Roberts & Ors and Pedrana & Ors (No. 2)

[2013] FamCA 370

FAMILY COURT OF AUSTRALIA

ROBERTS AND ORS & PEDRANA AND ORS (NO. 2) [2013] FamCA 370

FAMILY LAW – COSTS – Costs awarded against the second and third respondents in favour of the wife and the husband’s bankrupt estate

Family Law Act 1975 (Cth)

1^ST APPLICANT: Ms Roberts

2^ND APPLICANTS: Mr H and Mr G

1^ST RESPONDENT: Mr N Pedrana

2^ND RESPONDENT: Mr V Pedrana

3^RD RESPONDENT: Ms C Pedrana

FILE NUMBER: MLC 1231 of 2011

DATE DELIVERED: 24 May 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 Nicholson

SOLICITOR FOR THE APPLICANT: Lilley Dawson

COUNSEL FOR THE 2^ND APPLICANTS: Mr Fary

SOLICITOR FOR THE RESPONDENT: Harris Carlson Lawyers

THE 1^ST RESPONDENT: In person

THE 2^ND & 3^RD RESPONDENTS: In person

Orders

1. That the second and third respondents pay the wife’s costs of and with respect to the financial aspects of the proceedings between all parties (but not the parenting proceedings) such costs to be determined by agreement and failing agreement as assessed.

2. That the second and third respondents pay the costs of the trustees of the husband’s bankrupt estate in relation to the financial proceedings between all parties (but not the parenting proceedings) such costs to be determined by agreement and failing agreement as assessed.

3. That all outstanding applications are otherwise dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Roberts and Ors & Pedrana and Ors (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 1231 of 2011

Ms Roberts

Applicant

And

Mr H and Mr G

2^nd Applicants

And

Mr N Pedrana

1^st Respondent

And

Mr V Pedrana

2^nd Respondent

And

Ms C Pedrana

3^rd Respondent

REASONS FOR JUDGMENT

1. On 6 May 2013, upon receiving an application by the wife for costs arising out of orders made on 9 April 2013, I directed that all parties file and serve their various applications and responses.  Save for a response by the wife and the husband’s trustees in bankruptcy relating to the claim for costs by the husband and his parents, which were unnecessary having regard to the matters that follow, the documents requiring determination were all received by email transmission and have been considered.

2. The wife sought $89,148 against the husband’s parents and an order that those costs be secured against their property.  It was also the wife’s submission that her costs be paid on an indemnity basis.

3. Counsel for the wife who drew the submissions set out uncontroversial facts leading up to the final hearing date and then the provisions of s 117 of the Family Law Act 1975 (Cth) (“the Act”) as well as the authorities that have considered those various provisions. Nothing in those authorities was inappropriately or incorrectly described or submitted to be the law.

4. It was submitted:

   ·    The wife was successful and the second and third respondents were unsuccessful;

   ·    The second and third respondents should have known “at all times” their case was “doomed to fail”;

   ·    The second and third respondents did not call witnesses they should have to maintain their case.

5. It was said on behalf of the wife that she had incurred over $190,000 in costs all of which was calculated on the scale set out in the Family Law Rules.

6. The trustees of the husband’s bankruptcy filed an application on 2 May 2013.  It observed that the trustees’ pursuit of the substantive order seeking to set aside a disposition of money between the husband and his parents had been successful.  Counsel for the trustees referred to the same legal issues as did the wife and then submitted:

   ·    The wife and the trustees were successful and the second and third respondents not;

   ·    The Court’s finding that the remedial power had to be exercised because the second and third respondents had been aware of the husband’s financial problems at the time they received the money.

7. The trustees too sought indemnity costs and adopted the wife’s submissions.  The trustees observed that they had incurred costs of $67,486 but acknowledged there would have been a dispute with the wife anyway over the division of the property of the husband and wife upon the successful setting aside order and that, in fairness, justified a reduction in their costs.

8. The second and third respondents by way of a defence to the claims of the wife and the trustees but also as part of a claim for costs themselves submitted:

   ·    Their entire life savings and superannuation had been taken and the sale of their assets had left them virtually destitute.  It was submitted that to exacerbate their trauma by making an order for costs would bring shame on the Court;

   ·    The Magistrate (presumably a reference to the Judge) should refrain from allowing “his prejudices” to override the facts;

   ·    The wife received less than one-half of her final demand and almost one-eighth of her first demand.  It was said the wife’s legal team’s approach had protracted the proceedings.

9. In respect of offers, the second and third respondents submitted that the wife had been offered “a roof over her head” and an indemnity concerning the husband’s company.  They said they had offered to pay a mortgage for five years and continue the indemnity concerning the husband’s company.  The second and third respondents calculated this benefit to the wife if it had been taken, to be roughly $300,000 as well as the absolution of the $250,000 debts (or more) that were referrable to the company.

10. In a passing comment, the second and third respondents said that the company’s litigation was only on hold while the family law proceedings were “under way”.  The evidence including from them, did not support at least that last contention.

11. The second and third respondents sought their legal expenses of $92,392 because the husband had accepted the wife’s offer but, it was asserted, the wife’s counsel “withdrew the offer”.  Their submission was that the entirety of their legal expenses arose because of that action.  According to the second and third respondents, that was followed by another offer by the husband that the wife retain their property at Suburb K, he pay out a car lease and then indemnify her against the company’s liability.  I understood the first of these offers was made in June 2011.

12. The first offer was (according to the husband’s submissions) a swap of residences so that the wife would retain the disputed Suburb L property and the $500,000 mortgage encumbering it. If it had been accepted, that would have left the wife with equity of $200,000.  The difficulty I have with that is that the evidence in the trial was that by 30 May 2011, the husband had drawn down $300,000 on the Suburb L mortgage to pay his parents and that left limited equity.  I found that the husband’s claim that he had repaid his parents because of their ownership of an interest in Suburb L unconvincing but in July 2011, the parents lodged a caveat claiming an equitable interest in Suburb L.  Thus, it must mean that the offer did not deal completely with the claim by the husband let alone his parents because the parents were continuing a claim that they had an interest reflected by the caveat.  Whilst during the trial, the parents specifically denied that they gave instructions for the lodging of the caveat, much of what the husband’s mother said must carry little weight.  The caveat must be given some credence because of the timing of its lodgement.  In the end however, the net proceeds of the sale of the Suburb L property apparently resulted in $94,000 being placed in a trust account.  Thus, I do not understand how the husband could say that his “offer” on 1 June 2011 was that the wife was to get equity of $200,000.

13. Doing the best I can on the findings which I do not propose the go behind or revisit notwithstanding the apparent urging of the husband’s parents as seemed to be their submission as set out in paragraph 8 above, the second offer of the husband was that the wife retain the equity in Suburb K along with an unencumbered car and an indemnity by the husband against the company.  The second and third respondents saw that equity as being represented by the husband’s $70,000 contribution to Suburb K.  The picture did not emerge that way and I did not make those findings.  It must be noted that first, the wife received a minimal amount of equity in Suburb K not $70,000.  The indemnity proposed by the husband was worthless because it was given by him and not by the second and third respondents.  The husband was subsequently bankrupted which might give some indication as to its value.  An indemnity is only as good as the financial position of the person offering it.

14. The Court should not be privy to any negotiations and if the synopsis as set out in the submissions indicates what was going on, it is hard to see how the wife was being offered what the husband and the second and third respondents alleged or indeed thought she was being offered.

15. The husband sought his costs of $114,000.  His submission was:

    ·    The wife knew the figures (even though presumably they were estimated);

    ·    The husband knew the figures and the offer was detrimental to himself (even though I found, contrary to his protestations, he had not paid the money to his parents at the time the offer was made);

    ·    The withdrawal of the acceptance of the offer by the wife protracted the proceedings; and

    ·    The proceedings and the “injunction” upon his parents’ money were the “sole” contributing factors to the husband’s need to go bankrupt (even though that was not what he said in evidence nor was it the case put by the second or the third respondent).

16. Section 117 of the Act provides that in proceedings under the Act, each party shall bear their own costs unless there are circumstances that justify a departure from that principle. If the Court is satisfied that there is a justifying circumstance and the Court is then contemplating making an order, it must take into account the matters set out in s 117(2A) of the Act. No particular circumstance justifies an order nor is it necessary that all of the factors in s 117(2A) need to be established.

17. These were proceedings in relation to both property and parenting issues.  The husband and his parents sought parenting orders and were ultimately unsuccessful.  The financial proceedings were enlarged and exacerbated by the husband’s filing of a debtor’s petition just prior to the commencement of the trial.  The husband’s parents proceeded on the basis that at all times, although the legal title to the Suburb L property vested in the husband, they had an equitable interest by virtue of a trust.  That argument was carefully and properly put by counsel for the second and third respondents and was ultimately rejected.  The husband drew down a significant amount of the Suburb L equity using the mortgage and paid out his parents what he saw as their entitlement to the money.  He was prepared to pay them notwithstanding they had an equitable interest in the property and in effect, by his actions, sought to buy them out.  That is not the way he portrayed what he was doing. He said that the parents needed money and he was giving them what he saw as 50% of the value of Suburb L at that time.

18. The trustees in bankruptcy sought to set aside the payment by the husband to his parents on the basis that it defeated the claim of the creditors. The trustees had no choice but to pursue the proceedings because of the second and third respondents’ claim that the property was theirs. The trustees properly acknowledged that at all times that if that was found to be correct, the claim under s 106B of the Act had to fail. I found that the trustees were successful but more importantly, the parents were wholly unsuccessful.

19. Much of the time of the Court and therefore the parties incurring costs, was wasted by the parents running an argument which was not supported on the evidence.  Their position initially in supporting their son in relation to parenting orders shifted so that they sought orders only in their own right and having regard to their residential position in Queensland, much time was wasted on that issue was well.  The husband’s position in relation to parenting orders was totally untenable and it was only in cross-examination that the husband’s mother shifted ground to acknowledge that there was a problem.

20. The nub of the claim for costs by both the trustees and the wife related to the property proceedings and in my view, there is a justifiable reason to depart from the principle that each party bear their own costs and make an order because of the matters just set out.

21. The husband sought costs on the basis of offers but for the reasons articulated, I do not understand how it can be said that the wife should have accepted the offer that she no doubt contemplated on 1 June 2011 when the husband had not been candid about what was happening with the money he had taken and where it was at that time. 

22. The second and third respondents very much rode on the back of the husband in relation to the offer and must fail in their claim for costs for the same reasons.  I have read the obtuse comment by the second and third respondents about the fact that they offered to pay a mortgage for five years but I do not see where that fits into the offer. There was certainly no suggestion in the trial of that being something that they would do to support their grandchild’s mother.

23. In contemplating the matters set out in s 117(2A) of the Act, it is clear that all parties have financial constraints. The wife has a limited amount of money from the cash proceeds of Suburb L including the money to be paid by the second and third respondents and on the figures provided to me, most of that will go in legal costs. The equity she is receiving in the Suburb K property is also modest. She received little by way of financial support from the husband. Her circumstances therefore are not financially sound. The husband is a bankrupt and now maintains that his company litigation will continue. I do not know what impact that will have on his financial position.

24. The second and third respondents maintain that they are now destitute but they chose the course of action they undertook.  They must have known the risks involved.  I do not know what their financial circumstances are otherwise because they have provided limited information.  Thus, no-one wins in this particular case from a financial perspective.

25. It was not suggested that there were any legal aid considerations here.  All parties have been funding their cases privately.

26. Section 117(2A) requires the Court to contemplate the various steps that parties have taken and the orders requiring things to be done. There was nothing particularly unusual about the way this litigation was conducted in that sense.

27. Another factor to be taken into account is the question of whether a party was wholly unsuccessful.  Of all of the parties in this case, it must be said that the second and the third respondents were wholly unsuccessful.

28. The Court is also entitled to take into account the various offers.  I have tried as best I could with the submissions put to me to describe the various machinations involved in the negotiations that were taking place in June 2011.  In my view, even if the offer might have meant that the wife was technically better off on 1 June 2011 by settling with the husband, it is conceivable that the second and third respondents were still claiming an interest in the Suburb L property and the husband still had the problem with his company which might have culminated in his bankruptcy.  For whatever reason, the wife declined to settle on the terms suggested to her and accordingly, it is hard for me to find that she should have accepted the offer. I do not find that her failure to do so protracted these proceedings.

29. Section 117(2A) also requires the Court to take into account any other relevant circumstance. This was clearly difficult litigation arising out of a very poor relationship between the husband and the wife and on the findings I have made, predominantly as a result of the behaviour of the husband. The parents contributed to the exacerbation of that litigation. The wife had little choice nor did the trustees to participate.

30. In my view, there are therefore good reasons to make orders for costs against the second and third respondents even if it makes their financial position worse than it currently is.  I see no reason why the wife should be prejudiced as a result of the contributions that the second and third respondents have made to the problems within the litigation.  Accordingly, it is my view that an order for costs should be made against the second and third respondents both in favour of the wife and the trustees of the husband’s bankrupt estate.  There is no justification for an order being made in favour of the second and third respondents or the husband.

31. To a large degree, the parenting dispute was separate from the financial matter. There were issues in the parenting hearing in which an argument for continuing the relationship between the father and the child and the parents and that child was pursued. The wife opposed any order for contact. That issue therefore had to be litigated even though I found the husband to have significantly and adversely contributed to the need to curtail his relationship with his son because of his failure to carry out the recommendations of the expert and not providing evidence to indicate what he was doing to ameliorate the concerns of the wife and indeed, the Court. That part of the overall proceedings should therefore be excluded from any costs determination leaving the costs assessment to focus upon the financial part of the proceedings.

32. The quantum of the costs is also a matter of some complexity.  The wife and the trustees in bankruptcy sought indemnity costs.  Not withstanding everything that I have said above, this is not a case which falls within the categories which are still evolving where a court should make an order for indemnity costs.  I am not in a position to quantify the costs based on the material provided to me and I have little choice in this case in my view other than to make an order that the costs be by agreement and failing agreement as assessed.  I make that finding having regard to the position taken by the trustees that they would be prepared to discount their costs.  That no doubt might be a subject to be taken into account if the costs have to be assessed.

33. Accordingly, I propose to make orders that the second and third respondents pay the costs by agreement and failing agreement as assessed taking into account the matters set out in paragraph 31 above.

I certify that the preceding Thirty Three (33) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 24 May 2013.

Associate: 

Date:  24 May 2013