Fava & Fava

[2023] FedCFamC1F 555

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 1)

Fava & Fava [2023] FedCFamC1F 555

File number(s):	PAC 5323 of 2020
Judgment of:	RIETHMULLER J
Date of judgment:	20 April 2023
Catchwords:	FAMILY LAW – COSTS –Application for costs by the second and third respondents after property settlement – Indemnity costs– Whether costs should be awarded on a party/party, solicitor/client, or indemnity basis – No matters of principle
Legislation:	Family Law Act 1975 (Cth) ss 79, 117
Cases cited:	Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801 Kennon & Spry [2008] HCA 56
Division:	Division 1 First Instance
Number of paragraphs:	27
Date of hearing:	20 April 2023
Place:	Parramatta
The Applicant:	Did not participate
Counsel for the First Respondent:	Ms Judge
Solicitor for the First Respondent:	Long Saad Woodbridge Lawyers
Counsel for the Second and Third Respondents:	Mr Gray
Solicitor for the Second and Third Respondents:	Thomson Geer

ORDERS

PAC 5323 of 2020

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)

BETWEEN:

MS FAVA

Applicant

AND:

MR FAVA

First Respondent

MR BOTTOLO

Second Respondent

MS BOTTOLO

Third Respondent

order made by:	RIETHMULLER J
DATE OF ORDER:	20 APRIL 2023

THE COURT ORDERS THAT:

1.The husband pay the costs of the second and third respondents on a solicitor/client basis from the date the husband filed an Application in a Proceeding on 15 November 2022 to the date of these Orders, as agreed, or in default of agreement, as assessed in accordance with 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 a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

EX TEMPORE
REASONS FOR JUDGMENT

RIETHMULLER J:

1. This is an application for costs that arises out of a settlement of a matrimonial dispute between the husband and wife, in which the wife’s brother and his wife were joined as the second and third respondents. The two families – the husband and the wife, and the brother and his wife (the second and third respondents) had a number of interests in common. For the purpose of the proceedings, it seems to have fallen within three specific areas. The first was a home in which each couple had a one-half share as tenants in common, and between the husband and wife of each couple, they held their share as joint tenants. That home was worth around $1,075,000.

2. The couples also had a self-managed superannuation fund together where they each individually held an interest. C Pty Ltd was the trustee of this self-managed super fund. The husband’s interest on the super fund records, which it seems were undisputed, was 26.6 per cent. It is not surprising that it was not precisely one-quarter, as a super fund must account for each of the contributions in order to account for the proportion of the interest of each member in the fund. That self-managed super fund held units in a unit trust, which in itself held units in another unit trust, the ultimate unit trust having a very large asset base, but the number of units that were actually held by C Pty Ltd was quite modest.

3. The third interest was a trust called the C Investment Trust, of which a company called B Pty Ltd was the trustee. It was a trust established initially by moneys provided from the parents of the wife and the second respondent. For convenience, I will refer to the parents as “the grandparents” throughout. It was a standard form family discretionary trust, and as a result, there was no specific entitlement of any person. However, there was no real dispute that the grandparents’ intention was that the wife and her family should benefit from half of the trust and the second respondent and his family should benefit from the other half.

4. It is not surprising that the issues as to the value of these three assets or interests in assets were relevant factors in the property settlement case, and the subject, quite properly, of detailed correspondence early on by the solicitors. On the material placed before me, at least with respect to the husband’s previous solicitors, it appears considerable documentation was provided, including financial accounts and income tax returns and bank statements for the past seven years, as referred to in one email dated 15 March 2022. There is other correspondence indicating a preparedness to provide explanations at conferences and to provide documents. The husband’s current solicitors are not able to say with certainty what his previous solicitors received, as not all of the documents seem to have come to them.

5. The husband, perhaps not unreasonably, had some degree of suspicion about whether or not these structures and transactions had the effect of hiding the wife’s assets or financial resources that ought to properly be taken into account for the purpose of the matrimonial property settlement proceedings. Having said that, while the nature of the structures sound complicated on their surface, they were not very complicated each within themselves. Firstly, with respect to the home, it was worth around $1,075,000, of which each couple owned half, with $587,500 worth of equity in that real property. The husband had drawn $223,000 on a mortgage secured over it, and the second respondent had drawn $350,000 on a mortgage secured over it. There is no question that, in equity, the husband’s drawings would come off the husband and the wife’s share of equity in the property and that the second respondent’s drawings would come off his share of the equity in the property. The wife’s financial statement sets out the value of the property as being 50 per cent of the gross value of the real estate, subtracting the drawings that the husband had made amounting to $220,000.

6. The husband in his financial statement, however, sought to add back the $350,000 that the second respondent had drawn against their half-share, however, the husband did not make any accounting for the debt or share of the property. In effect, it seemed that the husband wished to simply draw across into the matrimonial asset pool $350,000 that would otherwise have always been with the second and third respondents. It seems to me that the law with respect to the real property and the two drawings is a relatively straightforward example of the equity of exoneration each against the other. It is difficult for me to understand how the husband ever thought that the case in that regard would progress beyond what was put by the wife and indeed was informally admitted by her in correspondence before that.

7. The husband also sought the sale of that property, although it had been indicated that the wife and her family would buy him out of his one-quarter share. Given the amounts involved, it does not seem to me to have been unrealistic that this would occur, nor does it seem to me to have been likely that any judge would have forced the sale of that property when it could be valued. The husband only had a one-quarter share that would form part of the matrimonial pool, save where those buying him out simply refused to pay him, which does not ever appear to have been a likely outcome in these proceedings.

8. The second matter related to the self-managed super fund, of which C Pty Ltd was the trustee. The argument in this respect arose from the fact that in 2018, the husband’s interest was valued in accordance with the rules of the super fund, and his interest was rolled out (on a form that appears to have been signed by him but where he now disputes that it is his signature that appears on that form) into an industry fund, Superannuation Fund 1. The case for the second respondent is that the husband signed the form. The husband denies it. Oddly, the husband did not allege that the form was fraudulent until very close to trial, earlier on alleging that he was coerced to engage in that transaction, although it is difficult to see what evidence there was of coercion.

9. As it transpires, the husband’s case at its absolute highest was that the rollout amount may have been around $3,800 less than what he might have been entitled to under the superannuation rules, although that was based upon a valuation which on its face appears to utilise some values from years well after the date of the rollout. The figures for the year of the rollout of the husband’s amount would indicate that on balance, if anything, the amount rolled out to him was greater than what his entitlements, properly calculated, would have been. The evidence, it seems, ultimately also showed that whether the husband was improperly forced out of the super fund or not, the increase in the value of his superannuation entitlements after they rolled out was a greater percentage increase than would have occurred had they remained in the self-managed super fund. So again, even on the husband’s best case (that some impropriety might be shown against effectively the second respondent in the management of the super fund) it did not result in any damages, and if anything, it increased the overall wealth of the husband rather than reducing it. It is difficult to see how this ever ultimately resulted in a cause of action that was going to result in moneys payable to the husband.

10. The third argument related to the grandparents’ trust, or the trust seeded by money from the grandparents, the C Investment Trust. The documentation that was available showed the moneys distributed and demonstrated that half the moneys went to the wife and her children and half to the second respondent. It is difficult to see how the husband’s case would have proceeded on that material given that, firstly, he did not have the capacity to control that trust in the sense described in Kennon & Spry [2008] HCA 56, and therefore it could not have been considered to be property under s 79 of the Family Law Act 1975 (Cth) (“the Act”). Secondly, given that, although not pleaded but perhaps potentially available, there may have been an action against the trustee, B Pty Ltd, seeking that the Court direct the trustee on the steps that the trustee should take to properly manage the trust and/or make distributions. Even if such an action were forthcoming, on the version given by all of the parties concerning the grandparents establishing the fund with the intention that it benefit each branch of the family equally, it is difficult to see how any court would likely have made an order other than ensuring that the moneys held on trust in that trust would be distributed equally to each branch of the grandparents’ family.

11. There was potentially some issue if the moneys were distributed to the wife (as half of the trust funds were) because they would go into the matrimonial pool, and if she secreted the money or wasted it, that might make recovery more difficult. However, that does not seem to have been an issue that was realistic in this case. There were other assets available, and indeed, the husband had already taken $220,000 out of the mortgage on the house account in any event.

12. There was a further claim, because after the husband’s superannuation entitlements were rolled out of the super fund into Superannuation Fund 1, the unit trust units that were owned by the super fund were transferred to B Pty Ltd, and at a value somewhat less than what they were valued at when the husband’s superannuation was rolled out, and of course moneys returned to the self-managed super fund. That all occurred, though, after the husband’s interest had been rolled out to Superannuation Fund 1. The husband sought to impugn a number of these transactions. However, the people joined were the second and third respondents, his brother‑in‑law and sister-in-law, not the corporate entities that were the trustees of the trusts, and indeed, some of the transactions sought to be set aside, such as the transfer of the unit trust units, which would have resulted in units moving from B Pty Ltd as trustee for the C Investment Trust back to C Pty Ltd as trustee for the self-managed super fund. However, this could never have resulted in orders that those units vest in the husband and the wife, because they were the assets of a self-managed super fund, and it is clear that neither the husband nor wife are eligible to take their superannuation. Therefore, those assets cannot, by some mechanism engaged in in this Court, be moved out of superannuation and placed into the hands of the husband or the wife.

13. Even at the first day of trial, the solicitor for the husband was not able to articulate with specificity the claim of the husband, particularly with respect to precise orders or amounts that were said to be lost or damages claimed, however one might frame the issues. Looked at from this perspective, it is difficult to see that the husband at any point was able to establish some prima facie basis on the facts of an actual claim that could succeed against the second and third respondents despite having had considerable discovery before the action started. It is certainly not appropriate for litigation to be pursued as a fishing expedition, nor is it appropriate for litigation against extended family members to be pursued in some form of strategic move against other family members.

14. Having said that, it is often far easier to see things with clarity at this end of a case than it is at the beginning end of a case, where there is considerable angst about what is going on and difficulty running to ground exactly what has happened in transactions. There was, it seems, during the course of the litigation after the joinder, some difficulty about subpoenas, although even simple things such as sending a cheque for conduct money did not seem to have been achieved. A cheque without a signature was sent, and then this in turn resulted in correspondence between the solicitors.

15. I turn then to s 117 of the Act. It is important to note that s 117 of the Act provides for the ordinary situation being that each party would bear their own costs in family law proceedings, and this makes obvious sense in proceedings between a husband and a wife, where in the usual straightforward case, each does need an order of the Court to be able to resolve parenting arrangements or separate out their property entitlements. Therefore, the husband and wife each has a need to come to the Court, and the concept of costs following the event would simply result in whoever got to the Court first getting some form of costs order, which would be inappropriate.

16. Similarly, one can see that s 117 of the Act makes considerable sense in many cases that may in some way involve extended family where the assets are entangled in such a way that some relief is needed. Although in many cases, the extended family members may have little involvement in the trial and little costs. Indeed, sometimes, business structures are not formally joined because the husband and wife are the directors and shareholders, and so the orders can be made against those structures without the excessive costs of the formality of joining numerous entities.

17. The Act, however, does provide that in proceedings under the Act, if the Court is of the opinion that there are circumstances that justify it in doing so, the Court may, subject to various subsections and the rules of Court, make orders for costs of the proceedings.

18. In these proceedings, the second and third respondents seek indemnity costs based upon the costs agreement entered into between them and their solicitors. The hourly rate of the solicitor with the conduct of the file at $759 per hour is considerably in excess of the scale fee and is certainly a significant rate, even for a case with the level of complexity that this case had, given the nature of the business structures.

19. I turn, then, to s 117(2A) of the Act and the relevant considerations. I have regard to the financial circumstances of the husband and the wife, as is apparent from the property settlement reached and the joint balance sheet that was before the Court.

20. I do not have any specific evidence as to the overall financial position of the second and third respondent, but I proceed on the assumption that they have reasonable financial backing and resources, given that there were no submissions that they were impecunious or of any straitened or reduced financial circumstances, and noting that the second respondent is an accountant.

21. The parties were not in receipt of legal aid, and it is clear from the settlement that the husband was entirely unsuccessful in the proceedings as against the second and third respondents.

22. In terms of the running of the proceedings, whilst there were numerous claims made by the husband, it is difficult to see the evidentiary basis for those, and indeed the material is replete with offers of provision of material leading up to the point of the joinder, which it seems ought to have demonstrated that there was little or no prospects for the husband in the case.

23. It seems to me that at best there was some question about checking up on the value of the unit trust units in order to confirm the value of the superannuation rollout amount, but beyond that, all of the other matters were apparent on the balance sheets of the entities. In that sense, the claim was highly speculative, and indeed the units were sold on after the rollout for a lower value than the rollout amount.

24. The case is one where it seems to me that the husband ought to contribute to the costs of the second and third respondents, and this was acknowledged in the settlement agreement reached between the parties. The most significant question that arises is whether or not that is appropriately done on a party/party basis, on a solicitor/client basis, or on a full indemnity costs basis.

25. I have regard to the principles as set out in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801 and the subsequent family law authorities that importantly make the point that Colgate-Palmolive was in the context of a costs regime in the civil courts where party/party costs ordinarily follow the event, whereas in the family law jurisdiction, there is ordinarily no order for costs.

26. Having regard to the way in which this matter has been litigated, it seems to me that it is appropriate that the husband pay the solicitor/client costs of the second and third respondents from the date of joinder until the end of the litigation, including the costs of this costs application on which they have been successful.

27. There is no agreement as to the precise amount and no agreement that I should set a lump sum in that regard, and I therefore order that the costs be assessed in accordance with the rules.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the ex tempore Reasons for Judgment of the Honourable Justice Riethmuller.

Associate:

Dated:       20 April 2023