Gazi & Strobel
[2022] FedCFamC1F 166
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Gazi & Strobel [2022] FedCFamC1F 166
File number: SYC 4715 of 2020 Judgment of: MCGUIRE J Date of judgment: 29 March 2022 Catchwords: FAMILY LAW – COSTS – Application by Trustee in Bankruptcy seeking an order that the first respondent de facto husband pay the costs of an interlocutory application on an indemnity basis or in the alternative on a party and party basis - Order that the first respondent de facto husband pay the applicant Trustee in Bankruptcy’s costs from the 15 July 2020 on a party and party basis Legislation: Family Law Act 1975 (Cth) s 117(2A) Cases cited: Brown v Brown (1998) FLC 92–822
Colgate–Palmolive Co and Anor v Cussons Pty Ltd (1993) 46 FCR 225
Cooper & Oakley (No.2) [2012] FamCAFC 187
Kohan & Kohan (1993) FLC 92 – 340
Munday v Bowman (1997) FLC 92-784
Nada & Nettle (Costs) (2014) FLC 93-612
Sfakianakis & Sfakianakis (2019) 59 FLR 419
Worth & Worth (No.2) (2019) FLC 93-910
Division: Division 1 First Instance Number of paragraphs: 39 Date of hearing: 25 February 2022 Place: Hobart delivered in Melbourne Counsel for the Applicant: Mr Ridley Solicitor for the Applicant: Matthews Folbigg Pty Ltd Solicitor for the First Respondent: Litigant in Person Counsel for the Second Respondent: Mr Benson Solicitor for the Second Respondent: A R Conolly & Company Lawyers ORDERS
SYC 4715 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR SHELLBACK AS TRUSTEE FOR THE BANKRUPT ESTATE OF STROBEL
Applicant
AND: MR GAZI
First Respondent
C PTY LTD
Second Respondent
ORDER MADE BY:
MCGUIRE J
DATE OF ORDER:
29 MARCH 2022
THE COURT ORDERS THAT:
1.That the respondent de facto husband, Mr Gazi, pay the applicant trustee, Mr Shellback for the Bankrupt Estate of Strobel, costs of and incidental to the interim application such costs to be agreed or taxed/assessed as and from the 15 July 2020 in accordance with the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) and on a party/party basis.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym of Gazi & Strobel has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
McGuire J
APPLICATIONS
This is an application in a proceeding filed by Mr Shellback the Trustee of the property of Ms Strobel, a bankrupt, (“the trustee”) in respect of an interlocutory application brought by the de facto husband, Mr Gazi, seeking injunctive orders preventing the disbursement of funds held by the trustee on behalf of the de facto wife. The application seeks the following orders:
1.That the [de facto husband] (the Applicant in the substantive proceedings) pay the costs of the Respondent Trustee in relation to the interim application for Orders:
1.1 Filed by the Applicant on 15 July 2021 (sic);
1.2 Heard on 11 November 2021 and
1.3 Determined and dismissed on 26 November 2021.
Such costs being in an amount as assessed by a Judicial Registrar of this Court on an indemnity basis or in the alternative on a party and party basis.
In an application filed 15 July 2020 the de facto husband sought the following order:
Urgent orders that stop the [trustee] from dealing with any of the funds that he is holding in trust from the sale of the matrimonial home that was in the name of my ex partner [Ms Strobel] until my initiating application for property settlement has been settled in full in this court.
The application was opposed by the trustee and also by a second respondent intervener, C Pty Ltd, who are a secured creditor of the bankrupt, Ms Strobel.
For reasons not known to me, the application apparently lay dormant for a period not prosecuted by the de facto husband. The matter came before me in August 2021 in a call over of matters listed for trial in the Sydney registry. The interlocutory application was then agitated and I listed it before myself for hearing on 11 November 2021. On 26 November 2021 I delivered Reasons for Judgment dismissing the de facto husband's application and permitting the trustee to satisfy this debt to the secured creditor, C Pty Ltd, (“the second respondent”) in the sum of $40,798.69 being the base amount of the debt, but not including any accrued interest where there had been litigation in a state court and in respect of orders for interest.
The de facto husband represented himself at the interlocutory hearing before me and continues to be self-represented in the substantive property issues which I have listed for trial in the near future. The first and second respondents were represented by counsel.
The de facto husband's application, as I understand it, was based on what he says is a property pool limited to the monies held by the trustee from the sale of the former matrimonial home in the sum of around just $100,000. The de facto husband’s substantive application seeks an order that he be entitled to the entirety of the property pool. The trustee disputes the de facto husband's version of the property pool and asserts a quantum of some millions of dollars including other pieces of real property.
The de facto wife has a number of debts other than that secured and owing to the second respondent. The trustee has not and did not at the hearing before me assert any intention to distribute the funds in his possession to other unsecured creditors.
At the interlocutory hearing it was asserted by the trustee, and I generally accepted, that the bankrupt de facto wife is not cooperative with her trustee who alleges that the de facto wife may be complicit to a degree in the substantive application with the de facto husband.
The applicant trustee now seeks his costs on the basis of the respondent de facto husband being wholly or substantially unsuccessful in his application for injunctive orders.
The respondent de facto husband opposes any order for costs on a number of bases including arguing that the trustee was not wholly successful in that, albeit as a respondent, he sought payment to the second respondent of the base debt but also of interest. The respondent de facto husband argues that his application was not unmeritorious where he asserts that the full forensic testing of the evidence at the trial will vindicate his assertion that the property pool was limited to the meagre funds currently held by the trustee from the proceeds of sale of the former matrimonial home. In this sense he argues that he does not have the financial capacity to meet a costs order. Further and relevantly, the respondent de facto husband says that he made an offer to resolve the interlocutory issue shortly prior to the hearing where such offer was not accepted. He says that he has made previous and broader offers of settlement which would have relieved the Court of the need for the interlocutory hearing.
The applicant trustee seeks his costs firstly on an indemnity basis arguing that there are “exceptional circumstances” where there is a crystallised small property pool but where he argues that the respondent de facto husband's application was “doomed to fail” where the de facto husband had the benefit of previous legal advice (due to the de facto husband having received adjournments on his own application in order to seek legal advice) and presumably where he had received proper legal advice as to the merits of his application. Alternatively, the applicant trustee seeks costs on a party/party basis.
The applicant trustee does not quantify his costs on either basis but asks that an order in his favour be taxed pursuant to the Rules of this Court.
THE RELEVANT LAW
Section 117 of the Family Law Act 1975 (Cth) ("the Act”) provides for matters of costs where at subsection (1) there is a general rule that each party to proceedings under this Act shall bear his or her or her own costs.
That general rule is, however, subject to the discretion of the Court to make an award for costs to a party if there are justifying circumstances. The term “justifying circumstances” should not be read as synonymous with “extraordinary circumstances”.
At subsection (2A) and in considering what, if any, orders should be made for costs under subsection (2), the Court is mandated to have regard to the following factors:
(a) the financial circumstances of each of the parties to the proceedings;
(b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g) such other matters as the court considers relevant.
The discretion in the Court to make an award for costs is a wide one conditional upon the finding of justifying circumstances and where mandated for consideration, the Court is not required to be satisfied as to all of the factors in subsection (2A).
The applicant trustee here firstly seeks costs on an indemnity basis. Such is not the more common course in making an award or order for costs. The Full Court in Kohan & Kohan[1] opined that 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.
[1] (1993) FLC 92–340 at 79,614.
Such follows the view of the Court in the leading and often cited case of Colgate–Palmolive Co and Anor v Cussons Pty Ltd[2] where Sheppard J said that there should be:
“special or unusual feature in the case to justify the Court in departing from the ordinary practice”.
[2] (1993) 46 FCR 225.
A Full Court of the Family Court in Munday v Bowman[3] after considering Colgate–Palmolive Co and Anor v Cussons Pty Ltd (supra) extracted some examples of circumstances warranting the exercise of the discretion towards an award of indemnity costs including the following:
(a)Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts.[4]
(b)Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud.[5]
(c)Evidence of particular misconduct causing loss of time to the court and to other parties.[6]
(d)The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.[7]
(e)An imprudent refusal of an offer to compromise.
[3] 1997) FLC 92-784 at 84,660 (Holden CJ).
[4] Citations omitted.
[5] Citations omitted.
[6] Citations omitted.
[7] Citations omitted.
The above are examples only and the discretion remains more broadly open including as to whether an award for costs be made on an indemnity basis.[8] The breadth of discretion is evidenced by the decision of the Full Court in Sfakianakis & Sfakianakis[9] where their Honours state:
[9]The ordinary position in proceedings under the Family Law Act 1975 (Cth) (“the Act”) is that each party is to bear his or her own costs (s 117(1)). Where the Court is of the opinion that circumstances justify it in doing so, the Court may make such order as to costs as it considers just (s 117(2)). Thus, an order may be made for the payment of costs on an indemnity basis, although such orders are exceptional…
[10]It is, however, a mistake to think that if a costs order is made, that order can only be on a party and party basis or on an indemnity basis. The words “such order as to costs … as the court considers just” permit the Court to fashion an order that is apt to the circumstances. One such well-known example is assessment on a trustee basis, which is more generous than party and party costs, but falls short of an indemnity. Orders for a partial indemnity or for a particular period are obvious possibilities. The Court may also fix costs in a particular sum, taking account of all relevant circumstances; that type of order too is neither one for party and party costs nor an indemnity costs order. For convenience, in these reasons we shall refer to such orders as a “special costs order”.
CONSIDERATION
[8] Worth & Worth (No.2) (2019) FLC 93-910.
[9] (2019) 59 FLR 419.
Section 117(2)(a) the financial circumstances of each of the parties to the proceedings
The application for costs is by the trustee and in this sense it is neither necessary nor proper to comment on the applicant's financial position. The respondent de facto husband, however, claims to be impecunious. His submissions on his application were to the effect that his only financial asset or resource sits in the trust account of the applicant trustee, although the applicant trustee argues that the respondent de facto husband has recently disposed of real property of significant value and tenders the settlement statement of 23 February 2022 accordingly. I am unable at this stage and without cross-examination to determine with any certainty the financial position of the respondent de facto husband. It is well-established, however, that impecuniosity is not a bar to the Court making a costs order pursuant to s 117 of the Act.[10]
Section 117(2A)(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party
[10] Nada & Nettle (Costs) (2014) FLC 93-612, per May, Ainslie-Wallace and Austin JJ at [11] and Cooper & Oakley (No.2) [2012] FamCAFC 187, per May, Thackray and Murphy JJ at [14].
The applicant trustee on the costs application is not, of course, in receipt of a grant of legal aid. Interestingly, the respondent de facto husband in this matter has previously sought adjournments so as to obtain legal advice and at times, on his claim, from a Legal Aid Commission. There is, however, no evidence that he is currently in receipt of a grant of legal aid and quite obviously he appeared on his own behalf on his interlocutory application and in response to this application for costs.
Section 117(2A)(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
The applicant trustee relies on the conduct of the respondent de facto husband in support of the application for costs. It is argued that the respondent de facto husband was the applicant in an application that was, in the words of counsel for the applicant trustee, “doomed to fail”.
It is emphasised that the applicant trustee has both obligations and powers outside of the Family Law Act 1975 (Cth) in respect of meeting the debts of creditors but where the trustees position, prior to the final trial, was to meet only the debt of the de facto wife to a secured trustee. Material before me satisfies me that the applicant trustee had made this position abundantly clear to the respondent de facto husband. Further, the applicant trustee took this position where the monies held in trust were minimal and in a quantum of over just over $100,000.
Further, the applicant trustee points out that costs have been incurred by delays in the prosecution of the application by the de facto husband such being filed in July 2020 but not ultimately prosecuted until November 2021 during which time there had been significant correspondence between the parties including the trustee putting its position as above. It should be emphasised that the applicant trustee argued an entitlement to satisfy all creditors but had voluntarily refrained from doing so save and except a request to satisfy the secured creditor, C Pty Ltd. The respondent de facto husband had not agreed unconditionally to this proposal.
Section 117(2A)(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court
There was no issue in respect of any of the relevant parties failing to comply with previous court orders.
Section 117(2A)(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings
There is argument between the parties as to whether the respondent de facto husband's application was “wholly unsuccessful”. Put simply, the applicant trustee sought payment to the secured creditor of the debt of $40,798.69 plus accrued interest of approximately $8,000. There had been proceedings in the State Courts in New South Wales in respect of this liability and orders made in respect of interest apparently at a court imposed rate. The evidence, such as it was, and where the application for injunctive orders proceeded on submissions only, did not allow me to make an order in respect of the interest. I did order, however, that the base amount of $40,798.69 be satisfied by payment to the second respondent. In this sense, I am of the view that the application by the respondent de facto husband for an injunctive order was certainly “substantially” unsuccessful.
Section 117(2A)(f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
At the hearing of this application, the respondent de facto husband submitted that he had made offers of settlement prior to the prosecution of his application which if accepted by the applicant trustee would have relieved the Court of hearing the application for the injunctive orders. As a consequence, leave was given to both the respondent de facto husband and the applicant trustee to provide copies of relevant correspondence to my Chambers and which I have now considered. The application for an injunction was heard on 11 November 2021. The respondent de facto husband provided me with a copy of an email from him to the applicant trustee dated Tuesday, 9 November 2021 11:50 AM which says:
I would like to propose potential consent orders that allows you to deal with the secured creditor being [Company H] with the funds you have in trust.
There then occurred a series of email conversations between the respondent de facto husband and the applicant trustee as follows:
i.10 November 2021–12:15 PM–email from the respondent de facto husband to applicant trustee:
Dear Parties
Whilst we don't have agreed terms of consent I am withdrawing my consent for the trustee to deal with [C Pty Ltd] at this time.
I reserve my rights to contest all matters till such time that I sign consent orders.
ii.10 November 21–12:24 PM–email from applicant trustee to respondent husband:
Dear [respondent de facto husband]
We confirm that your position is now that you oppose all orders sought.
We confirm that this position will be relevant to the issue of costs at the conclusion of the hearing of the motion.
At the conclusion of the motion the Second Respondent will seek an order, that you pay costs personally of the application noting your continued opposition to all orders sought and that you continue to pursue the order referred to in the interim application.
iii.10 November 21–1:04 PM–email from applicant trustee to respondent de facto husband:
"… confirm that this is agreed”
iv.10 November 21–1:08 PM–email from respondent husband to applicant trustee:
Dear [applicant trustee]
I will be seeking an adjournment.
If the judge is not mindful of my position I will revert to you accordingly.
My letter with accompanying documentation will be forwarded within the next hour or so.
v.10 November 21–1:20 PM–email from applicant trustee to respondent de facto husband, attaching an amended proposed minute of Order:
Please sign and return if the position as set out therein is agreed. (No response was received and the matter proceeded to hearing)
On this sequence of communications, therefore, I am satisfied that the respondent de-facto husband had withdrawn his offer prior to the interlocutory hearing on 11 November 2021.
The respondent de facto husband has provided me with copies of further communications between the relevant parties where he has made offers of settlement of the substantive application which encompass him withdrawing the application for injunctive orders. Quite obviously, the substantive matter remains on foot where, broadly speaking, the respondent de facto husband asserts that the property pool is limited to the quantum of funds held in trust by the applicant trustee but where the applicant trustee asserts a property pool of significantly greater quantum.
Having taken into account and balanced each of the factors under s 117(2A) but within the broad discretion of the Court and when no one of the matters in s 117(2A) takes precedence over any other,[11] I am of the view that there are circumstances justifying an award of costs in favour of the applicant trustee.
[11] Brown v Brown (1998) FLC 92–822, per Kay J.
Whilst the respondent de facto husband claims impecuniosity, I note that he has employment and a consistent income noted in his sworn financial statement. Material tended in the course of the application suggested he has recently disposed of a property at D Street, Suburb E and without forensic investigation as to the disposal of some E$509,000 to a Mr F and Mr G, the respondent de facto husband seems to have netted some $4,983.80 which he has then distributed to the two gentleman over and above their entitlements in the settlement statement.
Significantly, in my opinion, is the fact that the respondent de facto husband prosecuted this application despite advice as to the powers of the applicant trustee outside of the Family Law Act 1975 (Cth). The respondent de facto husband informs the Court that he has received legal advice and I can only assume that it was proper legal advice. Importantly, however, by way of example is a letter from as long ago 6 July 2020 from the applicant trustee to solicitors then acting for the respondent de facto husband as follows:
We refer to your letter of 3 July 2020 in your email of 5 July 2020.
Your letter suggests that [the respondent de facto husband] “will clearly have priority against any secured creditors should his claim be made”.
This is not clear to us of the Trustee at all. We have been attempting for some time to understand from [the respondent de facto husband] any legal or factual basis which would entitle [the respondent de facto husband] to any such priority, even if he is within time to bring any family law claim (which the Trustee does not accept) and even if that claim is successful…
Would you please advise urgently the basis at law for this contention in your letter. The Trustee has deferred finalising payment to the secured creditor to date on the expectation that [the respondent de facto husband] can demonstrate a basis for this claim to priority.
[The respondent de facto husband] has not done so and in the meantime the claim of the secured creditor for interest on the amount outstanding to it increases, to the prejudice of the creditors of the bankrupt's estate.
In the absence of any proper or rational basis for [the respondent de facto husband’s] assertion that his family law property settlement claim can displace the legal entitlement of an arms' length secured creditor whose claim continues to accrue interest, our client proposes to proceed with the distribution of the proceeds of sale to the secured creditor…
I am of the view that the application for injunctive orders was unsuccessful save and except perhaps as to a contentious interest to the amount.
The property pool, on the respondent de facto husband's own case, is extremely limited, and the prosecution of this case has incurred significant costs to the applicant trustee such that should be reality tested against the quantum of the property pool.
These are all factors which justify the Court in departing from the general rule that each party should bear their own legal costs.
INDEMNITY COSTS
I am not persuaded that there are circumstances antecedent to the hearing of the matter which should cause me to move from an award of costs on the normal basis of party/party costs. There remains unresolved a fundamental dispute between the parties as to the quantum of the property pool. In this sense, I can understand some merit in the application by the respondent de facto husband being seen as an attempt to preserve the property pool and where, as mentioned above, he seeks 100 per cent on his version as to that pool. Secondly, there were attempts at negotiation towards the resolution of this dispute, discrete as the issue was. Against that factual platform I am not able to say that the respondent de facto husband brought his application with any mala fides and cannot therefore identify any special or unusual features to cause me to award the costs on an indemnity basis.
Given the correspondence that has ensued from the filing of the application in July 2020 including that referred to above in these Reasons, I determine that the applicant trustee should have his costs of and incidental to the relevant application from the date of that application on a party/party basis such to be agreed or taxed/assessed in accordance with the Rules of this Court.
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McGuire. Associate:
Dated: 29 March 2022
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