Hargreaves & Hargreaves

[2007] FamCA 45

FAMILY COURT OF AUSTRALIA

HARGREAVES & HARGREAVES [2007] FamCA 45

FAMILY LAW - COSTS

APPLICANT: mr hargreaves

RESPONDENT: mrs hargreaves

FILE NUMBER: SYF 6595 of 2002

DATE DELIVERED: 8 FEBRUARY 2007

PLACE DELIVERED: Sydney

JUDGMENT OF: JUSTICE COHEN

HEARING DATE: 11 NOVEMBER 2005

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr RICHARDSON of Senior Counsel

SOLICITOR FOR THE APPLICANT: ADRIAN TWIGG & CO

COUNSEL FOR THE RESPONDENT: Mr CONNOR

SOLICITOR FOR THE RESPONDENT: ABBOTT TOUT

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 6595  of 2002

MR HARGREAVES

Applicant

And

MRS HARGREAVES

Respondent

REASONS FOR JUDGMENT

1. The husband, through Mr Richardson of senior counsel, seeks costs. Essentially he relies on a formal offer of settlement he made and filed on 14 November 2003 and a failure of the wife to make a frank disclosure before judgment that she was living in a de facto relationship.

2. Specifically, by my judgment of 27 May 2005, the wife received $1.621 million net including a late inheritance of $193,500 to which the husband made no contribution. The husband received $1.745 million net. The husband’s submission was that the court should award him 80% and the wife 20% of the fund available for division. The wife submitted that the husband should receive 60%, leaving her with 40%. I found the husband to have contributed to the balance of the parties’ net assets to the extent of 68% and the wife 32%, then made an adjustment pursuant to s75(2) of 13% in favour of the wife, making the division 55% to 45% not including the inheritance or 51.84% to 48.16% of the net pool including the $193,500. These figures involve adding back paid legal costs. The paid and unpaid costs of the husband were about $171,000 and those of the wife were about $120,000. An order for costs is likely to be significant.

3. My orders, so far as relevant, gave the wife the opportunity to obtain the former matrimonial home by paying the husband $362,183, required her to transfer he shares in a company to the husband and gave her an indemnity from the husband for any tax liability she might later incur for tax on the reduction or discharge of her loan account with that company and for her indebtedness to the company due to that account. Otherwise, the parties kept the property which they already held.

4. The offer made on 14 November 2003 permitted her to purchase and obtain the former matrimonial home on payment to the husband of $355,000, about $7000 less than the amount I required her to pay. Except for one element, the balance of the husband’s offer was, for practical purposes, the same as the orders I made.

5. The one exception relates to the indemnity offered. The husband would, by his offer, indemnify the wife against any liability which she might thereafter have arising out of her being a shareholder or public officer of the company. The indemnity contained in my orders is more wide ranging. It, against the husband, protects the wife from her liability under a loan account with the company. The husband and wife, who were the company’s directors at the time of hearing, owed about $900,000 jointly and severally to the company. This indebtedness is not owing as a result of the parties’ shareholding in or from being public officers of the company. It arose simply because the parties borrowed money from the company.

6. Pursuant to Pt III of the Income Tax Assessment Act, 1937 (ITA) the wife could have become liable to tax on an amount she would be deemed to have received by way of dividend or by the reduction of her indebtedness under the loan account. The liability for the tax or the dividend would arise only while she remained a shareholder. The husband’s offer of indemnity protects her from tax liability to the extent he has assets to do so during the currency of the shareholding and is as good in that respect as the indemnity created by the order I made.

7. Order 5. which was made on 5 May 2005 does not only protect the wife from tax liability or her liability as a director. She was still indebted to the company in the sum of $900,000, approximately, when the indemnity order was made. The order, in effect, relieves her of this debt. The indemnity offered by the husband does not. If the wife would have accepted the husband’s offer, she was at risk of being called upon to pay the whole $900,000 but could have looked to the husband for contribution; probably to the extent of about half or a little less than that sum; $450,000. The order which was made allows her to look to the husband to indemnify her for all or any part of the $900,000 claimed by the company. As I have said, her liability to the company (rather than for tax on deemed dividends etc) does not arise from her having been a shareholder or a public officer of the company. It arises from the accumulated debt of the wife resulting from her borrowing from the company.

8. The borrowing might have been joint or several or a combination of both. The evidence does not allow me to tell whether the $100,000 or thereabouts which the husband owed to the company when cohabitation commenced is included in the $900,000, nor whether the company books disclose to what extent the loan account debt is to be attributed to the wife. She was probably at risk of being required to pay much or all of the $900,000, then seek contribution from the husband in circumstances where he may not have been willing to contribute a considerable part of her liability. He, after all, would be the moving force behind any claim on the wife by the company for repayment of the loan account debt.

9. Judgment in these proceedings was originally reserved in February 2004. On 4 April 2005, before judgment had been delivered, the wife sought to reopen her case to prove a change in her circumstances relating to the $193,000. She was granted leave to do so. On reopening, the wife had the opportunity to discharge her obligation to disclose another significant change in her circumstances. I am quite satisfied that, on 1 May 2004, she had commenced living in a de facto relationship with a Mr S. She raised the money to pay the husband the $362,183 I ordered by taking a loan from a bank jointly with Mr S. They applied for this loan in July 2005. The application discloses their de facto relationship and the date it commenced.

10. The wife did not, herself, give evidence nor call Mr S to suggest the contents of the application are not accurate. The wife was present in Court during the hearing of this costs application and gave no explanation for her failure to call Mr S or for not, herself, giving evidence. I must conclude that if either had given evidence the evidence would not have assisted the wife’s case. The loan application discloses that Mr S was self-employed by what must be his own company with a gross income of $103,000 pa and net assets of about $960,000. The presumption of continuance allows me to find that, at the time of judgment, his position was much the same and that the wife failed to disclose it.

11. I am quite satisfied that the wife should have disclosed her de facto relationship before judgment and that her non-disclosure is of a significant matter. Disclosure may have altered the amount she received in the husband’s favour. To demonstrate the significance, a change of, say, 3% for s75(2) factors would have meant that the wife would have had to pay the husband more than an additional $100,000.

12. The husband argued that the wife should be, in effect, penalised for her non-disclosure by making an order for costs against her. A costs order based on her non-disclosure would not so much be to compensate the husband for costs he was forced to incur unnecessarily; it would be to show the Court’s displeasure with the wife’s non-disclosure and to discourage others from failing to disclose. The Court is entitled to make a costs order based on a consideration of this nature.

13. The husband’s counsel added to this argument. His additional submission is very attractive. It is simply that if the wife had fully disclosed and, as is likely, the sum awarded to her would have been less, his offer would have been, by comparison, much better.

14. Counsel for the wife made a submission which I do not feel needs to be addressed by much more discussion than to state it because of the patency of its lack of merits. It is that I should not find that the wife failed to disclose, should have disclosed or was actually in a de facto relationship at any relevant time. He said that Jones v Dunkel (1959) 101 CLR 298 does not apply to the wife’s failure to call evidence to explain away the contents of the finance application. If it does not, she still had an obligation to disclose it. I am quite satisfied the relationship existed and was not disclosed at any relevant time.

15. Another submission put forward on the wife’s behalf is that, as I found that the husband, too, failed to disclose, the parties are equally at fault and, in the circumstances, any such failure by the wife should not result in a costs order against her. The submission refers to paragraph 66. of my judgment which deals with the husband’s claim, at the original hearing, that a contract of great value to the company, which was due to be renewed in May 2005, had not been and might not be renewed, yet by the time of judgment the husband did not disclose the renewal.

16. This submission is not very convincing but it has some merit. All the relevant facts except that of actual renewal which were needed to reach the decision I made were before me when judgment was given. The failure to disclose was known and relied on for a finding against the husband on the issue. Any disclosure would not have altered any finding from that which was held to be the case. With the wife’s failure to disclose, the essential facts were wholly unknown and could not be predicted by the husband or the Court.    

17. S117 of the Family Law Act requires the Court to let the burden of costs fall on the party incurring them unless there are circumstances which justify a costs order against a party in favour of another. The Court must make the costs order it regards as just after considering the matters specified in s117(2A). The matters so specified are themselves to be considered before the Court decides whether or not circumstances which warrant a costs order exist. I shall discuss the considerations required by s117(2A) in the order they are itemised in the statute. They are:

    a)The parties’ financial circumstances: One cannot know specifically what the extent of each parties’ costs which might be imposed on the other party after taxation are, but the actual extent of each parties’ costs is known; the husband’s being $171,000 approximately and the wife’s being $120,000 or thereabouts. The parties can each afford to pay their own costs but, because the costs are so high, payment by the wife of the husband’s taxed costs is bound to cause her some hardship. She will have about $1.621 million to pay her costs, from but will not have the comfort of also having a substantial income and other financial benefits like the husband, who has assets worth $1.745 million and an ability to receive benefits from the company which must be regarded as substantial and are set out in paragraph 74. of the judgment. However, the wife has the benefit of living with Mr S whose income is more than $100,000pa and assets are probably worth about $950,000.

    b)Legal Aid: Neither party has been in receipt of legal aid.

    c)Conduct of the parties in relation to the proceedings: I have already discussed the allegation and the cross allegation of failure to disclose. I also ought to bear in mind that on most of the substantial issues which took up hearing time, the wife succeeded. The husband generally attempted to portray his financial situation as considerably worse than it was found to be. The wife unsuccessfully claimed to have been disadvantaged by giving up her business so she could devote her attention to helping the husband support his business.

    The husband also relied on the fact that he had been put to the cost of a number of appearances and affidavits on the wife’s application for leave to reopen. It was submitted by the husband that the net reduction in her circumstances of about $45,000 which she proved by reopening is disproportionate to the cost to him involved in the reopening. The fault in the argument is that she did prove a detriment and the husband could have avoided the cost of contesting her reopening by providing an agreed memorandum of changed circumstances at virtually no cost. She proved the facts she alleged. They were based upon clear evidence which could not be disputed and despite the fact that she failed to disclose her newly formed de facto relationship, the husband wholly failed on the issue of change which was created by his opposition to reopening and his insistence on testing of the evidence relied on.

    d)Failure of any party to comply with orders: Neither party relevantly failed.

    e)Whether either party was wholly unsuccessful: I could not regard either party as wholly unsuccessful. The husband successfully resisted the wife’s claim of a 40% contribution. I found it to be 32%. The wife successfully resisted the husband’s claim for 80%. I found it was 68%. In addition, I made an adjustment of 13% in the wife’s favour as compared with the husband’s concession that it should be 5%. She received 45% of the net assets in dispute in the situation where the wife’s net inheritance of $193,500 was sidelined. When it is taken into account, the wife received 48.16% and the husband 51.84% of the $3,366,691 net including the $193,500 available for distribution.

    f)Where an offer has been made success or failure ought also to be measured against that offer. One can easily calculate what the offer was really worth given the Court’s findings or the net value of the property available for distribution and any other factors. The difference here is that, instead of obtaining the more inclusive indemnity and receiving the house and all contents with a combined value of $1,725,000 and paying the husband $362,183, as she did by my orders, under the husband’s offer the wife would have had a more limited indemnity, would have attained the home and paid the husband $355,000 and $15,000 for the home contents. However, as the offer was open for only 21 days and the wife would at that time it was made, have had difficulties in raising the $370,000 ($355,000 + $15,000), it would probably have had to be sold. If it would have been sold for its agreed value of $1.7 million rather than the reserve value of $1.625 million, the wife would have had to pay $400,000 to the husband in relation to the sale proceeds of the home and $15,000 for the furniture, a total of $415,000. The offer was, in these respects, probably between about $7000 and $53,000 worse in cash terms than that which the wife relevantly received, but it provided a much worse indemnity.

    g)In relation to risk, the offer was much worse than the orders because the wife was not protected from any claim the company made for repayment of her loan account debt as well as from a claim by the husband for contribution for the debt, whether joint or several, which the company might make against him for repayment of the parties’ joint loan account debt. It is not an answer that the wife could, if the husband seeks indemnity or the company, which would be his alter ego once he has 100% of its shares, seeks repayment, seek to rely on s79A to have the terms of settlement set aside. She should not be put in a position where it is foreseeable that she might have to resort to s79A. She might fail and certainly would be put to great expense in the attempt to set aside the agreement. She would have been right to reject an offer which left her with such a prospect. After all, it is likely to be argued that the offer which she accepted made no mention of the loan account indebtedness and the wife ought to have known it was not extinguished by the offer. In fact, those advising her would have been negligent to advise her to accept such an offer.

    h)I do not accept that the wife was unsuccessful when the offer of 17 September 2003 and the ultimate result are compared. Nor do I accept that it is likely that had the wife disclosed her de facto relationship it would have made the husband’s offer so much better that it should have been accepted. The offer lapsed well before the wife entered into the de facto relationship. I am not satisfied the husband would have made the offer on discovering it. Most importantly, I am not satisfied that the orders which would have been made if the relationship had been known before judgment would have been so much worse for the wife that they would have made the husband’s offer seem to be better than or as good as the result of such orders. She probably avoided a very substantial liability under the loan account by rejecting the offer. By comparison to the offer, the husband can be said to have been unsuccessful. I do not regard either party as having been wholly unsuccessful although I regard the wife, overall, as having been more successful in the proceedings than the husband both by comparison to the offer and by comparison to their stances at the hearing. Of course, it may be that if the wife had fully disclosed she would have been less successful than she has been and if the husband had been more candid the costs of the proceedings would have been lower for both parties.

    i)Written offers and their terms: I have considered the offer relied on by the husband and its terms. For the sake of convenience I shall set out the terms, which are:

    1.That the wife simultaneously with the receipt by the parties of the proceeds of the sale of the matrimonial home at N, transfer to the husband all of her interest, shares and entitlements in A Pty Limited and do all acts and things and sign all documents necessary to effect such transfer of interest, shares and entitlements.

    2.That upon the applicant wife transferring to the husband all of her interests, shares and entitlements in A Pty Limited, the husband thereafter indemnify her against any claims, suits, demands or actions which have or may arise out of the applicant wife having been a shareholder or public officer in the said company.

    3.That within 14 days the parties do all such things and acts and sign all such documents as are necessary to list the home at N, with a real estate agent mutually agreed or in default of agreement appointed by the president for the time being of the Real Estate Agents Institute, for sale and upon such sale being effected on the basis of a net after deduction of selling charges, price to the parties of $1,625,000, such proceeds are to be paid as to the $355,000 to the husband and as to $1,270,000 to the wife. In the event that the net sale price of the property after deduction of all selling charges varied from a figure of $1,625,000 then such variation is to born by the parties in the proportion of 60% to the husband and 40% to the wife and achieved by addition or subtraction depending upon whether the variation exceeded or was less than $1,625,000.

    4.As an alternative to order 2, that the husband within 14 days do all such acts and things and sign all such documents as are necessary to transfer to the applicant wife all of his right, title and interest in and to the former matrimonial home at N, provided that simultaneously with such transfer of shraes pursuant to order 1 hereof and pay to the husband of $355,000.

    5.The wife’s entitlement in the H Superannuation Fund, A Pty Limited, which as at the 10^th November 2003, stood at $47,417.08, be declared to be a splitable interest and paid to her in the amount within 30 days or within the said period of 30 days by way of roll over payment to an approved deposit fund or superannuation fund nominated by the wife.

    6.That the furniture and contents of the former matrimonial home including those items which were taken by the husband on or about the 17^th June 2002, which have been listed in correspondence between the parties solicitors, be sold and the net proceeds of sale be paid as to 60% to the husband and 40% to the wife.

    7.As an alternative to 6, the husband be declared to be the owner of all of the furniture and items taken by him from the matrimonial home on the 17^th June 2002 as listed together with those items marked “[the husband] wants” as contained in a list of furniture and furnishings forwarded by the applicant wife’s then solicitors to the respondent husband’s solicitor in a letter dated 31^st October 2003.

    8.That except as provided for herein, each party be declared to be inter parties the absolute owner of all property both real and personal of whatsoever kind and nature and wheresoever the same is situate which is presently in their possession, power or control.

    9.This offer remains open and is capital of acceptance within a period of 21 days from the date hereof and is then withdrawn.

    j)Other relevant matters: I have referred to all matters which I regard as relevant. I am satisfied that there is only one matter, when all matters in the judgment are considered, which warrants a departure from the usual requirement that parties bear their own costs. It is the wife’s failure to disclose her de facto relationship. The Court should do what it can to discourage this type of misleading dishonesty. Discovery after the event leaves the Court with few alternatives. The most effective and appropriate is a costs order. One should be made against the wife.  

1. In my assessment, a just order would be for the wife to be required to pay 25% of the husband’s costs as agreed or taxed apart from such of the husband’s costs which were included in the costs order in his favour made by Justice Rose on 22 December, 2003. In reaching this conclusion I have taken into account the fact that the hearing was prolonged by the wife’s claim that she lost the benefit of her business by concentrating on the husband’s business and by the husband’s various unsuccessful claims about his financial circumstances and those of the company.

2. The order I shall make is:

   1.   Within one month the wife shall pay to the husband 25% of his costs as agreed or taxed of the proceedings including this application for costs except for such costs as the husband has incurred which have been or are to be taken into account in performing the costs order made on 22 December, 2003 by the Honourable Justice Rose.

I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cohen.

Associate: 

Date: 

IT IS NOTED that this judgment for all publication and reporting purposes be referred to as HARGREAVES & HARGREAVES