Farina & Lofts

[2019] FamCA 354

FAMILY COURT OF AUSTRALIA

FARINA & LOFTS AND ORS [2019] FamCA 354

FAMILY LAW – COSTS – Circumstances justifying order – where costs are sought against a non-party – where the application was necessitated by the non-party’s actions – where the non-party was wholly unsuccessful – where the non-party has acted unreasonably – whether the circumstances justify a special costs order – where a special costs order is made against the non-party.

Family Law Act 1975 (Cth) s 117
Family Law Rules 2004 (Cth) r 19.08, 19.18, 19.50

Colgate-Palmolive Company and Colgate-Palmolive Pty Ltd v Cussons Pty Ltd (1993) 46 FCR 225
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Another (2005) 33 Fam LR 123
In the marriage of Pagliarella (No. 3) (1994) FLC 92-460
Kohan & Kohan (1993) FLC 92-340
McAlpin and McAlpin (1993) FLC 92-411 at 80,215
Penfold v Penfold (1980) 144 CLR 311
Prantage v Prantage (2013) 49 Fam LR 197
Re Wilcox, Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151
Sfakianakis & Sfakianakis [2019] FamCAFC 54
Stoian & Fiening (Costs) [2014] FamCA 944

APPLICANT: Mr Farina

1st RESPONDENT: Ms Lofts

2nd RESPONDENT: C Pty Ltd

3rd RESPONDENT: D Pty Ltd

4th RESPONDENT: Mr Wagner

5th RESPONDENT: V Pty Ltd

EE Lawyers (non-party)

FILE NUMBER: BRC 10102 of 2012

DATE DELIVERED: 31 May 2019

PLACE DELIVERED: Brisbane

PLACE HEARD: In Chambers

JUDGMENT OF: Carew J

HEARING DATE: Written submissions filed on 16 April 2019 by the respondents (other than the first respondent) and on 23 April 2019 by the non-party EE Lawyers and on 30 April 2019 by the respondents in reply.

REPRESENTATION

APPLICANT	Self-represented
1ST RESPONDENT	Attendance excused
COUNSEL FOR THE 2ND, 3RD, 4TH AND 5TH RESPONDENTS:	Mr Looney of Queen's counsel with Ms Fitzgerald of counsel

SOLICITOR FOR THE 2^ND, 3^RD, 4^TH AND 5^TH RESPONDENTS Bluewater Lawyers

COUNSEL FOR EE LAWYERS: Mr Clift of counsel

SOLICITOR FOR EE LAWYERS: EE Lawyers

Order

1. Pursuant to r 19.50 of the Family Law Rules 2004 (Cth) it is certified that it was reasonable for the second, third, fourth and fifth respondents to engage two counsel (including Queen’s Counsel) in this matter.

2. EE Lawyers shall pay the costs of the second, third, fourth and fifth respondents fixed in the sum of $33,960.

3. Payment is to be made within 7 days of this Order.

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 Farina & Lofts and Ors (No. 3) 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 BRISBANE

FILE NUMBER: BRC10102 of 2012

Mr Farina

Applicant

And

Ms Lofts

First Respondent

And

C Pty Ltd

Second Respondent

And

D Pty Ltd 

Third Respondent

And

Mr Wagner

Fourth Respondent

And

V Pty Ltd 

Fifth Respondent

And

EE Lawyers (non-party)

REASONS FOR JUDGMENT

1. On 9 April 2019, I delivered judgment in relation to an application by the second, third, fourth and fifth respondents (“the respondents”) (and supported by the applicant) seeking to clarify the effect of certain previous orders made in the substantive proceedings between the parties. The first respondent was excused with the consent of the other parties on 1 April 2019 as she had no interest in the subject of the dispute then before the Court.

2. I ordered, relevantly, as follows:

   (1) The oral application made by EE Lawyers for leave to intervene pursuant to s 92 of the Family Law Act1975 (Cth) is dismissed.

   (2)    ….

   By way of clarification of the orders made by consent on 12 November 2018 and 29 January 2019

   (3)    Bluewater Lawyers is authorised to disburse from the remaining balance of the funds held in Bluewater Lawyer’s Trust Account as follows:

   Any amount required to discharge the liability owed by C Pty Ltd to the National Australia Bank in relation to the motor vehicle …, which as at the date of hearing is the sum of $50,592.48.

3. The order also granted leave to the respondents to make an oral application for costs against EE Lawyers (the former solicitors for the applicant). The parties (and EE Lawyers) consented to the issue of costs being dealt with in chambers by written submissions and directions were made in that regard.

4. For the reasons which follow, I propose to order that EE Lawyers pay the costs of the respondents fixed in the sum of $33,960.

Background

1. The relevant background to the substantive proceedings and the application which came before me for hearing on 1 April 2019 is set out in my reasons for judgment delivered on 9 April 2019 and will not be repeated here.

2. Suffice to say, the application resulting in the 9 April 2019 order concerned the interpretation of two orders made by the Court on 12 November 2018 (“the November order”) and 29 January 2019 (“the January order”) respectively, which finalised substantive proceedings concerning a corporate dispute involving all parties and a property dispute between the applicant and first respondent (arising out of a de facto relationship).

3. EE Lawyers acted for the applicant, Mr Farina, in both substantive disputes. By the time the matter came before me on 1 April 2019, EE Lawyers had ceased to act for the applicant but contended, contrary to their former client’s position, that the balance of funds held by Bluewater Lawyers (acting for the respondents), should be paid to them rather than to a creditor who held security over a motor vehicle to be retained by the applicant, the ownership of which was to be transferred by the second respondent to the applicant once the debt on the motor vehicle had been paid out or refinanced.

4. Pursuant to the January order, the sum of $796,617.64 had been paid to the general account of EE Lawyers. The balance of $51,382.36 remained in the trust account of Bluewater Lawyers.

5. In correspondence between EE Lawyers and Bluewater Lawyers it was accepted by EE Lawyers that the applicant was responsible for the liability secured on the motor vehicle and that it would have to be either paid out or refinanced. Despite this admission, EE Lawyers contended at the 1 April 2019 hearing that the applicant had no such liability. I stated in my reasons for judgment delivered on 9 April 2019:

   34.In light of the communications from EE Lawyers to Bluewater Lawyers in which it is repeatedly accepted that Mr Farina is responsible for the debt to NAB, I find it somewhat disingenuous (to say the least) for a submission now to be made that the January order absolved Mr Farina from any responsibility for it.

6. Bluewater Lawyers, on behalf of the respondents, brought the matter back before me as a result of various threats of legal action and the like made by EE Lawyers.

7. At 4.36pm on 12 February 2019 (while still acting for the applicant)[1] EE Lawyers sent an email stating, among other things:

   [1] EE Lawyers ceased to act for the applicant on 14 February 2019.

   As managing partner of EE Lawyers &Co I require your firm to immediately draw a cheque in favour of my firm in the sum of $51,382.36… If this does not occur by 5.30pm I will have no choice but to relist this matter before the Judge for immediate enforcement of the (sic) paragraph 3.2 of the Orders.

   In the meantime, I advise you that should your firm disburse the funds in your trust account held under Order 3 to any party other than my firm I will hold your firm liable for any loss suffered by firm (sic) as a consequence of such actions which would be a direct contravention of the Orders made on 29 January 2019.

8. A further demand was made by email sent at 4.48pm.

9. At 4.53pm a further email was sent by EE Lawyers stating, among other things:

   Ben, it goes without saying that this is also a matter that I will need to report to the LSC and the Queensland Law Society should you willingly breach an irrevocable undertaking directed to your firm after the obvious error in such action has been brought to your attention.

   You are on notice of what I will do in the event that you make a payment for the benefit of your client (being the discharge of a debt of C) and to the detriment of my firm as beneficiary of the irrevocable authority given to your firm for the disbursement of funds from your trust account.

10. On 18 February 2019, EE Lawyers again corresponded with Bluewater Lawyers stating that they intended to bring the matter back before the Court to determine the ownership of the balance funds. EE Lawyers also purported to issue a demand to Bluewater Lawyers under s 12 of the Trust Accounts Act 1973 (Qld).

11. On 26 February 2019, the respondents filed an application causing the matter to be brought back before the Court.

12. At the hearing of the respondents’ application on 1 April 2019, no evidence was put before the Court by EE Lawyers in response to the application or in support of their oral application for leave to intervene.

how costs applications are determined

1. Section 117 of the Family Law Act 1975 (Cth) (“the Act”) confers on the Court a broad discretion to make such order as to costs as the Court considers just, where there are circumstances that justify it in doing so (s 117(2)), although each party generally bears their own costs in this jurisdiction (s 117(1)).

2. EE Lawyers is not a party to the proceeding - its application for leave to intervene having been dismissed by me on 9 April 2019 - however, it is not in contention that costs can be awarded against a non-party.[2]

   [2] McAlpin and McAlpin (1993) FLC 92-411 at 80,215; see also In the marriage of Pagliarella (No. 3) (1994) FLC 92-460 at 80,756 (citing the High Court in Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192 – 193).

3. In the exercise of the discretion to award costs, regard must be had to the factors set out in s 117(2A) of the Act, so far as they are relevant.

4. Those factors are as follows:

   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.

5. No one factor has more weight than any other nor is it necessary for more than one factor to be present.[3]

   [3] Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Another (2005) 33 Fam LR 123 at 130.

6. A party may apply for an order that another person pay costs at any stage during a case and, if applying for costs on an indemnity basis, the terms of any costs agreement are to be disclosed (r 19.08 of the Family Law Rules 2004 (Cth) (“the Rules”)).

7. The method of calculation of costs is set out in r 19.18 of the Rules and empowers the Court to order that a party is entitled to costs:

   a)of a specific amount;

   b)as assessed on a particular basis (e.g. lawyer and client, party/party or indemnity);

   c)to be calculated in accordance with the method stated in the order; or

   d)for part of the case, or part of an amount assessed in accordance with Schedule 3.

8. In considering what specific order should be made the same rule provides that the Court may consider any of the following factors:

   a)the importance, complexity or difficulty of the issues;

   b)the reasonableness of each party’s behaviour in the case;

   c)the rates ordinarily payable to lawyers in comparable cases;

   d)whether a lawyer’s conduct has been improper or unreasonable;

   e)the time properly spent on the case, or in complying with pre-action procedures; and

   f)expenses properly paid or payable

9. The explanatory guide to the Rules[4] provides a useful definition of “indemnity basis” when applied to a costs order as being:

   [4]Prantage v Prantage (2013) 49 Fam LR 197 at 200.

   [A]n entitlement to costs, including costs under a costs agreement, for all costs incurred, other than costs that are unreasonable in amount or that have been incurred unreasonably.

10. A court will not lightly make an order for costs to be paid on an indemnity basis. There would need to be some circumstance of an exceptional kind to justify that course.[5]

    [5] Kohan & Kohan (1993) FLC 92-340 at 79,614; Colgate-Palmolive Company and Colgate-Palmolive Pty Ltd v Cussons Pty Ltd (1993) 46 FCR 225 at 233.

11. In Re Wilcox, Ex parte Venture Industries Pty Ltd[6] the Full Court of the Federal Court per Black CJ said:

    [6] (1996) 72 FCR 151 at 156 - 157.

    The issue whether costs should be ordered on a party and party basis or on an indemnity basis has acquired increasingly greater significance as the gap between the two bases appears to have grown.

    The gap has highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur. These and other policy factors have been considered by the courts over a very long period in order to arrive at the principles which govern the undoubted discretion of courts to depart from ordering costs on a party and party basis and ordering costs on an indemnity basis. The principles were stated by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

12. The Full Court (per Cooper and Merkel JJ) went on to restate the principles from Colgate-Palmolive as follows:

    1.   Section 43 of the FCA confers an absolute and unfettered discretion on the Court to make orders as to costs but the discretion must be exercised judicially.

    2.   In order to exercise the discretion judicially the following principles have been accepted by the Court as applicable:

    (a)the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course;

    (b)the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the Court in departing from the usual course;

    (c)whilst the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.

discussion

1. The respondents submit that the following matters warrant a costs order against EE Lawyers and that such costs be paid on an indemnity basis (although they in fact seek an order for a proportion only of the costs):[7]

   [7] A further concession was made in their reply submissions where they no longer pressed to recover the cost of the transcript of the proceedings from 29 January 2019.

   a)The financial circumstances of EE Lawyers to the extent that they have received the benefit of a substantial payment i.e. $798,617.64;

   b)The conduct of EE Lawyers and, in particular:

   i)Despite opposing the application, EE Lawyers failed to put any evidence before the Court;

   ii)Seeking to obtain a benefit for themselves contrary to the interests of their then client;

   iii)Threatening but not taking legal action; giving notice under the Trusts Act and not pursuing same; threatening referral of Bluewater Lawyers to the Legal Services Commission and Queensland Law Society - the combined effect of which necessitated the filing of the application where all parties to the litigation were in agreement thus creating a “causal connection between the non-party and the incurring of the costs, that being a matter that bears directly on the justice of whether he should pay costs that he has caused to be incurred”;[8]

   c)EE Lawyers have been wholly unsuccessful;

   d)“But for the position taken by EE Lawyers, the Application need not have been brought or at least the cost of preparing for and appearing at the Application would have been significantly reduced as the orders clarifying the issues would have been made by consent”;[9]

   e)“EE Lawyers’s conduct is particularly egregious given that EE Lawyers was acting for Mr Farina and V at the time that each of the Orders were made and yet he did not seek to assert his position then and despite being aware that his own client agreed with the interpretation and effect of the Orders, EE Lawyers pursued its own position for its own benefit”;[10]

   f)“Of particular relevance on this issue [indemnity costs] is that despite being aware that his client wished to retain the motor vehicle and whilst still acting for him, EE Lawyers sought to assert a position which was in its own interests rather than those of its client: i.e. that the full $850,000 be paid to EE Lawyers and the motor vehicle be returned to CPL instead of discharging the liability owed by Mr Farina to C. Further, that conduct was not sought to be justified or explained by reference to any facts asserted by EE Lawyers, let alone any evidence being led in support of any such facts…”[11].

   [8] Written submissions filed 16 April 2019 at [22] citing In the marriage of Pagliarella (No. 3) (1994) FLC 92-460 at 80,756.

   [9] Ibid at [24].

   [10] Ibid at [25].

   [11] Ibid at [30].

2. The respondents seek an order for a fixed sum of $33,960,[12] representing about seventy-five percent of the respondents’ total costs, including GST.

   [12] A claim for the costs of a transcript of proceedings on 29 January 2019 was not pressed.

3. EE Lawyers resist any order for costs submitting, among other things:

   a)Although the circumstances of this case are unusual they are not ‘exceptional’ such as to warrant an award for indemnity costs;

   b)The conduct to which (c) of s 117(2) relates is “in relation to the proceedings”. The conduct about which complaint is made “must be viewed in the light of the unusual circumstances of the application and it is submitted that its conduct as a litigant did not cause the proceedings to be unduly prolonged or made unduly expensive to the parties such that an order for costs is justified”;[13]

   c)As the reasons for judgment dated 9 April 2019 noted - “there appear to be two competing irrevocable authorities contained in two ‘final’ orders”, it was appropriate that “any issue about their interpretation be determined in open court”;[14]

   d)The fact that the costs agreement between the respondents and Bluewater Lawyers provides for a rate significantly in excess of scale “tells against an order of indemnity costs”;[15]

   e)The circumstances in this case do not fall within the examples identified by Sheppard J in Colgate-Palmolive; and

   f)Part of the conduct about which complaint is made does not concern EE Lawyers as a litigant but rather its conduct towards a former client.

   [13] EE Lawyers submissions filed 23 April 2019 at [12].

   [14] Ibid at [14] and [16].

   [15] Ibid at [19].

1. EE Lawyers take no particular issue with the quantum of costs claimed, save for a submission that two counsel were not warranted in the circumstances and if the Court is minded to fix a sum, the fees for senior counsel and the cost of the transcript from 29 January 2019 should be disallowed, and sixty percent of the balance is a more appropriate sum i.e. $17,443.26. (I note that the cost of the transcript was abandoned by the respondents in their reply submissions).

2. In reply on matters of law, the respondents submit that EE Lawyers have conflated the principles relevant to an award for costs and an award for costs on an indemnity basis. The High Court decision of Penfold v Penfold[16] is quoted relevantly:

   Subsection (2) [of s 117 of the Act] requires a finding of justifying circumstances as an essential preliminary to the making of an order. Beyond this there is nothing in the subject matter or in the interrelationship of [s 117(1) and s 117(2)] which imposes any additional or special onus on an applicant for an award of costs.

   [emphasis added by respondents]

   [16] (1980) 144 CLR 311 at 315.

3. Once a ‘justifying circumstance’ is found, it is submitted that the discretion of the Court is broad and includes the discretion to make a ‘special costs order’ for a fixed sum, which is neither a party and party costs order or an indemnity costs order.[17]

   [17]Sfakianakis & Sfakianakis [2019] FamCAFC 54 at [10].

4. The respondents further submit that EE Lawyers have misstated the law to be applied in determining the appropriateness of indemnity costs by suggesting that the respondents must identify that the circumstances of this case come within one of the examples identified by Sheppard J in Colgate-Palmolive. Correctly stated, the “categories in which the discretion may be exercised are not closed”.[18]

   [18]Colgate-Palmolive (supra) at 233.

Conclusion

1. Although the respondents contend that their application is for costs on an indemnity basis, they in fact seek an order for a proportion of their costs only. I do not infer from that limitation that any concession is intended to be made that the portion not included is unreasonable. Rather, I infer that what they seek (as referred to in their reply submissions) is in fact what the Full Court in Sfakianakis & Sfakianakis[19] referred to as a ‘special costs order’ against EE Lawyers.

   [19] Supra.

2. I nevertheless consider that the principles applicable to the determination of an indemnity costs application should be applied in this case because the sum sought is for a significant sum and well in excess of the Family Law scale of costs.

3. In this case there are circumstances that justify a costs order. Those circumstances include the following:

   a)EE Lawyers have been wholly unsuccessful;

   b)The parties to the substantive litigation were not in dispute about the proper interpretation of the orders;

   c)EE Lawyers had every opportunity when the substantive matters were resolved to clarify any alleged ambiguity but chose to remain silent; and

   d)The only reason the matter returned to Court was because of EE Lawyers’s opposition to the payout of the liability, contrary to the position of their then client.

4. A  ‘special costs order’ against EE Lawyers is justified for the following additional reasons:

   a)EE Lawyers pursued the balance payment against the interests of their then client;

   h)EE Lawyers accepted in correspondence to Bluewater Lawyers that the debt had to be paid by the applicant, yet inexplicably submitted on 1 April 2019 to the contrary. As said in my reasons for judgment, their position was, at best, disingenuous;

   i)The reason the matter returned to Court was because of a dispute created by EE Lawyers; and

   j)Even if it were nevertheless considered prudent to obtain the Court’s imprimatur to pay the debt on the motor vehicle, the January order could have been amended by consent pursuant to r 17.02(f) of the Rules at a fraction of the costs incurred.

5. The circumstances of this case, as discussed, are exceptional and warrant an order in excess of a standard costs order i.e. party/party. I consider the second objective referred to by the then Chief Justice of the Federal Court in Re Wilcox, Ex parte Venture Industries Pty Ltd to be particularly pertinent i.e. “relieving a successful litigant from the burden of costs which that litigant should not have been required to incur”.[20]

   [20] Supra at 157.

6. Having reviewed the costs agreement and the sums claimed, I consider the fixed sum sought by the respondents to be just, including for two counsel. I note that EE Lawyers did not take issue with the quantum claimed, other than for two counsel, and submitted a lower percentage of the overall sum. I consider that the claim for two counsel, including Queen’s Counsel, should be allowed in the unique circumstances of this case. The nature of the hearing concerned not only the interpretation of court orders but also the application by EE Lawyers to intervene in somewhat novel circumstances. The same two counsel had been involved throughout the proceedings and, had there been some submission made by EE Lawyers relating to the circumstances of settlement of the substantive proceedings, they would have been uniquely placed to respond. The legal and factual issues involved some complexity and the conduct of EE Lawyers, as discussed, is also a matter to which I have regard in considering the allowance for two counsel to be warranted.[21]

   [21]Stoian & Fiening (Costs) [2014] FamCA 944 at [75] to [80].

7. Accordingly, I propose to certify that it was reasonable to engage two counsel, including Queen’s Counsel, in this matter and that EE Lawyers should pay the costs of the respondents fixed in the sum of $33,960, representing about seventy-five percent of the total costs incurred by the respondents.  

I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carew delivered on 31 May 2019.

Associate: 

Date:  31 May 2019