KRAUTZ & KRAUTZ
[2006] FMCAfam 203
•25 May 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KRAUTZ & KRAUTZ | [2006] FMCAfam 203 |
| CHILD SUPPORT– Security for costs – relevant considerations under s.117 of the Family Law Act 1975 – application refused. EVIDENCE – Admissibility of letter including ‘without prejudice’ offer of settlement – letter not within an exception under s.131(2)(g)(h) of the Evidence Act 1995 – letter inadmissible. |
| Evidence Act 1995, ss.131(1), 131(2)(g), 131(2)(h) Family Law Act1975, ss.117, 117(2A) Married Women’s Property Act 1882 |
| Adult Guardian & Mother’s Parents & B & Child Representative [2002] FamCA 874 Delaney J, Security for Costs (Law Book Company, Sydney, 1989) |
| Applicant: | GRAHAM ARTHUR KRAUTZ |
| Respondent: | ANN-MAREE KRAUTZ |
| File number: | MLM 3701 of 2005 |
| Judgment of: | Riethmuller FM |
| Hearing date: | 1 May 2006 |
| Date of last submission: | 1 May 2006 |
| Delivered at: | Melbourne |
| Delivered on: | 25 May 2006 |
REPRESENTATION
| Solicitor for the Applicant: | Mr Bacon |
| Solicitors for the Applicant: | Manby & Scott Lawyers |
| Counsel for the Respondent: | In person |
ORDERS
The application filed on 20 April 2006 be dismissed.
There be no order as to costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLM 3701 of 2005
| GRAHAM ARTHUR KRAUTZ |
Applicant
And
| ANN-MAREE KRAUTZ |
Respondent
REASONS FOR JUDGMENT
The applicant in this case seeks a security for costs order against the respondent in the following terms:
1.The respondent pay the applicant’s solicitors the sum of $4000.00 as security for costs in respect of the application listed for hearing on 8 June 2006 within 14 days.
2.In the event that the respondent fails to comply with order 1 hereof the respondent’s response herein be struck out and summary judgment entered for the applicant pursuant to rule 13.07 FMCR.
The application was filed on 28 April 2005. The application is for final orders in the following terms:
1.The Child Support Agreement entered into between the parties on 6 December 2000, registered with the Child Support Agency on 31 January 2001 and filed herewith (“the Agreement”) be deemed registered in this Court pursuant to the Federal Magistrates’ Court Rules.
2.Pursuant to s.98 Child Support Assessment Act, the Agreement be hereby discharged with effect from 1 October 2001.
3.From the above date of discharge of the Agreement, the Child Support Registrar calculate the Child Support payable by the applicant to the respondent as regards the children Jarrod Graham Krautz (born 11 August 1993) and Emma Ann Krautz (born 17 June 1995) (‘the children”) in accordance with the administrative formula contained in s.36 Child Support Assessment Act.
The respondent wife simply seeks orders that the husband’s application be dismissed and that he pay her costs of and incidental to the response or such other orders as the court sees fit.
In support of the security for costs application, the husband relied upon an affidavit setting out, in brief terms, the background facts. The parties were married in 1990 and separated in 1999. They have two children, JARROD GRAHAM born 11 August 1993 and EMMA ANN KRAUTZ born 17 June 1995 who live with the mother. The parties attended a conciliation conference on 31 March 2006 however, the matter did not settle.
Whilst there has been a long history of litigation between the parties, the husband says that ‘it is not particularly relevant to these interim proceedings’. The husband says that he has a strong prima facie case to have an existing child support agreement discharged, on the basis that the business he was running ‘collapsed’ and that he has since become bankrupt and his health has deteriorated.
Shortly before the conciliation conference, the respondent terminated her instructions to her solicitors, which the husband believes was caused by her inability to fund her own representation in the proceedings. The wife’s financial statement indicates that she has an income of around $466.00 per week, which in the context of certain circumstances where she has two children to maintain, shows little financial capacity to fund these proceedings.
The husband‘s solicitor expressed a concern that if he is successful, the wife will be unable to meet a costs order and therefore seeks an order for security for costs in the sum of $4,000.00.
Letter from the wife to the husband
At the hearing of this application the solicitor for the husband sought to tender a letter dated 20 April 2006 from the wife to the husband. The letter included an offer expressed to be ‘without prejudice’ to settle the proceedings for a particular sum. The amount of the offer was less than the total sum that the applicant would have to pay if the agreement remained in place until the children turned 18. The letter was clearly a “communication…in connection with an attempt to negotiate a settlement of the dispute” under section 131(1) of the Evidence Act 1995.
The husband argued that the letter supported the application by showing that the wife was acting unreasonably. Section 131(1) of the Commonwealth Evidence Act 1995 makes this offer inadmissible unless it falls within an exception in s.131(2). As best as I can ascertain, the husband was relying upon s.131(2)(g) which provides:
(2) Subsection (1) does not apply if:
(g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence;
The offer made by the respondent to the applicant was for a sum less than her full entitlements pursuant to the child support agreement and in the circumstances could not be seen as demonstrating any mala fides on her behalf. An offer of less than the full amount in which she is entitled to under the agreement is an offer of a compromise and in the context of this case is an entirely proper step for her to take.
Mr Bacon also relied upon s.131(2)(h) which provides
(2) Subsection (1) does not apply if:
(h)the communication or document is relevant to determining liability for costs;
This does not appear to me to be a case with respect to liability for costs, but rather security for costs. I do not see any basis upon which the letter is admissible.
Security for costs
Security for costs generally
The husband’s solicitor took as his starting point the proposition that the wife was ‘in substance’ the applicant in the proceedings on the basis that the child support agreement had been registered with the Child Support Agency for collection and enforcement, and that the Child Support Agency were in fact pursuing recovery of the child support payable pursuant to the agreement.
The husband’s solicitor relied upon Willey v Synan [1935] HCA 76; (1935) 54 CLR 175. The plaintiff in that case was a member of a ship’s crew who travelled from New Zealand to Melbourne. He claimed to have found a number of English silver coins on board the vessel which customs officials took possession of in Melbourne. The plaintiff made a claim for the coins to the Collector of Customs who sent the plaintiff a notice. The notice advised that the plaintiff was required to enter an action against the Collector of Customs for recovery of the goods and that if the plaintiff did not so commence proceedings, then the plaintiff would forfeit the goods in four months. As a result, the plaintiff commenced proceedings in the High Court. The plaintiff resisted an application for security for costs on the basis that whilst he was ordinarily resident beyond the Commonwealth, he was really a party attacked, and not a party attacking. Therefore, he was substantially in the position of a defendant and should not be ordered to give security.
Dixon J (as he was then) noted that the Collector of Customs had proceeded to issue a forfeiture notice rather than simply allowing the plaintiff to sue for the return of the monies. Under the law in effect at the time this meant that the Collector of Customs must have assumed, for the purpose of obtaining forfeiture, that the plaintiff was prima facie entitled to the coins. As a result, Dixon J concluded that the Collector of Customs was the ‘actor’ in forcing the proceedings and had cast the onus of taking proceedings upon the owner or supposed owner of the coins. In the absence of such provision, it would have been incumbent on the Attorney General or the party making the seizure to file in the court of record an information in rem. For this reason, it was considered the plaintiff was not liable to give security for costs.
In Re Travelodge Australia Pty Ltd (1978) 21 ACTR 17 Blackburn CJ applied the principal set out by Dixon J in Willey v Synan in refusing to order security for costs against a foreign plaintiff who had brought proceedings to oppose compulsory acquisition of shares as a result of a takeover offer.
Neither case is authority for the proposition that a respondent ought to provide security for costs, but shows that where the plaintiff is not the ‘actor’, or ‘attacker’ it is generally not appropriate to order security for costs against the plaintiff.
Similarly in Re: Amalgamated Mining Services Pty Ltd v Warman International Ltd & Anor (1988) 88 ALR 63, Wilcox J stated:
5. The relevant principle was discussed by Scrutton LJ in Maatschappij Voor Fondsenbezit v Shell Transport and Trading Company (1923) 2 KB 166 at pp 176-178. In that case an application was made for an order for security for costs against one of the defendants, the contention being that the defendant was, in reality, a plaintiff because of a cross-claim made by it. In substance, Scrutton L.J. held that the relevant defendant had been forced into the proceedings in order to protect its property interests. His Lordship set out the following principle at p 177:
"The Court always, as I understand, endeavours to be guided by the substance and not by the form of the matter, and orders security for costs against the foreign attacker, not against the foreigner defending himself or his property from attack. Thus in interpleader, the defendant to the issue may be ordered to give security to the plaintiff if the defendant is really the aggressor: ..."
His Lordship then went on to consider the substance of the matter and to ask the question: "Who is the attacker and who the defender in this case?".
In that case the defendant had written to the plaintiff seeking undertakings that the plaintiff would desist from reverse engineering pump parts and selling or offering for sale such reverse engineered pump parts, and threatening to bring proceedings within 21 days if such undertaking was not provided. Not surprisingly the plaintiff commenced proceedings under the Trade Practices Act 1974 and Copyright Act 1968. Wilcox J concluded:
14.If one applies the homely test adopted by Scrutton L.J. of asking who, in the litigation, was the attacker and who was the defender, I think it must be said that the first attack came in the letter from by Phillips Fox. Although the letter was not written directly to Amalgamated Mining, it is that company which has an interest in defending and, in a commercial sense, probably has very little alternative other than to take that course. I think that it is an accurate analysis of the matter to say, therefore, that it is the respondents to the principal proceeding who are the attackers and that Amalgamated Mining is, in substance, the defender.
15.So analyzed, it seems to me that the principle which was applied in the cases to which I have referred equally applies in the present case. It dictates the conclusion that the application for an order for security for costs should be refused. It follows that I should dismiss the notice of motion. The respondents in the principal proceedings must pay the costs of the applicant in the principal proceeding to the notice of motion.
Using a similar test in this case, it is clear that it is the husband who is that attacker, bringing an attack upon the child support agreement that has been in place for some time, and the wife who is the defender. It is the husband that seeks orders that would alter the existing legal relations between the parties.
As set out in Delaney J, Security for Costs (Law Book Company, Sydney, 1989), traditionally security would only be ordered against a person in substance the plaintiff on the basis that security should not be ordered against persons compelled to litigate. Thus, a person who filed a bill in equity to restrain an action at law (prior to the fusion of law and equity) was considered to be a person who was not, in substance, the plaintiff: see Watteeu v Billam (1849) 64 ER 586. As such the usage of the terms applicant or plaintiff in this context has been given a special meaning. In Crystal Theatres Ltd v Fuss (1940) 57 WN (NSW) 107 the plaintiff, in this context, was interpreted as one who ‘claims depravation of a legal right’.
However, at common law, security for costs orders have been made as a condition of leave to defend on a summary judgment application; see, for example, Ritter v Northside Enterprises Pty Ltd [1975] HCA 18; (1975) 132 CLR 301 and Christie v Robinson (1907) VLR 118.
In King v The Commercial Bank of Australia Limited [1920] HCA 62; (1920) 28 CLR 289 at 292, Rich J said:
The Legislature, however, has left absolute discretion to the Court, and has done so without prescribing any rules for its exercise. In these circumstances no rules can be formulated in advance by any Judge as to how the discretion shall be exercised. It depends entirely on the circumstances of each particular case. The discretion must, of course, be exercised judicially, which means that in each case the Judge has to inquire how, on the whole, justice will be best served…
This comment of Rich J was adopted by Brennan J in Lucas v York (1983) 58 ALR 20.
I also note that at least prior to the Married Women’s Property Act 1882 the traditional rule was that the wife had the authority to employ legal counsel at the expense of her husband: see King v King [1943] 2 All ER 253. In contemporary law in Australia these principles concerning married women do not appear to me to have any relevance to the current application or provide any real assistance.
Under the Family Law Act 1975, whilst such common law principles may provide some guidance or assistance in analysing a particular case, ultimately the discretion is exercised having regard to the legislative scheme and matters set out in s.117.
Relevant considerations under the Family Law Act
In order to determine whether or not to make an order for security for costs in child support proceedings, one must have regard to the source of the power to make such an order which is section 117 of the Family Law Act1975. It provides as follows:
(1)Subject to subsection (2) and sections 117AA and 118, each party to proceedings under this Act shall bear his or her own costs.
(2)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) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just. (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
(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.
(3)To avoid doubt, in proceedings in which a child representative has been appointed, the court may make an order under subsection (2) as to costs or security for costs, whether by way of interlocutory order or otherwise, to the effect that each party to the proceedings bears, in such proportion as the court considers just, the costs of the child representative in respect of the proceedings.
(4)However, in proceedings in which a child representative has been appointed, if:
(a) a party to the proceedings has received legal aid in respect of the proceedings; or
(b) the court considers that a party to the proceedings would suffer financial hardship if the party had to bear a proportion of the costs of the child representative;
the court must not make an order under subsection (2) against that party in relation to the costs of the child representative.
(5)In considering what order (if any) should be made under subsection (2) in proceedings in which a child representative has been appointed, the court must disregard the fact that the child representative is funded under a legal aid scheme or service established under a Commonwealth, State or Territory law or approved by the Attorney‑General.
Decisions such as this must be approached by having regard to the factors set out in section 117. The Full Court of the Family Court of Australia said in Adult Guardian & Mother’s Parents & B & Child Representative [2002] FamCA 874 at [61]:
61.In deciding whether or not there are circumstances which would justify the exercise of the discretion to make an order in favour of the Adult Guardian for security for costs to be incurred by the Guardian in relation to B's appeal, we propose first to consider those matters referred to in Luadaka and Jones which might be said to touch upon the merits or nature of the appeal, and then secondly to consider matters of a financial nature as discussed in those authorities.
In Luadaka & Luadaka [1998] FamCA 1520, (1998) FLC 92-830, the Full Court of the Family Court considered the effect of s.117:
61. In our opinion, when dealing with an application for security for costs the general rule provided for in s 117(1) applies, namely that subject to s 117(2) each party to proceedings shall bear his or her own costs. However, if the court is satisfied that there are circumstances that would justify an order then the court may, subject to s 117(2A), make such order for security for costs as the court considers just. It is not necessary to establish that there are special circumstances. However, it is necessary to establish that there are justifying circumstances. The decision to order security for costs is discretionary, both as to whether to order security, and as to the amount to be secured.
62. The purpose of an order for security is to secure justice between the parties by ensuring that an unsuccessful party does not occasion injustice to the other.
The court then set out a list of factors, in addition to those set out in s.117(2), which should be addressed when considering whether to order security for costs, namely whether:
a)the applicant has the means to satisfy an order for costs if he or she is unsuccessful;
b)the applicant’s prospects of success;
c)the claim is bona fide;
d)costs would be oppressive or stifle the litigation;
e)the litigation concerns a matter of public importance;
f)there was any delay in bringing the application; and
g)it would be difficult or expensive to enforce an order for costs.
A similar approach has been taken in Alexander and Alexander (1977) FLC 90-257 and Jones & Jones[2001] FamCA 460, (2001) FLC 93-080, as recounted in O & G [2003] FMCAfam 192; and MIL &EL [2005] FamCA 1257.
Findings
In considering this application, I note that the wife is not said to be a party who is out of the jurisdiction, nor a nominal party, nor a trustee, receiver or manager, or a corporation (the categories often considered relevant in security for costs applications).
The circumstances of this case are that the wife has not propounded any claim for any particular remedy. She has a pre existing entitlement to child support at the rate set out in the agreement entered into between the parties. She is doing nothing more than resisting an application by the husband to reduce her entitlements. It is the husband that is propounding a claim, and the husband that applies to the court seeking relief. It is not the wife’s choice to litigate. If a security for costs order is made against the wife, it appears likely that it will stifle her defence and do no more than stop her from defending her pre-existing legal entitlement to support for the children.
Turning to the relevant provisions of s.117(2) of the Family Law Act 1975, I conclude that:
a.The respondent, on the applicant’s case, appears to be likely to be impecunious; however mere impecuniosity, of itself, will not support an order for security: see Jones & Jones [2001] FamCA 460; (2001) FLC ¶93-080.
b.Neither party is legally aided;
c.The husband claims that the offer of the wife to settle for less than her current entitlements demonstrates some kind of misconduct in the litigation. With respect to this, I find that the letter is not admissible; and even if the letter were admissible, it appears to me that the letter does not demonstrate any misconduct by the wife, but rather that she has more than adequately fulfilled her obligations by making an offer to settle for less than her current legal entitlements.
d.This subsection of section 117(2A) does not appear to apply in this case.
e.The father says that he has good prospects in his application, if accepted with respect to his business endeavours and health issues. However, it is appropriate that the wife should be able to test the husband’s evidence on these matters as it is difficult to predict what the cross examination might produce: see generally Webster & Anor v Lampard [1993] HCA 57; (1993) 177 CLR 598. The husband’s case is not so overwhelming that one would even contemplate summary judgment, nor is the husband’s case one which shows that the opposition by the wife is colourable or in some other way conduct which should attract the exercise of the discretion to order her to pay security in order to resist the claim.
f.The applicant again relies upon the letter, which is referred to above.
g.Any security order for costs will effectively deny the wife the opportunity to defend this claim by the husband.
I should also deal squarely with the argument raised by Mr Bacon that as the husband will be forced to meet the obligations under the child support agreement, the wife is therefore in substance in the position of the claimant, and that the husband must bring an application to the court to resist the claim. It appears to me that this argument is ill-conceived for two reasons:
a)First, these proceedings do not concern a claim for enforcement of the payments payable under the agreement. It is for the Child Support Agency (in this case) to enforce the agreement, and they will do so in such manner as the Child Support Registrar deems fit. There is nothing to stop the husband defending enforcement proceedings if the husband says that the monies are not owing pursuant to the administrative assessment of child support. The husband would not obtain a security for costs order against the Child Support Agency in an enforcement proceedings simply because there would be no doubt that the Agency would meet any costs orders made against it, should that transpire.
b)Secondly, to the extent the scheme requires a person to apply to the court, the principles in Willey v Synan may assist an applicant in resisting a security for costs order, but they offer no support for the proposition that a respondent should be ordered to provide security for costs.
c)Thirdly, the administrative assessment process should not be equated to a form of court order. The child support scheme is specifically designed to administratively create obligations to pay child support set at appropriate levels. A fundamental objective of the scheme has been to provide a method for assessing and recovering financial support for children without requiring the carers to make application to the court. The obvious practical imperative is that a large proportion of single parents do not have the financial resources to fund court proceedings. To cast the respondent to such applications into the role of an “applicant” such as to create an entitlement to security for costs orders against a respondent would defeat not only the respondent’s right to defend her existing entitlements, but also destroy an underlying benefit of the whole child support scheme.
It appears to me that it would be a rare case where a security for costs order would be made in a child support appeal or departure application.
In the circumstances it in not appropriate to order that wife provide security for costs. I therefore dismiss the application
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Riethmuller
Associate: Melissa Gangemi
Date: 25 May 2006
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