Foley and Foley and Anor
[2007] FamCA 584
•14 June 2007
FAMILY COURT OF AUSTRALIA
| FOLEY & FOLEY AND ANOR | [2007] FamCA 584 |
| FAMILY LAW - PROPERTY – Wife and husband together seek declaratory relief under Section 78 to the effect that family home of which they are registered as joint proprietors is beneficially held as to 75% by the wife and 25% by the husband – Conceded far greater initial contributions by the wife to acquisition of family home at the commencement of a long marriage – Where making the declarations sought would impact upon the ability of a third party judgment creditor to recover its judgment debt against the husband – Declaratory relief opposed by third part judgment creditor – Judgment creditor as contradictor – Consideration of circumstances in which equitable principles require imposition of a resulting or constructive trust – No evidence upon which court could be satisfied that it would be inequitable to permit the husband to assert his legal title – Husband and wife’s application dismissed – Costs – Indemnity costs |
| Family Law Act 1975 (Cth) Bankruptcy Act 1966 (Cth) Family Law Rules 2004 |
Trustees of the property of Cummins (a bankrupt) v Cummins and Anor (2006) 224 ALR 280
Draper v Official Trustee in Bankruptcy [2006] FCAFA 157
Baumgartner v Baumgartner (1987) 76 ALR 75
In the Marriage of Kohn (1977) 30 FLR 175 at 177
LAC and TRF and LKL [2005] Fam CA 158 at [41]
Brown & Brown (1998) FLC 92-822 at 85,347
Pension & Pension (No 2) (2005) FMCAfam 22
R & Q [2005] FamCA 6
Arundle Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) HCA 26
| APPLICANT: | Mrs Foley |
| RESPONDENT: | Mr Foley |
| INTERVENOR: | AUSTRALIAN POSTAL CORPORATION |
| FILE NUMBER: | MLF | 2865 | of | 2006 |
| DATE DELIVERED: | 14 June 2007 |
| PLACE DELIVERED: | Melbourne |
| JUDGMENT OF: | Bennett J |
| HEARING DATE: | 23 & 24 April 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Mawson |
| SOLICITOR FOR THE APPLICANT: | Middletons |
| COUNSEL FOR THE RESPONDENT: | Mr Edmunds |
| SOLICITOR FOR THE RESPONDENT: | Trumble Szanto Lawyers |
| COUNSEL FOR THE INTERVENOR: | Dr Ingleby |
| SOLICITOR FOR THE INTERVENOR: | Holding Redlich |
Orders
That the application of the wife and the response of the husband seeking declaratory relief pursuant to section 78 be, and are hereby, dismissed.
That the husband and the wife each pay one half of the costs of the intervenor, Australian Postal Corporation, such costs:-
(a)To be calculated on a party-party basis and, subject to an election being made by the husband and/or the wife pursuant to 2(b) and 2(c) of this Order, such costs be assessed in accordance with the Family Law Rules 2004;
(b)if within 30 days from the date of this order, the husband notifies the solicitors for the intervenor in open correspondence that he accepts the quantum of the intervenor’s costs at $15,000, then his liability for costs pursuant to this order be fixed in the sum of $7,500 and be payable within 30 days;
(c)if within 30 days from the date of this order, the wife notifies the solicitors for the intervenor in open correspondence that she accepts the quantum of the intervenor’s costs at $15,000, then her liability for costs pursuant to this order be fixed in the sum of $7,500 and be payable within 30 days.
That the application of the intervenor be otherwise dismissed.
That any application of the husband and the wife for relief pursuant to section 78 or section 79 of the Act be dismissed SAVE THAT there has been no determination on the merits of the applications made pursuant to section 79 for a final alteration of property interests.
That these proceedings be removed from the active pending cases list maintained by the court.
IT IS NOTED INCONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Bennett delivered this day will for all publication and reporting purposes be referred to as Foley and Foley and Australian Postal Corporation.
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLF 2865 of 2006
| Mrs Foley |
Applicant
And
| Mr Foley |
Respondent
And
| Australian Postal Corporation |
Intervenor
REASONS FOR JUDGMENT
Introduction
That husband and wife both seek a declaration pursuant to s 78 of the Family Law Act 1975 (“the Act”) to the effect that their beneficial interests in the family home at P (“the family home”) is held 75% as to the wife and 25% to the husband rather than as joint registered proprietors. The third party, Australian Postal Corporation (“APC”) opposes the making of the declaration on the basis that APC is a judgment creditor of the husband and the declaration, if made, has the potential to adversely impact on the recoverability of its judgment debt.
Section 78 of the Act provides:
(1) In proceedings between the parties to a marriage with respect to existing title or rights in respect of property, the court may declare the title or rights, if any, that a party has in respect of the property.
(2) Where a court makes a declaration under subsection (1), it may make consequential orders to give effect to the declaration, including orders as to sale or partition and interim or permanent orders as to possession.
The wife, husband and APC agree that the current market value of the family home is at $815,000.00 and that the property is currently encumbered by a mortgage registered in favour of Commonwealth Bank of Australia securing a joint indebtedness of the husband and the wife in the sum of approximately $158,000.00.
On 6 September 2006 the Honourable Justice Hansen of the Supreme Court of Victoria delivered a judgment in proceedings brought by APC against the husband in which an award was made in favour APC in the sum of $560,927.52 plus interest to 6 September 2006 of $96,740.77 plus further interest plus costs. The judgment debt in its totality inclusive of interest and costs is in the vicinity of $765,000.00. The family home is not the only asset of the husband and/or the wife. APC is not the only creditor of the husband although I am not aware of any other creditor who has obtained judgment against the husband.
The effect of the declaratory relief sought by the wife and the husband would be to limit the extent to which APC could potentially execute against the family home to only 25% of the equity in the family home together with such other property it can attach which belongs to the husband.
These proceedings were initiated by an application filed on behalf of the wife on 4 October 2006. At that stage the wife sought urgent injunctive relief against APC seeking to recover its judgment against a presumed one half share held by the husband in the family home. That injunctive relief was sought pending a final hearing of the wife’s application for declaratory relief. APC was duly named a third party to the proceedings as was the trustee of the F Trust, T Pty Ltd. T Pty Ltd is still a party to the proceedings but took no part in the hearing before me.
On 1 December 2006 APC filed and served a response to the wife’s application seeking, inter alia, a dismissal of the wife’s application or, alternatively, declaratory relief. On 9 January 2007 the respondent husband filed and served a response to the wife’s application in which he sought orders consistent with the orders sought by the wife. Nothing has been filed on behalf of T Pty Ltd. I will not detail the precise orders sought by the participating parties because, at trial, each amended their application.
The wife has clarified that she seeks relief solely pursuant to s 78 and does so the following terms:-
1.That the rights, title and interests of the Husband and Wife in the real property situate at and known as [P] in the State of Victoria being the whole of the land more particularly described in Certificate of Title Volume […] Folio […] (“the [P] property”) are as follows:
i)75% in favour of the Wife as a joint tenant; and
ii)25% in favour of the Husband as a joint tenant.
2.Such other and further Orders as this Honourable Court deems appropriate.
The husband seeks relief identical to that of the wife and identifies s 78(2) as the source of jurisdiction for any consequential orders.[1]
[1] Exhibit “H1”
The APC seeks orders in the following terms[2]:-
[2] Exhibit “APC1”
1.That the Form 1 application of the wife filed 4 October 2006 and the Form 1A application of the husband filed 9 January 2007 be dismissed; and the wife pay the costs of [APC] in relation to these proceedings on an indemnity basis.
2.In the alternative to 1, that this Honourable Court declare that the husband and the wife own as tenants in common in equal shares:
a)The real estate situate at and known as [P] in the State of Victoria;
b)All furniture and chattels located at [P] in the State of Victoria;
c)The investments referred to in paragraph 38 of the wife’s Financial Statement filed 9 March 2007;
d)The assets of the [F] Trust;
e)The parties’ superannuation interests.
and such consequential orders (including orders as to costs) as are reasonably required to sell the husband’s 50% interests in order to satisfy the debts owing to [APC] in relation to proceedings 4900 of 2005.
No party sought an adjournment consequent on the amended applications.
Mr Mawson, of counsel, appeared for the applicant wife. Mr Edmunds, of counsel, appeared for the first named respondent husband. Dr Ingleby, of counsel, appeared for APC.
Despite preliminary indications to the contrary, none of the parties sought relief pursuant to s 79 of the Act. That was not apparent until mid-morning on the first day of the trial and, it is fair to say, that some of the affidavit evidence, written submissions and case outline documents were crafted as if relief was to be sought under s 79. To the extent that applicant wife and the second named respondent submitted summaries of argument prior to trial, I disregard any reliance on s 79 in favour of submissions made orally at the trial. The primary applications of all parties related solely to the interests of the husband and the wife in the family home. It was only the alternative relief sought by the second named respondent which affected other property, financial resources or entitlements. The second named respondent made it clear that the alternative relief sought by it was a fall back position which I was to entertain if, and only if, I was not prepared to accede to its primary application that I dismiss the applications of the wife and the husband.
The Evidence
The applicant wife relied upon the following documents:-
a)Her affidavit sworn 9 March 2007;
b)Her Form 13 financial statement sworn 9 March 2007;
The respondent husband relied on the following documents:-
a)His affidavit sworn 23 March 2007;
c)His Form 13 financial statement sworn 28 November 2006.
The second named respondent relied on an affidavit of Mr D, credit officer in the employ of APC.
The second named respondent required the wife and the husband for cross examination. The husband and the wife did not adduce evidence from each other. It was conceded that there was no relevant conflict in their evidence.
Findings of Fact
I found the opportunity to observe the wife and the husband in the witness box to be of considerable benefit and a useful tool in deciding the truth of matters in issue in these proceedings, insofar as it can be said that facts relevant to these proceedings were in evidence.
In assessing the evidence, I apply the balance of probabilities as the standard of proof. In an English case involving a wardship application, Lord Nicholls discussed the relevant standard of proof to be applied in non-criminal proceedings in the family law jurisdiction. In spite of the fact that the parties seek to invoke principles of equity, His Lordship’s comments are apposite to these proceedings. In Re: H & Ors[3]. His Lordship stated:
"[145]. Despite their special features, family proceedings remain essentially a form of civil proceedings. Family proceedings often raise various serious issues, but so do other forms of civil proceedings.
The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event is more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. . . . . Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.
Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established".
[3] (1996) 1 All ER 1 at 16.
In this case, there is no significant conflict between the evidence of the husband and the evidence of the wife. It is APC, as contradictor, which takes issue with parts of the evidence adduced by the husband and the wife and the fact that the husband and the wife, in some respects, failed or neglected to adduce much evidence at all.
Where a party, or parties, seek declaratory relief, I have regarded the party seeking the relief as bearing the onus to prove the requisite elements of the relief sought. As the wife seeks declarations and consequential relief to the effect that she and the husband own the family home in the proportions of 75% and 25% respectively rather than as joint tenants, she bears the onus of proving the factual and legal basis of that claim. To the extent that APC seeks declaratory relief for property and financial resources other than the family home, it bears the onus of proving the factual and legal basis for that claim.
I have regard to any concessions made by the husband and/or the wife in favour of APC and to any concessions made by APC in favour of the husband and/or the wife. Because the husband is entirely supportive of the wife’s claim and seeks the same relief, I do not consider concessions made by the husband in favour of the wife to be valuable or, in the circumstances of this case, to obviate the need for the wife to adduce evidence of facts where facts need to be proved as a basis for her claims in equity.
In what I have already said and in what follows, statements of fact constitute findings of fact.
Relevant History
The wife is 64 years old having been born on … September 1942. The husband is 61 years old having been born on … November 1946. They met in late 1983. They married on 29 April 1984 and commenced cohabitation from that date. The wife had been widowed on 10 May 1983 and, relevantly for these proceedings, had inherited a home in Northern New South Wales and been paid $200,000 as proceeds of an insurance policy over the life of her late husband, … . The husband had no assets of significance.
Six months after the marriage, the husband and the wife acquired the family home at a cost of $112,000. The wife applied the proceeds of sale of her Northern New South Wales home, which amounted to $98,000, and the balance of $14,000 was funded a loan taken jointly in the name of the couple and secured by a mortgage registered over the family home. The husband and the wife were registered as joint tenants of the property notwithstanding the disparity in their contributions to the acquisition of the property. There is no evidence directed to why ownership of the family home was registered as it was. Having regard to the husband’s joint and several liability under the mortgage, it was asserted by the husband and the wife that the contribution of the wife to the acquisition of the family home, in 1984, approximated 92% whereas the husband’s contributions approximated 8%. Counsel for APC did not contend otherwise.
The husband and wife have an adopted daughter, L, born … August 1982. She was initially the adoptive daughter of the wife and her first husband.
The life insurance monies were invested by the wife in a commercial fund.
In 1992 the husband and wife established the F Trust. The husband consulted solicitors, Hughes, in this regard. The husband is named as the appointor of the F Trust (“the Trust”). The trustee of the Trust is T Pty Ltd, a company of which the husband and wife are directors and shareholders. There is no evidence to the effect that T Pty Ltd trades in its own right. The wife’s evidence[4] in relation to the Trust was that she and the husband:-
“decided that we wished to establish a trust to provide our family with long-term financial security.”
[4] Wife’s affidavit sworn on 9 March 2007paragra
Under cross examination on behalf of APC, the wife said that the husband had been responsible for the establishment of the Trust and that he has exercised day to day control over its operation with the rider “but we discuss things”. The wife deposed, and there was no contention to the contrary, that in 1997 the unquantified proceeds of the life insurance investments was put into the Trust and with those funds the Trust acquired shares and 2 properties in R. The purchase of the R properties was funded partly by mortgage.
Under cross examination on behalf of APC, the husband said that he consulted Hughes, solicitors, to prepare documentation to establish the Trust and that the establishment was prior to him commencing a business. The husband agreed that one of the reasons for the establishment of the Trust at that time was to protect the wife’s life insurance monies from any adverse consequences of his business venture. The husband agreed that he had discussions with Hughes, solicitors, about asset protection. He also agreed that the joint proprietorship of himself and the wife in the former family home remained unchanged since its acquisition in 1984.
In 1998 the husband acquired an interest in a business, W Pty Ltd, for $100,000. His acquisition was partly funded by a mortgage taken over the family home and partly from the proceeds of sale of a previous business owned by him which had also been financed with borrowings secured by mortgage over the family home. On 10 September 1999 the husband signed a personal guarantee of in favour of APC (or its predecessor) for the debts of W Pty Ltd (“[W]”) as a result of W falling behind in regular payments to APC (who was its major creditor). In June 2002 the husband sold his interest in W but did not obtain a release of his obligations under the guarantee executed by him on 10 September 1999.
The wife deposes[5], and there is no contention by APC to the contrary, that:-
30. [….] I did not know about the guarantee at the time it was executed. The husband neither consulted with me, nor [sic].
31. In or about 2003, the Husband sold his interest in [W] to [Mr G]. I had assumed that when he resigned, he was released from all financial responsibility for the business. At that stage, I remained ignorant of the personal guarantee.
32. In or about November 2004, I was informed by the Husband and verily believe that he received an email from [Mr P] advising that [W] owed Australia Post $250,000. It later transpired that the actual figure was much greater. At that stage, the Husband told me that he had signed a personal guarantee. This was the first I knew of the guarantee.
33. In 2006, [APC] commenced proceedings in the Supreme Court of Victoria against the Husband to recover monies pursuant to the guarantee which monies were owed to it by [W]. At all times since such proceedings were commenced I have been informed by the Husband and believed that he had a good defence to such action and was taking appropriate legal advice in respect thereto.
[5] Wife’s affidavit sworn on 9 March 2007, paragraphs 30 to 33
I accept the wife’s evidence in this regard. In relation to the relief sought by the wife, she deposes[6]:-
34. On 6 September 2006, Justice Hansen delivered judgment and made Orders in favour of Australia Post. The primary judgment debt is $560,927.52. When interest and legal costs are factored in, the actual amount owed the [sic] by the Husband to Australia Post is in excess of $800,000.
35. Australia Post intends to enforce the Orders made by the Supreme Court of Victoria on 6 September 2006.
36. The Husband and I are registered as joint tenants on the Certificate of Title for the [P] property. Pursuant to my application, I seek a determination from this Honourable Court as to my and the Husband’s interest in the [P] property. Failing such a determination, those interests will be presumed to be equal and as a consequence, all of the Husband’s presumed interest will be retained by Australia Post in partial satisfaction of the judgment debt in its favour. I am also concerned that Australia Post will seek to satisfy the remainder of the judgment debt from the assets of the Trust as well as a Volkswagen Golf motor vehicle, furniture and chattels.
37. I say that in light of my significant capital contribution to our assets, that it is fair and equitable for this Honourable Court to make the Orders sought in my Application in a Case.
[6] Wife’s affidavit sworn on 9 March 2007, paragraphs 33 to 37
The husband deposes[7]:-
2.15. I agree with paragraphs 32 to 36 save that the Golf motor vehicle, although registered in my name, was a 21st birthday present to our daughter [L] who drives such vehicle.
2.16. I agree that my wife has made substantially greater financial contributions to the acquisition of our assets and that it is proper that there be declarations recognising such greater contributions and adjustive orders in relation to our property to reflect such declarations.
I am deeply concerned that the financial stresses associated with my former business venture and the prospect of the second respondent executing judgments against property I am currently jointly registered as owner with my wife without proper recognition of my wife’s substantially greater financial contributions are likely to destroy our marriage.[7] Husband’s affidavit sworn 23 March 2007, paragraphs 2.15 and 2.16.
It was alleged on behalf of APC that the husband and the wife had failed to make full and frank disclosure of their financial circumstances currently and in the recent past. The wife describes the Trust assets as follows:-
25. The trusts current assets are as follows:-
(a) a unit at [R1]. The unit is worth approximately $420,000 but is subject to a mortgage of $350,000 in favour of the Commonwealth Bank of Australia;
(b) shares in various companies valued at approximately $60,000; and
(c) a Lexus motor vehicle valued at approximately $20,000 and which is subject to a loan of $15,000.
26. The Trust is currently owed $174,437 by [W] Pty Ltd (“[W]”). This debt rose from the sale of the property at [R2] for $346,500 in or about June 2005. The property belonged to the Trust, however, the proceeds of sale were applied to pay debts of [W] in the sum of $174,437 including debts to the Commonwealth Bank of $134,707.
The husband’s affidavit evidence in relation to the Trust was as follows:-
2.7. As to paragraph 25 I say that the current assets of the trust are as follows:
(i) [R1] has been valued in the sum of $380,000.00
(ii) The current mortgage balance secured over [R1] is approximately $350,000.00;
(iii) The share portfolio has a current value of $40,000.00;
(iv) The Lexus motor vehicle is subject to a loan of $14,939.00 as at 16.11.2006 and appears to have a value at current date, based on the Internet Red Book values of between $18,000.00 to $21,000.00.
(v) The trust also has cash investments of approximately $30,000.00.
2.8. As to paragraph 26 I say:
(i) The [R2] property was sold in the sum of $346,500.00 with settlement effected on 3.6.2005. [T Pty Ltd] received the initial deposit of $17,325.00 and the balance of funds at settlement of $176,982.74. Other payments out of the sale proceeds at settlement were:
City West Water $12.60
State Revenue Office $188.34
CBA $149,712.84
Church Hill Lawyers $2,294.47
(ii) The payments to CBA to discharge its security were as follows:
Re [W] Pty Ltd (in liquidation):
Terminated overdraft facility $92,815.86
[B] Loan $24,940.64
Business Card $16,951.34
Re [T] Pty Ltd:
Overdraft temporary limit $10,000.00
Home Loan arrears $5,005.00
(iii) That as a result of the liquidation of [W] there is no prospect of the trust recovering the monies paid to CBA totalling $134,707.84.
(iv) That balance of proceeds received by [T] Pty Ltd was paid into a Misa Offset account and its current balance is approximately $30,000.00. My Form 13 Financial Statement details a debt by me to [T] Pty Ltd in the sum of $215,712.00. This represents the debt paid to CBA of $134,707.84 and a further debt of approximately $81,000.00 in relation to my borrowings from the trust.
It was conceded under cross examination that, since July 2006, the husband and wife have received payments approximating $90,000.00 from the Trust for legal expenses, credit card debts and the support of their daughter, [L]. It was also conceded by the husband that, until the morning of the trial, he had failed or neglected to disclose 2 accounts operated by the Trust in spite of orders that he do so and his overriding duty of full and frank disclosure. I am mindful of the fact that, at the time the affidavit material was drawn for the husband and the wife, each sought relief pursuant to s 79 of the Act as well as under s 78.
I am satisfied that there was non-disclosure by the husband in relation to Trust assets which would have been relevant and material to the court’s determination of issues under s 79 or any application for a declaration in relation to the Trust assets under s 78.
The Issues
The wife’s case, wholly supported by the husband, is that the registration of ownership by her and the husband of the family home as joint proprietors on the Certificate of Title is inconsistent with their beneficial interests. The wife contends that her greater beneficial entitlement to the property, in the proportions of 75% to her and 25% to the husband, ought to be recognised by declaratory relief granted under s 78. It is contended by the husband and the wife that, in seeking the relief, they do not in any way affect the interest of APC in its judgment debt against the husband albeit that, if the wife and husband obtain their declaratory relief, APC’s rights to attach the husband’s interest in the family home will be restricted to 25% rather than the present notional undivided half part or share which is reflected by the husband’s registered interest. I reject the submission that the interest of APC is unaffected by the relief sought. Whilst the amount of the judgment debt will remain intact, it must be recognised that the recoverability of the judgment against existing assets in the hands of the husband will be compromised if the relief sought by the wife and the husband is granted. To suggest otherwise is disingenuous.
APC is correctly positioned as a contradictor in these proceedings between the wife and the husband because it has a real interest in opposing the relief.
It does not follow that, merely because the rights of recoverability by APC are likely to be affected by the declarations sought by the wife, that the relief sought by the wife and the husband should not be granted. If the wife can demonstrate, on the evidence, that she has the interest she seeks be declared, it does not matter if the relief sought would give her some advantage over the husband’s creditors, in particular APC. The declaration would be made about rights which are already in existence albeit not reflected by registrations on title and would be made because the principles of equity require that they be made. The issue is, therefore, whether or not the wife, or the wife and the husband, can satisfy the court, having regard to the evidence before the court, that on balance, the wife’s equitable ownership of the family home should be recognised at 75% and the husband’s interest reduced to 25% according to principles of equity.
The wife’s case supported by the husband and not contradicted by APC, is that her initial contributions to the acquisition of the family home approximated 92%. The wife, through her counsel, contended that, having regard to the financial contributions to the family home made by each party since 1984 – which [I] should regard as being equal – the wife’s entitlement is now 75%.
As to the application of equitable principles, the wife contended that a resulting trust arose in her favour so that, from the time of acquisition, the husband and the wife held their registered or legal interest in the family home on trust for themselves as to 92% to the wife and 8% to the husband. It was put on behalf of APC that registration on title as joint tenants had rebutted the presumption of a resulting trust.
It was also contended by the wife, and supported by the husband, that the financial contributions made by each of them over the last 23 years did, by operation of constructive trust principles, reduce the wife’s equitable entitlement to just 75%. It was conceded on behalf of the wife that there was no detailed evidence about those contributions and nor could the couple demonstrate precisely what acts and matters accounted for a diminution in the wife’s interest from 92% to 75%. In response to this, it was contended that a case of this nature need not be approached with mathematical precision.
The husband, through his counsel, contended that 75% “is generous to the husband”. I pressed counsel for the wife for the basis (and evidence) upon which his client’s interest is now reduced to 75%. His response was that, if
I could not be satisfied that the wife’s interest was properly recognisable at 75%, I could leave it at 92%. Subsequently, he submitted that I was at large to declare her entitlement. I take that submission to support a declaration at something less than 92% but more than 75%.
In Trustees of the property of Cummins (a bankrupt) v Cummins and Anor. (2006) 224 ALR 280 the High Court considered, inter alia, an application by the husband’s bankruptcy trustee for a declaration that the transfer by the husband to his wife of his interest in the family home in 1987 was void against the trustee under s 121 of the Bankruptcy Act 1966 (Cth) where the effect of the transfer was to divest the husband of an asset which could have been applied in payment of his very considerable tax debt. The wife asserted a beneficial interest commensurate with her contribution of 76.3% of the purchase of the vacant land in 1970. The parties were registered as joint tenants, and they proceeded to build a residence on the property.
Mr Cummins QC was a barrister of some experience and seniority but had never put in a taxation return. In 1987, Mr Cummins QC transferred his interest in the family home to his wife. The trial Judge, and ultimately the High Court found that he did so in full knowledge that at any time his delinquent behaviour in relation to income taxation could come to light, an investigation ensue and very large assessment be raised.
The transfer was expressed to be for a consideration of $205,250 being an amount equivalent to one half of the assessed then market value of the family home. The subject matter of the transaction was identified on the transfer as “all that the [sic] interest of the Transferor as joint tenant of and in the land above described”. The wife paid ad valorem stamp duty on the transfer, and valuation fees, but never paid $205,250. The trial Judge was satisfied that the transfer had been drawn for an expressed consideration on the basis that
Mr Cummins QC assumed that to do so and to then forgive the debt would best protect the disposition from being found to be voidable against a bankruptcy trustee.
The High Court set out the following extract from Calverley v Green (1984) 155 CLR 242 at para 3:
“[I]f two persons have contributed the purchase money in unequal shares, and the property is purchased in their joint names, there is, again in the absence of a relationship that gives rise to the a presumption of advancement, a presumption that the property is held by the purchasers in trust for themselves as tenants in common in the proportions in which they contribute the purchase money”.
[my emphasis].
Thereafter, the High Court noted that the presumption of advancement of wife by a husband has not been matched by a presumption of advancement of the husband by the wife. The Court then asked the following question:
What was there to conclude in August 1987 that the face of the register did not represent the full state of the ownership of the Hunters Hill property, and that the ownership as joint tenants was at odds with, and subjected to, the beneficial ownership established by trust law?
The same question can be asked of the parties here, but in more current terms. Namely what evidence is there that the face of the register does not represent the full state of ownership of the property, and that the ownership of the property as joint tenants is at odds, and should be read subject to, the beneficial ownership established by authority such as Calverley v Green (supra)?
In both Cummins and the present case the evidence relied upon by the party asserting an equitable interest was the disproportionate initial financial contributions to the purchase of the property.
In Cummins (supra) the following was considered to be contraindicative of the beneficial interest asserted by the wife in that case:
a)The property was initially acquired as a joint tenancy held by husband and wife;
b)The August 1987 transfer was voluntary, and no part of the asserted purchase price of $205,250 was paid by Mrs Cummins;
c)Mrs Cummins did pay the ad valorem stamp duty on the contract and the valuer's fee,
In the present case, and unlike Cummins, there has been no subsequent attempt to place the property beyond the reach of a creditor or trustee. It remains though that the property was acquired by the husband and wife as joint tenants and neither party has adduced any evidence as to why the title to the property was registered in the names of the husband and wife as joint proprietors notwithstanding the disparity in their financial contributions to its acquisition. This is in stark contrast to the circumstances in the recent case of Draper v. Official Trustee in Bankruptcy [2006] FCAFA 157 which is discussed in some detail below.
The High Court in Cummins did refer to authority for the proposition that the presumption of an intention of advancement (the presumption that the “equitable interest is at home with the legal title”[8]), might be rebutted by evidence manifesting a contrary intention. In Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 (at para 65):
Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ said of the rebuttal of presumptions by manifestation of a contrary intention:
"Apart from admissions the only evidence that is relevant and admissible comprises the acts and declarations of the parties before or at the time of the purchase (in this case before or at the time of the acquisition of the shares by allotment) or so immediately thereafter as to constitute a part of the transaction." (emphasis added [by the High Court])
[8] Cummins (supra) at para 55.
The High Court then asked (at para 66):
What then was the "transaction" to which attention must be directed in determining whether, subsequent admissions or conventional assumptions or arrangements apart, the registered title to the Hunters Hill property acquired by Mr and Mrs Cummins was not at variance with an equitable title?
The High Court concluded that the transaction in focus was “a composite of the purchase of the Hunters Hill property followed by construction of a dwelling house occupied as the matrimonial home for many years preceding the August transactions” (at para 67). To do otherwise would, in the view of the Court “produce a distorted and artificial result, at odds with practical and economic realities”.
The High Court concluded (commencing at para 71):
71. The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott's work respecting beneficial ownership of the matrimonial home should be accepted:
"It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase."
To that may be added the statement in the same work:
"Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one half interest in the property, regardless of the amounts contributed by them."
72. That reasoning applies with added force in the present case where the title was taken in the joint names of the spouses. There is no occasion for equity to fasten upon the registered interest held by the joint tenants a trust obligation representing differently proportionate interests as tenants in common. The subsistence of the matrimonial relationship, as Mason and Brennan JJ emphasised in Calverley v Green, supports the choice of joint tenancy with the prospect of survivorship. That answers one of the two concerns of equity, indicated by Deane J in Corin v Patton, which founds a presumed intention in favour of tenancy in common. The range of financial considerations and accidental circumstances in the matrimonial relationship referred to by Professor Scott answers the second concern of equity, namely the disproportion between quantum of beneficial ownership and contribution to the acquisition of the matrimonial home.
73. In the present litigation, the case for the disinclination of equity to intervene through the doctrines of resulting trusts to displace the incidents of the registered title as joint tenants of the Hunters Hill property is strengthened by further regard to the particular circumstances. Solicitors acted for Mr and Mrs Cummins on the purchase in 1970. The conveyance was not uneventful. The contract was dated 14 April 1970 and was settled on 27 July 1970, but only after the issue by the solicitors for the vendor on 10 July of a notice to complete. It is unrealistic to suggest that the solicitor for the purchasers, Mr and Mrs Cummins, did not at any point advise his clients on the significance of taking title as joint tenants rather than as tenants in common. Secondly, use of the valuation obtained in 1987 to fix what was shown as the purchase price for the acquisition by Mrs Cummins of the interest of her husband is consistent, as already indicated, with the conventional basis of their dealings which treated the matrimonial home as beneficially owned equally.
74. Finally, there is the question of the funding of the building operations which were necessary for the use of the previously vacant land as the matrimonial home. Reference is made earlier in these reasons to the treatment of the purchase of the unimproved land and the subsequent building operations as the one transaction for the purpose of considering the principles respecting resulting trusts. Since October 1967, Mr and Mrs Cummins had owned as joint tenants a property at 12A Ferdinand Street, Hunters Hill. This was sold in December 1971. The proceeds of that sale were paid on 22 December 1971 into a bank account styled "John Daniel Cummins and Mrs Mary Elizabeth Cummins Fully Drawn Loan Account". Sackville J held that in these circumstances it appeared likely that the net proceeds of sale of the Ferdinand Street property had been paid to Mr and Mrs Cummins jointly. While there was no finding to this effect by the primary judge, there is force in the submission in this Court by counsel for the Trustees that the likely source of funds for the building operations were, first, the joint borrowing of $8,000 on the mortgage to the Commonwealth Savings Bank of Australia, supplemented after December 1971 by the joint proceeds of the sale of the other property.
In Cummins, the High Court proceeded to allow the appeal with costs.
In Draper v Official Trustee in Bankruptcy [2006] FCAFC 157, Mr and Mrs Draper had become jointly registered owners of the subject property on 11 July 1989, one day before Mr Draper became bankrupt. The husband’s bankruptcy had the effect of severing the parties’ joint tenancy. The Official Trustee, and later an individual Trustee became registered as the holder of Mr Draper’s half interest in the property. In July 1992, Mr Draper was discharged from bankruptcy, but the Trustee remained a co-owner with Mrs Draper until the property was sold (presumably by agreement) in late 2005. Whilst Mrs Draper was clearly entitled to one half interest of the proceeds of sale, an issue arose as to her entitlement to the balance of the sale proceeds to which the trustee also asserted an entitlement. The Drapers’ claimed that Mrs Draper had always held a beneficial interest in the property and Mr Draper only became a joint registered owner at the insistence of the financial institution that took the first mortgage over the property. They claimed that the intention was that the property would always belong to Mrs Draper, and her husband had previously held the half interest on an express or constructive trust for Mrs Draper.
Mrs Draper claimed to have paid:- the stamp duty and conveyancing costs associated with the purchase of the property;
- all capital repayments and paid all interest on the first mortgage; and
- all outgoings and funded all improvements to the property in the period from July 1989 to late 2005;
The Trustee alleged that the Draper’s had mutually met expenses in relation to the property, and denied the existence of a trust, express or otherwise. The trustee had not acted at an earlier point as there had been minimal equity in the property for recovery.
At first instance, the Federal Magistrate dismissed the Drapers’ claim and rejected the existence of a trust. His Honour found, inter alia, that there was no agreement at or prior to settlement that Mr Draper’s registered interest as a joint tenant would be held for the benefit of Mrs Draper.
On appeal, it was noted by Mansfield J with whom Rares J agreed that, at the earliest opportunity, Mr Draper had impressed upon the Trustee that he was only put on the title of the property at the insistence of the financial institution from whom Mrs Draper had sought a loan to purchase the property. The Trustee’s inquiries of the financial institution confirmed Mrs Draper’s account.
The majority held that the learned Federal Magistrate erred in rejecting the submission of the Drapers, being, that it had only been pressure from the lending institution that resulted in Mr Draper being registered as a joint tenant on the property. On this basis, the appeal was allowed and the matter remitted, the Court noting that it would be for the Federal Magistrate on the re-hearing to determine as to whether the “presumption” in Cummins (supra) would apply.
Rares J in Draper (supra) concurred with Mansfield J as to the outcome of the appeal and agreed with His Honour’s reasons, subject to some further observations as to the `presumption of equal beneficial ownership’ in circumstances where a property is acquired by a married couple as joint tenants. Rares J said (commencing at para 78):
I am of opinion that the mere fact that Mr Draper was a joint borrower does not necessarily preclude a conclusion that there could have been a resulting trust at the time of the purchase. Nothing said in Calverley v Green (1984) 155 CLR 242 requires a conclusion to that effect. Rather, in the passages to which Besanko J makes reference (Gibbs CJ at 155 CLR at 251-252 and Mason and Brennan JJ at 257-258) their Honours made clear that the question whether entry into a mortgage for the borrowing of the purchase price rebuts a resulting trust is a factual one, although such conduct is, without some explanation, strongly probative of a rebuttal of a resulting trust because each mortgagor contributed to the purchase price by his and her entry into the obligations in the mortgage.
In the realm of presumptions regarding interests in property, it is important to recognize that the presumptions can be rebutted. The presumptions evolved from a recognition by the Courts that, in the particular situations in which they operate, human beings, over the centuries, have behaved in relation to property transactions in a way which the ordinary application of the presumption is intended to reflect. The flexibility of equity is not to be gainsaid by placing the presumptions into the straight jacket of irrebutability. Indeed, as Gibbs CJ noted in Calverley v Green (1984) 155 CLR at 252, if a bystander had asked Ms Green whether she intended that Mr Calverley should own the land beneficially even if he paid nothing under the mortgage and she were obliged to pay the whole mortgage debt with interest ‘… it is most unlikely that she would have replied in the affirmative’. As this passage indicates, his Honour was deciding the matter on the evidence, not on the basis of the operation of an irrebutable presumption.
Rares J then went on to discuss Calverley v Green (1984) 155 CLR at 262, noting the admissibility of evidence as to “acts and declarations of the parties before and at the time of the purchase, or so immediately after it as to constitute a part of the transaction”, for the purpose of “drawing an inference as to the intention of the parties relating to the beneficial interest which each of them has in the asset purchased” (at para 80). His Honour then referred to a number of factors in Draper that may have had the effect of negating any presumption of equal beneficial ownership. These included:
- Mr Draper’s involvement in the purchase of the property being prompted only by the requirements of the lending institution;
- The deduction of mortgage repayments from Mrs Draper’s accounts;
- The fact that Mr Draper was on the eve of having his estate sequestrated, “it is unlikely that he would have intended either to take a beneficial interest in the property or to put the possibility of his wife obtaining the loan in question” (at para 82); and
- That there was no apparent intent to defraud creditors, as Mr Draper paid nothing for the purchase of the property.
Rares J cited the High Court’s decision in Cummins (supra) and noted that a presumption of equal beneficial ownership “ordinarily applies in the a case where the parties to a marriage acquire the matrimonial home in joint names… and it may equally be capable of being applied in the present case” (at para 82). His Honour went on to say (at para 83):
There is no contemporaneous or other evidence that Mr Draper, did provide, or was to provide, any purchase money. Again, the fact that
Mrs Draper paid for all the mortgage instalments to the lending institution from her salary, and that this was intended from the time the transaction was first proposed (that is, before the sequestration order) is an indication that it was the intention of Mr and Mrs Draper at the time the purchase transaction was entered into and completed, that he would have no beneficial interest in the property. Moreover, the fact that Mrs Draper in effect, was, required by the lending institution to permit Mr Draper’s name to be added to the title, so that he would be jointly and severally liable to the lending institution for the repayment of the borrowings, can invoke the presumption of resulting trust from dealings between wife and husband: (cf Wirth v Wirth (1956) 98 CLR 228 at 238 per Dixon CJ; Calverley v Green (1984) 155 CLR at 251 per Gibbs CJ, 258, 262 per Mason and Brennan JJ, 266-267 per Deane J; The Trustees of the Property of Cummins v Cummins (2006) 224 ALR at 295 [65]-[67] per Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ).The third member of the Full Court in Draper, Besanko J, agreed for that the appeal should be allowed, but for different reasons to those set out by Mansfield J.
Whilst the circumstances surrounding the acquisition of the property in the present case was the subject of evidence and provides the focus for the Wife’s claim as to a resulting trust, there is a dearth of evidence about the contributions and treatment by the husband and wife of their interests in the family home post acquisition, save that it was their family home and principal security. Whilst focussed upon events surrounding the acquisition of the property, in Cummins the High Court did note that (at para 65):
[W]hilst evidence of subsequent statements of intention, not being admissions against interest, are inadmissible, evidence of facts as to subsequent dealings and of surrounding circumstances of the transaction may be received.
This view was endorsed by Rares J in Draper v Official Trustee in Bankruptcy [2006] FCAFC 157 (at para 81).
In the present case there is no evidence of the husband and the wife having ever regarded the property as anything other than their family home in which each held an interest equivalent to the other in the context of their borrowings to finance renovations and business activities of the husband or, in 1992, when the husband sought advice for them both in relation to asset protection and the establishment of the Trust. Whilst there was evidence that each applied their income for the benefit of the family and the wife’s expenditure was in relation to groceries, school fees and the like and the husband was responsible for payment of mortgages. However, there is no evidence about the amount of their respective incomes or the amount of the mortgage payments.
The wife’s evidence was[9]:-
17. The Husband and I purchased our matrimonial home at [P] (“the [P] property”) for $112,000. The property settled on 14 December 1984. We applied the entirety of my savings from the proceeds of sale of the [New South Wales] property towards the purchase price. We borrowed the balance of approximately $14,000 by way of a mortgage in favour of [E] Ltd. The Husband made no capital contribution to the [P] property.
18. The current value of the [P] property is approximately $850,000. The current amount owing to the Commonwealth Bank of Australia by way of home loan secured by a first mortgage is $158,000. The home loan relates to money that the Husband and I borrowed over the years to fund renovations to the property as well as the Husband’s business ventures. The business ventures included a partnership in an insurance broking firm called [X]. To the best of my recollection, the Husband remained with that firm for three years before selling his interest. He used the proceeds of the sale of his interest to purchase an interest in [W] Pty Ltd (“[W]”) in 1998. The balance of the purchase price was funded by extending our mortgage. The renovations predominantly comprised an upper storey extension on the [P] property, being two bedrooms and a bathroom.
[…]
27. I have generally applied my income to the purchase of food, general groceries, clothes, household goods and [L’s] expenses, including school fees. The Husband has usually applied his income to the payment of the mortgage and other incurring household bills.
[9] Wife’s affidavit sworn 9 March 2007
The husband’s evidence was as follows:-
2.4 I admit paragraphs 17 and 18 and further say that to the best of my recollection we had fully paid out the loan to [E] Limited during 1987 and we took out various mortgages over the years to fund renovations and assist my business interests. Approximately $50,000.00 was borrowed from Bendigo Bank to fund renovations and subsequently a further loan was taken out in the sum of $100,000.00 which paid out approximately $40,000.00 of the existing loan and an amount of $60,000.00 was applied towards my acquiring an interest in the company, [W] Pty Ltd. The total cost to me of acquiring such interest was $100,000.00 and the balance of funds came from the proceeds of sale of my former business.
As to the evidence of the wife in paragraph 27, extracted above, the husband deposed “I agree with paragraph 27.”
Counsel for the wife, in conceding that there was an absence of evidence in relation to specific dealings with the parties interest in the family home over the last 23 years, submitted that I would be in error to take an overly mathematical approach and referred to the views expressed by the High Court in Baumgartner v Baumgartner (1987) 76 ALR 75[10] in relation to assessment of pooled contributions, such as the following extract:-
The court should, where possible, strive to give effect to the notion of practical equality, rather than pursue complicated factual inquiries which will result in relatively insignificant differences in contributions and consequential beneficial interest.
I accept the correctness of the High Court’s observations. However, neither those sentiments nor the decision of the High Court in Baumgartner’s case, permits the imposition of a constructive trust where there is a vacuum of evidence.
[10] 76 ALR 75 at 85 per Mason CJ, Wilson and Deane JJ (with Toohey J not in disagreement)
A constructive trust will be imposed by the court when, having regard to the circumstances of the case, it would be unconscionable for one party to rely, as against the other party, on legal title to property as representing the actual interests of the parties. The imposition of such a trust is said to be remedial in nature in order to prevent the continuation of an injustice.
Neither party made any real attempt to address issues of inequity, unconscionability or unjust enrichment as between themselves. They were pre-occupied with what they perceive to be the unfair circumstance of APC, as a judgment creditor of the husband, being able to access the interest which the title reflects that husband holds in the family home. It is only as a consequence of the APC asserting its rights to recover against the husband’s interest in the family home, that the parties seek relief from this court to recognise the wife’s equitable title as greater than her legal title in the family home. Their motivation is not, of itself, fatal. However, it does shape the context of the case as one in which the claims of the wife against the husband must be carefully scrutinised. Unfortunately, in this case, the husband and the wife have failed to adduce evidence upon which I can be satisfied that it is unconscionable for the husband to retain an interest in the family home which is equivalent to that of the wife or that, to do so, would amount to him being unjustly enriched.
The wife has failed to satisfy me of facts and circumstances which require the intervention of equity in the manner she seeks. As I have said, because the husband wholly supports the wife’s application, I accord little significance to concessions made by the husband in favour of the wife and visa versa. It would be different if either had adduced evidence in relation to the matters in respect of which they were prepared to make concessions because, had they done so, the contradictor would have been in a position to test the evidence and I would have been in a position to weigh all the evidence so adduced.
In circumstances where the wife has failed to make out a case for a declaration in her favour of 75% of the family home, I cannot accede to the submission made on her behalf to declare her interest at 92%. She has already acknowledged, by the terms of her application, that the disparity in the initial contributions of the couple has narrowed over the last 23 years. That is a concession to which it is proper for me to have regard. Similarly, there is no evidence upon which I could, as was also submitted by counsel for the wife, make my own determination and declare that the husband and the wife hold their legal title in the family home on trust for themselves in some proportions less favourable to the wife than 92% and 8%.
The wife’s application must be dismissed, as must the husband’s application in the same terms. Given that this result represents the primary application of APC, it is not necessary for me to go on to consider the further, fall back, position of APC.
Costs
I asked each party to address me on appropriate orders for costs in three circumstances. First, if the wife’s application was successful. Second, if the wife’s application was dismissed (as is the case). Third, if I made orders in the terms of the APC’s fall back position.
It was agreed that, in the event of another outcome, I should make orders which provide for applications and written submissions in relation to costs to be made within a specified time.
The wife’s application is dismissed and APC seeks that the wife be solely responsible for payment of its costs calculated on an indemnity basis. APC seeks an order against the wife, rather than as against the wife and the husband jointly and severally. It is submitted by Dr Ingleby that APC seeks to recover costs solely from the wife and, thereby, conserve the husband’s assets to satisfy its judgment debt. That application is opposed by the husband and the wife.
Section 117 of the Family Law Act1975 contains the general rule that each party to proceedings under the Act shall bear his or her own costs. The object of the Rule is to ensure that spouses are not deterred from bringing or maintaining legitimate applications for fear of incurring an intolerable financial burden if they lose.[11] However, the Court retains a discretion to make an order for costs if it is of the opinion there are circumstances that justify that course and it would be just to do so.
[11] In the Marriage of Kohn (1977) 30 FLR 175 at 177.
In considering whether to make an order the Court must have regard to the matters set out in s 117(2A). The weight to be attached to any of the considerations in sub-s (2A) is wholly discretionary. However, while no single factor out ranks any other, there is nothing to prevent one or other of them from being the sole foundation for a costs order.[12] As Kay J observed in Brown & Brown[13]:
In many cases there will be an outstanding feature . . . that makes an order for costs appropriate, a feature which so dominates the scene that it can outweigh any of the other s 117(2A) considerations.
[12] LAC and TRF and LKL [2005] Fam CA 158 at [41].
[13] (1998) FLC 92-822 at 85,347.
The APC, as the applicant for costs, contends that this application raises the matters in paragraphs 117(2A) (c), (e) and (g). They are:-
(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;
(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(g) such other matters as the court considers relevant.
In relation to s 117(2A)(c), I accept that there was non-disclosure of financial information in relation to the Trust. That was mostly by the husband because, the evidence is, he has the day to day running of the Trust. However, the wife also had a duty to make full and frank disclosure and failed to do so. I am at a loss however, to see how this prolonged the trial or put APC to any extra expense.
Also in relation to s 117(2A)(c), I take into account that the wife chopped and changed between relief sought under ss 78 and 79 or both. I am satisfied that APC did incur expense in formulating an opposition to relief under s 79, that much is obvious from its summary of argument prepared by Dr Ingleby. Furthermore it was not until mid-morning on the first day of the trial that the wife (and the husband) abandoned any application under s 79. I was not addressed on the amount of extra expense to which APC was put. In the absence of that information, I am not satisfied that the extra expense was significant.
In the circumstances of this case, s 117(2A)(c) is not a factor which I regard as strongly supportive of an exercise of my discretion to order costs in favour of APC.
In relation to s 117(2A)(e), I accept that the wife has been wholly unsuccessful. The best that either the husband or the wife could contend in this regard is that the wife had an arguable case and it was reasonable course for the wife, and the husband, to adopt. The wife’s position is understandable. However, I do not regard it as defensible on the question of costs. Section 117(2A)(e) is a very significant factor in my assessment of APC’s application for costs.
It was submitted on behalf of the wife that I ought to take into account the inferior financial circumstances of the wife as compared to APC, in the context of s 117(2A)(a). I am satisfied that APC can much better absorb the financial cost to it of these proceedings than can the wife. However, that is not determinative. These proceedings were initiated and run to judgment by the wife, supported by the husband. These proceedings were not brought about nor, in my view, prolonged by APC.
As was commented by Brown FM, in the matter of Pension & Pension (No 2) (2005) FMCAfam 22:
The husband was entitled to seek an adjudication of the competing applications from the court. However, the efficient administration of justice, particularly in family law matters, relies on the parties concerned and their legal representatives making a bona fide attempt to resolve the matters in dispute between them. This is particularly so where the costs of the litigation involved grow to a point where they are out of proportion to the magnitude of the issues involved.
At that point in the learned Federal Magistrate's judgment he refers to the best practice guidelines for lawyers doing family law work as follows:-.
In this regard see “Best Practice Guidelines for Lawyers Doing Family Law Work” August 2004 published by the Public Affairs Unit, Australian Government Attorney-General’s Department Publication number 31/03. This document was produced by Family Law Section of the Law Council of Australia and the Family Law Council and provides guidelines for lawyers involved in family law practice as to what constitutes “best practice”. These guidelines do not create new duties for lawyers or override lawyer’s existing duties either to their clients or as officers of the court. The guidelines apply to proceedings in the Federal Magistrates Court. Guideline 1.2 in Part 7, which deals with Property/Spousal Maintenance reads as follows:
“In respect of matters relating to financial issues, the principles of proportionality should be borne in mind at all times. It is undesirable for the legal costs involved in any case to be disproportionate to separating couples’ financial position.”
The learned Federal Magistrate goes on to observe:-
The outcome of any litigation which hinges on the exercise of discretion cannot be predicted with complete certainty. That is a truism. However, in assessing the degree of uncertainty and outcome the parties cannot allow themselves to lose sight of the magnitude of the issues at stake when set against the possible costs involved.
The above sentiments apply to all courts in our family law system.
In this case, the issue at stake was whether the wife’s entitlement to the family home is greater than her registered ownership indicates. She has been in receipt of legal advice for the entirety of the proceedings. It should have been in the forefront of her mind, or of the minds of those who advise her, that she could be throwing good money after bad. I am satisfied that APC was a reluctant passenger in the proceedings. The wife and the husband had the conduct of this matter, they had full knowledge of the relevant facts and they had control of the evidence. They did not equip themselves well.
I am unable to find that this is a case where the wife should avoid responsibility for APC having incurred considerable costs merely on the basis that her financial situation is less than that of a large and public corporation.
APC and the wife also rely on s 117(2A) (g).
APC contends that these proceedings were misconceived and little more than an attempt at debt avoidance so I should consider costs calculated on an indemnity basis.
The wife contends that, apart from the discrepancy in financial circumstances discussed above in the context of s 117(2A)(a), I should consider how the outcome of these proceedings has left the wife emotionally and financially devastated.
Each party’s contention in relation to s 117(2A)(g) is an extreme view. I have considerable sympathy for the wife on a personal level. However, I cannot see how that sounds in relation to the proper exercise of my discretion in relation to costs.
Next I consider against whom costs should be ordered. APC seeks the costs be paid solely by the wife so as to leave in tact more assets to be applied to the primary liability in the name of the husband. It is easy to identify why APC want the costs order expressed thus. However, it is not clear why I should exercise my discretion so as to artificially preserve the pool from which APC can recover.
The proceedings embarked upon by the parties were, in every sense, a joint endeavour. They should bear responsibility for costs together and equally. I will order that the husband and the wife each be responsible for payment of one half of the reasonable costs of APC in these proceedings. There remains, however, the amount of the costs and the basis upon which the costs of APC are to be calculated.
Counsel for APC was unable to hand up a memorandum of costs calculated on an indemnity basis or on a party/party basis. That is most unfortunate and, given the resource implications of a taxation of costs (or whatever it is now called), a matter for which I am critical of APC.
When pressed, counsel for APC said that indemnity costs would likely be in the vicinity of $25,000 whereas party/party costs, may be in the vicinity of $15,000. Those figures strike me as conservative but were, nonetheless, figures by which APC was prepared to be bound, if I so ordered. That is, if the quantum was agreed thus, APC would accept party/party costs or indemnity costs in that amount. The wife was not prepared to adopt those figures. Through her counsel, she contends that costs should be itemised and be assessed by the court in the absence of agreement. I did not hear from the husband but his financial situation is so dire, it is difficult to see why he would prefer one assessment over the other.
In those circumstances, I will not limit APC to its estimates made, as they were, on the run. However, court based assessment of costs is just another opportunity for the wife’s resources to be eroded by legal costs.
I am mindful of the principles of proportionality. I am mindful that the main purpose of the Family Law Rules is expressed to be “to ensure that each case is resolved in a timely manner at a cost to the parties and to the court that is reasonable in the circumstances of the case.”
I propose to extend the time in which the wife and the husband can accept the estimates of costs made by APC to 30 days. If at the expiration of
30 days, the wife and the husband have not stated in open correspondence that he/she accepts the estimate, then each party may have recourse to the provisions of the Rules in relation to the calculation and assessment of costs.
APC seeks calculation of costs on an indemnity basis.
The relevant authorities in relation to indemnity costs are usefully set out in the decision of Full Court of the Family Court of R & Q [2005] FamCA 6, delivered on 6 January 2005. At paragraph 37 the court comprising Holden, May and Strickland JJ commented:-.
[37]. The category of cases in which it would be appropriate to make an order for indemnity costs was recently discussed by the Full Court in JEL and DDF (No. 2) (2001) FLC 93-083 at 88,441-442, where the Full Court said:
"… The category of cases in which it would be appropriate to make an order for indemnity costs does not appear to have been fully defined. The Full Court has, however, set out some general principles. In Kohan and Kohan (1993) FLC 92-340 the Court said at 79,614:
“The Proper Exercise of the Discretion
The intent of s117(1) and 117(2) is that in this jurisdiction costs should not follow the event as a matter of course. However, where the justice of the matter so requires, the Court may make such order as the Court considers just. As we have pointed out, the Court may depart from the scale of costs prescribed under the rules. However, the purpose of fixing a scale of costs must be understood to signify that they contain the normal rates of charges. By O. 38 r. 2, the provisions of O. 38 apply to costs ordered to be paid or taxed, and costs payable or to be taxed between solicitor and client. O. 38 r. 7 makes provision for the allowance of additional amounts for complexity, difficulty or novelty and special skill, knowledge or responsibility. Consequently, the Court should not depart lightly from the ordinary rules relating to costs between party and party and the circumstances justifying the departure should be of an exceptional kind. See Degmam v Wright (No. 2) (supra); Wentworth v. Rogers (No. 5) (1986) 6 NSWLR 534; Hobartville Stud v Union Insurance Co (1991) 25 NSWLR at 368 to 370.”
63. The principles that emerge from the authorities were conveniently summarised by Sheppard J in Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225. His Honour in that case summarised the position as follows:
“…
2. The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis… .
3. This has been the settled practice for centuries in England. It is a practice that is entrenched in Australia. Either legislation (perhaps in the form of an amendment to rules of Court) or a decision of an intermediate court of appeal or of the High Court would be required to alter it… .
4. In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course… .”
64. His Honour then went on to note some of the circumstances which have been thought to warrant the exercise of the discretion to award costs on an indemnity basis. His Honour said at 233:
“Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.”
65. Insofar as an imprudent refusal of an offer to compromise is concerned, the authorities giving rise to this proposition are in the main New South Wales authorities. The Full Court warned in Kohan (supra), that this is in part attributable to the amendment of the Supreme Court rules of that State which provide for indemnity costs where a plaintiff obtains judgment in terms no less favourable than those of an offer to compromise made by him and not accepted by the defendant.
66. In Yunghanns & Ors v Yunghanns & Ors and Yunghanns (2000) FLC 93-029 the Full Court specifically acknowledged the category of cases that may give rise to an indemnity order are not closed. The Court said at 87,471:
“It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed, and that it is not a condition precedent to the exercise of the discretion that some collateral purpose or species of fraud be established against the party against whom such an order is sought. All that is required is that the Court asked to exercise the discretion be satisfied that some ‘particular facts and circumstances of the case in question warrant the making of an order for the payment of costs other than on a party and party basis’: per Shepherd J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233.”
67. In his written submissions, counsel primarily relies upon the assertion that the wife imprudently refused an offer to compromise.
68. We accept the proposition that the objective of the statutory provision in relation to written offers is to encourage settlements and to reduce the cost of litigation to the parties and the community. That, however, does not mean that the failure to accept an offer will necessarily result in an order for indemnity costs.
69. As the Full Court said in Kohan (supra):
“Insofar as an unaccepted offer of compromise which exceeds a judgment may justify an order for costs, the general practice in this jurisdiction so far has been to order no more than costs on a party and party basis. Even in cases where there has been dishonest concealment of assets or income as in Penfold v Penfold (1980) FLC 90-800 and Oriolo and Oriolo (1985) FLC 91-653, no more than party and party costs have been awarded.”
70. In our opinion, the failure to accept an offer which in retrospect, perhaps, should have been accepted is without more, insufficient to justify the making of a costs order on an indemnity basis. The rejection of the offer must be at the very least imprudent. We express no opinion as to when the rejection of an offer may be so classified. It is clear to us in the circumstances of this case that the rejection of the offer, although unwise in retrospect was not imprudent."”
With respect, I adopt that statement as an accurate statement of the law in relation to indemnity costs and I apply it in this case.
There is no offer of compromise for me to consider here.
Indemnity costs were also the subject of comment in Arundle Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) HCA 26, delivered on 16 February 2001, in which Callinan J stated:
I would not order indemnity costs as the occasion for an order for these should, in my opinion, be exceedingly rare as they have a tendency to encourage extravagance and put the quantum of legal fees beyond the effective scrutiny of the courts and their taxing officers.
In this case I could not characterise the costs estimated by APC as being extravagant. However, APC too must bear in mind the concept of proportionality.
Having regard to the circumstances outlined in the above quote as having justified an order for indemnity costs, I do not regard this as a case where costs should be calculated on an indemnity basis.
I will order that the husband and the wife each pay one half of the costs calculated on a party/party basis, such costs to be assessed in accordance with the Rules unless within 30 days from the date that the order is made the husband or wife in open correspondence accepts the sum of $15,000 in which case the costs liability of the party accepting the estimate will be limited to $7,500.
I certify that the preceding one hundred and twelve (112) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Bennett
Associate:
Date: 14 June 2007
15
3