Pearce & Pearce (No 2)

[2015] FamCA 1062

FAMILY COURT OF AUSTRALIA

PEARCE & PEARCE (NO 2) [2015] FamCA 1062

FAMILY LAW – COSTS – where consideration is given to section 117 – where both parties seek orders for costs – where there is a difference in the financial circumstances of the parties – where there are numerous applications in which the wife was successful and the husband wholly unsuccessful – where there was a significant offer to settle – where the Court can justify making an order for costs in favour of the wife on a party/party basis – where it is reasonable to engage senior counsel.

Family Law Act 1975 (Cth) – s 79, s 79A, s 117
Family Law Rules 2004 (Cth) – r 19.18

Penfold v Penfold (1980) 144 CLR 311
Prantage & Prantage (2013) FLC 93-544

APPLICANT: Ms Pearce

RESPONDENT: Mr Pearce

FILE NUMBER: DNC 462 of 2009

DATE DELIVERED: 1 December 2015

PLACE DELIVERED: Sydney

PLACE HEARD: Adelaide (by video link)

JUDGMENT OF: Dawe J

HEARING DATE: 31 March 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Looney, QC
(with Ms Farmer)

SOLICITOR FOR THE APPLICANT: Withnalls Lawyers

COUNSEL FOR THE RESPONDENT:

Mr Lloyd, SC

(with Ms Morozov)

SOLICITOR FOR THE RESPONDENT: Barkus Doolan

Orders

1. The husband pay the wife’s costs of and incidental to the proceedings other than in respect of children’s issues being costs incurred by the wife as and from 20 September 2013 including costs of and incidental to the application for costs (but not including costs of the stay application).

2. Further that the husband pay the wife’s costs of and incidental to the wife’s Applications in a Case filed on 6 September 2011, 16 May 2012 and 26 March 2013;  the husband’s Applications in a Case filed on 12 February 2013 and 8 August 2013.

3. Such costs to be as may be agreed in writing between the parties and failing agreement within twenty-eight [28] days after the appeal judgment as assessed on a party/party basis in accordance with the Rules.

4. Each party bear their own costs of and incidental to the stay application filed by the husband on 11 March 2015.

5. Any steps which become necessary to calculate the costs payable pursuant to these orders be stayed and any enforcement of the orders be stayed until twenty-eight [28] days after delivery of the Full Court of the Family Court of Australia judgment in relation to the appeal from the property settlement order made on 12 December 2014.

6. Certified fit for senior counsel including but not limited to Mr Looney, QC from 19 February 2013.

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

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: DNC 462  of 2009

Ms Pearce

Applicant

And

Mr Pearce

Respondent

REASONS FOR JUDGMENT

Introduction

1. Proceedings between the applicant Ms Pearce (“the wife”) and the respondent Mr Pearce (“the husband”) commenced in 2009.  Following various interim applications and directions the matter was listed for trial.

2. At the trial the wife sought orders to set aside a consent order made in July 2005 and upon the setting aside of that order sought substantial funds by way of property settlement.

3. After further directions and interim orders there was a lengthy trial.

4. On 12 December 2014 judgment was delivered in which the wife was substantially successful.  The orders of 12 December 2014 provided for the wife to receive a further $1,967,000.  The proceedings were otherwise concluded save and except in relation to the question of costs.

The hearing

1. The wife filed an Application in a Case seeking costs on 9 January 2015 and subsequently filed an Amended Application in a Case relating to costs on 25 March 2015.  At the hearing before the Court on 31 March 2015 the Court received the affidavits on behalf of the wife, Financial Statement of the wife, outline of submissions of the wife concerning costs, the Response to the Application in a Case by the husband and his Financial Statement and affidavit.

2. At that hearing the wife was represented by Mr Looney, QC of Counsel and the husband by Mr Lloyd, SC of Counsel.

3. By the time of question of costs was heard by me on 31 March 2015, the husband had filed a Notice of Appeal (on 7 January 2015) Appeal No NOA 1/2015 in which he sought that the orders of 12 December 2014 be set aside and that the wife’s application, which formed the basis of the s 79A application, be dismissed.  He also sought costs of the proceedings and the appeal on an indemnity basis.

4. The appeal was heard by the Full Court of the Family Court of Australia on 6 and 7 August 2015.  Judgment was reserved on 7 August 2015.  The appeal decision has not been delivered.

Background summary

1. Final property settlement orders were made by consent on 20 July 2005.  Subsequently the wife brought proceedings seeking that the consent order be set aside pursuant to s 79A.  The wife’s proceedings commenced in the Federal Magistrates Court (as it then was) and were initially listed for hearing in August 2012.  The matter was then transferred to the Family Court of Australia. 

2. After directions to prepare the matter for final hearing in this Court, the matter commenced before me in Darwin on 8 April 2013.  On that day the husband withdrew his Application in a Case which sought a summary dismissal of the wife’s application under s 79A.

3. At the request of counsel for the husband, which was not opposed by the counsel for the wife, the trial was adjourned.  Further procedural orders and directions were made.  The matter continued on 9 April 2013,  23-24 and 30 September 2013, 1-3 October 2013, 13-17 and 20-22 January 2014.

4. Part of the reasons for the trial extending over such a period and for so long, included the wife’s application to adjourn the trial in October 2013.  Argument was heard and permission was granted for the wife to rely upon amended particulars for the s 79A application.  Full details of the hearings are set out in the judgment of 12 December 2014.

5. That judgment also sets out the findings made in relation to the evidence and the application of the law in relation to that evidence.  The judgment included findings which concluded that the husband’s evidence was “… at times considerably unreliable …” (paragraph 204) and that there were also “… inconsistencies in some of the evidence of the wife …” (paragraph 204).  That judgment included the conclusion that the husband had failed to disclose significant information to the wife prior to the consent order and that the failure to disclose brought about a situation where it was appropriate to vary the order under s 79A and to consider further orders under s 79.  The judgment then dealt with the s 79 factors to be considered.  Orders were made which provided for the wife to receive the further sum of $1,967,000 within 90 days.

Law as to costs

1. Section 117 of the Family Law Act 1974 (Cth) (“the Act”) provides:

   (1)Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 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 subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.”

   (2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:

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

   (b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

   (c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

   (d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with     previous orders of the court;

   (e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;

   (f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer;

   (g)such other matters as the court considers relevant.

2. Rule 19.18 of the Family Law Rules 2004 (Cth) (“the Rules”) lists the methods of calculation for costs:

   Rule 19.18

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

   (a) of a specified 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.

3. The Court was referred to decisions in relation to the question of costs including Penfold v Penfold (1980) 144 CLR 311 and in particular paragraphs 315 to 316:

   It is an accurate description of s. 117 (1) to say that it expresses a general rule, provided that it is firmly understood that the sub-section is not paramount to s. 117 (2). As sub-s. (1) is expressed to be subject to sub-s. (2) the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs.

   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”.”

4. In the more recent decision of the Full Court of the Family Court of Australia in Prantage & Prantage (2013) FLC 93-544 the Full Court considered an appeal from an order made by a Judge at first instance for costs.

5. When dealing with the question of indemnity costs, the relevant passages of that judgment are as follows:

The settled law relating to indemnity costs

76.          The law relating to indemnity costs has been well established in this jurisdiction for many years, a fact the trial Judge himself properly recognised. 

77.          This Court recognised in Kohan (supra) that there is nothing in the Act which inhibits the making of an order for indemnity costs.  However, while acknowledging there is a discretion “in an appropriate case” to make an order for indemnity costs, the Full Court also said, at 79,605:

it is fundamental to the exercise of that 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 s117(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.

78.          The Full Court, when re-exercising the trial Judge’s discretion in Kohan, also said, at 79,615:

When considering what is just in this case, one must bear in mind that a party who enters into a costs agreement should be warned and must anticipate in this jurisdiction that each party might well have to bear his or her own costs, and that even if an order for party and party costs is made, the difference between party and party costs and costs payable under a costs agreement may consume all, or a substantial part, of the property order. In this particular case, the wife changed her solicitors in August 1990. It must then have been apparent to her, or at least to her new solicitors, that this might become drawn out litigation and that a rate of costs which amounted to three times the scale, exposed the wife to great risks. If she was willing to assume these risks, it does not seem just to saddle the husband with them. If they were not explained to her, she might have her own remedies.

79. At the time Kohan was decided, there was no mention of indemnity costs in the Rules. This is no longer the case, as will be seen from our recital of the Rules earlier. It will also be noted that the requirement for the Court to be informed of the terms of the relevant costs agreement has now been enshrined in the Rules. Notwithstanding this formal recognition of indemnity costs, this Court and trial Judges in this jurisdiction have routinely followed Kohan in holding that indemnity costs orders are to be seen as “a very great departure from the normal standard”. We consider citation of authority to this effect would be otiose, so well accepted is the proposition.”

1. The Full Court then discussed various decisions of the Federal Court of Australia and the Supreme Court of States of Australia in relation to indemnity costs or party/party costs.  After detailed discussion the Full Court judgment concludes as follows:

   94. We recognise that the Rules now expressly refer to orders for costs on an indemnity basis. We recognise also that the rules in this Court are not precisely the same as those in other courts; however, there is nothing in the Rules which indicates that the fundamental principle applied in other jurisdictions should not also be applied in this jurisdiction. Indeed rule 19.18 makes clear that the “default” position is that costs are awarded on a party/party basis.

   95.          As we have pointed out, the “usual rule” relating to the basis upon which costs are ordered in this jurisdiction is well entrenched.  We consider it would be most unsettling if we purported to depart from the existing practice.  Furthermore, we would not consider it desirable to do so, essentially for the reasons given by Cooper and Merkel JJ in Re Wilcox (supra). 

   96.          In particular, we respectfully agree with Cooper and Merkel JJ that there are “two seemingly irreconcilable objectives” at stake.  Placing great emphasis on the importance of one objective, namely “relieving a successful litigant from the burden of costs which that litigant should not have been required to incur” will inevitably lead to insufficient emphasis being placed on the importance of the other objective of “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”. 

   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 this should have any impact on the application of the “usual rule”, which seeks to balance competing public policy considerations.”

2. When considering the re-exercise of discretion in relation to costs the Full Court said:

   112. Putting aside for the moment s 117AB, it will be seen from our earlier discussion that the Act provides for costs to be awarded at the discretion of the court, subject to a general rule that each party “shall bear his or her own costs”. The general rule gives way when consideration of the factors in s 117(2A) is seen to justify an order for costs. The question to be determined is “whether the overall circumstances justify the making of an order for costs” (I & I (No. 2) (1995) FLC 92-625 at 82,277).

3. While it is therefore accepted that an order for costs may be made on an indemnity basis it is clear that is only in exceptional circumstances.

Discussion and findings

1. The costs of the application for costs also needs to be seen in light of the original Application in a Case which sought detailed orders concerning costs.  The Amended Application in a Case seeking orders for costs and the Further Amended Application in a Case which was received on 31 March 2015 sought different orders.  The latter sought that the husband pay the wife’s costs of and incidental to the proceedings (other than in respect of children’s issues) including costs reserved in respect of any Application in a Case “to be calculated using the rate specified in the wife’s costs agreement” with her legal practitioners current at the time, such costs to be incurred to be assessed (a) on a party/party basis up until 6 September 2011 and (b) on an indemnity basis thereafter.  The application also sought a certificate that it was reasonable to engage Mr Looney, QC as counsel for and on behalf of the wife from 19 February 2013 and that the husband pay the wife’s costs of and incidental to that application being the solicitor’s costs in the sum of $17,300 and counsel fees in the sum of $13,200.

2. The husband sought that the Application in a Case be dismissed and that the wife pay the husband’s costs of and incidental to the application.

3. At the hearing before me, counsel for the husband sought that the matter be adjourned and stood down until after the appeal judgment had been delivered.

4. Whilst consideration was given to waiting for the outcome of the appeal before delivering judgment in relation to the costs application, since a considerable time has passed it is now appropriate to provide the decision in relation to the costs application.

5. There was no significant argument before the Court in relation to the certification for senior counsel.  The complexity of the matter brought about by the s 79A factors and some of the complexities of the evidence before the Court are sufficient for the Court to certify that attendance of both senior counsel was appropriate.  The Court therefore has no difficulty in making the first order sought by the wife, namely that it was reasonable to engage Mr Looney, QC as counsel for and on behalf of the wife from 19 February 2013.

6. The Court is required by the provisions of s 117(2) to form the opinion that there are circumstances justifying an order for costs and must consider the provisions of s 117(2A) to determine what order, if any, should be made.  After considering the matters set out s 117(2A) the Court is then required to make such order as it considers just (s 117(2)).  The Court therefore takes into account the following:

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

1. The wife filed a further Financial Statement on 25 March 2015.  The financial summary indicated that her average weekly income was only slightly more than her personal expenditure and that the assets she owned, represented primarily by the real estate she held, were significantly offset by the mortgage on the property and bank loans.  The affidavit sworn and filed by the wife on 9 January 2015 sets out significant costs she paid whilst the proceedings were both in the Federal Magistrates Court (as it then was) and the Family Court of Australia.  These were assessed and paid pursuant to the costs agreement.  That affidavit indicated that the wife had unpaid legal fees of $289,756 and disbursements of $175,581.97.  The overall costs incurred by the wife were in excess of $600,000.

1. If the wife’s superannuation was not considered, then the liabilities of the wife, including her barrister and solicitor’s fees unpaid, would substantially exceed her assets.

2. The husband’s financial situation is brought into account.  The evidence at the trial indicated that before payment of the amount due to the wife pursuant to the property settlement orders, his net assets were approximately $9.6 million (not taking into account small superannuation).  The Court accepts that the husband would also have incurred substantial legal costs which would reduce his net assets.  The Court also takes into account that he is currently liable to pay the substantial sum by way of property settlement upon which interest is continuing to accrue (subject of course, to the Appeal Court decision).

(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;

1. Neither party is in receipt of assistance by way of legal aid.

(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;

1. These were proceedings under s 79A.  There were however significant difficulties in the provision of detailed pleadings, particulars, discovery and the production of documents in this matter.  The husband resisted the application for costs on several bases, which included the failure of the wife to particularise her claim until later in the proceedings and the various amendments and alterations to the foundation of the s 79A application.

2. There were also findings made concerning the husband’s failure to make appropriate disclosure which established the s 79A basis for the wife’s claim.

3. It is significant that there were numerous requests for disclosure by the wife and the resulting need for the wife to issue numerous subpoenas.

(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

1. Not applicable.

(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;

1. The wife has been successful in obtaining an order under s 79A.  Thereafter the wife received the benefit of further orders under s 79.  The husband has been wholly unsuccessful in opposing the wife’s application under s 79A and the resulting orders under s 79.

2. The wife also highlights the husband’s lack of success in opposing applications made by her for directions in the proceedings including the Application in a Case by the wife for the appointment of single experts, his opposition to her application to vacate the hearings in the Federal Magistrates Court (as it then was) and the transfer of the proceedings to this Court, his withdrawal of his application seeking summary dismissal of the application, his opposition to orders for further disclosure and notices to produce and the unsuccessful application by the husband for the wife to pay half of the costs of Merit and Partner’s fees.

3. The husband was also unsuccessful in opposing an oral application which required a hearing and determination for the husband to be further cross-examined.  Similarly, the husband was unsuccessful in opposing the application for adjournment in October 2013 and was unsuccessful in his opposition to the wife’s application to call further evidence from Mr H.  The oral application made on behalf of the husband in January 2014 to permanently stay the proceedings was also dismissed.

(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;

1. The wife’s evidence is that she has made three offers in writing to the husband.  The first was made in May 2009.  The terms of this offer are however not significant because they related to small payment and a request that the husband “honour the previous oral agreement to provide project management purchase and installation of air-conditioning, electrical wiring”.  A similar offer was made in 25 November 2009 relating to work to be done.

2. On 20 September 2013 an offer to settle was served upon the husband’s solicitors.  The offer was on the basis that the wife would pay her legal fees incurred to that date.  The offer on that date was to resolve the proceedings on the basis that the husband pay to the wife the sum of $2 million and that each party bear their own costs of and incidental to the proceedings.  At that time the wife’s costs were $283,100 (I assume that is on the basis of the costs agreement with her solicitors and not on scale).  The affidavit of the wife sets out the costs incurred since that date (again being costs charged on the agreed rate and not scale) and including significant disbursements and counsel fees which were in excess of $377,000.

3. The offer made is similar to the order made by me on 12 December 2014 requiring the husband to pay $1,967,000 to the wife.  This is a significant factor. 

(g)      such other matters as the court considers relevant.

1. I take into account that the appeal decision has not been delivered.

Conclusion

1. The significant factors in this matter are:

   (1)the difference in financial circumstances of the parties;

   (2)the numerous applications in which the wife was successful and the husband wholly unsuccessful;

   (3)the significant offer to settle made in September 2013.

2. These, together with other factors under s 117(2A), establish circumstances that justify the Court in making an order for costs in favour of the wife. 

3. The Court also takes into account the difficulties the husband faced in relation to the wife’s delay in providing particulars upon which the wife was relying.  This factor offsets all other factors which might otherwise justify an order for costs on an indemnity basis..

4. Because the offer to settle is a significant factor, the costs order will provide for the husband to pay the wife’s costs on a party/party basis for all the proceedings both interim and final since the offer of 20 September 2013 (save and except the costs in relation to the application for a stay pending the appeal).

5. The Court however also considers the earlier interim applications in which the husband was wholly unsuccessful.  It is also just for orders to be made which provide for the husband to pay the wife’s costs on a party/party basis for those matters prior to September 2013 namely, costs of and incidental of the Application in a Case filed by the wife on 6 September 2011, 16 May 2012, 26 March 2013 and the wife’s successful opposition to the husband’s Application in a Case which was subsequently withdrawn (being the Application in a Case filed on 12 February 2013 withdrawn on 8 April 2013) and the application filed on 8 August 2013 seeking costs of the Merit and Partner’s fees.

6. The wife opposed the application for the stay pending the appeal.  The husband was successful in this application.  Each party should bear their own costs for the application for the stay.

7. The husband has not been wholly unsuccessful in opposing the wife’s application for indemnity costs, but has been unsuccessful in opposing much of her application for costs.  Taking this factor into account and considering the significant difference in financial circumstances of both parties and the other factors of s 117, I am also satisfied that it is just and appropriate for the wife to be awarded costs of the application save and except the same should not be on an indemnity basis, but on a party/party basis.

8. It is appropriate to certify that pursuant to r 19.50 of the Rules it was reasonable to engage counsel to attend at the trial of the proceedings, including, but not limited to, senior counsel, Mr Looney, QC as counsel for and on behalf of the wife from 19 February 2013.

9. For the above reasons I make the orders as set out at the commencement of these reasons. 

I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Dawe delivered on 1 December 2015.

Associate: 

Date:  1 December 2015