Pelton and Banbury and Anor

[2020] FamCA 16

FAMILY COURT OF AUSTRALIA

PELTON & BANBURY AND ANOR [2020] FamCA 16

FAMILY LAW – COSTS – Between parties - where an application is made by the wife and second named respondent for the sale of the business – where the husband did not make his position in relation to the business clear – where orders are made for the sale – where the wife seeks costs on a party and party basis – where the second named respondent seeks indemnity costs – where there are circumstances justifying an order for costs – order for costs in favour of the wife and second named respondent on a party and party basis.

Family Law Act 1975 (Cth) s 117
Family Law Rules 2004 (Cth) r 19.18

Colgate Palmolive Co v Cussens Pty Ltd (1993) 46 FCR 225; [1993] FCA 801
Fountain Selected Meats Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Kohan and Kohan (1993) FLC 92-340; 16 Fam LR 245
Munday v Bowman (1997) FLC 92-784; 22 Fam LR 321
Ragatta Developments Pty Ltd v Westpac BankingCorporation (Unreported, Federal Court of Australia, Davies J, 5 March 1993)
Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (Unreported, Federal Court of Australia, French J, 3 May 1991)

APPLICANT: Ms Pelton

RESPONDENT: Mr Banbury

SECOND RESPONDENT: Mr Hellis

FILE NUMBER: MLC 10051 Of 2018

DATE DELIVERED: 17 January 2020

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Macmillan J

HEARING DATE: Written Submissions

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Hargreaves Family Lawyers

SOLICITOR FOR THE FIRST RESPONDENT: Farrell Family Lawyers

SOLICITOR FOR THE SECOND RESPONDENT: Gadens Lawyers

Orders

IT IS ORDERED THAT

1. By 4pm on Tuesday 17 March 2020 the husband pay the wife’s cost of and incidental to the Application in a Case filed 14 August 2019 fixed in the sum of $17,585.

2. By 4pm on Tuesday 17 March 2020 the husband pay the second named respondents cost of an incidental to the Response to the Application in a Case filed 29 August 2019 fixed in the sum of $12,651.17.

3. The application for costs be otherwise dismissed.

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 Pelton & Banbury and Anor 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 MELBOURNE

FILE NUMBER: MLC 10051 of 2018

Ms Pelton

Applicant

And

Mr Banbury

First Respondent

And

Mr Hellis

Second Respondent

REASONS FOR JUDGMENT

1. On 7 October 2019, following a contested interim hearing on 2 and 3 September 2019, I made orders inter alia, providing for the sale of C Pty Ltd, the business established and operated by the parties during the marriage. The primary focus of the hearing before me was in relation to the sale of C Pty Ltd. I also reserved the question of costs and made orders with respect to the parties filing written submissions in support of any application and/or response to an application for costs. The wife who applied for the sale of the business and other assets seeks an order that the husband pay her costs in the sum of $45,000, being the costs of and incidental to the mediation on 12 and 13 August 2019 and her Application in a Case filed 14 August 2019. The wife sought the payment of those costs on a party and party basis. A schedule of the wife’s party and party costs was annexed to the submissions filed on behalf of the wife.

2. Mr Hellis, the second named respondent, who similarly sought the sale of C Pty Ltd, seeks an order that the husband pay his costs on a solicitor and client basis in the sum of $32,370 or in the alternative on a party and party basis in the sum of $12,651.17 A schedule of those costs was annexed to the submissions filed on behalf of the second named respondent together with the costs agreement signed by the second named respondent.

Background

1. The husband and the wife established C Pty Ltd in 2004. The second named respondent is the trustee of his self-managed superannuation fund, S Superannuation Fund which beneficially owns 3,437 fully paid shares in T Pty Ltd. The balance of the shares in T Pty Ltd are held by C Trust as trustee for C Investments Trust, which is controlled by the husband and the wife. T Pty Ltd holds all of the 200 issued shares in C Pty Ltd.  The wife has the day to day conduct of the operations and control of C Pty Ltd pursuant to orders made on 20 March 2019 and 30 April 2019. Those orders excluded the husband from the operations of C Pty Ltd.  

2. On 14 November 2018, orders were made appointing Ms N as the single expert for the purposes of valuing C Pty Ltd. Ms N completed and released her valuation to the parties on 11 July 2019 in anticipation of a final hearing on 2 September 2019. That valuation was based upon the financial statements for the financial years ending June 2016, 2017 and 2018, although as referred to in my reasons delivered on 7 October 2019 (“my reasons for judgment”), the figures as at April 2019 were available, Ms N chose not to rely upon them having regard to the significant downturn in C Pty Ltd’s profitability.

3. On 23 July 2019, the wife having considered Ms N’s valuation, advised the husband that she did not want to retain C Pty Ltd and proposed that if the husband did not wish to do so, C Pty Ltd be placed on the market for sale. The husband not having advised whether he proposed to retain C Pty Ltd, the wife filed her Application in a Case seeking orders for its sale.  

4. As noted in my reasons for judgment, the husband did not make clear whether he intended to retain C Pty Ltd, seeking orders in his Response to the Wife’s Application in a Case filed 22 August 2019, that he be given unrestrained access to C Pty Ltd, that the wife be restrained from exercising any decision making authority in relation to C Pty Ltd, that Ms N be appointed to conduct an audit of C Pty Ltd and he reserved the right to retain C Pty Ltd pending the outcome of the proposed audit. I also referred in my reasons for judgment to the husband changing his instructions during the hearing and the difficulty I had following his case.

Legal Principles

1. Section 117(1) of the Family Law Act 1975 (Cth) (“the Act”) establishes the general principle that each party to proceedings pursuant to the Act shall bear their own costs. This provision is subject to s117(2) of the Act, which provides that the court may make such order (if any) as to costs as it considers just where it is satisfied that there are circumstances justifying such order.

2. Section 117(2A) of the Act sets out the matters the court shall have regard to in determining what if any order it should make. The matters the court shall consider are as follows:

   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; and

   g)Such other matters as the court considers relevant.

The Wife’s Costs

The Mediation

1. The wife seeks an order that the husband pay her costs of and incidental to the unsuccessful mediation conducted in mid-August 2019.

2. Section 117(2) of the Act refers to “proceedings under this Act”. Proceedings are defined in s 4 of the Act as follows:

   proceedings means a proceeding in a court, whether between parties or not, and includes cross-proceedings or an incidental proceeding in the course of or in connection with a proceeding.

3. The mediation in relation to which the wife seeks an order for costs is in my view not a proceeding in a court and in these circumstances the Court does not have the power to make an order for costs in relation to that mediation.

Costs of And Incidental to the Wife’s Application in a Case

Financial Circumstances

1. Although counsel for the husband submitted that he earns only $43,000 per annum inclusive of superannuation and has to meet significant obligations for the support of his former partner and the child of that relationship, the costs of these proceedings and parenting proceedings with respect to that child. However, during the hearing he also acknowledged having withdrawn a total of $385,000 from an account in the name of D Pty Ltd as trustee for the Banbury Trust. Although the husband asserts that he now has only $95,000 available to him to pay the shortfall between his income and expenses and his legal costs, there is no evidence as to how the balance of the $385,000 has been applied.

2. It is also the case that the $43,000 the husband receives is paid by C Pty Ltd, notwithstanding that the husband is not working in the business and as noted in my reasons for judgment there is no evidence as to any other capacity he may have for gainful employment.

3. None of the parties in this case are in receipt of legal aid. In June 2019, both the husband and the wife filed Financial Statements and I am satisfied based upon those statements that in so far as there is any disparity between the financial position of the husband and the wife, it would not preclude an order being made in the wife’s favour, there being other circumstances justifying such an order.

Conduct of the Proceedings

1. The wife in her submissions in support of her application for costs placed significant emphasis on the way in which the husband conducted the proceedings. Reference was made to him having recently terminated the services of his solicitors, those solicitors being the fourth or fifth solicitors on the record. Section 117(2A)(c) of the Act refers to a party’s conduct in relation to the proceedings. In my view, the fact that the husband has terminated the services of his solicitor absent evidence as to the impact of him having done so in relation to the proceedings before me is not relevant to the matters I am required to consider. Similarly, although it may be relevant for other purposes the fact the he withdrew funds from D Pty Ltd’s account without the consent of the wife is in my view not relevant to his conduct in relation to the application in relation to which the wife seeks her costs.

2. I am however satisfied that the way in which the husband conducted his case both in response to the orders sought by the wife and the orders he sought is a relevant consideration. As referred to in my reasons for judgment the husband changed his instructions during the hearing and his case was at times difficult to follow. In particular, counsel for the husband submitted at the commencement of the case that C Pty Ltd was “tanking on a daily basis” and yet he would not consent to an order for its sale, it being his case that although he wanted it sold that it should not be sold pending the final hearing. Even if as the husband submits he was by the end of the hearing not actively opposing the sale of C Pty Ltd or pressing his application, he was also not prepared to consent to the sale. 

3. I found that the husband’s application for the appointment of Ms N to audit C Pty Ltd, that being the basis upon which he submitted the sale should be delayed, was misconceived. Even if as submitted by the husband the valuation of C Pty Ltd was not current and the business revenue had decreased substantially, as I found at paragraphs 11 - 12 of my reasons for judgment:

   ·the husband had access to all the relevant financial information; despite his general assertion that there may have been misconduct, he did not adduce any evidence of any misconduct on the part of the wife or the second named respondent; and

   ·notwithstanding that the final hearing was to commence on 2 September 2019 he had not requested any additional information or asked any questions of Ms N following the release of her report.

4. In so far as the husband submitted that it was reasonable to delay the sale to enable him to obtain an updated valuation of C Pty Ltd, I also found that there was nothing preventing the husband engaging O Business, who he had previously engaged to value C Pty Ltd, to carry out an audit had he chosen to do so. Or for that matter an updated valuation.  

5. Notwithstanding the husband’s concession that the issue in dispute was essentially what is referred to as a wastage argument, he resisted the sale and persisted with his application for an audit, adopting a course which based upon his own case was likely to diminish the value of C Pty Ltd.

6. There is also some force in the wife’s submission with respect to the husband’s case which developed during the course of the hearing, that he should have the opportunity to purchase the motor vehicles and the boat, notwithstanding that he had previously consented to orders for their sale.

Whether Either Party Has Been Wholly Unsuccessful

1. The wife’s case is that her application for a sale of C Pty Ltd, which was the primary focus of the hearing before me was wholly successful and that the husband was wholly unsuccessful. The husband for his part submits that he was not wholly unsuccessful on the basis that an order was made restraining the parties from retaining a copy of C Pty Ltd’s data base and utilising such data base in any subsequent business. This is an issue with respect to the conditions of sale and the form of the orders and does not alter the fact that the husband would not consent to a sale and orders were made for that sale or that his application for C Pty Ltd to be audited was not successful. These are matters that could have been the subject of negotiations and possibly agreed upon if the husband had been agreeable to a sale.

2. I am satisfied that in these circumstances the husband was wholly unsuccessful.

Other Matters

1. The wife’s application for C Pty Ltd to be sold was a result of her decision not to retain the business and the husband’s failure to elect whether he wanted to do so rather than being necessitated by any failure on the husband’s part to comply with a previous order.

2. Neither the husband nor the wife relied upon any settlement offers.

Conclusion

1. Having regard to these matters, I am satisfied that there are circumstances in this case which justify the Court departing from the general principle that each party should bear their own costs and that the husband should pay the wife’s costs of an incidental to her Application in a Case.  

2. Rule 19.18 of the Family Law Rules 2004 (Cth) (“the Rules”), provides with respect to the calculation of costs that the court may order that a party is entitled to costs of a specific amount, as assessed on a particular basis, in accordance with the method specified in the order or for a part of the case, or part of an amount assessed in accordance with Schedule 3 of the Act.  In my view, this aspect of the case needs to be concluded without further costs being incurred or any further call upon the resources of the Court. On that basis, the most appropriate course is to order costs of a specific amount.

3. The wife seeks her costs on a party and party basis and has annexed a schedule of those costs. That schedule includes the costs of the mediation as well as the costs of the Application in a Case and the hearing before me. Doing the best I can, I have deducted those amounts from the professional fees claimed which relate to the mediation, which leaves a figure of $2,892.25. I have similarly deducted those amounts charged by counsel for or incidental to the mediation leaving a figure of $14,693.60. I propose to fix the costs payable by the husband to the wife in the sum of $17,585.

4. The wife proposes that any costs be paid at the conclusion of the trial listed to commence on 28 January 2020 or in the event that the husband elects to purchase any of the motor vehicles or the motor boat. In circumstances where I have made orders for the sale of the motor vehicles and the boat and reserved the question of whether the husband should be entitled to retain them as part of his property entitlements for determination at trial, there would seem little point in an order requiring the husband to pay the costs in these circumstances.

5. There is also in my view little purpose in the husband being required to pay any costs at the conclusion of the final hearing, particularly when that hearing is a matter of weeks away and in circumstances where judgment, which will clarify his final entitlements may not be delivered for some time after the hearing. Although the husband did not make any submissions with respect to either the quantum of costs or seek time for payment if costs were ordered, I am satisfied the safer course, although the wife will be required to wait for payment longer than proposed, is to order that any costs be paid two months from the date of the order allowing the husband some time to meet that payment.  

6. For completeness I am not satisfied that the fact that the wife filed her submissions a matter of hours late should preclude her proceeding with her application for costs or that it would be in the interests of justice for it to do so. I propose to dispense with that time requirement pursuant to Rule 1.12 of the Rules.

Second Named Respondent

1. The second named respondent seeks an order that the husband pay his costs on a solicitor and client basis or in the alternative party and party costs.

Financial Circumstances

1. As submitted by the second named respondent, he has been a party to these proceedings since December 2018. As referred to in my reasons for judgment, these proceedings have been hard fought and there have been various contested interim hearings during the currency of the proceedings. All the parties have been legally represented throughout the proceedings.

2. I have already referred to the husband’s financial circumstances in these reasons and am satisfied that they would not preclude an order being made requiring him to pay the wife’s costs. I am similarly satisfied that they do not preclude an order being made requiring him to pay the second named respondents costs.   

3. The second named respondent is not a party to the marriage. He is a party to proceedings arising out of the breakdown of the marriage and his involvement in those proceedings is limited to his relatively small investment in C Pty Ltd. The second named respondent is not in receipt of legal aid and he has paid his costs to date and will be required to pay the costs of the trial from his own personal resources unless the Court otherwise orders.

Wholly Unsuccessful

1. For the reasons previously discussed in relation to the wife’s application for costs and in circumstances where the second named respondent in his Response similarly sought a sale of C Pty Ltd, I am satisfied that the husband has been wholly unsuccessful.

Conduct of the Proceedings

1. I have already referred in some detail to the way in which the husband conducted the proceedings. In my reasons for judgment I highlighted the obvious difficulty with the husband’s case that the sale should be delayed in circumstances where it was his case that C Pty Ltd “... is tanking on a daily basis.”

1. This is of particular relevance in circumstances where the second named respondent, a stranger to the marriage, is attempting to preserve the value of his relatively small interest in C Pty Ltd and effectively has no other interest in the proceedings.

2. I otherwise refer to my observations and findings with respect to the wife’s application that the husband pay her costs.

Settlement Offers

1. Although the husband was on notice that the second named respondent would be seeking an order for costs, he did not otherwise rely upon any formal offer of settlement.

Conclusion

1. I am satisfied that there are circumstances that justify the Court departing from the general principle that each party should bear their own costs. This is particularly where as in this case the party seeking costs is a stranger to the marriage.

2. As submitted by counsel for the second named respondent the husband’s opposition to and changing position with respect to the sale of C Pty Ltd and what I found to be his misconceived application to delay that sale to allow for an audit at worst demonstrates a desire to cause delay and at best a significant lack of judgement and disregard for the facts known to the husband at the time.

Quantum of Costs

1. The second named respondent submitted that in the circumstances of this case an order for indemnity costs would be a proper exercise of the Court’s discretion.

2. In ordinary circumstances when the court makes an order for one party to pay another party’s costs that order is made on a party and party basis. In Kohan and Kohan (1993) FLC 92-340 the Full Court emphasizing the exceptional nature of an order for indemnity costs said at page 79,614 as follows:

   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.

3. Holden CJ in Munday v Bowman (1997) FLC 92-784 at page 84,660 referring to the decision of Shepherd J in Colgate Palmolive Co v Cussens Pty Ltd (1993) 46 FCR 225 identified a number of examples that might warrant the court exercising its discretion in favour of an order for indemnity costs as follows:

   a)Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success.  In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts (see Fountain Selected MeatsPty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397)

   b)Making allegations of fraud, knowing them to be false, and the making of the relevant allegations of fraud (see Fountain Selected Meats Pty Ltd (supra).

   c)Evidence of particular misconduct causing loss of time to the court and to other parties (see Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd, (unreported, Federal Court of Australia, 3 May 1991)).

   d)The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (see Ragatta Developments Pty Ltd v Westpac banking Corporation (unreported, Federal Court of Australia, 5 march 1993)).

   e)An imprudent refusal of an offer to compromise.

   The circumstances which might support an order being made on an indemnity basis are not closed.

4. I found that the husband had been “unable to satisfactorily explain why C Pty Ltd could not be sold pending and audit, or if one was ordered pending trial” and that it was difficult to comprehend the way in which the husband put his case in circumstances where even he agreed that C Pty Ltd was “.. tanking on a daily basis”. Despite these observations I am not in a position at this time to make findings that the husband commenced or continued these proceedings in circumstances where properly advised, he should have known that he had no chance of success.

5. Although I am mindful that an order for party and party costs will leave the second named respondent paying the balance of his costs, I am not satisfied that the circumstances in this case are of the exceptional nature envisaged by the Full Court in Kohan. In these circumstances, I propose to order costs on a party and party basis. According to the schedule annexed to the second respondent’s submissions those costs are $12,651.17.  I am satisfied that in all of the circumstances of this case these costs are reasonable.

6. As previously referred to it is open to the court to make an order for a specified amount and for the same reasons I am satisfied that I should adopt that course in this case. I also propose to make orders as to the terms of payment in the same terms as the orders with respect to the wife’s application.  

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Macmillan delivered on 17 January 2020.

Associate: 

Date:  17 January 2020