Lodato and Lodato

[2014] FCCA 583

FEDERAL CIRCUIT COURT OF AUSTRALIA

LODATO & LODATO [2014] FCCA 583

Catchwords:
FAMILY LAW – Application for costs – following determination of property adjustment proceedings – numerous offers of settlement were made – full and frank disclosure.

Legislation:

Family Law Act 1975 (Cth), s.117

Family Law Rules 2004
Federal Circuit Court Rules 2001

Re JJT & Ors; Ex Parte Victoria Legal Aid [1998] FLC 92-812
Trustee of the Property of G Lemnos & Lemnos [2009] FamCAFC 20
Brown & Green (2002) FLC 93-115
Prantage & Prantage [2013] FamCAFC 105

Applicant: MR LODATO

Respondent: MS LODATO

File Number: BRC 2670 of 2012

Judgment of: Judge Harman

Hearing date: By written submissions

Date of Last Submission: 4 February 2014

Delivered at: Parramatta

Delivered on: 27 March 2014

REPRESENTATION

Solicitors for the Applicant: self-represented

Solicitors for the Respondent: Derek Norquay

ORDERS

1. Dismiss the Application for Costs made by the wife.

2. Each party shall pay their own costs of and incidental to the proceedings now concluded.

IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of Judge Harman delivered this day will for all publication and reporting purposes be referred to as Lodato & Lodato.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT PARRAMATTA

BRC 2670 of 2012

MR LODATO

Applicant

And

MS LODATO

Respondent

REASONS FOR JUDGMENT

It is to be noted that the reference to Applicant husband and Respondent wife throughout this judgment is in accordance with the property adjustment proceedings. It is, in fact, the Respondent wife who presses the Application for Costs.

1. This judgment relates to costs consequent upon the conclusion of property adjustment proceedings between the parties.

2. The parties are a husband and wife, namely Mr Lodato the husband and Applicant and Ms Lodato the wife and Respondent.

Primary proceedings

1. The primary property adjustment proceedings between the parties concluded by Orders made 6 December 2013. Those Orders provided that each party would retain a parcel of real estate of which each was (whether solely or jointly with other persons) the registered proprietor.  Each party agreed and submitted to Orders to achieve this end, each having acquired their interest in real estate post separation and without the application of funds which had been derived from their relationship. That Order was effectively made by consent.

2. The parties had also provided consent to a superannuation splitting Order.

3. The issue of controversy in the proceedings related to the apportionment and continuing liability for debt.

4. The consequence of the Orders made by me was that Mr Lodato would retain liability for five individual debts in his sole name and Ms Lodato would retain liability for the one joint (or allegedly so) debt being a loan or advance from a Ms F, the wife’s grandmother.

5. At the conclusion of the proceedings and upon pronouncing Orders concluding the substantive proceedings Orders were made by me, with respect to any Application for Costs, in the following terms:

   7. In the event that either party wishes to press an Application for Costs then they shall within 6 weeks of today’s date file and serve:

   a. A written minute of orders proposed;

   b. Written submissions as to the exercise of the Court’s discretion with respect to that issue; and

   c. A schedule identifying the evidence relied upon by them as already filed in support of that Application.

6. Lengthy written submissions with respect to costs were received on behalf of the Respondent wife within the above time frame. Thereafter and within the time frame specified a more erudite submission with respect to costs was received on behalf of the Applicant husband.

7. Consequent upon receiving the above and, in fact, after those submissions had been considered and a judgment dictated and prepared in draft form, lengthier amended submissions were received from the wife’s attorneys and, subsequent thereto amended written submissions on behalf of the husband.

8. The amendment of submissions has occasioned delay in the determination of the judiciable controversy between the parties as to costs.

9. On its face the wife’s submissions are confined solely to offers of settlement. In considering the wife’s submissions (all 23 pages thereof) it is clear that issue is also raised regarding suggested address of discovery or disclosure in a less than diligent fashion.

10. The husband’s submissions are of a broader ambit and address all relevant matters under section 117 of the Family Law Act 1975 (Cth).

11. In dealing with the matter I have read and considered each of the submissions submitted by the parties (as amended) together with the extensive annexures accompanying the Respondent wife’s submissions (well over 100 pages).

12. The Applicant’s submissions helpfully and accurately identify the relevant costs provisions of the Family Law Act 1975 in sections 117(1), (2) and (2)(a) and as follows:

    (1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC 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), (4A) 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 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.

13. Section 117(1) establishes what is usually referred to as the “general rule” that each party to proceedings under the legislation should bear his or her own costs.

14. Section 117(2) reserves to the Court a discretion to make an Order for costs when the dual tests (see for discussion of same the High Court’s decision in Re JJT & Ors; Ex Parte Victoria Legal Aid [1998] FLC 92-812)[1] are met being:

    a)A justifying circumstance for departure from the “general rule”;

    b)An order for costs (both as to its making and its quantum) is just and equitable; and

    [1] As well as Hitch & Hitch [2012] Fam CAFC 124 and Penfold & Penfold (1980) 144 CLR.

15. Subsection 2(2A) sets out a non-exhaustive list of considerations.

Financial circumstances of the parties

1. It is clear from the evidence of each of the parties that the husband’s gross and net weekly income from employment exceeds that of the wife. However:

   a)The disparity between the parties’ incomes is neither extreme nor extraordinary.

   b)The husband attends to the payment of child support as assessed and no complaint was raised that he was in arrears or had ever been anything other than diligent in meeting such obligations.

   c)The parties live, respectively, in Queensland and the Albury Wodonga area. Ms Lodato relocated from Queensland at or following separation and the children of the relationship live with her and as consequence Mr Lodato incurs significant costs in maintaining his relationship with the children.

   d)Whilst Mr Lodato’s income is greater than Ms Lodato’s he has, since separation and will, as a consequence of the Orders made 6 December 2013, remain liable for approximately $130,000 of unsecured liabilities attracting interest at rates of up to 19%.

2. Whilst on first blush Mr Lodato’s income is clearly greater than

   
   

   Ms Lodato’s (although as observed above not by any extraordinary amount) his income is entirely consumed in servicing unsecured debt as to which there was and is no dispute between the parties, was largely referable to the marriage of the parties and thus the expenditure reflected in the present liabilities was incurred by the parties jointly or they having received the benefit of same.

3. The financial circumstances of the husband are in short, catastrophic. He is financially crippled by the level of debt he is forced to meet as a consequence of the liabilities which were incurred during the relationship being substantially incurred in his name.

4. Mr Lodato owns an interest in real estate with his new partner. However, it was conceded at trial that no direct financial contribution was made by Mr Lodato to that property and, in fact, that he has “negative equity” in the property.

5. Ms Lodato’s financial position is little better. Ms Lodato has purchased property since separation.  However, she has not contributed cash funds towards the purchase. The deposit and associated expenses were provided to Ms Lodato by her family (to whom she remains liable on whatever basis) and the remainder borrowed by way of mortgage which Ms Lodato services from her income.

6. Each of the parties can fairly be described as “working poor”. They are perhaps and unfortunately reflective of the present state of society wherein even those with a reasonable income, what might have previously been considered a “comfortable middle class income”, are required to live from pay to pay, week to week and hand to mouth.

7. Neither party has any capacity to borrow nor any capacity to meet any further debt than that for which they are already liable.

Whether any party is in receipt of a grant of Legal Aid

1. Neither party is.

Conduct of the parties with respect to proceedings

1. Tangential reference is made in the wife’s submissions to issues with respect to what was characterised as “ongoing discovery” between the parties. However to the extent that it is addressed in submissions (it would not appear to be significantly relied upon as the basis for pursuing an Order for costs) it is clear from those submissions (and the evidence at trial) that:

   a)Each party had failed to give full and frank financial disclosure prior to the commencement of proceedings as would be required by pre-action procedures. Whilst pre-action procedures are incorporated within the Family Law Rules 2004 rather than the Federal Circuit Court Rules 2001 such provisions are incorporated into and relevant to proceedings before the Federal Circuit Court (see regulation 1.05 of the Federal Circuit Court Rules 2001);

   b)Prior to the trial it is clear that the parties had each given ongoing disclosure rather than it having occurred at the commencement of the proceedings as would otherwise be required (see for example regulation 24.02 of the Federal Circuit Court Rules 2001);

   c)By trial no suggestion was raised that disclosure was other than complete.

2. On the above basis there is and can be no valid criticism raised of either party (or to the extent that criticism is raised it is mutual and thus neutral as a consideration) as to discovery and disclosure.

Whether proceedings were necessitated by failure to comply with a previous order

1. This is not relevant.

Whether a party has been wholly unsuccessful

1. It is always difficult to conceptualise what might be considered as “wholly unsuccessful” in litigation under the Family Law Act 1975. This is particularly so as regards proceedings with respect to parenting arrangements but applicable also to property adjustment proceedings.

2. Neither party obtained all of the Orders which they sought.

3. In the context of this case it is also to be observed that but for the approach which each of the parties urged me to take I would have had and did, in fact, have (and raised and expressed to the parties) some real reservation as to the efficacy of any order being made or the enlivenment of jurisdiction in light of the fact that the asset pool, as potentially presented by the parties, comprised only debt.[2]

   [2] I make clear that this reticence as to jurisdiction is not based on any suggestion that the High Court’s decision in Stanford [2012] HCA 52 requires a “threshold” determination that the exercise of jurisdiction is appropriate but rather the reality that the parties had no “property” (as defined for Part VIII proceedings) to divide and neither party sought relief pursuant to Part VIIIAA of the Act.

4. Each party ultimately:

   a)Consented to Orders regarding declaratory relief in relation to the real estate interests each presently holds (having acquired same post separation and without direct financial contribution by either); and

   b)Consented to superannuation splitting Orders; and

   c)Urged the Court to adopt a global approach whereby all assets, resources, liabilities and tangible assets should be included in one pool rather than separate pools of tangible and superannuation assets.  If the later approach had been urged and accepted then the Orders ultimately made may have been significantly different.

5. It would have been open to either party (and particularly the husband) to urge a different approach upon the Court including but not limited to the above approach. As that was not raised it was not pursued further.

6. The above matters are of some relevance in that the relative “success” or lack thereof of either party is integrally connected with:

   a)An acceptance of the parties’ evidence;

   b)The approach adopted and applied towards the proceedings and in particular the formulation of the pool of property;

   c)The determination of justice and equity having regard to the above matters.

7. I am not satisfied that I could fairly describe either party as having been wholly successful or wholly unsuccessful.

8. The wife had sought that the husband be liable for all debt (whether in his sole name or in the joint names of the parties) and including having sought an Order that the husband be responsible for and meet the suggested liability of the parties to the maternal grandmother. That portion of the wife’s application did not find favour (indeed it would have equated to a 100 per cent adjustment of debt which was the only “tangible property” available and would have been inherently unjust and inequitable).

9. Clearly offers of settlement were put which proposed a different position to the above. However, the above position is that which was agitated at trial and that which I must thus consider as regards the relative success or absence thereof of either party.

10. True it is that Mr Lodato had agitated throughout the proceedings, including at trial, that Ms Lodato would assume some responsibility for the five debts standing in his name and as to which there was no dispute that a nexus and connection to the marital relationship existed and from which each party had received (in whole or in part) benefit.

11. Whilst that portion of the relief sort by Mr Lodato had not found favour, his Application that Ms Lodato assume liability for the loan to her grandmother was incorporated in the Orders made by the Court.

12. Whilst Mr Lodato had sought to pursue a lump sum payment from

    
    

    Ms Lodato to him it was also open to the Court to style Orders which imposed some degree of responsibility for the liabilities extant in

    
    

    Mr Lodato’s name other than through a lump sum payment by her to him (e.g. requiring that Ms Lodato meet payments as and when they fall due or requiring that Ms Lodato, whether in whole or in part, refinance a liability into her name and thereafter meet payments with respect to the liability or if unable to do so meet the payments).

13. Neither party sought to suggest that the Court lacked jurisdiction to make Orders of that nature and, indeed, it was inherent and fundamental to the wife’s case to agitate that the Court was authorised to and invested with jurisdiction to deal with and determine the controversy between the parties relating to payment of debt.  It was accepted that the Court had such jurisdiction (see for example, Trustee of the Property of G Lemnos & Lemnos [2009] FamCAFC 20).

14. Accordingly, I am not satisfied that either party could be described as wholly successful or wholly unsuccessful.

Offers of settlement

1. I do not propose to particularise each of the offers of settlement referred to in the extraordinarily lengthy submissions of the wife together with substantial attachments.

2. True it is that offers of settlement were made by the wife at various times in the proceedings.

3. True it is that Mr Lodato had, throughout the proceedings agitated for Ms Lodato to assume and take over responsibility for some portion of the debt under which Mr Lodato laboured and which he had retained purely as a consequence of it having been incurred in his sole name (albeit largely through joint enterprise).  Mr Lodato has serviced that debt since separation.  The debt, it would be fair to say, consumes the entirety of his income and will continue to consume the entirety of his income for some years to come.  He is a middle class slave to servicing, reducing and, one would hope, ultimately discharging those debts.

4. It is not inappropriate to describe Mr Lodato as crippled by debt.  He is at or near a point of insolvency and one would think that but for his interest as a registered proprietor in real estate, jointly owned with his current partner that bankruptcy would be an irresistible temptation in resolution of his financial position.

5. The wife’s Counsel has not referred me to any authority relied upon by them with respect to offers of settlement. However, I am conscious of and have taken into account the Full Court’s decision in Brown & Green (2002) FLC 93-115 at paragraph 57 and in particular the following passage:

   The insertion of s.117C in the legislation is clear indication of the desire of Parliament to enable parties to avoid unnecessary litigation by indicating to the other party an appropriate basis upon which litigation can be settled. The failure to heed a reasonable offer in the circumstances where there is adequate knowledge to the parties at the time of the offer is made to give it proper consideration, is something to which very significant weight indeed ought normally be given.

6. A number of the offers made by Ms Lodato were of limited duration (some as limited as a period of 24-48 hours given for acceptance or rejection of the offer).

7. Each of the offers came accompanied by statements making clear that the wife would seek costs in the event that the offer were not accepted and, further, the Court made Orders in the wife’s favour in accordance with the offer or more generous. Indeed each of the pieces of correspondence contains a proposal to or in similar terms to the following:

   If you reject the [offer], proceed to trial and receive no better result from the judge’s verdict than the terms of the [offer] then [Ms Lodato] will apply for an order that you pay all her legal costs, counsel’s fees and expenses outlined above…

8. One can take from the form of the wife’s submissions that what is sought is an Order for indemnity costs. That phrase is not used in the submission although throughout Orders are sought with respect to, “all of the wife’s costs”. That would, however, appear to be at odds with annexure R36 to the wife’s submissions which is a schedule of respondent’s costs calculated in accordance with schedule 1 of the Federal Circuit Court Rules 2001.

9. On the above basis I am satisfied that the wife is not, in fact, making or seeking to press an application for indemnity costs. In the event that the wife were seeking to make such application I make clear that I am not satisfied that any such Order should be made. That is particularly so having regard to that stated by the Full Court in Prantage & Prantage [2013] FamCAFC 105 and in particular that set out in paragraphs 76 – 86 thereof.

1. I will thus henceforth proceed to deal with the Application for Costs as a party/party application.

2. It is also to be observed that schedule 1 of the Federal Circuit Court Rules 2001 is an indicative scale of costs and not a proscriptive scale of costs. Accordingly, if the Court is satisfied that each of the joint limbs of the section 117 jurisdiction are established (a justifying circumstance and it being just and equitable) then an Order for costs need not be limited to that set out in the scale. The scale is intended for illustrative purposes only and to ensure some degree of consistency both as to litigant expectation and Orders of the Court.

3. I am conscious that the Full Court has made clear in authorities such as those referred to above that weight should be attached to offers of settlement particularly in property proceedings and when the parties have provided full and frank disclosure.

4. I am satisfied that significant weight should be attached to the offers of settlement. However, I am not satisfied that the offers of settlement (or the fact of their rejection or perhaps non acceptance is more accurate in some circumstances) is dispositive of the proceedings. It is one of the many factors to be considered.

5. Having regard to the potential jurisdictional issue which might have been raised in the proceedings and the balance of factors I am not satisfied that an Order for costs should be made.

6. The wife’s submits that the Husband has been steadfast throughout the proceedings in his insistence that the wife make some contribution (whether by lump sum payment or otherwise) to the debts that were outstanding in his name. Equally, however it is clear that the wife, through each offer of settlement that she had raised, was insistent that the husband meet, pay and be responsible for all of the five unsecured debts in his name which were referred to in each of the wife’s offers as “all the matrimonial debts”.

7. The only variance between the wife’s application as pressed before the Court and her offers of settlement was an indication by her of her preparedness to assume responsibility for meeting the debt outstanding to her extended family member and variance in the base amount or percentage which the wife sought to be transferred to her by way of superannuation splitting order from the husband’s superannuation interests.

8. To the extent that it is suggested that Mr Lodato had been somewhat “blinkered” in his steadfast insistence the wife contribute to the crippling level of matrimonial debt that he was servicing (effectively the entirety of it save for the debt to the wife’s grandmother) the wife was equally dogmatic in her insistence that she would not do so.

9. Mr Lodato has also made offers. What is clear is that a commercially realistic resolution of the proceedings can and should have occurred and that both parties (and including or especially Ms Lodato in light of the costs she has incurred) would have been better off than they are at the conclusion of the matter. Standing one’s ground with strident resistance and assertion of right is one thing but it cannot be with a guarantee or assurance that costs will follow the cause. That is not what section 117(1) of the Act provides.

10. In the above circumstances and having regard to:

    a)The facts and circumstances of the matter;

    b)The potential jurisdictional issues which might have arisen should either party have sought to raise them or press them;

    c)The general uncertainty of litigation;

    d)The financial circumstances of each of the parties, it being entirely extricable from the perspective of each that their financial position would, no matter what Orders were to be made by the Court, remain poor (that in itself being somewhat of a euphemism);

    I am not satisfied that a justifying circumstance is established by which the Court’s jurisdiction to Order costs would be enlivened.

11. Lest I am wrong with respect to the above I am equally unsatisfied that justice and equity would be served by an Order for costs.

12. The wife asserts that she is now left to meet her legal costs and should not be required to do so in circumstances whereby her income is limited; she has the care of the children and has no ready means of meeting those costs. However, the wife’s evidence is clear that she is, has been and will in the future continue to be able to call upon her family for assistance and I have no doubt that the wife’s legal costs will be met in that fashion and through the largess of her extended family.

13. The husband has no such assistance to call upon. The husband has no assets with net value to him. The husband has his income and a significant level of debts.

14. To date the husband has not been making payments in reduction of the debt whilst awaiting the determination of these proceedings and to first determine the extent of his liability.  Notwithstanding (and criticism of him by Counsel for the wife) the husband has met all interest payments and serviced the debt (and has done so in addition to payment of child support and meeting his costs of exercising a relationship with the children).

15. The majority of the husband’s net disposable income has been consumed (over and beyond that which is paid with respect to his liability for the mortgage encumbering the home he has purchased with his partner) in meeting interest on those debts. For the husband to now remain liable to pay out the capital debt of nearly $130,000 will see the husband in a position of financial servitude to various financial institutions for many years to come. He may as well be shackled and in bondage such is the reality of his income being earnt for the benefit of those banks.

16. As regards both the justifying circumstance and justice and equity I am also conscious of the husband’s submission (paragraph 18) that “I have no capacity to borrow any additional funds.” Indeed I accept that this is so.

17. On the husband’s present asset and income position and having regard to his present and extant liabilities the husband would have no borrowing capacity including by way of further unsecured borrowing such as additional credit cards.

18. The best that the husband can hope for in the next few years is to seek to continuously transfer his debt or portions thereof between different financial institutions offering low interest or interest free periods on balance transfer to speed up the reduction of his crippling debt level. That would shave some little time off that which will be required by Mr Lodato to render himself debt free. Indeed and in all probability

    
    

    Mr Lodato will, by retirement, remain indebted and will be required to use some portion of his otherwise anticipated retirement income from superannuation in meeting those liabilities.

19. I am satisfied that the financial impact upon Mr Lodato of any further Order requiring payment by him including as to costs would be so disastrous that his submission (at paragraph 21) has some real force namely:

    “if an order for costs is awarded…and personal bankruptcy results the [husband] will have difficulty in keeping employment as I am required to travel overseas for work and this would require approval of a bankruptcy trustee and [the husband] could not guarantee to his employer that work requirements could be met.”

20. It is not the role of this Court to financially destroy litigants before it. Indeed the facts and circumstances of the parties’ marriage and time together and the significant and somewhat over generous lending practices of the financial institutions that the parties have dealt with would appear to have already substantially achieved that end.

21. In light of those consequences and all of the above factors I am not satisfied, as indicated, and whether based upon the offers of settlement (giving them their full weight and effect) or otherwise that there is a justifying circumstance to depart from the general rule established by section 117(1) of the Act nor am I satisfied that it would be just and equitable to do so.

22. In light of the issues involved in these proceedings each party was entitled to “chance their arm” at hearing and to do so without fear of the consequence which the wife now seeks to impose upon the husband being his financial ruination for having had the temerity to seek relief from the Court different to the wife and which was perfectly arguable.

23. Ultimately, the decision made was substantially in favour of the relief sought by the wife (it is to be remembered that the wife was not successful in every respect and in significant portions of the Orders consent was provided by Mr Lodato).  However, there were significant factual and legal issues which warranted a determination of the matter by the Court and contrary to the wife’s submission; the outcome of the proceedings was far from predetermined, irresistible or certain.

Such other matters as are considered relevant

1. I am satisfied that the above matters sufficiently address the Application that is made to the Court.

2. It must be observed that the submissions made on the wife’s part, focused as they are solely upon the offers of settlement (which would appear to be annexed in their totality to the submissions) are not persuasive and do not address all matters which the Court is required to consider (and which I am satisfied have been addressed by me).

3. These parties, after a relatively lengthy relationship and each having worked hard (whether for income or otherwise), found themselves in a financial situation reflective of anything other than a middle class family in a first world country. Those circumstances partly arise as a consequence of a significant down turn (whether through overcapitalising or otherwise) in the value of a parcel of real estate owned by the parties and which was thus sold at a significant loss.

4. I am also troubled that after lengthy written submissions as to costs that further and amended submissions were forwarded to my Chambers and which added little (if anything) to the determination of the controversy between the parties and which have substantially delayed the disposal of the determination of that issue.

5. Those matters do not, however, impact upon or change the findings above and I remain satisfied that no justifying circumstance is established which would warrant an Order for costs nor would any Order for costs be just and equitable as between the parties in the circumstances of this case.

6. In light of the above I need not turn my attention to any quantum of costs as sought.

7. Based upon the above findings and reasons I make the following Orders.

I certify that the preceding eighty-one (81) paragraphs are a true copy of the reasons for judgment of Judge Harman

Associate: 

Date:  27 March 2014