Marlowe-Dawson & Dawson (Costs)

[2015] FamCA 8

FAMILY COURT OF AUSTRALIA

MARLOWE-DAWSON & DAWSON (COSTS) [2015] FamCA 8

FAMILY LAW – COSTS – Where the applicant seeks an order that the respondent pay her costs – Costs sought on the basis that the applicant’s offer to settle was more favourable to the respondent than the final orders – Circumstances when offer made compared to circumstances when final orders made – Where there was a substantial unforeseeable increase in the respondent’s property assets subsequent to the offer to settle – Where the application for costs of the substantive proceedings is dismissed – Where costs of the current application are awarded to the respondent on a party and party basis.

Family Law Act 1975 (Cth)

Brown & Brown (1998) FLC 92-822
Browne & Green (2002) FLC 93-115
Collins & Collins (1985) FLC 91-603
Harris & Harris (1991) FLC 92-254
I & I (No 2) (1995) FLC 92-625
LAC v TRF (2005) 33 Fam LR 123
McAlpin (1993) FLC 92-411
Penfold & Penfold (1980) 144 CLR 311
Pennisi v Pennisi (1997) FLC 92-774
Robinson & Higginbotham (1991) FLC 92-209

APPLICANT: Ms Marlowe-Dawson

RESPONDENT: Mr Dawson

FILE NUMBER: SYC 53 of 2011

DATE DELIVERED: 16 January 2015

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Kent J

HEARING DATE: By way of written submissions filed 25 November 2014 and 9 January 2015

REPRESENTATION

SOLICITOR FOR THE APPLICANT:	Hopgood Lawyers
SOLICITOR FOR THE RESPONDENT:	Barkus Doolan

Orders

IT IS ORDERED THAT:

1. The Wife’s Application in a Case filed on 2 September 2014 be dismissed.

2. The Wife pay the Husband’s costs of and incidental to that application to be agreed or, failing agreement, to be assessed on a party and party basis.

IT IS NOTED that publication of this judgment by this Court under the pseudonym  Marlowe-Dawson & Dawson (Costs) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: SYC 53 of 2011

Ms Marlowe-Dawson

Applicant

And

Mr Dawson

Respondent

REASONS FOR JUDGMENT

1. On 4 August 2014 final Orders and reasons for judgment were delivered in respect of the substantive applications initiated by the wife, pursuant to the Family Law Act 1975 (Cth) (“the Act”) for property settlement, spousal maintenance, child maintenance and adult child maintenance.

2. Whilst some specific references will be made to those reasons for judgment (referred to here for convenience as “the substantive reasons”) in what follows,  the substantive reasons as a whole need to be read in conjunction with these reasons for a complete understanding of these reasons, and are incorporated for that purpose.

3. By application in a case filed on 2 September 2014 (incorrectly date stamped by the Court 26 September 2014) the wife seeks an order, pursuant to s 117(2) of the Act, that the husband pay her costs of the substantive applications and proceedings. The husband opposes the application.

4. On 21 October 2014 both parties consented to an order that this application for costs be heard and determined by way of written submissions without an oral hearing.  The wife’s written submissions, listing the material relied upon in support of the application, were filed on 25 November 2014.  The husband’s written submissions, listing the material relied upon in opposing the application, were filed on 9 January 2015.

5. Taken from the wife’s written submissions she seeks an order which differs from the order sought in her application.  In the wife’s written submissions she contends for an order for her costs from 28 January 2012 (referable to an offer dated 27 January 2012) rather than all of her costs of the substantive proceedings, with the amount of such costs to be agreed or assessed.

6. The husband submits that there should be no departure from the “primary rule” as expressed in s 117(1) that each party to proceedings under the Act shall bear his or her own costs of the substantive proceedings.

7. By his response filed on 4 November 2014 the husband seeks that the wife’s application in a case for costs be dismissed and that the wife pay the husband his costs of that application. 

8. The principles and guidelines as to the operation of s 117 of the Act and for determining costs applications (including where an offer is relied upon) are well-established by authority and need not be restated here. (See Penfold v Penfold (1980) 144 CLR 311; Robinson & Higginbotham (1991) FLC 92-209; Browne & Green (2002) FLC 93-115; Collins & Collins (1985) FLC 91-603; Harris & Harris (1991) FLC 92-254; McAlpin (1993) FLC 92-411; I & I (No 2) (1995) FLC 92-625; Brown & Brown (1998) FLC 92-822; LAC v TRF (2005) 33 Fam LR 123; Pennisi v Pennisi (1997) FLC 92-774).

Justifying circumstances

1. Whilst the wife’s written submissions address other considerations in s 117(2A) it is clear that the essential foundation for her application for costs is s 117(2A)(f). That is, the wife contends that comparison between the terms of her written offer of settlement dated 27 January 2012, and the outcome reflected in the final orders made, yields the conclusion that this circumstance justifies the order for costs in her favour she seeks.

2. In summary, the wife contends that because the outcome to her, in overall dollar terms, produced by the final orders is more favourable to her (and consequently less favourable to the husband) than that which the wife would have received (and consequently what the husband would have retained) had the husband accepted her settlement offer; that offer is an overwhelming discretionary consideration in favour of a conclusion that it would be just for an order for costs of the substantiative proceedings incurred post-27 January 2012 being made in her favour. 

3. In my judgment there is a fundamental flaw in the comparison approach advanced by the wife. 

4. As is discussed at some length in the substantive reasons (commencing at [29]) the husband took up a secondment to the Asian City 2 office of the international firm in which he had been an equity partner since 1998, in March 2011.  The husband thereupon became employed by an entity controlled by the firm; the secondment was to last for five (5) years; and at its conclusion the husband was entitled to be readmitted to his equity partnership in the firm at the same level as if the secondment had not intervened. 

5. The contractual arrangements entered into between the husband and the firm at the time of his secondment included that the husband’s various classes of shareholdings in the firm were converted to interest-free capital loans of various classes in the same amounts or values as his classes of shareholdings. (See substantive reasons at [32]).

6. Other than conversion of the loans to shares upon his readmission to the firm at the conclusion of his secondment, those capital loans were repayable by the firm to the husband only upon the husband’s retirement from the firm and then in respect of some loan classes either six (6) months post-retirement or twelve (12) months post-retirement.  (See substantive reasons at [32] to [36]).

7. On 27 January 2012 when the subject settlement offer was made by the wife via correspondence from her solicitors:

   a)The husband had, on the evidence in the substantive proceedings, no plans other than to continue his employment with the firm by completing his secondment and then the readmission to equity partnership in the firm;

   b)Neither party had any reason to suppose or expect that the firm would move to force the husband’s early and involuntary retirement from the firm; and

   c)As is made clear in the substantive reasons, the only property the husband held in respect of his interest in the firm was the net value of his capital loans.

8. Thus, as at 27 January 2012 when the wife’s offer was made, whilst the husband held as property interests the capital loans referred to; the loans were not liquid assets in that none of the loan capital was assignable nor were the loans (or any shares in the firm that would replace them upon the husband’s resumption of his equity partnership in the firm upon completion of the secondment) accessible as money in the husband’s hands prior to his retirement from the firm.  This was the position as at the trial heard over four days in September 2012. 

9. The husband first received notice from the firm of the proposed termination of his employment with the firm on 27 January 2014, two (2) years after the date of the wife’s offer.  It was that event which caused the husband to apply to

   
   

   re-open the evidence.  Thus it was that the above position pertained until that notice was received and, more particularly, until the contractual terms of the husband’s involuntary retirement were negotiated by the husband with the firm.

10. Those negotiations culminated in contractual terms of retirement dated 26 March 2014. 

11. It was by reason of those negotiated terms of retirement, and solely because of those terms, that property interests, in the form of entitlements which then accrued to the husband which were created by those terms, added the Australian dollar equivalent of $2,161,507 to the existing property interests of the parties or either of them to be considered for adjustment as at the

    
    

    re-opening of the trial proceedings in May 2014. 

12. Thus it was that the firm’s termination of the husband’s role with the firm, and more particularly the negotiated terms of the retirement dated 26 March 2014 entered into in consequence:

    a)Converted the husband’s existing property interests in the form of his various classes of loan capital from capital not previously accessible to the husband; to amounts payable to him under the timeframes agreed pursuant to the terms of retirement; and

    b)Added to the property interests able to be included in the “pool” considered for adjustment, the Australian dollar equivalent of approximately $2.16 million.

13. I reject the submissions on behalf of the wife to the effect that such an increase in the value of the overall property interests between that which existed as at 27 January 2012 and that which existed as at the time final orders were determined “must have been expected by the husband given his income” and was a “foreseeable increase”.  The simple fact is that it was only by reason of the wholly unexpected and unanticipated actions of the firm enforcing retirement upon the husband that property interests of this magnitude were added to the property interests able to be considered for adjustment; and allowed for orders to be made for the wife to receive her ascribed entitlement from the cash payments, including the loan capital repayable to the husband, when these were or are to be paid under the negotiated terms of retirement.

14. It is to be noted in this context that, as referred to in the substantive reasons, the husband obtained his equity partnership in 1998.  As discussed in some detail in the substantive reasons (see, for example, at [154]) for each of many years prior to January 2012 the husband had averaged exceedingly high after tax income.  As at January 2012 that income had not only supported the family historically to the levels discussed in the substantive reasons, but was the source from which the parties’ net accumulated asset position was, as at January 2012, in the order of approximately $4.2 million, on the wife’s case. 

15. Thus, given the findings recorded in the substantive reasons as to the parties’ position as at separation in 2002, notwithstanding the husband’s high levels of earnings it must have taken as long as about 10 years for the accumulated value of the parties’ property interests to reach $4.2 million (on the wife’s estimate) by early 2012.

16. Given, amongst other things, the husband’s continued substantial support of the family from January 2012; maintaining his own needs and those of his wife Ms A and their children; meeting very substantial liabilities; there is simply no substance in any submission to the effect that, but for the retirement benefits which crystallised, the husband could reasonably have anticipated or contemplated as at January 2012 that a property pool then worth, say,

    
    

    $4.2 million on the wife’s estimate would increase by more than $2 million, or 50 per cent, in just two years. 

17. This emphasises the unexpected advantage, in the nature of a windfall, that the husband’s termination benefits which crystallised in early 2014 represented. Had the husband continued, as was anticipated prior to the firm’s notice in early 2014, to remain with the firm until his retirement at normal retirement age his interest in the firm, in property terms, was confined to the value of his capital loans. The husband’s involuntary retirement created the opportunity for the very substantial (additional) retirement benefits to be negotiated; whilst the husband at the same time retained his residual earning capacity. In that sense, the fact that the early termination by the firm generated very substantial, additional, property interests or entitlements that would not otherwise have existed or become available for consideration in the exercise of the s 79 power was in the nature of a windfall.

18. As the Full Court observed in Brown & Green (supra) at [57]:

    … The failure to heed a reasonable offer in circumstances where there is adequate knowledge of the parties at the time the offer is made to give it a proper consideration, is something to which very significant weight indeed ought normally be given. 

    (Emphasis added)

19. Neither party, including the husband, had any knowledge or means of knowledge as at January 2012, when the wife’s offer was made, as to the prospect of the firm terminating the husband’s position with the firm and, more particularly, that termination benefits in excess of $2 million in value would crystallise as property of the husband as a result of the terms negotiated.

20. For these reasons the wife’s proposition, which assumes that it is appropriate and just to compare the January 2012 offer with the final orders made in the manner contended for by the wife, has no merit.  That has the consequence that the central justifying circumstance relied upon by the wife for her application for costs is illusory.

21. These are reasons enough, in my judgment, for dismissing the wife’s application for costs but for completeness I will discuss some further aspects and will engage with some of the other arguments that have been advanced.

Relevant terms of the wife’s offer of settlement

1. The wife’s offer of 27 January 2012 was not expressed to be severable and it is not suggested that it was.  That is, the husband was unable to accept the offer made severally, for example, with respect to property settlement but not in respect of spousal maintenance; or child maintenance or adult child maintenance.  It was an all or nothing offer.

2. Moreover, the terms of the offer made it clear that orders of the Court to give effect to the terms were part of the proposal.

3. I note in passing that if the husband accepted those terms, and these were made as orders, there would then have existed an order for spousal maintenance.  Payable more or less immediately was a lump sum amount of $250,000 calculated by reference to $50,000 per annum for five (5) years (it was not a proposal for payment of $50,000 per annum as the wife’s written submissions would suggest). 

4. A spousal maintenance order is liable to variation under s 83 of the Act. Whilst in seeking any variation the wife would have to confront the difficulties inherent in having received a substantial lump sum; it would be arguable that the husband’s circumstances substantially changed, for the purposes of s 83(2)(a)(ii), upon the terms of his retirement being negotiated in early 2014, obviously within the five year period by reference to which the lump sum was calculated.

5. Thus if the husband had accepted the wife’s offer and these terms were reflected in consent orders there existed the future risk or prospect for the husband that he would face an application for variation of spousal maintenance; as compared with the position that obtained given that the final orders made included an order dismissing the wife’s claim for spousal maintenance.

6. That aspect aside, the wife’s submissions (at 4.13(b) and (c)) proceed on the boldly stated assumption that the wife’s application for spousal maintenance ultimately failed only by virtue of the husband’s retirement benefits being included in the divisible pool.

7. Given what is set out in the substantive reasons at [236] and following and the authority referred to at [251] where the Full Court held that receipt of $2.1 million in capital extinguished any proper claim to spousal maintenance; that assumption is unsafe.

8. Even without the inclusion of the retirement benefits the likely divisible pool of assets available would have been substantial and of sufficient substance to allow for property orders to be made in favour of the wife in a manner which would extinguish any further “proper” claim for spousal maintenance.

9. As is acknowledged by the wife, and emphasised by the husband, the wife wholly failed in her spousal maintenance claim and achieved significantly less by way of each of child and adult maintenance than was proposed in her offer of settlement.

10. Under the terms of the offer of settlement the wife proposed to receive a transfer of the husband’s interest in each of the three real properties identified in paragraph 1(a), (b) and (c) of the offer, subject to the respective existing mortgages on each. Paragraph 3 of the offer was expressed in these terms:

    3.That the parties shall do all necessary acts and sign all necessary documents and the Wife shall use her best endeavours to refinance into her sole name the mortgage debts and loan in relation to the property she is to receive pursuant to paragraphs 1(a) to (d) above.  Pending transfer of the Husband’s interest in the said property to the Wife (namely, settlement), the Husband shall be solely responsible for and meet payment when due of all instalments of principal and interest (if any) including arrears pursuant to the terms of the said mortgages and loan and indemnify the Wife and keep her indemnified from all liability howsoever arising thereunder.

11. At [214] of the substantive reasons it is recorded that I was not satisfied that the wife could, even then, retain the subject three real properties subject to existing debt, and that was obviously in the context of the wife receiving substantially more capital via her allocated share of the retirement benefits pursuant to the final orders in comparison to the position as at January 2012.

12. There is no persuasive evidence, even with the benefit of hindsight from the evidence at trial, and even allowing for the offered term discussed further below for the husband to continue to pay the Brisbane Suburb C mortgage, that the respective mortgagees would have, as at January 2012, consented to the husband transferring his interests in each property to the wife and refinancing; and no evidence to support it as probable that the wife would actually succeed in refinancing these combined, substantial, mortgage debts into her own name.

13. The terms of the wife’s offer of settlement are silent as to what was to occur in the event (the perhaps probable event) that the wife could not obtain refinancing of the debts; and there was no time limit prescribed upon the wife’s “best endeavours” and any such refinancing occurring; but the husband was obliged to maintain substantial payments pending “settlement”, as defined, being the successful transfer of his interests to the wife in each of these properties.

14. Added to this, as is reflected in the evidence of Ms L at trial as to the United Kingdom capital gains taxation impost referred to in the reasons at [216]; there were significant potential issues concerning the United Kingdom property and potential ramifications of substance concerning its sale and the incurring of capital gains tax liabilities.

1. Beyond, in paragraph 4 of the written offer, leaving any taxation liability in respect of the transfer of the husband’s interests to the wife with the husband; the offer seemingly does not otherwise address the taxation consequences of sale of the United Kingdom property if that eventuated.  Paragraph 7 would not relieve the husband of capital gains tax liability if the United Kingdom property remained (partly) in his name when sold.

2. As paragraph 4.18 of the wife’s written submissions demonstrate, even on the wife’s own figures her 2012 offer represented a property adjustment of approximately 77 per cent (the wife receiving about $3.3 million of the total pool of about $4.2 million); and over and above that capital, the wife would receive a lump sum payment of spousal maintenance of $250,000 to be paid essentially immediately.  That payment could only come from capital so in overall terms the wife’s offer including lump sum spousal maintenance represented her receiving 84 per cent of the assets, on her own figures.

3. Of course on the husband’s figures as outlined in his written submissions the proportion was in excess of 90 per cent.

4. It ought be emphasised that the wife’s purported comparison between the January 2012 offer and the final orders completely omits any factoring in of the term in paragraph 15 of the written offer concerning the husband’s continuing obligation to meet mortgage payments on the Suburb C property until completion by the youngest child of his secondary education, unless the wife chose to sell the property in the meantime (an unlikely event if the terms were operative).

5. As at January 2012, and it seems at all material times since, the mortgage payments on the Suburb C property were in the order of $3,000 per week and it seems this was attributable wholly, or mainly, to interest on the mortgage loan. That converts to about $156,000 per year.  As at January 2012 there were about five (5) years to elapse until the youngest child completed his secondary education, as then anticipated, at the end of the 2016 year.  Thus, in gross terms, this term of the offer represented a total outlay by the husband of something like $780,000 in payments for the wife’s benefit.  Even if the interest-only component of this total is less than that the contemplated outlay was nevertheless very substantial.

6. The omission, in the wife’s approach of ignoring this factor in undertaking her comparison of gross figures, renders untenable her submission that “the wife received an amount by way of the overall financial settlement which was $1,153,136.00 more than if the husband had accepted the 2012 offer.”  This factor; and the substantial differences in the adult child maintenance and child maintenance offered compared to those ordered; means that even if a comparative approach were legitimate (which for the reasons already discussed is not so) the difference (if any) is nothing like that contended by the wife, even in gross dollar terms.

7. When regard is had to these features as discussed above, there would appear to be nothing unreasonable about the husband’s non-acceptance of the wife’s offer of settlement.

8. Between the offer made in January 2012 and the final orders the husband substantially reduced the debts as they existed as at January 2012 on each of the S Street property in the United Kingdom and the Suburb C mortgage and other liabilities.

Failures in the case advanced by the wife

1. Relevant not only to the wife’s application for costs but also to the husband’s application that the wife should pay his costs of this application is consideration of the issues advanced by the wife in the substantive proceedings upon which she wholly or substantially failed, or did not enjoy success in her claims, given that, on this application, the wife sought that all of her costs of the substantive proceedings, at least from the time of her written offer of settlement in January 2012, be paid by the husband.

2. As is discussed in the substantive reasons at some length at [28] to [72] the wife contended for what are there described as “the 25 per cent orders” to be made as property orders pursuant to s 79 of the Act. In the alternative, she sought the 25 per cent orders as orders for spousal maintenance. Even when faced with the husband’s involuntary retirement from the firm (and its favourable financial consequences represented by the retirement benefits so far as the value of property was concerned) the wife maintained the contention that the 25 per cent orders could be made as property orders; or alternatively should be made as spousal maintenance orders (in addition to the property she received).

3. As is reflected in the substantive reasons the wife wholly failed on both contentions.  As is also reflected in the substantive reasons, these contentions involved significant evidence and time at trial and consequent costs incurred by the husband in successfully meeting them.

4. Significant time and resources, and consequent costs for both parties, were addressed to the wife’s spousal maintenance claims, in respect of which the wife was wholly unsuccessful.  Earlier in these reasons is recorded the rejection of the wife’s contention that her spousal maintenance claim failed only because of the addition to the divisible pool of the retirement benefits.  However, what is relevant is that notwithstanding that these retirement benefits became available and were added to the property pool the wife nevertheless pursued her spousal maintenance claim over and above a property entitlement.

5. The final orders made for adult child maintenance and child maintenance were at very significant variance downwards from the claims advanced by the wife.  The final outcome of these issues was in many respects closer to the husband’s contentions than those of the wife.

6. The wife did not succeed in her application to receive a transfer of the husband’s interest in the United Kingdom property.  Moreover, expense was incurred in the wife pursuing a contention for the re-opening of the trial that if certain work was undertaken to that property it would add as much as £300,000 to its market value.  This contention involved the obtaining of expert evidence by the wife and that evidence being met by the husband.  In the result, as is discussed in the substantive reasons at [96] to [99] the wife’s contention was not made out, even remotely.

7. As is deposed to by the husband at paragraph 57.6 of his affidavit filed 4 November 2014, the wife had asserted in her affidavit filed 19 May 2014 to the effect that she would pursue on the reopening of the evidence a contention that the husband’s evidence about the termination of his employment with the firm was contrived or falsely presented.  The husband incurred the expense of having his legal representatives obtain an affidavit from Mr O, a member of the firm.  In the result Mr O was not cross-examined by counsel for the wife and the foreshadowed contention was not advanced.  Nevertheless the husband incurred the costs referred to.

8. None of the foregoing is intended to ignore the feature that the husband was unsuccessful on a range of issues in the proceedings and at trial.  However, in circumstances where it is the wife, not the husband, who has applied for an order for her costs of the proceedings, and essentially the whole of the proceedings since her written offer was made in January 2012, there necessarily must be focus upon the wife’s conduct of the case in terms of the issues she advanced and her lack of success with respect to those issues.

Conclusions

1. I am not satisfied that it is legitimate to compare the final orders outcome with the offer in gross dollar terms because of the profound and unexpected change in circumstances brought about by the firm concerning the husband’s retirement and the retirement benefits.

2. I am not satisfied that there are justifying circumstances for an order for costs in favour of the wife with respect to the substantive proceedings.  I am not satisfied that such an order would be just within the meaning of the section.  The wife’s application is to be dismissed.

3. In my judgment the same process of reasoning for rejection of the wife’s application for costs leads to the conclusion that there are justifying circumstances for the order sought by the husband that the wife be responsible for his costs of successfully resisting her costs application.

4. Having regard to the substantive reasons and the effect of the final orders there is nothing in the financial circumstances of either party; or by way of comparison between them; that militates against the making of an order against the wife in respect of the costs application.

5. The wife has been wholly unsuccessful on her application for costs and in my judgment the application was advanced on a misconceived basis, that is, that it was legitimate to simply compare the January 2012 offer in gross dollar terms to the final orders outcome in gross dollar terms.  There was, for the reasons already discussed, a profound change in the circumstances that pertained as at January 2012 with the circumstances that pertained when the final orders were made by reason of the termination benefits which crystallised in the meantime.  The husband had no reason, as at January 2012, to anticipate or expect that change and cannot be criticised for his non-acceptance of the offer on that basis.

6. By letter dated 7 November 2014 the husband offered to resolve this application on the basis that it be dismissed with each party to bear their own costs of and incidental to the application.  That offer remained open for acceptance until 18 November 2014.  The wife had the opportunity to consider the husband’s affidavit filed on 4 November 2014 in considering the offer as well as the contents of the letter referred to.

7. For the foregoing reasons I order that the wife’s application in a case filed on 2 September 2014 (wrongly stamped by the Court as being filed on 26 September 2014) be dismissed; and that the wife pay the husband’s costs of and incidental to that application to be agreed or, failing agreement, to be assessed on a party and party basis.

I certify that the preceding sixty-six (66) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 16 January 2015.

Associate: 

Date:  16 January 2015