Kyriacos and Kyriacos and Anor

[2014] FCCA 1383

FEDERAL CIRCUIT COURT OF AUSTRALIA

KYRIACOS & KYRIACOS & ANOR [2014] FCCA 1383

Catchwords:
FAMILY LAW – Costs – indemnity costs – application dismissed.

Legislation:

Family Law Act 1975

Penfold v Penfold (1980) FLC 90-800
In the marriage of Kohan (1993) FLC 92-340

Applicant: MS KYRIAKOS

First Respondent: MR KYRIAKOS

Second Respondent: MR KYRIAKOS

File Number: MLC 7947 of 2009

Judgment of: Judge McGuire

Date of Last Submission: 14 April 2014

Delivered at: Melbourne

Delivered on: 11 July 2014

REPRESENTATION

Solicitors for the Applicant: Mitrakas Savas And Co

Solicitors for the First Respondent: Schetzer Constantinou

Solicitors for the Second Respondent: GSM Lawyers Pty Ltd

ORDERS

1. The wife’s application for costs filed 22 November 2013 be dismissed.

IT IS NOTED that publication of this judgment under the pseudonym Kyriakos & Kyriakos & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 7947 of 2009

MS KYRIAKOS

Applicant

And

MR KYRIAKOS

First Respondent

MR KYRIAKOS

Second Respondent

REASONS FOR JUDGMENT

1. This is the wife’s application for costs on a party-party or, alternatively, indemnity costs basis.  She seeks an order for costs be made against the second named respondent, given an apparent acceptance by her of the first respondent husband being effectively impecunious.

2. The substantive applications were for property and children’s orders.  The latter settled on the first day of the trial.  The second named respondent is the husband’s father and was joined in the action by reason of his interest in assets being the subject of the dispute.

3. My reasons disclosed the respondents to be involved in a family group of companies under an umbrella of trusts.  I was satisfied in my reasons that the second respondent exhibited significant control over the network of businesses which operated under that.

4. There was also an issue in respect of the husband’s alleged legal or beneficial ownership of an apartment or apartments in Greece with the respondents both arguing that the second respondent and/or his wife were the legal or beneficial owners.

5. A third major issue involved a judgment debt against the first respondent husband held by a company, (omitted) Pty Ltd in a quantum of $226,000.  The wife argued that the debt should be excluded from the pool.  The respondents argued to the contrary.

6. There were issues between the parties generally as to the weight to be given to various contributions and considerations under section 75(2) of the Family Law Act (1975) (“the Act”). 

7. In his response, the second named respondent sought an inter alia order that the applicant pay his costs in a quantum of $60,000.  That application is not pursued. 

8. The wife’s application is supported by an affidavit of her solicitor, Peter Mitrakas, filed 22 November 2013.

9. That affidavit discloses the wife’s costs on a solicitor-client basis and including disbursements to be $269, 571.68 or $92, 440.20 on a party-party basis referencing the scale.

10. I note that there is no apparent distinction on the face of the affidavit as to costs incurred in the property proceedings which proceeded to trial and those incurred in children’s matters, which were settled prior to the taking of evidence.

The Law

1. Matters of costs are dealt with under section 117 of the Act.  Subsection (1) provides:

   …subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AB, 117AC, and 118, each party to proceedings under this Act shall bear his or her own costs.

2. However, a discretion in the Court to make an award of costs is enlivened in subsection (2), which states: 

   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.

3. Subsection (2A) sets out a number of mandatory references for the Court’s considerations but is not limited, in that the Court can consider, pursuant to subparagraph (g):

   …such other matters as the Court considers relevant.

4. The interrelationship between section 117(1) and section 117(2) was considered by the High Court in Penfoldv Penfold[1] where their Honours stated:

   It is an accurate decision of sec 117(1).   To say that it expresses a general rule, provided that it is firmly understood that the subsection is not paramount to sec 117(2).  As subsec (1) is expressed to be subject to subsec (2), the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs.

   Subsection (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order.  Beyond this, there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs…

   [1] (1980) FLC 90-800 at [75,053]:

5. I accept the submission of counsel for the applicant that Penfold does not require the Court to specify the justifying circumstance.  Thus, there is no particular onus on an applicant for an order for costs to convince a court that there are circumstances which are “special” or “exceptional.”  Rather, there is a wide discretion in the Court in making findings of justifiable circumstance.

6. Undoubtedly, there is discretion in the Court to make an order for costs on an indemnity basis.  The authorities[2], however, have emphasised that a court should not lightly depart from the ordinary situation of costs being payable on a party and party basis.  A move to an order for indemnity costs requires some further justifying, special or exceptional circumstances.  Examples include the prosecution of a case with no chance of success;  an application commenced or continued for ulterior motive;  malicious or irrelevant allegations of fraud;  or unduly and improperly prolonging a case.

Section 117(2A) Considerations

[2] In the marriage of Kohan (1993) FLC 92-340

The financial circumstances of each of the parties to the proceedings:

1. Both the husband and the wife are in receipt of Centrelink benefits.  The wife has the primary responsibility for the care of the children of the marriage and almost the total financial responsibility.  By reason of my orders and the election made by the respondent, she has taken on a substantial mortgage liability in order to house herself and the children.

2. My findings disclose some family assistance to the husband by way of accommodation, a motor vehicle, and some casual employment.  He has, however, not worked productively or full-time in the family businesses for some years due to mental health issues, perhaps exacerbated by a drug problem.  There has been some rare financial assistance accorded the wife and children from the husband’s extended family but he pays no formal child support.

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 the party

1. Not relevant.

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

1. The applicant argues this subsection with some force.  She argues that the respondents have been evasive or dilatory in making disclosure and the discovery of relevant documents.  She asks me to find that the second named respondent was motivated to intimidate her in the substantive proceedings by seeking costs against her in his response.  She says generally that the respondents set out, aided by a lack of disclosure, to attempt to adduce the asset pool with particular reference to the transfer of units in the trusts and the Greek apartments.

2. There is no evidence of non-compliance with court orders.  They say it is open and proper for the wife to forensically prepare her own case in obtaining valuations and they generally deny any improper motives or failure to make discovery.  They note that the wife did not make application for an adjournment, although her counsel opened the substantive proceedings with complaint as to discovery. I find some merit in this submission.

3. I find no merit in the argument that the second respondent seeking an order for costs in his response constitutes improper conduct or such conduct as should influence an order for costs.  It is entirely common for parties to seek orders for costs in initiating process.  They are entitled to do so.  I can find no nexus to an attempt to threaten or intimidate the wife in prosecuting her application.

4. I found that the Greek property was transferred to the husband under Greek law in 1999.  My findings disclose no ulterior motive aimed at defeating any claim of the wife under section 79 of the act.  It is entirely reasonable on the evidence to understand the transfer in 1999 being initiated by the second respondent and his wife but with no ulterior motive in either respondent vis-à-vis the applicant. The second respondent and his wife retained an interest in the apartment by reason of ‘parental provision’ not an interest commonly understood in this country but akin to a ‘life interest’. 

5. Similarly, I was satisfied in my substantive reasons that transfers of interests in the company/trusts were motivated to protect the husband against claims by third parties, including (omitted) Pty Ltd. I made no finding that there was a motive, collateral or otherwise, to defeat the claim by the wife in this court. Indeed, I was able to find that the husband’s transfer of his interest in one entity being (omitted) Pty Ltd was made for a valuable consideration. The husband’s health, poor business practices, and gambling were such that the motives of the second named respondent were entirely reasonable and understandable.

Whether the proceedings were necessitated by the failure of a party to the proceeding to comply with previous orders of the court. 

1. Not relevant.

Whether any party to the proceeding has been wholly unsuccessful in the proceedings.

1. The wife’s counsel’s written submissions at page 18 state: 

   This is a case where the wife has been comprehensively successful, but where her “victory” will be, in all senses of the word, “Pyrrhic”, in the event she is not compensated, in a realistic way, by an enforceable order for costs.

2. It is true that the wife was partially successful in obtaining orders which benefited her over and above those sought by the respondents. 

3. The wife sought a transfer of the former matrimonial home to her unencumbered, which required the satisfaction of a mortgage of approximately $198,000.  She also sought the transfer to her of the husband’s interest in the (omitted) Trust.  In gross terms, this would have entitled the wife to the unencumbered home plus funds or remaining interest in the unit trust of approximately $270,000.  I accept the submissions and the mathematics of counsel for the husband that the final orders gave the wife some $270,000 less than she was seeking.  In addition, she did not achieve other benefits of rents, profits or dividends which she sought.  She was also unsuccessful in obtaining an order under section 106B of the act to set aside the transfer of the husband’s interest in another company, (omitted) Pty Ltd, to his brothers.  Indeed, she had not taken the common (and perhaps required) step of joining the husband’s brothers as party to the proceedings, given that she was seeking orders in respect of the illegal interests. She was unsuccessful in quarantining the (omitted) Pty Ltd liability from the property pool.

4. I cannot therefore be satisfied that either party was wholly successful or unsuccessful in respect of the orders obtained.

5. Counsel for the wife now argues that her success was “pyrrhic” in that I ordered in the alternative a cash adjustment to her or a transfer to her of interests in a unit trust.  The rationale of the court doing so should be clear from my reasons, but involved the husband being effectively impecunious and it being only the second respondent who could possibly satisfy an order by a cash adjustment.  He, of course, not being a primary party, was not subject to the same considerations of contributions and the relevant section 75 (2) factors, but was a party by reason of the wife’s attempt to attach his assets.  The appeal period has lapsed in respect of any review of my orders, including the above mentioned order in the alternative.  A clear election was left to the respondents in respect of how they met the wife’s entitlement.  Consequently, and insofar as I am asked to do so, I place little or no weight on this particular argument for the applicant. 

Whether either party in 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.

1. I have no evidence of the wife having made any calderbank offer.  The first respondent made an offer as long ago as 7 October 2011.  The offer is significantly less in gross terms than the wife achieved.  In the course of such litigation, it would not be unreasonable for the wife to have not accepted that offer some two years prior to the trial and, on her own argument, when many of the assets were unknown as to existence or valuation.  In any event the respondent does not rely on his offer in any application.

Such other matters as the court considers relevant 

1. No submissions were received specifically under this subsection.

Conclusion

1. I am not satisfied, in all of the circumstances and balancing the considerations under section 117 (2A) that there are circumstances justifying a costs order in this matter.  The wife has retained the equity in the former matrimonial home.  She has an interest at value in the unit trust.  She does, of course, have the responsibility for the care of the children, including their housing.  The husband, however, is in receipt of Centrelink benefits.  I find no reason by way of the conduct of the parties of such weight as to influence an order for costs.  Neither party was wholly successful in prosecuting their applications.  There are no offers of settlement which influence my determination.

2. The application for costs will be dismissed.

I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Judge McGuire

Date:  11 July 2014