Grimmond & Hartin (No 4)
[2023] FedCFamC1F 527
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Grimmond & Hartin (No 4) [2023] FedCFamC1F 527
File number(s): DNC 234 of 2021 Judgment of: BERMAN J Date of judgment: 30 June 2023 Catchwords: FAMILY LAW – COSTS – Circumstances justifying an order – Application for costs against the wife – Consideration of s 117(2A) of the Act – Consideration of costs on an indemnity basis – Consideration of injunction against second and third respondents – Where the second and third respondents were disjoined from the proceedings – Consideration of s 114(3) of the Act – Where the proceedings come within the definition of “matrimonial cause” – Where jurisdiction exists to make the injunctive order – Where the Court finds there are not circumstances that justify an order for costs.
FAMILY LAW – COSTS – Circumstances justifying an order – Where the wife makes an application for costs of subpoena – Where the wife seeks indemnity costs – Where the Court declines to make a cost order arising out of the wife’s defence of the Notices of Objection – Where the wife is successful in relation to costs sought against the second respondent.
Legislation: Family Law Act 1975 (Cth) ss 41(c)(a), 79, 114(3), 117(2A), 117(2A)(g) Cases cited: Kohan & Kohan (1993) FLC 92-340
Prantage & Prantage (2013) FLC 93-544
Re Wilcox; Ex parte Venture Industries Pty Ltd and Ors (No 2) (1996) 72 FCR 15.
Division: Division 1 First Instance Number of paragraphs: 65 Date of hearing: 30 May 2023 Place: Adelaide via MS Teams Counsel for the Applicant: Ms Giacomo Solicitor for the Applicant: Darwin Family Law Pty Ltd Counsel for the First Respondent: Litigant in person Counsel for the Second and Third Respondents: Mr Casey Solicitor for the Second and Third Respondents: Cozens Johansen ORDERS
DNC 234 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS GRIMMOND
Applicant
AND: MR HARTIN
First Respondent
MR X HARTIN
Second Respondent
B PTY LTD
Third Respondent
order made by:
BERMAN J
DATE OF ORDER:
30 june 2023
THE COURT ORDERS THAT:
1.The second and/or third respondent pay to the wife, the sum of TWO THOUSAND FOUR HUNDRED AND TWENTY FIVE DOLLARS AND FIFTY CENTS ($2,425.50) within thirty (30) days of this Order.
2.The interim proceedings of the parties in respect of their applications for costs are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BERMAN J
INTRODUCTION
Ms Grimmond (“the wife”) and Mr Hartin (“the husband”) are the wife and husband respectively to property proceedings that were commenced by Initiating Application filed 21 May 2021.
The parties were Directors and equal Shareholders of a business that operated in City JJ known as C Pty Ltd.
The wife joined the parties’ son, Mr X Hartin, as a second respondent to the proceedings. Mr X Hartin was also the sole Director and Shareholder of B Pty Ltd which was also joined as a third respondent. For the purposes of these proceedings, B Pty Ltd can be considered synonymous with the second respondent.
By an Amended Initiating Application filed 22 June 2021, the wife sought by way of interim relief that Mr X Hartin and B Pty Ltd be joined as second and third respondents to the proceedings.
The wife sought an interim injunction restraining the husband from:-
6.That an injunction issue restraining the [husband] from contacting any existing clients of [C Pty Ltd], so as to recommend that they transfer their business to [B Pty Ltd].
In addition, if the wife was successful in the joinder of the second respondent, then she sought the following orders:-
8.That the Second Respondent, his agents and servants are hereby restrained from:
8.1 Providing any financial documents (including but not limited to financial returns, creditors, aged receivables, profit and loss statements, balance sheets and history of ATO lodgements) or other information relating to the financial position of [C Pty Ltd] to any other person or entity without the express consent of the [wife] or order of the Court.
8.2 Recommending to any existing clients of [C Pty Ltd] that they transfer their business to any other person or entity including [B Pty Ltd].
8.3 Using, copying or extracting any of the information described in or derived from the [C Pty Ltd] client list or [C Pty Ltd] database ("manufacturing information") or producing, marketing or selling any item which could not have been used, produced or created without the use of the manufacturing information.
8.4 Setting up any company, business or trading in competition with [C Pty Ltd] in [P Region].
On 7 October 2021, Orders were made restraining the first respondent from selling, encumbering or disposing of any property of C Pty Ltd and the parties from providing any financial documents to any person or entity without the express consent of the parties or an order of the Court.
The parties were also restrained from setting up any company or business to trading competition with C Pty Ltd and relevant to the current application the following further orders were made:
6. That the second and third respondents are restrained from:
(a)Providing any financial documents (including but not limited to financial returns, creditors, aged receivable, profit and loss statements, balance sheets and history of ATO lodgements) or other information relating to the financial position of [C Pty Ltd] to any other person or entity without the express consent of the [wife] or order of the Court.
(b) Using, copying or extracting any of the information described in or derived from the [C Pty Ltd] client list or [C Pty Ltd] database (“manufacturing information”) or producing, marketing or selling any item which could not have been used, produced or created without the use of the manufacturing information.
Whilst it is asserted on behalf of the second respondent that the orders were in effect a restraint of trade, the more likely basis for the order against the second respondent was a concern that with the assistance of the husband, the second respondent would use commercial in confidence information to promote existing customers of C Pty Ltd to move to B Pty Ltd.
By Further Amended Initiating Application filed 5 April 2022, the wife sought the following substantive order:-
1.That pursuant to section 78 of the Family Law Act the right title and interest in B Pty Ltd be declared to be held in equal shares by the applicant and first respondent.
The wife filed a Further Further Amended Initiating Application on 15 July 2022 which did not include any substantive or interim relief against Mr X Hartin or B Pty Ltd. Consequently, the second respondent was successful in an application for disjoinder.
The interim injunction did remain in place and was ultimately discharged consequent upon the husband and wife reaching agreement as to final settlement of property in Consent Orders made on 22 November 2022.
The parties did not resolve the outstanding costs application of the second and third respondents.
By Application in a Proceeding filed 21 December 2022, Mr X Hartin and B Pty Ltd seek the following orders:-
1.Pursuant to Rule 15.06(1) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 the Applicant be granted an extension of time within which to file this Application in a Proceeding;
2.That the Wife pay the Second and Third Respondent’s costs of and incidental to these proceedings fixed by this Honourable Court;
3.In the alternative to Order 2, that the Wife pay the Second and Third Respondent’s costs of and incidental to these proceedings pursuant to Schedule 3 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 with such costs to be assessed.
There is no opposition to the granting of an extension of time within which to bring the costs application however, I consider that an extension of time is not necessary given that when the second and third respondents were successful in the disjoinder application, it was foreshadowed that costs would be sought.
The wife filed an Application in a Proceeding on 20 December 2022 seeking that Mr X Hartin pay the costs of the wife on an indemnity basis, arising from his objection to subpoena issued upon the wife’s application on 24 January 2022 to O Corporation and N Bank.
APPLICATION FOR COSTS AGAINST THE WIFE
In considering what orders, if any, should be made in respect of the second and third respondents costs, s 117(2A) of the Family Law Act 1975 (Cth) (“the Act”) sets out that the Court shall have regard to the following:-
(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 for that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the forgoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of fact, 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.
Accordingly, whilst the primary consideration under s 117 of the Act is that each party should pay their own costs, the second and third respondents argue that there are circumstances which justify a costs order.
It is conceded on behalf of the second and third respondents that the consideration of costs should be pursuant to s 117(2A)(g) namely, “such other matters as the Court considers relevant”.
If an order for costs is made in favour of the second and third respondents, it is argued that they should be paid on an indemnity basis.
The wife also seeks that if an order for costs is made in respect of the objections to subpoena, then costs should be assessed on an indemnity basis.
Legal principles
The discussion of the Full Court in Prantage & Prantage (2013) FLC 93-544 (“Prantage”), is of assistance in determining whether, and in what circumstances, an order for indemnity costs should be made.
The Full Court referred extensively to the decision of Kohan & Kohan (1993) FLC 92-340 in which it was noted that, whilst there was nothing in the Act which in any way “inhibits” a consideration of indemnity costs, the following is said at 79,605:-
…it is fundamental to the exercise of that discretion in the Family Court that the Judge should not only understand that such an order is a very great departure from the normal standard, but also that the Judge should know what the terms of the agreement are, to what extent it exceeds the parameters set by the scale, and what its likely impact will be on the financial position of each of the parties.
This impact was a relevant matter to which the trial Judge should have had regard, when considering the financial circumstances of each of the parties to the proceedings under sec 117(2A)(a), or perhaps even more as a relevant matter under (g). The degree to which a costs agreement departs from the established norm and the actual financial significance of such a departure may itself be a reason for not ordering costs on an indemnity basis.
In Re Wilcox; Ex parte Venture Industries Pty Ltd and Ors (No 2) (1996) 72 FCR 151, Cooper and Merkel JJ said:-
156.The issue whether costs should be ordered on a party and party basis or on an indemnity basis has acquired increasingly greater significance as the gap between the two bases appears to have grown.
The gap has highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur. These and other policy factors have been considered by the courts over a very long period in order to arrive at the principles which govern the undoubted discretion of courts to depart from ordering costs on a party and party basis and ordering costs on an indemnity basis. The principles were stated by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd. (1993) 46 FCR 225.
In Prantage (supra) the Full Court said at 87,209:-
97. In our view, once it is recognised that ensuring access to justice is one of the key objectives of the “usual rule”, the claimed increasing disparity between scale costs and those being charged by lawyers becomes as much an argument against the awarding of indemnity costs as it is in favour of costs being ordered on that basis.
98. With respect to the trial Judge, we are not convinced that there is a great deal of difference between current “commercial realities” and those prevailing at the time Kohan was decided. It should be noted that the costs agreement in Kohan provided for a rate of payment three times in excess of the scale. However, even if there have been changes in the market place for legal services, we are not persuaded this should have any impact on the application of the “usual rule”, which seeks to balance competing public policy considerations.
(Emphasis per original)
The Order of injunction
Whilst not the subject of argument, I am obliged to consider whether the Court had jurisdiction to make the interim order of injunction against the second and third respondents.
I find that jurisdiction exists to make the injunctive orders.
Section 114(3) of the Act provides as follows:
A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.
There were proceedings on foot as between the parties pursuant to s 79 of the Act.
Those proceedings come within the definition of a “matrimonial cause” in s 4(1)(ca).
Despite the submission on behalf of the second respondent that the proceedings were motivated by an intention to restrain B Pty Ltd from trading, the more likely contention is that the injunction was motivated by the underlying intention to seek to preserve the property and assets of the parties. The value of C Pty Ltd was substantial and if there was any evidence to suggest that the husband may have assisted the second respondent in setting up B Pty Ltd with the intention of promoting the interests of B Pty Ltd over that of C Pty Ltd, then until a more detailed consideration could be given, the potential for a diminution in the value of C Pty Ltd was a live issue.
The wife opposes the order for costs and contends that whilst ultimately the second and third respondents were successful in their disjoinder application, the circumstances of the proceedings and the history of the matter as between the parties and their son, provided an appropriate basis for an interim injunction.
In the alternative, the wife submits that if an order of costs is made in favour of the second and third respondents, then it should be paid by the husband.
The wife relies upon paragraphs 143 to 278 of her trial affidavit filed 22 July 2022.
I accept the submission that the matters raised in the wife’s trial affidavit have not been tested in evidence given that the parties settled proceedings.
The consideration of whether it was appropriate for there to be an interim injunction put in place is whether there was a reasonable apprehension that unless restrained, conduct of the second and third respondents might result in the diminution in value of C Pty Ltd.
In mid-2020, the husband and Mr X Hartin incorporated B Pty Ltd.
Concerns were raised by the wife that the involvement of the husband in a company that was likely to be a viable rival to C Pty Ltd may well represent a breach of the husbands’ director duties.
The wife sought a written undertaking that B Pty Ltd would not commence trading until the property of the parties had been the subject of resolution and that the husband further clarify his intentions in respect of B Pty Ltd and how his involvement was to co-exist with his obligations in respect of C Pty Ltd.
In March 2021, the husband resigned as Director from B Pty Ltd and transferred his shares to the second respondent.
The focus of the wife at the time was to obtain an undertaking from the husband that he was alive to the possibility that his involvement with B Pty Ltd and any assistance he might render to the second respondent would have the potential to diminish the value of C Pty Ltd.
The wife’s concerns were heightened by the discovery of a draft business plan that was likely authored by the second respondent. The document forms annexure “MG-23” to the wife’s trial affidavit and is entitled, “[B Pty Ltd] Business Plan dated May 2021”. An extract from the document is informative in understanding why the wife was concerned that B Pty Ltd may well be a “stalking horse” intended to promote C Pty Ltd clients to enter into contracts with B Pty Ltd:-
“… [B Pty Ltd] is in essence [C Pty Ltd], with some critical improvements and without the [C Pty Ltd director restrictions. [B Pty Ltd] intends to service the same industrial customers as [C Pty Ltd], and is confident that its director, [Mr X Hartin] will be able to carry over strong client relationships to his new company. [B Pty Ltd] has already approached many of the highly-skilled [C Pty Ltd] staff, who have agreed to transition.”
“[C Pty Ltd] is currently the largest customer in [P Region] of many of its suppliers including [H Company] (triple the next highest amount), [J Company], [K Company] and [L Company]. It is anticipated that these suppliers will wish to retain their current large turnover from this business by providing their goods and credit to [B Pty Ltd].”
“[C Pty Ltd] has quoted and expected to win, or already secured purchase orders for numerous projects. When [B Pty Ltd] starts operating, [C Pty Ltd] will have no ability to fulfil its current contracts, and so it will either need to subcontract the works or forfeit the opportunity. Many of the clients will likely follow the team as it transitions in [B Pty Ltd] due to the strong relationships developed over the years.”
I am satisfied that there was a reasonable basis for the wife’s concerns and an appropriate justification existed for the interim injunctive relief sought by her.
It is a relevant consideration that no application was made to discharge the order of injunction. It is likely that the order of injunction did not unduly impact upon the business operations of B Pty Ltd.
For his part, the husband supports the costs order sought by the second and third respondents and sets out that he expressed his opposition to the inclusion of the second and third respondents in the proceedings.
The husband considers that the motivation of the wife was to create confusion about the ownership of B Pty Ltd in an attempt to unlawfully claim the company.
I do not consider that the husband or the second respondent has established that the motive of the wife was to claim B Pty Ltd but rather, that she became concerned when it was discovered that the husband and the second respondent had set up B Pty Ltd in clear opposition to C Pty Ltd.
I do not consider that there are circumstances which would justify the making of an order for costs.
It is unfortunate that the proceedings between the parties have had the effect of adversely impacting upon the relationship of the wife and her son.
Each party should bear their own costs in circumstances where the conduct of the husband and second respondent justified the wife seeking to restrain the second and third respondents until the proceedings were resolved.
WIFE’S APPLICATION FOR COSTS OF SUBPOENA
The wife seeks indemnity costs against the respondents consequent upon the dismissal of the Notices of Objection by the second respondent to subpoena issued by the wife to O Corporation and N Bank were dismissed.
The wife sets out in her affidavit filed 20 December 2022 that she seeks the sum of $14,641.50 in defending the Notices of Objection to O Corporation and N Bank and the sum of $2,425.50 for defending the Notice of Objection to B Pty Ltd.
The wife seeks costs on an indemnity basis but concedes that the scale costs would be significantly less.
Following submissions, Orders were made on 14 November 2022, granting leave to the wife to amend the schedule of the subpoena to B Pty Ltd and that the Notice of Objection filed 19 October 2022 was dismissed.
A significant aspect in respect of the wife’s application for costs on an indemnity basis is the manner in which the second respondent purportedly complied with the subpoena, by the provision of a box of documents that comprised of an assortment of paper of varying sizes, likely evidenced a deliberate intention by the second respondent to render useless any utility or relevant information that the documents may contain.
At the time, I considered whether the box of documents should be returned to the second respondent or made an exhibit as an indication of Mr X Hartin’s attitude and possible motivation.
In circumstances where the initial opposition by B Pty Ltd to the subpoena was likely exaggerated in terms of whether it would place an oppressive and onerous obligation on the second respondent to comply, the subsequent attempt at compliance could be considered as egregious conduct.
The second respondent was wholly unsuccessful in the opposition to the subpoena and I consider that an order for costs should be made.
The exceptional conduct of the second respondent is a relevant consideration and an order should be made on an indemnity basis.
The subpoena in respect of N Bank and O Corporation, whilst the subject of opposition, have about them different considerations.
The initial subpoena required redrafting and whilst ultimately the objection of the second respondent was dismissed, it is likely that the documents ultimately produced were of limited assistance in the proceedings.
Whilst unsuccessful, I do not consider that the objection to the subpoena was a frivolous or vexatious act on the part of the second respondent.
As such, I do not propose to make orders for costs in favour of the wife arising from her defence of the Notices of Objection to O Corporation and N Bank.
In respect of the subpoena to B Pty Ltd, I propose to order that the second and/or third respondents pay the wife’s costs fixed in the sum of $2,425.50 within 30 days of this order.
I make orders as appear at the commencement of these reasons.
I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 30 June 2023
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