Porte and Rahma and Ors (No 2)

[2010] FamCA 513

FAMILY COURT OF AUSTRALIA

PORTE & RAHMA AND ORS (NO. 2) [2010] FamCA 513

FAMILY LAW – COSTS – indemnity

Family Law Act 1975 (Cth)
Family Law Rules 2004

Fountain Selected Meats (Sales) Pty Ltdv International Produce Merchants Pty Ltd (1988) FCA 202
Kohan and Kohan (1993) FLC 92-340
Munday v Bowman (1997) FLC 92-784
Yunghanns and Yunghanns (2000) FLC 93-029

HUSBAND:

Mr Rahma

WIFE:

FIRST APPLICANT:

Ms Rahma

Mr Porte as Liquidator of S Corporation Pty Ltd (In liquidation)

SECOND APPLICANT:	S Corporation (Receiver and Managers appointed) (In liquidation)
RESPONDENT:	Ask Funding Limited

FILE NUMBER: MLC 8719 of 2007

DATE DELIVERED: 25 June 2010

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Mushin J

HEARING DATE: By written submissions

REPRESENTATION

SOLICITOR FOR THE HUSBAND:	In person
SOLICITOR FOR THE WIFE:	In person
COUNSEL FOR THE FIRST
APPLICANT:	Ms Maya Rozner
SOLICITOR FOR THE FIRST	Heydon & O'Loghlen
APPLICANT:
COUNSEL FOR THE SECOND	Dr Richard Ingleby
APPLICANT:
SOLICITOR FOR THE SECOND	Forte Family Lawyers
APPLICANT:
COUNSEL FOR THE RESPONDENT:	Ms Alison Umbers
SOLICITOR FOR THE RESPONDENT:	Westminister Lawyers

Orders

it is ordered that

1. Failing agreement as to costs within 28 days or such other time as may be agreed in writing, the costs of the Receiver and the Liquidator of and incidental to the Respondent’s Application in a Case filed on 28 July 2009, including the costs of these applications for costs, be assessed on an indemnity basis in accordance with Chapter 19 of the Family Law Rules 2004 and when so assessed be paid by the Respondent.

2. That the Respondent be and is hereby restrained by itself, its servants and agents from obtaining or attempting to obtain any indemnity or other benefit arising out of its liability for costs in accordance with paragraph 1 hereof from the husband and the wife or either of them without their written consent or order of the Court first had and obtained.

3. The said applications be otherwise dismissed.

4. Pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of counsel.

IT IS NOTED that publication of this judgment under the pseudonym Porte & Rahma and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 8719 of 2007

MR RAHMA 

Husband

And

MS RAHMA
Wife

BETWEEN

MR PORTE AS LIQUIDATOR OF S CORPORATION PTY LTD ( IN LIQUIDATION)
First Applicant

And

S CORPORATION (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION)
Second Applicant

And

ASK FUNDING LIMITED
Respondent

REASONS FOR JUDGMENT

introduction

1. On 15 May 2008 proceedings between the husband and the wife were resolved when the Court made final orders by consent ("the consent orders") pursuant to section 79 of the Family Law Act 1975 ("the Act").  S Corporation Pty Ltd ("the company"), which was essentially the alter ego of the husband, was the second Respondent in those proceedings and, in particular, the consent orders.

2. Following the making of the consent orders claims were made against the company which it apparently could not satisfy.  Accordingly, the company was placed into liquidation.  Further, Bendigo and Adelaide Bank (“the Bank”), which held securities over certain real properties which were the subject of the consent orders appointed Receivers and Managers ("the Receiver") to enforce those securities.  There is no issue as to either the liquidation or the appointment of the Receiver.

3. On 3 July 2009 the company’s Liquidator ("the Liquidator") filed an application in this Court pursuant to the provisions of section 79A of the Act ("the Liquidator's application") seeking that the consent orders be set aside on the basis that circumstances which had arisen since they were made had rendered compliance with the consent orders impracticable. That application remains extant.

4. On 28 July 2009 ASK Funding Ltd ("the Respondent") filed an application ("the Respondent's application") in the Court seeking leave to intervene and in the event of such leave being granted seeking that -

   (a) final orders made in the proceedings include payment to [the Respondent] of $331,687.37 plus interest in accordance with credit contracts entered into by the husband and the wife; and

   (b) the payment to [the Respondent] be made in priority to any distribution of funds to the husband, the wife or unsecured creditors of the husband, the wife or [the company].

5. The Respondent's application came before Brown J on 3 August 2009. Her Honour gave the Respondent leave to intervene and made various procedural orders, the particulars of which are not immediately relevant. The Liquidator's application, the Respondent’s application and the responses thereto of the husband and the wife were otherwise adjourned to 17 August 2009 and her Honour made an order that a copy of those orders be served on the Bank.

6. At an interim hearing on 10 August 2009 the Receivers sought and were given leave to intervene in the proceedings. The Receiver’s application filed that day also sought various orders to progress the receivership. The balance of that application was adjourned to 17 August 2009.

7. The matter returned and proceeded before Brown J on 18 and 19 August 2009.  Her Honour made various orders with regard to the relevant property which are not relevant to the present applications.  Her Honour placed the matter in my docket and listed it for hearing before me on 18 January 2010.  An order was made excusing the attendance of the husband, the wife and the Receiver from that hearing.

8. When the matter came before me on 18 January 2010, the husband and the wife represented themselves and the Respondent, the Receiver and the Liquidator were all represented by Counsel.  The Receiver’s appearance is relevant to these applications.  I will consider that matter below.

9. At the commencement of the hearing I raised the issue of the Court's jurisdiction to hear the Respondent's application with Counsel for the Respondent.  I indicated that I had grave reservations as to whether there was jurisdiction and power.  Counsel submitted that she was not fully prepared to argue the issue at that time and also wanted to obtain further instructions from her client.  She sought a short adjournment for that purpose.  I granted the adjournment, having first been given an indication by Counsel that the application might be withdrawn.  I ordered that if there were to be a withdrawal of the application, that was to take place within seven days and if it were not withdrawn it was to be relisted before me for argument and determination.  I delivered reasons for judgement ("the reasons") at the conclusion of submissions.

10. The application was withdrawn within the specified time.

The present applications

1. Consequent upon the withdrawal of the Respondent's application, the Liquidator and the Receiver each filed an Application in a Case for costs on 23 February 2010. The Respondent’s Response to those Applications was filed on 30 March 2010. Those applications were returnable before me on 13 April 2010. On 7 April 2010 my Associate received a joint written request from the solicitors for the Receivers, the Liquidators and the Respondent that the date be vacated and the applications proceed by way of written submissions. I accepted that request and made orders in Chambers for the cost applications to be conducted on the basis of written submissions and included a timetable for the filing of those submissions.

2. In accordance with the orders referred to in the previous paragraph, I have received and considered the following written submissions:

   a)submissions on behalf of the Receiver's in support of the application for costs filed on 27 April 2010;

   b)submissions on behalf of the Liquidator in support of the application for costs filed on 27 April 2010;

   c)submissions on behalf of the Respondent in response to the applications of the Receiver and Liquidator filed on 11 May 2010;

   d)submissions on behalf of the Receiver in reply to the Respondent's submissions filed on 14 May 2010; and

   e)submissions on behalf of the Liquidator in reply to the Respondent's submissions filed on 17 May 2010.

   It has also been necessary to refer to several of the source documents referred to in the various submissions detailed above as well as other documents referred to during the hearing.

The applicants' proposals

1. Both the Receiver and the Liquidator have sought indemnity costs against the Respondent of and incidental to the Respondent's application filed on 28 July 2009.  In the event that I determine that the Respondent should pay costs but not on an indemnity basis, each of the applicants seeks costs as between parties.  In its Response to an Application in a Case referred to above, the Respondent sought that no order for costs be made.  However, if any order were to be made it should be made on a party/party basis and not an indemnity basis and then only in favour of the Liquidator.

The receiver's standing

1. It was submitted on behalf of the Respondent that no order for costs should be made in favour of the Receiver.  The written submission stated:

   25.  It is submitted that [the Respondent's] application was a matter between the Liquidator, the husband, the wife and [the Respondent].  The Receivers were not directly affected by [the Respondent's] Application, and this is reflected in the transcripts of the hearings held on 10 August, 18 August and 19 August 2009.  Any award of costs (whether it be on a party/party basis or otherwise) in favour of the Receivers would, it is submitted, be tantamount to a windfall.

   26. … More specifically, the Receivers claim costs incurred before they were even granted leave to intervene.  They even claim costs … for attending the hearing on 18 January 2010 and in circumstances where the receivers had previously expressly sought to be excused from attending that hearing … .

2. The Respondent's application was brought against the husband, the wife and the Liquidator.  Specifically, the Receiver was not a party to that application.  However, the Receiver was represented at the hearing before me on 18 January 2010 despite having been excused in accordance with the orders made by Brown J referred to above.  The Solicitor for the Receiver informed me at the time that she announced her appearance that she had been excused and hoped to be "re-excused".  I asked whether the Receiver needed to be represented at the hearing.  Counsel for the Respondent did not make any submission or application suggesting that the Receiver did not have standing to appear at the hearing.

3. During the hearing a potential unforeseen difficulty with the orders made by Brown J referred to above was raised, which matter directly impacted on the Receiver.  That arose out of a notation to the orders which I referred to in the reasons in the following terms:

   9. In the event that [the Respondent’s application] is withdrawn, it will have been concluded, subject to any application for costs.  I have expressed the view that paragraph 16 of the orders made by Brown J do not, in any way, limit the legislative requirement of the receiver paying any surplus from the receivership to the liquidator to enable the liquidation to be completed.  Further, Court note C of that order is in the following terms:

   That the question of disbursement of any surplus of funds in the hands of the receivers upon repayment of all debts and associated costs due to the bank and/or the receivers, shall be determined consequent upon the outcome of the dispute between the liquidator and [the Respondent], pursuant to paragraph 16 hereof.

   10. I have also expressed the view that, in particular, that being a note, rather than an order, does not create any legal obligation, and in any event its very wording does not operate as any sort of injunctive relief.  Accordingly, in my view, the only potential encumbrance to the receiver paying any surplus to the liquidator, as I have previously referred, may flow from the application of [the Respondent] remaining extant, rather than as a result of any order of the Court.

4. Paragraph 16 of the orders of Brown J referred the dispute between the Liquidator and the Respondent as to priority both in respect of debts owed by the husband and the wife and also within the liquidation to myself for hearing on 18 January 2010.

5. Counsel for both the Liquidator and the Receiver acknowledged that the Note to the order quoted above was not enforceable as if it were an order of the Court.  However, their respective clients regarded themselves as being encumbered by it, if only because it was a pronouncement of the Court.  As I referred to in the reasons, the Note might have been seen as preventing the Receiver from paying any surplus to the Liquidator prior to the finalisation of the Respondent's application.  Accordingly, in my view the Receiver had an interest in the Respondent's application which, in turn, gave the Receiver standing in that application.  As a result, I find that the circumstances do not enable the Respondent to avoid an order for costs in favour of the Receiver by virtue of the issue of standing.

The Respondent's liability for costs

1. Having determined that the Receiver has standing to apply for costs in the Respondent's application and there being no issue relating to standing in respect of the Liquidator, I now turn to the issue of the merits of the applications for costs.  There is no factor to differentiate between the two applicants for costs and accordingly, I consider the question of the merits of those applications together.

2. The power to make an order for costs is contained in section 117 of the Act. Subsection (1) provides that -

   … each party to proceedings under this Act shall bear his or her own costs.

3. Subsection (2) empowers me to make an order for costs as I consider "just".  In considering whether it is "just" to make an order I am required to "have regard to" a number of factors provided in subsection (2A) to which I now turn.

4. I am required to consider the financial circumstances of each of the parties to the proceedings. No submission has been made with regard to this factor with respect to the three parties to the present costs applications. However, I must have regard to the financial circumstances of the husband and the wife who are also parties to the Respondent's application under the Act. The entire context of these proceedings establishes to the necessary standard that if only by virtue of the receivership and liquidation at the heart of the Respondent's application, the husband and the wife have been placed under a significant degree of financial pressure, whether reasonably or otherwise. The oral submissions made by both the husband and the wife during the hearing of the Respondent’s application confirm that view. There are further potential consequences to the financial circumstances of both the husband and the wife of the present applications for costs to which I will refer below.

5. I am next required to have regard to whether "any party to the proceedings is in receipt of assistance by way of legal aid … ."  That factor is not relevant to the present applications.

6. I am required to have regard to the conduct of the parties to the proceedings in relation to those proceedings.  It is not submitted that there is any relevant issue in relation to that factor.

7. I am required to consider "whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the Court."  Again, that factor is not relevant.

8. Importantly, I am required to consider "whether any party to the proceedings has been wholly unsuccessful in the proceedings." It has been submitted on behalf of both the Receiver and the Liquidator that the Respondent has been wholly unsuccessful in accordance with the intention of this provision.  In particular, it was submitted on behalf of the Liquidator that the Respondent's application was "ill-considered", it had "no proper basis" and disclosed no "entitlement to the relief sought".  It was submitted on behalf of the Liquidator that the Respondent's application -

   had no basis in law and was bound to fail, even if the Court had jurisdiction and power to decide it.

9. In response to that, Counsel for the Respondent submitted:

   19.  On 18 January 2010, His Honour Mushin J expressed his concerns in relation to the jurisdictional basis of [the Respondent's] application.  Accordingly, an adjournment was requested so as to obtain an opportunity to advise [the Respondent] as those (sic) matters, including the references made to the decision In the Marriage of Prince.

   20.  After receiving that information, and taking into account the fact that there were alternative recovery proceedings available to [the Respondent] in other jurisdictions, [the Respondent] elected to discontinue its application filed in this Court.

   21.  The submissions filed on behalf of the Liquidator and the Receiver on 27 April 2010 assert that [the Respondent's] application was hopeless, but both failed to elaborate as to why that was the case.

   22.  The fact remains that the issues raised on 18 January 2010 have not been fully explored and it is respectfully submitted any claim that the application was doomed to fail cannot be properly tested now that the matter has been discontinued.

10. The reason why the Respondent's application was not "properly tested" was that it was withdrawn.  No order was made on the application and accordingly the Respondent was "wholly unsuccessful" in that application in accordance with the intent of the legislation.  It is reasonable to infer that at least one basis of the withdrawal of the application was the indication which I had given to the Respondent's Counsel with regard to my concerns on the issues of both jurisdiction and power and also the question of whether there was anything practical to be gained by considering the Respondent's application at that stage.  It is spurious to suggest that those facts do not establish that the application has been "wholly unsuccessful".

11. Returning to the legislation, I am required to consider whether there has been an offer in writing relevant to the application.  There is no such offer.

12. There is no other matter relevant to my consideration.

13. I find that because the Respondent has been wholly unsuccessful any application and pursuant to the provisions of section 117 of the Act the Respondent is liable to both the Receiver and the Liquidator for costs.

Party/party or indemnity costs

1. Both the Receiver and the Liquidator seek costs on an indemnity basis in accordance with costs agreements with their respective solicitors.  Counsel for the Respondent submits that any order for costs should be as between parties.  I now turn to a consideration of that issue.

2. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) FCA 202, Woodward J held (at para. 20):

   I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, 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 or the clearly established law. Such cases are, fortunately, rare. But when they occur, the Court will need to consider how it should exercise its unfettered discretion.

3. In Yunghanns and Yunghanns (2000) FLC 93-029 the Full Court held with regard to awarding indemnity costs (at p 87,471):

   It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed, and that it is not a condition precedent to the exercise of the discretion that some collateral purpose or species of fraud be established against the party against whom such an order is sought. All that is required is that the court asked to exercise the discretion be satisfied that some “particular facts and circumstances of the case in question warrant the making of an order for the payment of costs other than on a party and party basis”: per Shepherd J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233.

1. In my view, there are two factors in these applications which warrant an order for costs being made against the Respondent on an indemnity basis.  The first of those is that the Respondent's application had no merit to it from its inception.  In terms of the statement by Woodward J from Fountain's case quoted above, the Respondent, properly advised, should have known that the application had no merit and was doomed to failure.  To a certain extent, the Respondent's Counsel admitted as much when, in response to a question from me, she conceded that the timing of her client's application was "hypothetical".

2. The second factor warranting that costs be ordered on an indemnity basis concerns the legislative requirement which binds both the Receiver and the Liquidator to pass on any debt which is accrued as a result of their respective duties.  Accordingly, if I were to order costs to be paid on other than an indemnity basis the Receiver and the Liquidator would both be obliged to deduct the balance of the costs for which each of them is liable arising out of the Respondent's application as a cost of the receivership and liquidation.  In my view that would be an unconscionable consequence of an order for other than indemnity costs.

3. There is another issue to be taken into account in my consideration of whether to award costs on an indemnity basis.  In Munday v Bowman (1997) FLC 92-784 Holden CJ drew on a number of previous authorities to summarise some of the circumstances in which indemnity costs might be ordered. His Honour referred to the decision of the Full Court of this Court in Kohan and Kohan (1993) FLC 92-340 with regard to a potentially prohibitive factor to making an indemnity costs order. The Full Court held in Kohan (at p 79,605):

   In an appropriate case, the Court has a discretion to order costs on an indemnity basis and such costs may be ordered where they have been incurred under a costs agreement which departs from the usual scale of costs. However, 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.

4. The Family Law Rules 2004 ("the Rules") provide as follows with regard to indemnity costs:

   19.08(3) A party applying for an order for costs on an indemnity basis must inform the Court if the party is bound by a costs agreement in relation to those costs and, if so, the terms of the costs agreement.

5. The written submissions on behalf of the Receiver include the following:

   28.  The applicant seeks an order that costs be fixed in the sum of $8,518 and in the alternative that costs be taxed in default of agreement.

6. On 18 March 2010 the solicitor for the Receiver swore and filed an affidavit in support of her client's application.  The affidavit annexed a copy of the costs agreement between the solicitor and the Receiver which includes the "charge out rates" for each of the relevant principals and employees of the solicitor's firm.  It is neither necessary nor appropriate for me to include those rates in these reasons for judgement.  The rates are reasonable and well within the range of charges regularly charged in this jurisdiction.  No submission has been made to the contrary.  Accordingly, I find that it is reasonable in all the circumstances that the Respondent should be required to pay indemnity costs on the basis of the charges included in the cost agreement.

7. The quantum of costs claimed on behalf of the Receiver has been challenged on behalf of the Respondent, particularly with regard to certain charges claimed early in the proceedings. On that basis it is appropriate to refer the question of the quantum of costs to a Registrar for assessment in accordance with the Rules.

8. On 22 April 2010 the solicitor who has the care and conduct of the matter on behalf of the Liquidator swore and filed an affidavit in support of his client's application. The affidavit annexed a copy of the costs agreement between the solicitor and the Liquidator which also includes the charge out rates applicable to the principal solicitor and other employees of the firm. Those charge out rates are almost identical to those in the costs agreement referred to in paragraph 41 above and are likewise inappropriate to be included in these reasons for judgement. The solicitor's affidavit also annexed an itemised account of the cost which, it is asserted, would be payable on an indemnity basis. The total costs amount to $15,860. While no challenge to that quantum has been made on behalf of the Respondent, it is appropriate to refer that question to a Registrar for assessment in accordance with the Rules.

Orders

1. I will make the usual order for the costs of the Receiver and the Liquidator to be assessed by a Registrar on an indemnity basis in accordance with the Rules. However, I will give the parties the opportunity to resolve issues of costs between them without resort to the time consuming and costly assessment process.

2. It is unclear as to whether the Respondent has a contractual right to obtain an indemnity from the husband and the wife or either of them in respect of any costs order made against the Respondent.  It is possible that such a right may exist.  In the circumstances, it may be seen as being unconscionable for the Respondent to have any right of indemnity against them. 

3. Each of the husband and the wife entered into various separate credit contracts with the Respondent between June 2007 and May 2008. Between them a total of approximately $217,335.50 was provided. Pursuant to the terms of the contracts the relevant interest rates range between 16.95% and 18.25% per annum. At the time of filing the Respondent’s application on 28 July 2009 and officer of the Respondent swore that the total of the husband and the wife’s combined liability was $331,687.73, which sum included $22,919.35 on account of “enforcement expenses”.

4. On 14 January 2010, the Managing Director of the Respondent filed an affidavit in these proceedings.  He swore that as at that date the debt owing to the Respondent by the husband and the wife stood at the total sum of $378,762.26. That is an increase of approximately $47,000 over a 6 month period. Moreover, on the basis of his evidence it appears that approximately $44,000 of the overall liability is owed on account of “Legal fees and enforcement expenses”.

5. I am conscious that this matter has not been argued and in particular, that the Respondent has not had the opportunity to be heard on it.  With the intent of saving a further hearing with the resultant costs while affording the Respondent natural justice in its right to be heard on the issue, I will order that the Respondent be restrained from seeking any indemnity against the husband and the wife or either of them in respect of the costs orders without their written consent or order of the Court first had and obtained.

I certify that the preceding fouty-seven (47) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Mushin

Associate: 

Date:  25 June 2010