FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Mathers & Garver [2023] FedCFamC1F 10
File number: WOC 854 of 2014 Judgment of: ALTOBELLI J Date of judgment: 20 January 2023 Catchwords: FAMILY LAW – COSTS – Where the applicant wife seeks costs on an indemnity basis following the conclusion of proceedings under s 79 of the Family Law Act 1975 (Cth) – Protracted litigation – Where the husband passed away during proceedings and was substituted by his legal personal representative – Whether the legal personal representative should be personally liable for the costs of the proceedings – Where the legal personal representative was the director and trustee of the third respondent – Conduct of the parties – Respondents ordered to pay wife’s costs in a fixed sum. Legislation: Family Law Act 1975 (Cth) ss 79, 79(8), 117
1 Family Law Rules 2004 (Cth)
2 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 12.17
Cases cited: Bain & Bain (Deceased) (Costs) (2017) FLC 93-797; [2017] FamCAFC 164
Colgate-Palmolive Company and Anor v Cussons Pty Limited (1993) 46 FCR 225; [1993] FCA 801
Kohan and Kohan (1993) FLC 92-340; [1992] FamCA 116
Mathers & Garver & Ors [2019] FCCA 116
Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664; [2015] FamCAFC 157
Munday v Bowman (1997) FLC 92-784; 22 Fam LR 321
Parke & The Estate of the Late A Parke (2016) FLC 93-748; [2016] FamCAFC 248
PBF as Child Representative for AF (Legal Aid Commission of Tasmania) & TRF & LKL (2005) 33 Fam LR 123; [2005] FamCA 158
Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
Phillips & Hansford (2020) FLC 93-941; [2020] FamCAFC 28
re Jones; Christmas v Jones [1897] 2 Ch 190
Warrick & Mia (No. 3) [2021] FamCA 348
Division: Division 1 First Instance Number of paragraphs: 107 Date of last submissions: 26 September 2022 Date of hearing: Heard on the papers Place: Sydney Counsel for the Applicant: Mr Harper Solicitor for the Applicant: DGB Lawyers Counsel for the First Respondent: Dr Barnett SC Solicitor for the First Respondent: Banksia Family Lawyers The Second Respondent: Did not participate Counsel for the Third Respondent: Mr Othen Solicitor for the Third Respondent: Banksia Family Lawyers ORDERS
WOC 854 of 2014 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS MATHERS
Applicant
AND: MR GARVER
First Respondent
OFFICIAL TRUSTEE IN BANKRUPTCY FOR THE ESTATE OF MR MATHERS
Second Respondent
MATHERS HOLDING PTY LTD
Third Respondent
order made by:
ALTOBELLI J
DATE OF ORDER:
20 January 2023
THE COURT ORDERS THAT:
1.Pursuant to r 12.17 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth), within 28 days of the date of these orders, the First and Third Respondents are to jointly and severally pay the costs incurred by the Applicant in the fixed sum of $478,723.
2.All other extant applications in this matter are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Mathers & Garver has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALTOBELLI J:
INTRODUCTION
By way of an Amended Application in a Case filed 27 May 2021, the applicant wife (“the wife”) seeks costs following the finalisation of the substantive proceedings in relation to the alteration of the parties’ respective property interests. She now seeks the following orders:
1.That [Mr Garver] pay the Applicant's costs of and incidental to these proceedings as follows:
(a)For the period up to and including 30 April 2018 fixed at $493,084; or in the alternative as agreed or assessed on an indemnity basis; or in the further alternative as agreed or assessed on a party/party basis at the scale provided in Sch 3 of the Family Law Rules 2004 (Cth).
(b)For the period 1 May 2018 to 11 November 2020 fixed at $285,000; or in the alternative as agreed or assessed on a party/party basis at the scale provided in Sch 3 of the Family Law Rules 2004 (Cth).
2.That in the alternative [Mathers Holdings] pay the Applicant's costs of and incidental to these proceedings as follows:
(a)For the period up to and including 30 April 2018 fixed at $493,084; or in the alternative as agreed or assessed on an indemnity basis; or in the further alternative as agreed or assessed on a party/party basis at the scale provided in Sch 3 of the Family Law Rules 2004 (Cth).
(b)For the period 1 May 2018 to 11 November 2020 fixed at $285,000; or in the alternative as agreed or assessed on a party/party basis at the scale provided in Sch 3 of the Family Law Rules 2004 (Cth).
3.That [Mr Garver] or in the alternative [Mathers Holdings] pay the Applicant's costs of and incidental to this application as agreed or assessed on an indemnity basis or in the alternative as agreed or assessed on a party/party basis at the scale provided in Sch 3 of the Family Law Rules 2004 (Cth).
4.That the Applicant shall be granted leave to file an affidavit in support of this application exceeding ten (10) pages and five (5) annexures.
(Emphasis in original)
Both the first and third respondents (“the respondents”) oppose the application and seek that it be dismissed.
However, in the Amended Response to an Application in a Proceeding filed 15 September 2022, the third respondent additionally seeks the following orders:
8.If the court is satisfied justifying circumstances exist, the third respondent shall pay the wife’s costs strictly on the issue as to the legal and factual dispute as to whether the property of the [Mathers] Family Trust was “property” for the purpose of the Family Law Act 1975 (Cth) and limited to the period from 24 April 2017 to 10 April 2018.
9.That the third respondent pay the wife’s costs in accordance with order…….on a party/party basis and if the parties do not agree as to the quantum of costs in 28 days, as assessed under Schedule 3 the Federal Circuit and Family Court Rules 2021.
By way of an Amended Application in a Proceeding also filed 15 September 2022, the third respondent sought the following further orders:
9.That the Wife pay the Third Respondent’s costs of and incidental to this costs application.
10.That the Wife pay the Third Respondent’s costs of these proceedings from 12 May 2016 until the conclusion of the final hearing on a party/party basis and if parties do not agree as to the quantum of costs in 28 days, as assessed under Schedules 3 of the Federal Circuit and Family Court Rules 2021.
11.In the alternate to Order 10, each party to pay their own costs of proceedings from commencement until conclusion of final hearing except that:
(a)The Wife shall pay the Third Respondent’s costs thrown away with respect to the failure of the Wife to particularise her claim from the commencement of the proceedings until 24 April 2017 on a party/party basis and if parties do not agree as to the quantum of costs in 28 days, as assessed under Schedule 3 of the Federal Circuit and Family Court Rules 2021.
(b)That the Wife pay the Third Respondent’s costs in accordance with Order 11(b) on a party/party basis and if the parties do not agree as to the quantum of costs in 28 days, as assessed under the Federal Circuit and Family Court Rules 2021 on a party/party basis and if parties do not agree as to the quantum of costs in 28 days, as assessed under Schedule 3 the Federal Circuit and Family Court Rules 2021.
12.That the Wife pay the Third Respondent’s costs from the conclusion of the final hearing until the making of final orders:
(a)That the Wife shall pay the Third Respondent’s costs of the proceedings from 25 January 2019 until 11 November 2020 on a party/party basis and if parties do not agree as to the quantum of costs in 28 days, as assessed under Schedule 3 of the Federal Circuit and Family Court Rules 2021.
DOCUMENTS RELIED UPON
In support of her case, the wife relies upon the following documents:
(a)Her affidavit filed 18 February 2021;
(b)Amended Application in a Case filed 27 May 2021;
(c)Reasons for judgment delivered 25 January 2019;
(d)Case Outline filed 5 August 2022; and
(e)Submissions in reply filed 26 September 2022.
In support of his case, the first respondent, Mr Garver, relies upon the following documents:
(a)Response to an Application in a Case filed 29 May 2021;
(b)His affidavit filed 29 May 2021;
(c)His affidavit filed 15 April 2021; and
(d)Written submissions filed 25 August 2022.
The second respondent did not file any documents in response to the application.
The third respondent, Mathers Holdings Pty Ltd, relies upon the following documents:
(a)Amended Response to an Application in a Proceeding filed 15 September 2022;
(b)Amended Application in a Proceeding filed 15 September 2022; and
(c)Written submissions filed 25 August 2022.
LEGAL PRINCIPLES
The law relating to costs in family law proceedings is well settled and set out in detail in the Full Court decision of Parke & The Estate of the Late A Parke (2016) FLC 93-748.
An application for costs is governed by s 117 of the Family Law Act 1975 (Cth) (“the Act”). Section 117(1) of the Act sets out the general presumption that each party to the proceedings shall bear their own costs. This is subject to s 117(2), which provides that:
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 the court may make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
Section 117(2A) sets out the matters that the Court is to have regard to:
(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.
Although the Court is required to consider each of the abovementioned factors, it is plain that their relevance to a particular matter will depend upon the circumstances of that case and they should be considered in that light. That is, no one factor prevails over another and it is a question of the weight that is to be afforded to each of the relevant factors, depending on the circumstances of the matter (Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664 at [24]). There is also “nothing to prevent any factor being the sole foundation for an order for costs” (PBF as Child Representative for AF (Legal Aid Commission of Tasmania) & TRF & LKL (2005) 33 Fam LR 123 at [41]).
Whilst the applicant in a costs application must establish the circumstances justifying the making of a costs order, the Court is not limited to making such an order only in what has been described as a “clear case” (Penfold v Penfold (1980) 144 CLR 311).
It is well settled that when costs are ordered by this Court, such costs are payable on a party/party basis. It has been held that the Court should not lightly depart from the ordinary rule in that regard (Kohan and Kohan (1993) FLC 92-340).
The provision relating to the calculation of costs is r 12.17(1) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”), which is as follows:
12.17 Method of calculation of costs
(1) The court may order that a party is entitled to costs:
(a) of a specific amount; or
(b)as assessed on a particular basis (for example, party and party, solicitor and client or indemnity); or
(c) to be calculated in accordance with the method stated in the order; or
(d)for part of the proceeding, or part of an amount, assessed in accordance with Schedule 3.
The rule further provides that:
(3) In making an order under subrule (1), the court may consider the following:
(a) the importance, complexity or difficulty of the issues;
(b)the reasonableness of each party’s behaviour in the proceeding including by having regard to the matters set out in subrule 12.08(2);
(c) the rates ordinarily payable to lawyers in comparable cases;
(d)whether a lawyer’s conduct has been improper, unfair, unreasonable or disproportionate;
(e)the time properly spent on the proceeding, or in complying with pre‑action procedures; and
(f)whether expenses (paid or payable) are fair, reasonable and proportionate.
In relation to an award of indemnity costs, the Full Court decision of Phillips & Hansford (2020) FLC 93-941 helpfully summarises the position as follows:
35.Indemnity cost orders are made only in exceptional cases (Kohan and Kohan (1993) FLC 92-340; Limousin v Limousin (Costs) (2007) 38 Fam LR 478; D & D (Costs) (No. 2) (2010) FLC 93-435).
36.Whilst the categories of cases in which indemnity cost orders may be awarded are not closed, it is accepted that such costs may be ordered where a case was pursued with “wilful disregard of known facts or clearly established law” and where there has been “an imprudent refusal of an offer to compromise” (Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233).
37.In relation to the first category, it has been said that indemnity costs may be awarded where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401) and where “a party persists in what should on proper consideration be seen to be a hopeless case” (J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers – Western Australian Branch & Anor [1993] FCA 70 per French J at [5]).
BRIEF HISTORY OF THE SUBSTANTIVE MATTER
The substantive proceedings commenced on 3 October 2014. The husband, Mr Mathers, who was the respondent to the proceedings at the time, died in 2015. In late 2015, an order was made substituting Mr Garver for the husband as a party to the proceedings. Mr Garver thus became the first respondent. The matter was heard on 3 and 4 May 2018, with reasons for judgment being delivered on 25 January 2019 (“reasons for judgment”). Final orders were subsequently made on 11 November 2020.
On 9 December 2020, the wife filed an application for costs. The third respondent also filed an application for costs on 9 December 2020. The matter was transferred to the Family Court of Australia (as it was then known) on 16 April 2021. The finalisation of the competing costs applications was delayed as it proved impossible to find dates when all counsel and the Court were available. Ultimately, it was decided to proceed on the papers.
RELEVANT FINDINGS AT HEARING
In my reasons for judgment, in the substantive matter reported as Mathers & Garver & Ors [2019] FCCA 116, a number of findings were made which inform or provide background to the present application. At [7], I found:
Given the important concession made in relation to Trust assets, it is not necessary to set out the details of the Trust. The corporate structure of the Trust was designed with the specific purpose of the Husband divesting himself of ownership of assets whilst at the same time controlling the said assets. Based on all the evidence available to the Court, the Court finds that the Husband’s purpose was twofold: firstly, to so structure his assets so that he would be entitled to social security benefits on his retirement; secondly, to prevent his Wife claiming on what he considered to be his assets, should their marriage end.
At [21] of the reasons for judgment, I found:
On 19 June 2014, the Husband became bankrupt on his own petition. The Husband’s current Trustee in Bankruptcy, the Official Trustee in Bankruptcy, became the Second Respondent in this case. The Trustee played no role in these proceedings at any time. What is clear to the Court, from the totality of the evidence before it, is that the Husband was not insolvent at the time he went into bankruptcy. He had purported to divest himself of all assets in his name, but for all practical purposes remained in control of the same. His own solicitor advised him against the bankruptcy.
Further, at [26]:
The matter came before me for hearing on 3 and 4 May 2018. The hearing had been twice adjourned before then due to concerns raised by the Respondents about the pleadings insofar as they related to the third party in particular. Notwithstanding that, when the matter came for hearing, Senior Counsel for the Respondents made a number of important concessions. The concession made on behalf of the Respondents was that, in effect, the assets of the trust held by Mathers Holdings Pty Limited as Trustee, constituted property of the marriage for the purposes of s.79(4) of the Act, that is, property of the parties to the marriage or either of them. On behalf of the First Respondent, Mr Garver, as legal personal representative of the Estate of the late Husband, a concession was formally made that the matters pleaded against him in the Amended Statement of Claim were correct.
Additionally, at [27]:
It is important to recognise that between 3 October 2014 and 3 May 2018, a period of in excess of three and a half years, the Wife’s case had consistently been that the Husband effectively controlled all of the assets held by Mathers Holdings Pty Limited, whether as Trustee or otherwise. There can be no criticism for the making of the concession. The totality of the evidence before the Court made the concession inevitable. Where there may well be scope for criticism, however, is the length of time it took the Respondents to make the concession that was made. Once the Husband died [in] 2015, Mr Garver continued this litigation in his role as Trustee. These are issues that may well need to be revisited in a subsequent costs application. The delay in making the concession in the face of strong evidence indicating the Husband’s effective control of all of the relevant assets is also a matter that will need to be discussed in the context of assessing the Wife’s credibility, an issue advanced as an important one on behalf of the Respondents.
The joint balance sheet at [44] of the reasons records the assertion by the third respondent that it had paid legal fees of $300,274. At [48], I record that the parties agreed that legal fees paid on behalf of the third respondent totalling $300,274 should be added back and that amount appeared at item 19 of the final balance sheet (at [63]). There was no evidence before the Court of legal fees paid by the first respondent.
At [67] of the reasons for judgment, I found that both the husband and wife were beneficiaries of the Trust.
At [74], I found:
The evidence of all witnesses needs to be seen, and understood, in context. It is the context that will help the Court to understand whether, as the Respondents assert, the Wife was defensive, combative and argumentative or, as the Applicant asserts, she was frustrated and occasionally confused. The single most important point in this regard is to appreciate the fact that between 3 October 2014 and 3 May 2018, the Wife was forced to contend with what she perceived to be obstruction and obfuscation in relation to the critical issue of the litigation, which was whether the Husband controlled the assets of the Trust, the value of which represents approximately two thirds of the assets available for distribution. The Wife was put in a position where she had to spend a substantial component of $585,000 in legal fees attempting to “bust a Trust”, which was only conceded during the opening moments of the final hearing. When that context is understood, the Wife’s feisty behaviour in cross-examination is seen in a different light. She may well have been indignant at the thought that a total stranger, who had made no contribution to the pool of assets, and whom she may have perceived as having no moral entitlement to those assets, so robustly defended her claim, whilst spending over $300,000 of Trust money in so doing.
The first respondent, was cross-examined at the hearing on 4 May 2018 by the wife’s counsel, Mr N. The transcript was before the Court, of which a number of excerpts are relevant:
[MR N]:Yes. So what steps did you take to form a view as to whether or not the proceeding should be defended, by [Mathers Holdings]?
[MR GARVER]: I just assumed they should be. [Mathers Holdings] owned the asset.
[MR N]:Yes. And you realise, don’t you, that part of the assets of [Mathers Holdings] are being used to fund the costs of the lawyers for [Mathers Holdings] and the legal personal representative. Correct?
[MR GARVER]: Yes.
(Transcript 4 May 2018, p.175 lines 23–29)
[MR N]:Do you accept that the costs – for example, for [Mathers Holdings] – would have been less than the position is, by virtue of the concession only having been made this week, on Monday. Do you accept that?
[MR GARVER]: As in, the costs specific to [Mathers Holdings]?
[MR N]:Yes?
[MR GARVER]: Yes. Yes.
(Transcript 4 May 2018, p.176 lines 39–44)
[MR N]:And my point is to you that you didn’t take any steps to protect the trust property, did you, between the death of [Mr Mathers], from [mid] 2015, through until Monday of this week, to try and minimise the cost to be incurred by the trust and the assets of the trust. Do you agree?
[MR GARVER]: No.
[MR N]:All right. You say you did take some steps?
[MR GARVER]: Yes.
[MR N]:All right. And were those steps to instruct the lawyers?
[MR GARVER]: Yes.
[MR N]:To defend the proceedings?
[MR GARVER]: Yes.
[MR N]:But you didn’t give any consideration, did you, as to whether or not the trust should take the view to avoid the cost not to defend the proceedings; is that the position?
[MR GARVER]: Well, how else do you defend a case?
[MR N]:Yes. Well, but as a trustee you don’t have to defend the – defend a case just because the case is brought. You have an obligation to make an independent assessment of what’s in the best interests of the fund – the trust fund – and the beneficiaries under the trust. You understand that, don’t you?
[MR GARVER]: Yes. And I thought I did do that.
[MR N]:All right. But you didn’t ever obtain judicial advice from the court as to whether or not the proceedings should be defended; do you agree?
[MR GARVER]: Yes, I agree with that.
[MR N]:Now, I’m going to ask you this question: I’m going to as you whether you ever received any written advice. And I’m not going to ask – I don’t want to know what the advice is, okay? Do you understand that? I just want to know whether you ever sought written advice from any lawyer as to whether or not these proceedings should be defended. Did you do that?
[MR GARVER]: No.
[MR N]:All right. And what did you do to inform yourself as to whether or not the proceedings should be defended?
[MR GARVER]: Well, I came along halfway through the case and just sort of picked up the pieces and kept going.
[MR N]:Yes. Do I understand your evidence that you assumed – you made an assumption the proceedings should be defended and that was it; correct?
[MR GARVER]: Yes.
(Transcript 4 May 2018, p.177 lines 10–44)
[MR N]:Yes. I mean, you understand, don’t you, the – [Mathers Holdings] is the trustee of the trust, correct?
[MR GARVER]: Yes.
[MR N]:And if you accept from me once you’re the appointed legal personal representative you are the appointer under the trust?
[MR GARVER]: Yes.
[MR N]:And you understand as the appointer you can replace the trustee. You understand that?
[MR GARVER]: Yes, if you tell me that’s true.
[MR N]:And you’re aware that the only assets owned by – you’re aware that it’s the trust, which owns the shares in the company, [Mathers Holdings], correct? So as the person who controls the trust, you control the company; do you accept that?
[MR GARVER]: Yes.
[MR N]:And the management fee you received, you received because you were carrying out this role as the person who controlled the trust, correct?
[MR GARVER]: Well, I will say no to that. I got paid for the day-to-day running of [Mathers Holdings Pty Ltd].
[MR N]:But the day-to-day running of [Mathers Holdings] was, what, managing their property portfolio; is that right?
[MR GARVER]: Yes.
(Transcript 4 May 2018, p.179 lines 28–46)
[MR N]:All right. [Mr Garver], the proposition is that you knew while, as the person that controlled the family trust, that you failed to adhere to the obligations you were required to follow as a trustee. That’s what I’m putting to you. Do you understand that?
[MR GARVER]: I understand that’s what you’re saying. I don’t agree with it.
[MR N]:Yes. All right. And I’m suggesting to you that you, as the trustee, didn’t ever form an independent judgment about whether or not these proceedings should be defended or not; do you agree or not?
[MR GARVER]: No, I disagree with that.
(Transcript 4 May 2018, p.180 lines 3–10)
The final orders made on 11 November 2020 are reproduced in the first schedule to these reasons. Ultimately, those orders provided for a payment of $1,525,417 to the wife by the third respondent. Paragraph 246 of the wife’s affidavit filed 18 February 2021 deposes that the wife then had to pay tax of $387,190, leaving a net payment of $1,138,227.
OTHER RELEVANT FACTS
On 12 May 2016, the wife and the first respondent signed heads of agreement to settle the litigation on the basis that, in effect, the wife was to be paid $1,175,000 net of tax. That settlement was not implemented. The complexity seems to have been establishing what “net of tax” actually meant. The first respondent deposed at paragraph 16 of his affidavit filed 9 December 2020 that he understood the wife was no longer agreeable to settling the proceedings on the basis of the heads of agreement. His understanding is not supported, however, by any other evidence. The wife at paragraph 499 of her affidavit filed 18 February 2021 denies (at least implicitly) that she was no longer agreeable to settling the proceedings on the basis of the 12 May 2016 document. It is likely that the course of the litigation distracted the parties from the offer. As the respondents continued to deny that the trust assets were, in fact, property for the purposes of the Act, until 30 April 2018, the wife was put to proof as regards to her claim. The weight to be placed on the signed heads of agreement in the present context is greatly reduced because of the above.
There is a dispute between the parties about when, exactly, the respondents conceded that the trust assets were, in fact, property for the purposes of the s 79 proceedings. The respondents contend it was 10 April 2018, when the concession was made in a conditional letter from the respondent’s lawyers, which was expressed as a formal offer on a without prejudice save as to costs basis. The offer was not accepted, presumably because it was conditional on each party paying their own costs, a matter which the wife would not countenance. An unconditional concession was not made until 30 April 2018, two days before the commencement of the final hearing. The Court finds this to be the relevant date for costs purposes.
PRELIMINARY ISSUE – STATUS OF MR GARVER
The first respondent, Mr Garver, (“Mr Garver”) was joined to the proceedings as the legal personal representative of the husband following the husband’s death. Mathers Holdings Pty Ltd, against whom the wife seeks costs in the alternative, was the third respondent in the proceedings. Mr Garver was the director of the third respondent, being the trustee of the Mathers Family Trust, and was engaged in the proceedings on that basis as well.
On behalf of Mr Garver, it was contended at paragraph 5 of his written submissions filed 25 August 2022 that it is important to differentiate his conduct as the legal personal representative and a party to the proceedings from his role as trustee for the third respondent. With respect to his role as the legal personal representative, he acted in the place of the husband as the executor of the husband’s estate (which was bankrupt). As trustee, his role was to protect the interests of the beneficiaries of the trust. It was further submitted that the wife has failed to articulate this differentiation in circumstances where she is seeking her costs against Mr Garver personally.
The wife submits in her Case Outline filed 5 August 2022 that Mr Garver is the appropriate respondent because: he was made first respondent by order of the Court; he has been solely responsible for all decisions made in the litigation since the death of the original first respondent husband; and the third respondent (or, more particularly, its assets) was, for the purpose of the proceedings, conceded to be, and treated as, the property of the husband and thus subject to an order under s 79 of the Act. From the wife’s perspective, whilst she submits that the proper respondent for costs is Mr Garver, it makes no difference to her whether payment comes from the first or third respondent, provided that she is paid. Whilst this may make no difference to her, from the Court’s perspective, the capacity in which Mr Garver is potentially made liable to pay costs is an important issue.
Mr Garver’s case was that he was merely the executor of the estate of the late husband, and was therefore neither a party to the marriage relationship, nor a person who had an interest in the outcome of the proceedings.
The order which led to Mr Garver becoming the first respondent was made pursuant to s 79(8) of the Act, which states:
(8)Where, before property settlement proceedings are completed, a party to the marriage dies:
(a)the proceedings may be continued by or against, as the case may be, the legal personal representative of the deceased party and the applicable Rules of Court may make provision in relation to the substitution of the legal personal representative as a party to the proceedings;
(b)if the court is of the opinion:
(i) that it would have made an order with respect to property if the deceased party had not died; and
(ii)that it is still appropriate to make an order with respect to property;
the court may make such order as it considers appropriate with respect to:
(iii)any of the property of the parties to the marriage or either of them; or
(iv)any of the vested bankruptcy property in relation to a bankrupt party to the marriage; and
(c)an order made by the court pursuant to paragraph (b) may be enforced on behalf of, or against, as the case may be, the estate of the deceased party.
Thus, on Mr Garver’s behalf, it was submitted at paragraph 4 of his written submissions filed 25 August 2022 that s 79(8)(c) of the Act clearly indicates the orders that can be made pursuant to s 79 relate to the property of the husband and wife, not property at large held by the legal personal representative. The Court notes, however, that there was no suggestion in this case that Mr Garver’s personal property could be applied to satisfy the wife’s claim under s 79. The situation might be different, however, under s 117 of the Act.
The orders of 9 December 2015 provide that “[t]he Respondent Husband’s legal representative, Mr Garver, be substituted for the Respondent Husband.” He therefore contended that it was clear he had been joined to the proceedings because of his position as the legal personal representative of the husband. Thus, he submitted at paragraph 13 of his written submissions filed 25 August 2022, where the substitution of a person is for a deceased party, in the usual course the only funds available to meet any cost order was from the estate, not from the individual who had been so substituted..
Nonetheless, it was conceded that Mr Garver could be responsible for a costs order personally (see Bain & Bain (Deceased) (Costs) (2017) FLC 93-797 (“Bain”)), but that his position as the legal personal representative for the husband means that this Court should keep in mind this role when assessing whether a costs order should be made against him personally.
Mr Garver contended at paragraph 14 of his written submissions that the fact that he is the legal personal representative means:
a.He does not have a personal interest in the outcome of the litigation;
b.He does not have personal knowledge of the financial circumstances of the Husband;
c.Besides a modest stipend the time and energy devoted to the matter was not recompensed;
d.He was joined on the Court’s motion rather than due to an application he made;
e.The public interest in having personal legal representatives agreeing to become party to proceedings should be kept in mind.
Thus, although a personal costs order can be made against a legal personal representative, as occurred in Bain, in this case there is no adequate basis to do so. Indeed, as Kekewich J said in re Jones; Christmas v Jones [1897] 2 Ch 190 (“re Jones”) at 198:
… And again, apart from dishonesty, the Court may, in my opinion, visit the executor with costs, or deprive him of his costs, where the claim is of a monstrous character, that is, one which no reasonable man could say ought to have been put forward. Even though the executor may have believed it, and a solicitor may have prepared the case and counsel may have argued it; in such a case the Court has quite sufficient power to deprive the executor of his costs, or even to make him pay the costs he has occasioned to the estate …
On Mr Garver’s behalf, it was contended that the evidence did not show any egregious conduct which would meet the high bar of “monstrous character” that no reasonable man would put forward. It was contended that no personal costs order should be made, even if s 117 of the Act were found to apply.
The wife takes a very different perspective about the role of Mr Garver in the litigation. She contends, correctly the Court concludes, that when he was substituted for the deceased husband as a party to the proceedings under s 79(8) of the Act, he became a party with all the rights and responsibilities consequential on that status. It was common ground during the substantive proceedings that the estate of the husband was impecunious. The Court observes, however, that this was somewhat of a fiction given its findings at trial that the husband was not insolvent and that his bankruptcy was, in effect, a sham (at [21]).
It was not until 30 April 2018 that the concession was made by the respondents that the assets of the third respondent trust, of which Mr Garver was the sole trustee, were in fact the assets of the husband. It must logically follow, therefore, in accordance with the wife’s contentions at paragraph 55 of her Case Outline filed 5 August 2022, that until 30 April 2018, Mr Garver (who knew more about the financial circumstances of the respondents than any other party to this case) could not have expected the estate to indemnify him for costs in the litigation, whether his own or of another party. The fact that costs were incurred between 2014 and 2018 is self-evident. Thus, the wife submits that Mr Garver must have conducted the proceedings on the basis that either he would personally fund the proceedings or he would in some way cause his costs to be met by the third respondent.
From the Court’s perspective, the latter is the more plausible scenario, as problematic as it is, because it raises the strong inference that Mr Garver knew (or reasonably should have known) that the trust assets were in fact the husband’s assets well before the concession was made in 2018. The alternative scenario, however, was that Mr Garver, whilst acting in a trustee capacity for the husband’s estate, was litigating in a capricious manner without giving appropriate consideration to the question of costs, both of the estate and of the wife. Both conclusions are available to the Court arising out of his cross-examination.
The wife’s case appropriately recognised, when citing Foster J in Warrick & Mia (No. 3) [2021] FamCA 348, that s 79(8) of the Act would not render the legal personal representative of a deceased estate personally liable for costs, with recourse only being available to the estate itself. However, the wife also correctly submitted that there is no such limitation in s 117 of the Act because Mr Garver became a party to the proceedings. Unlike a case guardian, a legal personal representative is not entitled to the protection of s 117(6) of the Act.
As for the common law position of a person acting as a trustee, such as Mr Garver, the wife accepted that he could be made liable for costs in circumstances such as those found by the Full Court in Bain, where a trustee was found to have incurred costs recklessly and was thus made personally liable for the same.
Perhaps the paragraph in Bain most relevant to this case is [94], where the Full Court stated:
Thus, in this case, the respondents used their position as executors as a shield against any costs order against them personally in circumstances where they well knew any costs ordered against them could not be reimbursed to them by the estate. Given this circumstance, the executors must have understood that any costs awarded against them in favour of the appellant would necessarily have to be paid by them and this, if nothing else, should have encouraged them to seek judicial advice as is provided for in s 96 of the Trusts Act.
The case in Bain arguably adopts a standard lower than that adopted by Kekewich J in re Jones of a claim of “monstrous character”. The question is whether costs of litigation were reasonably incurred in all the circumstances of the case. The costs in question are not just the costs incurred by the legal personal representative but, in this case, the costs incurred by the wife.
In this regard, the wife makes a number of submissions at paragraph 61 of her Case Outline filed 5 August 2022:
61.Because [Mr Garver] was the executor of the Husband’s estate he had complete control of the conduct of the proceedings on behalf of not only the First Respondent (himself) but also the Third Respondent ([Mathers Holdings] Pty Ltd). This is because:
a. [Mr Garver] was a director of [Mathers Holdings] and had been since about 2007.
b.After the death of the Husband, [Mr Garver] was solely responsible for the conduct of the affairs of [Mathers Holdings] and the Family Trust.
c.[Mr Garver] acknowledged that he controlled the Trust.
d.As executor of the estate [Mr Garver] was the appointor of the [Mathers] Family Trust.
e.The Third Respondent belatedly acknowledged that its property was property of a party to the marriage.
(Citations omitted)
The Court accepts the wife’s submissions. The submissions adequately answer the five points made above in relation to Mr Garver acting as legal personal representative. Whether or not he had a personal interest in the litigation is irrelevant in circumstances where he was the main protagonist in the litigation. There was seemingly no one else who had a greater knowledge of the husband’s financial affairs and, if there was, this was evidence Mr Garver should have adduced. Mr Garver’s potential liability (in any capacity) is unrelated to whether and, if so, to what extent he is recompensed. How he was joined to the proceedings is irrelevant to the issue of his potential liability for costs. As for the public interest submission, it is equally in the public interest that legal personal representatives act responsibly in legal proceedings.
The facts before the Court at trial highlight the close connection of Mr Garver and the third respondent. For all practical purposes, Mr Garver had the first and last say in the conduct of the litigation. He was, and indeed could only be, the one person providing instructions on behalf of the first and third respondents after the death of the husband. It is incongruous for him to submit that he had not been personally served with Initiating Applications, or that he was unaware of the risk of a personal costs order against him (at paragraph 18 of his written submissions filed 25 August 2022). The fact is, throughout this complex litigation, he instructed an experienced solicitor who briefed experienced counsel, including senior counsel. He may well have been acting as trustee, but as a party to the proceedings, that fact did not make him immune to a costs order under s 117 of the Act if the circumstances justify the same.
At no stage did Mr Garver contend that he did not have a right of indemnity from the Trust in his capacity as trustee or director of the corporate trust; or from the estate in his capacity as legal personal representative, or that he was personally impecunious.
Thus, if the Court finds that an order for costs is warranted under s 117 of the Act, there is no reason why Mr Garver should not have such an order made against him. He was a party to the proceedings and thus took the risk that a costs order might be made against him. Whether or not he has a right of indemnity is a matter for him. The allocation of any liability for costs as between the respondents is another matter.
SECTION 117 OF THE ACT
The wife’s case
The wife seeks an order under s 117 of the Act that Mr Garver pay her costs of the proceedings. In the alternative, she seeks that the costs be paid by the third respondent, Mathers Holdings Pty Ltd.
Although other subsections of s 117(2A) may be relevant, the most relevant starting point is s 117(2A)(c), which states:
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;
At paragraph 5 of her Case Outline filed 5 August 2022, the wife contends that the proceedings against her were prosecuted by the husband, and subsequently by Mr Garver, in ways that were at various times:
a. Dishonest
b. Evasive
c. Obstructive
d. Or, to give [Mr Garver] the benefit of the doubt, negligent.
The wife referred the Court to its reasons for judgment at [7] and [21] and an excerpt of the cross-examination of Mr Garver (Transcript 4 May 2018, p.175 lines 23–29 as extracted above).
The wife’s case is that the husband devised a strategy to ensure that she would receive nothing from a property settlement despite a marriage that subsisted for 30 years and that, during his lifetime and during his conduct of these proceedings, he acted in accordance with that plan. Once he died, his legal personal representative, Mr Garver, conducted the proceedings at best on the blind assumption that the proceedings should be continued, without any real consideration of his obligations or the consequences of his actions. At worst, he continued the proceedings in the same manner as the husband (at paragraph 9 of the wife’s Case Outline filed 5 August 2022). The Court’s impression of the evidence before it is that either scenario is likely.
She further contends that the result of the husband’s, and then his legal personal representative’s, conduct was that the wife was put to substantial and entirely unnecessary expense. To pick up on the language used in [74] of the reasons for judgment, the wife submits that it was not just her perception that there was obstruction and obfuscation in relation to a critical issue in the proceedings - it was the reality. Once again, the Court finds that this is, indeed, the case.
The wife gives extensive evidence in her affidavit filed 18 February 2021 about the conduct of Mr Garver for the purposes of s 117(2A)(c). Mr Garver gives evidence to the contrary. As this matter proceeded on the papers, neither the wife nor Mr Garver could be cross-examined. In preferring the evidence of the wife, the Court is influenced by the findings made about Mr Garver at the hearing, which have been set out above. Putting aside other issues, the evidence irrefutably demonstrates that, as a result of Mr Garver’s action and inaction, the wife was put to proof in relation to the central issue in this case right up until 30 April 2018, just a few days before the hearing.
The wife divided her costs application into two phases and outlines her reasoning in paragraphs 12 and 13 of the Case Outline filed 5 August 2022.
The wife seeks indemnity costs from the commencement of the proceedings until the concession was made by Mr Garver on 30 April 2018. She contends that the behaviour of the husband, and subsequently Mr Garver, during this period falls readily, if not inevitably, within the tests outlined in the authorities for indemnity costs: Munday v Bowman (1997) FLC 92-784; Colgate-Palmolive Company and Anor v Cussons Pty Limited (1993) 46 FCR 225.
In the second phase, from the date of the concession to the conclusion of the proceedings, the wife seeks costs less than indemnity. She asserts that as a pragmatic matter, a fixed sum should be ordered. The proceedings have been lengthy and the wife is neither young nor well. For this second phase, she seeks an order for a fixed sum of $285,000. This represents approximately 70 per cent of the costs she actually incurred during this period. The reduction from indemnity reflects:
a.The fact that, while many of the costs incurred in this period arose from accommodating the vagaries and inconsistencies of the Husband’s original scheme, and there was still a degree of obstruction the behaviour of the First Respondent during this period his behaviour was not so clearly egregious compared to the first period; and
b.The Wife was not entirely successful during this period particularly on the application to include her calculation of the taxation debts.
(Wife’s Case Outline filed 5 August 2022, paragraph 13(a) and (b))
In the alternative, the wife would seek costs on a party/party basis but assessed under the now appealed Family Law Rules 2004 (Cth) (‘the 2004 Rules”). Given the obvious complexity of this matter, it is submitted that the scale then applicable under the 2004 Rules provides a more realistic basis for any costs order.
Mr Garver’s case
Mr Garver firstly submitted in his written submissions filed 25 August 2022 that, pursuant to s 117(2A)(a) of the Act, regarding the financial circumstances of the parties, he had not provided his personal financial circumstances to the Court. Indeed, he did not provide any evidence of the financial circumstances of the estate of the husband, and it is no answer in this regard to say that the estate was bankrupt, given the Court’s findings about the circumstances of the bankruptcy and the trust assets. On his behalf, the point is made that the wife received $1.5 million as a result of the proceedings, but also owns other real estate of approximately similar value. Moreover, the third respondent received over $2.3 million as a result of the proceedings.
In relation to s 117(2A)(c) regarding the conduct of the parties in relation to the proceedings, Mr Garver contends that the estate took no action in the litigation between 9 December 2015 and 30 April 2018 in the sense that it did not seek any relief, and no party sought any relief against it. This is a strange submission to make in circumstances where he became a party to the proceedings under s 79(8) of the Act in his capacity as legal personal representative of the husband’s estate. Whether the estate took action or not within the stated period is ultimately of little consequence in terms of the costs issue at hand. In principle, there is no reason why a party may not be liable for costs of proceedings, even if inactive in those proceedings. In this case, for example, the contended inactivity was the failure to make a concession about the beneficial ownership of assets at a much earlier point in time. As my reasons for judgment make clear at [27], the making of the concession that the husband effectively controlled all of the assets held by the third respondent cannot be criticised because the totality of the evidence before the Court made the concession inevitable. It was not until the concession was made that it became self-evidently apparent that the husband’s estate was not insolvent, even if technically bankrupt.
On behalf of Mr Garver, it is contended at paragraph 31 of his written submissions filed 25 August 2022 that the litigation could have been settled as early as 2016, but “…the wife walked away from the heads of agreement and pressed for the matter to be litigated.” This issue is relevant to costs. It is conduct for the purposes of s 117(2)(c), but also an offer for the purposes of s 117(2)(f) of the Act.
The terms of the heads of agreement are, of course, relevant. The document states:
1. That the wife be paid $1,175,000.00.
2.That the wife will be paid the amount set out in clause 1 in a manner that does not give rise to a liability to the [Australian Taxation Office] as a consequence of receipt of the money.
3.The parties shall within 28 days from the date of this agreement enter into formal Orders giving effect to these heads of agreement.
4. From the date of the entering into the formal orders the wife shall be paid the money set out in Clause 1 within six (6) months.
5.The wording of the formal Orders will be as directed by the Third Respondent so as to give effect to the balance of this document.
6. The Third Respondent's consent is conditional upon it being satisfied within 14 days that it is possible to pay the amount set out in clause 1 with/or without tax consequences acceptable to it in which case the Third Respondent will forthwith notify the wife that it will proceed with the agreement and in the event it did not so notify the wife her consent is withdrawn.
The evidence of Mr Garver on this issue is found in his affidavit filed 9 December 2020 at paragraphs 12 to 19. The wife’s evidence in this regard is in her affidavit filed 9 December 2020 at paragraphs 54 to 59 and replicated in her later affidavit filed 18 February 2021 at paragraphs 441 to 446.
The wife agrees that heads of agreement were entered into on 12 May 2016. She disputes, however, that she resiled from the same. In her affidavit of 18 February 2021, the wife deposes at paragraph 295(y) that from May to November 2016, her solicitors made numerous requests for a report indicating the capital gains tax consequences arising from the heads of agreement, in accordance with the said agreement. No answer was provided. The litigation continued and was listed for a further two day hearing commencing 27 February 2017. This trial was further vacated and an order made for the wife to particularise her claim. The wife’s case seems to be that at that point, the demands of the litigation distracted all parties from the heads of agreement.
Before even considering the differing perspectives of the parties about the significance of the heads of agreement to the question of costs, the Court makes the following observations. The agreement must be construed in its entirety and not just its individual components. The agreement had six components, not just the one involving payment to the wife of a fixed sum. The agreement was not implemented in its express terms because, contrary to clause 3, no formal orders were ever entered into. There is no evidence before the Court of a tender of money to the wife pursuant to clause 4. The conditions surrounding payment to the wife benefited all parties, not just the wife. These matters would ipso facto prevent the heads of agreement being used for the purposes of a costs application. Even if the Court is wrong, however, the matters raised by each party would nonetheless cause the Court to reach the same conclusion.
In substance, the heads of agreement contained a provision that would have provided for the wife to receive $1,175,000 tax free, which is more than the net amount of $1,138,227 the wife received under the orders of November 2020. But, as the Court has earlier observed, she did not “walk away” from the agreement. Events overtook the settlement negotiations. Ascertaining the tax implications of the wife receiving the agreed sum and the tax implications on the trust took an extended amount of time, through no discernible fault of the wife. The respondents maintained their case about the absence of matrimonial assets. The wife was put to proof. It would be unfair and inequitable to hold the wife to the agreement in its existing terms.
The existence of an agreement embodied in heads of agreement, therefore, is not a factor favouring the making of a costs order against either party.
Mr Garver’s conduct throughout the proceedings was a key basis for the wife’s claim for costs. The particular focus was on his failure to make the concession at an earlier point in time.
Whilst the present focus is on the making of a concession, the other fact of interest is to ascertain when Mr Garver, as director of the trustee company, first asserted that the assets of the trust were not assets of the marriage. As early as 24 February 2015, his solicitor wrote to the wife’s solicitors and, relevantly, stated:
I confirm that my client continues to instruct me that the Family Trust is not an asset of the marriage, and on this basis, [Mr Garver] in his capacity as director of the trustee company, does not intend on filing a Financial Statement or providing financial disclosure documents as requested. This remains very much an issue of contest, and absent Order of the Court for the production of disclosure documents no such request will be complied with at this time.
Perhaps curiously, he makes this assertion several months before the husband passes away. He does not articulate in this letter the precise basis of his assertion but, the Court infers in light of his later evidence before the Court, it must have been based on discussions with the husband personally.
The focus for present purposes is paragraphs 20 and 33 of Mr Garver’s affidavit of 9 December 2020, reproduced below:
20.From 24 April 2017 to April 2018 the case of the Trust was that its assets were not matrimonial property. This was based on the following information:
a.My understanding that the trustee of the [Mathers] Family Trust was [Mathers Holdings Pty Ltd] and that [Mr Mathers] had not been director of that entity since at least 1981;
b.My understanding that in 2008, lawyers called [Q Lawyers] had amended the original Trust Deed removing [Mr Mathers] both as beneficiary of the Trust and as Appointor of the Trust;
c. My understanding from my conversations with [Mr Mathers] during his lifetime that the trust had been established prior to his relationship with [Ms Mathers] for the purposes of keeping the [C1 & C2] properties (the largest asset of the Trust) in the family, noting that the only named beneficiaries of the Trust were [Mr Mathers’s] nephews.
…
33.In response I say that had I would have been in a better position to make the concession if:
a. [The wife] had articulated her case clearly prior to 24 April 2017;
b.The taxation advise had been obtained prior to December 2016 so that the asset pool could have been understood sooner, noting my willingness to negotiate in realistic terms in May 2016 as evidenced by the signed Heads of Agreement;
c. I had a copy of the 13 February 2008 Deed prior to February 2018.
In essence, Mr Garver sets out why he did not cause the concession to be made at an earlier time. Each of his premises needs to be considered individually.
His first point is that the trustee of the Mathers Family Trust was the company Mathers Holdings Pty Ltd and that the husband had not been a director of that company since at least 1981. It is not possible to discern how this could lead Mr Garver to conclude that the trust assets were not matrimonial assets. The issue in that regard was whether the husband controlled the trust assets and, given that the husband was both appointor and settlor of the trust, he clearly had control irrespective of whether he was a director of the trustee company.
Mr Garver’s second point in support of his belief that the trust assets were not matrimonial assets was that the deed of trust had been amended on 13 February 2008 to remove the husband as both beneficiary and appointor of the trust. However, he could not have known this with any reasonable degree of certainty until he actually received the deed in question, which he says did not occur until February 2018 (paragraph 24 of Mr Garver’s affidavit filed 9 December 2020). Somehow, this did not prevent Mr Garver from causing to be filed on 3 July 2017 a Notice of Grounds of Defence, signed by Mr Garver, relating to the wife’s claim, in which he asserted that the husband ceased to be the appointor of the trust by virtue of the deed in question (at paragraph 28 of the Notice of Grounds of Defence filed 3 July 2017).
How Mr Garver came to possess knowledge about the contents of this deed of amendment before receiving it in February 2018 is alluded to at paragraph 21 of his affidavit filed 9 December 2020. Here, he deposes that the existence of the deed dated 13 February 2008 was disclosed to the wife on 10 February 2015, but he does not recall if he ever saw the deed (before February 2018) or was even told about it by the husband before he passed away. The Court infers that the latter was the case. It is the only plausible explanation available from the evidence. Mr Garver refuted the wife’s contentions that he had been hiding the deed, thus emphasising that he first saw the deed in February 2018. In any event, the onus was on Mr Garver to disclose the basis or source of his belief about an important issue in this case.
It is more likely than not that Mr Garver’s knowledge of the deed arose out of something the husband told him before he passed away in July 2015. It is unlikely that he received a copy of the deed before February 2018 because he would have been obliged to disclose a document that was so central to the contention of the estate and the trust that the trust assets were not matrimonial assets.
Given the Court’s finding above that Mr Garver had, at all relevant times and for all practical purposes, the first and last say in the conduct of the litigation and that he was, and indeed could only be, the one person providing instructions on behalf of the first and third respondents after the death of the husband on 9 July 2015, there is no reasonable explanation for his belief before February 2018 that the husband was no longer effectively in control of the trust. As the executor of the husband’s estate and as the controller of the trust, with all the consequential fiduciary obligations that attach to these roles, it beggars belief that he would purportedly rely, for litigation purposes, merely on what the husband told him before he died. He was, at the very least, obliged to make further enquiry. Indeed, in cross-examination Mr Garver accepted the proposition that he had an obligation to make an independent assessment of what was in the best interests of the trust fund and the beneficiaries under the trust.
In any event, it was ultimately accepted by all parties that the deed of 13 February 2008 was invalid. At paragraph 24 of his affidavit filed 9 December 2020, Mr Garver deposes that he became aware of concerns in relation to the validity of the deed, presumably after he received a copy. As noted above, his first offer to make the concession, albeit on conditions, was in a letter dated 10 April 2018 to the wife.
Mr Garver’s third point was that, as a result of conversations he had had with the husband before he passed away, he believed that the trust had been established before the relationship between the husband and the wife commenced. Even he concedes, therefore, that there were conversations with the husband about the trust, further strengthening the inference the Court draws above. The trust appears to have been established in 1976, well before the relationship commenced in 1980 and the parties’ marriage in 1983. It is hard to see, however, how this could reasonably support his contention that the trust assets were not matrimonial assets.
This Court finds that none of the three points raised by Mr Garver, either individually or collectively, satisfactorily explain why he did not make the concession before he did.
Turning to paragraph 33 of his affidavit filed 9 December 2020 (as extracted above), Mr Garver explains that he would have been in a better position to make the concession if three things had occurred. Firstly, if the wife had articulated her case better before 24 April 2017. The Court disagrees. To accept this proposition would be inconsistent with the Court’s findings at [7], [21] and [27] of its reasons for judgment. Mr Garver knew, or should have known since the husband’s death, about the substance of the wife’s case in relation to the trust assets. The Points of Claim document was a legal document that put flesh on the self-evident bones of the wife’s case. As soon as the concession was made there was, in the eyes of this Court, an implied concession that the points of claim were never necessary in the first place. Secondly, he contends that he would have been in a better position to make the concession if he had received the tax advice before December 2016, in order to clarify the pool of assets. The Court disagrees. The need for tax advice was consequential on an acceptance that the only source that could be used to fund a payment to the wife, either pursuant to a settlement or an order of the Court, were trust assets. The tax advice helped Mr Garver to properly understand and quantify the pecuniary impact of the wife’s application on the trust assets, but had nothing to do with whether or not he would make the concession. Thirdly, he contends that he would have been in a better position to make the concession if he had received a copy of the 13 February 2008 deed before February 2018. Once again, the Court disagrees. The Court is satisfied that, in the period before February 2018, Mr Garver was most likely acting on the basis of knowledge communicated to him by the husband before he passed away. That was unwise, and indeed irresponsible, in the circumstances. Curiously, he makes no reference, in this context, to the defect in the deed leading to its invalidity.
The Court cannot accept the matters raised in paragraph 33 of Mr Garver’s affidavit filed 9 December 2020.
The Court concludes that the conduct of the proceedings by Mr Garver, in whatever capacity he acted, is a factor indicating the making of a costs order. The concession about the trust assets being in reality matrimonial assets should have been made at a much earlier time in the proceedings. The wife was, in effect, both as a matter of legal form and substance, put to proof in relation to a central allegation that was ultimately accepted by the respondents.
For all practical purposes, all of the costs applications are determined by reference to the considerations referred to above, especially the conduct of the respondents, specifically, the husband before he passed away and Mr Garver acting in his various capacities afterwards. There is no basis for the making of a costs order against the wife. All of her actions in these proceedings were in response to the actions and inactions of the respondents.
THE QUANTIFICATION OF COSTS
The Court has found that the concession that should have been made by the husband, and Mr Garver acting in his various capacities, was in fact made on 30 April 2018. The wife seeks indemnity costs in the sum of $493,084, or alternatively as agreed or assessed on a party/party basis.
The wife is understandably aggrieved about the conduct of her late husband and Mr Garver in these proceedings and the extraordinary costs that she has incurred, principally (and ultimately successfully) in order to establish that the trust assets were matrimonial assets. However, has she established that indemnity costs should be ordered?
A costs order is compensatory in nature, not punitive. The Court accepts that there is a significant chasm between costs that are payable pursuant to Court approved schedules of fees, and the professional fees actually charged, particularly in complex cases such as the present one.
In Munday v Bowman (1997) FLC 92-784 at 84,660, CJ Holden summarised the High Court of Australia’s consideration as to when circumstances justify an order of costs on an indemnity basis per Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 as follows:
(a) Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts (see Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd. [1988] FCA 202; [1988] 81 ALR 397).
(b)Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud (see Fountain Selected Meats (Sales) Pty. Ltd. (supra).
(c)Evidence of particular misconduct causing loss of time to the court and to other parties (see Tetijo Holdings Pty. Ltd. v Keeprite Australia Pty. Ltd (unreported, Federal Court, 3 May 1991)).
(d)The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (see Ragatta Developments Pty. Ltd. v Westpac Banking Corporation (unreported Federal Court, 5 March 1993)).
(e) An imprudent refusal of an offer to compromise [Medlon No. 6 (supra)].
The conduct of the husband, and then the conduct of Mr Garver, falls within the parameters described by the High Court. The findings made at trial make such a conclusion almost inevitable. The findings made as a result of the costs application confirm that the unreasonable intractability of both the husband, and later Mr Garver up to the point that he made the necessary concession, make an indemnity costs order appropriate.
The wife is entitled to indemnity costs, however not for the entire proceedings to 30 April 2018. Whilst the Court acknowledges that considerable effort and thus cost must have been applied to “busting the trust”, the case was also about altering property interests under s 79 of the Act. The outcome of the s 79 application did not all favour the wife. The wife makes no attempt to apportion her indemnity costs sought as between the trust case and the alteration of property interests case. That is understandable given the inevitable overlap of the evidence in relation to these issues. Nonetheless, it would be unfair to the respondents to burden them with costs unrelated to the conduct of concern to the Court. Apportionment by the Court may seem arbitrary, but the alternative of assessment is unattractive in this long-running, complex litigation. The one judge has had carriage of this matter since inception. The Court thus feels that it is well placed to make an apportionment based on its detailed involvement in the case management, interlocutory and final determinations in this case. The Court apportions the costs sought as to 2/3 to the trust issues, and 1/3 to the alteration of property interests.
The order for costs up to 30 April 2018 will thus be fixed at $328,723. The allocation of liability for payment between the respondents will be discussed below.
The Court notes that the wife was ordered to pay costs thrown away as she failed to properly particularise her claim against the trust by way of points of claim, causing the adjournment of a hearing scheduled for 27 and 28 February 2017. This was obviously before the concession was made by the respondents. The quantum of costs was apparently agreed, but remains unpaid. The Court notes that if it were asked, it would vacate the order in question. Given the concession made a year later, the particularisation of the wife’s claim was not necessary. The concession ultimately had nothing to do with the points of claim. Mr Garver’s evidence is that the concession was made after the 2008 deed was made available to him. It is the view of this Court that any costs thrown away should in fact be borne by the respondents. The indemnity costs order above would notionally cover it in any event.
The proceedings continued, of course, after 30 April 2018, indeed through to 11 November 2020. In this regard, the wife seeks costs fixed at $285,000, or in the alternative as agreed or assessed on a party/party basis. The wife contends that $285,000 represents about 70 per cent of the actual fees incurred.
Whilst the Court accepts the wife’s contention that that there was some complexity in both formulating and then ultimately implementing the final orders that were made consequential on the making of the concession, the Court struggles to accept the contention that these costs should largely be borne by the respondents, or that the costs are proportionate to the issues to be determined.
Of course, these orders ultimately flow from the adjudication of the alteration of property interests by this Court on 5 October 2018, with the final orders being made on 11 November 2020. The Court accepts the submission about complexity. However, the wife’s contention at paragraphs 23 and 32 of her Case Outline filed 5 August 2022 that the complexity flows from the husband’s poor record keeping and Mr Garver’s failure to act in a timely fashion is perhaps simplistic. As for the latter, the respondents point to examples of the wife acting inflexibly and in her own good time (at paragraph 43 of Mr Garver’s written submissions filed 25 August 2022). As for the former, there is evidence of the husband’s poor record keeping, but the Court is not satisfied that this is a basis for a costs order on the respondents.
The Court’s real concern in the present context is that perhaps an illusory distinction is being drawn between the cause for costs being incurred before the concession was made, and costs afterwards. It seems to the Court more likely that the conduct matters that warranted the making of an indemnity costs order up to 30 April 2018 imbued, and indeed were inextricably interwoven with, the costs that had to be incurred afterwards, though creating a much lesser degree of accountability for costs because of the effluxion of time and other extraneous matters. It is illusory to simply draw a bright line at 30 April 2018, as if actions and omissions that preceded that date did not continue to have an impact after that date. The complex tax, legal and drafting issues have their ultimate aetiology in the husband’s scheme to deprive the wife of her entitlement under the Act and Mr Garver’s, perhaps unintentional, complicity in that scheme once he became the effective controller of the husband’s assets.
There are other matters that inform the costs order for this period. It could not be said that the wife was entirely successful, or the respondents entirely unsuccessful in the s 79 proceedings. The wife ran an unsuccessful application regarding her tax liability. The quantum of fees incurred by the wife seem disproportionate to the issues involved.
Nonetheless a costs order is appropriate, but for a much lesser amount than that sought. Drawing once again on this Court’s long involvement in this case, the wife’s costs for this period are assessed at $150,000.
COSTS OF THE COSTS APPLICATION
Each party should pay their own costs arising out of the costs application. There are no indicia warranting a departure from the general rule in this regard.
APPORTIONMENT OF LIABILITY FOR COSTS AS BETWEEN THE RESPONDENTS
Much effort was exerted in submissions in seeking to explain why Mr Garver should not personally be responsible for costs. Inferentially, the respondents seem to concede that if a costs order were to be made, it should be against the trustee company, the third respondent. No evidence was led about possible rights of indemnity either from the trust funds or the estate. Protestations about the insolvency of both the husband and his estate are unconvincing. They are technically insolvent, but only because of a sham contrived by the husband to place all of his personal assets into a trust which he in fact controlled. The Court’s findings about Mr Garver do not need to be repeated here. If he suffers personal loss as a result of the inability of the third respondent, which he controls, to meet a costs order, or his inability to be indemnified, that is an unfortunate matter for him but it should not disadvantage the wife.
The liability for costs ordered, totalling $478,723, is to be borne by the first and third respondents jointly and severally. Lest there be any uncertainty about this, the order in regards to the first respondent is a personal order.
I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Altobelli. Associate:
Dated: 20 January 2023
SCHEDULE 1 – ORDERS OF 11 NOVEMBER 2020
FAMILY LAW ACT 1975
IN THE FEDERAL CIRCUIT COURT OF AUSTRALIA FILE NO: (P)WOC854/2014 BETWEEN:
MS MATHERS (Applicant)
AND:
MR GARVER (First Respondent)
AND:
OFFICAL TRUSTEE IN BANKRUPTCY FOR THE
ESTATE OF MR MATHERS
(Second Respondent)
AND:
MATHERS HOLDING PTY LTD (Third Respondent)
BEFORE: JUDGE ALTOBELLI
DATE: 11 November 2020
MADE AT: WOLLONGONG via AAPT TeleconferenceUPON APPLICATION MADE TO THE COURT by Ms M for the Applicant, Ms O for the First Respondent and the Third Respondent and with there being no appearance by or on behalf of the Second Respondent.
THE COURT ORDERS THAT:
1.Final property Orders be made in accordance with the document marked “A” dated this day 11 November 2020 and attached hereto.
2.Within 7 days, the Solicitor for the Applicant is to notify Mr H and Ms K of the Orders made today.
3.All outstanding applications otherwise be dismissed and the matter removed from the list of cases awaiting finalisation.
THE COURT NOTES THAT:
A.Mr H is a co-director of the Third Respondent and is thus aware of these proceedings.
B.Ms K, who is separately represented although not a party to these proceedings, has been provided with a copy of the proposed orders.
“A”
FAMILY LAW ACT 1975
CONSENT ORDERS
IN THE FEDERAL CIRCUIT COURT
OF AUSTRALIA File No: WOC854/2014
BETWEEN: MS MATHERS
(Applicant)
AND: MR GARVER
(First Respondent)
MATHERS HOLDINGS PTY LTD
(Third Respondent)
THE COURT NOTES THAT:
a.On 25 January 2019, final reasons in the current proceedings was delivered by Judge Altobelli (“the final reasons”). The final reasons provide for the Applicant wife to receive 55% of the property from the marriage.
b.Since the final reasons were delivered four real estate properties owned by the Third Respondent, Mathers Holdings Pty Ltd (“Mathers Holdings”), have been sold.
c.On 8 April 2020, Mr F, Director of P Financial Services prepared a report for the First Respondent and Mathers Holdings in which he sought to crystallise both the capital gain taxation consequences to Mathers Holdings of the sale of its four real estate properties and the income tax consequences to the Applicant wife of any beneficiary distributions from the Mathers Family Trust (“the Trust”).
d.It is agreed that to effect a 55%/45% adjustment of the property from the marriage in favour of the Applicant wife Mathers Holdings must cause a payment to the Applicant wife of one million five hundred and twenty-five thousand four hundred and seventeen dollars ($1,525,417.00).
e.The parties assert that the Orders do not impinge upon the rights of bona fide third parties but to the extent that such assertion is wrong then in relation to the following entity and persons, Mathers Holdings, Mr H, and Ms K, the Court finds pursuant to section 90 AE(3) of the Family Law Act 1975 that:
i.the making of these Orders is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
ii.to the extent that the Orders concern a debt of a party to the marriage it is not foreseeable at the time that the Order is made that to make these Orders would result in the debt not being paid in full; and
iii.the third parties have been accorded procedural fairness in relation to the making of the Order; and
iv.the Court is satisfied that, in all the circumstances, it is just and equitable to make the Orders; and
v.the Court is satisfied that the Orders take into account the matters mentioned in section 90 AE(4) of the Family Law Act 1975.
f.The Court has made the following Orders following the final judgment:
i.12 July 2019 (as amended by the Slip Rule on 30 July 2019);
ii.19 September 2019;
iii.4 November 2019;
iv.16 March 2020;
v.4 May 2020; and
vi.20 August 2020.
g.The parties agree that these Notations, Findings and Orders are an appropriate form of Order to implement the last remaining aspect necessary to give effect to the reasons delivered on 25 January 2019 and together with the Orders noted at (f) above complete the exercise of the Court’s power pursuant to section 79 of the Family Law Act 1975.
THE COURT DECLARES THAT:
i.That where declarations made by the Court on 4 November 2019 are inconsistent with the declarations made by the Court in these Orders, the earlier declarations are invalid to the extent of any such inconsistency.
ii.The Mathers Family Trust has been the beneficial owner of both of the two issued shares in Mathers Holdings Pty Ltd since at least 4 September 1981.
iii.That on or around 20 June 1978 the real estate property at Property C1 was transferred from the Husband to Mathers Holdings for $30,000.00.
iv.That the building on Property C1 has not appreciated in value in the period since its construction and the increase in value of the property since that time is attributable in full to the land only.
v.That there have been no significant improvements made to the Property C1 since the building was constructed in 1988.
vi.That on 29 November 1994, the real estate property at Property C1 was transferred from the Husband to Mathers Holdings for $1.00 and the market value of the property at that time was $425,000.00. The market value of the property has been estimated based on the stamp duty of $14,615.00 paid on the transfer of the property.
vii.That the costs associated with the construction of the two-bedroom cottage on the property at Property C1 total $71,809.00, with the costs being incurred between 3 October 2014 and 9 January 2015.
viii.That the costs incurred in respect of the holding of the Property C1 were $50,169.00 between 5 October 1998 and 25 March 2015 and $8,884.00 between 1 July 2015 and 30 June 2017. These two amounts were not claimed as income tax deductions of Mathers Holdings as they were debited to the Husband’s loan account in Mathers Holdings.
ix.That on 13 July 1994 Mathers Holdings acquired the real estate property at Property G, for $67,000.00.
x.That the costs for the two buildings on the properties at Properties G1 and G2 , totalled $138,488.00 and the two buildings were completed on or about 1 July 2001.
xi.That the total cost of the two buildings on the on the properties at Property G1 and G2 is to be attributed equally between the two buildings, such that $69,244.00 is attributed to each building.
xii.That on or around 28 April 2005 Property G, property was split into two strata titled lots under strata plan …. The cost of establishing the strata plan was $3,305.00.
xiii.That there were no significant improvements made to the properties at Properties G1 and G2 in the period between the construction of the buildings and the sale of the properties.
IT IS ORDERED THAT:
1.These Orders are made by way of alteration of property interests pursuant to section 79 of the Family Law Act 1975 (“the Act”).
2.By not later than thirty (30) days after the date of these Orders there shall be a declaration of a fully franked dividend in the amount of one million five hundred and twenty-five thousand four hundred and seventeen dollars ($1,525,417.00) by the Third Respondent to the Mathers Trust (“the Trust”) with a franking credit attached payable on 15 March 2021 or earlier.
3.Simultaneously with the declaration of a fully franked dividend by the Third Respondent to the Trust pursuant to Order 2 hereof there shall be a distribution and payment of a fully franked dividend in the amount of one million five hundred and twenty-five thousand four hundred and seventeen dollars ($1,525,417.00) by the Third Respondent to the Applicant wife.
4.Simultaneously with the payment to the Applicant wife pursuant to Order 3 hereof, the Applicant wife shall cause the amount of seven hundred and fifty thousand dollars ($750,000.00) to be paid to the Third Respondent and applied to repay funds advanced of seven hundred and fifty thousand dollars ($750,000.00) without interest to the Applicant wife pursuant to order 1 of Interim Consent Orders made by consent in the Federal Circuit Court of Australia at Wollongong on 4 November 2019.
5.Save for as is provided for in these Orders until the last payment to the Applicant wife to effect the fifty-five per centum (55%) distribution:
5.1The Third Respondent shall be restrained from:
5.1.1Paying any dividends other than as required by these Orders;
5.1.2Making any distributions from the Trust including, but not limited to, any distribution of franked dividends other than as required by these Orders;
5.1.3Advancing any funds to a beneficiary of the Trust or any other person.
5.2The First Respondent shall be restrained from changing the trustee of the Trust.
6.Within seven (7) days from the date of the Third Respondent’s lodgement of the 2021 income tax return for the Trust the Third Respondent shall provide the Applicant wife’s solicitor with an excerpt from the 2021 income tax return for the Trust which shows the distribution to the Applicant wife, including the franking credit.
7.Within seven (7) days from the date of the Third Respondent’s compliance with Order 3 hereof the Applicant wife shall do all acts and things and sign all necessary documents to relinquish her rights as a beneficiary in the Trust.
8.As between the Applicant, the First Respondent, and the Third Respondent, and subject to the above Orders, the Applicant the First Respondent, and the Third Respondent shall each respectively retain all interest in and entitlements to:
8.1all personal property now in their respective possession or control;
8.2all shares, debentures, units in unit trusts, bank, building society or credit union accounts standing in their sole names respectively; and
8.3all interest in life insurance policies and superannuation funds standing in their sole names, respectively.
9.Unless otherwise expressly stated in these Orders each party shall be liable for the payment of any debt incurred in their name or jointly with any other person or encumbering any property retained by the party in accordance with these Orders and shall indemnify and keep indemnified the other parties in relation thereto.
10.The parties shall do all things necessary including signing all documents to give effect to these Orders in the time periods prescribed herein.
11.If any party to these Orders refuses or neglects to execute any deed, document or instrument necessary to give effect to these Orders, the Registrar of the Court shall be appointed pursuant to section 106A of the Family Law Act 1975 (Cth) to execute such deed, document or instrument in the name of the said party.
12.The requesting party shall be at liberty to apply for costs when submitting an affidavit to the Registrar pursuant to Order 11 hereof.
- AGLC
- Mathers & Garver [2023] FedCFamC1F 10
- Case
- [2023] FedCFamC1F 10
- Decision Date
CaseChat Overview and Summary
The court examined the submissions and affidavits from both parties, considering the complexity of Mr Garver's dual roles and the implications for costs. It noted that Mr Garver's affidavit suggested he believed the wife was no longer agreeable to the settlement terms, a contention the wife denied. The court also highlighted the significance of the respondents' concession on 30 April 2018 that the trust assets were property for the purposes of the proceedings, which influenced the timing of costs. The court found that Mr Garver's roles as the legal personal representative and trustee were distinct and that the wife's failure to articulate this differentiation in her submissions weakened her claim for personal costs against him.
The court ultimately concluded that the wife had not sufficiently differentiated between Mr Garver's roles, which was crucial for her to seek personal costs against him. Consequently, the court rejected the wife's claim for personal costs against Mr Garver. The final orders, made on 11 November 2020, provided for a payment of $1,525,417 to the wife by the third respondent, with the wife to pay tax of $387,190, leaving a net payment of $1,138,227. The court's decision clarified the scope of costs that could be claimed against Mr Garver in his dual capacity.
Orders
Orders of the court
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Background
Background to the litigation
Evidence
Evidence Before The Court
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Decision
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Ratio Decidendi
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