cause in s 4 of the FLA, then s 31 of the FLA is called into play and the proceeding falls within the original jurisdiction of the court.
166. Consequently, once the court has determined that it is appropriate to exercise its accrued jurisdiction in relation to a proceeding which would otherwise be outside of the court’s statutory jurisdiction, then that proceeding will invariably become a matrimonial cause, as defined by s 4 of the FLA. Thus, s 117 of the FLA becomes available to the court should an application for costs be made relating only to the proceeding which was considered by the court having to accrue jurisdiction to do so.
More recently, Carew J further explained in Costigan & Costigan [2017] FamCA 886 (“Costigan”):
[50] C Pty Ltd & PGW (as liquidator of S Pty Ltd (in liq) concerned an appeal against an order dismissing an application to transfer proceedings to the Supreme Court of New South Wales. There were completed proceedings in the Family Court pursuant to s 79 of the Act and subsequently an application was filed by the liquidator of S Pty Ltd to recover money the company had paid, as guarantor, to discharge a loan and an application by C Pty Ltd to reverse the decision of a liquidator to reject a proof of debt. There had been an order for the winding up S Pty Limited in the completed s 79 proceedings. In addition there was an application for security for costs pursuant to s 117 brought against S Pty Limited. The trial judge found that the applications were a matrimonial cause as defined in s 4(1)(f) of the Act. Any dispute over the implementation of the order made pursuant to s 79 or the winding up order itself or the proof of debt issue were held by the trial judge to be part of the one justiciable controversy of which the family law claim forms part and as such the jurisdiction to determine these matters arose pursuant to the Court’s accrued jurisdiction. The security for costs application was determined pursuant to s117 of the Act.
[51] The Full Court observed that the Family Court had jurisdiction to hear the winding up proceedings pursuant to the power vested in the Court under s 1337C of the Corporations Act but that did not prevent the proceedings also being a matrimonial cause. As to the claim arising out of the guarantee, the Full Court agreed with the trial judge and held that the guarantee proceedings were a necessary part of the winding up process that ensured that the efficacy of the s 79 order and accordingly within the original jurisdiction of the Court pursuant to s 31(1)(a) of the Act. The Full Court also agreed with the trial judge that the determination of the claims (including the proof of debt) were alternatively within the accrued jurisdiction of the Court stating that it was:
… patently obvious that the winding up proceedings, being a matrimonial cause, and the guarantee proceedings which are brought by the Liquidator in the context of progressing the winding up proceedings, are part of the one “justiciable controversy”. The winding up proceedings have certainly not been completed and thus they satisfy the need for there to be a family law claim as part of the justiciable controversy….
[52] The trial judge’s determination of the security for costs application pursuant to s 117 of the Act was held to be correct given that the guarantee proceedings were a matrimonial cause and thus ‘proceedings’ within the meaning of s 117.
Specifically, at [59] her Honour noted that
… Where once it was thought that s 117 applied only where a costs application arose out of a claim brought pursuant to a provision of the Act, it is now apparent that it applies in any case where the Court is called upon to exercise its original jurisdiction in a single matter before it, whether that involves an exercise of its ‘implied’ powers, accrued jurisdiction or a determination of whether it has jurisdiction at all.
I accept the wife’s argument that the nature of the relief is not the relevant criterion for the purposes of s 117(1) of the Act. She invoked this Court’s original jurisdiction in “proceedings under this Act”, including the discretionary powers in s 79, and later s 78, and argued that all the relief she sought against all parties formed part of “one justiciable controversy”. Therefore, s 117 of the Act should govern the determination of the various applications for costs.
However, I also recognise that, quite separately to this conclusion, and for the purposes of s 117(2A)(g), I should take account of the fact that in other jurisdictions, costs would follow the event in relation to claims brought on the jurisdictional basis on which the wife brought claims against the third parties. I return to this below.
Section 117
Section 117(1) of the Act provides that, subject to subsection (2), “each party to proceedings under this Act shall bear his or her own costs”. Subsections (2) and (2A) are in the following terms:
(2) If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A), (5) and (6) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
(2A) In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a) the financial circumstances of each of the parties to the proceedings;
(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c) the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g) such other matters as the court considers relevant.
It follows, that while s 117(1) provides, as a starting point, that in family law proceedings each party bears his or her own costs, the Court may make a costs order in favour of a party where there are circumstances justifying such an order.
It is well settled that no one factor in s 117(2A) has priority, nor must more than one factor be satisfied; rather, any one factor may be sufficient; Prantage & Prantage(Costs) [2014] FamCA 850 at [12], Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) & Fish and Anor (2005) 33 Fam LR 123 at [41]. It is a matter of weight that is accorded to each relevant factor in the trial judge’s discretion: Medlon & Medlon (No 6) (Indemnity Costs) (2015) 54 Fam LR 1, per Strickland J.
The wife made no claim for costs. Nor did the husband. The questions, therefore, are whether any of the third parties have established circumstances which justify departing from the position that each party pay their own costs and, if so, what order for costs should be made in their favour. The costs of B Pty Ltd and F Pty Ltd are sought on an indemnity basis, whilst costs of D Pty Ltd are sought on five alternate basis: solicitor/client, party/party, in accordance with the Scale, on a solicitor/client basis from 17 August 2020 (when a further offer to settle was made), or as determined by the Court.
SECTION 117(2A) CONSIDERATIONS
Section 117(2A)(a) – the financial circumstances of each of the parties
No party gave clear evidence of their current financial circumstances. The third parties contend I should infer that the wife has the capacity to pay the costs sought because, by reason of the primary judgment, she has a property located at G Street, Suburb H, valued at $6 million, and received the sum of $12,802,462 pursuant to the final orders. The third parties themselves have not suggested that they are in any financial difficulty or hardship, nor have they adduced any evidence of their financial circumstances.
I do not consider that the financial circumstances of the parties here has much bearing on the question of costs.
Section 117(2A)(b) – whether any party is in receipt of legal aid
This is irrelevant.
Section 117(2A)(c) – the conduct of the parties
The third parties rely upon various aspects of the wife’s conduct as militating in favour of a costs order in their favour.
Before considering these arguments, it should be emphasised that an order for costs is compensatory and not to be used to punish: Latoudis v Casey (1990) 170 CLR 534; Cachia v Hanes (1994) 179 CLR 403. In Oshlack v Richmond River Council (1998) 193 CLR 72 at [1] (“Oshlack”), Brennan CJ said “[c]osts are awarded to indemnify a successful party in litigation, not by way of punishment of an unsuccessful party”. Thus, putting aside for the moment the question of indemnity costs, which is evaluated according to some different considerations, concepts of punishment or reward should be avoided in considering the factors in s 117(2A).
The wife joined the Second to Fourth Respondents in circumstances where her contentions against them had been answered before she commenced proceedings
This contention was given little elaboration in the third parties’ submissions. It was not clear what the submission meant other than that, in their submissions in reply, the third parties point out that by letter on 18 May 2020, before the wife filed her application for their joinder, their solicitors set out their assertions about the claims they believed the wife proposed to make against them. Yet despite this, so they argue, the wife pressed ahead in her application for joinder, “without pausing for a prudent assessment of the merits of her claims.” There is some force in this argument, but assertions in correspondence in a solicitor’s letter are made on instruction, and cannot have, for example, the same force as sworn or affirmed evidence in an affidavit.
The force of the argument is attenuated by the fact that it was after the wife received the evidence of the third parties that she discontinued against B Pty Ltd and F Pty Ltd. I infer that it was at that point the wife prudently assessed her claims against the third parties in light of their evidence, and concluded that only D Pty Ltd should remain as a party. Since one central issue in the proceedings was whether the assets held by D Pty Ltd on trust should be treated as assets of the husband, I do not consider the wife’s decision to take the step of joining all the third parties to be unreasonable, also bearing in mind they all consented to their joinder, despite what their solicitors asserted in correspondence prior to joinder. I further do not consider the wife’s course of waiting for the evidence of the third parties to be unreasonable.
The wife failed to comply with multiple court orders
The third parties impugned the conduct of the wife in failing to adhere to Court orders. Some of these submissions were made in connection with s 117(2A)(d). However, it is more appropriate to deal with them here.
It is clear that there have been several occasions on which the wife has failed to comply, for example, in accordance with orders of 28 November 2019, 20 May 2020, and 9 July 2020.
Orders were made on 28 November 2019 for the wife to request further and better particulars by 20 December 2019, and to provide responses by 28 February 2020. The third parties contend that the wife did not comply “before 12 May 2020.” Furthermore, the wife did not, pursuant to orders of the same date, file her trial evidence by 6 July 2020.
Order 2 of 20 May 2020 permitted the wife to amend her final relief, which she did not do until 27 July 2020. There is no breach in this respect, for the wife was merely granted leave to do so. However, the wife failed to file a minute of orders in accordance with paragraph 8(c) of the orders of 20 May 2020.
However, none of the identified defaults of themselves are sufficient to justify an order for costs. It is not clear they lengthened the proceedings in any material way, or caused any particular prejudice to the third parties. While the Court’s directions should be complied with, as pointed out, a costs order is to compensate, not punish.
The wife failed to address matters in a timely matter
The third parties argue the wife failed to discontinue her proceedings against B Pty Ltd and F Pty Ltd in a timely manner. I disagree. The relevant chronology is as follows.
On 9 July 2020, the Court had made orders, including that within seven days, the wife was to file an Amended Initiating Application to identify the precise relief she sought against each Respondent. On 11 July 2020, her then-solicitor indicated the wife’s intention to discontinue her claims against the Second and Fourth Respondents.
On 14 July 2020, I made directions for the preparation of the matter for final hearing. By 7 August 2020, the parties were to submit a joint tender bundle, and by 10 August 2020, the parties were to supply a consolidated Electronic Court Book. On this date, a proposed joint Trial Plan was to be submitted as well. Case Outlines were to be forwarded by 13 August 2020.
In their written submissions in reply, the third parties point out that they continued to comply with the above orders until the wife filed her Notice of Discontinuance on 23 July 2020.
However, I accept the wife’s submission that the period between 11 and 23 July 2020 “hardly reflects substantial delay of a kind that would warrant a costs order.” Although the wife did not file the requisite Notice of Discontinuance until 23 July, the third parties were reasonably on notice from 11 July 2020 that the wife would not proceed against B Pty Ltd and F Pty Ltd. Those parties could reasonably have minimised steps which incurred legal costs from 11 July 2020.
The wife failed to inspect documents available to her under subpoena, thus placing a burden on the Second to Fourth Respondents to provide material in further disclosure
In the affidavit of Mr O Dovgan sworn on 11 June 2021, he makes one reference to an alleged failure by the wife to inspect subpoena documents. At [11], he notes that “On 17 June 2020 [the wife’s solicitor] requested disclosure (including material that was already available under subpoena) and on 30 June 2020 our lawyers answered that letter and provided numerous documents.”
Furthermore, in the affidavit of Mr C (a director of B Pty Ltd and F Pty Ltd) sworn on 11 June 2021, he noted that “I understand from a letter dated 24 June 2020 from [the wife’s then-solicitor] that he declined to inspect the subpoenaed material as he regarded it to be a “waste” of [the wife’s] (alleged) “limited resources.”” The actual statement made by the wife’s solicitor was in slightly different terms: “In relation to the subpoenaed documents, we do not seek to waste limited resources on photocopying records already in our client’s file.”
I am not in a position to determine what records were or were not in the wife’s file. But the correspondence relied upon by the third parties only shows that the wife’s solicitor resisted a duplication of photocopying.
The wife argues that there is no evidence of such a failure by her to inspect documents, and thus no basis for the Court to make a finding of that kind. I agree.
I am unable to accept that the wife’s overall conduct justifies an order for costs against her.
Section 117(2A)(d) – whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court
I have already set out the failures to comply with Court orders relied upon by the third parties under s 117(2A)(c).
With respect to s 117(2A)(d), I agree with the submissions of the wife that the third parties misconstrue this provision. It refers to failures in compliance which “necessitated” proceedings. They fail to point to any proceedings which arose necessarily out of the wife’s failure to comply with orders of the Court.
Section 117(2A)(e) – whether any party has been wholly unsuccessful
Although the case proceeded to trial, there was no determination on the merits of the wife’s claim against B Pty Ltd and F Pty Ltd, she having filed a Notice of Discontinuance against these parties. The wife concedes that the court would thus be justified in characterising the filing of this notice as reflecting a lack of success against these parties.
However, the wife did proceed as against D Pty Ltd. At trial, the wife sought declaratory relief that D Pty Ltd’s 90 per cent interest in the partnership, and its interest in the Dovgan Investment Trust, formed part of the property pool between her and the husband for the purposes of s 79 adjustment. The wife was wholly unsuccessful in this respect.
Section 117(2A)(f) – whether any party made an offer in writing to settle
The third parties refer to four offers which were made to the wife. The first, on 1 June 2020, offered for proceedings to be discontinued with no orders as to costs. This was followed by a further offer on 14 July 2020 that, again, the proceedings be discontinued, but now with an order for costs in the amount of $100,000. The third offer was made by D Pty Ltd alone on 17 August 2020, for all applications against D Pty Ltd to be withdrawn with no order as to costs. None of the offers were accepted.
It should also be recorded that, on 25 October 2021, B Pty Ltd and F Pty Ltd made an offer to settle their costs application determined by this judgment, in the amount of $18,202. D Pty Ltd offered to settle for 2/3 of its costs for a total of $238,000.
Nygh J in Robinson & Higginbotham (1991) FLC 92-209 at 78,417 summarised the purpose and effect of s 117(2A)(f) as follows:
… when one looks at paragraph (f) it is quite clear that the purpose of that provision is to ensure that offers to settle, if made seriously, are considered seriously, to ensure that the cost of litigation is avoided, the workload of this Court is lightened, and one other consideration is certainly that a party with greater wealth is not placed in a position whereby he or she can wear out the other by simple attrition.
The wife argues that all of these offers amounted to no more than a “walk away” offer. In this jurisdiction, where parties are not generally entitled to costs, she argues that such offers do not reflect any genuine compromise.
However, as noted below under s 117(2A)(g), there is a greater willingness in this Court to consider ordering costs in favour of third parties, especially where the claims against them are of a purely commercial nature. Similarly, in my view, where third parties offer to resolve proceedings against them by discontinuance with no order as to costs, this can represent a genuine compromise, in the sense that the party claiming against them is relieved of the risk a later adverse costs order.
As regards B Pty Ltd and F Pty Ltd, the offer of 1 June 2020 reflected exactly the substantive position ultimately accepted by the wife, that is, discontinuance of her claims against them. It would have allowed her to avoid any exposure to a costs order in their favour. It was made after those parties had articulated their position regarding the wife’s claim in the letter of 18 May 2020, but before they had incurred the expenses of drafting and finalising their affidavits filed on 6 July 2020. I infer that if the wife had accepted this offer, B Pty Ltd and F Pty Ltd would have avoided sizeable legal costs.
As regards D Pty Ltd, the offer dated 17 August 2020 was consistent with the ultimate result in the final hearing. Again, if accepted, it would have relieved the wife from any risk of an adverse costs order, and saved D Pty Ltd considerable expense.
Section 117(2A)(g) – such other matters the Court considers relevant
Under this paragraph, the third parties refer to only one factor:
It is material that all of [B Pty Ltd], [F Pty Ltd] and [D Pty Ltd] are third parties to the marriage the genesis of the substantive proceedings. They were all drawn into litigation at a late stage only for the relief against two of them to be abandoned with the relief against the third of them achieving nothing.
There is no rule that third parties are not subject to the general rules on costs contained in s 117 of the Act. However, the Second to Fourth Respondents referred to Aldridge J in Klainec & Klainec [2021] FedCFamC1A 44 (“Klainec”) at [38], where his Honour stated that
It is established that the court will more readily award costs to such a [third party] (Conrad and Another & Conrad (2020) 61 Fam LR 301 at [43]; E Pty Ltd and Ors & Zunino and Anor (No. 2) [2020] FamCAFC 272 at [17]). That is particularly so where the claim is one that would ordinarily be brought in a court, such as the Supreme Court of New South Wales, where the default position is that costs follow the event.
I accept this is applicable to the position of the third parties in this case, and if the matter had been litigated in the Supreme Court of NSW, for example, the wife would be subject to an order for costs against her.
CONCLUSION ON JUSTIFYING CIRCUMSTANCES
I do not accept any of the third parties were inappropriately joined. As noted, they consented to joinder, even if on a without admissions basis.
But, the wife was wholly unsuccessful against B Pty Ltd and F Pty Ltd, having discontinued the proceedings against them. She failed to accept an offer reflecting the position she eventually reached anyway, made before the third parties incurred the cost of finalising their disclosure and evidence. She was also wholly unsuccessful against D Pty Ltd and failed to accept the offer dated 17 August 2020.
Taking account of these factors and principles referred to above in Klainec concerning the Court’s willingness to award costs to a third party, I am satisfied the third parties have established circumstances justifying an award of costs in their favour.
INDEMNITY, SOLICITOR/CLIENT, OR PARTY/PARTY COSTS
B Pty Ltd and F Pty Ltd seek indemnity costs against the wife. D Pty Ltd seeks costs on a solicitor/client or party/party basis, or for the Court to exercise its discretion to fix a lump sum.
The award of indemnity costs in this Court has regularly for many years been called a significant departure from the normal standard, rare, and requires something exceptional: Moorcroft & Moorcroft (2020) 60 Fam LR 361; Kohan & Kohan [1992] FamCA 116; (1992) 112 FLR 151; Limousin v Limousin (Costs) [2007] FamCA 1178; (2007) 38 Fam LR 478; D & D (Costs) (No 2) (2010) FLC 93-435.
In Harris & Dewell (No 2) [2018] FamCAFC 180, the full Court said at [23]–[25]:
In Kohan and Kohan, the Full Court held, in applying the principles expounded by Sheppard J in Colgate-Palmolive, that an order for indemnity costs represents a “very great departure from the normal standard”. In the later decision of the Full Court in Prantage & Prantage, Thackray and Ryan JJ referred to Kohan and other authorities in the Full Courts of both this Court and the Federal Court of Australia as well as the state appeal courts. Their Honours concluded (at [86]) that the “usual rule” continued to apply in respect of awards of costs in this Court notwithstanding the Full Court accepting that the difference between party/party costs and a party’s actual costs has continued to grow significantly.
That proposition also derives support from what Callinan J said in Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation. His Honour said that an order for indemnity costs should “be exceedingly rare, as they have a tendency to encourage extravagance and put the quantum of legal fees beyond the effective scrutiny of the courts and their taxing officers”.
The rarity of an order for indemnity costs can also be seen illustrated by the comments of Lindgren J in NMFM Property Pty Ltd v Citibank Ltd (No 2), referred to by their Honours in Prantage (at [102] – [103]). Lindgren J said that there is no rule that indemnity costs will be ordered “where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation.”
(Footnotes omitted)
D Pty Ltd relied upon Reza & Sadir [2019] FamCA 404, wherein Foster J said the following:
…[where] an order for costs is made on the ordinary basis (party/party), it is trite to say that such an order will most likely leave that third party significantly out of pocket. It is appropriate to have regard to the compensatory role of a cost order...
In their submissions, B Pty Ltd and F Pty Ltd argued that “it is exceptional that the wife joined [B Pty Ltd and F Pty Ltd] but did not pursue any relief against them.” I do not accept that this is the type of “exceedingly rare” circumstance that should give rise to an order for indemnity costs. It is not exceptional for parties to be joined to litigation, only to be disjoined later, when the process of gathering evidence and disclosure makes clear that the case against them, however strong it may once have appeared, should no longer be maintained. Whilst it is true that she did not ultimately pursue any relief against them, there is no reason to conclude that, at the point in time where she applied to join the third parties, the wife did not make a bona fide claim against them.
In the circumstances of these proceedings, which involved some complex factual and legal questions, I am not satisfied the third parties have identified any exceptional aspect to warrant indemnity costs.
For the same reasons, I am not satisfied there should be an award of costs on any basis other than the more usual basis of party/party costs in favour of B Pty Ltd and F Pty Ltd, despite their offers of settlement.
The position of D Pty Ltd is different. D Pty Ltd’s offer on 17 August 2020 embodied an outcome which was, in material respects, the outcome the wife achieved at final hearing. D Pty Ltd was put to considerable expense after 17 August 2020. However, the question is whether it was unreasonable for the wife to reject or not accept the offer at the time it was made. The offer was an offer of total capitulation. As the final hearing demonstrated, the issue whether the assets held on trust by D Pty Ltd were to be found as assets “of” the husband, required cross examination of the controlling minds of D Pty Ltd and a consideration of the history of distributions of the trust to discretionary objects of the relevant trusts. The outcome of those processes could not reasonably have been known as at August 2020, even with the benefit of competent legal advice. In those circumstances, I do not consider it unreasonable for the wife to have not accepted D Pty Ltd’s offer of 17 August 2020. I note that there is no evidence that the offer was later renewed.
For these reasons, I am not satisfied there should be an award of costs on any basis other than the more usual basis of party/party costs in favour of D Pty Ltd, despite its offers of settlement. Indeed, since I have concluded D Pty Ltd’s joinder was reasonable and the issues concerning its assets required full ventilation at final hearing, it is appropriate to order party/party costs from 17 August 2020 onwards, rather than for the entirety of the proceedings.
While I accept it would save the parties time and money to fix a sum for costs, in the complex circumstances of this case I do not have sufficient information to find a sensible basis for a fixed sum. This view is fortified by the fact that the third parties had, at all relevant times, the same legal representation. According to the evidence, the lawyers rendered bills of costs to the third parties collectively, and while B Pty Ltd paid 10 per cent of the legal costs of the third parties, the evidence also showed there was no, or very little, differentiation in the bills of costs between the individual third parties. It would provide a more just outcome if costs are assessed in the ordinary way according to the appropriate scales in relation to the respective third parties.
While I have concluded the wife should pay costs of B Pty Ltd and F Pty Ltd, her liability should be limited to costs incurred by those parties up to the date of filing of the Notice Discontinuance. Accordingly, the wife should pay the costs of B Pty Ltd and F Pty Ltd up to 23 July 2020 as agreed or assessed on party/party basis.
The costs of D Pty Ltd should be paid from 17 August 2020 onwards, as agreed or assessed on a party/party basis.
I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Harper. Associate:
Dated: 28 April 2022
SCHEDULE OF PARTIES
SYC 866 of 2017 Respondents
Fourth Respondent:
F PTY LTD
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