Elgin and Elgin (Costs)
[2015] FamCAFC 228
•8 December 2015
FAMILY COURT OF AUSTRALIA
| ELGIN & ELGIN (COSTS) | [2015] FamCAFC 228 |
| FAMILY LAW – APPEAL – COSTS – Where the Full Court allowed in part the appeal against property settlement orders and found that the parties should equally share certain taxation liabilities – Where orders were made for the parties to file written submissions on the question of costs – Where the respondent made an offer of settlement on the basis that the parties would equally share certain taxation liabilities – Whether the offer of settlement was the same as the result achieved on appeal – Appellant ordered to pay the respondent’s costs of the appeal from the date the offer of settlement was made. FAMILY LAW – APPEAL – COSTS – Where the Full Court dismissed the appellant’s application for leave to appeal from the refusal of the trial judge to grant an adjournment of the trial – Where the appellant was wholly unsuccessful in the adjournment appeal – Appellant ordered to pay respondent’s costs of and incidental to the adjournment appeal. |
| Family Law Act 1975 (Cth): ss 117, 117(1), (2), (2A)(a) Family Law Rules 2004 (Cth): r 19.50 |
| APPELLANT: | Mr Elgin |
| RESPONDENT: | Ms Elgin |
| FILE NUMBER: | BRC | 2909 | of | 2010 |
| APPEAL NUMBERS: | NA | 6 | of | 2014 |
| NA | 24 | of | 2014 |
| DATE DELIVERED: | 8 December 2015 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | In Chambers |
| JUDGMENT OF: | May, Thackray & Ryan JJ |
| HEARING DATE: | By way of written submissions |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 17 January 2014 |
| LOWER COURT MNC: | [2014] FamCA 10 [2012] FamCA 1158 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Williams |
| SOLICITOR FOR THE APPELLANT: | Hartley & Healy |
| COUNSEL FOR THE RESPONDENT: | Mr Sweeney |
| SOLICITOR FOR THE RESPONDENT: | Glezer Lanteri & Associates |
Orders
The appellant pay the respondent’s costs of and incidental to Appeal NA 24 of 2014 as agreed, and in default of agreement, as assessed.
The appellant pay the respondent’s costs of and incidental to Appeal NA 6 of 2014 as and from 3 June 2014, as agreed, and in default of agreement, as assessed.
Pursuant to r 19.50 of the Family Law Rules 2004 (Cth) certify that in relation to Appeals NA 6 of 2014 and NA 24 of 2014 it was reasonable for each of the parties to engage senior counsel and junior counsel to appear.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Elgin & Elgin (Costs) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Numbers: NA 6 of 2014 & NA 24 of 2014
File Number: BRC 2909 of 2010
| Mr Elgin |
Appellant
And
| Ms Elgin |
Respondent
REASONS FOR JUDGMENT
May J
I have the benefit of reading the reasons for judgment of Thackray and Ryan JJ in draft.
I agree with them that the appellant should pay the costs of the respondent in relation to Appeal NA 24 of 2014 referred to as the “adjournment appeal” in the reasons delivered on 7 August 2015.
In those reasons, I took a different view in relation to what was referred to as the “substantive appeal” (Appeal NA 6 of 2014).
However, there are circumstances which justify an order that the appellant pay the respondent’s costs. In particular, taking into account the offer made by the respondent and the history of the matter, it would not be appropriate for there to be an order other than that the appellant pay the respondent’s costs from the date of the offer being 3 June 2014.
I agree that it is appropriate that there be certification for Senior and Junior counsel.
Thackray and Ryan JJ
On 7 August 2015, the Full Court made orders dismissing the appellant’s application for leave to appeal from the refusal of the trial judge to grant the appellant’s application for an adjournment of the trial (“the adjournment appeal”) (NA 24 of 2014). The Full Court also allowed in part the appeal against orders for the settlement of property made by the trial judge on 17 January 2014 (“the substantive appeal”) (NA 6 of 2014). Provision was made in the orders for the question of costs of both appeals to be dealt with by written submissions.
In accordance with those and subsequent orders, we received the following submissions:
·on behalf of the appellant on 4 September 2015, seeking certification for the attendance of senior and junior counsel on the appeals and that the respondent pays the appellant’s costs of and incidental to the substantive appeal. In the alternative, the granting of a costs certificate pursuant to the Federal Proceedings (Costs) Act 1981 (Cth);
·on behalf of the respondent on 4 September 2015, seeking that the appellant pays her costs of and incidental to both appeals;
·from the appellant in reply on 18 September 2015, opposing orders for costs in favour of the respondent;
·from the respondent on 18 September 2015, opposing an order for costs against her and in support of an argument that a certificate should not be given; and
·from the respondent on 25 September 2015 in reply to the appellant’s submissions dated 18 September 2015.
Section 117 of the Family Law Act 1975 (Cth) (“the Act”) is the governing provision concerning costs. By s 117(1) each party to proceedings under the Act shall bear his or her own costs unless, in accordance with s 117(2) and the related provisions, the Court is satisfied that there are circumstances that justify an order for costs. Here, the parties agree that there are justifying circumstances for an order for costs; where they disagree is which of them should pay.
As the appellant correctly points out, he achieved a measure of success in the substantive appeal. Essentially, this involved:
·the correction of arithmetical errors made by the trial judge, the effect of which was to overstate the value of the parties’ property by the amount of $324,760; and
·the alteration of an order made by the trial judge which alteration required the appellant to provide the respondent with an indemnity in relation to the taxation consequences of various adjustments made in her favour such that the taxation consequences would be shared equally.
It is uncontroversial that the taxation consequences arising from the implementation of the property settlement orders are in the vicinity of $4,749,963. It follows that in combination with the arithmetical errors, these adjustments were slightly in excess of $5 million and resulted in the appellant being approximately $2.6 million better off than he was at first instance.
The respondent agrees that the partial success of the substantive appeal has left the appellant in a financially better position than he achieved from the trial judge. However, the respondent contends that it is significant that:
·she identified the arithmetical errors and, having identified the errors, agreed that to the extent the orders made by the trial judge required the appellant to pay more than on a correct calculation he should, she would not enforce payment of the differential;
·by letter dated 3 June 2014 she made an offer to settle the appeal on the basis that the parties would equally share the taxation consequences incurred by reason of: (a) the transfer to her of three properties; and (b) the receipt by the appellant of fully franked dividends from various family corporate entities in order to pay the adjusting amount;
·if the appeal was settled in accordance with the offer dated 3 June 2014 there be no order as to costs; and
·otherwise, the appellant had been entirely unsuccessful in the adjournment appeal and in the substantive appeal, as the majority of his grounds of appeal failed to find favour.
The appellant does not concede that the changes to the taxation indemnity order achieved on appeal are equivalent to those proposed in the respondent’s offer. As we will shortly explain, we are satisfied that in relation to the taxation indemnity, the offer of settlement and result achieved on appeal are virtually identical.
So as to provide context to this issue, it needs to be understood that the parties were in agreement that the indemnity order made at first instance obliged the appellant to meet any taxation liability arising as a result of the respondent receiving nominated real estate; did not indemnify the respondent in relation to Capital Gains Tax in the event she subsequently sold these properties; and made the appellant solely responsible for the taxation consequences of extracting money from the corporate entities so as to pay the respondent the adjusting amount.
The indemnity order made by the trial judge is set out below:
(7)That the [appellant] indemnify the [respondent] in respect of all past, present and future liabilities arising as a result of the Orders herein (save for any liabilities associated with [C Street], [Apartment D] and [Apartment G]]), or from her involvement in the entities or in any trust of which he or any of the entities is trustee including any and all taxation liabilities.
In the offer of settlement the respondent proposed that Order 7 be amended as set out below:
…
1.That the parties enter into consent orders pursuant to s.79A(1A) of the Act varying the orders of Forest J [sic] of 17 January 2014 in the following terms:
(a)by adding to Order 7 thereof after the word “That” the words “subject of Order 12 hereof”;
(b) by adding a new order 12 as follows:
“(a)That in the event that the [respondent] incurs any liability for taxation by reason of any of the transfers referred to in Orders 2, 3 or 4 hereof the [appellant] shall indemnify her with respect to 50% of any such liability.
(b)In the event that the [appellant] incurs any liability for taxation by reason of having received fully franked dividends, in order to meet his obligations under Order 1 hereof, then the [respondent] shall indemnify him as to 50% of that liability.”
2.That the parties do all things necessary to cause the Appeal(s) to be dismissed with no order as to costs.
This offer shall remain open for acceptance in writing for 7 days after the date hereof.
In the event that the offer is not accepted our client reserves the right to refer to this letter on the question of costs.
…
(Emphasis per original)
(Respondent’s submissions filed on 4 September 2015)
It follows, that the respondent proposed that:
·the appellant would indemnify her as to one half of the taxation liability incurred on the transfer to her of the real estate; and
·if, in order to pay her the adjusting amount, the appellant caused the company entities to distribute funds to him by means of fully franked dividends, she would meet one half of his taxation impost.
The appellant adduced evidence in the appeal concerning the taxation consequences of the orders for the transfer of real estate to the respondent and him extracting the money from the companies required to pay the respondent the adjusting amount. This evidence is found at [12]-[15] of the affidavit of Mr HY filed on 27 May 2014.
In relation to the transfer of real estate, it is Mr HY’s unchallenged evidence that with the exception of Apartment G, E Street, Gold Coast (“Apartment G”), there are no taxation consequences for either party arising from the transfer. His point being, that the taxation effect of the disposal of those properties that constitute trading stock of the holding company had already been taken into account. In relation to Apartment G, he said:
13.With regard to [Apartment G] under paragraph 4 of the Orders the [appellant], as a director of [Elgin] Finance Pty Ltd, is required to transfer that property (which had a value of $875,000) from that company to the [respondent]. Such a transfer would be deemed a dividend to the [respondent] under Division 7A of the Income Tax Assessment Act unless a dividend of this amount is declared by the company. Whilst the [respondent] is one of three Ordinary shareholders in [Elgin] Finance Pty Ltd, for the purposes of this calculation I have assumed that a fully franked dividend will be declared and the other shareholders will forego their share of this dividend in favour of the [respondent]. I have determined that the payment of a dividend in this manner will result in income tax of $206,250. However, if, as I expect, monies need to be raised to pay that tax, then a higher dividend will have to be paid and that will result in a higher tax bill. I have calculated that further tax on the second dividend required to pay the additional tax on the first dividend to be $48,616 – the overall tax liability for this transfer is $254,866.
If a fully franked dividend is not declared and the transfer of [Apartment G] is deemed a dividend under Division 7A, the [respondent] will be assessed on the value of that dividend ($875,000). If that is the case, an income tax liability of a maximum of $406,875 would result and having regard to the ordered indemnity, the [appellant] would have to pay this.
(Affidavit of Mr HY filed on 27 May 2014)
Thus, in relation to the transfers of real estate, the taxation consequences in the first instance fell on the respondent alone. It follows, that the effect of the offer of settlement in relation to real estate was to share equally the total tax consequences.
In relation to the extraction of funds from the company, Mr HY said:
14.As the Orders (para 1) require the [appellant] to pay to the [respondent] $15,432,457, I am advised by Mr [ZY] (external accountant for the [Elgin] Group) that such funds would need to be extracted by way of the declaration of a fully franked dividend from [Elgin] Finance Pty Ltd, conditional of course on the various entities within the Group being able to raise such a sum by borrowing and/or disposing of assets.
15.In the attached Schedule “[HY] 4” I have detailed my calculation of the amount of $3,637,651 in income tax that would result from the declaration of such a dividend. However, again if, as expected, monies need to be raised to pay that tax, then the dividend paid needs to be commensurately higher, i.e. a further dividend will need to be declared to enable [the appellant] to pay the $3,637,651 in additional tax on the first dividend. I have calculated that further tax on the second dividend required to pay the additional tax on the first dividend to be $857,446 – thus the overall tax liability covering this aspect totals $4,495,097.
(Affidavit of Mr HY filed on 27 May 2014)
In other words, the evidence placed before us is that the appellant proposed to remove sufficient funds from the company by means of fully franked dividends so as to pay the adjusting amount to the respondent. The orders proposed by the respondent addressed this situation.
We are persuaded that the various orders proposed by the respondent in her offer of settlement concerning the taxation indemnity are consistent with the result achieved on appeal. Although the orders ultimately made differ slightly, we agree with the submission made by counsel for the respondent that the purport and intent of the offer are clear, and there can be little doubt that if the appellant sought to fine-tune the proposed orders so as to achieve the outcome given on appeal, the respondent would have agreed.
Conclusion
The parties have considerable wealth and each approached the question of costs on the basis that their respective financial circumstances do not stand in the way of an order for costs being made against one or the other. In other words, that the provisions of s 117(2A)(a) are moot. We agree.
In relation to the adjournment appeal, the appellant was wholly unsuccessful and it is appropriate that he pays the respondent’s costs of and in relation to that appeal.
In relation to the substantive appeal, it is particularly significant that the outcome achieved on appeal accords with the respondent’s offer of settlement and otherwise adjustments in relation to arithmetical errors raised by her. Although the arithmetical errors were identified subsequent to the offer of settlement, because of the magnitude of the concession contained in the offer, we are satisfied the appellant should pay the respondent’s costs from the date of the offer.
Orders for costs will thus be made in relation to both appeals, as a consequence of which an order for the issue of a certificate cannot be made.
These were complex appeals and certification for senior counsel and junior counsel to appear is appropriate.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (May, Thackray & Ryan JJ) delivered on 8 December 2015.
Associate:
Date: 8 December 2015
0
2
3