National Australia Bank & H

[2007] FamCA 318

FAMILY COURT OF AUSTRALIA

NATIONAL AUSTRALIA BANK & H [2007] FamCA 318

FAMILY LAW - APPEAL – Costs – Third party – Settlement negotiations between husband and wife were dependent upon bank agreeing to an arrangement to allow the wife to receive some monies from the sale of a property held as collateral security and to be released from some guarantees – Bank joined as a party – When the matter settled in accordance with the bank’s long stated offers the  bank sought costs – Federal Magistrate considered that the bank’s financial position was vastly superior to that of the parties and refused to make an order – Court obliged to weigh up all relevant s117(2A) considerations not merely the financial disparity – The relevant matters that justified a costs order limited to $1500 in favour of the bank were:  

·    the bank had been joined as a party at the insistence of the Federal Magistrate to ensure its rights were not adversely affected without them being on proper notice;

·    the consistent attitude of the bank which was ultimately reflected in the consent orders of the parties;

·    the enormous disparity in the financial positions of the parties and the bank;

·    the failure of the bank to respond to the communication of the interim orders joining the bank;

·    the failure of the wife’s solicitors to respond to the bank’s inquiry regarding the orders (if any) that the wife intended to seek against it;

·    the status of the bank as an arms length third party; and

• it was not reasonably necessary for the bank to retain Counsel to appear on the day the matter was settled.  The bank could have been adequately represented by its in-house solicitor.

Family Law Act 1975 (Cth)
Federal Proceedings (Costs) Act 1981(Cth)

Brown (1998) FLC 92-822; 23 Fam LR 349
Hendy and the Deputy Child Support Registrar and Anor (2001) 27 Fam LR 641

APPELLANT: NATIONAL BANK OF AUSTRALIA

RESPONDENT: H

FILE NUMBER: MLM 2076 of 2006

APPEAL NUMBER: SA 7 of 2007

DATE DELIVERED: 13 April 2007

PLACE DELIVERED: Melbourne

JUDGMENT OF: THE HONOURABLE JUSTICE KAY

HEARING DATE: 10 APRIL 2007

LOWER COURT JURISDICTION: Federal Magistrates Court

LOWER COURT JUDGMENT DATE: 18 DECEMBER 2006

LOWER COURT MNC: [2006] FMCAfam 729

REPRESENTATION

COUNSEL FOR THE APPELLANT: MR SCERRI QC, WITH MR GLOVER

SOLICITORS FOR THE APPELLANT: RUSSELL KENNEDY

COUNSEL FOR THE RESPONDENT: IN PERSON

SOLICITORS FOR THE RESPONDENT:

Orders

1. The appeal be allowed.

2. That the orders made by Federal Magistrate O’Dwyer on 18 December 2006 be varied by substituting for the order that the application of the National Australia Bank for costs be dismissed, an order that the husband pay the sum of $1500 towards the costs of the National Australia Bank incurred in the proceedings on 18 December 2006.

3. That the Court grants to the appellant a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant in respect of the costs incurred by the appellant in relation to the appeal.  

IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Full Court delivered this day will for all publication and reporting purposes be referred to as National Australia Bank v H.

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE

Appeal Number: SA 7  of 2007
File Number: MLM 2076  of 2006

NATIONAL BANK OF AUSTRALIA 

Appellant

And

H

Respondent

REASONS FOR JUDGMENT

1. On 18 December 2006 O’Dwyer FM dismissed an application by the National Australia Bank seeking an order for costs against Mr and/or Ms H.

2. By its amended Notice of Appeal the bank seeks an order that Mr H pay the National Australia Bank’s costs of and incidental to the hearing on 18 December 2006 fixed in the sum of $4,250 or alternatively as taxed.

Background

1. Mr and Ms H were husband and wife.  They were customers of the National Australia Bank.  Their marriage broke down and in February 2006 the husband commenced proceedings against the wife seeking orders for alteration of property interests. 

2. One of the orders sought was for the sale of the former matrimonial home and the application of the proceeds of sale in payment of all encumbrances and all debt of the parties, including credit card and business debt as at the date of separation.

3. In her response the wife sought the valuation of the husband’s business interests and the continued use and occupation of the former matrimonial home.

Subsequent events

1. In the course of some interlocutory proceedings on 1 September 2006 it became apparent that the parties had been negotiating with the National Australia Bank concerning the sale of the former matrimonial home and the application of the proceeds of sale.  Counsel for the wife advised the Court that she understood that if the home was sold for $1million the bank would enable the wife to take $200,000 from the sale proceeds and release the wife from her personal guarantees in relation to other monies advanced to the parties or their entity A Pty Ltd as trustee of their family trust. 

2. The wife’s counsel informed the Federal Magistrate that if the property sold for more than $1million she did not seek to increase the payment of $200,000 to her but she was concerned to determine what would happen in the event that the property did not sell for $1million.

3. Discussion ensued on 1 September 2006 as to whether it was appropriate to join the National Australia Bank to the proceedings or merely obtain evidence from it as to its intentions.  Eventually the parties tendered a letter from the National Australia Bank addressed to the wife which read as follows:

   31 August 2006

   Dear [Ms H],

   RE:LENDING FACILITIES IN THE NAME OF [Mr and Ms H] AND A PTY LTD ATF THE H TRUST

   We wish to advise that the Bank have agreed to the release [the former matrimonial home] subject to the sale of the property being achieved at a minimum of $1.0m.

   From the sale, all settlement funds, other than $200k payment to [Ms H]are to be contributed towards debt reduction ino  [Mr and Ms H] with remaining funds to be put towards debt reduction of A Pty Ltd atf The H Trust.

   Once the above has been completed [Ms H]will be released from any further obligations under the Guarantee to A Pty Ltd atf The H Trust.

   If you have any queries in relation to the above please do not hesitate in giving me a call.

   Yours faithfully

   [I.T.]Senior Business Banking Manager

4. The bank manager gave evidence by telephone on 1 September 2006.  He said that if the property sold for under $1million the bank would need to reconsider its position.  After the bank manager gave his evidence the Federal Magistrate said:

   Look I still get nervous about the bank not being involved in a formal sense.

   …

   It seems to me that there must be scope to sell the property asap, get the bank involved and then fight it out with the whole three of you in the circumstances.  It may be after it’s sold that all these issues about what the future holds and trying to cater for them will not arise…

   …

   I think what we’ve got to do is get the property on the market and sold as quickly as possible; get the bank formally involved, because next time we come back I don’t want telephone calls to people who aren’t really in a position – it puts a different spin on things, once the bank is formally involved in legal proceedings, to take it a bit more seriously and they research it a bit more thoroughly…

   …

   …I’m going to make an order actually formally joining the bank under the rules…

5. Then on 1 September 2006 O’Dwyer FM made orders for the sale of former matrimonial home and ordered:

   6.Within 14 days hereof the Wife do all things necessary to serve a sealed copy of this order on the National Australia Bank.

   7.Pursuant to Rule 11.01 of the Federal Magistrates Court Rules2001 the National Australia Bank Limited be joined as a party to this proceeding as Second Respondent.

   He then adjourned the further hearing before himself on 22 November 2006.

6. It is apparent from the appellant’s outline of submissions filed in support of the appeal that the National Australia Bank received a faxed copy of the interim orders on 22 September 2006.  It is not apparent that the orders were ever drawn to the attention of any person conversant with the file by the recipient of that faxed transmission.  It had been addressed to Ms M.D. at the National Australia Bank, Dispute Resolution Section.  The fax provided by counsel for the bank also indicates that a copy of it was sent to I.T., Senior Business Banking Manager - Business Services.

7. On the morning of 22 November 2006 the matter came on for hearing before O’Dwyer FM.  Ms Smallwood announced that attempts were being made to bring the bank to court that day and that it had only become apparent that the bank was apparently unaware of the hearing that morning.  She also announced that the house had brought $200,000 more than the figures that had been previously discussed.

8. The matter was stood down until 12.30 when Ms Johnston announced an appearance on behalf of the National Australia Bank.  She said that she was a lawyer with the bank and she had just had the matter brought to her attention and had no instructions.  She said:

   …I understand that there is a release of funds and potentially a release of guarantees being sought.  I’ve asked that the husband and wife put that to the bank so the bank can then undertake its normal credit assessments, and I’m instructed that that will probably take a minimum of 14 days, and on that basis we seek the adjournment.

9. Both Mr McLeod who appeared on behalf of the husband and Ms Smallwood who appeared on behalf of the wife indicated that they could not oppose the adjournment.  The matter was then adjourned to 18 December 2006.

10. On 24 November 2006 the wife’s solicitors wrote to Ms Johnston and said inter alia:

    As the property has now been sold for $1,175,000 some $175,000 more than anticipated, we enquire as to whether the bank will release an additional sum over and above the $200,000 originally contemplated to be released to [Ms H] to either of the parties.

    As this matter is re listed for final hearing on 18 December 2006, we would appreciate your prompt response.”

11. Three days later on 27 November 2006 Ms Johnston wrote back to the wife’s solicitors saying that the position had not changed from the letter of 31 August 2006:

    If your client seeks to put an alternative proposition to nab, then the proposition needs to be put in order that nab can undertake its usual credit assessment.

12. On 29 November 2006 the wife’s solicitors wrote back to Ms Johnston asking again how much of the proceeds of sale the bank would agree to release to the husband or the wife or either of them and how much of the proceeds of sale would be necessary to apply towards the debt of A Pty Ltd to release the wife from all the personal guarantees. 

13. On 5 December 2006 the wife’s solicitors proposed that the bank should release the wife from all her personal guarantees and release to the wife the surplus proceeds of sale of the former matrimonial home after discharge of the registered mortgage loans.

14. Ms Johnston responded on 12 December 2006 saying:

    As previously advised, nab will release only the amount of $200,000 to your client upon settlement of the Property.  The proceeds of sale are to be applied to discharge the two home loans in the names of Mr and Ms H  with the remaining funds (other than the amount of $200,000) being applied to the facility provided to A Pty Ltd as trustee for the H Trust (Trust).

    Once this has taken place, nab will release your client from her liability under personal guarantees provided by her to nab.

    As your client is aware, the Property also secures the Trust’s borrowings and therefore nab is only prepare (sic) to release the amount of $200,000 to your client and not any greater amount.

    If your client maintains her claim for additional funds, then please let us know as a matter of urgency as your client’s claim will therefore need to be the subject of argument before the Court.

    If this is the case, then nab will need to instruct external lawyers to appear at the adjourned hearing and also to prepare affidavit evidence to put before the Court.

    Please therefore let me know as a matter of urgency what orders your client intends to seek against nab at the hearing of 18 December 2006.

    Nab reserves all of its rights whatsoever, including the right to seek payment of its costs incurred in these proceedings.

15. There is no evidence that the wife’s solicitors responded in any way to that correspondence.

16. When the matter came on for hearing on 18 December 2006 Mr McLeod appeared on behalf of the husband, Mr Smallwood on behalf of the wife and Mr Glover of Counsel appeared on behalf of the National Australia Bank.  Mr Glover protested the necessity to the bank having been joined as a party and the granting of a restraining order concerning the manner in which the proceeds of sale of the home could be applied.  The Federal Magistrate expressed some dissatisfaction with Mr Glover’s interpretation of what had occurred in the earlier proceedings saying:

    …the involvement of the bank was thought necessary, from memory, because of statements made by bank representatives that led parties to believe that the wife was going to be relieved of any legal liability associated with the husband’s business loans.  But that was all a bit vague and it needed some clear definition before anybody could move forward, whether that was correct...

17. The matter was then stood down and then after lunch the Court was advised that the matter had been resolved and minutes of orders had been prepared.  Insofar as the bank was concerned, the orders provided for:

    4.That the proceeds of the sale of [the former matrimonial home]be applied as follows:

    i)To discharge all costs and commissions of sale and all outstanding rates.

    ii)To discharge the represented home loans to the NAB.

    iii)$200,000 to the wife.

    iv)The residue be applied by the NAB in accordance with its facility and security documentation.

    5.That contemporaneously with the distribution referred to in order 4 herein the NAB provide to the wife a release from all and any personal guarantees made by her to the NAB for any and all debts of the parties hereto or either of them and for any debt of the A Pty Ltd.

18. Mr Glover then sought an order for costs.  He tendered some of the correspondence already referred to above, being letters dated 31 August 2006, 24 November 2006, 27 November 2006, 5 December 2006 and 12 December 2006.  He sought costs in the sum of $4250.

19. In the course of his reasons for judgment dismissing the bank’s application for costs the Magistrate said:

    4.In order to bring an unsatisfactory circumstance to a conclusion, it was in my view quite proper to join the bank so that the bank would be on notice that these matters were on foot and that the bank’s involvement was important for a resolution of the matter.  As a consequence of it being joined the bank has become involved and has now given a clear understanding of its attitude which was previously absent, notwithstanding the correspondence put by Mr Glover is indicative of a consistent position by the National Australia Bank…

    5.Another important issue was the fact that the property, the matrimonial home, was sold for more than what was anticipated.  That, in my view, did require and necessitate going back to the bank in order to ascertain from the bank what its position would now be, having regard to the increased sale price.  If the bank’s attitude had have been different – and at that stage it was not known whether it would be different – there might have been more scope for the wife to argue for a greater share of the matrimonial assets.

    6.The bank was joined as party to the proceedings.  Section 117(1) clearly states that subject to subsection (2), “Each party to the proceedings under this act shall bear their own costs.”  Also, I do take note of s. 117(2A)(a) which talks about the financial circumstances of each of the parties to the proceedings.  Relative to that is the, I think, fairly undisputed – I do not believe it could ever be disputed – financially better position of the National Australia Bank [vis-à-vis] the parties.

    7.I am of the view that each party (and the bank is a party) in this case should bear their own costs.  As I said before, I think the bank is properly joined and the joining of the bank has now seen a conclusion to the matter.  Without that involvement of the bank it would never have been concluded.  The application by the National Australia Bank for costs is dismissed.

The appeal

1. When the matter was first before me for directions the husband indicated that he was prepared to indemnify the wife in respect of any costs orders that might be made in the bank’s favour.  The bank then consented to the appeal against the wife being dismissed.

2. In his submissions to me this morning Mr Scerri QC who appeared with Mr Glover on behalf of the appellant bank submitted that the Federal Magistrate’s discretion had miscarried in relation to the question of costs.  He submitted that the bank was an innocent party whose only crime was to have lent money to the parties.  It had behaved reasonably at all times and it was appropriate that if it was embroiled in the parties’ litigation then they should be responsible for any costs incurred on behalf of the bank.  He referred to a Full Court judgment in the matter of Brown (1998) FLC 92-822; 23 Fam LR 349 that I had delivered and with which Finn and Burton JJ concurred where I said:

   14.      The power to make costs is contained in s 117.

   “(1)Subject to subsection (2) and section 118, each party to  proceedings under this Act shall bear his or her own costs.

   (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 subsection (2A) and the 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.

   (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, in accordance with section 117C or otherwise, 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.”

   15.      The obligation under s 117(2A) is that the court shall have regard to the various matters set out thereunder. This is in contrast to the previous provisions under which costs orders were made, namely, under the Family Law Regulations and in particular reg 173 which required that the court may in making an order take into account various matters. The movement from a discretionary consideration to a mandatory consideration is a matter in my view of some substance.

   …

   17.      In many cases there will be an outstanding feature of the case that makes an order for costs appropriate, a feature which so dominates the scene that it can outweigh any of the other s 117(2A) considerations. In those cases the Court may readily infer that the trial Judge has given appropriate consideration to the aspects of s 117(2A) but in the shadow of each of the required aspects has appropriately determined that overwhelmingly the case demands an order for costs be made…

1. It was submitted that the Federal Magistrate’s reasons for judgment seemed to identify solely the disparity of the parties’ financial positions as justifying the refusal to make an order for costs and did not pay attention to the other circumstances which the Court was obliged to mandatorily consider in determining what costs order (if any) should be made.  In particular it was submitted that it was incumbent upon the Federal Magistrate to pay attention to the correspondence and the consistent position of the bank from prior to its being joined as a party until the making of the consent orders. 

2. It was further submitted that the fact that the claimant for costs was not a party to the marriage, although it was a party to proceedings, should be taken into account as a relevant matter in determining whether or not it was appropriate to make a costs order.

3. Some support for that latter proposition can be gleaned from the decision of the Full Court (Ellis, Kay and Mullane JJ) in Hendy and the Deputy Child Support Registrar and Anor (2001) 27 Fam LR 641 where the Court said it could detect no error in the manner in which the trial judge dealt with a costs issue as between a parent and the Commonwealth where the trial judge had inter alia said:

   115.   

   ·  These proceedings should be more properly perceived as being civil proceedings between the Commonwealth as a third party and the respondent as a citizen, rather than as been parties to a marriage or parties to a relationship covered by the general philosophy of the Family Law Act, which is to the effect that each party should bear their own costs.

4. The authors of Australian Family Law, said, without any reference to this Full Court decision in their notes on s 117 in paragraph entitled:

[s117.29] Exercise of discretion in cases involving third parties:

…whatever the policy arguments might be, the section is expressed to apply to all proceedings under the Act, and there does not seem to be any authority to support the suggestion that the traditional rules [that costs follow the event] applies in any category of case that falls within the words of s 117.  Thus the approach set out in the section appears to be applicable in all such cases.

1. I think it is properly open to the Court to consider as relevant the fact that the claimant for costs is not a party to the marriage and stands at arm’s length from the parties in a bona fide commercial relationship.

2. I think there is substance in the submissions made on behalf of the National Australia Bank that the Federal Magistrate failed to pay appropriate attention to each of the relevant considerations identified in s 117(2A) in determining whether or not it was appropriate to make an order in these proceedings.  In particular the case called for some consideration of the fact that the bank was in an arm’s length commercial transaction with the parties and had adopted a consistent approach from prior to the time that they were joined into the proceedings which approach was eventually made the subject of the orders.  Further it was relevant to give consideration to the fact that ultimately no relief was sought against the bank that was inconsistent with its stand.

3. At the same time, however in my view it was relevant to give consideration to the vast economic disparity between the parties and the National Australia Bank and to the failure of the bank to react to the orders having been drawn to their attention as early as 22 September 2006. 

4. Further there seemed to be no reason, in the absence of any relief being sought against the bank, for the bank to be represented by counsel at the hearing on 18 December 2006.  It was appropriate that the bank be on notice of the proceedings particularly as some interlocutory relief had been granted that affected its rights.  It was appropriate that the bank be on notice of the proceedings because any orders that would give effect to the arrangement which it had indicated it would consent to as early as 31 August 2006 would apparently affect its substantive rights in relation to the security it held over the former matrimonial home by way of personal guarantees of the parties and otherwise. 

5. That being said, it seems to me that, absent the bank being on any notice that orders inconsistent with its stated position would be sought against it, it was not necessary for the bank attend at the hearing on 18 December 2006 other than by solicitor acting on its behalf.  In my view it was not a case in which it would have been reasonable to retain counsel.

6. When I balance each of the relevant considerations being

   ·    The circumstances in which the bank was joined as a party namely at the insistence of the Magistrate with an abundance of caution to ensure that the bank’s rights were not adversely affected without them being on proper notice.

   ·    The consistent attitude of the bank that was ultimately reflected in the orders that were made by consent of the parties.

   ·    The enormous disparity in the financial position of the parties and the bank.

   ·    The possible breakdown of internal communications in the bank that led to the bank failing to react to the letter faxed to it on 22 September 2006.

   ·    The failure of the wife’s solicitors to respond to the letter of 12 December 2006 from the National Australia Bank seeking to know what orders the wife intended to seek against the bank at the hearing of 18 December 2006

   I am of the view that it is appropriate that an order be made in the bank’s favour in the sum of $1500.

I certify that the preceding Thirty Six (36) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kay

Associate:  Elizabeth Hore

Date:  13 April 2007