Munayallan & Ors and I Pty Ltd & Anor

[2019] FamCA 765

FAMILY COURT OF AUSTRALIA

MUNAYALLAN AND ORS & I PTY LTD AND ANOR [2019] FamCA 765

FAMILY LAW – COSTS – Circumstances justifying order – Where the wife and third party seek costs arising out of an unsuccessful application by the company – Where the court found that the company was the alter ego of the husband – Where the company was seeking effectively the same relief that it was pursuing in a civil claim in the Supreme Court – Where the court found that the application was an abuse of process – Orders.

Family Law Act 1975 (Cth) s 117(2A)
Family Law Rules2004 (Cth) rr 19.08(1), 19.08(3), 19.18(1), 19.18(3)

Kohan & Kohan (1993) FLC 92-340
Prantage & Prantage (2013) FLC 93-544
Re Wilcox; Ex-parte Venture Industries Pty Ltd and Ors (No 2) (1996) 72 FCR 151
Sanderson v Blyth Theatre Company (1903) 2 KB 533
Simmons v Rockdale City Council (No 2) (2014) NSWSC 1275

1st APPLICANT: Ms Munayallan

2nd APPLICANT: Mr Phong and Ms Phong

1st RESPONDENT: I Pty Ltd

2nd RESPONDENT: Mr Scott

FILE NUMBER: SYC 59 of 2010

DATE DELIVERED: 23 October 2019

PLACE DELIVERED: Adelaide

PLACE HEARD: Adelaide

JUDGMENT OF: Berman J

HEARING DATE: 2 August 2019

REPRESENTATION

COUNSEL FOR THE 1ST APPLICANT: No appearance

SOLICITOR FOR THE 1ST APPLICANT: No appearance

COUNSEL FOR THE 2ND APPLICANT: No appearance

SOLICITOR FOR THE 2ND APPLICANT: No appearance

COUNSEL FOR THE 1ST RESPONDENT: No appearance

SOLICITOR FOR THE 1ST RESPONDENT: No appearance

COUNSEL FOR THE 2ND RESPONDENT: No appearance

SOLICITOR FOR THE 2ND RESPONDENT: No appearance

Orders

1. That I Pty Ltd and Mr Scott be jointly and severally liable for the costs of Ms Munayallan (“the wife”) and Mr Phong and Ms Phong as follows:-

   (a)The sum of FOUR THOUSAND EIGHT HUNDRED DOLLARS ($4,800) to be paid to the wife by 4.00 pm on 18 December 2019;

   (b)Such sum as may be agreed or in default of agreement as may be determined on a taxation of the costs of Mr and Ms Phong calculated on an indemnity costs basis within sixty (60) days of the taxation determination.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: SYC 59 of 2010

Ms Munayallan

First Applicant

And

Mr Phong and Ms Phong

Second Applicant

I Pty Ltd

First Respondent

And

Mr Scott
Second Respondent

REASONS FOR JUDGMENT

Introduction

1. On 18 June 2019 orders were made dismissing an Application in a Case filed 22 August 2018 by I Pty Ltd (“I Pty Ltd”) that sought orders against Mr Scott (“the husband”) and Mr Phong and Ms Phong (“Mr and Ms Phong”) relating to a property at J Street, Suburb E (“the Suburb E property”).

2. In particular, in its Application in a Case filed 22 August 2018 I Pty Ltd sought declarations that it held an equitable interest in the Suburb E property, that Mr and Ms Phong hold the Suburb E property on trust for I Pty Ltd and that the transfer to them be set aside.

3. If the transfer of the Suburb E property to Mr and Ms Phong was not set aside then I Pty Ltd sought a declaration that the proceeds of sale currently held in a Supreme Court of New South Wales Fund be paid to them.

4. The application by I Pty Ltd should be seen in the broader context of proceedings between the husband and Ms Munayallan (“the wife”) for settlement of property.

5. By their Response filed 8 November 2018 Mr and Ms Phong sought that the application by I Pty Ltd be dismissed as “an abuse of process, frivolous or vexatious”.

6. The proceedings for settlement of property together with the application by I Pty Ltd was listed for hearing before me on 17 June 2019.

7. On 18 June 2019 orders were made dismissing the application of I Pty Ltd. Reasons were delivered on 2 August 2019.

8. Applications for costs were made on behalf of Mr and Ms Phong and the wife on 18 June 2019. Upon the delivery of written reasons on 2 August 2019 it was ordered that submissions on the question of costs be filed within 28 days.

9. The gravamen of the judgment was that the Supreme Court of New South Wales was seized of the dispute between I Pty Ltd and Mr and Ms Phong and that their application for joinder in the Family Court proceedings was effectively the same relief as sought by the husband in the Supreme Court proceedings.

10. I found that I Pty Ltd stood in the background of the Supreme Court proceedings and chose not to intervene. They were therefore not able to argue that because they were not a party in the Supreme Court proceedings they should be able to be joined as a party to the Family Court proceedings.

11. Moreover, I found that I Pty Ltd was at all material times the alter ego of the husband and as such, the application by I Pty Ltd was an abuse of process.

The parties applications for costs

1. Pursuant to r 19.08(1) of the Family Law Rules 2004 (Cth) (“the Rules”), the wife and Mr and Ms Phong have applied for an order that the husband and I Pty Ltd pay their costs.

2. They each seek an order that costs be paid on an indemnity basis.

3. The method of calculation of costs is referred to in r 19.18(1) of the Rules:-

   The court may order that a party is entitled to costs:

   (a)of a specific amount;

   (b)as assessed on a particular basis (eg lawyer and client, party/party or indemnity);

   (c)to be calculated in accordance with the method stated in the order; or

   (d)for part of the case, or part of an amount, assessed in accordance with Schedule 3.

4. Rule 19.18(3) provides that in making an order under sub-rule (1), the Court may consider:-

   (a)the importance, complexity or difficulty of the issues;

   (b)the reasonableness of each party’s behaviour in the case;

   (c)the rates ordinarily payable to lawyers in comparable cases;

   (d)whether a lawyer’s conduct has been improper or unreasonable;

   (e)the time properly spent on the case, or in complying with pre-action procedures; and

   (f)expenses properly paid or payable.

5. In considering what orders should be made, if any, in respect of costs claimed, s 117(2A) of the Family Law Act 1975 (Cth) (“the Act”) requires the Court to have regard to the following:-

   (a)the financial circumstances of each of the parties to the proceedings;

   (b)whether any parties 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 fact, 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 any 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.

Should an order for costs be made in favour of the wife?

1. The wife seeks an order that her costs be paid on an indemnity basis.

2. She seeks indemnity costs in the amount of $4,800.

3. The financial circumstances of the wife are well known to the Court by reference to a financial statement filed together with her trial affidavit.

4. The wife’s position is qualitatively different to that of Mr and Ms Phong.

5. The application by I Pty Ltd did not seek orders against the wife other than the bald assertion that the wife had formed an alliance with Mr and Ms Phong to thwart the declarations sought by I Pty Ltd which would result in the transfer of the Suburb E property to I Pty Ltd or the husband.

6. The wife was required to participate in the hearing but concedes that the principal focus of the application was directed to Mr and Ms Phong.

7. The husband did not file any documents which would assist in determining his financial position and circumstances.

8. The wife contends that the Court should find that I Pty Ltd’s application was a “stalking horse” for the husband.

9. The wife also considers that the husband’s conduct of the application by I Pty Ltd was malicious or vexatious.

10. Rule 19.08(3) provides:-

    A party applying for an order for costs on an indemnity basis must inform the court if the party is bound by a costs agreement in relation to those costs and, if so, the terms of the costs agreement.

11. The wife does not seek solicitor costs as she engaged counsel on a direct brief. Counsel’s costs in relation to the application were $400 per hour for six hours per day over two days. She therefore seeks $4,800 in indemnity costs.

12. The explanatory guide to the Rules has been accepted by the Court as an accurate definition of “indemnity basis”; namely:-

    An entitlement to costs, including costs under a costs agreement, for all costs incurred, other than costs that are unreasonable in amount or that have been incurred unreasonably.

13. The discussion of the Full Court in Prantage & Prantage (2013) FLC 93-544 is of assistance in determining whether and in what circumstances an order for indemnity costs should be made. The Full Court referred extensively to the decision of Kohan & Kohan (1993) FLC 92-340 in which it was noted that whilst there was nothing in the Act which in any way “inhibits” a consideration of indemnity costs, the following is said in Kohan at 79,605:-

    …it is fundamental to the exercise of the discretion in the Family Court that the Judge should not only understand that such an order is a very great departure from the normal standard, but also that the Judge should know what the terms of the agreement are, to what extent it exceeds the parameters set by the scale and what its likely impact will be on the financial position of each of the parties. This impact is a relevant matter to which the trial Judge should have had regard, when considering the financial circumstances of each of the parties to the proceedings under s 117(2A)(a), or perhaps even more as a relevant matter under paragraph (g). The degree to which a costs agreement departs from the established norm and the actual financial significance of such a departure may itself be a reason for not ordering costs on an indemnity basis.

14. In Re Wilcox; Ex-parte Venture Industries Pty Ltd and Ors (No 2) (1996) 72 FCR 151, Cooper and Merkel JJ said at 156:-

    The issue whether costs should be ordered on a party and party basis or on an indemnity basis has acquired increasingly greater significance as the gap between the two bases appears to have grown.

    The gap has highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur. These and other policy factors have been considered by the courts over a very long period in order to arrive at the principles which govern the undoubted discretion of the court to depart from ordering costs on a party and party basis and ordering costs on an indemnity basis. The principles were stated by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 43 FCR 225.

15. In Prantage (supra) the Full Court said at 87,209:-

    97.In our view, once it is recognised that ensuring access to justice is one of the key objectives of the “usual rule”, the claimed increasing disparity between scale costs and those being charged by lawyers becomes as much an argument against the awarding of indemnity costs as it is in favour of costs being ordered on that basis.

    98.With respect to the trial Judge, we are not convinced that there is a great deal of difference between current “commercial realities” and those prevailing at the time Kohan was decided. It should be noted that the costs agreement in Kohan provided for a rate of payment three times in excess of the scale. However, even if there have been changes in the market place for legal services, we are not persuaded that this should have any impact on the application of the “usual rule”, which seeks to balance competing public policy considerations.

16. The wife contends that costs should be determined on an indemnity basis for the following reasons:-

    ·The husband made allegations which ought never to have been made and prolonged the proceedings with groundless contentions.

    ·The husband and I Pty Ltd commenced or continued the application in circumstances where there was demonstrably no chance of success.

Should an order for costs be made in favour of Mr and Ms Phong?

1. It is argued that I Pty Ltd’s course of action was as between parties unrelated to the Family Court proceedings. The dispute with Mr and Ms Phong has a long history in the Supreme Court. The Rules of the Supreme Court of New South Wales provide that costs would ordinarily follow the event.

2. If I Pty Ltd’s claim was heard in the Supreme Court and was dismissed then costs would inevitably follow the event. There should be no difference in the application of the common or usual cost principles in the Family Court in circumstances where there was no utility to the application by I Pty Ltd given the finding that the orders being sought by I Pty Ltd were the same as orders sought by the husband and now I Pty Ltd in the Supreme Court.

3. The finding that I Pty Ltd had engaged in an abuse of process should be considered as sufficient justification for the making of a costs order initially against I Pty Ltd, but indemnified by the husband.

Conclusion as to costs

1. The wife is a party to the proceedings and there is some knowledge of her financial circumstances. They are modest and by reference to the orders sought by the husband, he limits the extent of her entitlement to about 10 per cent of the pool.

2. Mr and Ms Phong are not parties to the proceedings and accordingly their financial circumstance is not a relevant consideration.

3. It is argued that in any event, the financial circumstances of Mr and Ms Phong are finite or limited. I accept that submission. It is a relevant consideration that on 29 March 2019 I Pty Ltd paid $100,000 into the Supreme Court of New South Wales as security in respect of Mr and Ms Phong’s costs of the Supreme Court proceedings.

4. The conduct of I Pty Ltd and by necessary implication that of the husband given the Court’s finding that I Pty Ltd was his alter ego was such that it constituted an abuse of process.

5. I Pty Ltd has been wholly unsuccessful in the proceedings. Its application has been struck out.

6. I Pty Ltd had not made any offer in writing, nor did it promote opposition in writing or by submission to refute the claim that the attempted joinder of Mr and Ms Phong to the Family Court proceedings was not an abuse of process.

7. I Pty Ltd did not tender any evidence contrary to the submission by Mr and Ms Phong that I Pty Ltd’s conduct was an abuse of process.

Quantum

1. I consider that the costs of the wife and Mr and Ms Phong should be assessed on an indemnity basis.

2. The quantum of costs sought on behalf of the wife in the sum of $4,800 is reasonable in all the circumstances.

3. The costs sought on behalf of Mr and Ms Phong have not been quantified and accordingly an order will be made that their costs be agreed or determined by a taxation of costs on an indemnity basis.

Should the husband be responsible for the payment of the costs orders?

1. The Court found that I Pty Ltd was the alter ego of the husband. The husband’s conduct during the course of the proceedings left no doubt that at all material times he controlled I Pty Ltd and determined its conduct and actions.

2. Rule 19.08(1) of the Rules confirms that a party may apply to the Court for an order that another person pay costs.

3. In Simmons v Rockdale City Council (No 2) (2014) NSWSC 1275 Hall J said at [70]:-

   It is well established that a Bullock or Sanderson order should only be made where, in the circumstances, it was reasonable and proper for the plaintiff to join the successful defendant and where there is something in the conduct of the unsuccessful defendant that makes it appropriate to exercise the discretion.

4. A “Sanderson Order” arises from the English decision of Sanderson v Blyth Theatre Company (1903) 2 KB 533. This order directs that an unsuccessful respondent pay the successful respondent’s costs.

5. The relevant consideration must always be determined pursuant to s 117(2A).

6. There is sufficient nexus between I Pty Ltd and the husband.

7. It was not reasonable for I Pty Ltd to have commenced proceedings to join Mr and Ms Phong to the Family Court proceedings. In circumstances where that decision was at all material times made by the husband, I consider that the husband has conducted himself in an unsatisfactory manner and together with the significant exacerbation of the proceedings by I Pty Ltd and the husband, I find that I Pty Ltd and the husband should be jointly and severally liable for the costs of Mr and Ms Phong and the wife.

Conclusion

1. I make orders as appear at the commencement of these reasons.

I certify that the preceding fifty-three (53) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 23 October 2019.

Associate:

Date: 23 October 2019