MIDDEN & GALLOWAY

[2015] FCCA 3010

FEDERAL CIRCUIT COURT OF AUSTRALIA

MIDDEN & GALLOWAY [2015] FCCA 3010

Catchwords:
FAMILY LAW – Costs – application for costs of two trials – consideration of ss.117(2);(2A) – consideration of indemnity costs.

Legislation:

Family Law Act 1975

Federal Circuit Court Rules 2001

Colgate-PalmoliveCompany and Anor & CussonsPty Limited [1993] FCA 801
JEL & DDF (No 2) (2001) FLC 93-075
Kohan& Kohan  (1993) FLC 92-340
Munday&Bowman (1997) 22 Fam LR 321
Penfold& Penfold (1980) 144 CLR 311
Prantage& Prantage (2013) FLC 93-544
Yunghanns & Ors & Yunghanns & Ors & Yunghanns [2000] FamCA 681

Applicant: MR MIDDEN

Respondent: MS GALLOWAY

File Number: DNC 199 of 2012

Judgment of: Judge McGuire

Hearing date: 26 October 2015

Date of Last Submission: 26 October 2015

Delivered at: Melbourne

Delivered on: 20 November 2015

REPRESENTATION

Counsel for the Applicant: Mr K Norrington

Solicitors for the Applicant: DS Family Law

Counsel for the Respondent: Mr T Puckey

Solicitors for the Respondent: Butcher Paull & Calder

ORDERS

1. The respondent pay the applicant’s costs of and incidental to the trial before Judge Harland on a party/party basis such to be agreed or failing agreement then to be assessed/taxed.

2. The respondent pay twenty per cent (20%) of the applicant’s costs of and incidental to the trial before Judge McGuire such to be agreed or failing agreement then to be assessed/taxed but such sum to be then reduced by an amount of $4,000.

3. The applicant’s application for costs on the costs application be dismissed.

IT IS NOTED that publication of this judgment under the pseudonym Midden & Galloway is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

DNC 199 of 2012

MR MIDDEN

Applicant

And

MS GALLOWAY

Respondent

REASONS FOR JUDGMENT

1. The applicant, Mr Midden, seeks costs from the respondent, Ms Galloway, of and incidental to two trials involving the alteration of their property interests.

2. Judge Harland conducted the first trial over five days in June and July 2013.  Her Honour later made a costs order in favour of the applicant in a quantum of $38,428.00 being costs on a party/party basis. 

3. The respondent successfully appealed her Honour’s primary judgment and the costs order was consequentially set aside with the matter remitted to me for rehearing. 

4. The second trial took place over four days in October 2014 with judgment handed down in February 2015.

5. Mr Midden now seeks costs on an indemnity basis.  He quantifies his costs on both indemnity and party/party basis as follows:[1]

   [1] Applicant’s written submissions for costs, filed 8 May 2015 at [107-114]

   (1) On an indemnity basis, if costs are awarded from the commencement of the proceedings until the conclusion of the first hearing, the Applicant seeks:

   (a) $54,941.15 for solicitors’ fees;

   (b) $18,975 in counsel fees;

   (c) $2468.50 in disbursements;

   Total $76,438.15 (incl. GST).

   (2) On an indemnity basis, if costs are awarded from the commencement of the first trial (including counsel’s preparation) until the conclusion of the first hearing, the Applicant seeks:

   (a) $11,097.35 for solicitors’ fees;

   (b) $18,975 in counsel fees;

   (c) $2,468.50 in disbursements;

   Total $32,594.35 (incl. GST).

   (3) On a party/party basis, if costs are awarded from the commencement of the proceedings until the conclusion of the first hearing, the Applicant seeks:

   (a) $44,742.50 for solicitor and advocate fees;

   (b) $2468.50 in disbursements.

   Total $47,211.

Summary of Costs in Relation to the Second Proceedings

(4) On an indemnity basis, if costs are awarded from the first interlocutory hearing, following the Appeal until the conclusion of the second trial, the Applicant seeks:

(a) $52,061.79 for solicitors’ fees;

(b) $25,630 in counsel fees;

(c) $2744.48 in disbursements;

Total $80,873.27 (incl. GST).

(5) On a party/party basis, if costs are awarded from the commencement of the proceedings until the conclusion of the hearing, the Applicant seeks:

(a) $40,467 for solicitor and advocate fees;

(b) $3744.48 in disbursements;

Total $44,211.48.

1. The applicant also seeks a sum of $7,040, being an order for costs on this application for costs. 

2. When the matter was remitted for rehearing the Full Court of the Family Court granted cost certificates to each of the parties on the appeal and also certificates at $4,000 each for the rehearing.

3. Both parties are represented on the argument now before me and each has provided helpful written submissions and oral arguments. The respondent’s written submissions were prepared by Mr Robertson of Counsel who at [58] says:

   The Wife appropriately concedes that she should be visited with an order as to costs, on a party and party basis, in relation to one trial.  Those costs should be assessed so consideration can be given to the reasonableness of the costs claimed.

4. However, oral submissions on behalf of the respondent were offered by Mr Puckey of Counsel who made it clear that any indication of a “concession” in the written submissions was incorrect or withdrawn and he went so far only as submitting;

   Our position is that it may be open for your Honour to consider an order for some form of costs in relation to the first trial but not the second.

Relevant Law – Costs

1. The general rule in relation to s.117(1) of the Family Law Act (1975) (“the Act”) is that each party to proceedings shall bear his or her own costs subject to s.117(2), s.70NFB(1), s.117AA and s.118, whereby the Court may make an order for costs if there are justifying circumstances.

2. Subsection (2A) provides:

   (2) 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 proceedings 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.

3. In Penfold& Penfold[2] the High Court (per Stephen, Mason, Aicken, and Wilson JJ) held that s.117(1) is not paramount to s.117(2). Their Honours said:

   Sub-section (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order.  Beyond this, there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs.  Consequently, with respect to their Honours in the Family Court, we do not agree with the suggestion made in the judgment under appeal that an order can only be made under s.117(2) in “a clear case”. 

   [2] (1980) 144 CLR 311

4. The consideration of the factors under s.117(2A) is a mandatory one, although the weight to be afforded any of the considerations is wholly discretionary and hence the Court has a wide discretion when considering an application for costs.

5. The authorities have historically held that a Court should not readily depart from the ordinary rules relating to costs between party and party and that circumstance justifying the departure “should be of an exceptional kind”, indemnity costs being “still an exception in this and other jurisdictions”.[3] The Full Court in Prantage& Prantage[4] confirmed that the “usual order” as to costs on a party/party basis applies. 

   [3] Munday&Bowman (1997) 22 Fam LR 321 at [84,661]

   [4] (2013) FLC 93-544

6. In Munday & Bowman the Court reviewed the relevant authorities and principles in relation to indemnity costs.  Holden CJ noted that whilst there is no doubt that the Court has the power to award costs on an indemnity basis, the decision in Kohan& Kohan[5] “did not give any indication of what might be regarded as exceptional circumstances”.  His Honour then turned to the leading Federal Court decision of Colgate-PalmoliveCompany and Anor & CussonsPty Limited[6] and noted the circumstances identified by the Court in that case where the exercise of the discretion to make an award of costs on an indemnity basis might be warranted:

   (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 …

   (b)making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud …

   (c)evidence of particular misconduct causing loss of time to the court and to other parties …

   (d)the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions …

   (e)an imprudent refusal of an offer to compromise.

   [5] (1993) FLC 92-340

   [6] (1993) 46 FCR 25

7. The above are examples only. In a later Full Court decision of Yunghanns & Yunghanns[7] their Honours commented that the category of circumstances which would satisfy an order for indemnity costs is not closed.  That Court said at [31]:

   It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed, and that it is a not a condition precedent to the exercise of the discretion that some collateral purpose or species of fraud be established against the party against whom such an order is sought.  All that is required is that the Court asked to exercise the discretion be satisfied that some “particular facts and circumstances of the case in question warrant the making of an order for the payment of costs other than on a party/party basis” …

   [7] [2000] FamCA 681

8. The Full Court in JEL & DDF (No 2)[8] per Kay, Holden and Guest JJ noted that the category of cases in which it would be appropriate to make an order for indemnity costs does not appear to be fully defined but held that the failure to accept an offer to compromise was, alone, insufficient to justify the making of a costs order on an indemnity basis. Their Honours stated:

   In our opinion, the failure to accept an offer which, in retrospect, perhaps, should have been accepted is, without more, insufficient to justify the making of a costs order on an indemnity basis.  The rejection of the offer must be, at the very least, imprudent.  We express no opinion as to when the rejection of an offer may be so classified …

   [8] (2001) FLC 93-075

9. It is not controversial that it is open for me to consider and make orders of and incidental to the first trial in this matter although it was her Honour who had carriage.[9]  This is so despite the obvious difficulties confronting a Judge in not being the determiner of disputed fact and credit at the trial. Counsel agree, however, that it is proper that I have regard to her Honour’s reasons in respect of both the substantive and costs matters, as well as their Honours’ reasons on the appeal.

   [9] Gould & Gould [2010] FamCAFC 197

First Judgment

1. Her Honour considered the application for costs and made an award on a party/party basis in favour of the applicant.  At [48] her Honour says:

   I am not satisfied that the circumstances are exceptional to justify indemnity costs.  I am also not satisfied that the respondent should pay the applicant’s costs for the whole of the proceedings.  It is reasonable for there to be some allowance for negotiations and exchange of documents early in all proceedings.

2. Her Honour determined an award of $38,428 with reference to schedule 1 of the Federal Circuit Court Rules 2001.

3. In her reasoning her Honour noted the appellant’s offer of a 65/35 distribution of net property and also that such an offer was premised on the applicant’s version of the property pool. Further, her Honour considered the conduct of the respondent relevant to the making of a costs order and at [44] says:

   I am satisfied that there are circumstances in this case to justify an order for costs.  My reasons for this are primary (sic) based on the respondent’s conduct during the proceedings and hear (sic) non-disclosure.

4. At [32] those findings included the respondent:

   …burning and altering documents, harassing the applicant’s mother and Ms S, interfering with the valuation of the (omitted) properties and deliberately failing to comply with her obligations to provide full and frank disclosure, despite several orders requiring her to do so.

5. The Full Court’s reasons in remitting the matter for rehearing suggest their Honours concentrated on one of the 10 grounds of appeal, being a challenge to her Honour’s finding that the real properties in (country omitted) formed part of the property pool where, as I understand it, title was held by third parties.  Such a finding added $353,488 to the value of the pool and her Honour had attributed these properties to the respondent’s entitlement. 

6. The applicant before me now argues primarily that he should receive his costs of and incidental to the first trial on an indemnity basis. The applicant says that the respondent’s obfuscations and lack of full disclosure left her Honour unable to make an accurate finding as to the respondent’s financial position.  However, I am now apprised of the parties’ financial circumstances generally and I am satisfied that each would be in a position to satisfy any costs order.  Specifically, the respondent has, on my findings, an income, property and resources, including, by reasons of my judgment, a substantial cash adjustment from Mr Midden.  The applicant is self-employed and has substantial property interests, albeit carrying encumbrances.  He is, of course, obliged to settle a cash sum on the respondent.

7. Neither party is in receipt of a grant of legal aid.

8. The respondent’s conduct was obviously relevant to her Honour’s decision to award costs. These findings of fact were not disturbed by the Full Court. I respectfully agree with her Honour that the nature, degree and context of the respondent’s behaviour are all relevant considerations.  However, contrary to the submissions of Counsel for the applicant, the relevance, as I have said, rests with the applicant’s failure to make adequate disclosure and her Honour’s findings as to the destruction of documents and the provision of material which was selective and misleading.  Notably, her Honour made findings that the respondent had failed to comply with discrete interlocutory orders as to disclosure. I see no reason to disturb her Honour’s credit findings in these respects.

9. The applicant argues that he was obliged to bring interlocutory applications because of the respondent’s failure to comply with the Court orders. I accept, on the material before me, including the comprehensive affidavit of the applicant’s solicitor, Kris Norrington, that this was indeed the case.

10. The content of the property pool has been in dispute throughout this matter and including at both trials.  As such, it is a difficult exercise to determine whether a party has been “wholly unsuccessful” in the proceedings.  In a simplistic sense, it seems that at the first trial the respondent was seeking an award which was far greater than she ultimately received at either trial.  Regardless, the determination at the first trial was set aside by the Full Court, although on a discrete issue as to the inclusions in the property pool.

11. Offers of settlement were made by the applicant prior to the first trial.  Again, however, such offers appeared to have been premised on his version of the property pool, including at times, the quarantining of assets which were ultimately included in the pool. The respondent does not appear to have made any calderbank offers but did regularly amend her position by way of amended response.

12. In respect of the first trial, I cannot be satisfied that the applicant proffered any offer which, in its full and proper terms, was above the award ultimately made by her Honour.

13. The ultimate basis for the Full Court in upholding the appeal was in respect of her Honour’s inclusion of the (country omitted) properties as “assets” in the pool.  Significantly, and I think it is now conceded, the applicant at no time mounted such an argument.  To the contrary, he argued only that those properties be considered as “resources” in the hands of the respondent.  As such, the applicant did not contribute to the error of law resulting in the remitted hearing. 

14. On consideration, I am persuaded that there should be an order for costs in favour of the applicant in respect of the first trial.  Like her Honour, I am of the view that emphasis should be placed on the conduct of the respondent in the litigation.  I accept her Honour’s finding as to non-disclosure and destruction of documents by the applicant together with the provision of selective and misleading evidence.  This, of course, is but one of the factors to be weighed against all of the considerations under s.117(2A) of the Act.  However, non-compliance with Court Orders and general obligations of disclosure are important and such provisions exist to streamline trials, hence non-compliance would ordinarily and reasonably be assumed to complicate and lengthen a trial and to add expense.  Credit findings accordingly assume real importance. 

15. Costs awards should be made not as punitive orders but rather as compensatory provisions.  I note that s.117(2A)(c) itself contemplates the (poor) conduct of a party as a proper consideration in the making of a costs order.  The usual order is for costs on a party/party basis.  As such, normal logic suggests that the mere failure to make a discovery and/or failure to comply with previous Court Orders[10] do not themselves elevate an award to one of indemnity costs. There must be circumstances of an exceptional kind.  Frankly, I am not satisfied that such exceptional circumstances exist here.  As such, I am of the view that the applicant should have his costs of and incidental to the first trial but on a party/party basis. 

    [10] Family Law Act 1975 (Cth) at s.117(2A)(d)

16. On reflection, I prefer that such costs be “as agreed or as taxed/assessed”.  There seems to have been some subjectivity to her Honour’s calculations of costs at $38,428.00 and the reasoning is not immediately apparent to me.  It would, in my view, be consequently improper for my independent exercise to simply allocate her Honour’s quantum. 

Costs of the Second Trial

1. The parties’ financial circumstances remain such that each would have the capacity to meet a costs order. 

2. Each of the parties has had the benefit of $4,000 from the order of the Full Court in remitting the matter for trial. 

3. Neither party is in receipt of a grant of Legal Aid. 

4. I too made findings contrary to the respondent in respect of her disclosure of documents and as to credit in respect of her evidence.  This is one factor to be weighed against all others and does not itself automatically lead to a costs order.  Nevertheless, the concessions of the respondent’s Counsel in both written and oral submissions are, in my view, accurate and appropriate.  Whilst it is true that failure to disclose might lead a Court to “less caution” in making findings favourable to the other party,[11] it remains that the mere fact of a failure to make proper discovery or disclosure would reasonably lead to an expectation of a more lengthy and complex trial and make the forensic exercise more expensive for the other party. 

   [11] Wier & Wier (1993) FLC 92-338

1. I made clear and unambiguous findings of fact and credit in respect of the respondent’s conduct in the second trial before me and it is proper that [55-57] of my reasons be transcribed into these reasons as follows:

   [55] I generally found the respondent to be an unimpressive and unsatisfactory witness and not always a witness of the truth in its fullest sense. 

   [56]  Issues of disclosure feature prominently here.  The first respondent is accused of destroying and doctoring documents relevant to these proceedings and which by implication do not assist her case.  The applicant’s affidavit sets out the efforts made by his legal representatives and the plethora of interlocutory procedure and orders undertaken to obtain disclosure from the applicant.  That evidence was not substantially challenged. Ms Galloway has historically engaged in a complex web of family trusts and companies and such disclosure is relevant.  I am satisfied on the balance of probabilities that the first respondent has avoided making disclosure where such disclosure might harm her case or assist the applicant’s case and such that has been made has occurred only at the last moment including during her cross-examination before me in what was, of course, the second trial of these issues, and certainly not in a voluntary fashion.  A partly burned and retrieved document was tendered in evidence before me.  Frankly, the first respondent’s claim that she habitually burned aged or irrelevant documents was unconvincing and I prefer, on the balance of probabilities that she has entered into a deliberate course of burning or disposing of relevant documents for the direct purpose of destroying evidence that is not supportive of her case in this court. Similarly, I find that the first respondent’s affidavit material is selective, misleading and often not representative of her true position.  For example, it was only in Ms Galloway’s cross-examination before me at the end of this trial that she disclosed the full extent and nature of her interest in (omitted) Pty Ltd and the income, both actual and potential, of that company and business.  Similarly, her affidavit evidence in respect of her alleged contributions of shares from an uncle was far removed from the picture that eventuated from her cross-examination.

   [57]  I am satisfied generally that the first respondent has avoided her obligations as to disclosure and specifically and deliberately avoided compliance with informal requests, court orders and notices to produce. 

2. The parties agree that the respondent fared better at the second trial than at the first before her Honour.  She did not, however, achieve the orders sought in her response but received an award better than that argued by the applicant.  As such, neither party could be seen as wholly successful or unsuccessful in the proceedings before me. 

3. Offers of settlement did not feature in the trial before me. 

4. On consideration, I have concluded that the respondent’s conduct in respect of disclosure/discovery in the trial before me is of such significance and culpability that it would influence the making of a costs order against her. 

5. I am mindful of not subjecting the respondent to “double jeopardy” in respect of her Honour’s findings and my consequent costs order in respect of the first trial.  Nevertheless, the respondent was represented in the trial before me as indeed she was before her Honour.  Rather than subject the respondent to “double jeopardy” I am of the view that my findings as to her credit are, in fact, compounded by her having had the benefit of her Honour’s reasons at the first trial and yet not making full disclosure in the trial before me.  That is, I am of the view that the respondent’s behaviour continued despite her Honour’s findings and as such, aggravated accordingly. 

6. Nevertheless, this is not a situation where the trial before me was likely to have been avoided if the respondent had been compliant with her obligations as to disclosure.  These parties argued many and often complex points.  Neither could be said to have been totally successful on all points argued.  As such, I am of the view that the respondent should be responsible for only a proportion of the applicant’s costs and again, with reference to her conduct in respect of disclosure and discovery but without diminishing the effect of my findings as to the culpability of the respondent in these respects.  Such, I am of the view that the respondent should pay 20 per cent of the applicant’s costs of and incidental to the second trial on a party/party basis.  Again, s.117(2A)(c) of the Act contemplates costs orders in respect of culpable conduct and presumably on a party/party basis.  Again, I am not persuaded that there are extraordinary circumstances such that the costs order should be on an indemnity basis.  I am of the view that the award for costs should be quantified by agreement or taxation/assessment. Such amount should be reduced however to account for the amount of $4,000 certificate for costs as ordered by the Full Court.

Costs of the Costs Applications

1. My findings as to the relevant subsections are set out above.  Specifically, neither party has been wholly successful or unsuccessful in the discrete arguments as to costs.  There is no evidence before me of offers of settlement.  I am of the view that the general rule should therefore apply that each party meet his and her costs of the costs applications. 

I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Judge McGuire

Date: 20 November 2015