Gairola & Lakmali & Ors (No 2)

[2020] FamCA 105

FAMILY COURT OF AUSTRALIA

GAIROLA & LAKMALI AND ORS (NO. 2) [2020] FamCA 105

FAMILY LAW – COSTS – Costs of third party creditors – where the Second Respondent is a creditor of the First Respondent wife – where the Third Respondent is a creditor of the Applicant husband – where the Second and Third Respondents each took debt recovery proceedings in state courts – where the Second and Third Respondents joined the proceedings to claim debts owed to them – where the matter proceeded undefended – consideration of s117(2A) of the Family Law Act1975 (Cth) – orders made.

Family Law Act 1975 (Cth) ss 75(2)(ha), 79, 117(2A)
Family Law Rules 2004 (Cth) rr 6.02, 10.13, 10.14

APPLICANT: Mr Gairola

FIRST RESPONDENT: Ms Lakmali

SECOND RESPONDENT: Ms Falk

THIRD RESPONDENT: B Lawyers

FILE NUMBER: DGC 774 of 2017

DATE DELIVERED: 26 February 2020

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Hartnett J

HEARING DATE: 12 February 2020

REPRESENTATION

THE APPLICANT: In Person

THE FIRST RESPONDENT: In Person

THE SECOND RESPONDENT: In Person

COUNSEL FOR THE THIRD RESPONDENT:	Mr Hall
SOLICITOR FOR THE THIRD RESPONDENT	B Lawyers

Orders Made 12 February 2020

1. Pursuant to rr 10.13 and 10.14 of the Family Law Rules 2004 (Cth) and s 80 of the Family Law Act 1975 (Cth) (‘the Act’) the applications of the Third Respondent and Second Respondent as against the Applicant husband and First Respondent wife respectively, be dealt with as a distinct issue and on a final basis.

2. The application of the Third Respondent as against the Applicant husband be heard on an undefended basis.

3. The application of the Second Respondent as against the First Respondent wife be heard on an undefended basis.

4. Within 7 days hereof the Applicant husband pay to the Third Respondent (B Lawyers (ACN …)) the sum of $119,368.04 together with interest thereon from this day pursuant to the Family Law Rules 2004 (Cth) until payment in full (‘the first payment’).

5. Within 7 days hereof the First Respondent wife pay to the Second Respondent (Ms Falk) the sum of $11,782.60 together with interest thereon from this day pursuant to the Family Law Rules 2004 (Cth) until payment in full (‘the second payment’).

6. The Applicant husband and First Respondent wife do all things and sign all necessary documents to cause the first payment and the second payment to be made to the Third Respondent and Second Respondent respectively from the Applicant husband and First Respondent wife’s joint account with the National Australia Bank BSB: … account number …03 within 7 days from the date of these orders.

7. In default of the Applicant husband and First Respondent wife or either of them doing all acts and things and executing all such documents necessary to cause the first payment and the second payment to be made in accordance with orders 4 and 5 hereof, a Registrar or Deputy Registrar of the Family Court of Australia at Melbourne be appointed pursuant to s 106A of the Act to execute all such documents in the name of the party in default and to do all such acts and things necessary to give validity and operation to the said orders and further that the party in default pay the costs of the party applying to have the Registrar or Deputy Registrar sign on a party/party basis in relation to the obtaining of the Registrar’s actions pursuant to these orders.

8. Until the first payment and the second payment is made pursuant to orders 4 and 5 herein, together with costs ordered to be paid pursuant to orders 10 and 11 herein, the Applicant husband and the First Respondent wife be and are hereby restrained by injunction from transferring, disposing of, encumbering or otherwise dealing with the amount of $180,000 being part of the funds in their joint names in National Australia Bank joint account BSB: … account number: …03 without agreement in writing of both the Second Respondent, Ms Falk, and Third Respondent, B Lawyers or order of the Court.

9. The solicitor for the Third Respondent serve a copy of these orders on the National Australia Bank by service upon “The Proper Officer” at the National Australia Bank, Suburb E. Such service shall be effected as soon as is practicable.

10. The First Respondent wife pay the Second Respondent’s costs of and incidental to the application of the Second Respondent, including the reserved costs of the 14 January 2020. Such costs are fixed in a total sum of $8,200. There be a stay in payment of these costs of 7 days from this date.

11. The Applicant husband pay the Third Respondent’s costs of and incidental to the Third Respondent’s application, including the reserved costs of the 14 January 2020. Such costs are fixed in a total sum of $15,000. There be a stay in payment of costs of 7 days from this date.

12. Otherwise the applications of the Third Respondent and the Second Respondent are dismissed and removed from the list.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the Gairola & Falk and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: DGC 774  of 2017

Mr Gairola

Applicant

And

Ms Lakmali

First Respondent

And

Ms Falk

Second Respondent

And

B Lawyers

Third Respondent

REASONS FOR JUDGMENT

Preliminary

1. On 12 February 2020, the Court made orders as sought by the Second and Third Respondents which had the effect of removing those parties from these ongoing proceedings as between the Applicant husband and the First Respondent wife.  These reasons support the making of the orders of 12 February 2020.

2. The proceedings commenced in the Federal Circuit Court in March 2017.  At the time, competing parenting and property applications were before the Court.  An Independent Children’s Lawyer (‘ICL’) was appointed. In March 2019, the proceedings were transferred to the Family Court of Australia.

3. The Second and Third Respondents are third party creditors.  The Second Respondent is a third party creditor of the First Respondent wife and the Third Respondent is a third party creditor of the Applicant husband.

4. The Second Respondent acted for the First Respondent wife in respect of her family law proceedings in the Federal Circuit Court of Australia in 2017.  The First Respondent wife incurred both solicitor and counsel’s fees for legal services rendered in the course of those proceedings.

5. The Third Respondent is a company registered under the Corporations Act 2001 (Cth) and an incorporated legal practice registered to provide legal services in Victoria. From March 2017 to September 2019, the Third Respondent represented the Applicant husband in his family law proceedings in both the Federal Circuit Court of Australia and the Family Court of Australia. The Third Respondent also represented the Applicant husband in criminal proceedings in the Magistrates’ Court of Victoria between October 2017 and February 2018.

6. Additionally, between May 2017 and March 2019, the Third Respondent represented the mother-in-law of the Applicant husband (being the mother of the First Respondent wife) in family violence proceedings in the Magistrates’ Court of Victoria.  The Applicant husband guaranteed the costs of his mother-in-law’s representation in writing by signing as guarantor various combined disclosure statements and costs agreements.  The Applicant husband then terminated his family law retainer with the Third Respondent by way of oral submissions to this Court on 25 September 2019.  He did not advise his lawyer of such termination, but by that time, had ceased to return any email or telephone correspondence from the Third Respondent.

7. Each of the Second and Third Respondents took debt recovery proceedings as against the First Respondent wife and Applicant husband respectively.  In August 2019, an order was made by the Magistrates’ Court of Victoria against the First Respondent wife, wherein the First Respondent wife was ordered to pay the Second Respondent the amount of her claim being $9,017.90 together with interest of $397.78 and costs of $2,366.92, making a total sum of $11,782.60 owing.

8. The Third Respondent took legal proceedings in the County Court of Victoria on 2 October 2019, the total amount of the claim being sought by the Third Respondent as against the Applicant husband being in the sum of $113,902.43 plus interest and costs.  The Third Respondent was frustrated in attempting service of a written statement of claim upon the Applicant husband and consequently sought and obtained an order from the County Court of Victoria for substituted service.  The order for substituted service was made 25 November 2019.  The Applicant husband was duly served with the written statement of claim in the proceedings in the County Court of Victoria in the manner provided for by that court but did not respond to the Third Respondent nor file an appearance within the proper time.

9. The Third Respondent made further application to the County Court of Victoria for default judgment and was granted same by order dated in December 2019.  Pursuant to that order, the Applicant husband is required to pay to the Third Respondent the sum of $119,368.04, being the total of the outstanding claim in the sum of $113,902.43 together with interest of $2,465.27 and costs of $3,000.84.

10. Each of the Second and Third Respondents made requests for payment of their respective judgment debts by each of the First Respondent wife and Applicant husband but to no avail. Both the Second and Third Respondent have had to resort to applications for substituted service in their respective debt recovery actions against the other parties.

11. The Applicant husband and First Respondent wife have not made any payment in satisfaction of the Second and Third Respondents’ judgment debts. As set out in the affidavit evidence of Mr G affirmed 10 January 2020 at [21] instead, the Applicant husband and First Respondent wife have sought to keep monies from their creditors, as described below:-

    The Husband had previously promised the Intervenor that it would be paid its legal fees from a sum of $302,144.15 (the trust monies) it held in its trust account on behalf of the Husband and Wife, upon application to the Court for part property settlement.  However, immediately upon termination by the Husband of his retainer with the Intervenor, the Husband and Wife consented to the payment of the trust monies to themselves, the said payment being made on 4 October 2019 pursuant to orders dated 25 September 2019.

Consideration

1. Pursuant to s.79 of the Family Law Act 1975 (Cth) (‘the Act’), the Court is asked to make orders altering the property interests of the Applicant husband and First Respondent wife in property owned by them. The Court must take into account the Second Respondent and Third Respondent’s interests in the proceedings as creditors of the First Respondent wife and Applicant husband, pursuant to s.75(2)(ha) of the Act. Each of the Second and Third Respondent sought and obtained leave to become a party to these proceedings pursuant to s.79(10)(a) and/or pursuant to r.6.02 of the Family Law Rules 2004 (Cth).

2. By orders made by Her Honour Justice Macmillan on 14 January 2020, it was further ordered, relevantly, that:-

   4. UNTIL FURTHER ORDER the Applicant Husband and Respondent Wife be and are hereby restrained by injunction from transferring, disposing of, encumbering or otherwise dealing with the amount of $145,000 being part of the funds in their joint names in National Australia Bank joint account BSB … Account Number …03 without agreement in writing of both the second named respondent Ms Falk and the third named respondent B Lawyers or Order of the Court.

   …

   6. The Husband and Wife:

   a. On or before 7 February 2020 make file and serve an Affidavit of Financial Circumstances providing full and frank disclosure of their assets and liabilities in accordance with Rule 13.04 Family Law Rules 2004 (Cth);

   b. File and serve on or before 7 February 2020 an Amended Application (applicant husband) and Response (respondent wife) setting out with particularity the Orders sought by them in respect of financial matters, including but not limited to:

   i. A Response to the Final Orders sought by the second named respondent in her Amended Application filed 7 January 2020 paragraphs 1 - 5, and the Final Orders sought by the third named respondent in its Application filed 10 January 2020 in paragraphs (d) to (h) thereof setting out with particularity the precise orders they or either of them seek with regard to the said Final Orders sought;

   ii. Any Minutes of Consent for which they seek approval as envisaged in the Notation to the Orders of Registrar Moser 25 September 2019.

   c. File and serve any further Affidavit upon which they seek to rely on or before 7 February 2020;

   d. In default of compliance with order 6 (a), (b) or (c) hereof, the second and third named respondents have leave to apply to have their applications heard and determined on an undefended basis.

   …

3. At the hearing on 12 February 2020, it was clear that the Applicant husband and First Respondent wife had failed to comply with order 6(a) of the orders made on 14 January 2020 in that they had failed to file and serve an affidavit of financial circumstances on or before 7 February 2020, or at all.  Further, the Applicant husband did not file an amended application for final orders in accordance with order 6(b) of the interim orders of 14 January 2020.

4. Order 6(c) of the interim orders of 14 January 2020 provided for the Applicant husband and First Respondent wife to file any further affidavit material on which they sought to rely on or before 7 February 2020.  The Applicant husband did not file such material, but the First Respondent wife did file an affidavit affirmed by her on 8 January 2020 and filed on that date.  In essence, the First Respondent wife disputed “the bill of Ms Falk Feb 2018”.[1]

   [1] Affidavit of Ms Lakmali affirmed 8 January 2020, [7].

5. Otherwise, the First Respondent wife opposed the orders as sought by the Second Respondent.  Her affidavit was a litany of complaint against the Second Respondent, but no real addressing of the issues in dispute before the Court, in the context of a judgment debt having been obtained in another Court.

6. Each of the Second and Third Respondents sought to have their matters heard and determined on an undefended basis as provided for in order 6(d) of the orders of 14 January 2020.  The Court granted the Second and Third named Respondents leave to proceed with their applications on an undefended basis, given the Applicant husband and First Respondent wife’s failure to comply with order 6(a) and/or (b) and/or (c) of the orders made 14 January 2020.  I note in that regard however that the First Respondent wife did file a response to the Second Respondent’s amended application filed 7 January 2020, wherein the First Respondent wife sought dismissal of the application.  The affidavit on which she sought to rely in support of that dismissal of orders sought contained no relevant particularisation of matters that would advance her case or challenge the determinative facts on which the Second Respondent relied.

7. Neither the Applicant husband nor First Respondent wife have made any application in respect of the debt recovery proceedings initiated against each of them, for the Applicant husband in the County Court of Victoria on 2 October 2019, and for the First Respondent wife in the Magistrates’ Court of Victoria on 6 March 2019.

8. Each of the Second and Third Respondents contend that there are sufficient assets in the matrimonial pool of property owned by the Applicant husband and the First Respondent wife to satisfy the debts owing to the Second and Third Respondents.

9. Before the Court was a valuation report of K Company dated 24 January 2018 in respect of the property known as and situated at H Street, Suburb J in the State of Victoria being the former matrimonial home.  That property valuation was undertaken on behalf of both the Applicant husband and First Respondent wife and provided a market valuation of $1,660,000 in respect of the property. At the hearing on 12 February 2020, the First Respondent wife submitted to the Court that the mortgage sum secured over the former matrimonial home was approximately $750,000. That indicated a sum of approximately $910,000 equity in the said home.

10. Also before the Court and tendered as exhibit ‘W1’ was a certificate of the balance of monies held in the joint National Australia Bank account of the Applicant husband and First Respondent wife. That balance as at 13 January 2020 was $247,647.21.  The National Australia Bank confirmed by correspondence of 10 February 2020 that the sum of $145,000 ordered to be restrained, remained in the joint account of the parties. The Applicant husband and First Respondent wife submitted to the Court on the hearing of the matter on 12 February 2020 that the sum of approximately $247,647 remains in the account, which included the $145,000 sum which is restrained by order of the Court.

11. Thus, the residual monies and equity in the former matrimonial home total approximately $1,012,647. Additionally each of the Applicant husband and First Respondent wife have already received funds withdrawn by them upon receipt of the monies held on trust on their behalf in the sum of $302,144.15 of which $247,647 now remains.

12. The Court concludes that a payment out of the Applicant husband and First Respondent wife’s joint National Australia Bank account of the debts owed by the Applicant husband and First Respondent wife to the Second and Third Respondents respectively would not prejudice a just and equitable division of the matrimonial property assets between the Applicant husband and First Respondent wife.

13. The First Respondent wife submitted in Court on 12 February 2020, that the contributions of each of the parties at the commencement of their relationship were fairly equal and continued so throughout. The payments of the monies owed by the First Respondent wife to the Second Respondent cannot in any way prejudice the Applicant husband’s entitlement when considering a property adjustment as between the Applicant husband and First Respondent wife, nor, given the size of the property assets of the parties to the extent that they have been placed before the Court by the parties, can a payment out of the debt owing by the Applicant husband to the Third Respondent prejudice the First Respondent wife by not ensuring there is sufficient sum remaining to meet any prospective entitlement of the First Respondent wife.

14. In considering the Second and Third Respondents’ undefended applications for the making of order 7 of the orders made, the Court determines that the assets available for division between the remaining parties would be preserved by the making of such an order.  The reason for that being two-fold:-

    a)firstly, the failure to satisfy the respective judgment debts results in those debts remaining outstanding and interest accruing on them, thereby increasing the debt owing; and

    b)secondly, the failure to deal with the Second and Third Respondents’ claims as a distinct issue and on a final undefended basis on 12 February 2020 would result in an ongoing accrual of the Second and Third Respondents’ legal costs for which they seek satisfaction against the Applicant husband and First Respondent wife, or either of them. 

15. The legal costs in particular of the Second and Third Respondents are significant and can only grow. The ongoing participation of the Second and Third Respondents in the proceedings would also lengthen the proceedings. A judgment debt has been obtained by each of the Second and Third Respondents, and they are entitled to seek enforcement. At no point, up until 12 February 2020, has the Applicant husband and/or First Respondent wife sought to challenge, by the bringing of relevant proceedings, orders obtained by the Second and Third Respondents. It is desirable that the Second and Third Respondents’ claims are dealt with on a final basis to enable them to depart the proceedings and no longer expend legal costs.

Costs

1. Each of the Second and Third Respondents sought that their costs be paid by the First Respondent wife and Applicant husband respectively.  They sought that the restraining order in respect of the sums in the National Australia Bank joint account of the Applicant husband and First Respondent wife be increased to cover this further sum that might be owing to them.  The making of a costs order is a discretionary order. These proceedings were undefended. Neither of the Applicant husband nor First Respondent wife have filed an affidavit of financial circumstances. It is not possible therefore to say what practical effect the making of a costs order has upon each of those parties, save that, clearly, it will be an impost. 

2. Further, it is not possible to ascertain the financial circumstances of each of the Applicant husband and First Respondent wife as set out in s.117(2A) of the Act because of the failure of the Applicant husband and First Respondent wife to put those circumstances before the Court as ordered. Neither of the Applicant husband nor First Respondent wife are in receipt of assistance by way of legal aid. Each of them have failed to comply with previous orders of the Court and have been wholly unsuccessful in these proceedings. Their conduct prior to the making of the default order judgments led to the making of the default order judgments and leads to the making of orders in an undefended hearing on the applications on the Second and Third Respondents. The costs as claimed by each of the Second and Third named Respondents are in a quantum that is reasonable and itemised by each of them.

3. The costs of the Second Respondent in the sum of $8,200 were calculated as follows:-

   a)$3,500 for appearances on 22 November 2019 (as instructing solicitor) and 14 January 2020; preparation of affidavits of service; preparation of applications for substituted service; preparation of affidavits affirmed by the Second Respondent on 24 September 2019, 13 January 2020 and 11 February 2020; and the preparation of an Application in a Case, and an Amended Application in a Case, the latter being filed 7 January 2020;

   b)$3,500 for the appearance of Counsel at the hearing on 22 November 2019; and

   c)$1,200 for the appearance at the hearing on 12 February 2020;

4. The costs of the Third Respondent were claimed in the sum of $20,158.32 and comprised:-

   a)preparation of Application in a Case filed 10 January 2020 in sum of $3,080;

   b)service fees of $225.72, there being difficulties with service;

   c)express post disbursement of $12.60;

   d)Counsel’s fee for advice and application - $1,760;

   e)an Application in a Case filing fee of $120;

   f)appearance of Counsel on 14 January 2020 - $4,400;

   g)appearance of the instructing solicitor, Mr G, at the hearing on 14 January 2020 - $3,080;

   h)appearance of Counsel at the hearing on 12 February 2020 - $4,400;

   i)appearance of the instructing solicitor, Mr G, at the hearing on 12 February 2020 -  $3,080

   making a total of $20,158.32.

5. The Court determined that in respect of the Third Respondent’s costs application, an amount of $15,000 should be ordered, it being an appropriate amount for the work undertaken in respect of the proceeding. Counsel acting for the Third Respondent accepted that reduction in quantum as determined, and indicated to the parties, by the Court.

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Hartnett delivered on 26 February 2020.

Associate: 

Date:  26 February 2020