Preston and Maine (No. 2)

[2013] FamCA 524

FAMILY COURT OF AUSTRALIA

PRESTON & MAINE (NO. 2) [2013] FamCA 524

FAMILY LAW – COSTS – Applicant to pay the respondent’s costs but not on an indemnity basis

Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth)

Colgate-Palmolive Company Pty Ltd (1993) 46 FCR 225
Haykal v Krawiec (No. 4) (2012) FamCA 748
I & I(No. 2) (1995) FLC 92-625
Kohan and Kohan (1993) FLC 92-340
Penfold v Penfold (1980) FLC 90-800
Prantage and Prantage [2013] FamCAFC 105
Yunghanns, PN & Ors v Yunghanns, DB & Orsand Yunghanns, MB (2000) FLC 93-029

APPLICANT: Mr Preston

RESPONDENT: Ms Maine

FILE NUMBER: MLC 9572 of 2012

DATE DELIVERED: 15 July 2013

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: By way of written submissions

SUBMISSIONS RECEIVED FROM

COUNSEL FOR THE APPLICANT: Mr Combes

SOLICITOR FOR THE APPLICANT: Resolve Conflict Lawyers

COUNSEL FOR THE RESPONDENT: Ms Wheeler

SOLICITOR FOR THE RESPONDENT: Macgregor Barristers & Solicitors

Orders

1. That the applicant pay the respondent’s costs of and incidental to the proceedings but only from and including 3 April 2013 in such sum as may be agreed and failing agreement, as assessed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Preston & Maine (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 9572 of 2012

Mr Preston

Applicant

And

Ms Maine

Respondent

REASONS FOR COSTS JUDGMENT

1. On 23 April 2013 I delivered judgment dismissing an application by Mr Preston (“the applicant”) for leave to proceed out of time to seek orders for the alteration of property interests against his previous de facto partner (“the respondent”).

2. In dismissing that application, I observed that despite the applicant’s assertion to the contrary, the evidence supported the conclusion that he was out of time to bring the application. In making that finding, I rejected the applicant’s view about when the de facto relationship came to an end. Then, in contemplating the factors that might otherwise justify an order for the extension of time, I found the applicant’s claim had no merit or prospect of success.

3. In paragraph (3) of the 23 April 2013 orders, I granted the parties liberty to seek costs through written submissions. The respondent now seeks costs against the applicant including on an indemnity basis for the entirety of the proceedings, claiming $36,793.10.  Each party filed written submissions.

4. The respondent always opposed the substantive application for a property settlement and not just on the jurisdictional issue. She maintained that she did not have an interest in property that could be altered nor the money or resources to enable any payment to be made to the applicant. Indeed, a careful analysis of the position disclosed that the respondent had a life interest in the relevant property.

5. The applicant opposed the costs order on the basis that he did not have the financial capacity to meet such an order. He argued in the alternative that if he was required to pay the respondent’s costs, it should be on a party-party basis rather than an indemnity basis. 

6. Section 117 of the Family Law Act 1975 (Cth) (“the Act”) provides that in proceedings under the Act, each party shall bear their own costs. This principle is subject to subsection 117(2) which provides that if the circumstances justify it, the court has the discretion and power to make an order for costs as it deems appropriate and just. Subject to a consideration of the matters in s 117(2A) of the Act, I would find there were circumstances here which would justify an order (I & I(No. 2) (1995) FLC 92-625 at 82,277).

7. The justifying factors here for departing from the principle in s 117(1) are:

   ·First, the applicant failed to properly define the orders sought in his initiating application filed 18 October 2012 which, apart from being contrary to the Court’s rules, was perplexing having regard to the fact that he had been in the relationship and presumably would have known the financial circumstances of it;

   ·Secondly, it was clear by 25 January 2013 that the respondent (by her affidavit sworn on 17 January 2013) had no legal interest in the relevant real property which was the focus of the applicant’s attention. The applicant failed to address that fundamental issue choosing to persevere with his evidence that he simply wanted a payment of money;

   ·Thirdly, by 3 April 2013, in discussion with counsel, I expressed concern about the lack of evidence relied upon by the applicant particularly as he had been put on notice that the respondent intended to dispute his claim not only on the grounds that he was out of time but also because of the fact that she held a life interest in property and not much else.

8. Before contemplating whether any order for costs should be made, it is helpful to note that the respondent here seeks indemnity costs and that issue was very recently considered by the Full Court in Prantage and Prantage [2013] FamCAFC 105. Thackray and Ryan JJ with whom Murphy J agreed accepted that the definition from the Explanatory Guide to the Family Law Rules 2004 (“the Rules”) of “indemnity basis” as applied to a costs order was (at [17]):

   an entitlement to costs, including costs under a costs agreement, for all costs incurred, other than costs that are unreasonable in amount or that have been incurred unreasonably.

9. Their Honours then said of indemnity costs:

   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.

10. Their Honours then returned to the question of the settled law and said:

    84.Our research shows that the Federal Court has continued to apply the “usual rule” that costs are payable on a party/party basis.  See Boyapati v Rockefeller Management Corporation (No 2) [2008] FCA 1375, at [29] to [31], where Kenny J referred to the many cases where the rule has been applied in the Federal Court. We observe also that the rule was applied (and Re Wilcox was cited with approval) by this Court in Strahan & Strahan (Appeal Costs) [2009] FamCAFC 225 at [13] per Boland, Thackray and O’Ryan JJ.

11. Their Honours then referred to decisions of the Supreme Courts of New South Wales, Victoria, Queensland, South Australia, Tasmania, and Western Australia where the same rule had been applied.

12. I have set out in paragraph 7 above what I might consider to have been an imprudent approach undertaken by the applicant bearing in mind what his researches had or should have, revealed. However, on the question of prudence in the litigation in this Court, the Full Court in Prantage observed:

    100.His Honour’s statement…that Sheppard J’s emphasis in Colgate-Palmolive was “on parties who must have or should have known their approach was simply imprudent” does not, in our view, accurately reflect the law as explained in Colgate-Palmolive and other cases dealing with indemnity costs. 

    101.It is true, as the trial Judge noted, that Sheppard J included in the list of situations that might give rise to an order for indemnity costs “the imprudent refusal of an offer to compromise”.  However, in our view, imprudence by a party in “their approach” is not sufficient to enliven the power to award indemnity costs.

    102.It is important in this context to recognise, as Lindgren J did in NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77 at [56], that there is no rule that indemnity costs will be ordered “where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation”.

13. Having regard to the principles outlined above, there is nothing in this case that would enable me to find the circumstances exceptional. As such, if an order for costs was to be made, it could not be made on an indemnity basis.

14. I turn then to the question of whether any order for costs should be made.

15. In making an order for costs, the court must take into account the matters identified in sub-s 117(2A).  This section does not fetter the discretion of the court in making an order as to costs but includes the matters to which the court shall have regard. For convenience these factors are:

    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 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 the court considers relevant.

    Sub-sections (b), (d) and (f) are not relevant here leaving (a), (c), and (e) in turn to be considered.

Financial circumstances – 117(2A)

1. The financial circumstances of each of the parties are not determinative of the appropriateness of a costs order, but merely one of the factors to which the court shall have regard. Modest financial circumstances are not a defence to an application for costs; Haykal v Krawiec (No. 4) (2012) FamCA 748; Lenova & Lenova (Costs) [2011] FamCAFC 141.

2. I accept that the applicant has limited financial resources. However, if the respondent’s life interest in the relevant real property is excluded, the applicant has a greater portion of the known assets referred to throughout the dispute. Although I have noted that the respondent’s living expenses are significantly reduced as she is living in an unencumbered property, I find that there is no great disparity between the parties in terms of their respective abilities to meet their legal costs.

Conduct of the Parties – 117(2A)

1. The relevant conduct of the parties is conduct that is directly connected to the progress of the proceedings. Counsel for the applicant submitted that it was “entirely possible that the respondent misled the applicant as to his entitlements and structured the assets in such a way as to exclude the applicant from his share”. I reject that. There is no evidence to support such a contention and the applicant should have known that.

2. The applicant, on the other hand, conducted his case without due regard to the difficulties in the legal claim and did not seek to address the life interest issue. The litigation conduct of the applicant and his advisors was such that the respondent had no choice but to litigate. This aspect of the case ties in with the next factor for consideration; whether the litigant has been wholly unsuccessful in the proceedings.

Wholly Unsuccessful – 117(2A)

1. This is a case where the applicant could have used the fact that his application was out of time as an opportunity to assess the reasonableness of the litigation he was contemplating. The alteration of legal and equitable interests in property relies on the identification of those interests as the preliminary step. The applicant remained focussed on a property that was not in the respondent’s hands and he or his advisors should have foreseen the impending problem. Thus, the applicant has been wholly unsuccessful.

2. In Prantage,  Thackray and Ryan JJ on the question of indemnity costs noted the position in the Federal Court in which it was said by Cooper and Merkel JJ in Re Wilcox (Re Wilcox, Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151) that there were two seemingly irreconcilable objectives in award of costs:

   The first is 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. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur.

   Of Wilcox, Murphy J observed the following:

   In this Court, one of the two “seemingly irreconcilable objectives” can be expressed as “ … protecting access to justice in family law matters by not exposing an unsuccessful litigant in the usual course to an order for costs”.  A litigant in this Court must establish that the justice of the case requires an order for costs by reference to (non-exhaustive) statutory considerations before any order for costs is made.

3. I find that the applicant (as with all litigants), has a right of access to justice but there are two parties to the proceedings. Costs are not intended as a punishment but rather as a means of compensating the person who has to participate. I find that the respondent is unnecessarily out of pocket by her own costs and that she had little choice but to participate. Nothing I heard convinced me that she had not placed the applicant on appropriate notice that his claim was flawed. Indeed, there was no suggestion that the respondent had not provided discovery. The opportunity for the applicant to test the respondent’s assertions was there. I see no reason why she should be significantly out of pocket in those circumstances as assessed from and including 3 April 2013 because on that date, it should have been clear to the applicant that the merits of his claim were strongly challenged.

4. Balancing all of those considerations, I find it is just to make the applicant pay costs despite his limited financial resources.

5. In my view, justice requires that there be an order for costs by agreement between the parties and failing agreement, as assessed from and including 3 April 2013.

I certify that the preceding Twenty Four (24) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 15 July 2013.

Associate: 

Date:  15 July 2013