J and B
[2007] FamCA 1433
•12 December 2007
FAMILY COURT OF AUSTRALIA
| J & B | [2007] FamCA 1433 |
| FAMILY LAW – COSTS – costs assessment order set aside – costs assessment hearing ordered – security payment dispensed with |
| Family Law Act 1975 (Cth) Supreme Court (General Civil Procedure) Rules 2005 (Vic) County Court Rules of Procedure in Civil Proceedings 1999 (Vic) |
| R & E Solicitors [2006] FamCA 1013 Maher and Commonwealth of Australia and Ors [2004] FCA 248 Cook v DA Manufacturing Co Pty Ltd [2004] QCA 52 Evans v Bartlam [1937] AC 473 Grimshaw v Dunbar [1953] 1 QB 408 Vacuum Oil Pty Co Ltd v Stockdale (1942) 42 SR (NSW) 239 Day v RAC Motoring Services Ltd [1999] 1 All ER 1007 Allen v Taylor [1992] PIQR 255 Winneke P in Lau v Citic Australia Commodity Trading Pty Ltd [1999] VSCA 34 Rosing v Ben Shemesh [1960] VR 173 National Life Mutual Association Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441 Crayden v Ottavaiano [2003] WASCA 20 John Tanner Holdings Pty Ltd v E J Groth and Co Pty Ltd [1991] SASC 2697 |
| APPLICANT: | Mrs J |
| RESPONDENT: | B, Solicitor |
| FILE NUMBER: | MLF | 8858 | of | 1992 |
| DATE DELIVERED: | 12 December 2007 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Bennett J |
| HEARING DATE: | 22 November 2006 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms C. Molyneux QC |
| SOLICITOR FOR THE APPLICANT: | Pearce Webster Dugdales |
| COUNSEL FOR THE RESPONDENT: | Mr J. Levine |
| SOLICITOR FOR THE RESPONDENT: | B Solicitors |
Orders
That the Order of Registrar Riddiford of 13 April 2006 be set aside.
That the time for the application to set aside the costs assessment order of Registrar Sikiotis of 24 May 2006 (“costs order”) and the time fixed to set aside the costs order be extended to give effect to order 3 below.
That the costs order be set aside.
A consequential order that the matter be referred to a Registrar who will list the matter for an assessment hearing.
That the applicant file and serve, within 35 days from the date of this order or such longer time as is agreed between the parties or further ordered by this court, all material upon which she relies in terms of the assessment hearing including all and any objections.
That the respondent file and serve, within 35 days from the date that the applicant complies with order 5 above or such longer time as is agreed between the parties or further ordered by this court, all material upon which he relies in terms of the assessment hearing including responses to all and any objections and including production of all receipts, invoices, copy letters, notes, reports, timesheets, time and accounting records reasonably requested by the applicant.
That either party be at liberty to apply in respect of costs of this application in a case provided that notice in writing is give to the other party and the court within 28 days of these orders.
IT IS NOTED that publication of this judgment under the pseudonym J & B is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLF 8858 of 1992
| MRS J |
Applicant
And
| B, SOLICITOR |
Respondent
REASONS FOR JUDGMENT
Introduction
B Solicitors charged Mrs J $582,131.23. These proceedings emerge from the applicant’s resistance to a costs assessment which requires her to pay the reduced sum of $236,121 in lieu of the amount originally claimed. The applicant failed to attend to the proper service of an objection, and payment of security for costs of the assessment hearing within a specified time, and as a result a Costs Assessment Order was issued on 24 May 2006. The Applicant wishes to challenge the assessment at a further assessment hearing, and seeks that the Costs Assessment Order be set aside.
The respondent resists this application and is prepared to accept the sum to which he is entitled under the preliminary assessment of Registrar Riddiford of 13 April 2006, that is, $236,121 in lieu of $582,131.23.
These are my reasons for setting aside the Cost Assessment Order and for permitting Mrs J to have an Assessment Hearing.
A brief history of the matter
On 4 August 2004, the respondent filed an Itemised Costs Account pursuant to an Order of the Honourable Justice Brown made on 24 June 2004. The total amount payable pursuant to the account was $582,131.23. This order followed an 11 day hearing in relation to the validity of a costs agreement signed by the parties, and was the subject of an unsuccessful appeal.
On 12 November 2004, the applicant filed a Notice Disputing the Itemised Costs Account, and following a hearing on 13 April 2006, Registrar Riddiford ordered:
(1)That the preliminary assessment amount in respect of the itemised costs account dated 3 August 2004 is fixed in the sum of $236,121.
(2)That pursuant to Rule 1.12 Family Law Rules 2004, compliance with the Rules be otherwise dispensed with and that either party may object to the preliminary assessment amount by doing the following on or before 4.00pm on 12th May 2006:
(a)Giving written notice of the objection to Registrar Sikiotis and the other party, and;
(b)Paying into Court by way of a bank cheque made payable to the Family Court of Australia (Melbourne Registry) the sum of $15,000.00 (fifteen thousand dollars).
AND IT IS REQUESTED
(3)That in the event that neither party takes the steps set out in paragraph 2 of these Orders that Registrar Sikiotis being the Costs Registrar at the Melbourne Registry issue a Costs Assessment Order in accordance with Rule 19.31 Family Law Rules 2004 without further notice.
On 24 May 2006, Registrar Sikiotis proceeded to issue a Costs Assessment Order in chambers, purporting to act pursuant to rule 19.31. The order provides:-
(a)That a Cost Assessment Order in the sum of $236,121.00 (Two hundred and Thirty Six Thousand, One Hundred and Twenty One Dollars) be made in favour of the respondent lawyers, [B Solicitors]] against the applicant, [Mrs J].
(b)The applicant, [Mrs J], having already paid the sum of $121,242.33 (One Hundred and Twenty One Thousand, Two Hundred and Forty Two Dollars and Thirty Three Cents) to the respondent lawyer, [B Solicitors], the balance remaining due and payable by the applicant to the respondent lawyer is $114,878.67 (One Hundred and Fourteen Thousand, Eight Hundred and Seventy Eight Dollars and Sixty Seven Cents).
(c)That the applicant and the respondent are referred to their right under Rule 19.38 of the Family Law Rules 2004 to make an Application to set aside the Costs Assessment Orders made this day.
On 7 June 2006, the Applicant filed a Form 2 seeking the following Orders:
(a) That compliance by the applicant of rule 19.30(b) be dispensed with.
(b)That Order (2)(b) made by Registrar Riddiford on 13 April 2006 be dispensed with.
(c)In the alternative to two above, time for the payment of $15,000 by the applicant by way of security for costs be extended until seven days after this Honourable Court has determined this application.
(d) Such further or other Orders as this Honourable Court deems meet.
The applicant did not initially seek to set aside the Costs Assessment Order of 24 May 2006.
In support of her application, and by affidavit filed on 7 June 2006, the applicant deposed:-
[4]. On 13 April 2006, Registrar Riddiford determined that the preliminary assessment amount is the sum of $236,121 inclusive of disbursements including counsel’s fees.
[5]. Shortly thereafter, I instructed my solicitor Mr David Misso of Pearce Webster Dugdales (“my solicitor”) to object to the preliminary assessment.
[6]. I am advised by my solicitor and believe that within time he wrote to Registrar Riddiford and at the same time sent a copy of that letter to the respondent advising that I objected to the preliminary assessment and that
I sought that the requirement that I pay into Court the sum of $15,000 be dispensed with. Now produced and shown to me and marked with the letters “FRJ-1” is a true copy of the letter sent to Registrar Riddiford.
[…]
[9]. The respondent is presently holding on trust for me a term deposit with a credit balance of approximately $300,000. Accordingly, in the event the respondent incurs costs for which I am liable following a taxation of the itemised costs account, the respondent has adequate security in the term deposit.
[10]. The only lump sum monies I have are those monies held by the respondent on trust for me in the term deposit. I am not able to access any monies from the term deposit because the respondent has a charge over these monies pursuant to the costs agreement between the respondent and
I dated 21 October 1997.
In response, and by Form 2A filed 21 July 2006, the respondent seeks an order dismissing Mrs J’s application and requiring her to meet his costs of responding to the application. In his affidavit filed on the same day, he deposes:-
h)… the firm of [G Solicitors] is holding the sum of approximately $300,000 in a joint account with the applicant. In the event that I incur costs for which the respondent is adjudged liable following taxation, I do not have adequate security as the applicant is liable to pay the preliminary assessment less the sums already paid, interest on the preliminary assessment, and the costs of an application and taxation. These sums are likely to exceed $200,000 in total. The applicant is also liable to pay 80% of the costs of a 11 day trial pursuant to the orders of Justice Brown dated June 2004 as varied by the Full Court of the Family Court and the costs of my appeal thereto pursuant to the orders of the Full Court of the Family Court and the applicant will be required to pay interest on these outstanding accounts. The costs payable as a result of those orders is likely to be in the range of at least $600,000, and include disbursements of approximately $350,000. I have received a request for payment from the senior counsel that I retained in the trial for his fees of approximately $156,000 and I require funds with which to pay the outstanding disbursements.
…
[4]. I have been willing to run cases on a fee deferred basis in the Family Court but it is becoming more and more difficult to do so, because of the ability of clients to delay paying legal fees that have been properly incurred. I am need [sic] of the funds for the proper running of my practice and to pay the disbursements that I incurred in the 11 day trial in the Family Court. I would also be prejudiced if the application was granted because I would have to fund the costs of taxation, which could be in the vicinity of $25,000. I have therefore decided to oppose this application and accept the amount assessed upon the preliminary assessment despite the said sum clearly underestimating the total amount of costs and disbursements that are properly due and payable.
The Itemised Costs Account which is the subject of the applicant’s objection was rendered by the respondent following an unsuccessful application by
Mrs J to set aside a costs agreement. Those proceedings were determined by Brown J on 24 June 2004 following a trial of some 11 days.
A costs order was made against Mrs J in relation to the proceedings determined by Brown J as well as the costs of a consequent appeal. Those costs are orders are in favour of Mr B but, as at the time of the hearing, no agreement had been reached between him and Mrs J as to quantum and Mr B had not produced an account or taken any step to fix the quantum of costs. I will deal later with the fact that Mr B estimates that Mrs J’s liability for those costs will be in the range of $600,000 inclusive of disbursements of $350,000. Those costs are exclusive of the costs and disbursements under consideration in these proceedings.
It was also ordered by Brown J that the Respondent continue to hold the net proceeds of Mrs J’s property settlement in an interest bearing investment pending the quantification of Mr B’s entitlement to costs for the proceedings before Brown J. The net proceeds amount to approximately $300,000.
Evidence relied upon by the parties
The applicant, Mrs J, relied on the following documents:-
a)Her amended application in a case in respect of which I gave her leave to file[1];
b)Her affidavit sworn on 31 May 2006;
c)Her Form 15 filed on 12 November 2004.
[1] Exhibit “W1”
The respondent Mr B relied on the following documents:-
a)His response to an application in a case filed 21 July 2006;
b)His affidavit sworn 14 July 2006.
Neither party sought to adduce oral evidence and neither were required for cross examination. The matter proceeded by way of submissions. There were various exhibits. In what follows, statements of fact constitute findings of fact.
The applicable Rule of Court
Part 19.6 of the Family Law Rules2004 provides the framework for the resolution of costs disputes between clients and solicitors in cases conducted in this court. The relevant Rules were elegantly described by Moore J in R & E Solicitors [2006] FamCA 1013, and I adopt her Honour’s description as correct. It is as follows:-
[This] is by no means a complete account, but clearly [the Rules] contemplate an administrative process for resolving or determining … such disputes:
·Once it reaches the point of provision of an itemised costs account and filing a Notice Disputing Costs, the matter is allocated to a Registrar and generally the first step is a Settlement Conference at least 21 days after the Notice Disputing Costs is filed [Rule 19.26(2)]. Both parties to the dispute are required to attend and that is the opportunity to resolve it [see Rule 19.28].
·If not resolved, the Registrar will advance the matter by making such orders as may be necessary to conduct a Preliminary Assessment [see rule 19.29]. That is conducted in the absence of the parties and on the material available the Registrar calculates the amount likely to be reflected in a Costs Assessment Order if it proceeds that far.
·Having made that calculation by the application of principles related to taxation of costs, the Registrar notifies the parties in writing of the amount assessed [see Rule 19.29(2)].
·Objection may be taken to the Preliminary Assessment by filing a written notice of objection and paying into Court 5% of the amounts assessed within 21 days of receiving the notice of Preliminary Assessment [see Rule 19.30(1)]. No form is prescribed for giving the written notice of objection but there is a form available for the payment into Court. Application can be made for dispensation with the requirement to pay into Court and that can be heard and determined by the Registrar.
·It is not possible to seek judicial review of a Preliminary Assessment amount because no order has yet been made. […]
·If no objection is taken by either party, the Registrar will issue a Costs Assessment Order for the amount assessed on a preliminary basis [see Rule 19.31].
·If a party receives a Costs Assessment Order under Rule 19.31 [from an undisputed Preliminary Assessment] they may within 14 days after receiving the Order apply to have it set aside. That application, supported by an affidavit, is heard by the Registrar. If the Registrar sets it aside then the dispute will be listed for an Assessment Hearing. In other words, even if no objection is taken to the Preliminary Assessment in the time allowed and the Order issues, there is still 14 days after the issue of the Costs Assessment Order to dispute it in the sense that there is a mechanism to apply to the Registrar to have it set aside.
·If objection is taken by either party, the matter is referred to the Registrar who will list the matter for an Assessment Hearing. In doing so, there may be consequences for objecting because unless the itemised costs are assessed with a variation in the party’s favour of at least 20% of the Preliminary Assessment amount, the party may be order to pay the costs of the Assessment Hearing [see Rule 19.30(3)]. Both parties attend the Assessment Hearing with the Registrar [see Rule 19.32]. That is when they argue the merit of their positions. The Registrar will examine the itemised account and determine how much is properly payable, make a Costs Assessment Order, and give a copy to each party. The Registrar will also determine if costs of the dispute are to be paid by either and the amount.
·Being a Costs Assessment Order resulting from an Assessment Hearing, it may be reviewed by a Judge [Rule 19.56] like any other decision of a Registrar. The time for filing an application for review is within 14 days after the Order is made [Rule 19.55]. That review application does not operate as a stay of the Order [Rule 19.56(3)] which is enforceable in any Court of competent jurisdiction.
The applicant’s objection to the Order of Registrar Riddiford made 13 April 2006
On 13 April 2006, Registrar Riddiford ordered that compliance with the Rules otherwise be dispensed with and either party may object to the preliminary assessment amount by doing the following on or before 4pm on 12 May 2006:-
a)giving written notice of the objection to Registrar Sikiotis and the other party; and
b)paying into Court by way of a bank cheque made payable to the Family Court of Australia (Melbourne Registry) in the sum of $15,000 AND IT IS REQUESTED that in the event that either party takes the steps set out in paragraph 2 of these Orders that Registrar Sikiotis being the Costs Registrar at the Melbourne Registry issue a Costs Assessment Order in accordance with Rule 19.31 FLR without further notice.
The effect of the purported order was to extend the time in which parties could object to the preliminary assessment from the 21 days provided for in rule 19.30(1)(a) to nearly one month and reduced the security deposit required by rule 19.30(1)(b) from $29,107 to $15,000. Registrar Riddiford notified the parties of the preliminary assessment amount and the purported orders and directions by letter dated 13 April 2006[2]. However, I am not satisfied that the orders made were regularly made by Registrar Riddiford.
[2] Exhibit “W2”
The Registrar was required by rule 19.29 to calculate the amount for which, if the costs were to be assessed, a costs assessment order would be likely to be made and to do so in the absence of the parties. The next and only other step required of him is to provide each party with written notice of the preliminary assessment amount. The calculation of a preliminary assessment amount is not an order or decree of the court or of a registrar exercising such of the court’s jurisdiction as has been delegated to registrars. The preliminary assessment process is an administrative function. It is designed to provide parties to a costs dispute with a quick, easy and cost effective way out of a costs dispute should they chose to avail themselves of it to avoid the matter having to proceed to a fully blown costs assessment hearing or taxation at which each party is expected to appear and make submissions. However, if one of the parties objects to the preliminary assessment, they clearly have the right to proceed to a costs assessment hearing or taxation by taking the steps provided in rule 19.30. An objecting party does not have to demonstrate error in the preliminary cost assessment.
Once the notice of objection and payment for security for costs is received by the Registrar, the Registrar must fix a date for an assessment hearing for the itemised costs account[3]. If at the costs assessment hearing the itemised costs account is assessed (or taxed) down in the objecting party’s favour by at least 20% of the preliminary assessment amount, in this case $47,224, then the objecting party may be ordered to pay the other party’s costs of the assessment hearing. In this sense the preliminary assessment is a trigger for the court to impose a penalty as to costs after the assessment hearing.
[3] rule 19.30(2)
Insofar as the document extracted above expressed the preliminary costs amount to be an order of the court, it is not a valid order. It is not reviewable by me as an exercise by the Registrar of delegated judicial power; it is merely an administrative step in the scheme provided in the Rules relating to costs disputes between clients and solicitors in this court.
Having found that the Registrar was not sitting as a court nor exercising any judicial function in calculating the preliminary assessment amount, it is not clear to me what powers he was exercising in making the balance of the purported orders published on 13 April 2006 - whereby the amount of the costs security payment was reduced from 5% of $582,131 to $15,000 and the time within which objections could be made was extended. Rule 19.33 confers extensive powers on a Registrar at an assessment hearing but not otherwise. Rule 11.01 provides the court with general powers in relation to case management to ensure that the each case is resolved in a just and timely manner and at a cost to the parties and the court which is reasonable in the circumstances of the case. Rule 1.12 provides for dispensation with the Rules. Those general powers are exercisable by Registrars when they are sitting as a court and exercising delegated powers but they are not exercisable independently of the judicial function. Likewise, Registrars have no inherent powers.
The validity of the purported order of 13 April 2006 was not a matter raised in the running of the matter or upon which I have had the benefit of submissions by counsel for the parties. Nonetheless, the court must supervise the proper exercise of that part of its jurisdiction which is delegated to Registrars and
I regard it as an essential part of that supervisory role to correct obvious errors made in the exercise of delegated power (see Harris v Caladine (1991) FLC ¶92-217). The court is therefore entitled to proceed on its own motion in circumstance such as the present. I am satisfied that the order expressed to be made on 13 April 2006 is invalid. Accordingly, I will set the order aside. However, doing so does not alter the fact that the preliminary assessment was validly made and communicated to the parties. Likewise, the wisdom behind an extension of otherwise quite restricted times and a reduction in the security for costs is very apparent. The problem is that the framework of the Rules in relation to costs disputes, fall short of permitting those orders to be made absent an application being made for same or the Registrar sitting as a court.
The applicant’s objection to the assessment of Registrar Riddiford
On 10 May 2006, the solicitors for Mrs J sent a facsimile to Registrar Riddiford[4] which omitting formal and irrelevant parts read as follows:-
We hereby give notice of Mrs [J’s] objection to the preliminary assessment.
Mrs [J] seeks an exemption from payment of the $15,000 security for costs on the grounds of her financial hardship. Further, she seeks exemption on the basis that Mr [B] holds settlement proceeds in an amount which exceeds the preliminary assessment.
[4] Annexure “FRJ-1” to the affidavit of Mrs J sworn 31 May 2006
Registrar Riddiford responded by facsimile which is dated 10 May 2006[5] in the following terms:-
[5] Exhibit “W1”
I refer to your facsimile dated 10th May2006 which arises from Orders made by me on the 13th April 2006.
I do not have the power under the Family Law Rules 2004 to consider your request for an “exemption from payment of the $15,000.00 security for costs on the grounds of her financial hardship” in Chambers.
If you have instructions from your client to seek an Order from the Court that she not be required to pay the amount for security that I have calculated under the Family Law Rules 2004, then you will have to issue a Form 2 Case Application supported by evidence set out in Affidavit. The Application would be made returnable in the Judicial Duty List at the next available date.
After the Application has been issued you would have to serve a copy of the sealed material upon the Respondent firm of Solicitors who would have a right of reply.
As the Orders made on 13th April 2006 remain in full force and effect,
I would respectively suggest that your client ensure that any Form 2 application be issued by close of business on 12th May 2006.
It is conceded that none of the correspondence sent on 10 May 2006 was forwarded contemporaneously to Mr B although it is clear that he was aware of it prior to swearing his affidavit on 14 July 2006 because he makes reference to the correspondence.
Notwithstanding the observations of the Registrar, Mrs J did not make application by Form 2 or otherwise for an exemption from payment of the $15,000.
The cost Order of Registrar Sikiotis made on 24 May 2006
On 24 May 2006 Registrar Sikiotis issued a cost assessment order pursuant to rule 19.31, as follows:-
This application coming on before the Registrar in Chambers pursuant to Rule 19.31 Family Law Rules 2004.
IT IS ORDERED:
1). That a Cost Assessment Order in the sum of $236,121.00 (Two Hundred and Thirty Six Thousand, One Hundred and Twenty One Dollars) be made in favour of the respondent lawyers, [B Solicitors] against the applicant, [Mrs J].
2). The applicant, [Mrs J], having already paid the amount of $121,242.33 (One Hundred and Twenty One Thousand, Two Hundred and Forty Two Dollars and Thirty Three Cents) to the respondent lawyer, [B Solicitors], the balance remaining due and payable by the applicant to the respondent lawyers is, $114,878.67 (One Hundred and Fourteen Thousand, Eight Hundred and Seventy Eight Dollars and Sixty Seven Cents).
3).That the applicant and the respondent are referred to their right under Rule 19.38 of the Family Law Rules 2004 to make an Application to set aside the Costs Assessment Orders made this day.
Insofar as the order was expressed to be made pursuant to rule 19.31, it cannot be correct. Rule 19.31 applies where the Registrar does not receive a notice of objection and the amount as security for costs is not paid. In this case,
Mrs J’s objection was contained in her letter of 10 May 2006 (extracted above).
Rule 19.38 provides that a party who is liable to pay costs and receives a costs assessment order under rule 19.31 may apply within 14 days after receiving the costs assessment order to apply to have it set aside. That is, whether or not they have objected to the preliminary assessment and/or paid the security for costs amount, they can make an application to set aside.
There is no evidence before me as to when the costs assessment order was “received” by Mrs J within the meaning of rule 19.38. I note that the cover sheet indicates that the order was dispatched to Mrs J’s solicitors via document exchange and to B Solicitors by post. Rule 7.17 provides that service is taken to have been effected on the third day after postage and “if served by delivery to a document exchange – on the next working day after the day when it was delivered[6]”.
[6] rule 7.17(c)
There is no evidence as to when the order was delivered by the court to the document exchange depot. I note that 24 May 2006 was a Wednesday.
I regard it as more likely than not that the costs assessment order would not have been delivered to the documents exchange until the day after it was made, that is, 25 May 2006. I am also satisfied that the order would not have been received by the solicitors for Mrs J before Monday 29 May 2006. Even if I disregard the fact that the costs assessment order was incorrectly entered pursuant to rule 19.31, Mrs J had 14 days from the date of receipt to apply to set it aside. As I am satisfied that she should be deemed to have received the order on 29 May 2006, that gives her until Monday 12 June 2006 to make application to have the costs assessment order set aside.
By application filed on 7 June 2006, Mrs J sought the following orders:-
1.That compliance by the applicant of Rule 19.30(b) be dispensed with.
2.That order (2)(b) made by Registrar Riddiford on 13 April 2006 be dispensed with.
3.In the alternative to 2. above, time for the payment of $15,000 by the applicant by way of security for costs be extended until seven days after this Honourable court has determined this application.
4.Such further other orders as this Honourable Court deems meet.
Effectively, all the specified relief sought by Mrs J was directed to relieving her from an obligation to pay the $15,000 as security for costs or obtaining for herself further time in which to make the payment. She did not specifically apply to set aside the costs assessment order as, it is now acknowledged by senior counsel who appears on her behalf, she ought to have done.
If Mr B opposed any orders sought by Mrs J he was required to file and serve a Form 2A response not less than 7 days before the date fixed for hearing[7] and file and serve affidavits he relied upon 2 days before the date fixed for hearing. The hearing date endorsed on the application was 14 July 2006. Mr B did not file his response or any affidavits within time.
[7] rule 9.08(1)
On 14 July 2006 the matter came before the Honourable Justice Benjamin.
A transcript of part of those proceedings was tendered by counsel the respondent[8]. As at 14 July 2006, Mr B had not filed material in response to Mrs J’s application but did so on the day. Counsel for Mr B advised the court that an application would be made for Benjamin J to disqualify himself on the basis of some previous adverse findings by him of Mr B. In any event, the disqualification application was not made because there was insufficient court time in which to determine even the preliminary point.
[8] Exhibit “B1”
It is evident from the transcript of the proceedings on 14 July 2006, that
Mrs J’s aim was to have Mr B’s itemised costs account taxed or, in the terms of the rules, have it proceed to an assessment hearing. For instance, at page 6 of the transcript, senior counsel for Mrs J is recorded as saying[9]:
Simply, your Honour, it’s a matter of where the applicant says, “Notice was given to the registry and to Mr [B] within the time set out by the order of Mr Riddiford which was before 12 May” – notice was given on 10 May, an order was made and what the applicant says is the part that’s causing difficulties is that, “Mr [B’s] got all my liquid assets” – being $300,000 – “that there’s sufficient there” – being about $160,000 that he still retains and would continue to retain until the conclusion of the taxation – which we say is adequate security – and therefore there’s no prejudice suffered by Mr [B] in terms of the matter proceeding to a taxation without the requisite $15,000 being paid by Mrs [J].
In the event that you Honour says, “Well , the $15,000 has to be paid”
Mrs [J] in her fall-back position in her application has said, “Well, I’d like seven days then to consider if I can find the moneys from someone somewhere.” By paying the $15,000 it then goes through taxation.
[9] line 25 page 6 of the transcript which is exhibit “B1”
On 21 July 2006 Mr B filed his Form 2A and affidavit in support. Amongst other things, Mr B deposed as follows:-
[…..] the firm [B Solicitors] is holding the sum of approximately $300,000 in a joint account with the applicant. In the event that I incur costs for which the respondent is adjudged liable following taxation, I do not have adequate security as the applicant is liable to pay the preliminary assessment less the sums already paid, interest on the preliminary assessment, and the costs of an application and taxation. These sums are likely to exceed $200,000 in total. The applicant is also liable to pay 80% of the costs of a 11 day trial pursuant to the orders of Justice Brown dated June 2004 as varied by the Full Court of the Family Court and the costs of my appeal thereto pursuant to the orders of the Full Court of Family Court and the applicant will be required to pay interest on these outstanding accounts. The costs payable as a result of those orders is likely to be in the range of at least $600,000, and include disbursements of approximately $350,000. I have received a request for payment from the senior counsel that I retained in the trial for his fees of approximately $156,000 and
I require funds with which to pay the outstanding disbursement.
It is clear from the above extract that Mr B also recognised that Mrs J sought an assessment hearing on his itemised costs account.
The matter was adjourned to be listed before me on 20 September 2006. I am advised by counsel for Mr B that his client sought and obtained an adjournment of the hearing on 20 September 2006 for the convenience of either counsel or Mr B. The adjournment was effected administratively and the hearing moved to 21 November 2006.
The hearing before me now commenced with Mrs J obtaining my leave to amend her application to seek to set aside the costs assessment order made on 24 May 2006 which is what needs to be done in order to have Mr B’s itemised costs account proceed to a costs assessment hearing (taxation).
The orders now sought by Mrs J are as follows:
2.That compliance by the applicant of Rule 19.30(a) be dispensed with.
3.That compliance by the applicant of Rule 19.30(b) be dispensed with.
4.That order (2)(b) made by Registrar Riddiford on 13 April 2006 be set aside.
5.In the alternative to 4 above, time for the payment of $15,000 by the applicant by way of security for costs be extended until seven days after this Honourable Court has determined this application.
6.That time for the applicant to set aside the order of Costs Registrar Sikiotis made 24 May 2006 be extended.
7.That time fixed in Rule 19.38(2) to set aside the order of Costs Registrar Sikiotis made on 24 May 2006 be extended.
8.Upon time fixed in Rule 19.38(2) being extended, the applicant seeks that the Court sets aside the order made by Costs Registrar Sikiotis.
9.Such further or other orders as this Honourable Court deems meet
I was informed from the bar table by senior counsel for the applicant that the deficiencies in the original application and the delay in seeking amendment to the application were the fault of Mrs J’s solicitor, Mr Misso, and that at all times Mrs J instructed him to proceed to get Mr B’s account taxed or, as the Rules describe it, have the matter go to a costs assessment hearing.
I am satisfied that the purport of her application was clear. Amongst other things, paragraph 5 of the application has been completed to identify the type of orders sought by her as:
☑Other (specify) – Application in relation to Taxation of costs.
In submissions, counsel for Mr B confirmed that his client had always understood that the relief sought by Mrs J in her application filed 7 June 2006 (directed solely at the security of costs of $15,000) was insufficient to procure an assessment hearing and, if Mrs J was restricted to just that application, she would be “doomed to fail”. I did not accept that submission as demonstrating prejudice on the part of Mr B. The neutral citation number for that ruling is [2006] FamCA 1552.
Once leave to amend was granted, Mr B did not apply to put further material before the court. Similarly, he did not seek an adjournment of the matter.
Applicable principles
The Rules are silent on the matters which are to be taken into account by the court when considering an application made by a person liable to pay costs under a costs assessment order for the Costs Assessment Order to be set aside.
At the very least, the Court must consider the justice of the case vis a vis both parties. I will do so.
Relevant considerations in applications to set aside orders or judgments were considered by Finkelstein J of the Federal Court in Maher and Commonwealth of Australia and Ors[10]. At page 1, Finkelstein J observed:
2. […] In Evans v Bartland [1937] AC 473, 482 Lord Russell said that a judge who was called upon to consider such an application (here it is brought under O 32 r2(2)) must consider two issues, viz (1) whether there is some purpose in setting aside the judgment: there will be none if the claim sought to be prosecuted or defended (as the case may be) is hopeless; and (2) how it came about that the applicant was bound by a regularly obtained judgment. In the same case Lord Wright said (at 489) that the principal consideration was whether the applicant had a case with merits to which the court should pay heed. It did not matter that the case is weak because, as Winneke P explained in Lau v Citic Australia Commodity Trading Pty Ltd [1999] VSCA 37 at [8] “that is not to say that, when all facts are exposed, it [in that case a defence] will not turn out to be a good one”.
[10][2004] FCA 248.
In submissions, counsel for Mr B drew an analogy between setting aside the costs assessment order and setting aside a default judgment in civil proceedings. He did not do so fulsomely or informatively. Nonetheless it is an analogy to which I am attracted enough to examine it further.
Order 21 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and the County Court Rules of Procedure in Civil Proceedings 1999 (Vic) provides factors to be considered in the setting aside of default judgments in the civil jurisdiction.
Assuming that the default judgment the subject of the application was obtained in accordance with the relevant rules or orders, those courts may consider the following factors in the exercise of its discretion:
i)whether the defendant has a defence on the merits;
ii)the reason for default, the consequence of which was the obtainment of the default judgment;
iii)whether the application to set aside the judgment was made promptly after it came to the attention of the defendant and
iv)whether, if the judgment was set aside, the plaintiff would be prejudiced in any respect, which could not be adequately compensated for by a suitable award of costs or the giving of security.[11]
[11] LexisNexisAU, Commentary on the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and County Court Rules of Procedure in Civil Proceedings 1999 (Vic), [I 21.07.15] Judgment regularly obtained.
In Cook v DA Manufacturing Co Pty Ltd[12], the Supreme Court of Queensland stated that it is not necessary to establish all the elements of the test, noting the wide discretionary power of the Court to set aside a judgment, but commented that courts have, in recent times, placed significance upon the requirement of the defendant to demonstrate an arguable defence on the merits.
[12] [2004] QCA 52.
A defence on the merits and an explanation for the default (the first two factors) are ‘neither necessary nor a sufficient basis’[13] for the setting aside of a default judgment. That is, there may be other reasons for which a judgment may be set aside[14]. Conversely, a court may not set aside a default judgment if the defendant has no possible defence[15]. To do so would serve no useful purpose[16]. Note that a counter-claim is not of itself considered to constitute a defence to proceedings[17].
[13] Ibid.
[14] Ibid.
[15] Ibid [I 21.07.20] Defence on the merits.
[16] Ibid. See Evans v Bartlam [1937] AC 473.
[17] See Bayview Quarries Pty Ltd v Castley Development Pty Ltd [1963] VR 445 for detailed discussion of English case law on this issue.
In determining whether to exercise discretion:
[T]he judge must necessarily consider whether any useful purpose would be served by setting aside the judgment, and no useful purpose would be served if it appeared that there was no possible defence.[18]
[18] Ibid 446. Also noted in Evans v Bartlam [1937] AC 473, 481 – 482 and Collins Book Depot Pty Ltd v Bretherton [1938] VLR 40 and upheld by the Full Court of the Supreme Court of Victoria in Kostokanellis v Allen [1974] VR 596, 603.
Usually, the defendant will be required to file an affidavit disclosing their defence[19]. It is not enough for the defendant to believe that they have a defence[20]. The affidavit must set out in full the defences, upon which the defendant wishes to rely, as well as the facts which substantiate such defences[21]. An affidavit merely ‘exhibiting’[22] a proposed defence is insufficient[23].
[19] Evans v Bartlam [1937] AC 473, Collins Book Depot Pty Ltd v Bretherton [1938] VLR 40 and Kostokanellis v Allen [1974] VR 596.
[20] Saunders v Hammond [1965] QWN 39.
[21]Barnard v Kellett (1891) 7 WN (NSW) 100; Tunnecliffe v Besnard (1938) 55 WN (NSW) 58.
[22] LexisNexisAU, Commentary, above n1 [I 21.07.20] Defence on the merits.
[23] ANZ Banking Group Ltd v Lefrovic (unreported, Supreme Court of Victoria, Tadgell J, 24 June 1992).
In Evans v Bartlam, Wright LJ noted that:-
‘if merits are shown the court will not prima facie desire to let a judgment pass on which there has been no proper adjudication.’[24] His Lordship also noted that the ‘primary consideration is whether [the defendant] has merits to which the Court should pay heed (emphasis added)’.[25]
[24] Evans v Bartlam above n16, 489.
[25] Ibid.
Further, the defendant is not required to show that likely success of their defence. A prima facie defence is sufficient to exercise discretion to set aside a default judgment[26]. In Grimshaw v Dunbar[27], Jenkins LJ referred to Evans v Bartlam and considered the extent to which the Court may regard the defendant’s prospect of success in applying for a new trial. His Lordship noted that:
No doubt the judge is entitled to satisfy himself that the party applying has a bona fide intention of defending the action, and that there is some possibility of his doing so with success.[28]
[26] Ibid.
[27] [1953] 1 QB 408.
[28] Ibid 415.
His Lordship then stated that a new trial should rarely, if ever, be refused on the basis that the applicant’s defence appears to be a weak one.[29] Notwithstanding that in that matter the applicant’s case could not be classed as obviously weak, Jenkins LJ commented the following:
Be that as it may, a party to an action is prima facie entitled to have it heard in his presence; he is entitled to dispute his opponent's case and cross-examine his opponent's witnesses, and he is entitled to call his own witnesses and give his own evidence before the court. Prima facie that is his right, and if by some mischance or accident a party is shut out from that right and an order is made in his absence, then common justice demands, so far as it can be given effect to without injustice to other parties, that that litigant who is accidentally absent should be allowed to come to the court and present his case -- no doubt on suitable terms as to costs.[30]
[29] Ibid 416.
[30] Ibid.
This was also discussed in the Full Court matter of Vacuum Oil Pty. Co. Ltd. v Stockdale,[31] where the test was summarised as such:
The question is whether, upon the material that has been placed before us, there is a real likelihood that it would be unjust to the defendant to allow the judgment to stand. If so, it should be set aside on such terms as will minimise the possibility of injustice to the plaintiff. If not, we should not interfere.[32]
[31] (1942) 42 SR (NSW) 239.
[32] Ibid 243 – 244.
That matter involved an application to set aside a judgment obtained where the defendant failed to attend at the trial. Jenkins LJ commented that the rule in those circumstances was much stricter, than in the case of default judgments.[33]
[33] Ibid 243.
In the UK case of Day v RAC Motoring Services Ltd,[34] the test was expressed as follows:
When considering whether to set aside a judgment obtained in default of defence, the court need not to be satisfied that there was a real likelihood that the defendant would succeed, but merely that the defendant had an arguable case which carried some degree of conviction.[35]
[34] [1999] 1 All ER 1007.
[35] Ibid 1008.
In that matter, Butler-Sloss LJ noted that if a defence did not carry some degree of ‘conviction’, it was unlikely to be a reasonable defence and should therefore not be permitted to be heard. His Lordship referred to the comments of Dillon LJ in Allen v Taylor,[36] where it was noted that:
It is quite impossible to be dogmatic about the extent to which the court must be satisfied of the validity of the suggested defence. There must be numerous cases where the issue will turn entirely on the assessment of the facts at trial; each party's case would carry conviction if it stood alone and without conducting a trial the court is not able to say which will succeed.[37]
[36] [1992] PIQR 255.
[37] Ibid 259.
In determining whether such a defence exists, the Court must be wary of undertaking an examination of the facts relied upon in the proposed defence. This was noted by Winneke P in Lau v Citic Australia Commodity Trading Pty Ltd[38], where His Honour rejected an interpretation of the test as requiring the defendant to demonstrate ‘a triable conflict of fact’. His Honour noted that such an approach would invite judges to ‘enter upon the facts in order to determine whether such a triable conflict exists’[39].
[38] [1999] VSCA 34.
[39] Ibid [10].
There are several cases in which this issue was considered[40]:
a)Rosing v Ben Shemesh[41], where the Court stated that where a defendant has demonstrated a prima facie defence on the merits, to refuse to set aside a default judgment would be to ‘shut [the defendant] out from ever having his answer tested, and if it be that he has a good answer, a grave injustice will be done to him’[42];
b)National Life Mutual Association Ltd v Oasis Developments Pty Ltd,[43] where McPherson J noted that the most ‘cogent consideration’ was whether the defendant had a prima facie defence on the merits. His Honour also stated that in such circumstances, it was not often that a defendant would be denied the opportunity to defend the matter, even if there had been a considerable delay, provided that this did not occasion prejudice to the plaintiff[44]. That case was upheld by the Full Court of Western Australia in Crayden v Ottavaiano[45];
c)John Tanner Holdings Pty Ltd v E J Groth and Co Pty Ltd (Appeal against order refusing to set aside default judgment)[46], where the South Australian Supreme Court allowed an appeal refusing to set aside a default judgment. In that matter, the Judge (unnamed) commented that ‘the principle is well established that, unless there are truly compelling reasons for not doing so, a defendant ought not to be denied an opportunity of developing a defence on the merits, where it appears that an arguable defence exists, even when in default’[47].
d)Davies v Pagett[48], where the Full Federal Court found that delays on the part of the defendant’s solicitor were gross and inexcusable but nevertheless stated that:
It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside a default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct, in the case, of the party upon whom the limitation is sought to be imposed. The temptation to impose a limitation through motives of professional discipline or general deterrence is readily understandable; but, in our opinion it is an erroneous exercise of the relevant discretion to yield to that temptation. The problem of delays in the courts, egregious as it is, must be dealt with in other ways, for example, by disciplinary actions against offending practitioners and by a comprehensive system of directions hearings or other pre trial procedures which enable the court to supervise progress - and, more pertinently, non-progress - in all actions.[49]
The Court then applied the ‘test’ outlined above (consideration of the 4 factors including merits of the case, reason for default, any delays and prejudice to the plaintiff) and allowed the appeal. With regard to merit, the Judge found that the defendant had ‘demonstrated a fairly arguable defence and counterclaim on the merits’, notwithstanding that the defendant relied on disputed facts[50].
[40] References taken from LexisNexisAU, Commentary, above n1 [I 21.07.35] Defence on the merits — instances.
[41] [1960] VR 173.
[42] Ibid 176.
[43] [1983] 2 Qd R 441.
[44] Ibid 449.
[45] [2003] WASCA 20, 53.
[46] [1991] SASC 2697.
[47] Ibid [17].
[48] (1986-7) 70 ALR 793.
[49] Ibid.
[50] John Tanner Holdings Pty Ltd v E J Groth and Co Pty Ltd (Appeal against order refusing toset aside default judgment) above n46, [22].
Conclusion
Having regard to the discussions, facts and findings contained in these reasons there are a number of determinations I make.
First, for the reasons set out above the applicant is relieved from complying with Rules 19.30(a) and 19.30(b), and 19.30(2)(b) and the order made by Registrar Riddiford on 13 April 2006 is to be set aside. I add at this point, having regard to the evidence before me, that had that order made on 13 April 2006 not have been set aside by me I would have extended the time for payment of the sum of $15,000.
In terms of the Orders of Registrar Sikiotos made 24 May 2006 I do not accept that it is necessary to establish a ‘defence on the merits’ in terms of such a costs application as it is generally an entitlement of a party to argue the quantum of such costs with the consequential costs penalties that may arise if the reduction is not 20% or more.
The applicant has explained her ‘default’ and this must be seen in the context of her initial and continuing expressions that she has at all relevant times challenged the quantum of the respondent’s costs and disbursements. I reiterate the comments I have made in regard to the orders of 13 April 2006 and the clear indication of the applicant at a very early date of her approach to the assessment.
Therefore, the applicant has established clear and cogent reasons and explanation for the default and her application was promptly made. Difficult and complex Rules (as seen through the eyes of individuals involved in proceedings in a superior court of record) should not be able to be used as a mechanism to prevent or frustrate determination of a substantive issue.
As to the question of prejudice to the respondent, I find that he has been aware of the applicant’s desire to challenge the quantum of this substantial bill from very early times. It is unfortunate that he has adopted such a fixed approach in which he has opted to argue that the process should be allowed to defeat the substance. The argument in respect of this application has no doubt added significantly to the costs of both parties and achieved little in terms of resolving the underlying issue.
In any event, I will accede to orders sought by the applicant through submission of her Senior Counsel.
As to costs of this application in a case by either the applicant or respondent either party may apply to have that issue listed before me provided notice is given to the Court and the other party within 28 days from the date of the orders arising from these reasons. Any such submission should be accompanied by a memorandum of the costs claimed calculated in accordance with the Family Law Scale. That does not limit the ability of either party to contend that costs, if awarded, ought to be calculated on some other basis. However, if I were to order costs, I would be minded to fix them rather than to send them for assessment in accordance with the Rules.
I certify that the preceding seventy three (73) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Bennett
Associate:
Date: 12 December 2007
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