McMurphy and G and G (A Law Firm)
[2011] FamCA 242
FAMILY COURT OF AUSTRALIA
| MCMURPHY & G & G (A LAW FIRM) | [2011] FamCA 242 |
| FAMILY LAW – COSTS – each party makes an application for costs – where one party is a legal practice – applicant is not in paid employment – applicant’s income is not clearly established – respondent is solvent and able to meet a costs order – applicant was successful in the substantive proceedings – respondent obtained costs assessment order for the purpose of making it difficult for the applicant to set aside the costs agreement – where the respondent unnecessarily prolonged proceedings – respondent shall pay the applicant’s costs of and incidental to the proceedings in a fixed amount – in the alternative, respondent to pay costs of the applicant on an indemnity basis |
| Family Law Act 1975 (Cth) s 117 |
Calderbank v Calderbank
[1975] 3 All ER 333
118 ALR 248
(2010) 44 Fam LR 117
Colgate Palmolive Co v Cussons Pty Ltd
Stephens v Stephens
| APPLICANT: | Ms McMurphy |
| RESPONDENT: | G & G (A Law Firm) |
| FILE NUMBER: | (P)MLC | 4782 | of | 2010 |
| DATE DELIVERED: | 8 April 2011 |
| PLACE DELIVERED: | Newcastle |
| PLACE HEARD: | By way of written submissions |
| JUDGMENT OF: | Cleary J |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Dickson |
| SOLICITOR FOR THE APPLICANT: | Schetzer Constantinou |
| RESPONDENT: | In person |
Orders
That the respondent pay the costs of the applicant of and incidental to her application for final orders filed 25 June 2009 (as amended on 3 August 2009) in the sum of $80,000, such sum to be paid within 28 days of the date of these orders. Failing payment within the stated period the respondent is to pay the costs of the applicant on the indemnity basis as agreed or assessed.
IT IS NOTED that publication of this judgment under the pseudonym McMurphy & G and G (A Law Firm) is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT NEWCASTLE |
FILE NUMBER: (P)MLC4782 of 2010
| Ms McMurphy |
Applicant
And
| G & G (A Law Firm) |
Respondent
REASONS FOR JUDGMENT
Applications
These are applications for costs by each of the parties.
The applications arise from proceedings heard in Melbourne on 9, 10 and 11 August 2010 in which judgment was delivered on 19 November 2010. Orders 5, 6 and 7 provided for written submissions and responses in the event of an application for costs. Both parties applied for costs.
The applicant, Ms McMurphy (“the applicant”) delivered submissions in support of her application on 3 December 2010 (“the first application for costs”).
The respondent, G & G (A Law Firm) (“the respondent”) delivered submissions in support of its application for costs on 2 December 2010 (“the second application for costs”) and delivered submissions in response to the applicant’s submissions by 17 December 2010.
The applicant delivered submissions in response to the respondent’s submissions by 17 December 2010.
All material was delivered within time.
The nature of the applications
The First Application
The applicant seeks an order for costs in the alternative:[1]
(a) a fixed sum of $80,00 or
(b) on an indemnity basis “such costs to be taxed on an indemnity basis in default of agreement”.
[1] Applicant’s submissions, par 2(a) & (b)
The respondent opposes the application on any basis, but submits that in the event the Court determines that a costs order should be made the orders should be on the party/party basis only.
The Second Application
The respondent seeks an order for costs “such costs to be taxed or alternatively fixed”. This is an application for costs on the usual party/party basis. This application is opposed by the applicant on any basis.
Additional Application by Applicant
The applicant has also made an application[2] for an order categorised as a “refund order”. This application does not relate to costs arising from these proceedings.
[2] Applicant’s submissions, par 2(c)
The making of the application is opposed by the respondent. If the application was entertained by the Court, the orders sought would be opposed. This aspect of the applicant’s application and submissions is dealt with separately in these Reasons under the heading Application for a “Refund Order”.
The substantive proceedings
The proceedings heard in August 2010 were:
1.An application to set aside a costs agreement entered into in September 2007 by the applicant with her then solicitors, the respondent.
2.An application to set aside a costs assessment order obtained by the respondent in April 2009.
3.Auxiliary orders for extending time.
The applicant was successful in having the costs agreement set aside. That order obviated the need for the costs assessment order to be set aside, but in any event time was extended for the applicant to make an application to set aside the costs assessment order, which order was also ultimately set aside.
The law in relation to costs
The general rule in relation to costs of litigation in the Family Court is that each party bears his or her own costs. Costs do not follow the event as is the case in other jurisdictions. Litigants in the Family Court know, at least objectively, that they will each bear their own costs in proceedings against each other. In a sense both parties to a dispute in the Family Court are usually applicants. This was not the case here. The respondent was defending an application.
The general rule is set out in s 117 of the Family Law Act 1975 (Cth) (“the Act”) as follows:
(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.
The discretion to depart from the general rule is contained in s 117(2):
(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.
The discretion is exercised subject to s 117(2A) which sets out mandatory factors to consider, in addition to such other matters as the Court considers relevant:
(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.
The first application for costs
Section 117(2A)(a) - Financial Circumstances of each of the parties to the proceedings
The Applicant
The applicant is not in paid employment. She cares for her two young children. These facts are not contested.
There is no information provided as to the current income of the applicant from private or public sources. Her only asset is said to be her share of the proceeds from the sale of the former matrimonial home in May 2009. At that time the respondent received $238,143.18 pursuant to the costs agreement which has now been set aside. The applicant is said to have otherwise received $70,000, which funds are now exhausted.
The respondent asserts that the amount which the applicant received from the proceeds of sale of the home was $90,000. Further, the respondent asserts that the applicant is now receiving, or should be receiving, capital instalments from her former husband pursuant to a binding financial agreement signed by the parties post separation. These capital instalments are asserted to amount to the sum of $256,000 “in 156 payments of $1,641 per month. The first of such payments to be made to the applicant on the settlement date of the sale of the former matrimonial home, and weekly thereafter until the sum of $256,000 has been paid in full[3]”. This passage is internally contradictory as to whether the payments are to be made weekly or monthly. In any event this is the extent of the information supplied by the parties and I am unable to determine this aspect of the matter.
[3] Applicant’s submissions, page 2 par 5
The Respondent
The respondent is silent as to its’ own financial circumstances. I accept the submission on behalf of the applicant that “it would be impossible to know the financial position of the respondent without undertaking a detailed analysis of the financial situation of the principal solicitor, [Mr G] himself[4].” The evidence of Mr G in the substantive proceedings was that the office account of the respondent was in fact or affect his own account. Absent any evidence to the contrary, I infer the respondent is solvent and able to meet a costs order.
Section 117(2A)(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
[4] Applicant’s submissions, page 2 par 7
Not applicable.
Section 117(2A)(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
The proceedings were conducted in a timely and efficient way during the three days of hearing in August 2010. However, between the filing of the application and final hearing there were problems. The respondent retained the family law files of the applicant. Mr G conceded in evidence that when Mr Abbott solicitor took over from the respondent in the family law proceedings for the applicant, he (Mr G) refused to hand over the file as “That was [his] judgment”. The further evidence of Mr G was that he could not have made a copy of the file to keep because “that would have been too expensive”. He said he retained the file because “any one could remove documents from the file”. He felt there could have been “serious charges of misconduct” (against him) had he handed over the file but later conceded that handing over the file to Mr Abottt would have been a better course of action.[5]
[5] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, par 135
There is no doubt that the task of those advising the applicant in these proceedings was made more difficult by not having access to the file. A subpoena was issued for the production of the file by His Honour Justice Cronin. Given that the applicant had paid in full to the respondent all costs and disbursements, the applicant at all times was entitled to the return of her file. I take this matter into account in this application.
Section 117(2A)(d) – Whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the Court
Not applicable.
Section 117(2A)(e) – Whether any party to the proceedings has been wholly unsuccessful in the proceedings.
The applicant has been entirely successful in the substantive proceedings. In the circumstances she may well find that difficult to believe. The respondent has been entirely unsuccessful. I reject the submissions of the respondent[6] to the effect that the applicant was wholly unsuccessful in the proceedings. In particular submissions were made that because the applicant was not granted an extension of time to:
(a) serve a request for itemised costs account; and
(b) serve a notice disputing itemised costs account
that the applicant was wholly unsuccessful.
[6] Respondent’s costs submissions, page 9 par 31(e)
Such a submission fails to come to grips with the implication of the orders made in the substantive proceedings. The costs agreement having been set aside, there is simply no basis for costs to be paid as notified and, consequently, no need to serve a request for any itemised costs account or a notice disputing any itemised costs account.
Further, there was a submission as follows: “She [the applicant] had for whatever reason failed to exercise her rights to dispute the costs within the time limits prescribed by r 6.21 and r 6.24 of Sch 6 [of the Family Law Rules 2004]”. I reject this submission for the same reason. In the substantive proceedings, the Court found that the central agreement between the parties was that the respondent’s costs would be paid by the applicant from the net proceeds of sale of the former matrimonial home. Having agreed with the applicant that she need not pay costs until after the sale of the matrimonial home, the respondent cannot then expect the applicant to respond to cost notices referring to payment within 14 days.[7] And by the same logic, the respondent cannot expect the applicant to exercise her rights to dispute costs, which were not expected to be paid until after the sale of the former matrimonial home, within the time limits prescribed by the Family Law Rules.
[7] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, pars 54-57
It was acknowledged properly by both parties that in the event the applicant succeeded in setting aside the costs agreement, fresh bills would need to be drawn. I reject the submission that the applicant had to achieve an outcome of an extension of time to request an itemised account in order to be successful. I take into account the conduct of the respondent in failing, as is apparently the case, to issue fresh bills of costs to the applicant and retaining the monies paid in May 2009 without attempt to rectify the position between itself and its former client.
Subsection 117(2A)(f) – Whether either party to the proceedings has made an offer in writing to settle the proceedings and the terms of any such offer.
An offer to settle was made by the respondent on 13 July 2010, on the basis that the applicant’s claim be discontinued and each party bear their own costs[8]. This letter was stated to be made in accordance with the principles established in Calderbank v Calderbank [1975] 3 All ER 333, and was to be produced in support of an application for costs on an indemnity basis in the event that the applicant was unsuccessful.
[8] Applicant’s submissions, Annexure ‘C’
The applicant had attempted to negotiate a settlement of her costs prior to commencement of proceedings[9]. The applicant also offered to settle the dispute between the parties on the basis of setting aside the costs assessment order only[10].
[9] Applicant’s submissions, par 24
[10] Applicant’s submissions, Annexure ‘C’
On 20 May 2009 an offer was made in specific terms for the applicant to receive back $75,000 of the funds paid to the respondent from the proceeds of sale, as a resolution of the matter
Section 117(2A)(g) – Such other matters as the Court considers relevant
I take the following matters into account:
(a)The respondent obtained a costs assessment order on his own admission for the purpose of making it more difficult for his client to set aside the costs agreement between[11] the parties. That costs assessment order was not served by the respondent and the applicant was not notified of the order until 25 June 2009.
(b)The respondent refused to release the family law files of his firm belonging to the applicant and I have already referred to that matter.
(c)The respondent took a tactical approach to the incorrect completion of a Notice of Discontinuance filed by solicitors for the applicant. The applicant only sought to discontinue one aspect of the proceedings, but not the costs aspect. The proceedings were prolonged for some time as the respondent refused acknowledged that there had been an error in the Notice of Discontinuance and did not consent to the proceedings being restored. Eventually, the proceedings were put back on track[12].
(d)The funds received by the respondent from the proceeds of sale of the McMurphy family home were both for costs and disbursements. Counsel was not promptly paid. Accordingly the respondent has had the benefit of the whole of the amount, including interest on costs and in respect of Counsels’ fees.[13]
(e)The applicant has been deprived of the difference between the amount paid and that which she will ultimately be assessed to pay by the Court.
[11] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, par 136, 164
[12] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, pars 136 142-145
[13] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, pars 104 – 112
There is in the view of the Court, no doubt that the costs assessed by the Court will likely be significantly less than costs actually paid by the applicant, given the changed basis for assessment.
For all of the reasons set out above, I find that there are circumstances that justify a departure from the general rule that each party pay his or her own costs.
Indemnity costs
The applicant seeks, as stated, indemnity costs in the alternative to a fixed amount. Indemnity costs are not routinely granted, even in jurisdictions where costs do follow the event. An order for party/party costs invariably covers something much less than full indemnity for costs actually incurred. The principles which guide the making of an order for costs to be paid on an indemnity basis are usefully set out in the decision of Colgate Palmolive Co v Cussons Pty Ltd[14], a decision of the Federal Court. The six principles are as follows:
1.The problem of the basis for costs arises in adversary litigation, that is, litigation as between parties at arm’s length.
2.The ordinary rule is that where the Court orders the costs of one party to litigation to be paid by another, the order is for payment of those costs on a party/party basis.
3.The order will usually fall short of complete indemnity.
4.The Court ought not usually make an order for the payment of costs on some basis, other than the party/party basis. The circumstances of the case must be such as to warrant the Court departing from the usual course.
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/party basis.
5.There are a variety of circumstances which have been relied on to warrant the excuse of the discretion including making irrelevant allegations of fraud, misconduct that causes loss of time to the court and to other parties, proceedings commenced or continued for some ulterior motive, prolongation of a case on groundless contentions, and imprudent refusal of an offer to compromise.
6.The existence of particular facts and circumstances capable of warranting the making of an order for payment of costs on the indemnity basis does not mean that Judges are necessarily obliged to exercise their discretion to make such an order. Costs are always in the discretion of the trial Judge.
[14] (1993) 46 FCR 225; 118 ALR 248
I bear these principles in mind in determining whether or not there should be a departure from the usual order of party/party costs, which is in itself already a departure from the general rule in the family law context.
I must also take into account that an order for costs is made to compensate a party against expense incurred in litigation and is not punitive in nature[15].
[15] Stephens v Stephens (2010) 44 FamLR 117
In this particular matter, I do not consider that the respondent properly advised ought to have known that it had no prospects of success. I accept that the costs agreement set aside in this matter is one that the respondent has used in the past and intended to go on using. However there are extraordinary features of this case which I take into account:
1.That the respondent admittedly obtained a costs assessment order to make it more difficult for the applicant to obtain an order to set aside the costs agreement.
2.The failure of the respondent to release the family law files of the applicant, as should have been done from the time all costs were paid by the applicant to the respondent.
3.The matter which gave rise to adverse credit findings about Mr G, particularly the matter involving an employed solicitor[16].
4.The assertion at the beginning of the proceedings that all counsel who had appeared in the family law proceedings had been paid This assertion proved not to be correct, allowing the Court to draw the inference[17] that the Mr G had not checked the accounts of the respondent before instructing counsel to make that statement.
5.The evidence in relation to counsel’s fees[18].
6.The respondent’s penalty clause of a 14 per cent additional fee for a request for an itemised legal costs account out of time[19].
7.The fact that the respondent had, at the time when costs submissions were made, failed to prepare fresh accounts in order to rectify the situation where he holds funds, likely well in excess of costs assessed by the Court, paid by the applicant his former client.
[16] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, paragraphs 89-103
[17] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, paragraph 108
[18] McMurphy & G and G (A Law Firm) [2010] FamCA 1032 paragraphs 110 - 112
[19] McMurphy & G and G (A Law Firm) [2010] FamCA 1032, paragraph 128
Overall it appears to the Court that an order for costs on the indemnity basis is justified in these particularly unusual circumstances where a solicitor takes an unrelenting tactical approach to a former client before, during and after the time she successfully applied to set aside his costs agreement which was found to be unfair and unreasonable. Such costs are not a penalty. The respondent’s approach resulted in every issue prolonged by correspondence and pursued in the hearing. The applicant should be fully compensated for the resulting expense.
For those reasons I consider that there should be an order for costs to paid on an indemnity basis, but will give the respondent the option contained in the orders made.
The Second Application for Costs
This application is fundamentally flawed.
The costs agreement between the applicant and respondent has been set aside. Accordingly there is no proper basis for reliance on any invoice, costs notice or account issued, itemised or not, by the respondent. The matters raised about conduct are largely irrelevant.
The respondent relies on delay in the substantive proceedings because of:
(i)The applicant’s need to seek leave to extend the time to apply to set aside the costs assessment order made by a Registrar on 8 April 2009;
(ii)The amendment of an incorrect Notice of Discontinuance; and
(iii)The issuing of a subpoena by the applicant for the respondent’s files in relation to her previous family law proceedings.
As discussed earlier the respondent’s behaviour, at least in relation to the latter two matters, was recalcitrant and not forthcoming. Hence, the respondent cannot now rely on the delays which it caused to support its costs application.
The respondent was wholly unsuccessful in the substantive proceedings. The lump sum account dated 24 September 2008 was found to have been formulated on an untenable basis. Extension of time to serve requests itemising that account and notice disputing other accounts is not needed. There is no proper basis for those accounts. The costs agreement having been set aside, all bills must be redrawn.
Such submissions could only have had force if the costs assessment order had been set aside, but the costs agreement had been found to be valid.
The submissions in support of the application for costs are rejected. The application of the respondent for costs is dismissed for the reasons stated above.
Application for the refund order
The applicant has sought an order for refund of the sum of $268,824.38. This application does not relate to the costs of the proceedings to set aside the costs agreement and costs assessment order. Whilst it is understandable that the application is made, I can find no jurisdictional basis for dealing with it in this context. Undoubtedly the respondent has an obligation to draw fresh bills of costs and serve them on the applicant. That process should have commenced as soon as the orders and reasons for judgment were delivered. Perhaps it has already been undertaken. At paragraph 177 of my reasons for judgment I noted that: “If there continues to be a dispute about costs the matter will be dealt with by the Costs Registrar”. This is a clear reference to the fact that in the event the applicant and respondent are unable to agree about costs, the dispute can be taken to the Registrar in the ordinary way.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cleary delivered on 8 April 2011 judgment delivered.
Associate:
Date: 8 April 2011
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