Houston and Houston & Anor

[2014] FamCA 219

FAMILY COURT OF AUSTRALIA

HOUSTON & HOUSTON AND ANOR [2014] FamCA 219

FAMILY LAW – COSTS – Application by the wife for costs against the husband – Offer of settlement – Order made for husband to pay wife’s costs on a party/party basis

FAMILY LAW – COSTS – Application by the Second Respondent for costs against the husband – Husband joined Second Respondent in respect of an equitable claim and maintained claim against Second Respondent until final hearing – Order made for husband to pay Second Respondent’s costs on a party/party basis from date husband became aware the claim was futile

FAMILY LAW – COSTS – Application by the husband for costs against both the wife and the Second Respondent – Application dismissed – Husband to pay own costs pursuant to Section 117(1) of the Family Law Act 1975 (Cth)

Family Law Act 1975 (Cth) ss 117(2), (2A)
Family Law Rules 2004 (Cth) rr 19.18, 19.50

Browne and Green (2002) FLC 93-115
Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited [1993] FCA 536
D & D (Costs) (No. 2) [2010] FamCAFC 64
Fennessy & Gregorian [2009] FamCAFC 44
Limousin & Limousin [2007] FamCAFC 1178
PBF as Child Representative for AF (Legal Aid Commissioner of Tasmania) & TRF &
LKL (2005) 33 Fam LR 123

Penfold v Penfold (1980) 144 CLR 311

Robinson and Higginbotham (1991) FLC 92-209

Yunghanns & Ors & Yunghanns & Ors & Yunghanns [2000] FamCA 681

APPLICANT: Ms Houston

FIRST RESPONDENT: Mr Houston

SECOND RESPONDENT: Ms Mills

FILE NUMBER: PAC 2217 of 2013

DATE DELIVERED: 4 April 2014 in chambers

PLACE DELIVERED: Parramatta

PLACE HEARD: Parramatta

JUDGMENT OF: Foster J

HEARING DATE: 10 March 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms De Vere

SOLICITOR FOR THE APPLICANT: Smythe Wozniak Solicitors

THE FIRST RESPONDENT:	Self-represented Litigant
COUNSEL FOR THE 2ND RESPONDENT:	Mr Sansom

SOLICITOR FOR THE 2ND RESPONDENT: McPhee Kelshaw

Orders

1. That the husband pay the wife’s costs from 5 February 2014 on a party/party basis as agreed within one (1) month from this date or, in default of agreement, as assessed.

2. That the husband pay the Second Respondent’s costs from 8 November 2013 on a party/party basis as agreed within one (1) month from this date or, in default of agreement, as assessed.

3. That the husband’s application for costs be dismissed.

4. The Court certifies for counsel pursuant to Rule 19.50 of the Family Law Rules 2004 (Cth).

IT IS NOTED that publication of this judgment by this Court under the pseudonym Houston & Houston and Anor 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 PARRAMATTA

FILE NUMBER: PAC 2217 of 2013

Ms Houston

Applicant

And

Mr Houston
First Respondent

And

Ms Mills

Second Respondent

REASONS FOR JUDGMENT

1. Notwithstanding that the parties to these proceedings resolved financial issues between them by reason of consent Orders made on 10 March 2014, they have been unable to resolve the question of costs.

2. The Applicant wife seeks an order for costs as against the unrepresented Respondent husband.

3. The Respondent husband seeks orders for costs against the wife and the Second Respondent, who is the mother of the wife.

4. The Second Respondent seeks an order for costs against the husband.

5. The crux of the issue between the parties arose as a consequence of the husband and wife constructing a cottage and other improvements on the property at B Street, Suburb A owned by the Second Respondent and the Second Respondent giving permission and facilitating a mortgage that financed the costs of construction of the cottage and other improvements, being secured against her property.

6. Initially, the proceedings were only as between the husband and wife as commenced by the Applicant wife. On 2 July 2013 the husband filed a Response and joined the Second Respondent, Ms Mills.

7. In the husband’s Response he sought an order, inter alia, that there be a declaration that he and the wife have an equitable interest in the property at B Street, Suburb A, and that the Second Respondent holds such interest on trust for the husband and wife.

8. The nature and extent of the equitable interest sought by the husband was not quantified in his Response.

9. It was conceded during submissions on the cost issue that the extent of the equitable interest asserted by the husband would very much depend upon the valuation of the value added to the Second Respondent’s property by reason of the construction of the cottage and other improvements on the property by the husband and wife and allowing for the liability secured over the Second Respondent’s property and remaining secured over the Second Respondent’s property that financed the cottage and the improvements.

10. Regrettably, the value added by reason of the cottage and the improvements to the Second Respondent’s property was significantly less than the liability secured over her property by way of mortgage, for which the Second Respondent remained primarily liable.

Costs principles

1. Section 117 of the Family Law Act 1975 (Cth) (“the Act”) provides that each party to the proceedings shall bear his or her own costs.

2. That principle is, however, subject to the discretion afforded to the trial judge in subparagraph (2), which provides that if the Court is of the opinion that there are circumstances that justify it in doing so, the Court may, subject to further subsections thereof and the applicable Rules of the Court, make such order as to costs as the Court considers just.

3. Although s 117(2) requires a finding of justifiable circumstances as an essential preliminary to making an order for costs, there is no additional or special onus on an applicant who seeks an order for costs: see Penfold v Penfold (1980) 144 CLR 311.

4. The matters relevant to determining what order, if any, should be made for costs are set out in subsection (2A) of that section. They relevantly, in these proceedings, relate to the following:

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

   (b) whether any party has legal aid and the terms of any grant of aid;

   (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 answers, questions, admissions of facts, production of documents and similar matters;

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

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

   (f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

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

5. There is nothing to prevent any one factor being the sole determinant for an order for costs: see PBF as Child Representative for AF (Legal Aid Commissioner of Tasmania) & TRF & LKL (2005) 33 Fam LR 123.

Indemnity Costs

1. The applications before the Court, set out below, are, in effect, applications for the husband to pay the wife’s and the Second respondent’s costs on an indemnity basis.

2. It is usual for the Court to make an order for costs on a party/party basis.

3. Provisions of the Family Law Rules 2004 (Cth) (“the Rules”), particularly rule 19.18, provides for the method of calculations of costs. That rule provides as follows:

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

   (a)of a specific amount;

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

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

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

4. The Rule further provides, in subparagraph (3), that:

   In making an order under subrule (1), the court may consider:

   (a)      the importance, complexity or difficulty of the issues;

   (b)      the reasonableness of each party’s behaviour in the case;

   (c)      the rates ordinarily payable to lawyers in comparable cases;

   (d)      whether a lawyer’s conduct has been improper or unreasonable;

   (e)the time properly spent on the case, or in complying with pre-action procedures; and

   (f)       expenses properly paid or payable.

5. The Court has jurisdiction in its discretion to make an order for costs on an indemnity basis and the purpose of such an award is to more fully or even wholly repay to a party all, or at least the majority, of their legal costs and disbursements and charges incurred in the proceedings.

   The category of cases in which an award of an indemnity costs order may be appropriate are not closed and the Full Court of the Family Court observed in Yunghanns & Ors & Yunghanns & Ors & Yunghanns [2000] FamCA 681 at [31]:

   … It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed, and that 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 order is sought.

6. More recently, the Full Court has considered indemnity costs in Limousin & Limousin [2007] FamCAFC 1178, Fennessy & Gregorian [2009] FamCAFC 44 and D & D (Costs) (No. 2) [2010] FamCAFC 64.

7. Otherwise, the principles underlying an award for indemnity costs have been classically summarised by Sheppard J in Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited [1993] FCA 536 where he, in summary, said:

   (a)The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on a party and party basis. …

   (b)This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation (perhaps in the form of an amendment to rules of Court) or a decision of an intermediate court of appeal or of the High Court would be required to alter it. …

   (c)In consequence of the settled practice which exists, the Court ought not usually make an order for payment of costs on some basis other than the party and party costs. The circumstances of the case must be such as to warrant the Court in departing from the usual course. …

8. Sheppard J made observations as to some of the circumstances which may warrant the exercise of the discretion to aware indemnity costs and they included:

   a)false and irrelevant allegations of fraud;

   b)misconduct that causes a loss of time to the Court and other parties;

   c)where the proceedings were commenced or continued for an ulterior motive;

   d)the undue prolongation of a case on groundless contentions; and

   e)wilful disregard of known facts and clearly established law. 

The issues for determination

1. The issues for determination are the competing costs applications between the parties.

The wife’s application for costs against the husband

1. The wife seeks an order for costs against the husband in the sum of $34,905 to be paid within 30 days, together with injunctive orders restraining the husband from dealing with, transferring or encumbering the property at C Street, Town D, Victoria and a Model E motor vehicle, to be retained by him pursuant to the consent Orders. Further, the wife seeks orders by way of enforcement in relation to the costs ordered in the event the husband defaults in payment by the due date.

2. The sum sought by the wife represents an order for indemnity costs having regard to the wife’s costs disclosure dated 3 March 2014.

3. Included as a component in the sum sought by the wife are costs reserved by a Registrar in relation to a conciliation conference that the husband failed to attend in person. On 8 October 2013 the Registrar fixed a conciliation conference for 9.15 am on 27 November 2013.

4. The single expert valuation in relation to the property of the Second Respondent was available on or about 8 November 2013. The valuation valued the property at $925,000, and without the cottage and improvements undertaken by the husband and wife in the sum of $680,000.

5. The husband’s solicitors failed to attend at the conciliation conference and, sometime after it was due to commence, a conference of sorts was facilitated with the husband’s representative by telephone and the husband also in a communication with the solicitor by telephone. Not surprisingly, there was no resolution of the issues and the Registrar fixed the proceedings for hearing on 11 March 2014 for three days.

6. On 11 March 2014 the proceedings were resolved by all the parties by consent.

The wife’s offer of settlement

1. Relevantly, prior to the date fixed for trial and on about 5 February 2014, the wife’s solicitors wrote to the husband’s then solicitors making a without prejudice offer as to settlement. In summary, the settlement offer provided:

   a)that the Second Respondent be declared solely entitled to the property at B Street, Suburb A;

   b)that the husband and wife refinance the existing mortgage encumbrance over the Suburb A property so as to discharge the husband from any liability for the mortgage;

   c)that pending refinance the wife pay all mortgage instalments as they fall due and payable;

   d)that the husband refinance the present mortgage encumbrance over the property at C Street, Town D, Victoria and, concurrently with that refinance, the wife transfer that property to the husband with the husband to continue to make mortgage payments until refinance;

   e)that the husband retain his superannuation entitlements and various motor vehicles;

   f)that the husband to transfer the Type F caravan to the wife;

   g)that the wife retain her superannuation, the caravan and her Holden motor vehicle; and

   h)that the husband indemnify the wife from any liability in relation to an Esanda loan.

2. By letter to the wife’s solicitors dated 4 March 2014 the husband rejected the wife’s offer of settlement and made a counter offer substantially in the terms of the wife’s offer but including a payment of an additional $50,000 to him.

3. The final Orders made on 10 March 2014 mirrored the offer of settlement made by the wife.

4. The public policy reason behind the encouragement of the making of offers of settlement during proceedings is that it is beneficial to the parties, the Court and the public at large if people are able to resolve their disputes themselves without the need for litigation.

5. The issue is perhaps most succinctly summarised by Nygh J in Robinson and Higginbotham (1991) (1991) FLC 92-209 at 78,417m where his Honour said in relation to paragraph (f) of s 117(2A):

   … it is quite clear that the purpose of that provision is to ensure that offers to settle, if made seriously, are considered seriously, to ensure that the cost of litigation is avoided, the workload of this Court is lightened, and one other consideration is certainly that a party with greater wealth is not placed in a position whereby he or she can wear out the other by simple attrition. …

6. In Browne and Green (2002) FLC 93-115 the Full Court commented:

   57.We think that whilst s 117(2A) does not provide any direct guidance to where weight should be given in any one particular case, it is very important for the Court to give proper consideration to written offers of settlement that have been made. The insertion of s 117C into the legislation is a clear indication of the desire of Parliament to enable parties to avoid unnecessary litigation by indicating to the other party an appropriate basis upon which litigation can be settled. The failure to heed a reasonable offer in circumstances where there is adequate knowledge of the parties at the time the offer is made to give it a proper consideration, is something to which very significant weight indeed ought normally be given. …

7. The husband is presently in full-time employment on a base salary of $62,000 per annum plus sales commission. As at 30 June 2013 he expected his annual income for that year to be approximately $175,000, however, his PAYE salary for that period was $208,999 (Exhibit I).

8. He has mortgage payments of about $250 per month in respect to the property to be retained by him and pays rent of $430 per week. In addition, his present child support obligation is about $1,535 per month. He will retain assets as a consequence of the consent Orders.

9. The wife earns about $100,000 per annum.

10. Having regard to the considerations referred to above, it is appropriate that there be an order that the husband pay the wife’s costs as and from 5 February 2014, being the date of the wife’s offer of settlement.

11. There is no circumstance warranting an order for indemnity costs. An order will be made accordingly for party/party costs to be agreed or assessed.

The Second Respondent’s application for costs against the husband

1. The Second Respondent sought orders that, in summary, provided for:

   a)either the husband to pay her costs of the whole of the proceedings in the sum of $78,930; or

   b)the husband pay the Second Respondent’s costs as and from 5 February 2014 in the sum of $41,622.74; and

   c)otherwise orders that would secure an enforcement of any costs orders made.

2. The husband joined the Second Respondent in his response filed on 2 July 2013. The orders sought against the Second Respondent are referred to above.

3. The husband cannot be criticised for joining the Second Respondent in circumstances where he and the wife had made substantial improvements to the Second Respondent’s property. However, it is of significance that there is no evidence of any enquiry either prior to the commencement of proceedings against the Second Respondent by the husband or thereafter as to the extent of any equitable claim that may repose in the husband.

4. It was not until the Single Expert valuation became available on about 8 November 2013 that the futility of the equitable claim became apparent. It was at that time that the husband should have considered his position in relation to the Second Respondent. However, he maintained the proceedings against the Second Respondent until final hearing.

5. The Second Respondent is a stranger to the marriage, although she is the mother of the wife. However, a party joining a third party to proceedings without due enquiry and thereafter maintaining those proceedings against the third party in circumstances where the futility of the claim should have been apparent does so at his or her own risk.

6. The circumstances justify an order that the husband pay the Second Respondent’s costs as and from 8 November 2013, by which date it was apparent that any claim for equitable relief was doomed to failure. There are no circumstances justifying an order for indemnity costs and an order will be made on a party/party basis for costs to be paid as agreed or as assessed.

The husband’s application for costs against the wife and the Second Respondent

1. Faced with applications for costs against him by the wife and the Second Respondent, the husband sought an order that his costs be paid by the wife and the Second Respondent.

2. The husband complained as to lack of appropriate disclosure by the wife in relation to voluminous documents relating to the construction of the cottage on the Suburb A property and subsequent improvements. However, the proper measure of any prospective equitable claim against the Second Respondent’s property relied upon the value-added valuation and the mortgage encumbrance offsetting that figure.

3. The husband has demonstrated no circumstances that would justify an order departing from the normal rule that he is to pay his own costs. Accordingly, the husband’s application for costs against the wife and the Second Respondent is dismissed.

1. The orders to be made are set out at the forefront of these Reasons for Judgment.

I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Foster delivered on 4 April 2014 in chambers.

Legal Associate:      

Date:    4 April 2014