Pencious & Pencious (No 2) - [2012] FamCA 212

FAMILY COURT OF AUSTRALIA

PENCIOUS & PENCIOUS (NO 2)

[2012] FamCA 212

FAMILY LAW - COSTS – Indemnity costs where husband unsuccessful in seeking an order that wife’s solicitor be restrained from acting.
Independent Children’s lawyer seeks costs based on involvement - Involvement disputed by husband as unnecessary - Objection rejected and order made.

Family Law Act 1975 (Cth)

Arundel Chiropractic Centre Pty Ltd and Deputy Commissioner of Taxation [2001] HCA 26; [2001] 179 ALR 406
Fitzgerald (as child representative for AF (Legal Aid Commission of Tasmania)) v Fish and Anor (2005) 33 Fam LR 123
Kohan and Kohan (1993) FLC 92-340
Latoudis v Casey (1991) 70 CLR 534
Limousin v Limousin (Costs) (2007) 38 Fam LR 478
Munday v Bowman (1997) FLC 92-784
Penfold v Penfold (1980) 144 CLR 311

APPLICANT:

Mr Pencious

RESPONDENT:

Ms Pencious

INDEPENDENT CHILDREN’S LAWYER:

FILE NUMBER:

MLC

11069

2008

DATE DELIVERED:

5 April 2012

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

Cronin J

HEARING DATE:

By way of written submissions

SUBMISSIONS RECEIVED FROM

SOLICITOR FOR THE APPLICANT:

Hardys

SOLICITOR FOR THE RESPONDENT:

Adrian Abrahams

SOLICITOR FOR THE INDEPENDENT CHILDREN’S LAWYER:

Lampe Family Lawyers

Orders

That the husband pay the wife’s costs in a sum to be agreed and failing agreement, as assessed pursuant to paragraph 2 hereof.
Pursuant to Rule 19.18(1)(b) and (c) and for the purposes of paragraph 1 of these orders the wife is entitled to indemnity costs calculated according to the costs agreement she has executed with Adrian Abrahams and not according to the schedule to the Family Law Rules 2004 but for the purposes of any assessment, the applicable principles are those set out in Rule 19.34(1), (2) and (3).
That the husband pay the Independent Children’s Lawyer’s costs fixed in the sum of $10,947.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Pencious & Pencious (No 2) 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 MELBOURNE

FILE NUMBER: MLC 11069 of 2008

Mr Pencious

Applicant

And

Ms Pencious

Respondent

Independent Children’s Lawyer

REASONS FOR COSTS JUDGMENT

Two applications have been made for costs. The first is by the wife and the second by the Independent Children’s Lawyer.
The wife seeks indemnity costs of $212,964 against the husband. The Independent Children’s Lawyer seeks costs of $10,947 against the husband. The husband’s position is that the wife’s application should be adjourned until the determination of the overall proceedings.
The overall proceedings include property and parenting matters.
In relation to the application of the Independent Children’s Lawyer, the husband submitted there was no need for her involvement in the proceedings I determined and therefore no basis for an order for costs.
Section 117(1) of the Family Law Act 1975 (Cth) (“the Act”) provides that subject to some other provisions of the Act, each party shall bear his or her own costs. Section 117(2) however provides that if the Court is of the opinion that there are circumstances that justify it in so doing, it may, subject to some other provisions, depart from the principles set out above and make such order that it considers just. One of such considerations is the provisions in s 117(2A).
The considerations in s 117(2A) of the Act include the financial position of each of the parties, their conduct of the procedural aspects of the litigation, their rights to legal aid, the question of whether any of them has been wholly unsuccessful and finally any other matter that the Court considers relevant.
No one factor in that list is prescribed as being more important than any other (Fitzgerald (as child representative for AF (Legal Aid Commission of Tasmania)) v Fish and Anor (2005) 33 Fam LR 123).
In Penfold v Penfold (1980) 144 CLR 311 the High Court said that a judge did not have to specify the circumstances which justified making an order for costs but in this case, it is a convenient starting point to show just that.
An order for costs is made to compensate a party against expense incurred in a proceeding; it is not intended to be punitive in nature (Latoudis v Casey (1991) 70 CLR 534 at 543).
Rule 19.18(1) of the Family Law Rules 2004 provides that if the Court makes an order for costs, it may do so in a number of ways including by allowing indemnity costs. But even indemnity costs can be controlled or regulated because under Rule 19.34, the Court may set out guidelines for the assessor whilst still leaving the assessor in a position to determine whether the costs were incurred reasonably or appropriately. Counsel for the husband pointed to the observations of Callinan J in Arundel Chiropractic Centre Pty Ltd and Deputy Commissioner of Taxation [2001] HCA 26; [2001] 179 ALR 406 where his Honour observed that indemnity costs should be exceedingly rare because they have a tendency to encourage extravagance and put the quantum of legal fees beyond the effective scrutiny of the courts and their taxing officers. With great respect, to obtain an order for indemnity costs in this Court, the applicant must provide a copy of the costs agreement where it can be scrutinised to see whether it is reasonable in the circumstances. Furthermore, with a scale that can be used to compare a costs agreement, the Court has some idea of whether there is the sort of extravagance to which his Honour was referring.
In addition, the experienced assessor is a registrar who might well understand whether a step taken or a document prepared was reasonable and appropriate having regard to what was ultimately in dispute between the parties. Accordingly, I have no concerns about the evil to which Callinan J was referring.
There is also no question that this Court has jurisdiction to make an order for indemnity costs (Limousin v Limousin (Costs) (2007) 38 Fam LR 478).
To make an order for indemnity costs however, the court must make a determination that there ought to be a departure from the usual basis that costs should be borne by the party themselves. If that decision is made then the question arises whether an order should be made on a party and party basis.
Rule 19.19 of the Family Law Rules provides that there should be a maximum amount fixed by reference to a schedule. A comparison with that sum which is sought by the applicant on an indemnity basis is a matter that should be taken into account in the assessment process. Another consideration is whether, having regard to the principle that this Court is a jurisdiction in which costs do not follow the event, a successful litigant will be substantially financially disadvantaged because the degree of difficulty warranted representation by experienced lawyers who charge more than the costs scale provided by the Rules of the Court. In my view, that is a factor which can and should be taken into account.
In this case, the parenting and property substantive disputes remain unresolved but that was not what I was determining. The hearing before me ranged over eight days. It involved the husband seeking an order restraining the wife’s lawyer from acting in the substantive proceedings. In my reasons for judgment, I described the proceedings as protracted and bitter with continual disputes.
I ultimately dismissed the husband’s application for the injunction. In my reasons, I said I was not confident that I could accept anything the husband told me. In addition, I said that wherever there was a clash between the evidence of the husband and the wife, I accepted the evidence of the wife.
As for the specific allegations, I found that nothing that the wife’s solicitor had done warranted court intervention. I rejected the husband’s assertion that the employee solicitor of the wife acted inappropriately. I found there was nothing untoward in what an employee secretary of the wife’s solicitor did relating to her presence in the court room and the possibility of her hearing confidential discussions.
Counsel for the wife submitted that the husband’s motivation in pursuing the application as improper and inappropriate. Counsel for the husband submitted that it was not open to infer that there was an improper motivation or that the husband must have known his allegations were false. I would not find that there was an improper motivation but it was certainly misguided. I reject the suggestion of the husband that this was simply a case where the outcome could be decided on the basis that someone had to lose. In my reasons for judgment, I made the observation that serious allegations of impropriety were made against the wife’s solicitor and they were found wanting. It is also significant that the serious misconduct allegations were made not only by the husband but also by his lawyers. That dispute caused the proceedings to be protracted.
Notwithstanding the authority (see paragraph 8 above) which does not require a court to make specific findings as to a justifiable circumstance to make an order for costs, I am satisfied in this case that the husband was misguided, had extensive legal advice and pursued the issue over an extensive period of time requiring all major witnesses to be called for cross-examination. He has put the wife to unnecessary and unjustifiable expense.
Before making a costs order however, the Court must consider the matters set out in s 117(2A) of the Act.
Counsel for the wife submitted that the wife faced a huge financial burden as a result of the costs she incurred notwithstanding the husband’s application, although directed at her, related to her solicitor. She receives little or no child support and has a limited income from her business. Counsel submitted that the evidence of the husband’s financial circumstances was set out in his financial statement which is now over three years old but there is more recent evidence about financial activity in affidavits filed in the proceedings. That issue too was controversial because, without an opportunity to test the evidence, the husband filed an affidavit explaining various financial transactions. Reference has been made by counsel for the wife to this issue in a reply but I am satisfied that it does not affect or alter my decision. Counsel for the husband submitted that the court could not rely on the documents to which the wife pointed because evidence of the financial circumstances as set out, was out of date. That was overcome by the affidavit filed on 23 March 2012. That set out the various liabilities that the husband has. He referred to the fact that he had sustained injuries in a motor vehicle accident and his payments from the Transport Accident Commission ceased in February 2012 and he was currently waiting a Centrelink determination as to whether he could receive a disability support pension. He set out the extensive debts that he owed and the limited number of bank accounts in which he had money. Curiously, he made no specific reference to the costs that he had incurred bearing in mind that he had a number of solicitors acting for him during the life of the proceedings and was represented by senior counsel throughout. He confirmed that the only equity between the parties as he saw it, was the unencumbered home in which the wife lived and which had a value in the vicinity of $2 million. On any view however, neither he nor the wife could be seen to be impecunious under those circumstances. The issues for future determination in the property settlement will leave both parties with assets.
Counsel for the husband suggested that the final determination of any costs order should be left until the property proceedings were concluded because at that stage, the parties would know their financial positions. I do not accept that is appropriate having regard to the amount of money that the wife has expended on what has been significant litigation. The issue has been determined and subsequent financial proceedings will have little impact because of what I have said above.
Counsel for the wife also submitted that in respect of the conduct of the proceedings, the allegations were serious and involved a number of people in circumstances where inquiries could have been made of a number of witnesses who were ultimately called by the wife. Counsel submitted that the lack of attention to that detail was indicative of the finding that I made about the husband’s obsession with having the wife’s lawyers removed from the proceedings. For his part, counsel for the husband submitted that it was not open to the wife to rely upon such matters in circumstances where errors were made by the wife in the proceedings in the Children’s Court and she was “hardly blemish-free” in relation to one specific incident. The justification for costs is not limited to any one factor. In respect of a scale of criticisms, much more must be said about the husband than the wife. Many of the matters put to the wife had little to do with the critical issue. I reject the suggestion that the wife somehow contributed to the problem.
Counsel for the wife then submitted that the husband had been wholly unsuccessful because he failed at every level and that was important having regard to the length of time involved which had a side effect of stalling the substantive proceedings. Counsel for the husband did not address that specific issue nor could he.
It was the wife’s submission that there was an unusual feature of this case in that a written offer of settlement was made. That offer was set out in a letter dated 15 September 2011 in which the solicitor for the wife offered to withdraw from the proceedings on the basis of a number of conditions. The terms of that offer were attached to the submission. The submission read that it was the wife’s case that her offers were generous, pragmatic and had been given to address the overall proper and efficient conduct of the proceedings but importantly, she did not have to do so as was established by the ultimate outcome. Counsel for the husband submitted that the orders made did not reflect the position of the wife’s offer. Unlike the civil jurisdiction, the preciseness of the order is not critical. The terms of the offer in this case were magnanimous and sensible. The husband rejected the proposal which if it had been accepted, would have enabled the wife to have moved to a new firm of solicitors and have the substantive proceedings concluded. The husband’s approach as set out in the response of his solicitor at that time smacks of his obsession. It is almost trite to say that the husband chanced his arm and lost.
On any view, this is a case where an order for costs should be made.
The question then remains as to whether there ought to be an order for indemnity costs in favour of the wife. Counsel for the wife referred me to Munday v Bowman (1997) FLC 92-784 where a number of examples were given in which indemnity costs might be ordered. I do not intend to repeat those here. Most of the examples epitomise this litigation.
However, the Full Court decision of Kohan and Kohan (1993) FLC 92-340 still has persuasive importance. There the Full Court pointed out that indemnity costs were an exception in all jurisdictions. It is not unusual in this jurisdiction with complicated litigation to which I earlier referred, to see parties seeking experienced lawyers who charge more than the scale. Market forces in many ways have a very significant part to play there.
There are two significant reasons why indemnity costs should be ordered here. First, the matter was not simple from the wife’s perspective and to retain the solicitors of her choice, she had no choice other than to participate in and remain in, the husband’s litigation. Secondly, the husband had been offered a way out which the wife had magnanimously offered, to ensure a resolution could occur for the substantive issues. The husband’s rejection of the offer was unreasonable.
I have examined the costs agreement tendered, and the costs to be charged are transparent and hardly significantly greater than the scale. It must also be said that the husband was represented by the same calibre of experienced lawyers and at the hearing itself over six days, was represented by senior counsel. I am unaware of what costs he was incurring because it was not evident from the material submitted.
One important observation however, was that in Kohan (supra) one of the considerations was that the Court should have the ability to compare the costs agreement with the scale. As I pointed out, I have had that advantage here.
Unfortunately, what I do not have is a breakdown of the costs of the wife. Having regard to the uncertainties about what work was done for the fees charged, I could not make an order in the sum quantified by the wife even though what is proposed is indemnity costs; that is, a complete indemnity for what she incurs. I am not convinced that a blank cheque approach is appropriate. I am prepared however to find that the scale used by the wife in the costs agreement is not unreasonable having regard to the nature of the litigation, the experience of her practitioners and the way in which the husband approached the case. As earlier indicated, costs under those circumstances are not intended as a punishment or penalty but rather to compensate the litigant who was dragged along particularly in this case, where it was unnecessary. This is a case therefore where the various requirements for a departure from the scale of costs on an indemnity basis is the appropriate approach. I propose under those circumstances to make an order that in default of agreement as to the amount, an assessment be undertaken by the Registrar using the scale of costs in the costs agreement of the wife but the wife will need to satisfy the Registrar that if there is no agreement, the costs were incurred reasonably.
I turn then to the question of the request for costs by the Independent Children’s Lawyer. The submission of the Independent Children’s Lawyer was that the provisions of s 117(3) and (4) apply. There is no suggestion in this case that the parties themselves were subject to any legal aid grant.
The Independent Children’s Lawyer submitted that the husband had the capacity to pay the costs and whilst I have some concerns about the extent of his capacity, on any view, if his version of the evidence as indicated in the affidavit recently filed is correct, he will be receiving some funds out of a property settlement where there is an unencumbered home worth at least $2 million.
The Independent Children’s Lawyer submitted the ironic point that although the husband indicated he was unemployed, he continued to be privately represented and no doubt funded his own lawyers albeit there is no evidence before me as to how that occurred.
The Independent Children’s Lawyer submitted that this was an interim defended hearing and it was the husband’s conduct that led to the continuation of proceedings which should have been withdrawn.
Counsel for the husband submitted that there was no need for the Independent Children’s Lawyer to be involved in the proceedings. It is a little late after the event for that submission to be made. I take into account that the husband was represented by senior counsel and at no stage was the presence of the Independent Children’s Lawyer’s counsel ever objected to.
The submission continued that the Independent Children’s Lawyer involvement was not only not required but did not significantly affect the determination of the proceedings. It was submitted that the Independent Children’s Lawyer could have communicated her views and then sought to leave without incurring the costs of representation. The Independent Children’s Lawyer submitted that attendance was required because the issue involved the children. That was particularly so as the husband criticised not only the mother’s solicitors but also the Independent Children’s Lawyer. I agree with that.

Section 68LA sets out the nature of the role of the Independent Children’s Lawyer. That person must form an independent view based on the evidence as to what is in the best interests of the child and act accordingly. That happened because the Independent Children’s Lawyer’s position was that there was no basis for the wife’s lawyer to be removed from the proceedings.
Had the husband been successful, the Independent Children’s Lawyer would have been dealing with another lawyer for the wife in parenting proceedings which her counsel made clear were crying out for a resolution for the sake of the children. This was not a case of the Independent Children’s Lawyer simply adding to the delay or the number of lawyers involved. Cross-examination was directed to issues about bringing the parenting proceedings to an end. In addition, the husband attacked the wife about her manipulation of the children. That was a matter that had a direct relevance for the Independent Children’s Lawyer.
The specific duties of the Independent Children’s Lawyer are set out in s 68LA(5). All of those matters seem to me although not asserted by either party, to have been carried out. In those circumstances, there is not only a justification for an order for costs but I note that the only costs sought relate to counsel’s appearance which are fixed at $10,947. Having regard to the fact that this is a sum sought for a hearing that went for six days, it could hardly be said to be unreasonable in circumstances where the husband was represented by senior counsel. Accordingly I propose to make an order.

I certify that the preceding Forty One (41) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 5 April 2012.

Associate:

Date: 5 April 2012