Naiman & Naiman
[2021] FedCFamC2F 638
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Naiman & Naiman [2021] FedCFamC2F 638
File number(s): SYC 6945 of 2018 Judgment of: JUDGE B SMITH Date of judgment: 2 December 2021 Catchwords: FAMILY LAW – Property – costs – subpoena on family trust controlled by wife’s parents by husband – objection by trust – objection entirely unsuccessful – a party properly advised should have known that they had no chance of success – indemnity costs awarded – Compliance costs payable by husband to family trust for compliance – Wife’s costs. Legislation: Evidence Act 1995 (Cth), s.140
Family Law Act 1975, Part.VIIIAB, ss.75(2), 117
Cases cited: Clements and Clements [2019] FamCA 585
Colgate Palmolive v Cussons (1993) 118 ALR 248
Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49; [1999] HCA 67
Hall v Hall (2016) 257 CLR 490; [2016] HCA 23
Kohan & Kohan [1992] FamCA 116; (1992) 16 Fam LR 245
Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66
Markoska v Markoska (Costs) [2011] FamCA 833Munday v Bowman (1997) 22 FamLR 321
Division: Division 2 Family Law Number of paragraphs: 39 Date of hearing: 6 October 2020 Place: Sydney Counsel for the Applicant: Ms Coulton Solicitor for the Applicant: O’Sullivan Legal Counsel for the Respondent: Mr Blackah Solicitor for the Respondent: Atkinson Vinden Solicitor for the Independent Children's Lawyer: Legal Aid NSW Counsel for the Other: Ms Reid Solicitor for the Other: Lander & Rogers ORDERS
SYC 6945 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MR NAIMAN
Applicant
AND: MS NAIMAN
Respondent
AND:
AND:
INDEPENDENT CHILDREN'S LAWYER
K LIMITED
Other
ORDER MADE BY:
JUDGE B SMITH
DATE OF ORDER:
2 DECEMBER 2021
THE COURT ORDERS THAT:
1.Within 90 days K Ltd, acting as trustee of the K Trust, pay the Applicant the sum of $25,000.00 in respect of his costs.
2.Within 90 days the Applicant pay to K Ltd, acting as trustee of the K Trust, the sum of NZD$2,600.00 in respect of their compliance costs.
3.Within 90 days the Applicant pay to the Respondent the sum of $660.00 in respect of her costs.
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 a pseudonym Naiman & Naiman has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE B SMITH:
INTRODUCTION
These are oral reasons for decision in relation to competing applications for costs, and an application for compliance costs, in respect of a subpoena issued by the applicant husband in these proceedings on 12 May 2020 on a company, K Limited, acting as trustee of the K Trust, who I will refer to as “the Trust”. I refer to my oral judgment.
The proceedings in which the subpoena arose are proceedings in the Family Law list between the applicant husband (“the husband”) and the respondent wife (“the wife”). They are property proceedings, or include property proceedings.
The Trust is a family trust set up by Mr B and Ms C, who are the wife’s parents.
The trust filed a notice of objection on 27 May 2020 and an affidavit of Mr B, the wife’s father, who is a director of the Trust. That affidavit was filed on 5 August 2020. The affidavit establishes that the Trust holds very substantial assets in the millions of dollars. The trust had made substantial financial advances to the parties, estimated at more than a million dollars. I note paragraph 29 of Mr B’s affidavit. The trust and the wife asserted that these were repayable loans. The trust’s solicitors, as identified in Mr B’s affidavit at the time, were Lander & Rogers, a firm that undertakes family law work and is well known in the family law jurisdiction. I note that because it is relevant in respect of certain submissions made on behalf of the Trust, considered later.
The matter was listed on 17 August 2020. The husband served a court book on 15 August 2020. That gave rise to an adjournment. I note that I have gone back over the matter. It does appear that the husband agreed to rely only on the material the Trust had served, or had had served on it, but nevertheless, the Trust sought and was granted an adjournment to consider all the material, and on that basis and it was stood over to October 2020. On 11 September 2020, the Trust amended its position agreeing to access to the relevant financial materials and statements but sought the redaction, in effect, of the names of entities in which the Trust invested, and restraints on the husband copying the financial statements.
The matter came on in early October. I heard the remaining objection, and I dismissed the notice of objection. I will not restate my reasons. There has been no appeal from them. There was a clear prima facie case that the Trust was an entity which the wife might have as a financial resource. I note the recent High Court authority about trusts and financial resources (Hall v Hall (2016) 257 CLR 490; [2016] HCA 23). I note that I referred to the principles in both Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 and Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49; [1999] HCA 67, which set a very low threshold for relevance, and that it can involve a chain of inquiry. It does not need to have documents produced or likely to be produced which are admissible. As I have said, there was no appeal from my decision. The husband’s application for costs against the Trust falls to be determined on that basis.
The Trust seeks that the husband’s application for costs be dismissed, even though the Trust was entirely unsuccessful, and further that the husband in turn pay their costs thrown away for the adjournment.
There is also an issue as to the appropriate conduct money to be paid for the Trust’s production of documents, and the wife’s costs of the adjournment are also in issue.
The husband filed submissions on 14 October 2020 with attached documents. The trust filed submissions dated 20 October 2020, and the wife filed submissions on 21 October 2020.
I apologise for the delay in delivering this decision, which has been brought about in part, but not entirely, by the overwhelming volume of urgent parenting matters the Court has had to deal with as a consequence of the COVID-19 pandemic, noting child welfare issues take priority.
All parties made costs submissions by reference to section 117 of the Family Law Act 1975 (Cth) (“the Act”).
The Husband seeks indemnity costs, or otherwise costs on another basis. The husband’s costs on an indemnity basis were identified at $33,016.54, as per the invoices included in the bundle in the application. I will come back to that because, as raised by the Trust, there do seem to be things in there which cannot relate to this subpoena matter as the ICL does not have any involvement in it, and secondly, there are some matters raised there which it is not clear to me would necessarily relate to this subpoena.
The essence of the husband’s submissions were that: the Trust has very substantial assets in terms of their financial capacity: he says he has a small weekly deficit of expenses over income; and, the Trust’s position was unreasonable so that the hearings of both 17 August and 6 October or 7 October could have been avoided.
The husband submitted that:
The trust knew or should have known the subpoena was not tantamount to fishing, and the documents were potentially relevant to the proceedings.
In written submissions the Trust quite appropriately made the concession that it was in a superior financial position to that of the husband.
Now, the Trust’s written submissions included the statement that 14 August 2020 was the first time the husband’s solicitors asserted in a letter to K’s solicitors that the Trust was a financial resource of the wife. This was said in paragraph 11 of the Trust’s submissions to be a significant factor that militates against costs being ordered.
It was suggested that the husband’s affidavit in support of leave to issue the subpoena referred only to the loan, noting that leave was required as the Trust is in New Zealand, and no reference was made to the Trust being a financial resource.
The effect of that submission is that the Trust and its’ legal representatives were not, or should not be taken to have been, in a position to determine for themselves that the documents were relevant not only as to the question of whether or not there was a loan or a gift, which was a proper a basis for the subpoena, but that it was the husband’s obligation to explain to them that where a trust of this magnitude exists and has previously made either gifts or loans to parties, that it is likely to be a fact in issue and a relevant consideration as to whether or not in future that trust is likely to make further gifts and/or loans to a party.
Now, I reject that submission on a number of bases.
First, as I indicated, the Trust was represented by very experienced family lawyers, and it seems to me that no one who has practised in this jurisdiction more than fleetingly could not have known that where there was a trust of this kind, the question of whether it is a financial resource must be in issue. Clearly, if the Trust of this very large magnitude has been willing to make gifts or loans to the parties, then the question of whether it will be willing to make gifts or loans to the wife after they have separated must be in issue. I also note – although it is not necessary to decide this, and it is not the basis of my decision – that even if the Trust was not represented by experienced family lawyers, who must be taken to have known that it was almost certain to be in issue, if someone wishes to object on the basis of relevance, it is up to their lawyers to consider the possible basis of relevance, and I do not consider it was incumbent on the husband to point out the potential relevance. But as I have said, it strikes me as an untenable position to suggest that the very experienced family lawyers acting for the Trust would not, or should not, have known that the question of the potential issue in the proceedings of the Trust as financial resource was going to come.
Now, as I said, consistent with my decision which was not appealed, I do not consider that any properly advised person in the position of the Trust could have maintained the position that the Trust maintained, nor could they have had any doubt as to the relevance of the subpoena. To the extent to which they wanted commercial confidence or they wanted certain things excluded on the basis that the husband worked for one of the largest financial organisations in the region, I dismissed that again as being unreasonable. There is no possibility, as I stated at the time, that even though the sums involved for the Trust are very substantial for a family trust, compared to the billions of dollars of investment decisions being made by a major bank, it could not possibly have an influence, particularly since they were past investments.
The husband has submitted, and the Trust conceded, that the Trust was wholly unsuccessful and the husband wholly successful. That was an appropriate concession. The Trust submitted that this was not enough to justify an order for costs, citing Benjamin J in Clements and Clements [2019] FamCA 585, and that is correct. However, the cited case seems to go more to the fact that were there is an arguable case the fact that you lose the argument does not, in this jurisdiction, necessarily justify costs. The difficulty is that I do not think the Trust ever had an arguable case.
The husband made an offer by letter dated 14 August 2020 and 7 September 2020. There was a variety of correspondence.
The Trust sought the costs of the adjournment based on the late service of the court book. Having thought about that and how it should be dealt with, I will take it into account. I note the husband was willing to proceed only on the basis of material served, but then again, having extra material served, the Trust might reasonably have wanted to look at that, so I take that into account.
The Trust relies upon the fact that it is not a party to proceedings and does not seek to be joined, but that is the usual position of a party who receives a subpoena. They had the option of complying with the subpoena and seeking their costs of compliance, or of objecting to it. If a third party objects to a subpoena, they must do so for properly grounded legal reasons. If they choose to object without a proper legal basis, it is no answer to an application for costs against them to rely upon the fact that they were a third party to the proceedings.
I note in particular the statement of principle from Kohan & Kohan [1992] FamCA 116; (1992) 16 Fam LR 245 that:
The intent of s117(1) and 117(2) is that in this jurisdiction costs should not follow the event as a matter of course. However, where the justice of the matter so requires, the Court may make such order as the Court considers just. As we have pointed out, the Court may depart from the scale of costs prescribed under the rules. However, the purpose of fixing a scale of costs must be understood to signify that they contain the normal rates of charges. By O. 38 r. 2, the provisions of O. 38 apply to costs ordered to be paid or taxed, and costs payable or to be taxed between solicitor and client. O. 38 r. 7 makes provision for the allowance of additional amounts for complexity, difficulty or novelty and special skill, knowledge or responsibility. Consequently, the Court should not depart lightly from the ordinary rules relating to costs between party and party and the circumstances justifying the departure should be of an exceptional kind. See Degmam v Wright (No. 2) (supra); Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534; Hobartville Stud v Union Insurance Co. (1991) 25 NSWLR at 368 to 370.
Indemnity costs orders are still an exception in this and other jurisdictions. …
I note the statement of principle from Justice Sheppard in Colgate Palmolive v Cussons (1993) 118 ALR 248 at [24]:
In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v Barnes (39 Ch D at 141) said the court had a general and discretionary power to award costs as between solicitor and client ′′as and when the justice of the case might so require”. Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston ([1982] 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo:′′the categories in which the discretion may be exercised are not closed”. Davies J expressed (at 6) similar views in Ragata.
These principles have long been adopted and accepted in this jurisdiction, see Munday v Bowman (1997) 22 FamLR 321 generally.
Now, that is not an exclusive list from Colgate Palmolive. It is always a question of weighing and balancing what has occurred. I note that, of course, a critical issue in this and other jurisdictions is that costs are not punitive. This is not about rewarding a successful party or punishing an unsuccessful party. The issue of costs relates to the question of an assessment of where the financial burden of the litigation should lie. The starting point is that in family law, each party should bear their own costs, i.e. the financial burden should lie with each party, but the authorities I have referred to make it clear that it is for the Court to look at the actual conduct of each party in each case, what has been litigated, how they have conducted themselves, where everything has ended up, and then taking into account all of those factors, determine who should bear the costs and on what basis, noting the statutory starting point.
One of the issues picked up from Colgate in Munday, is that:
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.
There was no issue of an ulterior motive, but it just seems to me that the Trusts’ position was always untenable, and I consider, as I found at the time, that the Trust’s objection was untenable. Where a party properly advised must have known they had no real chance of success, either on the original objection or on the narrowed objection, that must weigh on the question of who should bear the costs. I think this is a case, weighing all the factors, where it is appropriate that the Trust should pay the husband’s costs. I take into account the late service of the court book, and rather than making cross-costs orders, I will weigh that in the balance in determining what the appropriate costs are, and I weigh those slightly in the Trust’s favour.
I think that, rather than trying to send it off for an assessment, I know I have the power to assess costs, and one of the reasons for that is to avoid the matter needing to go to taxation, and I consider that to be an appropriate course here. The problem here is that we run the risk that the parties are going to spend as much between them doing the taxation as they on the subpoena hearing, and I do not think the interests of justice are served in that way.
In order to bring finality to the issue, and weighing all the factors I have been directed to, and noting that I have gone through my notes of the subpoena hearing to understand what was going on, I have also then looked at what I think an appropriate quantum would be, based upon my experience, not only in my years at the Bar but also sitting in this jurisdiction, and in seeing what was involved in the court books and the argument. The order I will make reflects the figure I think is appropriate.
The next issue is the Trust’s compliance costs. The trust provided notice of an estimated cost of $2600 New Zealand for compliance on 29 May 2020. The trust sought compliance costs of $1058 by way of accountancy fees and locating and collating the documents, and $1542 in respect of viewing, collating and providing relevant documents for production. That is $2600, basically, in New Zealand dollars. The husband submitted at [34] that because the Trust was a large commercial entity:
It is respectfully submitted that it is disingenuous to suggest that the financial statements for the Trust would not be readily available in order to be produced to the Court, and it is submitted that they would not need to be reviewed by the lawyers and collated again by them.
The husband cited the comments in Markoska v Markoska (Costs) [2011] FamCA 833, and on that basis the husband said the compliance costs should be $500. That may be New Zealand dollars, or possibly Australian dollars, I am not sure. With respect to the husband’s submissions, and noting what was said in Markoska, I do not think that follows.
It is a family trust. It is not like a major bank where they may have extra people who can easily do a bit of collating. Whilst the Trust have a lot of money, it is still a family trust. I do not think that the principles that apply to a subpoena on a commercial bank apply. I think it is entirely reasonable that they would have had their accountants collate the relevant documents to ensure that they were all produced, and it seems to me that just over NZ$1000 is a reasonable figure for having accountants do that. Similarly, as a commercial entity and a stranger to the proceedings, I think it is entirely reasonable that their legal representatives would be involved in production, again to make sure that they complied, and also to consider their legal rights. Now, the fact that I have not accepted their submissions as to their legal rights is a different issue, but weighing it up I think the compliance costs sought were reasonable.
If the parties wish to set that off, that is a matter for them. I do not think it is appropriate for me to make an order setting off costs.
The last question is the wife’s costs thrown away. The wife was entitled to be present, although she took no active part. She claims costs of $2440, which is based on eight hours work in preparation for the adjourned hearing, but I am just not sure how that was justified in terms of eight hours of preparing for a subpoena hearing when she said she was merely an interested onlooker. Also, as discussed, the matter might have proceeded on the first occasion which complicates matters.
The wife did not choose to go through the section 117 factors in her short written submissions. Given that she was merely an onlooker who took no active part in the subpoena hearing I cannot understand why there would have been eight hours preparation to look on. Given the hearings and the adjournment there would be some costs, but it seems to me that the more appropriate costs figure, weighing all of the relevant matters as best I can, would be something equal to about two hours, and that is $610. I think that is the appropriate figure. I will enter those orders.
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment of Judge B Smith. Associate:
Dated: 24 January 2022
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