Kostas and Kostas (No. 2)

[2018] FamCA 834

FAMILY COURT OF AUSTRALIA

KOSTAS & KOSTAS (NO. 2) [2018] FamCA 834

FAMILY LAW – PROPERTY – INDEMNITY COSTS – where the wife seeks indemnity costs for certain aspects of the proceedings – where the wife seeks any costs ordered to be paid be secured against the husband’s properties in Country D – where the husband’s conduct caused the wife to incur costs needlessly – where the husband did not comply with court orders – where the husband frustrated court proceedings – where there is no significant financial disparity between the husband and wife.

Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth)

Colgate-Palmolive Co v Cussons Pty Limited (1993) 46 FCR 22

APPLICANT: Ms Kostas

RESPONDENT: Mr Kostas

FILE NUMBER: PAC 971 of 2015

DATE DELIVERED: 18 October 2018

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Rees J

HEARING DATE: 11 October 2018

REPRESENTATION

SOLICITOR FOR THE APPLICANT Michael Vassili Barristers and Solicitors

COUNSEL FOR THE RESPONDENT: Mr Bennett

SOLICITOR FOR THE RESPONDENT: Uther Webster & Evans

Orders

IT IS ORDERED

1. That within three months of the date of these orders, the husband pay to the wife by way of costs the sum of $90,000.

2. That interest be paid on any amount outstanding from the due date until the date of payment at the rate prescribed by the Family Law Rules 2004 (Cth).

3. That Order 6 of the orders made 18 April 2018 is stayed pending the payment to the wife of the whole sum of $90,000 together with any interest which accrues from the due date until the date of payment.

4. That the payment of the sums referred to in Orders 1 and 2 herein be secured over the interest of the husband in the properties described as Property T, City F.

5. That the husband forthwith execute any document tendered by the solicitors for the wife giving effect to Order 4 herein and, in the event that the husband neglects or declines to sign such a document, then a Registrar of the Family Court of Australia is authorised to sign that document on behalf of the husband.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Kostas & Kostas (No. 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: PAC 971 of 2015

Ms Kostas

Applicant

And

Mr Kostas

Respondent

REASONS FOR JUDGMENT

1. On 18 April 2018, judgment was delivered in property settlement proceedings between Ms Kostas (“the wife”) and Mr Kostas (“the husband”).

2. Relevantly, for the purpose of the present proceedings, the parties owned two separate real properties. The first was the former matrimonial home in Australia and the second was two apartments in Country D (“the Country D properties”).

3. In broad terms, the orders provided that the wife would be entitled to the proceeds of sale of the former matrimonial home in Australia and that the husband would retain the Country D properties.

4. The wife now seeks an order that the husband pay, on an indemnity basis, her costs in relation to certain aspects of the proceedings. She further seeks an order that any costs ordered to be paid be secured against the properties in Country D and that she should not be required to convey her interest in those properties to the husband until costs orders have been complied with.

5. The application is governed by the terms of s117(2) of the Family Law Act 1975 (Cth) , the relevant portions being set out below:

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

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

   (b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

   (c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

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

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

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

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

6. The wife relied on two affidavits of her solicitor, who also provided a written outline of argument and tendered relevant correspondence.

7. The husband relied on an affidavit sworn by him and written submissions of counsel.

8. The wife’s application for costs relied on a number of aspects which I will deal with individually.

FINANCIAL CIRCUMSTANCES OF THE PARTIES

1. On behalf of the husband, counsel submitted that he “is impecunious and his financial position is precarious”. The husband deposed “The only assets that I have is my interest in the properties in Country D and small amounts in two bank accounts.”

2. He deposed to liabilities of $48,075, of which legal fees comprised $37,075. How the balance of the husband’s legal fees had been paid was not explained.

3. The property in Country D was valued for the purposes of the trial at $488,000. As is explained in the reasons for judgment, the Court was not able to say whether the husband had other, significant, funds in Country D.

4. There is no significant disparity in the financial positions of the husband and the wife.

THE OFFER OF SETTLEMENT

1. On 13 April 2017, the wife offered to settle the whole of the proceedings on the basis that she receive 70 per cent of the proceeds of sale of the former matrimonial home, which, at that time was unencumbered, and that she retain her 20 per cent interest in the properties in Country D.

2. That offer was rejected by the husband.

3. At trial, the former matrimonial home was valued at $610,000 and the relevant properties in Country D at $488,000. The effect of the wife’s offer was therefore that she would receive property to the value of $524,600 ($427,000 from the sale of the former matrimonial home and $97,600 being the value of her interest in the Country D properties).

4. She received the equivalent of the whole of the value of the former matrimonial home which exceeded the amount for which she offered to settle.

THE HUSBAND’S CONDUCT

1. There were a number of aspects of the conduct of the husband in the litigation which were relied upon by the wife as having exacerbated her costs. These were set out in the affidavit of her solicitor and the correspondence, between solicitors which is relevant to each issue, was tendered.

2. Properly, counsel for the husband did not seek to justify or defend the behaviour of the husband or to submit that his behaviour did not have the effect alleged by the wife.

3. This is an application for indemnity costs and therefore it is necessary to set out the elements of the husband’s behaviour on which the wife relies.

Appointment of a valuer for the Country D properties

1. The evidence in relation to this aspect is found at paragraphs 5 to 40 of the solicitor’s affidavit sworn 3 October 2018 and in the 36 items of correspondence which comprise exhibit 5.

2. Orders were made for the appointment of a joint single expert valuer by a registrar on 4 June 2015. The parties were not able to reach agreement as to value and on 10 November 2015, the wife’s solicitors proposed three valuers, inviting the husband to choose one. At the request of the husband’s solicitors, the wife’s solicitors provided curricula vitae and estimates of likely fees.

3. No election having been made by the husband, the wife proposed a fourth valuer on 24 February 2016.

4. On 2 March 2016, a registrar directed the husband to elect a valuer within seven days. He did not do so and the wife nominated a valuer. The husband declined to participate in the process of instructing the valuer or to contribute to translation costs.

5. On 20 July 2016, Foster J ordered the husband to pay half of the costs of the valuer.

6. The valuer requested documents from the husband. The husband did not respond. He was ordered to provide the documents on 14 November 2016. He did not do so.

7. The husband did not assist in the obtaining of the valuations and at every stage hindered the process. In so doing, he refused to comply with orders of the Court directing him to do things to progress the valuations.

8. The husband’s actions in this regard caused the wife to incur costs needlessly.

Failure to make full and frank disclosure

1. Orders relating to disclosure of financial matters were made on 4 June 2015, 20 July 2016, 26 September 2016, and 14 November 2016. Because of the husband’s failure to provide documents, the wife was obliged to issue subpoenas. Reference is made in the affidavit of the solicitor to 11 subpoenas.

2. It was only on reviewing the material produced on subpoena that the wife became aware that the husband had sent substantial sums to Country D.

3. Exhibit 6 in the proceedings was comprised of 36 items of correspondence from the wife’s solicitor to the husband or his solicitors (at times the husband was not represented) seeking disclosure and documents.

4. The husband’s non-disclosure was an issue at trial and dealt with separately in the reasons for judgment where I stated, at paragraph 65 and following:

   65. There were four aspects of the husband’s evidence that constituted material non-disclosure. They were the failure to provide the following:

   ·Documentary evidence of the money received by way of rent for the City F units;

   ·Documentary evidence of money held in bank accounts in Country D;

   ·Documentary evidence of money held in the trust account of the Country D solicitor who manages the City F units and collects the rents on behalf of the husband; and

   ·Documentary evidence of the manner in which the proceeds of the husband’s compensation claim was dissipated.

   66. The husband was on notice of the requirement that he provide this information by virtue of the orders made on 20 July 2016.

   67. In cross-examination, the husband’s position was that it was up to the wife to contact the solicitor in Country D and get any information she was able to extract for herself. He did not consider that he had any obligation to obtain the information, despite being ordered to do so. The wife said that the Country D solicitor had ignored her request for information.

   68. The husband had been in Country D only a week or so before the commencement of the trial and was thus in a position to obtain the information. The only documents which the husband provided were a copy of a passbook page for a Country D bank account and tax returns, in Country D, which were provided to the wife’s solicitors the day before the commencement of the trial.

   69. The husband was well aware that the disposition of the Country D rents and the disposition of his compensation money were serious issues for trial. As far back as 12 November 2016, the solicitors for the wife wrote to the husband’s solicitors about the lack of response from the Country D solicitor to their requests for information.

   70. The husband was cross-examined about the disposition of the compensation payment. He said that $108,000 had been transferred to Country D and spent on rectifying work on the City F units. When challenged, he did not provide any document to support that assertion.

   71. The husband was also cross-examined about a withdrawal, on 9 September 2013, of $43,549 from his ANZ account. A letter had been written to his solicitors in March 2016 asking for information about this withdrawal but there was no reply. In cross-examination, the husband said that he now recalled that the $43,549 was part of his compensation money and had been sent to Country D. 

   72. Thus the Court was not able to make any findings as to the money which has been received by the husband from the City F rents; the funds which might be held on his behalf by the Country D solicitor; the funds which might be held by him in bank accounts in Country D and the manner in which his compensation fund was spent, if it was spent at all.

5. I am satisfied that the wife incurred unnecessary costs because of the husband’s failure to comply with orders relating to disclosure and his obligation to make full and frank disclosure.

Proceedings in Country D

1. In late 2015, after the proceedings for property settlement had been instituted in Australia in March 2015, the husband instituted proceedings in Country D seeking orders that the Country D property be transferred to him.

2. From March 2016, the wife repeatedly sought from the husband an undertaking not to prosecute the Country D proceedings. That correspondence was tendered. Ultimately, the wife was obliged to file an Application in a Case seeking to restrain the husband from continuing the Country D proceedings.

3. On 16 May 2016, orders were made restraining the husband from continuing with the proceedings in Country D. In cross-examination, the husband gave evidence that he had continued the Country D proceedings to hearing in May 2017 and was awaiting delivery of judgment.

4. In the reasons for judgment delivered 18 April 2018 I stated:

   60. The husband was also well aware of the order which was made restraining him from taking any further step in the proceedings in Country D.

   61. In cross-examination, his explanation was that the properties were in Country D and he could not be prevented from pursuing his application in Country D.

   62. Again, the husband made it clear that he was not influenced by the existence of the restraining order and had no compunction in breaching it.

5. The wife instructed solicitors in Country D to attend on a “watching brief” so that she was kept informed on the progress of the Country D proceedings and filed an affidavit by her Country D solicitor setting out what had occurred in those proceedings. She incurred costs in so doing.

6. The wife incurred unnecessary costs because of the husband’s refusal to agree to a cessation of the proceedings in Country D and his actions in continuing those proceedings despite being ordered not to do so. The husband was well aware of the orders restraining him from pursuing the Country D litigation and in cross-examination said that the properties were in Country D and that nothing could prevent him from pursuing his application in Country D.

House insurance

1. On two separate occasions the husband was ordered to pay house insurance. He declined to provide documents to the wife evidencing the payments.

Filing of affidavits

1. The husband failed to file trial affidavits in accordance with orders made on 8 September 2017, necessitating the making or further orders on 20 November 2017.

The mortgage of the former matrimonial home

1. The circumstances of this mortgage were fully canvassed in the reasons for judgment where I recorded, at paragraph 56 and following:

   56. The orders of the Full Court made in January 2018 restrained the husband from encumbering [Suburb C] by any amount in excess of $150,000. The husband mortgaged the property for $182,000.

   57. In cross-examination, the husband said that he was aware of the order of the Full Court but that he needed the extra money.

   58. He displayed no remorse or understanding of the serious nature of his breach of orders and it was clear that his attitude to any order made by the Court was that he would ignore it if it did not suit him.

   59. It was also clear that he believed that his solicitor had assisted him in the breach by finding the lender and witnessing his signature on the mortgage. Some of the money was then paid to the solicitor.

2. The wife was not informed that the husband had borrowed a larger sum than that permitted by the Full Court and the full picture only came to light because of subpoenas issued in the wife’s case. This despite the fact that the orders of the Full Court required him to provide the wife with copies of all relevant documents so that the wife could “determine the husband’s compliance’ with the orders.

3. The wife incurred unnecessary costs in obtaining information that should have been provided to her by the husband.

CONCLUSION

1. Having regard to all of these matters, I am satisfied that the husband should pay the wife’s costs of the proceedings. However, she seeks only the costs thrown away by his conduct in the course of the proceedings which have been quantified, on an indemnity basis, at $113,960. An itemised bill of costs has been provided and was served upon the solicitors for the husband.

SHOULD COSTS BE AWARDED ON AN INDEMNITY BASIS?

1. In Colgate-Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225, Sheppard J stated, in relation to indemnity costs:

   Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152 evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp);the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724(Court of Appeal); Crisp v Kent (SC(NSW)(CA), 27 Sept 1993, unreported) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

2. In this litigation, the husband has caused loss of time to the Court and to the wife; he has refused an offer of compromise that was entirely reasonable; his actions were, in many instances directly contrary to orders of the Court or directions; he failed to do that which he ought to have done and he did that which he ought not to have done. The cumulative consequence of the husband’s behaviour leads to the conclusion that he should pay costs on an indemnity basis.

SHOULD COSTS BE QUANTIFIED OR ASSESSED?

1. Counsel for the husband submitted that, if costs were to be awarded against the husband, the Court should not accept the assessment of the wife’s solicitors, contained in their itemised memorandum, but should order that costs be paid as assessed or agreed.

2. Whilst that submission has some power, it does not take into account the manner in which the husband has behaved throughout the whole of the proceedings in refusing to comply with orders and directions and frustrating the process of the litigation at every turn.

3. In the reasons for judgment dated 18 April 2018, I stated:

   63. There are no proceedings on foot to deal with the husband for what might be seen as a flagrant disregard of orders but the consequence of his actions is that it must be found that he will breach any order made by the Court that does not suit him.

1. I have no confidence, based on the husband’s conduct throughout the proceedings, that he will do what is necessary to facilitate a proper assessment of the costs but rather that he will thwart that process at every opportunity. The husband has no funds available to pay for the preparation of any assessment of costs by a qualified assessor and he has not, in the past, complied with orders that he contribute to the costs of single experts.

2. Unless costs are quantified, it is unlikely that a sum will ever be settled and there is no likelihood of any agreement being reached.

3. I do not consider that the costs itemised by the solicitor for the wife are manifestly excessive when considered in the context of litigation that proceeded for over three years and was thwarted by the husband’s failure at every stage to do that which he was obliged to do. The memorandum was detailed and had been served upon the solicitors for the husband. No particular objection was taken to any item.

4. However, I accept that an assessment by a qualified costs assessor might result in some items being removed from the memorandum as submitted and, for more abundant caution, I will quantify the sum to be paid at $90,000.

5. I will order that the costs be assessed at $90,000.

HOW SHOULD THE PAYMENT OF COSTS BE SECURED?

1. The wife sought an order that, in the event that the husband did not comply with any order for the payment of costs, she should retain her interest in the Country D properties and that the relevant order made on 18 April 2018 be discharged.

2. On behalf of the husband, counsel submitted that the order as sought by the wife was an order pursuant to s79A of the Family Law Act 1975 (Cth) and that the evidence did not satisfy the criteria applicable to the exercise of that power.

3. I agree.

4. However, counsel for the husband conceded that the Court had wide powers in relation to both costs and the enforcement of orders and that, firstly, any order for costs could be secured against the Country D properties and, secondly, the order requiring the wife to transfer her interest in those properties could be stayed pending the husband’s compliance with any order for costs.

5. The orders will achieve that result.

I certify that the preceding fifty-nine (59) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 18 October 2018.

Associate:

Date:  18/10/2018