Lasic and Lasic

[2008] FamCA 80

FAMILY COURT OF AUSTRALIA

LASIC & LASIC [2008] FamCA 80

FAMILY LAW - COSTS

Family Law Act 1975(Cth) s 79A
Family Law Rules 1004 (Cth) Rule 19
Bankruptcy Act 1966 (Cth)

Penfold v Penfold (1980) 144 CLR 311
Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248
Yunghanns v Yunghanns (2000) FLC 93-029; (2000) 26 Fam LR 331
Limousin v Limousin (Costs) [2007] FamCA 1178
Munday v Bowman (1997) FLC 92‑784
Kohan & Kohan (1993) FLC 92-340
A & A [2006] FamCA 102

APPLICANT: THE OFFICIAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF MR LASIC

RESPONDENT: MRS LASIC

FILE NUMBER: PAF 7534 of 1997

DATE DELIVERED: 14 February 2008

PLACE DELIVERED: Melbourne

JUDGMENT OF: Coleman J

HEARING DATE: 16, 17 & 18 July 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr. Durston

SOLICITOR FOR THE APPLICANT: Home Wilkinson Lowry

COUNSEL FOR THE RESPONDENT: Mr. Foster

SOLICITOR FOR THE RESPONDENT: Turner Freeman

Orders

1. That the respondent wife pay the costs of and incidental to the proceedings of the trustee of the bankrupt estate of the deceased former husband as and from the date of filing of the trustee’s originating application to this Court on a solicitor/client basis as agreed or assessed under the Family Law Rules 2004 (Cth).

2. That for the purpose of the assessment of costs pursuant to Order 1, Rule 19.18 Family Law Rules 2004 (Cth) does not apply.

3. That it be certified pursuant to Rule 19.50 Family Law Rules 2004 (Cth) that this matter reasonably required the attendance of Counsel.

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

FAMILY COURT OF AUSTRALIA AT PARRAMATTA

File Number: PAF 7534 of 1997

THE OFFICIAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF MR LASIC

Applicant

And

MRS LASIC

Respondent

REASONS FOR JUDGMENT

COSTS

1. Subsequent to the Court making final orders in the substantive proceedings between the wife as respondent and the trustee of the bankrupt estate of her now deceased former husband as applicant, the wife applied for an order that the trustee pay her costs of and incidental to the substantive proceedings as agreed or taxed. The trustee opposed any such order and sought that the wife pay the trustee’s costs of and incidental to the proceedings. Each party sought that any costs awarded be on an indemnity basis, or, alternatively, on a party and party basis.

2. Two questions thus arise for determination, namely:

   (i)       Should there be an order for costs in favour of either party; and

   (ii)      If so, should such costs be awarded on other than a party/party basis?

3. Each party filed written submissions in relation to the costs issue.

4. On behalf of the wife, substantial reliance was placed upon the conduct of the proceedings by the trustee. Reliance was placed upon the undisputed history of proceedings pursuant to the Family Law Act1975 (Cth) (“the Act”) and the Bankruptcy Act1966 (Cth), the thrust of those submissions being that the trustee had, notwithstanding the years in which to do so, and the bankruptcy examinations which occurred during those years, unreasonably delayed making an application to the Court, and failed to marshal and present adequate evidence in support of the application which he eventually did make. Little needs to be said about this contention except that it does not advance the wife’s claim. Any order for costs which this Court might make against the wife would only have the potential to operate as and from the date when proceedings were commenced by the trustee.

5. To the extent that the evidence relied upon by the trustee in the substantive proceedings may have been deficient, that would be a matter which was reflected in the outcome of those proceedings, which in turn would potentially impact upon questions of relative success or failure in the proceedings, and upon the significance of settlement offers made in the proceedings.

6. It is unnecessary to say more about the submissions on behalf of the wife in relation to the trustee’s conduct throughout the proceedings. As the Court’s Reasons for Judgment in the substantive proceedings reveal, the trustee was in an invidious position in the substantive proceedings, for reasons which were there touched upon. That impacted upon the measure of success which the trustee was able to achieve in those proceedings. It cannot be successfully suggested however that the trustee was “unsuccessful” in the proceedings.

7. As is apparent from the submissions on behalf of the wife, in support of her costs application, substantial reliance was placed upon offers of settlement made in the proceedings. There are two issues potentially relevant in relation to such offers of settlement.

8. The first relevant matter arises from the fact that on 27 March 2006 the wife, sensibly, conceded the preliminary or threshold issue raised in the case pursuant to s 79A of the Act. The focus of the substantive proceedings, and the costs thereafter generated, as the submissions on behalf of the wife correctly identify, was “what order, if any, should be made under s.79A”. (Respondent Wife’s Submissions as to Costs, page 4, par (f)).

9. The proceedings having been necessitated by the wife’s conduct, albeit in concert with the now deceased husband, prima facie, from the commencement of the proceedings on 20 January 2005 to 27 March 2006, there seems little doubt that the wife should be liable for the trustee’s costs, the only question being whether that be on a party/party or other basis.

10. Whilst it may appear simplistic to say so, the proceedings were only commenced because of the deceit which the wife and her now deceased husband visited upon the Court and, more importantly, upon Mr M through the consent orders of April 1998.

11. The offer made by the wife on or about 22 March 2006 provided for the payment to the trustee of $350 000 in “full and final satisfaction of the proceedings commenced under s.79A of the Act”. (Respondent Wife’s Submissions as to Costs, page 5, par (f)). Reliance was placed upon the counteroffer on behalf of the trustee of $820 000, the submission on behalf of the wife, in essence, being that the trustee was awarded less than the wife’s offer provided, and far less than the trustee’s counteroffer required.

12. The submissions on behalf of the trustee assert that the offer on behalf of the wife “bears little relationship to the actual result”, significantly, on the basis that the offer was inclusive of costs “whereas the Court’s Order was that it was exclusive of costs” (Applicant Trustee’s Submissions on Costs, par 3).

13. It was further submitted that:

    Perhaps the most important distinguishing feature is that the offer was to make the payment to the applicant, which had the offer been accepted, would have resulted in no payment to the Creditor as Section 109 of the Bankruptcy Act would have applied. The Trustee and his legal advisors would have had most of their fees and costs paid. The Creditor would have received nothing. The Trustee quite properly was not running this case for the purpose of his fees, but to secure a result for the Creditor. (Applicant Trustee’s Submissions on Costs, par 3).

14. It is clear that a substantial component of the sum of $350 000 offered on behalf of the wife must have been referrable to the, not inconsiderable costs which the trustee would have reasonably incurred in litigation by March 2006. Whilst this Court is in no position to suggest figures, it is confident that it can infer that the $350 000 inclusive of costs would, in real terms, represent significantly less by way of award than the substantive order which the Court made in 2007. In the Court’s view, the offers of settlement thus do not advance the cause of either party.

15. The statutory provisions governing the competing costs applications are not in doubt, nor is the approach which the Court should take to the determination of such applications.

16. Penfold v Penfold (1980) 144 CLR 311 at 315 the High Court said:

    Sub-section (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. Consequently, with respect to their Honours in the Family Court, we do not agree with the suggestion made in the judgment under appeal that an order can only be made under s 117(2) in "a clear case".

17. As is beyond doubt, but for the deceitful conduct of the wife and her now deceased husband in 1998, the s 79A proceedings which this Court heard and determined would not have happened. To the extent that the wife, by the concession she made on 27 March 2006 in relation to the threshold issue, acknowledged her deceit, the Court must consider what impact that really had on the proceedings.

18. As is not in doubt, and the course of the trial of the substantive proceedings would confirm, the concession of 27 March 2006 was little more than a recognition of the almost inevitable outcome of the threshold question and, as a consequence, the making of a substantive award in favour of the trustee.

19. Given that the concession neither alleviated the need for an exploration of the circumstances surrounding the making of the order nor limited the evidence relevant to the determination of the second limb of the s 79A application, in reality, all that the wife’s concession achieved in a practical sense was to save her potentially damaging cross-examination on credit in relation to the threshold issue. Even without that opportunity, as the Court’s Reasons for Judgment in the substantive proceedings confirm, Counsel for the trustee was able to significantly damage the wife’s credibility. In the Court’s view, the wife’s concession on 27 March 2006 could not properly operate to enhance her claim for costs.

20. It is necessary to consider the submission made on behalf of the trustee in relation to the effect of not accepting the wife’s offer of 22 March 2006, or indeed, probably any offer made by her. As the Court’s Reasons for Judgment in the substantive proceedings would confirm, Counsel for the trustee, in the Court’s view, very properly, raised no opposition to any order the Court made being in favour of Mr M, the unfortunate victim of the wife’s deceased former husband’s tortious misconduct in the early 1990s who, by virtue of the actions of the wife and her husband, was for many years denied the compensation awarded to him by the Court of Appeal of the Supreme Court of New South Wales.

21. In justice and equity, the Court must have regard to those factors. They would undoubtedly provide a shield to the trustee in relation to the wife’s costs claims. Whether they provide a sword for the trustee is another matter. Whilst, in final submissions at the conclusion of the substantive proceedings, Counsel for the trustee adopted the course referred to in the Court’s Reasons for Judgment in those proceedings, that is not a matter which in the Court’s view ought properly weigh in the trustee’s favour in a claim for costs against the wife. Objectively, the wife made an offer to the trustee. How the trustee dealt with the fruits of an acceptable offer was a matter for him. It is to be remembered that the only creditor of the deceased husband’s bankrupt estate was Mr M, and that only the trustee’s costs potentially stood between him and any monies this Court awarded pursuant to s 79A.

22. The trustee’s costs application requires careful consideration. Again, at the risk of being thought to adopt a simplistic approach, but for the deceit in which the wife was a willing and continuing participant in 1998, the substantive proceedings which this Court has heard and determined would never have occurred. To the extent that the wife made an offer which may have brought an end to the proceedings, the trustee’s rejection of it was vindicated by the Court’s orders.

23. It is appropriate to consider the course the proceedings took in this Court. As suggested earlier, from the date the trustee commenced the proceedings until 27 March 2006 there is no rational basis for concluding other than that the wife should pay the trustee’s costs, on whatever basis the Court considers appropriate.

24. It is necessary to then consider whether the events from 27 March 2006 to the date of the Court’s final orders which would militate against the wife’s continuing liability for the trustee’s costs. On 27 March 2006, superficially, the wife, by conceding the threshold issue under s 79A, might be thought to have reduced her potential liability for the trustee’s ongoing costs. In reality that conclusion ought not be drawn. There are a number of reasons why that is so.

25. The first, as noted earlier, is that, on any reasonable view of the facts, the concession of 27 March 2006 constituted little more than an accurate anticipation of the almost inevitable outcome of the threshold question. More importantly, the ambit of the evidence which was thereby required to be adduced and considered was reduced, at best, to only a minor extent. Thus, whilst superficially tempting to do so, the Court does not consider that the wife’s concession with respect to the threshold issue on 27 March 2006 should reduce her potential liability to pay the trustee’s ongoing costs.

26. The other matter which has the potential to reduce the wife’s liability for the trustee’s ongoing costs relates to the offer of settlement. As noted earlier, both the form of the offer and the reality that, by whatever amount, the offer can be seen as representing less in real terms than the Court’s final order represented, the wife ought not be able to thereby improve her position with respect to the trustee’s claim for costs.

27. Objectively, having conceded the threshold issue, it was inconceivable, given the nature of Mr M’s entitlement, that a Court professing to have regard to notions of justice and equity could fail to make an award which did not at least substantially cover Mr M’s entitlement to damages for personal injuries, and interest accrued thereon.

28. The Court is of the opinion that the wife should pay the trustee’s costs of and incidental to the proceedings from the date of commencement of proceedings on 20 January 2005 up to and including the final orders made by the Court in 2007. No matter how extensively the issue is discussed, the reality of how this case came to happen remains the dominant and decisive consideration in relation to the competing claims for costs.

29. It remains to consider the basis upon which an order for costs should be made. On behalf of the trustee it was submitted that the imposition of indemnity costs was justified in the exercise of discretion as “this whole case came about because the Wife entered into Consent Orders designed to defeat a Creditor” which “forms a species of fraud”. (Trustee’s Submissions on Costs, page 2). The brevity of that submission does not diminish its force.

30. The submissions on behalf of the wife summarise, with respect accurately in the Court’s view, the “principles” which inform the discretion to award indemnity costs. The well-known and often cited judgment of Sheppard J in Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225 has been followed regularly by this Court, including recently in the decision of the Full Court in Limousin v Limousin(Costs) [2007] FamCA 1178 in which the Court said (at pars 41 – 43):

    41.The decision of the Full Court of the Family Court (Strauss, Lindenmayer and Bulley JJ) in Kohan and Kohan (1993) FLC 92-340; (1992) 16 Fam LR 245 held that nothing in s 117 or 123 of the Family Law Act1975 (“the Act”) prevents the Court making an order for costs on an indemnity basis.  It was recorded at FLC 79,614; Fam LR 258 (citations omitted):

    The intent of s 117(1) and 117(2) is that in this jurisdiction costs should not follow the event as a matter of course. However, where the justice of the matter so requires, the court may make such order as the court considers just. As we have pointed out, the court may depart from the scale of costs prescribed under the rules. However, the purpose of fixing a scale of costs must be understood to signify that they contain the normal rates of charges. By O 38 r 2, the provisions of O 38 apply to costs ordered to be paid or taxed, and costs payable or to be taxed between solicitor and client. Order 38 rule 7 makes provision for the allowance of additional amounts for complexity, difficulty or novelty and special skill, knowledge or responsibility. Consequently, the court should not depart lightly from the ordinary rules relating to costs between party and party and the circumstances justifying the departure should be of an exceptional kind. See Degmam v Wright (No 2); Wentworth v Rogers (No 5); Hobartville Stud v Union Insurance Co.

    Indemnity costs orders are still an exception in this and other jurisdictions.

    42.The principles underpinning indemnity costs were summarised by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 at 256:

    (2)The ordinary rule is that, where the court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis …

    (3)This has been the settled practice for centuries in England.  It is a practice which is entrenched in Australia.  Either legislation (perhaps in the form of an amendment to rules of court) or a decision of an intermediate court of appeal or of the High Court would be required to alter it …

    (4)In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis.  The circumstances of the case must be such as to warrant the court in departing from the usual course …

    43.In the decision of Yunghanns v Yunghanns (2000) FLC 93-029; (2000) 26 Fam LR 331 the Full Court of the Family Court (Lindenmayer, Holden and Mullane JJ) acknowledged that the category of cases in which an indemnity costs order is appropriate is not closed. It was recorded in paragraph 31:

    It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed, and that it is not a condition precedent to the exercise of the discretion that some collateral purpose or species of fraud be established against the party against whom such an order is sought.

31. As was the case in Limousin (supra) (at par 48), the following passage from the Judgment of Shephard J in Colgate-Palmolive (supra) is instructive (at 257):

    … it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson; Maitland Hospital v Fisher (No 2); Crisp v Kent) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records).

32. Some further circumstances in which an order for indemnity costs may be appropriate were outlined by Holden J in Munday v Bowman (1997) FLC 92‑784 (at 84,660):

    (a)Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts: see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.

    (b)Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud: see Fountain Selected Meats (Sales) Pty Ltd.

    (c)Evidence of particular misconduct causing loss of time to the court and to other parties: see Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (French J, Fed C of A, 3 May 1991, unreported).

    (d)The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions: see Ragatta Developments Pty Ltd v Westpac Banking Corporation (Davies J, Fed C of A, 5 March 1993, unreported).

    (e)An imprudent refusal of an offer to compromise.

1. However, as was made clear in Kohan & Kohan (1993) FLC 92-340, it must be remembered that indemnity costs are an exception both in family law and other jurisdictions. In that case the Full Court said (at 79,614):

   In so far as an unaccepted offer of compromise which exceeds a judgment may justify an order for costs, the general practice in this jurisdiction so far has been to order no more than costs on a party and party basis. Even in cases where there has been dishonest concealment of assets or income as in Penfold v Penfold (1980) 5 Fam LR 579 ; [1980] FLC 90-800 and Oriolo v Oriolo (1985) 10 Fam LR 665 ; [1985] FLC 91-653, no more than party and party costs have been awarded.

2. In the circumstances of this case, despite the deceitful conduct of the wife bringing about the proceedings, the Court does not consider indemnity costs to be appropriate. The Court has not seen any costs agreement which would form the basis of the calculation of indemnity costs were they to be awarded. Such evidence as the Court heard at trial in relation to the circumstances in which a costs agreement was apparently entered into and some of its terms would strongly disincline the Court to make any order which could result in costs being determined in accordance with such agreement, with or without the intervention of a taxing officer. However it is generally accepted that a party to litigation reasonably incurs costs over and above those covered by awarded party/party costs. In the circumstances of this case, the trustee and his legal advisors, who have acted in good faith in difficult circumstances, are likely to go unrewarded for their efforts if only party and party costs are awarded. In these circumstances, consideration of r 19.19 Family Law Rules 2004 (Cth) (“the Rules”) is appropriate.

3. In relation to the rule, in A & A [2006] FamCA 102, Guest J said (at 80,594):

   41.That [the inapplicability of indemnity costs] however, does not end the matter. Pursuant to Rule 19.19 of the Rules I may order that Rule 19.18 does not apply and that a party is entitled to costs as assessed on a lawyer and client basis (Rule 19.19(1)(b) of the Rules). Rule 19.19(2) sets out some of the considerations that may be taken into account in making an order under that sub-rule which includes the importance, complexity or difficulty of the issues (Rule 19.19(2)(a); the reasonableness of each party’s behaviour (Rule 19.19(2)(b) and expenses properly paid or payable (Rule 19.19(2)(f). Furthermore, given the submissions filed on behalf of the Applicants concerning counsel’s fees, there is power for me to find that a party is entitled to costs which I may fix in a “specific amount” (Rule 19.19(1)(a)).

4. In this case, it was appropriate for the trustee of the bankrupt estate of the deceased former husband to engage legal advisors. The contested issues were comparatively complex, particularly given the “cone of silence” with which the trustee was met on both his own and the opposing sides of the case. To the extent that an element of “fraud” can or should be an ingredient enlivening the discretion to award solicitor and client costs, it is abundantly present in this case. The facts of this case are uncommon, and possibly A-typical, and in the Court’s view warrant the exercise of discretion to award costs on a solicitor/client basis. In the Court’s view, the trustee and his legal advisors are entitled to their professional fees on a solicitor/client basis as agreed or taxed, with the further order that Rule 19.18 of the Rules does not apply.

5. As noted at the commencement of these reasons, the trustee did not seek costs on a solicitor/client basis. Nor did the wife. The order proposed could be said to represent an outcome neither party sought. Nor was such outcome raised as a possibility which those representing the wife could address. In theory that may appear to be the case, but with respect to her advisers, no more could have been advanced on the wife’s behalf in opposition to a costs order being made against her, on whatever basis it might be. Significantly, the liability of the wife pursuant to the proposed order will be less than would have been the case had the Court confined itself to the competing positions emerging from the submission of their Counsel.

I certify that the preceding thirty seven (37) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman.

Associate: 

Date:  14 February 2008