Masters (deceased) & Parsons
[2017] FamCA 391
•6 June 2017
FAMILY COURT OF AUSTRALIA
| MASTERS (DECEASED) & PARSONS AND ORS | [2017] FamCA 391 |
| FAMILY LAW – COSTS – Property settlement in relation to marriage – Costs of third party creditors – Where the first intervener seeks costs on an indemnity basis – Where the second intervener seeks costs on a party and party basis – Where the interveners joined the proceedings to claim debts owed to them by the husband – Where the proceedings have been running for 11 years – Where the husband died and the proceedings were continued by a legal personal representative – Consideration of the matters in s 117(2A) of the Family Law Act 1975 (Cth) – Where the circumstances justify an award against the wife for the costs of each of the interveners – Order that the wife pay the costs of the first and second interveners on a party and party basis |
| Family Law Act 1975 (Cth) ss 117(1), 117(2), 117(2A) |
Family Law Rules 2004 (Cth) r 19.08, 19.09, 19.18
| Atlas v Kalyk [2001] NSWCA 10 | ||
| APPLICANT: | Mr Hill, Administrator ad Litem for the Estate of the late Mr Masters | |
| RESPONDENT: | Ms Parsons |
| FIRST INTERVENERS: | Mr B and Mr C |
| SECOND INTERVENER: | Mr H |
| FILE NUMBER: | SYC | 2726 | of | 2013 |
| DATE DELIVERED: | 6 June 2017 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Loughnan J |
| HEARING DATE: | 15 & 16 May 2017 |
REPRESENTATION:
| SOLICITOR FOR THE APPLICANT: | Mr Hill |
| COUNSEL FOR THE RESPONDENT: | Mr Fowler |
| SOLICITOR FOR THE RESPONDENT: | Carrolls Lawyers |
| COUNSEL FOR THE FIRST INTERVENERS: | Mr Skinner |
| SOLICITOR FOR THE FIRST INTERVENERS: | B & C Solicitors |
| COUNSEL FOR THE SECOND INTERVENER: | Mr Turner |
| SOLICITOR FOR THE SECOND INTERVENER: | CKB Associates Lawyers |
Orders
That the wife pay the costs of the First Interveners and the Second Intervener of and incidental to these proceedings as agreed or assessed.
The Court Noted that the costs of the First Interveners of the proceedings between the First Interveners and the wife in the Supreme Court of New South Wales (case number …) are not costs of and incidental to these proceedings.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Masters & Parsons & Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 2726 of 2013
| Mr Hill, Administrator ad Litem for the Estate of the late Mr Masters |
Applicant
| Ms Parsons |
Respondent
Mr B and Mr C
| First Interveners |
Mr H
| Second Intervener |
REASONS FOR JUDGMENT
Introduction
These are proceedings in relation to the costs of Mr B and Mr C (“the First Interveners”) and Mr H (“the Second Intervener”) of and incidental to property settlement proceedings between Mr Masters (“the husband”) and Ms Parsons (“the wife”). The husband died in 2016 but the property proceedings were continued on his behalf by Mr Hill, his legal personal representative. Eleven years after the property settlement proceedings commenced, final orders were made in terms agreed between the parties on 16 May 2017.
Applications
The First Interveners seek orders against the wife for their costs of and incidental to the proceedings. They seek indemnity costs in the sum of $431,718.36. The Second Intervener seeks orders against the wife for his costs of these proceedings. He seeks that those costs (on a party and party basis) be quantified by agreement or assessment.
The wife opposes the Interveners’ applications.
The Hearing
The property settlement proceedings were fixed for final hearing commencing on 15 May 2017 for not less than three days. At the commencement of the hearing the parties advised that there was likely to be an agreement as to the substantive issues, including the claims of the Interveners for the payment of debts owed to them. The lawyers took time to obtain instructions and to draft the proposed consent orders. On 16 May 2017 a minute of proposed consent orders was settled and for reasons given on that day, final property settlement orders were made in terms of the parties’ agreement.
Incorporated with the orders of 16 May 2017 was provision for the payment of the debts owing to each of the Interveners, including all interest owing on those debts, to the date of payment.
Upon the making of the final property settlement orders, Mr Hill, the administrator of the husband’s estate for the purposes of these proceedings, sought and without opposition, was granted leave to withdraw.
That left unresolved only the claims of the Interveners against the wife, for their costs. On 16 May 2017 witnesses relied on by the remaining parties were cross-examined and oral submissions were made. Late in the day, judgment was reserved on the costs applications. These are the reasons for judgment.
Background Facts
The husband was born in 1954.
The wife was born in 1956.
In February 2000 the husband and wife commenced cohabitation. In 2003 the husband and wife were married.
On 4 July 2006 the husband filed an application for property settlement in this Court.
On 3 August 2006 orders were made requiring the wife to pay the husband interim spouse maintenance.
On 18 January 2010 very extensive orders were made by the consent of the husband and the wife. Among other orders, those orders provided for the transfer pursuant to s 79 of the Family Law Act 1975 (“the Act”) by the husband to the wife, the husband’s interest in:
·M Pty Limited (which in turn owned the property “P Street”, P Street, Sydney);
·the furniture and other chattels at P Street;
·D Street, E Town;
·the building and construction materials, furniture and other chattels at the E Town property;
·the furniture and other chattels at Z Street, Suburb AA;
·the furniture and other chattels in Q Street, Suburb R;
·the German motor vehicle 1 registered number …;
·the German motor vehicle 2 registered number ...
The orders of 18 January 2010 included a notation that those transfers were made on an interim basis only.
The orders of 18 January 2010 also included an order vacating ab initio the spousal maintenance order made on 3 August 2006.
On 14 December 2010 orders were made by consent between husband and wife, providing for the husband to transfer to the wife his interest in the property at Z Street, Suburb AA and in the property at Q Street, Suburb R.
Again, the orders of 14 December 2010 included a notation that the transfers were made on an interim basis only.
On 2 February 2011 further consent orders were made in the proceedings which included orders requiring the wife to subdivide and sell the Suburb R property. The registrar who made those orders also made orders requiring the parties to provide evidence about certain matters, including the dealings between them with assets and liabilities and the details of financial judgments against either of the parties and of liabilities including financial or costs orders of any court or tribunal that arose after 19 May 2006 and that remained outstanding as at 2 February 2011. I do not have access to any reasons for decision published by the registrar but it appears that the registrar was concerned that by the series of orders they agreed to during 2010, the husband and the wife had caused all of the matrimonial assets to be held by the wife and none by the husband. The registrar was clearly concerned about the possibility of an attempt by those orders, to defeat creditors of the husband.
An Application in a Case was filed by Mr B on 14 November 2011. An Application in a Case was filed by Mr C on 7 May 2012. An Application in a Case was filed by Mr H on 8 August 2012. Ultimately, Messrs B and C in one interest and Mr H in another, were respectively given leave to intervene in the proceedings. The Interveners sought various forms of relief but all of it was aimed at the recovery of judgment debts owed to them by the husband. Those debts arose from circumstances that predated the 2010 transfers of assets from the husband to the wife. The debts arose in the following way:
(a)The husband practised as a professional in New South Wales from November 1978 until June 1989. For a period he was in partnership with Messrs B and C in a small legal firm in the Central West of New South Wales.
(b)The husband was subsequently admitted to practice in the United Kingdom and practised there as a sole practitioner between May 1991 and December 1995. Mr I was an accountant and Mr H was an architect. Each of them was retained by the husband to provide expert evidence in proceedings instituted by the husband (in the UK) pursuant to grants of legal aid.
(c)After returning to live in Australia, on 21 January 2002 the husband instituted proceedings in the NSW Supreme Court against Messrs I and H for their actions in making complaints of non-payment against him in the UK. Remarkably, the husband recommended to Mr I that he retain as his solicitors for those proceedings, his former partners, Messrs B and C. Even more remarkably, Mr I did retain those solicitors to act for him in the Supreme Court proceedings.
(d)The Supreme Court proceedings were dismissed on 3 April 2008 for want of prosecution. The husband was ordered to pay costs which in turn had to be assessed.
(e)There were appeals and challenges to the processes of assessment of costs but ultimately judgment debts were established in favour of Messrs I and H.
(f)Mr I assigned his debt to his solicitors, Messrs B and C. There were three assignments. There was a Deed of Confirmation of Assignment and a Further Deed of Assignment, both dated 18 December 2012 and a Deed of Assignment dated 26 October 2013. The first two deeds were served on the wife on 18 December 2012 and the third, on 7 November 2013.
(g)As a result of interest charges calculated to 12 May 2017, the debts were referred to in the orders of 16 May 2017 as standing at $391,084.43 in relation to the First Interveners and $750,570.32 for the Second Intervener.
It was the husband’s evidence that in the late 1990’s he had been diagnosed with Leukaemia and then Depression.
Over many years the husband was an inveterate if not vexatious, complainant and litigant. In addition to litigation in this Court and the NSW Supreme Court he was involved in disputes with NSW Legal Aid, the NSW Bar and the Law Society of England and Wales and others. In reasons for judgment given by in the NSW Supreme Court case there is a description of the husband’s conduct in the proceedings against Mr H and Mr I, including longstanding default in respect of interlocutory orders. Similar observations were regularly made during the long course of the proceedings in this Court.
Although the applicant in the substantive proceedings, the husband consistently avoided their timely prosecution. Over the later years of the litigation the husband was regularly hospitalised and underwent surgery and other medical procedures apparently aimed at facilitating treatment, improving his quality of life or delaying the final stages of what was a terminal illness. He increasingly did not attend to the litigation in a timely way and in the absence of a case guardian, the proceedings were ultimately adjourned until he died.
The husband died in 2016. That brought the s 79 proceedings between husband and wife to an end. The claims of the Interveners were caught up in those proceedings and were left unaddressed.
Although the husband left a will, as far as I am aware, subject to his claim in the property settlement proceedings, he left no significant net assets. Perhaps understandably, the executor named in the husband’s will, renounced that role and there was no application for probate by any person seeking letters of administration.
The First Interveners applied to the New South Wales Supreme Court and on late 2016 an order was made appointing Mr Hill as special administrator ad litem of the estate of the late husband for the purposes only of the property settlement proceedings in this Court. As a result of that appointment there was scope pursuant to s 79(8) for the property settlement proceedings to be resumed by or against the late husband’s legal personal representative. On 27 October 2016 orders were made under that provision, substituting Mr Hill for the late husband, as a party to the proceedings.
On 16 May 2017 final property settlement orders were made in terms agreed by the parties. Those orders provided for the payment in full of the debts owing to the Interveners. The remaining assets and liabilities were left with the wife.
The Relevant Law on Costs
31.Section 117 of the Act relevantly provides as follows:
117 Costs
(1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AB, 117AC and 118, each party to proceedings under this Act shall bear his or her own costs.
(2) If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
(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.
Shortly put, the general position is that parties bear their own costs but if the circumstances justify it, the Court may make such order as it considers just.
Findings about the s 117(2A) criteria
I turn first to the financial circumstances of the parties.
As to the Interveners, there is no evidence about their financial circumstances.
The wife has filed a Financial Statement. She deposed to an income of $5,603 per week, made up of $1,250 in wages as a health professional, $4,350 in rent (including income from M Pty Ltd) and $3 in dividends. She spends $6,582 per week, including $268 in income tax; $119 to First State Superannuation; $350 in rent for her E Town residence; $659 in rates and unit levies; $3,714 in mortgage payments; $328 in life insurance premiums; $152 in trauma insurance; $96 in home and contents insurance for properties at Suburb L and Suburb R; $70 per week to register a German motor vehicle; $425 in credit card payments and $410 in all other expenditure.
On the basis of the evidence before the Court, following the property settlement the wife will be in the following asset position:
Item Value BB Street, Suburb L $4,000,000 Q Street, Suburb R $3,000,000 M Pty Ltd (P Street, Sydney) $1,600,000 Proceeds of a property at E Town held by the Court $250,049 Country CC Property $30,000 Commonwealth Bank accounts $1,300 Shares $4,284 German motor vehicle 3 $12,000 Household contents $10,000 First State Superannuation $3,500 Parsons Family Superannuation Fund $88,000 Super $9,500 AMP $59,518 NAB mortgage secured over Suburb L -$1,200,000 DD Home Loans mortgage secured over Suburb R -$1,530,000 X Pty Ltd mortgage secured over P Street -$566,000 Mr EE loan secured over P Street -$140,000 Credit cards -$60,250 Land tax – Suburb R -$40,000 Unpaid legal fees -$150,000 Estimated sale costs of Suburb R -$63,300 Estimated costs of repairs for Suburb R -$20,000 Estimated CGT for Suburb R -$260,000 Debt to First Interveners -$391,084.43 Debt to Second Intervener -$750,570.32 Net Financial Position $3,896,946.25
The wife was cross-examined in relation to her financial circumstances on behalf of the second intervener. That cross-examination was discontinued because of a concession made on her behalf to the effect that the wife would be able to source sufficient funds to meet any proper order.
I am not sure that there is complaint about the wife’s conduct of the proceedings, in the sense implied by that criterion. The wife filed documents and attended Court when required. The main complaint is that while the husband delayed and dissembled, the wife took no action to mitigate the harmful effects of his behaviour. It is also submitted that even after the death of the husband, the wife did not take any steps to satisfy the claims of the Interveners or to facilitate the examination of their claims. For example she did not take action to have a legal personal representative appointed for her late husband.
It cannot be said that the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court.
It cannot be said that the wife was wholly unsuccessful in respect of the claims of the Interveners. Albeit belatedly, the wife consented to the orders the Interveners sought.
The Interveners made written offers of settlement. On 12 March 2012 the First Interveners wrote to the wife’s barrister indicating that they would accept $250,000 in full settlement of their claims. On 12 March 2014 the First Interveners wrote directly to the wife indicating that they would accept $395,000 in full settlement of their claims.
On 11 March 2013 the solicitors for the Second Intervener wrote to the wife offering to settle his claim. The letter noted that the claim stood at $523,179.17 as at 8 August 2012 and that the Second Intervener proposed that the debt be compromised by a payment of $365,000.
The offers were not accepted and importantly, there was no response to those letters, meaningful or otherwise.
The judgment debts alone at the date of the consent orders – 16 May 2017, together with interest calculated to 12 May 2017, were $391,084.43 in respect of the First Interveners and $750,570.32 in respect of the Second Intervener. As the offers were inclusive of costs, suffice it to say that the wife would have been substantially better off, had she accepted any of those written offers.
Despite the opportunity, no submissions were made on behalf of the wife in relation to this criterion.
As to the catch-all criterion, care is needed not to visit on the wife, all of the “sins” of her late husband. These were not the wife’s debts and to my observation the wife was significantly if not totally unable to influence or resist the relentless determination of Mr Masters. That said, by accepting the transfer of all of her husband’s assets, the wife was uniquely able to address or mitigate the obvious mischief done to the Interveners. They in turn had no option but to make a claim against her assets.
The Interveners’ costs claims would have been unassailable against the husband. The Interveners could have preserved that position by prosecuting so much of their s 79A or third party (Part VIIIAA) claims as to maintain in the hands of the estate of the late husband under s 79, so much of the assets as would fully or largely satisfy those costs claims. That is not what happened and the Interveners are left to press their claims against the wife.
Particular costs issues:
A. The parties should pay their own costs.
It is submitted for the wife that the general position specified in s 117(1) should apply. For the Interveners there is the contention that these are not the usual family law circumstances and the general position should not apply. In the latter regard, although the section is clear, there is some support for the idea that the nature of the proceedings can be taken into account. In Hendy & Deputy Child Support Registrar (2001) 27 Fam LR 641 the Full Court was dealing with an appeal against orders made in child support enforcement proceedings brought by the Child Support Registrar. The trial judge made a costs order against the father in those proceedings and expressly took into account various matters including:
These proceedings should be more properly perceived as being civil proceedings between the Commonwealth as a third party and the respondent as a citizen, rather than as between parties to a marriage or parties to a relationship covered by the general philosophy of the Family Law Act, which is to the effect that each party should bear their own costs.
Without referring to that particular consideration, the Full Court approved, or perhaps more correctly, did not disapprove of the manner in which the trial judge dealt with the costs issue. The conclusion of the Full Court about the costs appeal was as follows:
117. The limited circumstances in which an appellate court may interfere with the exercise of a judicial discretion are well settled (see House v. The King[1936] HCA 40; (1936) 55 CLR 499). It is well established that a trial judge has a wide discretion to make an order for costs (see Penfoldv Penfold[1980] HCA 4; (1980) FLC 90-800 at 75,054. We detect no error in the manner in which his Honour dealt with the costs issue.
In most claims under the Act, both parties are applicants. In parenting proceedings there are often competing applications for orders. In property proceedings it is generally the case that both parties seek a change in interests in property. That was not the case with child support enforcement proceedings taken by the Child Support Registrar in Hendy and it is not the case with the aspect of the property proceedings here, that relates to the claims of the Interveners. The Interveners had no claim for property settlement. They were owed money by the husband and because he alienated all of his valuable assets, the Interveners were left without a direct remedy to recover on their debts. They had no real choice but to intervene in these proceedings.
B. The first Interveners have included in their claim, a claim for the costs incurred in proceedings in the Supreme Court of New South Wales.
The first tranche of costs claimed in the schedule of costs forming part of Exhibit C is $31,526 for costs of the Supreme Court proceedings between the First Interveners and the wife (case number …), leading to the appointment of Mr Hill as the administrator ad litem for the Family Court proceedings. This Court does not generally have jurisdiction to make a costs award in respect of proceedings conducted in another Court. I understood learned counsel for the First Intervener to accept that proposition.
I note that the Family Law Rules 2004 (Cth) refer to such a situation at r 19.09 but only in relation to proceedings that have been transferred to this Court or which are on appeal to this Court. Neither circumstance applies here.
Insofar as the First Interveners seek from this Court an award for their costs of the Supreme Court proceedings, the claim must fail.
C. As to the claim for indemnity costs, there is no evidence of the costs agreement pursuant to which the costs were incurred.
It was submitted on behalf of the wife that the application for indemnity costs could not succeed as the First Intervener had not complied with the Family Law Rules in relation to putting the terms of the relevant costs agreement before the Court.
Rule 19.08 of the Family Law Rules provides as follows:
FAMILY LAW RULES 2004 - RULE 19.08
Order for costs
(1) A party may apply for an order that another person pay costs.
(2) An application for costs may be made:
(a) at any stage during a case; or
(b) by filing an Application in a Case within 28 days after the final order is made.
(3)A party applying for an order for costs on an indemnity basis must inform the court if the party is bound by a costs agreement in relation to those costs and, if so, the terms of the costs agreement.
Note 1: The court may make an order for costs on its own initiative (see rule 1.10).
Note 2: A party may apply for an order for costs within 28 days after the filing of a notice of discontinuance by the other party (see subrule 10.11(4)).
Note 3: A party may apply for an extension of time to make an application (see rule 1.14).
Note 4: For costs orders related to appeals, see Part 22.10.
(4) In making an order for costs, the court may set a time for payment of the costs that may be before the case is finished.
The Full Court (Thackray ACJ, May & Ryan JJ) discussed this issue in the decision of SCVG & KLD and Anor [2017] FamCAFC 95 (published on 24 May 2017) commencing at paragraph 60 as follows:
Failure to comply with the Rules
60.The husband complained that the order for costs to be calculated on an indemnity basis was made in the absence of any evidence of the terms of a costs agreement between the wife and her counsel, which the husband submitted was “contrary to the Rules”.
61.All we need say about this argument is that:
a)there was no ground of appeal encapsulating the complaint and the wife’s counsel therefore did not address it;
b)the husband’s written submissions to the trial judge made the same point, but as his Honour did not see fit to address the proposition, we infer that he dispensed with r 19.08(3) of the Family Law Rules 2004 (Cth);
c)failure to comply with r 19.08(3) does not invalidate an order, since the rule’s primary purpose is to ensure the court is aware of the extent of the costs that will be payable if they are ordered on an indemnity basis;
d)the trial judge knew what costs the wife had incurred and obviously had a close familiarity with the litigation; and
e)the order for costs did not fully indemnify the wife.
62.The failure of the wife to comply with r 19.08(3) is therefore not a sufficient basis upon which to overturn the costs order.
(Footnotes omitted)
The failure to comply with the rule would not be fatal to the First Interveners’ claim. In any event I could dispense with the requirement of the rule. However, as will become apparent, this issue is not relevant. I will address the substance of the claim for indemnity costs later in these Reasons.
D. Can the First Respondents recover the costs of legal work either of them undertook personally in the proceedings.
There is a challenge on behalf of the wife to that part of the claim of the First Interveners that relates to the costs of work done by the Interveners themselves. The Interveners are solicitors.
In Stewart & Stewart[2017] FamCAFC 67 the Full Court said at paragraph 65:
65.In Redmond & Redmond and Anor (Costs) [2014] FamCAFC 55 (“Redmond”) the Full Court discussed the limited exception to the general rule that litigants in person are not entitled to be compensated for the value of their time, emanating from the case known as “Chorley’s Case” and applied by the High Court, where the litigant is a qualified lawyer. At [27] to [30] the Full Court there observed:
27.Whilst it is well settled that litigants in person are not entitled to be compensated for the value of their time there is a limited exception to that general rule where a solicitor self-represents. The general rule and exception were articulated by the House of Lords in The London Scottish Benefit Society v Chorley, Crawford and Chester (“Chorley’s Case”) (1884) 13 QBD 872 at p 877 as follows:
… only legal costs which the court can measure are to be allowed, and that such legal costs are to be treated as expenses necessarily arising from the litigation and necessarily caused by the course which it takes. Professional skill and labour are recognised and can be measured by the law; private expenditure of labour and trouble by a layman cannot be measured. It depends on the zeal, the assiduity, or the nervousness of the individual. Professional skill, when it is bestowed, is accordingly allowed for in taxing a bill of costs…
28.In Guss v Veenhuizen (No. 2) (1976) 136 CLR 47, a self-represented solicitor sought taxation of costs on the basis that he fell within the rule of practice that a solicitor should be entitled to costs in those circumstances. The High Court, applying Chorley’s case, described the basis of the rule in the following terms at p 51:
… the litigant in person does not recover such costs in such circumstances in the capacity of a solicitor, but because he happening to be a solicitor, his costs are able to be quantified by the court and its officers.
29.In Khera v Jones [2006] NSWCA 85, the New South Wales Court of Appeal affirmed the limited scope of the rule allowing solicitors in litigation to claim professional costs. Likewise, in Worchild v Petersen [2008] QCA 26, Mackenzie AJA, with whom McMurdo P and Holmes JA agreed, articulated the general rule and the exception under Australian law as follows at [4]:
… the principle said to be derived from Guss v Veenhuizen … [is] that a solicitor who appears in person is entitled to costs for his professional time, not because he is a solicitor in the formal sense, but because, being a solicitor, his costs can be quantified…
That much appears to be common ground before me. The written submissions of the wife’s counsel go on:
11.The Family Court decisions make reference to the NSW C of A decision in Atlas v Kalyk [2001] NSWCA 10. In Atlas the C of A refer to the decisions of the HCA in Guss and in Cachia v Hanes [1994] HCA 14. In Cachia the majority described the Chorley exception as “somewhat anomalous” and “dubious”. In para 9 of Atlas the C of A explained the justification for the exception as the solicitor having lost the opportunity of the time doing professional work for other clients and being remunerated accordingly. If [Mr C] has done the work in his own time (and possibly after retirement) there is no lost opportunity and accordingly no justification for reimbursement to himself for costs of work done personally.
The proposition from Atlas v Kalyk [2001] NSWCA 10 was considered by Watts J in Coulter & Gerardine [2015] FamCA 287. From paragraph 37 his Honour said:
37.These comments are obiter and are a gloss on what the plurality of the High Court said in Guss v Veenhuizen [No. 2]. There is nothing in the ratio in Guss v Veenhuizen [No. 2] which would indicate that a solicitor would have to establish a lost opportunity prior to being able to claim professional costs for their own work. This observation is relevant to one of the submissions made by the father which is discussed below.
38. As Brett MR went on to say in Chorley:
....the costs of a solicitor appearing in person must be taxed differently from those of an ordinary litigant appearing by a solicitor. The unsuccessful adversary of a solicitor appearing in person cannot be charged for what does not exist, he cannot be charged for the solicitor consulting himself, or instructing himself, or attending upon himself. The true rule seems to be that when a solicitor brings or defends an action in person, he is entitled to the same costs as an ordinary litigant appearing by a solicitor, subject to this restriction, that no costs which are really unnecessary can be recovered.
In Stewart & Stewart[2017] FamCAFC 67 the Full Court referred to those comments and the approach taken by Watts J in Coulter & Gerardine (above) with approval.
The final submissions on this issue on behalf of the wife were to the effect that:
·one of the First Interveners, Mr C, is a witness in the proceedings and he would have been required to come to Court in any event;
·Mr C instructed counsel to appear on all occasions and should not be entitled to be paid professional costs on attending Court events when counsel was briefed to appear; and
·“He would have needed to attend in any event and instructions provided to counsel on those occasions as client and witness.”
With respect, those contentions seem to miss the point of the exception in The London Scottish Benefit Society v Chorley, Crawford and Chester (1884) 13 QBD 872 (“Chorley exception”). The potential problem was largely addressed by the Master of the Rolls in the passage cited above at page 887 of that decision. The protection remains that a claimant must establish that the work was done and subject to the extent of the indemnity allowed, that the work was reasonable and proper.
I am satisfied that costs can be claimed for work done by the First Interveners under the Chorley exception.
E. Whether the payment of the Second Intervener’s legal costs by an insurer (Company FF) changes the entitlement to claim costs.
The costs of the Second Intervener, Mr H, are all payable by an insurer, Company FF. Any costs award in these proceedings in relation to the Second Intervener will be paid to Company FF. This was conceded by Mr H. However, although a costs award would be paid to Company FF, the evidence of Mr H was that money recovered in these proceedings by way of the judgment debt would be paid to both Mr H and Company FF (the portion to Mr H directly being an amount prior to his claim under his indemnity insurance policy).
A submission was made on behalf of the wife in relation to the costs of the Second Intervener that because its costs are being met by Company FF, the Second Intervener is therefore not out of pocket. The written submissions on behalf of the wife were as follows:
19.The purpose of an order for costs is to reimburse the party for costs incurred. In the SI’s [second intervener] case the “party” is [Mr H]. If SI is indemnified by an insurer who is meeting the costs of the litigation, and the litigation is being conducted for the financial benefit of the insurer, the SI is not out of pocket.
20.As a general rule a party cannot be ordered to pay costs which the other party is not liable to pay.
21.In the exercise of discretion as to costs between the parties to a marriage it cannot be irrelevant for a court to take into consideration that any award of costs against a party will not benefit the other party personally and that failure to make an award will not cause that party to be any worse off – Conroy v Conroy (1976) 2 FamLR 11,223 at 11,228.
The case referred to in the written submissions by counsel for the wife is Conroy v Conroy (1976) 2 FamLR. That was a case of the Supreme Court of the Australian Capital Territory that dealt with the recovery of costs as against a legally aided party before the Act was amended to include the provisions in s 117(2A).
Importantly, counsel for the wife conceded that the Second Intervener himself not being out of pocket in the event a costs order is not made, is not determinative.
On behalf of the Second Intervener it was submitted that, as elucidated during cross-examination of Mr H, there were two components to the Supreme Court proceedings of which the judgment debt arose: the Second Intervener, namely Mr H personally and secondly, the insurer. In the current proceedings, the insurer is pursuing both interests. It was submitted that therefore, and in any event, it is not unreasonable for the insurer to enforce its rights through the principal of subrogation. It was submitted that accordingly the wife’s submissions should be rejected.
As a general proposition, a costs award represents a level of indemnity in relation to costs incurred by the claimant. It is conceded on behalf of the wife that the fact that Mr H did not personally incur the costs does not exclude his claim. Company FF is responsible for Mr H’s costs and is subrogated to his rights to recover them. This situation is not an impediment to the costs claim of the Second Intervener.
E. It was submitted that the interveners’ costs were inflated because they were separately represented.
The thrust of the argument was that the First and Second Interveners were literally or in effect, in the same interest and that on at least some occasions they could have been represented at Court by one practitioner or one legal team. There is no merit in that submission. The Interveners’ debts arose in similar circumstances but travelled on independent paths. The Second Intervener is unrelated to the First Interveners and they were each entitled to be represented in the proceedings in the normal way.
There is a substantial level of hypocrisy in this argument. For one reason or another, the wife did nothing in the conduct of these proceedings over many years, to mitigate the impost on the Interveners. The idea that the Interveners should have comported themselves in a way that may have compromised their individual interests to mitigate their and ultimately her, loss, is presumptuous.
Conclusion as to the Costs Claims
Dealing with s 117(2A):
·the wife has the financial wherewithal to meet proper orders for costs;
·the wife took no action in her conduct of the proceedings to mitigate the Interveners’ costs;
·the wife did not accept or even respond to the offers of settlement made to her by the Interveners and as a result further costs were incurred; and
·although the husband was directly responsible for the involvement of the Interveners, the wife consented to the transfers of property that necessitated the interventions and she did nothing directly or indirectly to assist the Interveners.
In my view those matters justify awards against the wife for the costs of the Interveners.
Quantification of Costs of the First Intervener
The Second Intervener seeks costs on a party and party basis. The submission on behalf of the First Interveners is that their costs should be assessed on an indemnity basis. The submission on behalf of the wife is that any award should be only as to party and party costs.
The Family Law Rules 2004 address the assessment of costs in this way:
FAMILY LAW RULES 2004 - RULE 19.18
Method of calculation of costs
(1) The court may order that a party is entitled to costs:
(a) of a specific amount;
(b) as assessed on a particular basis (eg lawyer and client, party/party or indemnity);
(c) to be calculated in accordance with the method stated in the order; or
(d) for part of the case, or part of an amount, assessed in accordance with Schedule 3.
Example
For paragraph (1) (c), the stated method may be in accordance with Schedule 3 but with an additional percentage for complexity.
(2) If costs are payable under the Act or these Rules, or the court orders that costs be paid and does not specify the method for their calculation, the costs are to be assessed on a party/party basis.
(3) In making an order under subrule (1), the court may consider:
(a) the importance, complexity or difficulty of the issues;
(b) the reasonableness of each party's behaviour in the case;
(c) the rates ordinarily payable to lawyers in comparable cases;
(d) whether a lawyer's conduct has been improper or unreasonable;
Unusual circumstances are required for a costs order on a basis other than party and party. In Stephens & Stephens and Anor (Enforcement) (Costs) [2010] FamCAFC 172 the Full Court discussed the approach to costs:
65. As to the relationship between s 117(1) and s 117(2) of the Act in Penfold v Penfold[1980] HCA 4; (1980) 144 CLR 311, in joint reasons, Stephen, Mason, Aickin and C JJ said at 315:
It is an accurate description of s. 117 (1) to say that it expresses a general rule, provided that it is firmly understood that the sub-section is not paramount to s. 117 (2). As sub-s. (1) is expressed to be subject to sub-s. (2) the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs.
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”. (emphasis added)
66. As to the nature of the hearing of an application pursuant to s 117 of the Act in Penfold their Honours said at 315-16:
Sub-section (2) does not in our view as a matter of law require the judge to specify the circumstances which justify the making of an order. It does not expressly say so, and in the context of the making of an order for costs there is no sufficient basis for making an implication. Judges very frequently make orders for costs without giving reasons or making findings, even when costs are in issue. The absence of reasons or findings does not in itself indicate that a judge has erroneously exercised his discretion to award costs, though it will place an appellate court in the position of examining the circumstances and of determining for itself whether the circumstances show that the discretion was erroneously exercised (Kent v. Kent [(1970) 92 W.N. (NSW) 503, at p. 505]). Accordingly, in the absence of some positive legislative indication we should not attribute to Parliament the requirement that a judge must make particular findings in relation to an order for costs.
67. We also observe that in Re JJT; Ex parte Victoria Legal Aid[1998] HCA 44; (1998) 195 CLR 184 the majority of the High Court (Gaudron, Gummow, Hayne and Callinan JJ, Kirby J dissenting) held that s 117(2) of the Act referred to costs in the conventional sense and thus to the payment by one party to litigation of money by way of a partial indemnity for professional legal fees and expenses actually incurred by another party in the course of the litigation: see Hayne J at 219. An order for costs is made to compensate a party against expense incurred in litigation and is not punitive in nature. Costs are not a penalty or damages: Latoudis v Casey[1990] HCA 59; (1990) 170 CLR 534 per Mason CJ at 543 and McHugh J at 567; Ruddock and Ors v Vadarlis and Ors(2001) 188 ALR 143 per Full Court of the Federal Court at [12] and Brott and Joachim[2006] FamCA 256; (2006) FLC 93-259 per Full Court (Holden, Warnick and Boland JJ) at 80,403-404.
As I set out in Boddily and Hand (No. 2) [2012] FamCA 734 (27 August 2012):
220.… the Full Court in Stephens later turned to the question of indemnity costs as follows:
Indemnity Costs
72. The Family Court has jurisdiction to make orders for indemnity costs: McAlpin and McAlpin [1993] FamCA 71; (1993) FLC 92-411 per Full Court (Nicholson CJ and Maxwell J, Baker J dissenting); Kohan and Kohan (1993) FLC 92-340 per Full Court (Strauss, Lindenmayer and Bulley JJ); Munday v Bowman(1997) FLC 92-784 per Holden J; Yunghanns & Ors v Yunghanns & Ors and Yunghanns[2000] FamCA 681; (2000) FLC 93-029 per Full Court (Lindenmayer and Holden JJ, Mullane J dissenting) and Limousin v Limousin (Costs) [2007] FamCA 1178; (2007) 38 Fam LR 478 per Full Court (Kay, Coleman and Boland JJ).
73. An order for costs may be made on an indemnity basis, subject to a judicial determination capable of being made that there ought to be a departure from the usual basis that costs be payable on the party and party basis. For a discussion of the jurisdiction to order indemnity costs and its exercise see Colgate Palmolive Co and Another v Cussons Pty Ltd[1993] FCA 536; (1993) 118 ALR 248 per Sheppard J at 256-257 and NMFM Property Pty Ltd and Others v Citibank Ltd (No 2) (Court’s “NMFM” Judgment No 11) [2001] FCA 480; (2001) 109 FCR 77 per Lindgren J at [53] to [90].
221.In Colgate Palmolive Co and Another v Cussons Pty Ltd[1993] FCA 536; (1993) 46 FCR 225 Sheppard J reviewed the English and Australian authorities about costs generally and at paragraph 24 said:
24. It seems to me that the following principles or guidelines can be distilled out of the authorities to which I have referred:-
1. The problem arises in adversary litigation, i.e. litigation as between parties at arm's length. Different considerations apply where parties may be found to be entitled to the payment of their costs out of a fund or assets being administered by or under the control of a trustee, liquidator, receiver or person in a like position, eg. a government agency or statutory authority.
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. In this Court the provisions of Order 62, rules 12 and 19, and the Second Schedule to the Rules will apply to the taxation. In many cases the result will be that the amount recovered by the successful party under the Order will fall short of (in many cases well short of) a complete indemnity.
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. No doubt any consideration of whether there should be any change in the practice would require the resolution of the competing considerations mentioned by Devlin LJ in Berry v. British Transport Commission and Handley JA in Cachia v. Hanes on the one hand and by Rogers J in Qantas on the other. The relevant passages from the respective judgments have been earlier referred to.
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. That has been the view of all judges dealing with applications for payment of costs on
the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v. Barnes (39 Ch D at 141) said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require." Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v. Preston ((1982) 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo, "The categories in which the discretion may be exercised are not closed". Davies J expressed (at 6) similar views in Ragata.5. Notwithstanding the fact that that is so, 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 (1989) 92 ALR 131 at 152; 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 (1987) 10 NSWLR 525, Maitland Hospital v. Fisher (No. 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal), Crisp v. Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
6. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.
222.The approach to the quantification of costs is not the result of law made or developed under the Family Law Act, not even in this century nor in the last. In his book Taxation of Costs Between Parties, A. G. Saddington discussed the process of the quantification of costs by taxing officers. He traced the development of the practice and law of awarding costs from the time in English courts when a person could first have a representative present his case. The author explained that every costs award is by way of indemnity and discussed the extent of the indemnity that had been approved. The author discussed various authorities in relation to the assessment of costs on different bases and gives examples of things that have been allowed and not allowed. In relation to an assessment of party and party costs he said:
The costs to be allowed on this class of taxation are all that are necessary to enable the litigation to be properly conducted, all charges incurred merely for conducting litigation more conveniently are considered luxuries, for which the party who incurred them must pay.
223.As to an assessment of party and party costs on a solicitor and client basis he said:[14]
It appears, therefore, that on a taxation between parties on a solicitor and client basis, the unsuccessful party has to pay all the costs incurred by his opponent excepting in respect of (1) costs and expenses incurred prior to the institution of the action; (2) journeys and expenses of which the party liable could have no knowledge, and which would not ordinarily be performed or incurred; (3) the employment of more counsel, or the payment to them of larger fees than the circumstances of the case warrant, including the giving of special retainers.
224.The examples may not still be apposite in the context of our world of costs agreements, pre-action procedures and video conferencing, but they give an indication of the margin that such a basis could have over a party and party award.
As I have indicated above, I am satisfied that there should be a costs award against the wife. While there is an argument that the wife could have done more while the husband was alive to compromise her dispute with the Interveners, as I have referred to, the real complaint related to the steadfast intransigence of the husband in the establishment of the judgment debt and in his failure to pay or compromise it. It is the wife’s case and there was no testing of it, that she was overborne by the husband. Having dealt with the husband over many years, I have some sympathy with that contention.
Once the husband died however, there was no reason for the wife to prevaricate or delay in addressing the issues with the Interveners. Thereafter the husband could have no influence on the wife. From that time she took responsibility for the unpaid debts. She ultimately agreed that they should be paid in full. In my view the appropriate order is that the wife pay the costs of the First Interveners as agreed or as assessed. However, in my view the circumstances do not justify a level of indemnity beyond party and party costs. For example, as to the features of litigation that were identified by Sheppard J in Colgate-Palmolive Co. and Anor v Cussons Pty Limited (1993) 118 ALR 248, it is not alleged that the wife made false allegations of fraud; was responsible for particular misconduct that caused loss of time to the Court and to other parties; continued the proceedings for some ulterior motive; unduly prolonged the case by groundless contentions; or made allegations which ought never to have been made. In terms of those features identified by Sheppard J, the wife was imprudent to have ignored the orders of compromise made to her. However, unlike the circumstance of general civil litigation being addressed in Colgate Palmolive Co and Another v Cussons Pty Limited (above), where costs generally follow the event, in proceedings under the Family Law Act, that is a matter taken up in s 117(2A) as relevant to a costs award, in any event.
The basis of the calculation of the First Interveners’ costs will be as to party and party.
I certify that the preceding eighty three (83) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Loughnan delivered on 6 June 2017.
Associate:
Date: 6 June 2017
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