JENNINGS & BRANSON (No.2)

[2015] FCCA 2659

FEDERAL CIRCUIT COURT OF AUSTRALIA

JENNINGS & BRANSON (No.2) [2015] FCCA 2659

Catchwords:
FAMILY LAW – Enforcement of property orders – whether indemnity costs should be ordered.

Legislation:

Family Law Act 1975, ss.117, 117(2), 117(2)(a)

Colgate Palmolive Company & Another & Cussons Proprietary Limited (1993) 46 FCR 225
D’Cruz & Peirce (No.2) [2010] FamCA 1150

Prantage & Prantage [2013] FamCAFC 105

Applicant: MS JENNINGS

Respondent: MR BRANSON

File Number: MLC 4508 of 2014

Judgment of: Judge Jones

Hearing date: 2 September 2015

Date of Last Submission: 2 September 2015

Delivered at: Melbourne

Delivered on: 2 September 2015

REPRESENTATION

Counsel for the Applicant: Ms Stoikovska

Solicitors for the Applicant: Pearsons Lawyers

Counsel for the Respondent: Mr Kistler

Solicitors for the Respondent: Rigoli Lawyers

ORDERS

1. Save as to costs, the Application in a Case filed on 28 August 2015 be dismissed.

2. The Response to the Application in a Case filed 1 September 2015 is dismissed.

3. The Respondent pay the Applicant’s costs on an indemnity basis fixed in the amount of $6,379.00 within 30 days of the date of this order.

4. Otherwise, all extant applications are dismissed.

AND THE COURT NOTES:

A.The Respondent, through his Counsel, has undertaken to refrain from any conduct in breach of order 4(e)(iii)(C) of the orders made on 23 January 2015.

IT IS NOTED that publication of this judgment under the pseudonym Jennings & Branson (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 4508 of 2014

MS JENNINGS

Applicant

And

MR BRANSON

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. This is a decision in relation to the application by the Applicant, Ms Jennings, for the enforcement of final property orders and parenting orders that the Respondent, Mr Branson, pay indemnity costs.  The Applicant, filed an Application in a Case on 28 August 2015, in which she sought that the matter be abridged and that the respondent and his agents, including but not limited to Rigoli Lawyers and (omitted) Accountants be restrained from paying any amount currently held in trust for the payment of Capital Gains Tax (CGT) until further order. 

2. The next order sought was that paragraph or order 4(e)(iii)(C) of the final orders made on 23 January 2015 be enforced and that the respondent and his solicitors comply with those orders.  There was also an order sought that the Respondent pay the Applicant’s costs.  As I indicated, on 23 January 2015, I made final orders altering the property interests of the parties of the relationship.  Order 4 of the orders related to the payment of capital gains tax in relation to three investment properties in Property A (“the Property A properties”) from proceeds of sale of those properties after the payment of costs of sale and discharge of mortgages encumbering those properties.  The relevant order is as follows, and I quote:

   “To meet the assessed amount of any capital gains tax payable on the properties to which capital gains tax is due.”

3. And then there’s roman numeral (iii)(C):

   “For the purposes of meeting the payment of assessed capital gains tax, the sum of $65,000 will be held by the solicitors for the husband in an interest bearing account in the joint names of the parties to be applied to the payment upon it becoming due and payable with any surplus funds to be divided between the parties in accordance with the percentage division, 53.5 per cent to the wife and 46.5 per cent to the husband and any shortfall of funds necessary to meet the payment to be met by the parties in the same percentage.”

4. The genesis of the order is apparent from paragraphs [94] and [95] of my reasons for decision, from which I now quote:

   “The husband has proposed an order in relation to the agreement between the parties that the CGT from the sale of the Property A properties be paid from the net proceeds of the sale of those properties. The amount of the CGT and the date it is to be paid is, of course, not known. The Husband proposes that from the net proceeds of sale, an amount of $65,000 be held on trust by his solicitors to be applied to any payment upon it becoming due. Any surplus or shortfall in funds are to be divided in the proportion determined by this Court.”

5. Paragraph 95:

   “The wife’s preference is that she pay her equal share of the CGT as it becomes due and payable. She is concerned about not being able to access her share of an amount of $65,000. She accepts, however, that the husband has a legitimate concern about pursuing the payments from her in the future. She is also concerned that the husband may be tardy in executing the tax assessments. She asks that if an amount is to be set aside then she be required only to set aside at most $25,000 from her share. I am satisfied that I should order that the husband execute the relevant tax assessments by 30 August in the year after the property is sold. Otherwise, I am satisfied the order proposed by the husband is just and equitable in the circumstances.”

6. And, of course, I note that the orders reflected the proposal of the respondent who was, during the course of the proceedings leading to my judgment and orders, represented by Silk.  In the Court’s opinion, the order is clear and unambiguous.  It provides that upon the CGT being assessed and due and payable, the $65,000 held in trust is to be applied to the payment required.  Relevantly, any shortfall after the payment of the $65,000 is to be met by the wife in the proportion of 46.5 per cent and the husband in the proportion of 53.5 per cent. 

7. The Applicant’s Application in a Case, sets out the relevant history leading to her Application in the Case.  Firstly, the Property A properties were sold and settlement effected in around August 2015.  On 19 August 2015, the Respondent’s solicitors, Rigoli Lawyers, forwarded to the Applicant’s solicitors, Pearsons Lawyers, correspondence which included the following, and I quote:

   “We advise that we will be holding the balance of the sale proceeds …”

8. I interpolate that is in relation to the sale of the Property A properties, and it continues:

   “…in our trust account together with the balance of deposit funds and shall distribute once all funds have been received pursuant to the orders. With respect to the capital gains tax, we enclose a copy letter received from our client’s account for your urgent attention.  We confirm this amount is to be deducted prior to the distribution between our respective clients.” 

9. This correspondence is annexed at J2 to the Applicant’s Affidavit filed on 28 August 2015.  The correspondence from the respondent’s accountant states that the capital gains tax liability is $141,913.80, clearly in excess of the $65,000 held in trust.  The applicant’s solicitors responded on 20 August and this correspondence, is set out in Annexure in J3 and includes the following, I quote:

   “You have no authority to hold back any amount other than what is in the orders and the orders specifically state that $65,000 is to be held back for capital gains.”

10. It goes on later in the last paragraph and I quote:

    “Our client will make her own arrangements with respect to obtaining a calculation regarding the capital gains tax and the relevant payment will have to be made.  However, there is no authority to hold back any other amount other than what is stipulated in the order.”

11. On 20 August 2015 the Respondent’s solicitor sent correspondence to the applicant’s solicitors, a copy which is contained in Annexure J4.  At page 2 of that correspondence, it relevantly states, and I quote:

    “Therefore your client will not be in receipt of her share until outstanding matters are resolved.” 

12. I interpolate that is in reference to the respondent’s solicitors having referred to my orders and my reasons of judgment.  It goes on:

    “Unfortunately, we are unable to provide a date of when the remaining funds can be disbursed for reasons that your client has elected to make her own investigations regarding the CGT liability.  Our client otherwise advises that his tax return will be lodged on or before 30 August 2015, which will then raise the tax liability.  Should the capital gains tax be not met by the due date due to your client’s delays, then our client will look to yours for any ATO penalties.”

13. This correspondence was responded to, by the applicant’s solicitors on the same date, 20 August 2015, the correspondence being sent by facsimile and a copy of which is contained in Annexure J5.  It states in the first paragraph, I quote:

    “We refer to your letter dated 20 August 2015 and advise that the order 4(C) of the court is quite clear.  It requires $65,000 to be withheld for capital gains tax.” 

14. It goes on further, and I quote:

    “There is no authority to hold any other balance, in particular specific provision has been made that in the event that there is a surplus, 55.5 per cent is to the wife and 46.5 per cent is to the husband.  In the event that there is a shortfall, the reverse is true, namely that the wife pay 46.5 per cent and the husband pays 53.5 per cent.” 

15. It goes on, and I quote:

    “In the event that you fail to disburse in accordance with the orders forthwith, we will be seeking an order of the court by way of enforcement and costs against your firm.” 

16. The next relevant correspondence occurs on 25 August 2015 from the Applicant’s solicitors to the Respondent’s solicitors.  It was sent by facsimile a copy of which is contained in Annexure J7.  It states, and I quote:

    “The orders are clear.  $65,000 is to be retained for capital gains tax and the balance is to be disbursed with payments to be either refunded to the clients or paid by the clients pursuant to the orders in the event that the capital gains tax is more.  Unless your disbursement summary is received by 12 pm Wednesday, 26 August 2015 together with a disbursement forthwith and confirmation that you will do so, we will be proceeding with our application for enforcement and seeking a costs order against your firm, which gives us no pleasure to do but we feel we have no choice to do otherwise in order to protect our client’s interests.”

17. There is correspondence from the Respondent’s solicitors to the Applicant’s solicitors dated 27 August 2015, a copy of which was sent by facsimile and a copy of which is set out in Annexure J8.  It says, relevantly, and I quote:

    “We also attached for your attention our client’s tax return, which is evidence of the capital gains tax liability of $143,175.20.  Please refer to 4 and 5 and take into account the tax relief allowable on CGT to reduce the total to the above amount.  The ATO formal assessment will issue in a few days and this sum will then be payable.  We propose to make a trust cheque payment for this amount to the ATO for this capital gains tax liability unless your client issues and serves us with an urgent application in the case, seeking injunctive orders to the contrary.  This proposed payment is in accordance with paragraph 4(e)(iii) of the orders which we are obliged to comply with now that funds have been available to make the payment.”

18. And in italics there is:

    “(iii) To meet the assessed amount of any capital gains tax payable on the properties to which the capital gains tax is due.”

19. There is then correspondence from the solicitors for the Applicant to the Respondent’s solicitors on 27 August 2015, a copy of which is set out in J9.  In this, the Applicant’s solicitors seek an undertaking from the Respondent’s solicitors by close of business that day as follows:

    “(1) We seek a specific undertaking that you will not pay the capital gains tax to the ATO as stated in your letter until we write to you as our client is entitled to receive her own accounting advice based on the return your client has lodged; (2) if we do not receive that undertaking by 5 pm today, we will be issuing an application restraining you from paying the amount and will be seeking a costs order against you and/or your client.”

20. There was no response from the Respondent to that correspondence.  The Applicant filed her Application in a Case on 28 August 2015.  The matter was listed in the duty list for today, 2 September 2015.

21. The Respondent filed a Response on 1 September 2015, late in the day, seeking orders in terms that reflected the Respondent’s solicitors correspondence to the Applicant’s solicitor on how the orders were to be interpreted:

    “That the respondent’s husband’s new lawyers be permitted to release the sum of $141,820.46 out of the total funds currently held on trust for the parties from the sale of the husband’s properties, currently being $194,768.24, to the Deputy Commissioner of Taxation in pursuance of the capital gains tax assessed on the sales of the properties in the respondent’s husband’s name in accordance with final orders dated 23.1.2015;  that the balance of funds held in trust by the respondent husband’s lawyers be disbursed to the applicant wife, 53.5 per cent to the respondent husband, 46.5 per cent in accordance with the final orders dated 23 January 2015 subject to the adjustments between the parties as set out below.”

22. There are then proposed orders 3, 4, 5 and 6, which were not pressed by the respondent at the hearing today, but which, nevertheless, the applicant’s solicitors would have been required to take instructions from the Applicant in order to respond to those orders.

23. With respect to the issue of the enforcement of the orders,  my decision was that order 4(e)(iii)(C) was clear and that the Respondent’s proposed action was in breach of those orders and the Respondent’s proposed orders were inconsistent with those orders.  In other words, the interpretation of those orders was clear; the amount of $65,000 held in trust was to be applied to pay the capital gains tax and any shortfall would be then paid in the relevant proportions by the wife and the husband, not the reverse.

24. I am satisfied that the Respondent’s view of how the clause was to be interpreted, which was completely misconceived, would result in the wife receiving less than what she was entitled to pursuant to my orders which reflects my decision that the orders were just and equitable in the circumstances.  Rather than issuing an order, I sought an undertaking from the Respondent’s Counsel on his behalf that the Respondent would comply with the orders of the Court. This undertaking was given. 

25. The Applicant seeks indemnity costs in the amount of $6379. So I turn to that question. The general rule under section 117 of the Family Law Act 1975, of course, is that parties bear their own costs. Section 117(2) provides that there may be orders for costs and section 117(2A) sets out the factors that the Court is required to take account of. The first is subsection (a) which is the financial circumstances of each of the parties to the proceedings. I rely on my findings of my decision at paragraph 8(a). I found that the taxable income of the respondent husband for the most recent financial year was $445,726 and at paragraph [69] to [73] I set out my reasons why I expected that to continue into the future. The wife’s income for the relevant period was $110,000. Subsection (b) is not relevant. Subsection (c) is clearly relevant: the conduct of the parties.

26. The failure of the Respondent through his solicitors, to provide an undertaking as sought by the Applicant’s solicitors, knowing that the matter would be taken to court, and in fact, advising the Applicant’s solicitors that they would have to seek a restraining order through the Court, in my view, in the context of orders that were clear and unambiguous, is conduct that unnecessarily caused costs to the Applicant wife.  The orders sought by the Respondent and the actions engaged in by the solicitors would have resulted in a breach of the orders and were clearly not consistent with the orders of the Court.

27. Subparagraph (d):  whether the proceedings were necessitated by the failure of the party to comply.  I have indicated that the Applicant had no choice given the Respondent’s clear intention to proceed with the action but to make her Application in a Case seeking enforcement.  Subsection (e):  the Respondent was wholly unsuccessful in his argument notwithstanding I did not make orders.   Subparagraphs (f) and (g) are not relevant.  Consequently, I am satisfied there should be costs.

28. Turning to the question of indemnity costs.  In Colgate Palmolive Company & Another & Cussons Proprietary Limited (1993) 46 FCR 225, Sheppard J set out principles which are accepted as applicable in considering whether indemnity costs should be awarded in exercising the discretion under section 117, subsection (2) of the Act. His Honour summarised these principles at paragraph 24 of the judgment. It is clear that 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 the payment of those costs on a party and party basis. His Honour went on to say that:

    “The circumstances of the case must be such as to warrant the Court departing from its usual course.”

29. The purpose of making indemnity costs orders was discussed by Young J in D’Cruz & Peirce (No.2) [2010] FamCA 1150 at 97, and I quote:

    “The purpose of such an award of indemnity costs is to more fully, or even wholly, repay to a party all or at least the majority of their legal costs and disbursements, charges and taxes incurred in the proceedings.”

30. The Full Court of the Family Court supported the application of the principles in Colgate Palmolive, which I will return to shortly; in Prantage & Prantage [2013] FamCAFC 105, stating further, and I quote:

    “The Court and trial judges in this jurisdiction have routinely followed Kohn in holding that indemnity cost orders are to be seen as a very great departure from the normal standard.”

31. Sheppard J in Colgate Palmolive set out circumstances which might warrant such a departure. They are not to be taken as exclusive, but they indicate the fact that such orders are to be treated as an exception rather than the rule. His Honour stated at paragraph 24:

    “I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud… evidence of particular misconduct that causes loss of time to the Court and to other parties… the fact that proceedings were commenced or continued for some ulterior motive… or wilful disregard of known facts or clearly established law… the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions… an imprudent refusal of an offer to compromise and an award of costs on an indemnity basis against the contemnor…”

32. His Honour also made the point that the existence of particular facts and circumstances that might warrant an order for costs on an indemnity basis did not mean that a judge was necessarily obliged to exercise their discretion to make such an order.

33. Having regard to the principles set out in Colgate Palmolive and the other decisions of the superior Courts, I am satisfied that the following circumstances justify the making of an indemnity costs order against the Respondent.  Firstly, the application before the Court is an application for an enforcement order.  That is an exceptional circumstance.  Next, the order sought to be enforced is both clear and unambiguous.  It is an order that was sought by the Respondent in a hearing during which he was represented by Silk.  Next, the solicitor for the Applicant made it clear in correspondence to the Respondent, twice at least, the correct interpretation of order 4(e)(iii)(C) and that the Applicant would proceed to apply for enforcement and seek costs.  Next, the Respondent filed a Response seeking orders, three of which were not pressed at this enforcement hearing, but would have required expenses incurred.  Next, the Response contained orders proposed which were inconsistent with the clear and unambiguous terms of order 4(e)(iii)(C).  And finally, the Respondent engaged in conduct which a party properly advised ought to have known was inconsistent and would be in breach of order 4(e)(iii)(C).

1. I now turn to the question of what costs to make.  Indemnity costs are described in Butterworth’s Concise Australian Legal Dictionary “as all costs, including fees, charges, disbursements, expenses and remuneration recoverable, incurred by a party in litigation and undertaking proceedings provided that they have not been unreasonably incurred or of an unreasonable nature.”

2. The Applicant has provided a timesheet listing completed by the solicitor from 7 July 2015 to 2 September 2015.  The total amount of that is $8310.50.  The Applicant’s solicitor says that the reasonable costs incurred, excluding instructions for today, I might add, are $2890.00 plus GST, $289, a total amount of $3179.00. Counsel’s brief fees are $3200, resulting in a total amount of $6379.00.

3. I am satisfied that they are reasonable costs incurred and consequently I would make the following orders.

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Judge Jones

Associate: 

Date:  23 October 2015