Eleninovska & Patronis (No.2)
[2007] FMCAfam 906
•2 November 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ELENINOVSKA & PATRONIS (No.2) | [2007] FMCAfam 906 |
| FAMILY LAW – Costs – conduct during course of litigation – husband ordered to pay costs of wife. |
| Family Law Act 1975 Federal Magistrates Court Rules 2001 |
| Charles & Charles [2007] FamCA 276 G, T and G, L [2004] FMCAfam 9 Kohan and Kohan (1993) FLC 92–340 |
| Applicant: | SUZIE ELENINOVSKA |
| Respondent: | FRANK PATRONIS |
| File Number: | SYM 3564 of 2006 |
| Judgment of: | Sexton FM |
| Hearing date: | 24 October 2007 |
| Delivered at: | Sydney |
| Delivered on: | 2 November 2007 |
REPRESENTATION
| Solicitors for the Applicant: | Norbert Lipton & Co. |
| Solicitors for the Respondent: | Newnhams Solicitors. |
ORDERS
That the husband pay the wife’s costs of the property and costs proceedings in the total sum of $18,200.00 by 31 January 2008.
That all outstanding applications otherwise be dismissed and the matter removed from the list of cases awaiting finalisation.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYM 3564 of 2006
| SUZIE ELENINOVSKA |
Applicant wife
And
| FRANK PATRONIS |
Respondent husband
REASONS FOR DECISION
This is the wife’s costs application in relation to proceedings brought by her for property orders. The property proceedings were heard at Sydney on 26 and 27 February 2007 and judgment was delivered on 15 May 2007. The husband was unrepresented at the trial, though had been represented during almost the whole course of the proceedings until shortly before trial. The husband was represented by Mr Thompson or Newnhams at the hearing of this application.
In summary, Mr Sankey, solicitor for the applicant wife argues that the property proceedings could have been avoided altogether, or at least finalised much earlier if the respondent husband had fully and frankly disclosed his financial position when first asked to do so, and had conducted the proceedings in a cooperative manner. Instead, Mr Sankey says “a fairly simple application involving a relatively small amount of property, developed into an extremely complicated and difficult action, necessitating the wife’s representation by an experienced barrister.”
While conceding the husband’s conduct during the proceedings was less than satisfactory, Mr Thompson submits the husband’s conduct before and during the proceedings was not such as to justify a departure from the usual rule that each party pay his/her own costs.
In her application filed 8 June 2007, the wife seeks indemnity costs from the husband in the sum of $56,474.06 inclusive of GST, or in the alternative, costs as assessed or taxed on an indemnity basis. In addition, the wife seeks costs of the costs proceedings in the sum of $2,200. Mr Sankey deposes to the wife having incurred costs, inclusive of GST, in the sum of $39,490.00 and disbursements of $18,484 (Mr Sankey’s total of $16,751 is inaccurate). The wife says, as at 28 September 2007, she owes her solicitors $32,122.68 and her sister $14,000 which she borrowed to meet her counsel’s fees and her share of the forensic accountant’s fees.
The husband asks that the wife’s application be dismissed and that the wife pay the husband’s costs of the costs proceedings.
Background
The wife commenced proceedings for property settlement in December 2004 in the Family Court of Australia. The proceedings were transferred to the Federal Magistrates Court in March 2006. The hearing took place before me at the end of February 2007 over two days.
In accordance with section 117(1) of the Family Law Act 1975 the usual rule in family law proceedings is that each party will pay their own costs. However, section 117(2) provides that the court may order costs if it is of the opinion that there are circumstances that justify it in doing so, subject to section 117(2A). The Full Court in Kohan and Kohan (1993) FLC 92-340 said that although the Court has a discretion to order costs on an indemnity basis, such an order is an exception in the Family Court and is “a very great departure from the normal standard.” When the court is considering what order should be made the court must have regard to the matters referred to in section 117(2A) subsections (a) to (g).
Mr Sankey submits that section 117AB applies in this case. Section 117AB provides that if the court is satisfied that a party to the proceedings knowingly made a false allegation or statement in the proceedings, the court must order that party to pay some or all of the costs of another party to the proceedings. In support of her claim for costs, the wife relies on paragraphs (a) (c) and (e) of section 117(2A), being the respective financial circumstances of the parties, the conduct of the husband in relation to the proceedings, and the husband being wholly unsuccessful in the proceedings.
Section 117AB
Mr Sankey argues that because the husband has made false statements in the proceedings, in accordance with section 117AB of the Act, which came into force on 1 July 2006, I must make an order for costs against the husband. He refers me to paragraph 10 of my Reasons for Judgment where I list a number of examples of inconsistencies in the husband’s evidence and the husband’s admissions as to his dishonest conduct. I made findings that the husband failed to disclose ownership of his share in the family company; failed to disclose the disposal of his share in the family company; failed to disclose any superannuation entitlement; failed to disclose the source of deposited funds into his bank account; and failed to disclose his correct income. I made other findings in relation to the husband’s unsatisfactory conduct in other parts of my Reasons.
Mr Thompson for the husband, submits that the husband’s conduct is not of a kind contemplated by s 117AB. He says the court should take into account that the husband did not persist in his initial attempt to hide his interest in the family company from the wife. Mr Thompson says the husband acknowledged early in the litigation process that he had an interest in his family company and that he would agree to an order that the share transfer to his brother 5 days after the parties’ separation should be set aside. Mr Thompson refers to my description of the husband’s conduct as ‘cavalier’ and ‘irresponsible’ at paragraph 8 of my Reasons and submits this does not amount to a finding that the husband “knowingly made a false allegation or statement” as required by s117AB. Mr Thompson refers me to the decision of Justice Cronin in Charles & Charles [2007] FamCA 276 when His Honour said[1]:
“For a Court to be satisfied that a person knowingly made a false allegation of statement in the proceedings must mean that a court can be comfortable in finding a person lied…To be satisfied that a lie has been told and to so find requires a careful analysis of two things. The first is that the proffered version of fact is untrue but the second is that it is put knowing it to be untrue. A court must then be cautious about such a finding because of the mandatory consequence…
…Having regard to the comment that it is a “high” test that must be satisfied and the potential for criminal penalties to be applied, a court must be very careful in making a judgment in an application for costs subsequent to the determination of proceedings that the person who made the false statement did it knowingly.”
[1] At page 7, paragraph 24.
I found the husband’s approach “cavalier” and “irresponsible” rather than knowingly dishonest. As stated by Justice Cronin[2], “it is important to distinguish between one (statement) which is knowingly made as a false statement, and one which is recklessly made. The test is therefore a stringent one.” I find the husband’s inaccurate statements were made carelessly and recklessly. I am not prepared to find they were made ‘knowingly’. I find section 117AB does not apply.
[2] At paragraph 27.
The financial circumstances of each party
In her affidavit sworn 28 September 2007, the wife deposes to a deterioration in her financial circumstances since the date of her financial statement sworn August 2006, relied on at hearing. She says she has been on unpaid leave since 19 March 2007 as a result of stress and anxiety arising from these proceedings. She says the amount of $36,659.00 the court ordered the husband to pay her is insufficient to meet the legal costs she incurred in relation to the proceedings. The wife depends for support on her de facto husband who earns $950 a week gross. The wife says she has diminished her savings since the date of hearing and owes her sister $14,000 and her solicitors $32,122.68. The husband has only paid part of the sum he has been ordered to pay to the wife, held by his solicitors in the sum of $25,000 and is in breach of the May 2007 orders. The wife is still owed a further $1500 from the husband as ordered by the Family Court in March 2006.
The husband says he still has the two debts to the Commonwealth Bank in the sum of $17,600 and $15,000, that existed at the time of hearing, and says his credit card debt has increased since then. He says he has borrowed $25,000 from the family company to meet part of his obligation to the wife pursuant to the property orders. He says he has a further debt to the family company in the sum of $55,391, still owes the wife $11,659 and owes his solicitors over $10,000. The husband says, based on the court’s findings at the property hearing, in real terms, he has a negative net asset position of ($75,921). This does not include his unpaid costs order of $1500.
At hearing, I was not satisfied the funds advanced to the husband from the family company should be included as a liability in the net assets available for distribution to the parties, given the unsatisfactory nature of the husband’s evidence on this issue. Mr Thompson submits that even if I were to exclude the husband’s liability to the family company, the husband still finds himself in a negative net asset position. Mr Thompson contends that the wife is in a superior financial position to the husband.
Mr Sankey contends that the husband’s additional borrowings from the family company to part-pay the wife, is further proof that his family company continues to be a significant financial resource available to the husband to meet his financial commitments. He refers to paragraph 28 of my Reasons:
“I have concluded… the husband receives greater benefits from the company than he discloses to the court.”
I am satisfied the wife is in financial difficulty, at least in part, as a result of the property proceedings and she is currently dependent on her partner for support. The husband in these proceedings, as in the hearing of the property proceedings, adduces no evidence as to his de facto partner’s financial position. The husband, in these proceedings, as in the property proceedings, does not satisfy me that the company will require any funds advanced to him, to be repaid. I agree with Mr Sankey, that the company is an ongoing financial resource available to the husband. I am satisfied that the husband has the means to satisfy an order for costs.
Husband’s conduct in the proceedings
Mr Sankey submits that the wife incurred substantial legal costs and disbursements as a result of the husband’s failure to provide full and frank disclosure of his financial position both before the proceedings started and during the course of the litigation, and as a result of the husband’s uncooperative attitude during the course of the proceedings.
In his affidavit sworn 5 June 2007, Mr Sankey details the unnecessary steps he was required to take to ascertain the husband’s financial position: numerous letters and phone calls to the husband’s solicitors; the issue and service of 7 subpoenas and inspection of documents produced; drafting specific questions and appearing at court to examine the husband in respect of his answers; attending two conciliation conferences when the husband made no genuine effort to settle the proceedings, the husband claiming to have no assets and no money; many appearances at directions hearings arising from the husband’s failure to comply with directions; preparing for hearing, including the costs of an adjournment on the husband’s application; briefing and consulting a barrister; arranging, considering and querying the business valuation. Mr Sankey says that at no time, did the husband make any reasonable attempt to settle the proceedings.
In his affidavit, Mr Sankey refers in particular to paragraph 10 of my Reasons for Judgment dated 15 May 2007, when I made adverse findings as to the husband’s credit. After referring to numerous instances of inaccuracies and omissions in his affidavit evidence and instances of the husband’s dishonest conduct, I concluded at paragraph 10 that I found the husband’s evidence unreliable. I make findings in the judgment as to the unsatisfactory and unreliable nature of the husband’s evidence on a number of issues. Mr Sankey highlights these passages from the Reasons :
“During the course of the hearing, it became apparent that the husband had not provided full and frank disclosure of his financial position, either before the commencement of the proceedings or during the proceedings. I am satisfied the husband failed to provide to the wife’s solicitors relevant financial information and relevant financial documents when requested to do so and as required by law.” (paragraph 7)
“I find the husband has demonstrated a cavalier and irresponsible attitude towards his obligations in these proceedings.” (paragraph 8)
It is noteworthy that the husband acknowledged at the commencement of the hearing in February 2007, that he transferred his only share in his family company to his brother, 5 days after the parties separated to defeat any claim by the wife. He and his brother, the second respondent, then consented to an order that this share transaction be set aside. I did not accept the husband’s evidence as to his role in the family company and say at paragraph 28:
“I have concluded that the husband has a more significant role in the running of the company’s business operations and receives greater benefits from the company than he discloses to the court.”
I found the husband’s evidence in relation to the family company inadequate and unsatisfactory, the husband failing to provide any evidence in relation to the financial position of the company after June 2005. I say at paragraph 38
“I am critical of the husband for failing to provide Mr Krochmalik (the forensic accountant) with the financial information he needed to prepare an accurate and current valuation.”
Mr Thompson concedes that the husband’s conduct in the property proceedings is open to criticism, but submits that the husband’s conduct does not warrant a costs order against him. He refers to my findings as to the husband’s failure to provide the forensic accountant with relevant financial material, and says the husband conceded in his affidavit that his share in the company had a value of $27,600. Mr Thompson however, correctly acknowledges that the husband did not accept that value for the purposes of the hearing, instead asserting his share had no value. Mr Thompson further submits that it would be ‘double-dipping’ to order costs on the basis of the husband’s conduct, in that I made a 10% adjustment in favour of the wife, as a result of the husband’s failure to disclose. I do not accept this submission. The authorities make clear that I had a discretion to make an adjustment under s 75(2)(o) in the property proceedings as a result of the husband’s failure to disclose his financial position. As a separate issue, the question of the husband’s conduct during the proceedings is a matter I must take into account under s 117(2A) when considering whether costs should be ordered.
In his affidavit sworn 11 September 2007, the husband says he was not in a position to explain to the court at the hearing “the reasons why it appeared that I had not met my obligations (of full and frank disclosure).” The husband says this was because he was unrepresented. The husband denies Mr Sankey’s claim that he did not make a reasonable offer of settlement given he offered to pay the wife $15,000 in August 2005 to settle the matter. The husband refers to Mr Sankey’s evidence that the wife’s costs at that time were only $10,000.
I accept Mr Sankey’s submission that the wife was not in a position in August 2005, to assess the husband’s offer, given the husband’s refusal to provide relevant financial information to the wife’s solicitor and the husband’s resistance to disclosing his true financial position. I find the wife’s position in this regard, never changed. The husband continued throughout the proceedings to deny the wife access to financial information which would have made it possible for her solicitors to advise her on her entitlement.
I am satisfied the husband’s conduct in the property proceedings caused the wife to incur significantly higher legal costs than she would have, had the husband cooperated and fully disclosed. I accept Mr Sankey’s submission, that if the husband had fully disclosed his financial position when first required to do so, proceedings may have been avoided altogether.
Whether either party was wholly unsuccessful in the proceedings
Mr Sankey submits that the husband was wholly unsuccessful in the property proceedings, because he sought no property adjustment to the wife, and the wife did receive a property adjustment, although not as much as she sought in her application. Mr Sankey contends that, given the court’s findings as to the husband’s asset position, the court should be satisfied that the husband was wholly unsuccessful.
Mr Thompson submits the husband was not wholly unsuccessful. He says the wife originally sought more than 100% of the net assets, and later made an offer to settle on the basis of a payment by the husband of $85,000. He says the husband made an offer to settle in August 2005 on the basis of a payment to the wife of $15,000. Mr Thompson says that offer was never withdrawn, although accepts that the husband had made clear to the wife’s solicitors that he did not intend to pay the wife anything. He says given the court ordered a payment of only $36,659, the husband could not be regarded as wholly unsuccessful.
I am satisfied that the husband’s position during the course of the litigation was that he had “nothing” and would pay nothing. I am satisfied that because the husband had deliberately disposed of his interest in his family company and failed to give the wife’s solicitor an accurate picture of his financial position, the wife was not in a position to assess his August 2005 offer at that time, nor after that time. In my view, the wife was justified in forming the view that the husband was withholding information about his true financial position. Despite his assertions to the contrary, I made findings at hearing that the husband did have assets and ordered him to pay the wife $36,659. I also ordered that the husband be restrained from disposing of or further encumbering his boat until payment was made in full, or in the alternative that he transfer his share in the family company to the wife. In these circumstances, I am persuaded that the husband was wholly unsuccessful in the proceedings.
Other relevant matters
As already noted, the husband by his own admissions, is in breach of the property orders of May 2007 and in breach of a costs order made by the Family Court in March 2006.
Conclusion
It is not open to litigants in financial matters to choose what financial information they are and are not prepared to provide to the opposing party. There is a clear and absolute obligation on all litigants in these kinds of matters, to fully and frankly disclose full and accurate details of their financial position, from the time they are on notice that such proceedings are contemplated. The authorities make it abundantly clear that litigants who fail to comply with their legal obligations in this regard, do so at their peril. I am satisfied it is just in all the circumstances of this case for the husband to meet some of the costs of the wife.
In relation to the costs of this application, neither party adduced any further evidence. Given I will make an order for costs in favour of the wife, I am satisfied it is appropriate to make an order for costs in her favour on the costs application.
Quantum
Mr Sankey seeks indemnity costs in his application, but at hearing says he “almost” concedes this is not a case for indemnity costs. Mr Sankey, does, however, urge the court to make an order for costs in a greater sum than the sum calculated in accordance with Schedule 1 of the Federal Magistrates Court Rules. I accept Mr Thompson’s submission that the facts of this case do not support an order for indemnity costs. Mr Thompson says any costs should be based on the schedule. Mr Thompson says he understood the hearing was completed in one day, or at least by lunchtime on the second day, so the court should not award costs of trial for a full 2 days. Mr Thompson submits that Mr Richards’ fees of over $12,000 were grossly excessive.
In G, T and G, L[3], her Honour Chief Federal Magistrate Bryant (as she then was) found the Federal Magistrates Court scale would not have provided sufficiently for the wife’s costs and made an order for costs in accordance with taxation on the Family Law Scale. In that case, as in the present case, her Honour was satisfied the husband did not fully disclose his financial position. Given the husband substantially departed from the standard of conduct expected and required of litigants in property proceedings, I am satisfied costs should be awarded in a sum greater than costs calculated in accordance with Schedule 1 of the Rules.
[3] [2004] FMCAfam 9.
On the question of timing, Mr Sankey argues the wife should be entitled to her costs from the time of filing her application. Mr Sankey says litigation was necessary as a direct result of the husband’s failure to fully disclose his financial position from the outset of negotiations. Mr Thompson says each party made a genuine attempt to settle the matter at the Conciliation Conference and no costs should be awarded for the period up to that Conference. I do not accept Mr Thompson’s submission. Given the husband’s conduct already referred to, I am satisfied costs should be calculated from the commencement of the proceedings, taking into account that the wife already has a costs order from March 2006 in relation to part of the proceedings.
In relation to the costs of the costs application, I find it appropriate to make the order sought by the wife in the sum of $2,200 which is almost precisely the sum calculated in accordance with Schedule 1 of the Federal Magistrates Court Rules.
In assessing quantum in relation to the substantive proceedings, I take into account the following items in the schedule:
a)Stage 1: Initiating application $1500
b)Plus: Court attendance $205
c)Stage 3: Up to and including conciliation conference $1250
d)12/04/2006 Short mention $205
e)27/11/2006 Short mention $205
f)Stage 5: Preparation for final two day hearing $3965
g)26/02/2007 Hearing fee (+ 50% advocacy loading) $2250
h)27/02/2007 Hearing fee (+ 50% advocacy loading) $2250
i)15/05/2007 Solicitor’s attendance to take judgment $205
TOTAL $12,035
In addition to the Court events referred to in paragraph 35, I note a number of appearances before a Registrar in the Family Court from 11 November 2005 were the subject of a costs order in the sum of $1500 against the husband on 24 March 2006. I also take into account that in addition to the Court events referred to in paragraph 35, the matter was listed for return of subpoena on a number of occasions and was referred for an additional conciliation conference. The total costs in accordance with the Federal Magistrates Scale are therefore $12,035. Mr Sankey deposes to disbursements in the sum of $18,484 (Mr Sankey includes a total of $16,751 which is incorrect) made up of counsel’s fees, appearance by agent, expert’s valuation and court appearance, service fees, search fees, agency fees on filing, transcript fees, filing fees and photocopies. Counsel’s fees and the agent’s appearance are taken into account in the scale. I do not include the expert valuer’s fees as I am satisfied that whether or not the matter had been litigated, it would have been necessary to obtain a valuation of the husband’s interest in the family company. I do not have a breakdown of Mr Krochmalik’s fees for appearance and therefore do not include them. This leaves an amount of $1,641.00. I have not been given a breakdown of photocopying expenses. On the evidence available, I cannot make a finding as to the precise disbursements incurred as a result of the husband’s conduct. I find it appropriate to allow $1,000 for disbursements. Therefore the total costs and disbursements at Federal Magistrates Court scale is $13,035. As earlier noted, I accept this figure does not adequately reflect the costs incurred by the wife as a result of the husband’s failure to disclose and his conduct generally in the proceedings.
In the exercise of my discretion, I make a costs order in favour of the wife in the sum of $16,000 for the substantive proceedings. This sum, in addition to the costs of $2,200 for the costs application, will be payable by the husband by 31 January 2008.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Sexton FM
Associate: Collette McFawn
Date: 2 November 2007.
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