Gitarra and Gitarra and Ors

[2009] FamCA 619

FAMILY COURT OF AUSTRALIA

GITARRA & GITARRA AND ORS [2009] FamCA 619

FAMILY LAW – COSTS

Family Law Act 1975 (Cth)

Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FLR 225
Kohan (1993) FLC 92-340
Penfold v Penfold (1980) FLC 90-800
Yunghanns (2000) FLC 93-029

APPLICANT: Mr Gitarra

RESPONDENT: Ms Gitarra

SECOND RESPONDENT:

M Gitarra and

G Pty Ltd

FILE NUMBER: MLF 2754 of 2005

DATE DELIVERED: 20 JULY 2009

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: THE HONOURABLE JUSTICE CRONIN

HEARING DATE: 15 JUNE 2009

REPRESENTATION

COUNSEL FOR THE APPLICANT: MR GRANT

SOLICITOR FOR THE APPLICANT: PEARSONS BARRISTERS & SOLICITORS PTY LTD

THE RESPONDENT: IN PERSON

COUNSEL FOR THE THIRD PARTIES: MR WOOD

SOLICITOR FOR THE THIRD PARTIES: GLEZER LANTERI & ASSOCIATES

Orders

1. That the wife contribute towards the husband’s costs of these proceedings, the sum of $30,000.

2. That the wife contribute towards the costs of the third parties, the sum of $30,000.

3. That the sums referred to be paid from the wife’s share of the proceeds of the sale of the T property referred to in paragraph 6(d) of the orders made on 8 May 2009.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 2754  of 2005

MR GITARRO

Applicant

And

MS GITARRO

Respondent

And

M GITARRO and G PTY LTD

Third Parties

REASONS FOR JUDGMENT

1. On 8 May 2009 I made final property orders and published my judgment in the proceedings between the husband and the wife, the husband’s brother and his corporate entity.

2. In essence, I dismissed the wife’s application seeking orders against the husband’s brother and a corporate entity to which I shall refer as the third parties.

3. The trial extended over at least 15 days. 

4. On any view of the legal title to property in the name of the husband and/or the wife, there was a very small equity for division.  The crux of the wife’s case was that the third parties had significant assets and that they belonged to the husband and the wife.  The wife’s application against the third parties failed.  The modest dispute then between the husband and the wife was of much shorter and simpler compass.  I ordered an equal division of the parties’ property.

5. Both the husband and the third parties sought costs arising out the proceedings.

6. The third party filed an application on 27 May 2009 seeking indemnity costs.  The husband filed an application on 5 June 2009 seeking a variety of orders but essentially a contribution by the wife towards his costs.  The wife filed a response on 2 June 2009 simply seeking a dismissal of the third parties’ application.  I have taken it as being inclusive of the husband’s application.

7. Section 117 of the Family Law Act 1975 (Cth) (“the Act”) is the relevant statutory provision.  It provides that each party shall bear his or her own costs. 

8. Section 117(2) provides that a court may make such order as to costs as it considers just, if it is of the opinion that there are circumstances to justify it so doing.

9. There was no argument other than that the provisions of s 117 applied notwithstanding the third parties were not a party to the marriage between the husband and the wife.

10. The third parties’ position was set out in submission in writing prepared by their counsel.  The submissions said that the trial itself and the appearances before the court prior to trial were dominated by and necessitated by the wife’s claims against them.  It was suggested that had the matter been only between the husband and the wife, it would not have extended over 15 days.  With that submission I agree. 

11. The third parties submitted that they had made extensive disclosure both in response to subpoenae and on a voluntary basis and that in my judgment, I had not criticised them in respect of disclosure. 

12. The third parties submitted that despite all of the disclosure, the wife persisted with extravagant claims which I determined as unrealistic.  Counsel for the third parties attached to the submission, a transcript page from 13 November 2007 in which the wife indicated that she would persist with her claims against the third parties notwithstanding any concern about prospects of success because she had nothing to lose.  It was suggested therefore that the wife persevered regardless of the strength of her claims. 

13. Counsel for the third parties noted that there were something like 29 subpoenae filed by the wife and there were serious allegations made against the husband and the third parties.  Those allegations involved fraud, dishonesty and taxation evasion.

14. Counsel for the third parties submitted that the wife had subjected the third parties to a determined, prolonged and expensive fishing expedition which lacked direction and coherence.  Despite all of that, the wife in her affidavit responding to the third parties’ material said:

    I am indebted to various persons for past legal costs and believe my legal team failed to challenge important major issues in my case.

15. No details were given but the statement clearly indicates dissatisfaction with the way in which the case was run.  In fairness, the wife made it clear that she saw the outcome of the proceedings as unjust.

16. Counsel for the third parties also alleged that the wife had behaved deceitfully and withheld significant information from the other parties and the Court as indicated in the findings that I have made.  This was particularly so in relation to the fact that the wife stopped paying the mortgage instalments on the home which was the major asset of the husband and the wife thereby reducing the equity for division.

17. In summary, the third parties submitted that I was justified in departing from the principle in s 117 and making an order against the wife.

18. The husband’s position was also set out in written submissions. Counsel for the husband said that whilst acknowledging s 117 requires that each party pays their own costs, the Court had to take into account s 117(2A) of the Act. Counsel pointed to the fact that the financial circumstances of the wife were set out in her financial statement but “obviously include substantial resources” which had been made available to her to conduct her case. Whilst I accept that substantial sums were obviously paid by or on behalf of the wife, I am also satisfied that she has significant debts as there was much evidence about caveats lodged by relatives of the wife and also her own lawyers.

19. Counsel for the husband also submitted that the wife had been unrelenting, persistent and irrational.  It was put that the wife’s conduct was little short of “reprehensible”.  In saying that, counsel suggested that the wife ignored the weight of evidence contrary to her position and made unsustainable allegations of fraud. 

20. In some detail, counsel for the husband set out that various aspects of the case made it clear that the attack of the wife was against the third parties but necessarily therefore involved the husband in additional time and cost. 

21. Counsel for the husband was critical of the fact that the wife used a witness whose purpose in giving evidence was improper.  That was a reference to Mr D who it was suggested had an ulterior motive because he wanted to pursue claims against the Gitarra brothers in the event that some form of fraud was established.  However, it must also be pointed out that the adjournments of proceedings came about as a result of the prolonged nature of the discovery and cross-examination processes both of which meant that I was unable to allocate the time in any one portion within the Court’s calendar capacity.

22. The husband’s position was that the wife had been wholly unsuccessful by virtue of her loss of claim against the third parties but despite that, offers of settlement had been made.  An offer annexed to the husband’s affidavit showed that on 20 March 2006, the husband offered to split the assets known to the husband and the wife as to 60 per cent to the wife and 40 per cent to the husband whereas ultimately three years later, I made a division of those same assets as to 50 per cent to the husband and 50 per cent to the wife.

23. The position of the wife would be indefensible in the light of that offer if she believed that she and the husband only had the assets I found to form the pool or alternatively that she had no foundation for believing that there was some arrangement between the husband and the third parties.  In my reasons for judgment, I commented about the wife’s absence of knowledge.  Much of her case including during the trial was a pursuit of discovery.  I could not find on the material that the wife believed the pool to be as I found it nor that her pursuit of the third parties was a frolic of her own or without any foundation.  There were certainly many questions of the husband and the third parties about what I have described as a ruse.

24. As I have earlier indicated, the wife’s current position was set out in affidavit form.  She said there was no money left.  She pointed to the fact that the valuations upon which I had determined the pool of assets had now declined as a result of the current economic downturn but having regard to the fact that no further evidence was produced during the trial, I decided that it was inappropriate for that evidence to be given any weight having regard to the fact that even on the wife’s version of events, the matrimonial home will now be sold.  In so far as there may have been a downturn in the value of the property in J, only the husband will suffer as a consequence and he has not put that forward. 

25. The wife made her position abundantly clear.  She said:

    [M Gitarra] must believe there is a surplus cash flow floating around somewhere (that is something he would know about as he deals in cash).  If there is some cash left over, please ask him to let me know, so I can repay those who have supported me throughout this horrendous court experience.  This case has cost me, my health (doctor’s certificate to be present at time of court hearing).

26. The wife went on to say that she would have appealed against my orders had she had funds to do so and that:

    I have no more to state or give, the only thing left is to take my blood.

    This is not a smart remark but simply sincerely stating my feelings on this whole debacle.

27. On 1 October 2008, in response to correspondence from the solicitor for the husband, the wife’s then solicitor wrote that her own indemnity costs were “in the vicinity of $480,000”.  I tend to agree with the wife when she uses the word “horrendous” in the statement to which I have earlier referred.  In her evidence however, the wife had said she left many of the issues to her advisers.  It may be that she has not done sufficient risk analysis.

28. According to the material, to date, the third parties’ costs are just over $200,000.

29. To date, and according to his material, the husband’s costs are just over $210,000.

30. With the outcome of these proceedings, I have found the equity in the assets to be only around $300,000.

31. In Penfold v Penfold (1980) FLC 90-800, the High Court of Australia said that the general rule expressed by s 117(1) was not paramount to s 117(2). That is, when a court finds circumstances justifying an order for costs, the principle that each should bear their own costs should give way. Accordingly, s 117(2) requires a finding of justifying circumstances as an essential preliminary to the making of any order for costs.

32. The first question therefore to be considered is whether there are circumstances here justifying a departure from the principle in s 117(1) to make such an order as the Court considers just.

33. In respect of the wife’s conduct generally and in particular, her credibility, at paragraph 42 of my reasons for judgment I said:

    …However, her own case was constructed on inference and she relied heavily on a Mr [D] about whose evidence I have serious concerns.  Her evidence troubled me.  In relation to issues about which she had specific knowledge, and they were few, because of her conduct in the witness box and her attitude to court orders, I could not find her to be a witness of truth whose evidence I would accept without it being corroborated…

34. Similarly, in respect of the husband, I said:

    The husband gave evidence portraying himself in a financial sense as living in the shadow of his brother.  Over the long period of the relationship, he had never been financially successful.  The husband was evasive and vague.  I have no doubt he lied to various authorities for the purposes of portraying a picture which was not true in an effort to assist his brother’s enterprise.  On its own, the husband’s evidence was unimpressive and to be accepted, required corroboration.

35. The third parties and in particular the husband’s brother M Gitarra did not fair much better.  At paragraph 49 of the judgment I said:

    …He is a clever business man involved in an industry which revolves around large sums of cash but significant risk-taking.  When it came to official records and formal explanations as to why things happened, he brushed aside the need to be precise indicating a philosophical view that the end result justified the means.  Like the husband, his evidence alone would be hard to accept.  There were a number of issues about which I had considerable disquiet but my impression is that [M Gitarra] was a man who was “sharp” but whose business practices had put him into a predicament where he had difficulty explaining the obvious.  That is not to say that I do not accept his evidence in respect to the major issues in this case but rather that I would be hesitant about accepting them without corroboration.

36. The outcome of this proceeding was attributable to the wife’s failure to prove to the requisite standard the assertion she made.  The wife’s case depended heavily upon establishing what she set out to prove through cross-examination because she had little personal knowledge of the intricate detail of the business dealings.  In many ways, it had to be so because she either excluded herself or was excluded as a result of the breakdown of the marriage.

37. The property proceedings were begun in 2005 yet the discovery process upon which she embarked was still going on as the trial limped along.  Importantly, the only objective evidence was from a bank manager whose evidence was always apparent from the bank’s records.  He supported the third parties and the husband in their contentions.  I do not know what the wife was referring to in her criticism of her lawyers to which I have referred but nothing I have heard enabled me to find that the extent of their labours was warranted.

38. There are two reasons for a finding that it would be just to make an order for costs before looking at the matters set out in s 117(2A). The first is that the pursuit by the wife of the third parties in circumstances where she felt she had nothing to lose was deplorable. The second is that by virtue of her pursuit, the husband was dragged along.

39. Costs are not intended as a punishment.  They are designed to compensate the party who is dragged into the proceedings in circumstances where they should not have to incur significant costs as a result of the conduct of the applicant.

40. In respect of s 117(2A) I find that there is a gulf between the financial circumstances of all of the parties. The third parties are wealthy by comparison to the husband and the wife. The husband will have little by the time he contributes towards his own legal costs if what I have set out above is any indication. In addition however, his evidence is that he has his brother to pay back although I have some doubts as to whether that will in fact occur but he has the protection of at least a fixed cash sum in the orders that I made as well as the J property.

41. The wife has problems in that she has enormous costs outstanding either to her former lawyers or her supportive relatives.  To order her to pay anything near the combined $400,000 claims of the husband and the third parties let alone her own indebtedness would leave her, if she is not already, destitute.  At best, she has an entitlement to something in the vicinity of $120,000.  That cannot cover the costs involved.

42. It is trite to say however that the husband is in no different position.  If he pays the lawyers that which they are due according to the cost estimates above, he also does not have the funds to pay. 

43. It is abundantly clear therefore that the only person who has any economic strength in terms of financial circumstances is the husband’s brother and the corporate entity.

44. In respect of the conduct of the parties to the proceeding, the third parties’ position was clear as I have indicated above.  For his part, the husband argued that the wife relied upon numerous documents that were never likely to support the wife’s case as well as required the bank manager of the parties to be subjected to cross-examination in the face of evidence that was clear.  In this case, I found that it was always the case that the business entities now controlled by the third parties were always owned by them notwithstanding the ruse carried out by the husband and his brother V Gitarra and their respective entities.  It was always going to be a problem for the wife to show that all was not what it seemed having regard to the modus operandi of M Gitarra in the past.  The husband had never owned or been involved in any successful business activities and the activities in this case were simply an extension of what M Gitarra had always undertaken in the past.  Whilst there was some legal arguments about beneficial ownership, the Westpac bank documents at all times indicated what the true position was. 

45. When contemplating the justification for, and extent of, any costs order, I am obliged to consider the conduct of the parties.  Conduct of the proceedings covers a multitude of circumstances.  The section does not limit the generality of the words “conduct of the parties… in relation to the proceedings”.  Whilst the wife had a careless attitude as indicated earlier, notwithstanding any criticism I might make of the third parties, I could find no fault on the part of the third parties in proffering discovery to prove the assertions they made which at all times had been their position.  At all times, the third parties resisted being involved and openly advocated the factual position that they said was the reality.

46. The proceedings were not necessitated by a failure to comply with court orders notwithstanding that I found that the wife had failed to comply with a number of orders in the past.  However, it was clear that the wife’s dogged approach to this case failed to bear fruit.

47. There can be little doubt in this case that the wife has been wholly unsuccessful not only against the husband but also against the third party.  That is clear from the fact that the offers of settlement were rejected.

48. In my view therefore the husband and the third parties are entitled to an order for costs as a departure from the principles set out in s 117 of the Act.

49. However, both the third parties and the husband seek indemnity costs.

50. Indemnity costs are an exception in this Court rather than the rule (see Kohan[1] and Colgate-Palmolive Company & Anor v Cussons Pty Ltd[2]).

    [1] (1993) FLC ¶ 92-340

    [2] (1993) 46 FLR 225

51. Chapter 19 of the Rules makes clear that costs to be paid by parties to their lawyers should be within the range set out by the schedules unless the parties knowingly contract out of the rules.

52. Where a party applies for an order for costs on an indemnity basis, the Court must be informed if the party is bound by a Costs Agreement in relation to those costs, and if so the terms of the Costs Agreement.

53. In Yunghanns[3] the Full Court said that the categories of circumstances that might give rise to an indemnity order are not closed.  The Court said at 87,471:

    …and 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 repayment of costs other than on a party/party basis’.

    [3] (2000) FLC ¶ 93-029

1. Unlike civil jurisdictions where costs follow the event, the Family Law Act has an overriding requirement that any order for costs be just.  An order for indemnity costs in this case would be overwhelmingly punitive to the wife in circumstances where she has virtually nothing now.  Absence of assets and financial resources is a basis to decline an order for indemnity costs.  In this case, no application for security of costs was pursued during the trial.  In addition, I do not have details of the costs agreement.

2. In my view, notwithstanding the problems that all parties have encountered, this is not an appropriate case to make an order for indemnity costs.

3. Costs are discretionary but that discretion must be exercised judicially.  The difficulty in this case is that anything other than an order for all party/party costs must be arbitrary.  An assessment of costs would involve the parties in further expenses that they can ill afford.  I therefore propose to fix the costs to be ordered against the wife. 

4. The third parties were the unwilling and in my view, unnecessary party in these proceedings.  The costs risk for the wife was always the subject of discussion during the proceedings by the wife to join the third parties.  Of the husband and the third parties, the third parties should be more protected because it was not their family law dispute but against that is the fact that the third parties have a much stronger and greater financial capacity to cope with the losses incurred as a result of being brought into the proceedings.  As I do not find that the wife’s pursuit of the third parties was an abuse of process and I find that there was at least a basis for the wife to be cynical about the sequence of events and the actions of the third party on their face, this is not a case where I would order the wife to contribute anywhere near the costs that the third parties have incurred.  I propose to make an order that the wife pay to the third parties, the sum of $30,000 in or towards their legal costs.

5. The husband has had to sit through the prolonged proceedings at all times maintaining he and the wife had only modest interests in assets.  Those modest interests have now been severely diminished by the course taken by the wife.  Apart from the limited amount of money that will come out of the sale of the home, she has virtually nothing but even allowing for some amelioration by a costs order, neither will the husband.  The husband too however, must contribute to the mess created.  For whatever reasons, he did not take enough care in the steps he took after the breakdown of the marriage to make it abundantly clear what the post-café transactions were all about.  His records were unhelpful and excited the wife’s interest and as I found, his evidence was unsatisfactory.  In my view, the wife should contribute $30,000 in or towards the husband’s legal costs of these proceedings.

I certify that the preceding Fifty Eight (58) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate: 

Date:  20 July 2009