Lacey and Lacey (No.4)

[2019] FCCA 1138

FEDERAL CIRCUIT COURT OF AUSTRALIA

LACEY & LACEY (No.4) [2019] FCCA 1138

Catchwords:
FAMILY LAW – Costs – Wife seeking costs arising out of a long running property settlement application.

Legislation:

Family Law Act 1975 (Cth), s.117

Federal Circuit Court Rules, r.21

Cases Cited:

Lad & Gittins (2014) 52 FamLR 71
Lacey & Lacey (No.3) [2018] FCCA 1551
Penfold & Penfold (1980) HCA 4

Applicant: MS LACEY

Respondent: MR LACEY

File Number: NCC 1128 of 2011

Judgment of: Judge Terry

Hearing date: 16 April 2019

Date of Last Submission: 16 April 2019

Delivered at: Tamworth

Delivered on: 10 May 2019

REPRESENTATION

Counsel for the Applicant: Mr Boyd

Solicitor for the Applicant:  Bell & Johnson Solicitors

Solicitor Advocate for the Respondent: Mr Hargreaves

Solicitor for the Respondent:  Palmers Solicitors

ORDERS

1. The husband shall within 28 days pay to the wife the sum of $17,212.00 made up of:

   (i)$13,970.00 being the husband’s share of certain valuation fees.

   (ii)$3,242.00 being the reserved costs of the interim proceedings determined on 21 April 2016.

2. The wife’s application for costs contained in the Application in a Case filed on 2 November 2018 is otherwise dismissed.

IT IS NOTED that publication of this judgment under the pseudonym Lacey & Lacey (No.4) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT TAMWORTH

NCC 1128 of 2011

MS LACEY

Applicant

And

MR LACEY

Respondent

REASONS FOR JUDGMENT

Introduction

1. Ms Lacey and Mr Lacey were involved in protracted property settlement proceedings which began in May 2011 and ended when I handed down a decision on 5 October 2018.

2. I found that the property pool was worth $10,438,803.20 and ordered that the wife receive $4,316,141.28. After taking into account amounts the wife had already received by way of partial property settlement she was entitled to a further $2,980,639.00.

3. On 2 November 2018 the wife filed an application in a case seeking the following order:

   That the Husband pay the Wife’s costs of and incidental to the proceedings as assessed in accordance with the Family Law Scale (noting that the costs order of 11 July 2016 has been satisfied).

4. At the end of the written submissions he filed for the hearing of the costs application the wife’s counsel amended this proposal and said that he sought the following order:

   That the husband shall pay the wife within 56 days of being served the assessment of the wife’s costs, such costs to be assessed from 10 October 2011, unless otherwise agreed in writing.

5. The wife’s counsel said that the wife’s costs to the end of the trial were $407,009.00 and that “most, if not all, of those costs should not have been borne by the wife.”

6. That last submission raises the spectre of the wife seeking indemnity costs.

7. The husband filed a response on 10 December 2018 seeking to have the wife’s application dismissed.

8. The husband’s solicitor said however that “if the threshold was crossed” and the court determined that the husband should pay costs he neither consented to nor opposed an order that he pay:

   i)The reserved costs in respect of the recusal application.

   ii)Half of the costs of valuing the Business O as at 2004 and the Property A house as at 2004

9. The husband has appealed my substantive decision and the wife has filed a Notice of Contention arising out of an issue with the form of the order I made and the appeal is awaiting hearing. Notwithstanding this both parties asked me to hear and determine the costs application.

The evidence

1. The wife relied on her application in a case and her affidavit (costs) filed on 2 November 2018, her submissions filed on 15 January 2019 and her submissions in reply filed on 1 March 2019.

2. The husband relied on his response filed on 2 November 2018, his affidavit filed on 11 February 2019 and his submissions filed on 12 February 2019. In addition the husband’s solicitor asked me to have regard to the evidence in the matter generally and to paragraphs 1-12 and 20-23 and Annexures A–D of the husband’s affidavit sworn 18 November 2014. He withdrew the request in his written submissions that I read the wife’s affidavit filed on 13 June 2014.

3. At the hearing the husband’s solicitor tendered as an aide memoire a document headed “Husband’s Chronology and Attachments” and a bundle of correspondence.[1]

   [1] Exhibits D & E

Background

1. The background to the property proceedings is set out in detail in the decision I handed down on 5 October 2018[2] and I am not going to repeat it all here. However to give the costs application context I note that the parties separated on 10 January 2010 after 37 years of marriage.

   [2] Lacey & Lacey (No.3) [2018] FCCA 1551

2. The wife filed an application for property settlement on 6 May 2011. She did not identify with precision the orders she sought which was understandable given her lack of knowledge of the pool at the time. At the time of separation the husband had substantial assets in his name including a shareholding in Company A which operated the Business N in Town 1. There were very few assets in the wife’s name.

3. On paper the husband was only a one third shareholder in Company A, the other shareholders being his mother and the estate of his father who had died in 2004. However what was on paper did not represent the reality of the situation.

4. The husband was entitled to his father’s shares in Company A by way of inheritance.[3] When the parties separated his father’s estate had still not been distributed due to the inaction of the executor but in December 2011 the husband obtained a Supreme Court order removing the executor and he was then able to finalise the distribution of the estate.

   [3] There is complexity around this issue but it is not necessary for the purposes of the costs application to drill down into it.

5. Pursuant to an agreement made in 2009 between the husband, his sister Ms O and his mother the husband was assured of inheriting his mother’s shares in Company A upon her death. There was a complication however because when property proceedings commenced a member of the husband’s family was seeking, allegedly on her behalf, to challenge the 2009 agreement and this person commenced proceedings in the Guardianship Tribunal seeking to be appointed the husband’s mother’s personal representative so that he could advocate on her behalf.

6. Those proceedings came to an end in March 2014 when the husband’s mother died. The husband inherited her shares and thus became the sole shareholder of Company A.

7. There is merit in the submission by the husband’s solicitor that until March 2014 there was uncertainty about the pool and that it would have been very difficult to settle the matter prior to that date.

8. Overlaying the issues of share ownership however there was an ongoing dispute between the parties about the value of Company A and the Company A Superannuation Fund No. 2.

9. The dispute dragged on and on and in late 2016 I listed the matter for trial in March 2017 in the expectation that the valuation issues would be dealt with prior to the trial. That did not occur due to the husband’s actions but the wife made a decision to go ahead with the trial using the best information available given the length of time the matter had been in the court system.

10. I found that I was satisfied that the husband had thwarted the wife’s attempts to obtain valuations and pursuant to s. 75(2) (o) of the Family Law Act I made an adjustment of $140,620.00 in the wife’s favour arising out of this issue.

The applicable law

1. Pursuant to r. 21.02 of the Federal Circuit Court Rules an application for costs may relevantly be made within 28 days after a final decree or order. The wife’s application was filed on 2 November 2018 so it was filed within time.

2. Attached to the Federal Circuit Rules is a Schedule setting out costs which can be charged for discrete events and disbursements and use of the Schedule to determine costs is the default position under the Rules. Rule 21.10 provides as follows:

   Unless the Court otherwise orders, a party entitled to costs in a proceeding (other than a proceeding to which the Bankruptcy Act applies) is entitled to:

   (a) costs in accordance with Parts 1 and 2 of Schedule 1; and

   (b) disbursements properly incurred.

   Note: For costs in a proceeding to which the Bankruptcy Act 1966 applies, see Part 13 of the Federal Circuit Court (Bankruptcy) Rules 2016.

3. However r. 21.02(2) provides that:

   1. In making an order for costs in a proceeding, the Court may:

   (a) set the amount of the costs; or

   (b) set the method by which the costs are to be calculated; or

   (c) refer the costs for taxation under Part 40 of the Federal Court Rules or under Chapter 19 of the Family Law Rules; or

   (d) set a time for payment of the costs, which may be before the proceeding is concluded.

4. The wife’s counsel submitted that the wife’s costs should be assessed using the scale in the Family Law Rules or to use the terminology in r. 21.02(2), be referred to taxation under Chapter 19 of the Family Law Rules. The husband’s solicitor did not make any submission about this issue; his submissions went only to whether a costs order should be made at all.

5. To determine whether I should make a costs order I must have regard to s. 117(1) of the Family Law Act which provides as follows:

   (1)    Subject to subsection (2), subsections 45A(6) and 70NFB(1) and sections 117AA and 117AC, 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), (4A), (5) and (6) 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 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 husband’s solicitor submitted that s.117 required the court to undertake a two-step process and that it must first determine whether there were circumstances justifying a departure from the general rule in s. 117(1) and then consider whether it was just to make a costs order having regard to the matters in s. 117(2A).

7. The husband’s solicitor did not cite any authority for the proposition that a two-step process was involved and I do not accept it. It is inconsistent with the wording of s.117 and I concur with the view expressed by Austin J in Lad & Gittins which was as follows:

   Firstly, I wish to repeat the statutory premise upon which these proceedings are contested. Section 117 of the Act relevantly provides that each party to proceedings shall bear his or her own costs. Although that is the orthodox situation, the Act expressly contemplates that costs orders may be made in circumstances which justify it. Section 117(2A) of the Act sets out a list of factors which the court may take into account in determining whether circumstances exist so as to justify the making of a costs order.[4]

   [4] Lad & Gittins (2014) FamCA 439

8. The wife’s counsel referred me to the following passage from Penfold & Penfold which is also pertinent:

   It must be firmly understood that [s117(1)] is not paramount to s117(2). As subsection (1) is expressed to be subject to subsection 2, the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of a costs order. 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.

9. I therefore intend to consider whether, having regard to the factors in s. 117(2A), there are circumstances justifying the making of a costs order.

The matters in s. 117(2A)

1. Some of the matters in s.117 (2A) do not assist me.

2. It is trite to say that neither party in this matter is or ever has been in receipt of legal aid.

3. The consideration of whether the proceedings have been necessitated by the failure of a party to comply with orders of the court does not apply.

4. I must consider the financial circumstances of the parties but that does not tip the matter one way or another.

5. The wife sought her costs as assessed. They could not exceed the total costs referred to by her counsel together with costs associated with the costs application. Given the size of the pool the husband a) would have the capacity to meet a costs order and b) could do so without his ability to support himself being adversely affected.

6. The wife’s counsel conceded that if the wife received the amount I ordered by way of property settlement she would be well able to pay her own costs but said that this should not disentitle her to a costs order if circumstances otherwise justified the court making it. I accept that submission.

7. The wife’s counsel argued that the consideration of whether a party has been wholly unsuccessful was relevant. He submitted that the husband had been wholly unsuccessful because the wife received the percentage she sought in respect of contributions at the commencement of the trial.

8. While that it correct as a bare proposition it does not establish that the husband was wholly unsuccessful at trial.

9. In written submissions at the end of the trial the wife’s counsel submitted that she should receive 43%, 40% on the basis of contributions and 3% compensation for her costs. I gave the wife 40% on the basis of contributions plus $140,620.00 pursuant to s.75 (2) (o) which gave her more than 40% overall but she did not receive the additional 3%.

10. Moreover the parties were some $2m apart on the balance sheet. The wife was only partially successful in her arguments about the balance sheet, so although she received the percentage she sought on the basis of contributions plus a little bit extra she received $1.2mil less than the dollar figure she sought in final submissions.

11. I must consider any written offers of settlement.

12. This is often a very important consideration when costs are sought in property matters, particularly if one party has made an offer which would have delivered them a better outcome than they received at trial, but the wife’s counsel did not refer in submissions to any relevant offer of settlement made by the wife.

13. In paragraph 2 (c) of her affidavit the wife referred to a settlement offer which would have resulted in her receiving far less than the amount she received at trial. However he did not refer to this in submissions, there is no indication of whether it was a written or an oral proposal and if it was a written proposal no copy of the document containing it was provided and it would be dangerous for me to make assumptions about this offer without further information.  

14. The wording of this consideration is fairly broad however and the wife’s counsel seemed to take the tack of suggesting that the husband’s failure to make a reasonable offer of settlement was a relevant consideration. He submitted that the husband had never made any offers of settlement that were close to the ultimate outcome. He made four offers proposing that the wife receive between 15% to 27% of the pool he had disclosed at the relevant time and equating to between 7% and 18% of the pool ultimately found.

15. The wife’s counsel submitted that given that the pool was settled at the beginning of the trial as being worth at least $8m the husband should have reviewed his position and reconsidered offers previously made.

16. The proposition that a party should have costs awarded against them because they have not made a reasonable offer of settlement is a novel one. If the husband had run a case which was hopeless or bound to fail it might be different but while his approach might have been misguided in some respects he did have arguments on his side and the ultimate outcome was $1.2m less than the wife proposed. I do not accept that this subsection provides a basis to consider a costs order against the husband in this case. 

17. The next consideration is 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.

18. The wife’s counsel made many submissions under this head.

19. Some of them do not have merit. He referred to the fact that after the wife was successful on 29 January 2016 in obtaining an order that the husband pay her $1m by way of partial property settlement he appealed the orders and applied for a stay and my disqualification from further hearing the matter. He pointed out that these applications was dismissed and the appeal abandoned but the wife was then obliged to file an application for enforcement.

20. However these issue was dealt with at the time by a discrete costs order and an order that the husband pay the wife interest on the sum outstanding and as noted in the wife’s submissions the husband paid the amounts required.

21. The wife’s counsel submitted that the husband failed to disclose the Deed he had entered into with his mother on 8 September 2009 and overstated his financial obligations to support her which meant that his true financial position was not apparent early in the proceedings. He said that it was not until the wife filed an application in a case on 8 March 2017 and orders were made by the court that the husband produced an un-redacted copy of the settlement agreements between the husband and his mother and the husband and his sister Ms O.

22. The husband should have disclosed the Deed much earlier and obtaining it involved extra work by the wife’s solicitors and therefore extra expense for the wife. However there is no evidence that failure to produce the Deed slowed the finalisation of the proceedings or that the extra work was extensive and no discrete claim was made in respect of the costs of the application in a case.

23. The wife’s counsel submitted that it was relevant that the husband had called witnesses or given evidence in support of issues found by the court to be unmeritorious including the issue of the nature of the wife’s post-separation relationship with Mr C, the treatment of gifts the husband made to the parties children and the issue of his health. He submitted that pursuing these issues added to the length of the trial.

24. Mr C was a red herring but the husband pursuing that issue did not greatly lengthen the trial. Calling the children added some length but the husband’s position in respect of that issue was not unarguable. The evidence about the husband’s health I ultimately found irrelevant but the wife’s counsel did not seek to challenge that evidence at trial so it did not add to hearing time.

25. The major submission by the wife’s counsel under this heading was that there had been a comprehensive failure by the husband to comply with orders about the valuation of Company A and the Company A Superannuation Fund No. 2 including a failure to provide information and documents to … Forensic Accounting and to pay half of the required fees.

1. The wife’s counsel acknowledged that the wife was awarded an additional $140,620.00 arising out of the issue of the husband’s failure to co-operate in the valuation of the underlying assets of Company A but said that this was to take account of a finding that the valuation information available to the court did not reflect the true value of the assets and it did not address the fact that the wife had incurred legal costs trying to get the husband to comply with the orders including by paying valuation costs, sensibly agreeing on a joint valuer and providing documents to the valuer.

2. The wife also elected to pay the whole of some of the valuation fees rather than not obtain valuations because the husband refused to pay his half.

3. The husband’s solicitor argued that the problems with the valuation process were not down to the husband or at least not solely down the husband. He asserted that conduct of the wife’s solicitor and counsel justified the husband’s failure to comply with orders about instructing a valuer and cooperating in the valuation process.

4. These submissions were not supported by any admissible evidence. The fact that a letter containing these allegations was sent to the wife’s solicitors and was not answered does not mean that I can find that the allegations are true.

5. Further the submissions of the husband’s solicitor about the valuation issues in paragraphs 30 to 44 were in many respects contrary to or sought to argue against findings in my judgment about the husband’s responsibility for valuations not being completed and I do not accept them.

6. I made a finding in my judgment that the husband thwarted the valuation process. The fact that the wife decided to make the best of things and get on with the hearing rather than seek yet further orders for valuation does not undermine a claim for costs arising out of the husband’s conduct in respect of valuation.

7. Before deciding what to do about a finding which on its face might justify a costs order in favour of the wife I must finally consider any other relevant matter and the husband’s solicitor complained that the wife’s failure to take part in mediation to try to resolve the dispute was a factor disentitling her to costs.

8. That is a very cheeky submission. I do not accept that the wife’s fear of the husband arising out of his actions or the actions of the children in the month’s following separation or the fact that the wife was convinced that he would never make a reasonable offer excused her from engaging in mediation but the husband’s failure to comply with orders about the valuation meant that there was never any realistic prospect of mediation being successful.

9. The husband’s solicitor did raise one relevant matter however. He submitted that in determining whether the husband should be ordered to pay costs the court must have regard for the fact that delays between June 2011 when the proceedings commenced and March 2014 when the husband’s mother died were not of the husband’s making but arose out of family issues over which the husband had no control, and until the husband’s mother died the extent of the husband’s assets was uncertain.

10. The wife’s counsel argued that this was not correct because the husband’s mother had a legal obligation to bequeath to her son her one third shareholding in Company A, but that overlooks the fact that until the husband’s mother died there were proceedings in the Guardianship Tribunal commenced by her grandson with the intent to gain the right to represent the husband’s mother and challenge the validity of the 2009 Deed on the basis of incapacity.

Conclusion

1. This matter was always likely to run to trial but there can be no doubt that getting the matter ready for trial after the husband’s mother died in … 2014 took far longer than it should have because the husband repeatedly failed to cooperate in the process of valuing the assets and in the end successfully prevented some of them being valued. The fact that the wife gave up and elected to run the trial in March 2017 without the valuations she wanted does not mean that her considerable efforts to obtain the valuations she wanted and which she was entirely justified wanting should be disregard

2. The issue though is how this plays into the costs application brought by the wife.

3. It cannot justify an order that the husband pay the wife’s costs from the commencement of proceedings or from November 2011 either as assessed or on an indemnity basis.

4. It could justify an order that the husband pay the wife’s costs thrown away in endeavouring to obtain orders about valuation and then endeavouring to secure compliance with them but this was not the application the wife made and I cannot simply send the matter off for an assessment of costs without identifying the parameters of the task.

5. Despite the extensive evidence in the wife’s affidavit (costs) about what the husband did or failed to do in respect of the valuations there is simply not enough evidence available to me to enable me to craft an appropriate order referring the matter for taxation.

6. I could adjourn the matter for further submissions so that the wife’s solicitors could inform the court of the amount they felt they were entitled to on the basis of actual costs incurred and identify supporting documents. I could then consider whether to refer the matter to taxation or attempt some assessment of the costs myself to spare the parties further costs.

7. However the wife could have prepared a more targeted application for costs prior to the hearing of the costs application and enough is enough. The parties have incurred extensive legal fees over the past eight years. They are both well able to pay their own costs and while the wife will suffer some diminution of capital if a costs order is not made it will not impact in any way on her capacity to live a very good lifestyle.

8. I do however intend to make a small discrete costs order arising out of two specific issues.

9. The husband did not contest that he may need to pay the wife’s costs of an incidental to the husband’s application for recusal and a stay which was determined on 21 April 2016 and to pay half of the cost of certain valuations carried out by Valuers which the husband was ordered to pay but did not.

10. I am going to apply the Schedule to fixing costs for the interim application determined on 21 April 2016. It is appropriate to put an end to the parties’ expenses in connection with this matter as quickly as possible.

11. Allowing the amount in Item 3 (Interim or summary hearing as a discrete event) and adding a half day daily hearing fee and a 50% advocacy loading the amount payable is $1,706.00 plus $1,536.00, a total of $3,242.00.

12. The valuation costs the husband did not contest he should pay were $2,970.00 being half of the cost of valuing Property A in 1973 and 2004 and $6,600.00 being half of the cost of valuing the Business O in 2004.

13. The wife also sought an order that he pay $2,200.00 in respect of an updated valuation of Property B and $2,200.00 in respect of an updated valuation of Property C.

14. The husband’s solicitor submitted that the husband should not be required to pay these amounts because the wife had organised the valuations off her own bat but the wife did so in an effort to try and ensure in the face of the husband’s relentless resistance to cooperating with the valuation process that sufficient information was available for trial and I am satisfied that the husband should also pay these amounts.

15. The total the husband will be required to pay to the wife in that respect is $13,970.00.

16. Otherwise the wife’s application for costs is dismissed.

I certify that the preceding eighty two (82) paragraphs are a true copy of the reasons for judgment of Judge Terry.

Date: 10 May 2019

[5] Penfold & Penfold (1980) HCA 4