Kostou & Paganotis (No 2)
[2023] FedCFamC1F 1121
•21 December 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Kostou & Paganotis (No 2) [2023] FedCFamC1F 1121
File number(s): SYC 6803 of 2019 Judgment of: ALTOBELLI J Date of judgment: 21 December 2023 Catchwords: FAMILY LAW – COSTS – Where the wife seeks indemnity costs – Where the wife made an offer more favourable to the husband than the final orders – It is ordered that the husband pay the wife a fixed sum. Legislation: Family Law Act 1975 (Cth) s 117
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 12.17
Cases cited: Beklar & Beklar (No 2) [2012] FamCA 953
Bhatt & Acharya (Costs) [2017] FamCAFC 71
Byrnes v Brisconnections Management Co Ltd (No 2) [2009] FCA 1432
Cross & Beaumont (2008) 39 Fam LR 389; [2008] FamCAFC 68
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) & Fish & Another (2005) 33 Fam LR 123; [2005] FamCA 158
In the Marriage of I & I (No. 2) (1995) FLC 92-625; [1995] FamCA 80
Kohan and Kohan (1993) FLC 92-340; [1992] FamCA 116
Kostou & Paganotis [2023] FedCFamC1F 737
Lenova & Lenova (Costs) [2011] FamCAFC 141
Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664; [2015] FamCAFC 157
Parke & The Estate of the Late A Parke (2016) FLC 93-748; [2016] FamCAFC 248
Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
Phillips & Hansford (2020) FLC 93-941; [2020] FamCAFC 28
Division: Division 1 First Instance Number of paragraphs: 46 Date of last submission/s: 8 November 2023 Date of hearing: In Chambers Place: Sydney Solicitor for the Applicant: Lexington Law Group Counsel for the Respondent: Mr Livingstone Solicitor for the Respondent: Taylor & Scott Lawyers ORDERS
SYC 6803 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS PAGANOTIS
Applicant
AND: MR KOSTOU
Respondent
ORDER MADE BY:
ALTOBELLI J
DATE OF ORDER:
21 DECEMBER 2023
THE COURT ORDERS THAT:
1.Within 28 days of the date of this order, the Respondent husband is to pay the costs of the Applicant wife fixed in the sum of $50,000.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kostou & Paganotis has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALTOBELLI J:
INTRODUCTION
The applicant wife (“the wife”) seeks an order for costs against the respondent husband (“the husband”) in respect of the costs incurred from 31 May 2023 to the conclusion of the final hearing of this matter, and in respect of this application for costs. The orders for costs are sought on an indemnity basis in the sum of $128,686.25, or in the alternative, the costs incurred for two interim applications filed prior to the final hearing and the costs of the expert Mr EE (“the Single Expert”) be assessed on an indemnity basis, and all other costs from 31 May 2023 be assessed on a party/party basis. The precise orders sought are as follows:
1.That the Husband pay the costs of the Wife incurred in these proceedings from 31 May 2023, such costs including costs rendered by the Wife's solicitors, counsel and valuer or other expert, to be assessed by the Court on an indemnity basis, such amount to be no less than $128,686.25.
2.That the Husband pay the Wife's costs of this Application.
That in the event that the Court does not deem an order for indemnity costs appropriate in these proceedings, the following Orders are sought in the alternative to Order 1 above:
3. That the Husband pay the costs of the Wife incurred in these proceedings:
a.in relation to the Application in a Proceedings of the Husband filed 30 June 2023, and the Application in a Proceedings of the Wife filed 4 July 2023, such costs including costs rendered by the Wife's solicitors, counsel and valuer or other expert, to be assessed by the Court on an indemnity basis, such amount to be no less than $16,117.75.
b.in relation to the preparation and attendance of [Mr EE] at the final hearing, to be assessed by the Court on an indemnity basis, such amount to be no less than $2,695.
c.from 31 May 2023 (not including the costs assessed by the Court as payable in relation to Orders 3.a. and 3.b. above) on a party/party basis, such costs including costs rendered by the Wife's solicitors, counsel and valuer or other expert, to be assessed by the Court in accordance with Schedule 2 and Schedule 3 to the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
The husband opposes the application for costs and seeks that the wife pay his costs incidental to these proceedings. The precise orders sought are as follows:
1.That the Wife’s Application in a Proceeding, filed 28 September 2023 be dismissed.
2.That the Wife shall pay the Husband’s costs of, and incidental to, these proceedings.
BACKGROUND
The matter was listed for final hearing between 24–26 July 2023 regarding property issues only. My reasons for judgment were provided on 31 August 2023: Kostou & Paganotis [2023] FedCFamC1F 737 (“my reasons for judgment”). The Court found that the wife was entitled to an order in her favour of 60 per cent and the husband was entitled to 40 per cent. In effect, the final orders provided for the wife to keep C Street, Suburb D NSW (“the Suburb D property”) and for the husband to keep H Street, Suburb J NSW (“the Suburb J property”). The husband was allocated $512,835 and the wife was allocated $130,000 out of joint funds with the intention that both parties would pay out the mortgages on their respective properties. The wife was also ordered to pay the husband the sum of $198,748. Where it is relevant, various passages from my reasons for judgment will be referred to or reproduced.
PRESENT APPLICATION
In support of her case, the wife relies upon the following material:
(a)Application in a Proceeding filed 4 October 2023;
(b)Her affidavit filed 4 October 2023;
(c)Written submissions filed 18 October 2023; and
(d)Written submissions in reply filed 8 November 2023.
In support of his case, the husband relies upon the following material:
(a)Response to Application in a Proceeding filed 31 October 2023;
(b)His affidavit filed 31 October 2023; and
(c)Written submissions filed 1 November 2023.
LEGAL PRINCIPLES
The law relating to costs in family law proceedings is well settled and is set out in detail in the Full Court decision of Parke & The Estate of the Late A Parke (2016) FLC 93-748.
An application for costs is governed by s 117 of the Family Law Act 1975 (Cth) (“the Act”). Section 117(1) of the Act sets out the general presumption that each party to the proceedings shall bear their own costs. This is subject to s 117(2), which provides that:
If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as the court may make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
Section 117(2A) sets out the matters that the Court is to have regard to:
(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.
Although the Court is required to consider each of the abovementioned factors, it is plain that their relevance to a particular matter will depend upon the circumstances of that case and they should be considered in that light. That is, no one factor prevails over another and it is a question of the weight that is to be afforded to each of the relevant factors depending on the circumstances of the matter (Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664 at [24]). There is also “nothing to prevent any factor being the sole foundation for an order for costs” (Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) & Fish & Another (2005) 33 Fam LR 123 at [41]).
Whilst the applicant in a costs application must establish the circumstances justifying the making of a costs order, the Court is not limited to making such an order only in what has been described as a “clear case” (Penfold v Penfold (1980) 144 CLR 311).
DISCUSSION
Costs orders are made at the Court’s discretion based on the factors listed in s 117(2A) of the Act. The Court must consider all the factors in s 117(2A), and no one factor takes precedence over another (In the Marriage of I & I (No. 2) (1995) FLC 92-625). A discussion of these considerations follows.
Section 117(2A)(a): Financial circumstances of the parties
A party’s inability to pay costs is not a bar to a costs order being made if that party’s conduct is found to warrant such an order (Cross & Beaumont (2008) 39 Fam LR 389) and mere impecuniosity is not a reason per se for declining to make a costs order (see, e.g., Lenova & Lenova (Costs) [2011] FamCAFC 141; Bhatt & Acharya (Costs) [2017] FamCAFC 71).
The wife submits that the parties’ respective financial circumstances are contained in my reasons for judgment and there can be no dispute that the husband has the capacity to meet an order for costs as sought by the wife.
The husband deposes at paragraph 21 of his affidavit that the first tranche of settlement proceeds he received under final orders ($513,190.06) was applied to discharge the mortgage on the Suburb J property ($497,972), as intended. He then deposes that the second tranche of settlement proceeds received ($199,187.97) will be applied to defending this costs application as well as applied to his savings. Subject to these changes, his financial circumstances remain as they were found by the Court.
This seems to be a tacit acceptance by the husband that he has the capacity to meet the order for costs as sought by the wife. Indeed, the Court finds there is no evidence to indicate a costs order should not be made against the husband due to his financial circumstances.
Section 117(2A)(c): The conduct of the parties
Firstly, the wife submits that notwithstanding the comments made by me during the course of the hearing, in particular, following the conclusion of the husband’s evidence, the husband elected to continue the proceedings. Secondly, throughout the proceedings, the husband insisted on an order that L Street, Suburb K NSW (“the Suburb K property”) owned by the wife and her brother be sold in order to determine the value of the property. The wife submits this was unnecessary and unsuccessful, placing a further barrier between the parties and a resolution by consent.
The husband did not make any submissions in relation to the wife’s first contention. I made findings in relation to the parties’ evidence at [19] of my reasons for judgment. Although both parties were poor, and thus unreliable, historians, the Court found there to be no credit issues as this was a genuine lack of understanding, not obfuscation. The wife presented as more intelligent and financially articulate than the husband. Therefore, the Court does not agree that the conduct of the husband throughout the course of the final hearing or his evidence specifically warrants a costs order to be made against him.
In relation to the Suburb K property, the value of the wife’s one-half share was a major issue in contention at final hearing. The Single Expert Report valued that share at $950,000 (and the property at $1,900,000), a value which the wife accepted but the husband disputed. The husband submitted that it is not possible to accurately value the wife’s interest in the Suburb K property and therefore, it needed to be sold and determined by the market. The Court rejected the husband’s submission and accepted the value as determined by the Single Expert.
In his affidavit at paragraphs 8–10, the husband deposes that the Single Expert provided three valuation reports of the Suburb K property: $1,825,000 as at 9 July 2021, $2,235,000 as at 6 May 2022, and $1,900,000 as at 20 March 2023. The husband submits that the volatile rise ($410,000) and fall ($335,000) was difficult to understand and was worthy of investigation. This was furthered by the Court declining leave to rely on the opinion of an adversarial expert who opined a value of $570,000 more than the value provided by the Single Expert and questioned the valuation method used.
Further, the husband contends the wife’s conduct in relation to the Suburb K property increased “an air of suspicion and mistrust” (paragraph 16 of his written submissions). On or about 18 July 2023, the husband discovered that the wife had lodged a development application with the local council for the Suburb K property in mid-2023 and she had failed to disclose this to him, the Single Expert and the Court. The husband deposes that her evidence in relation to this failure to disclose during cross-examination was to the effect that she did not think there was a need. The Court accepts that the wife had an obligation to disclose this information.
Counsel for the husband submits that the Single Expert conceded a number of questions put to him by the writer. The Court notes that the written submissions do not indicate which questions were conceded to. Counsel further submits that the husband, nor his advisors, wasted the Court’s or the wife’s time by pursuing an irrelevant issue regarding the Suburb K property, or otherwise. It is contended that whilst the Court ultimately accepted the Single Expert’s evidence, the husband acted reasonably in seeking to test the evidence and the quantum of the variations in property value would have baffled most litigants, particularly a tradesperson with financial literacy issues. The Court notes that the husband was represented by an experienced law firm and counsel throughout these proceedings.
Several relevant findings were made in my reasons for judgment. Firstly, counsel for the husband did not suggest to the Single Expert in cross-examination any other alternative value of the Suburb K property ([27] of my reasons for judgment). The Single Expert gave evidence that interest rates had increased, and demand for this type of real estate had decreased, and the value had decreased as the marked “softened” ([24] of my reasons for judgment). The Single Expert accepted that the fact that a development application had been lodged is relevant information, but insisted it had no significant impact on the value of the property ([26] of my reasons for judgment). Despite all of this evidence given, and heard by the husband, counsel for the husband still finally submitted that the Suburb K property needed to be sold in order to determine its current market value.
The husband’s application was also contingent on the hypothetical nature of the development application, that is, the existence of such an application did not mean it will be granted and, if granted, would be on terms viable and acceptable to the tenant. In this context, the husband’s insistence that the Suburb K property needed to be sold in order to determine its value was confusing. The Court accepts the wife’s contention that this was unnecessary and unsuccessful and would have placed barriers between the parties in reaching a resolution by consent.
The husband also submits that the Court’s observations as to the wife’s Financial Statement during the trial is relevant to her conduct. For example, her income was $1,414 and her outgoings were $3,975 and the husband held serious concerns as to how she was funding the massive shortfall. The Court has already outlined its findings in relation to both parties being relatively unsophisticated and poor historians of their financial affairs, and no adverse findings of credit were made against the wife in the substantive proceedings in respect of this.
Section 117(2A)(e): Whether a party has been wholly unsuccessful in the proceedings
The wife submits the husband has been wholly unsuccessful from the date of an offer that was provided to him on 30 May 2023. This will be discussed further below.
Section 117(2A)(f): Offers of settlement
The wife submits her offer of 30 May 2023 was more favourable to the husband than the result of my reasons for judgment. The wife deposes that two proposals were offered to the husband. In the first proposal, she was to retain the Suburb D property and the associated mortgage (“Proposal 1”) and in the second proposal, the husband was to retain the Suburb D property and the associated mortgage (“Proposal 2”). Both offers represented a division of 60 per cent of the pool to her and 40 per cent to the husband.
The solicitor for the wife annexed to her affidavit a spreadsheet comparing Proposal 1 to what the husband ultimately received pursuant to the final orders and concludes Proposal 1 was more favourable to the husband. Counsel for the husband concedes the husband would have been better off accepting Proposal 1 as it would have seen him receive $792,835 instead of $711,583 (paragraph 13 of his written submission).
The husband deposes to the offer that was received from paragraph 14 of his affidavit. He submits there are differences in values comparing the effect of the wife’s offer and the Court’s balance sheet containing its findings. The wife’s balance sheet in her offer included three liabilities, amounting $166,886, that the husband did not agree to, and which the Court ultimately excluded. Further, the husband did not agree with the value of the Suburb K property as provided by the Single Expert relied on in her offer. The husband concludes he was not in a position to accept the wife’s offer which had only been left open for acceptance for 14 days. Counsel for the husband submits that the main reason for the “disconnect” between the wife’s offer and my reasons for judgment is that it included the Country B properties which the Court excluded. Counsel submits that the husband was not acting in an unreasonable manner by including those assets in his considerations in circumstances where the wife’s offer does the same.
However, none of these submissions change the fact that the husband would have been better off accepting Proposal 1. The Court has also found against the husband in relation to the disputed value of the Suburb K property. The Court accepts that the husband has been wholly unsuccessful from the date the offer was not accepted.
Counsel for the husband objects to the date at which this is calculated. The wife seeks costs from the date of 31 May 2023, being the day immediately after the wife sent the husband the offer. Therefore, the basis of the claim seems to be that the husband should have accepted the offer on the day he received it. Counsel relies on Beklar & Beklar (No 2) [2012] FamCA 953 where Ryan J held at [11] that a “serious offer of settlement should be made in circumstances where it enables serious consideration by the person receiving it” and a tight turnaround time imposed in offers “detracts from the weight that should be attached to it”. The Court accepts counsel’s submission that the costs should not be calculated from the day after the offer was received.
The offer was open for a period of 14 days. The wife submits that the husband did not seek further time to consider the offer, nor make any counteroffer that aligned with the offer, and the offer was made after all valuations had been obtained. The Court accepts that 14 days is a reasonable amount of time for an offer to be considered.
Therefore, the Court finds the husband has been wholly unsuccessful from the date at which the wife’s offer dated 30 May 2023 lapsed, being 13 April 2023.
Section 117(2A)(g): Any other relevant matters
The husband contends the amount of costs incurred by the wife from the date of the offer are very high. Counsel for the husband submits the wife claims to have spent $74,978 on solicitor’s fees from the offer to trial, which equates to 136 hours, allowing for a rate of $550 per hour. At the date of the wife’s offer, she had already prepared numerous documents and it is not the case that the trial affidavit or Financial Statement filed would have had to be prepared from a “clean slate” by someone unacquainted with the matter.
Further, the husband deposes to the wife’s costs notice filed 22 July 2023 which estimated future solicitor’s fees to be $53,700 but she now asserts a figure of $74,978 (making up a difference of approximately $21,000). The husband states his solicitors wrote to the wife’s solicitors requesting their office and trust account ledgers but have not received such documents to date.
The wife’s solicitor submitted that she incurred significantly more costs as a result of the husband’s conduct. For example, responding to the husband’s application for an adversarial expert, the wife being required to file an application due to the husband’s failure to accept reasonable proposals for retrospective valuations, the husband’s repeated request for disclosure that had been previously provided, and the husband’s insistence that the Single Expert needed to be called at hearing. The Court finds this is a plausible explanation for the increase in the wife’s costs.
CONCLUSION
For these reasons, I am satisfied that it is in the interests of justice for an order for costs to be made in favour of the wife, from 13 April 2023 to the conclusion of the final hearing.
INDEMNITY COSTS
It is well settled that when costs are ordered by this Court, such costs are payable on a party‑party basis. It has been held that the Court should not lightly depart from the ordinary rule (Kohan and Kohan (1993) FLC 92-340).
The provision relating to the calculation of costs is governed by r 12.17(1) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) which is as follows:
12.17 Method of calculation of costs
(1) The court may order that a party is entitled to costs:
(a) of a specific amount; or
(b)as assessed on a particular basis (for example, party and party, solicitor and client or indemnity); or
(c) to be calculated in accordance with the method stated in the order; or
(d)for part of the proceeding, or part of an amount, assessed in accordance with Schedule 3.
The rule further provides that:
(3) In making an order under subrule (1), the court may consider the following:
(a) the importance, complexity or difficulty of the issues;
(b)the reasonableness of each party’s behaviour in the proceeding including by having regard to the matters set out in subrule 12.08(2);
(c) the rates ordinarily payable to lawyers in comparable cases;
(d)whether a lawyer’s conduct has been improper, unfair, unreasonable or disproportionate;
(e)the time properly spent on the proceeding, or in complying with pre‑action procedures; and
(f)whether expenses (paid or payable) are fair, reasonable and proportionate.
In relation to an award of indemnity costs, the Full Court decision of Phillips & Hansford (2020) FLC 93-941, helpfully summarises the position as follows:
35.Indemnity cost orders are made only in exceptional cases (Kohan and Kohan (1993) FLC 92-340; Limousin v Limousin (Costs) (2007) 38 Fam LR 478; D & D (Costs) (No. 2) (2010) FLC 93-435).
36.Whilst the categories of cases in which indemnity cost orders may be awarded are not closed, it is accepted that such costs may be ordered where a case was pursued with “wilful disregard of known facts or clearly established law” and where there has been “an imprudent refusal of an offer to compromise” (Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233).
37.In relation to the first category, it has been said that indemnity costs may be awarded where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401) and where “a party persists in what should on proper consideration be seen to be a hopeless case” (J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers – Western Australian Branch & Anor [1993] FCA 70 per French J at 5).
In this case, the Court does not accept that the husband’s refusal of the offer to compromise is to a level that warrants an order for costs on an indemnity basis. This is not an exceptional case, but rather a result of the husband’s unsophistication and lack of financial literacy. No other reason for indemnity costs is apparent.
Each party should pay their own costs arising out of the costs application. There are no indicia warranting a departure from the general rule in this regard.
QUANTIFICATION OF COSTS
Rule 12.17 of the Rules sets out the methods of calculating costs. These include the Court fixing a specific amount for costs (r 12.17(1)(a)) or an order for the costs to be assessed on a particular basis (r 12.17(1)(b)).
The Full Court decision in Parke stated at [130]:
If the court is to fix a sum it should be “fixed broadly having regard to the information before the Court”…The process does not “by its very nature…envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place”
Consistent with those principles, it has been determined that where a Court orders a party to pay costs, it may be appropriate for the Court to fix a lump sum. By doing so, the Court can avoid further delay and inconvenience being occasioned by the requirement to tax a bill: Byrnes v Brisconnections Management Co Ltd (No 2) [2009] FCA 1432 at [51].
CONCLUSION
Doing the best the Court can on the evidence provided, the husband is ordered to pay the costs of the wife fixed in the sum of $50,000.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Altobelli. Associate:
Dated: 21 December 2023
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