Farlow and Farlow

[2009] FamCA 46

FAMILY COURT OF AUSTRALIA

FARLOW & FARLOW [2009] FamCA 46

FAMILY LAW – COSTS – Between parties – Whether a Binding Financial Agreement is an offer of settlement pursuant to ss 117(2A)(f) and (g) – Calderbank v Calderbank [1975] 3 All ER 333 applied

Family Law Act 1975 (Cth)

Calderbank v Calderbank [1975] 3 All ER 333
Harris and Harris (1987) FLC 91-822
Steel and Steel (1992) FLC 92-306

APPLICANT: Mr Farlow

RESPONDENT: Mr Farlow

FILE NUMBER: MLF 1396 of 2005

DATE DELIVERED: 4 February 2009

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Mushin J

HEARING DATE: By written submissions

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Shiff

SOLICITOR FOR THE APPLICANT: Robert M. Phelan & Co

COUNSEL FOR THE RESPONDENT: Ms Smallwood

SOLICITOR FOR THE RESPONDENT: Middletons Lawyers

Orders

1. That the husband’s Application in a Case filed 20 September 2007 be dismissed.

2. That failing agreement within 28 days, the wife's costs of and incidental to the application referred to in paragraph (1) hereof, be assessed as between the parties pursuant to the provisions of Chapter 19 of the Family Law Rules 2004, and when so assessed be paid by the husband.

IT IS NOTED that publication of this judgment under the pseudonym Farlow and Farlow is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 1396 of 2005

MR FARLOW

Applicant

And

MS FARLOW

Respondent

REASONS FOR JUDGMENT

Introduction  

1. On 23 August 2007, I delivered reasons for judgment ("the reasons") and made orders ("the orders") determining the parties' competing applications for the alteration of their property interests.  Subsequently, I made orders for the filing of written submissions on competing applications for costs arising out of the orders.

2. The husband made the initial application for costs in which he sought to rely on an alleged agreement arising out of an informal round table conference on 26 November 2004, together with certain documents which are described as written offers of settlement.  In particular, the husband relied on what is asserted to be a Calderbank offer contained in a draft Binding Financial Agreement ("BFA"). 

3. The wife opposed the application and sought costs of the husband’s application.  The husband opposed the wife’s application.

4. The issue of the valuation of the parties' business is at the heart of this application.  From the time the parties commenced negotiations to settle the competing applications for alteration of property interests; the wife asserted that the business was valued at $3,000,000.  By contrast, the husband asserted that it was valued at approximately $160,000.  The parties' respective approaches to a potential settlement were fundamentally guided by that difference of view as to the valuation.  Their ultimate agreement with regard to the value at trial was substantially different to each of their prior assertions.

The reasons  

1. I now briefly summarise the reasons to the extent that they are relevant to the present application.  At trial the parties agreed that the relevant business was valued at $876,975.  I found that the total assets of the parties amounted to $4,472,218 and the liabilities amounted to $771,892.  Accordingly, I found that the total net asset pool was valued at $3,700,326. 

2. At trial, the parties' proposals were, on behalf of the husband, that those net assets be divided equally between the parties and on behalf of the wife, that they be divided as to 57.5% to the wife and 42.5% to the husband.  I determined that the net assets should be divided as to 55% to the wife and 45% to the husband. Accordingly, the wife received assets amounting to $2,035,179.  After retention of certain assets already in her possession, the wife received a further payment from the husband of slightly less than $820,000.

The background  

1. The parties and their solicitors conducted an informal round table conference on 26 November 2004 in an attempt to finally settle the competing applications.  The wife asserted that the value of the family business P Pty Ltd (“the business”) was $3,000,000.  The husband claimed the business was worth “much less”.  While it is not relevant for present purposes, it is unclear as to whether the husband actually asserted a specific value at that time. 

2. On 30 November 2004, as a result of those discussions and by way of purported offer, the husband’s solicitor forwarded a BFA to the wife’s then solicitor by e-mail.  The agreement attributed a value of $162,109 to the business and provided that the wife receive 69.4% of the net asset pool of $3,738,585.  That amounted to the wife receiving net assets totalling $2,594,580.      

3. By letter dated 10 December 2004 the wife’s solicitor rejected that offer and set out the basis upon which she would be prepared to settle the matter.  The husband’s case is that the terms of this offer made reference to the earlier BFA and sought the payment of an additional $300,000 over three years together with an additional $90,000 in lieu of an employment entitlement.

4. By letter dated 20 December 2004, the husband's solicitor advised of the rejection of the wife’s offer.  The BFA was forwarded with that letter by way of confirmation of the previously made offer to settle.  The wife rejected that offer by letter from her solicitor dated 23 December 2004.  The wife’s solicitor then wrote to the husband’s solicitor on 19 January 2005 and withdrew all previous offers made by the wife. 

5. On 20 April 2005 the husband filed an Application for Final Orders seeking an alteration of property interests.  That was the initiating application in these proceedings. 

6. A Conciliation Conference was conducted by Registrar Sikiotis on 3 October 2005. 

7. On 31 October 2005 the husband made a compulsory offer to settle pursuant to s 117C of the Act. That offer complied with the guidelines set out in Rule 10.06(2) of Division 10.1.2 of the Family Law Rules 2004 (“the Rules”). It was premised on a value of $162,109 for the business and apportioned 47.04% of the net asset pool to the wife, which equated to $1,450,000. Accordingly, the terms of that offer were less favourable to the wife than the orders. It remained open at all relevant times.

8. On 4 October 2005, consent orders were made appointing a single expert to value the business.  That valuation was completed on 22 February 2007. On 14 March 2007, an affidavit, sworn by the expert and annexing his report, was filed.

9. Following the delivery of the reasons and the making of the orders, the husband filed an Application in a Case on 20 September 2007 seeking that “the wife pay the husband’s costs of the proceedings in which final order was made 23 August 2007.”  The wife filed a response on 6 December 2007, seeking the dismissal of the husband’s application and such further orders as the Court deemed appropriate.    

10. The matter came before me in the Judicial Duty List on 10 December 2007, at which time I made orders requiring the parties to file and serve written submissions with respect of the husband’s application for costs contained in his Application in a Case filed 20 September 2007.  In those submissions the wife sought the dismissal of the husband’s application, as well as her own costs on an indemnity basis.  In response, the husband rejected the wife’s submissions and opposed the relief sought by her. 

The legislation

1. The relevant statutory provision is contained in section 117 of the Family Law Act 1975 ("the Act"). The primary provision is that in proceedings under the Act, each party pays his or her own costs. However, I am empowered to make an order for costs if I consider that it is "just" to do so. In considering whether it is just to make such an order, I must take into account the various provisions of subsection (2A). In his written submissions, the husband only relies on two provisions of that subsection. The wife does not submit that any other provision is relevant. Those provisions, to which I will refer respectively as "paragraph (f)" and "paragraph (g)", are:

   (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 for; and

   (g) such other matters as the court considers relevant.

2. Section 117C of the Act provides a process by which parties to proceedings, including applications for alteration of property interests, may make written offers to settle the proceedings. The Rules provide for the process by which such offers may be made and also require compulsory offers to be made in certain circumstances. To the extent that the Rules are presently relevant, they require an offer to be in writing and not to be communicated to the Court prior to any argument on the issue of costs.

Discussion

1. Before discussing the merits of the husband's application in light of the relevant legislative provisions and precedent, it is convenient to set out the following table which summarises the sequence of offers by the husband referred to above, together with the orders:

Binding Financial Agreement	Binding Financial Agreement	Compulsory offer	The orders
Date	20 December 2004 – 19 April 2005	20 April 2005 –  30 October 2005	31 October 2005	23 August 2007
Valuation attributed to the business	$162,109	$162,109	$162,109	$876,975 agreed
Net asset pool	$3,738,585	$3,738,585	$3,082,734	$3,700,326
Percentage of pool received by the wife	69.4%	69.4%	47.04%	55%
Wife receives	$2,594,580	$2,594,580	$1,450,000	$2,035,179

1. It is convenient to consider this matter by resolving the following questions:

   ·What are the requirements for an offer to come within the ambit of paragraph (f)?

   ·Does the BFA come within the ambit of paragraph (f)?

   ·If the BFA does not come within the ambit of paragraph (f), does it come within the ambit of paragraph (g)?

   ·If the BFA comes within the ambit of paragraph (g), what is its significance, if any, to the husband's application?

   ·What is the significance, if any, of the husband's compulsory offer?

The requirements of an offer within the ambit of paragraph (f)

1. Paragraph (f) refers to "proceedings".  For an offer to qualify under that paragraph there must be extant "proceedings".  Proceedings were initiated by the husband on 20 April 2005.  Accordingly, any written offer made on or after that date qualifies as an offer pursuant to paragraph (f).  Conversely, any offer made prior to that date does not so qualify.

Does the BFA come within the ambit of paragraph (f)?

1. It follows from the previous paragraph that the BFA does not come within the ambit of paragraph (f), at least from the time at which it was first made until immediately prior to the husband's initiating application.  The issue is effectively conceded on behalf of the husband.  Accordingly, between 20 December 2004 and 19 April 2005 the BFA cannot be considered under paragraph (f).

Does the BFA come within the ambit of paragraph (g)?

1. Counsel for the husband submitted that the Court is empowered to, and should, have regard to the BFA pursuant to paragraph (g).  In support of that submission, counsel relied on the decision of the Court of Appeal in Calderbank v Calderbank [1975] 3 All ER 333. Cairns LJ held:

   It is common practice for an offer to be made by one party to another of a certain apportionment.  If that is not accepted no reference is made to that offer in the course of the hearing until it comes to costs, and then if the court’s apportionment is as favourable to the party who made the offer as what was offered, or more favourable to him, then costs will be awarded on the same basis as if there had been a payment in.

   I see no reason why some similar practice should not be adopted in relation to such matrimonial proceedings in relation to finances as we have been concerned with.

2. In Harris and Harris (1987) FLC 91-822 at 76,191, the Full Court (Fogarty, Joske and Treyvaud JJ) held that an offer of settlement need not comply with s 117C before it may be taken into account by the court. That is, there need not be a “proceeding” in order for it to be an offer for the purpose of determining an application for costs. The Court further held that a Calderbank offer should be expressed as an “open offer” or “without prejudice except as to costs.” 

3. In Steel and Steel (1992) FLC 92-306 the Full Court comprising of Nicholson CJ, Strauss and Nygh JJ held at 79,309-310:

   In our opinion, the policy of the law centred on avoiding litigation between spouses whenever it can be avoided by negotiations is of great importance in this Court.  The parties should ordinarily be free to conduct their negotiations for settlement without apprehension that these negotiations can be used against them either on matters of property or on questions of costs.  If correspondence containing negotiations between the parties is to be used on questions of costs, then that should be made clear by express statements in the correspondence, so that the other party will know this and fashion his or her conduct accordingly.

4. The husband’s solicitor’s letter dated 20 December 2004 to the wife’s solicitor stated that the BFA “stands as our client’s offer of settlement and it is put upon the basis of the principles set out in Calderbank and the other cases which you have helpfully recited at the conclusion of your letter.” While the letter does not specifically state that it is an "open offer" or "without prejudice except as to costs", the fact that it is made on the basis of "the principles set out in Calderbank” enables the wife and those advising her to understand that it is an open offer.

5. As is clear from the above authorities, the principles set out in Calderbank enable offers to be made prior to the initiation of proceedings.  That is what has occurred in this matter.  Paragraph (g) empowers me to consider such an offer.  Accordingly, I find that at all relevant times, the BFA may be considered within the ambit of paragraph (g).

The significance of the BFA to the husband's application for costs

1. I now consider the significance of the BFA to the husband's application for costs for the period 20 December 2004 to 19 April 2005.  On its face, had the wife accepted the offer she would have received a settlement of greater than $500,000 more than that which she received pursuant to the orders.  Further, the husband offered to divide the property as to 69.4% to the wife in circumstances in which she received 55% pursuant to the orders.  Those factors support the husband's application.

2. There are also factors in support of the wife's opposition to the husband's application.  The wife believed that the business was valued at $3,000,000.  There is evidence to support the husband's submission that the wife had significant knowledge of the business by virtue of the fact that she was actively involved in an administrative capacity.  There is no evidence to suggest however, that she had any expertise whatsoever in the area of valuation of the business.  There is no evidence to suggest that the husband provided any expert evidence to the wife to justify his figure of $162,109 for the valuation of the business.  Relations between the parties were very poor and there was a high degree of mistrust between them.  Obviously, had the wife received 69.4% of $3,000,000 rather than that percentage of $162,109, her settlement would have been vastly greater.  Even 50% of $3,000,000 would have made an enormous difference to the result.

3. I also note the submission on behalf of the wife that the BFA ignored certain issues of Capital Gains Tax which were asserted to be $117,420.  That assertion was disputed on behalf of the husband and I am not in a position to make any finding of fact with regard to it.

4. The parties ultimately agreed on the figure of $876,975 for the value of the business.  There is no evidence to enable me to understand the husband's ultimate acceptance of a valuation which was more than $700,000 greater than that which was asserted by him in the BFA.  In those circumstances, particularly given the wife’s lack of expertise and knowledge with regard to the valuation and her understandable suspicion of the husband's offer, particularly with regard to the business, I find that the husband has not established that, for the relevant period, it would be just to make an order for costs in favour of the husband in reliance on the BFA.

5. On the basis of the above discussion, I am satisfied that the BFA may be taken into account as an open offer from the time of the initiating of proceedings by the husband on 20 April 2005 until the making of his compulsory offer on 30 October 2005.  I reach the same conclusion with regard to the merits of the BFA for the period preceding the initiation of the proceedings.   I find that the BFA does not establish the husband's assertion that it would be just to make an order for costs in his favour in reliance thereon.

The significance of the husband's compulsory offer

1. As will be seen from the table set out above, the husband's compulsory, open offer would have settled approximately $585,000 less on the wife than she received by the orders.  Even on the most fundamental principles, it would be unjust to the wife to make an order for costs in favour of the husband on the basis of that offer. 

Conclusion

The husband's application for costs

1. Accordingly, I find that while the husband is entitled to rely on the BFA and his compulsory offer in support of his application for costs, he has not established that it would be just to make an order in his favour.  Therefore, his application will be dismissed.

Costs of this application

1. At paragraph 21 of the submissions filed on behalf of the wife, the wife sought the dismissal of the husband's application for costs "and that the costs incurred by the wife as a result of that Application being paid by the husband on an indemnity basis.  It is submitted that the costs should be paid on an indemnity basis because the Application was ill founded, and had no reasonable chance of success when the husband's assertions were properly analysed."

2. In reply to this submission, the submissions filed on behalf of the husband stated that he rejected this assertion and opposed the relief sought by her.

3. Neither party made any submission with regard to the merits of this application. In particular, no reliance is placed on the financial circumstances of the parties or any issue of conduct pursuant to s 117(2A). Section 117(2A)(e) requires me to have regard to whether one party has been wholly unsuccessful in the proceedings. In this matter, as a result of my dismissal of the husband's application, he has been wholly unsuccessful. In those circumstances it is just, in accordance with the meaning of that word in s117(2), that the husband pay the wife's costs of and incidental to this application.

4. It was submitted on behalf of the wife of the husband should pay those costs on an indemnity basis.  Other than submitting that the application was "ill founded" and had "no reasonable chance of success", no submission was made to satisfy me of that proposition.  In particular, the wife is not complied with Rule 19.08(3) with regard to the requirement of advising the court of any costs agreement.  In any event, there would appear to be no merit in that submission.  I will order that costs be paid as between the parties.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Mushin.

Associate: 

Date:  4 February 2009