Haseloff and Kormann and Ors

[2014] FamCA 570

FAMILY COURT OF AUSTRALIA

HASELOFF & KORMANN AND ORS [2014] FamCA 570

FAMILY LAW – COSTS – application for costs by the wife against husband and second and third respondents – whether circumstances justify order – consideration of s 117(2A) factors – where neither party was wholly successful – where husband failed to disclose material – previous finding that the husband had entered into transactions with the intention of defeating an order of this Court - the husband to pay two thirds of the wife’s costs on a party/party basis – no order for costs against the second and third respondents.

Family Law Act 1975 (Cth) s 117(1), 117(2), 117(2A)
Family Law Rules 2004 (Cth) r 13.14, 19.18, 19.19

Haseloff & Kormann and Ors [2013] FamCA 1019
PBF as Child Representative for AF (Legal Aid Commission of Tasmania) & TRF & LKL (2005) 33 Fam LR 123; [2005] FamCA 158
Penfold v Penfold (1980) 144 CLR 311; (1980) FLC 90-800

APPLICANT: Ms Haseloff

RESPONDENT: Mr Kormann

SECOND AND THIRD RESPONDENTS: Mr Kormann Snr and Kormann Nominees Pty Ltd

FILE NUMBER: ADC 4563 of 2010

DATE DELIVERED: 25 July 2014

PLACE DELIVERED: Adelaide

PLACE HEARD: Adelaide

JUDGMENT OF: Dawe J

HEARING DATE: 19 June 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Richards

SOLICITOR FOR THE APPLICANT: Christopher Ganzis & Co

COUNSEL FOR THE RESPONDENT: Mr Scragg

SOLICITOR FOR THE RESPONDENT: Peter Scragg & Co

COUNSEL FOR THE SECOND AND THIRD RESPONDENTS: Mr Jordan

SOLICITOR FOR THE SECOND AND THIRD RESPONDENTS: Jordan & Fowler

Orders

1. Subject to subparagraph (2) hereof the husband do pay two-thirds of the wife’s costs of and incidental to the proceedings on a party and party basis.

2. The costs of any joint valuations are to be borne equally by the husband and wife.

3. For the purposes of paragraph (1) hereof the sum payable is to be determined by agreement between the husband and wife and in default of agreement within twenty-one [21] days from today as assessed by a Registrar under the Family Law Rules 2004 (Cth).

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

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: ADC 4563 of 2010

Ms Haseloff

Applicant

And

Mr Kormann

Respondent
And
Mr Kormann Snr and Kormann Nominees Pty Ltd
Second and Third Respondents

REASONS FOR JUDGMENT

Introduction

1. This is an application by Ms Haseloff (“the wife”) seeking an order for costs against Mr Kormann (“the husband”), Mr Kormann Snr (“the second respondent”) and Kormann Nominees Pty Ltd (“the third respondent”).  The second respondent is the husband’s father. 

2. The wife seeks an order for costs of and incidental to the proceedings to be taxed on a party and party basis.  The husband, second respondent and third respondent all oppose the wife’s application.

3. The final hearing of the wife’s application for property orders pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”) took place over five days during March and May 2013. A feature of the hearing was the wife’s successful application to set aside pursuant to s 106B of the Act certain transactions between the husband, the second respondent and the third respondent.

4. The husband submits that while the wife succeeded in her s 106B application, the wife’s application for final property orders could not be considered wholly successful. The wife argued that she had been “substantially successful” and that in any event, the husband’s conduct throughout the duration of the proceedings justifies the making of such an order. The second and third respondents opposed the application on the basis that they had been unnecessarily joined to the proceedings.

Brief Background

1. The wife was born in 1964 and is currently 49 years of age.

2. The husband was born in 1963 and is currently 50 years of age.

3. The parties were married in February 1991. 

4. There are two children of the marriage, a daughter born in 1993 and a son born in 1999.

5. The parties separated in 2009 and divorced in early 2011.

Procedural History

1. The wife filed an Initiating Application on 15 March 2011 seeking final property orders.  Ultimately the wife relied on a Further Amended Initiating Application filed on 30 March 2012.  In that application the wife sought  the following orders:

   1.That the Court make a declaration as to the husband’s interest in the [Kormann Family Trust] and in the [Mr Kormann Discretionary Trust].

   2.That in full and final settlement of all claims for settlement of property and spousal maintenance as between the parties for past present and future:-

   a.That the net pool of matrimonial assets do be divided as to 65 per cent to the wife and 35 per cent to the husband.

   3.That pursuant to S 106B of the Family Law Act 1975 (as amended):

   1.     The Deed of Rectification and Amending [Kormann Family Trust] dated 21 May 2010 between:

   The husband;

   [Mr Kormann Snr]; and

   [Kormann Nominees Pty Ltd] ACN …

   And

   2.     Any transfer of the husband’s shareholding in [Kormann Nominees Pty Ltd] to [Mr Kormann Snr];

   be set aside.

   4.Such further and other orders this Honourable Court deems fair and proper to effect a just and equitable division of the assets of the relationship.

   5.For costs.

2. The wife’s written submissions filed on 17 May 2013 sought an adjustment of 60 per cent to the wife and 40 per cent to the husband.

3. The husband filed a Response to the Initiating Application on 7 July 2012.  The husband filed an Amended Response on 9 May 2012 seeking an equal division of assets.  The orders contained in the husband’s Case Outline document upon which he ultimately relied sought the following orders:

   1.That the respondent husband discharge any encumbrance with respect to the former matrimonial home situated at [Town S], (“the former matrimonial home”);

   2.That contemporaneously with the discharge in paragraph 1, the respondent husband transfer all of his interests at equity and at law in the former matrimonial home to the applicant wife;

   3.That the applicant wife retain the following assets in her possession free from any claim at equity or at law by the husband;

   i.The [motor] vehicle;

   ii.All furniture and household contents currently in the former matrimonial home;

   iii.All shares in the name of the applicant wife.

   4.That the applicant wife retain her interests in the BT Super for Life fund free from any claim at equity or at law by the respondent husband.

   5.That the sum of $40,000 paid to the applicant wife by the respondent husband pursuant to the orders of Fowler J be retained by the applicant wife as part payment of her entitlements to property settlement.

4. The second and third respondents were joined as parties to the proceedings on 12 December 2011.  They relied on their Responses filed on 8 June 2012.  However, the orders sought in the written submissions filed on 9 May 2013 differ slightly.  The orders sought in the written submissions are as follows:

   1.The wife’s S.106B application be dismissed.

   2.That the husband and the wife do indemnify the Third Respondent as trustee for KFT in respect of any sum due by it to [M Pty Ltd].   

   3.That the wife pay the costs of the Second and Third Respondents.”

5. The final hearing commenced on 4 March 2013 before it was adjourned part heard on 7 March 2013.  When the trial resumed on 20 May 2013 I heard closing submissions from counsel.

6. Judgment was delivered on 20 December 2013.  The orders were as follows:

   (1)      Within sixty [60] days from this date the husband:

   (a) transfer to the wife any interest at law or in equity in the former matrimonial home at [Town S] in the State of South Australia being the property described in Certificate of Title Register Book Volume … Folio … which shall thereafter be the sole property of the wife;

   (b) pay all sums and do all things necessary to discharge the joint liability of the parties pursuant to the Memorandum of Mortgage Number … in favour of Westpac Banking Corporation;

   (c) pay to the wife the sum of SEVEN HUNDRED THIRTY THREE THOUSAND SIX HUNDRED AND SIXTY EIGHT DOLLARS [$733,668.00].

   (2)Upon transfer of the property, discharge of mortgage and the payment of the SEVEN HUNDRED THIRTY THREE THOUSAND SIX HUNDRED AND SIXTY EIGHT DOLLARS [$733,668.00] the wife contemporaneously transfer to the husband all her shares and any interest or claim in any of the entities referred to in this judgment including but not limited to the entities named in the annexure.

   (3)The husband do indemnify the wife in respect of any debts or liabilities to any of the entities referred to in this judgment including but not limited to the entities named in the annexure.

   (4)      Each party retain his or her superannuation entitlements.

   (5)Save as herein set out each party retain as their sole property the personal property in their respective power, possession or control.

   (6)Pursuant to s 106B of the Family Law Act 1975 (as amended) the following transactions are set aside:

   (a)the Deed of Rectification and Amending [Kormann Family Trust] dated 21 May 2010 between:

   the husband;

   Mr Kormann Snr; and

   [Kormann Nominees Pty Ltd] ACN …

   and

   (b)any transfer of the husband’s shareholding in [Kormann Nominees Pty Ltd] to [Mr Kormann Snr].

   (7)Failing agreement the question of costs is reserved to a date to be fixed.

7. The parties were unable to agree the question of costs.  The matter came before me on 7 May 2014 when the wife sought to pursue an order for costs against the husband and second and third respondents.  While no formal application was filed by the wife it arose as a consequence of the orders made by me on 20 December 2013 following upon the orders sought by the wife in her Further Amended Initiating Application.

8. The proceedings were further adjourned to a later date by which time all parties were ordered to file written submissions in relation to the wife’s application for costs.  On 19 June 2014, with the benefit of counsels’ written submissions, I heard the costs argument and reserved my judgment at the conclusion of the hearing.

The Law

1. Section 117(1) of the Act states that each party is to bear their own costs. However, that general rule is subject to s 117(2) which provides that a Court may make an order as to costs if there are circumstances that justify it in doing so (see Penfold v Penfold (1980) 144 CLR 311 at 315).

2. In determining what constitutes justifying circumstances the Court is guided by the statutory considerations listed in s 117(2A):

   Section 117(2A)

   (2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:

   (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;

   (g)such other matters as the court considers relevant.

3. The Full Court considered s 117(2A) in PBF as Child Representative for AF (Legal Aid Commission of Tasmania) & TRF & LKL (2005) 33 Fam LR 123; [2005] FamCA 158 and noted at paragraph 41:

   … Nowhere in subsection (2A) or elsewhere in section 117, is there any prescription that more than one factor must be present before an order for costs is made nor of comparative weight of the factors set out in subsection (2A).  As a consequence, there is nothing to prevent any factor being the sole foundation for an order for costs.

4. Rule 19.18 of the Family Law Rules 2004 (Cth) (“the Rules”) lists the different forms a costs order may take while rule 19.19 provides the maximum amount of party/party costs recoverable:

   Rule 19.18

   (1)      The court may order that a party is entitled to costs:

   (a)of a specified amount;

   (b)as assessed on a particular basis (eg lawyer and client, party/party or indemnity);

   (c)to be calculated in accordance with the method stated in the order; or

   (d)for part of the case, or part of an amount, assessed in accordance with Schedule 3.

   Rule 19.19

   (1)This rule sets out the maximum amount of party/party costs a person may recover:

   (a)if the court orders that costs are to be paid and does not fix the amount; and

   (b)if a person is entitled to costs under these Rules.

   (2)The maximum amount of costs that a person may recover under this rule is as follows:

   (a)for fees--an amount calculated in accordance with Schedules 3 and 4;

   (b)for an expense mentioned in Schedule 4 (other than item 101)--the amount specified in Schedule 4 for that expense;

   (c)for any other expenses--a reasonable amount.

5. Whether the wife pursued indemnity costs was somewhat equivocal from the written submissions but counsel for the wife informed the Court during the hearing that the application would be pursued on the basis of party/party costs only.

Consideration of s117(2A) factors

(a)the financial circumstances of each of the parties to the proceedings;

1. My orders of 20 December 2013 provided for an equal division of assets.  At the hearing I was informed by counsel for the wife that my orders had not been complied with but that it “was likely to be rectified in the short term” without further action being required. 

2. No party addressed this point in any detail.

(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;

1. As no party is or has been in receipt of legal aid during proceedings this is not a relevant consideration.

(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;

1. There are two issues relevant to this subparagraph; the circumstances surrounding the transactions at the heart of the wife’s successful s106B application and the husband’s failure to disclose relevant material.

2. The wife satisfied the Court that the husband had entered into the Deed of Rectification and Amending Kormann Family Trust for the purpose of defeating an anticipated order in these proceedings.  See paragraphs 84 to 89 of my judgment:

   84.The fourth issue is whether the interests or disposition was “made or proposed to be made to defeat an existing or anticipated order in those proceedings” or “irrespective of intention, [was] likely to defeat any such order.”  The recitals contained in the Deed of Rectification and Amending [Kormann Family Trust] confirms that to be the case.   Recital A to G state:

   “A.[The Kormann Family Trust] (“Trust”) was established by deed dated 1 July 1983 (“Original Deed”) between [Mr R] as settlor and [RR Pty Ltd] CAN … as original trustee.   As confirmed in a deed of acknowledgement dated 29 July 1993 the original trustee resigned as trustee of the Trust on 28 June 1992 and was replaced by the Trustee (that being KNPL).   The Original deed has been amended by a deed made by the trustee of the Trust dated 29 September 1993 (“Amending Deed”).   Together the Original Deed and Amending Deed are hereinafter referred to collectively as the “Trustee Deed”.

   B.On or around 29 June 2001 Mr Kormann Snr and his wife Ms U ceased to act as directors of the Trustee.

   C.The Trust does not have an appointor, though [Mr Kormann Snr] and [Mr Kormann] have always considered Mr Kormann Snr to hold this role.   

   D.On or about the date of change of officeholders described above, [Mr Kormann Snr] transferred control of the Trustee to his son, [Mr Kormann].   [Mr Kormann’s] wife, [Ms Haselhof], may have also held shares in the Trustee and/or been an officeholder, but she does not hold shares and is not an officeholder at the date of this Deed.

   E.[Mr Kormann Snr] has 3 children, including [Mr Kormann].   

   F.[Mr Kormann Snr] and [Mr Kormann] have always considered that notwithstanding the chance of officeholders and shareholders of the Trustee described above [that being a reference to 29 June 2001 on which date the husband’s father and his wife ceased being directors of the Trustee and were replaced by the husband]:

   despite [Mr Kormann’s] control of the trustee, [Mr Kormann Snr] has continued to control the Trust on a de facto basis; and

   the Trust assets are intended to benefit all of [Mr Kormann Snr’s] 3 children – not just [Mr Kormann].

   G.[Mr Kormann Snr] and [Mr Kormann] wish to confirm [Mr Kormann Snr’s] position as “appointor” of the Trust in this Deed to as to more formally evidence [Mr Kormann Snr’s] control over the trust.”

   85.I find that the two transactions were made with the intention of defeating an anticipated order in these proceedings.   The recitals confirm this to be the case.   The only reason the Deed of Rectification and Amending [Kormann Family Trust] and transfer of the husband’s shareholding in KNPL to the husband’s father was made was to prevent the assets of the KFT being considered as part of the matrimonial asset pool in these proceedings.   There is no reason why the husband and the husband’s father would have needed to confirm the husband’s father’s supposed “position as “appointor” of the Trust in this Deed” and in doing so “more formally evidence [Mr Kormann Snr’s] control over the trust” if the husband was not concerned that the assets of the KFT may be at risk of being altered in these proceedings.   

   86.Exhibit 18 confirms this to be the case.   In one email from a [Mr T], (a lawyer not involved in these proceedings but apparently involved in the Deed of Rectification and Amending [Kormann Family Trust]), [Mr T] is seen to be responding to the husband’s email in which the husband is asking “how long will it take you to get me the document to me for signing, once we agree, then once it is signed, how long to have it in place?”  That email was received on 13 May 2010.   [Mr T’s] reply was sent on the same date and reads:

   Hi [Mr Kormann] issuing execution copy is quick and easy so once we have wording agreed it will take as long as it takes you and [Mr Kormann Snr] to executive it.

   You can suggest to [Ms U] that she speak to us re any issues.   She might be a bit intimidated by us having [Mr Kormann Snr] say that he is openly seeking to deal with family law issues but there is no substitute for the truth and it is not his family dispute

   Happy to progress as soon as somebody comes back to us

   [Mr T]

   87.The Deed of Rectification and Amending [Kormann Family Trust] was signed about a week later.   

   88.In any event the transactions have had the effect of reducing the wife’s claim.

   89. I find that the requirements of s 106B(1) are satisfied...”

1. Counsel for the wife submitted that the husband’s failure to disclose material directly relevant to proceedings justified the making of a costs order.  The wife described the husband’s actions as “self-serving” and “deliberate misconduct”.

2. It is fundamental in family law proceedings for each party to make full and frank disclosure to both the Court and the other parties (Livesey v Jenkins [1985] AC 424). The consequences of non-disclosure are found in r 13.14 of the Rules and include the possibility of an order for costs.

3. Counsel for the husband rejected the suggestion that the husband had acted in a secretive manner and noted the husband had never denied the existence of the assets but had sought, as a matter of legal principle, to have them excluded from the property pool.  He further argued that it could not be said the wife had been forced to “unearth” material as it was the husband’s own witnesses that had provided the relevant information during evidence in chief. 

4. Whilst the oral evidence may have arisen during Mr L’s evidence in chief there was no corroborating affidavit filed in the proceedings.  The husband sought to excuse this conduct by blaming his solicitors for failing to disclose the relevant materials.

5. It was also submitted on behalf of the wife that the husband’s persistent opposition in the face of overwhelming evidence to the contrary, from his own witnesses, was a relevant consideration.

6. I accept the submissions on behalf of the wife on these factors.

(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

1. The husband’s actions in failing to disclose material and his attempts to exclude assets from the Court’s consideration have been dealt with above.

(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;

1. The s106B application was undoubtedly a central issue at the final hearing. Much of the Court’s time was dedicated to hearing evidence and argument on the topic.

2. I accept that the wife was wholly successful in her application to have the impugned transactions set aside but that application formed only part, albeit a significant part, of her application for final property orders.  The wife sought a division of assets that would have seen the wife receive 65 per cent however ultimately orders were made for an equal division of assets.

(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;

1. While offers of settlement were apparently made by the husband and wife no party sought to rely on a previous offer during the course of their submissions before me nor were the details of any such offer before the Court.

(g)      such other matters as the court considers relevant.

1. Counsel for the second and third respondents submitted they were unnecessarily joined to proceedings and that other avenues were open to the wife without prejudicing her s 106B application.

2. The husband submitted that the s106B order should be viewed as an order made “for enforcement purposes” only.

3. The orders sought pursuant to s 106B and the related evidence supported the orders and the second and third respondents.

Valuation Costs

1. While not a feature of any party’s written submissions counsel for the husband raised the issue of valuation costs at the hearing.  The husband submitted that an understanding had been reached between the parties such that it was to be shared equally between the husband and wife.  Counsel for the wife was unaware of the status of such agreement. 

2. The liability for valuation costs was not included in any balance sheet and no information was before the Court other than that given by counsel for the husband.

Conclusion

1. It was agreed that any costs order against the second and third respondents could go no further than 12 December 2011, being the date on which they were joined as parties to the proceedings.  In any event there are no circumstances, with respect to the second and third respondents, which would justify a departure from the general rule that each party bear their own costs.  I make no order for costs against the second and third respondents.

2. The husband’s conduct in failing to disclose information directly relevant to proceedings, or at the very least in failing to explain his apparent non-disclosure, justifies the making of a costs order against the husband pursuant to s 117(2).  However, as neither party has been wholly successful in these proceedings the husband is to pay only two thirds of the wife’s costs on a party/party basis.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Dawe delivered on 25 July 2014.

Associate: 

Date:  25 July 2014