Roverati & Roverati
[2021] FedCFamC2F 590
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Roverati & Roverati [2021] FedCFamC2F 590
File number(s): ADC 1325 of 2017 Judgment of: JUDGE BROWN Date of judgment: 17 December 2021 Catchwords: FAMILY LAW – Property – property settlement – costs – application for costs – assessment of legal principles applicable to costs – long marriage – initial trial before Judge Heffernan – appeal to Full Court – offers exchanged – where husband’s offer for settlement was higher than amount awarded by the Full Court. Legislation: Family Law Act 1975 (Cth), ss.75, 79, 117, 117C
Family Law Rules 2004 (Cth), Pt.10.1
Federal Circuit and Family Court of Australia (Division 2) (Family Law) Rules 2021 (Cth), r.4.01
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth), rr.12.08, 12.17
Federal Circuit Court Rules 2001 (Cth)
Federal Proceedings (Costs) Act 1981 (Cth)Cases cited: Browne v Green (2002) 29 Fam LR 428
In the Marriage of I & I(No 2) (1995) 22 Fam LR 557
In the Marriage of Steel (1992) 15 Fam LR 556
Pennisi v Pennisi (1997) 22 Fam LR 249Other:
J D Heydon, Cross on Evidence (Lexis Nexis, 12th ed, 2020)Division: Division 2 Family Law Number of paragraphs: 120 Date of hearing: 23 November 2021 Place: Adelaide Counsel for the Applicant: Ms Betro Solicitor for the Applicant: Howe Jenkin Counsel for the Respondent: Mr Bowler Solicitor for the Respondent: Di Rosa Lawyers ORDERS
ADC 1325 of 2017 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MS ROVERATI
Applicant
AND: MS ROVERATI
Respondent
ORDER MADE BY:
JUDGE BROWN
DATE OF ORDER:
17 DECEMBER 2021
THE COURT ORDERS THAT:
1.Within twenty-eight (28) days of the date of these orders, the applicant, Ms Roverati pay to the respondent, Ms Roverati a lump sum of costs fixed at FOURTEEN THOUSAND SEVEN HUNDRED AND FIFTY NINE THOUSAND DOLLARS ($14,759.00).
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym Roverati & Roverati has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE BROWN:
INTRODUCTION
These reasons for judgment relate to an application for costs, following a trial in this court,[1] and a subsequent appeal to the Full Court of the Family Court. The relevant trial took place in June of 2018, with judgment delivered in March of 2020. The relevant appeal was delivered in June of 2021.
[1] The Trial commenced in the Federal Circuit Court, which has since been amalgamated with the Family Court, creating the Federal Circuit and Family Court, which comprises two divisions. The current matter is being heard in Division 2, which is the successor of the Federal Circuit Court. It is convenient to refer to both the Federal Circuit Court and Division 2 of the Federal Circuit and Family Court of Australia as “the Court” in these reasons for judgment.
The Applicant for costs is Mr Roverati (“the husband”). The Respondent to the application is Ms Roverati (“the wife”). The relevant proceeding relate to the division of their matrimonial property. The wife commenced the proceeding on 5 April 2017.
The major issue arising in the current proceedings relates to a letter written by the husband’s solicitor to the wife’s solicitor on 3 October 2017 well in advance of the date scheduled for trial, in which he offered to compromise the proceedings in question on the basis of a 56%/44% division of the parties’ net non-superannuation assets in his favour.
The offer in question was postulated on the basis that the wife retain the parties’ former matrimonial home and some other assets. It envisaged the husband paying her an addition sum of money in an amount of $67,129.00. In the jargon of lawyers the letter in question is referred to as a Calderbank letter.
Ultimately, on appeal, the majority of the Full Court elected to re-exercise the discretion residing in the trial judge and determined that the appropriate division of property was one of 55%/45% in the husband’s favour. On this basis, it calculated the further sum due to the wife to be one of $56,807.00.
It is the husband’s case that this was both an appropriate and prescient offer, which merited the wife’s serious consideration and as matters have subsequently transpired, it was foolhardy of her to have rejected it. In these circumstances, he was put to the significant expense of having to embark on a trial, which should have been avoided. In his contention, this situation merits the wife paying a portion of his costs.
BACKGROUND
The parties married in 1983 and separated on 1 January 2016. They are the parents of two children, both now adults and financially self-supporting. The husband was born in 1957 and is employed as a finance professional. The wife was born in 1959 and is employed as an office worker.
The judge presiding over the trial, in the Federal Circuit Court, was Judge Heffernan, who is no longer a member of the court as a consequence of his appointment to the District Court of South Australia. In these circumstances, the application for costs has been referred to me.
The wife commenced the relevant proceedings for property settlement. In her application, she sought that the husband transfer his interest in the parties’ former matrimonial home located at B Street, Suburb C, together with a further sum of money calculated to be 55% of the value of the parties’ total non-superannuation, including the B Street, Suburb C property.
In respect of the parties’ respective superannuation holdings, the wife’s application proposed splitting orders being made, which would have occasioned an equalisation of the parties’ respective holdings of superannuation. In addition, in the context of these proposed orders, the wife had specific proposals as to what items of property each party should retain, following the conclusion of the proceedings.
The husband responded to this application on 11 May 2017. He proposed orders being made, which would have effected a 60%/40% division of the non-superannuation assets being made in his favour. Like the wife, he proposed an equalisation of superannuation.
The husband agreed that the wife had been in paid employment, on either a full or part-time basis, during the parties’ lengthy marriage, except for a period of around 5 years, following the birth of the parties’ children, when she had been engaged in home duties, as the children’s primary carer.
In the early years of the parties’ marriage, the husband worked as a welder until he sustained a serious back injury, thereafter, he re-trained, at a tertiary level, to become a finance professional. It was the wife’s position that in these circumstances, she had become the family’s main provider of financial support. By necessary implication, it was her position that this situation necessitated her receiving a greater proportion of the marital assets.
There appears to be no great controversy that the marriage between the parties was one of significant length, during which each party made significant contributions towards the acquisition and preservation of assets, as well as to the welfare of their family as a whole. As the case unfolded issues arose as to the significance of other financial contributions which each had made as a consequences of inheritances received during the marriage.
At the outset of the proceedings, the wife calculated the relevant pool of marital assets to be worth $1,370,841.88.[2] In response, the husband asserted the relevant pool to be $1,443,617.00.[3] In this context, there was no great dispute as to the composition of the pool, which was made up of the following major items:
·The former marital home situated at B Street, Suburb C;
·The Roverati Family Trust, which held investments in shares and bank deposits;
·The F Street Trust, which held an investment property located at F Street, Suburb G and bank deposits;
·The D Street Trust, which held a property located at D Street, Suburb E;
·Motor vehicles; and
·Personal effects and furniture.
[2] See Affidavit of Ms Roverati filed 5 April 2017 at [24].
[3] See Affidavit of Mr Roverati filed 11 May 2017 at [54].
In their respective initiating affidavits, each party alluded to inheritances received during the currency of their marriage. In the wife’s case, she indicated that she had a quarter interest, with her three brothers, in the property located at D Street, Suburb E, which she had inherited in 2003.
The wife and her brothers established the discretionary trust in June 2006 as a mechanism for distributed rent received, from the property between them. The wife’s interest in the trust was valued by her at $66,250.00.[4] The husband did not disagree with this value but asserted that the trust held significant cash in its bank account.[5]
[4] See Affidavit of Ms Roverati filed 5 April 2017 at [16].
[5] See Affidavit of Mr Roverati filed 11 May 2017 at [41].
The husband’s father died in 2006. As a consequence, he received an inheritance in an amount of $400,000.00. The husband’s brother pre-deceased his father and died intestate. As a consequence, along with his father’s estate, the husband inherited his late-brother’s estate. It was these inheritances, which established the F Street Trust, which Mr Roverati valued at $469,229.00, in his initiating application.[6] The trust’s main asset was a piece of real property, which was rented.
[6] See Affidavit of Mr Roverati filed 11 May 20217 at [49].
The husband’s significant injury, which occurred in 1998, led him to be on workers’ compensation for a number of years. Ultimately he was made redundant and elected to retrain. He commenced his studies in the mid-1990s and completed his finance degree in 2002. In these circumstances, it was the wife’s contention that she had been the family’s main bread winner for many years. She is an office worker at Employer Y, the status of which entitled her to take a regular portion of her salary through fringe benefits.
Each party was represented by solicitors throughout the proceedings, who retained experienced counsel for the trial before Judge Heffernan, which took place on 21 and 22 June 2018, with judgment being delivered some 20 months later on 24 March 2020.[7]
[7] See Roverati & Roverati [2020] FCCA 561.
Much time was apparently spent, during the trial, on determining whether there should be the add-back of notional property into the relevant pool of assets. Ultimately, apart from a minor sum related to the husband’s legal costs, Judge Heffernan determined that there should be no such add-backs in respect of the non-superannuation assets which, in net terms, he calculated to amount to $1,317,405.00.[8]
[8] Ibid at [54] (Heffernan J).
In respect of the parties’ superannuation, in total, Judge Heffernan found it amounted to $259,586.00, of which the husband held the greater portion in his name.[9] This superannuation was equalised between the parties, which was their agreed position in regards to how it should be approached by the court.
[9] Ibid.
At trial, there was no dispute that the wife should retain the former matrimonial home; and her interest in the D Street Trust; whilst the husband should retain the Roverati Family Trust; and the F Street Trust. The parties maintained the positions advocated in the respective applications as to the percentages to be utilised to divide the marital assets.
Accordingly, the central issue for the court, at trial, was what sum of money should pass from the husband to the wife, taking into account the items agreed to be retained by each of them. Necessarily, this task turned on the court’s assessment of the parties’ respective contributions along with its appraisal of their respective prospective needs.
Ultimately, Judge Heffernan found as follows, in respect of contributions:
The parties supported each other, financially and non-financially, in different ways over many years. At times their individual levels of contribution, both financial and non-financial fluctuated. I have concluded that contributions between them should be apportioned on a 50:50 basis. I am further satisfied that it is appropriate to make orders providing for an equalisation of superannuation interests as sought by both parties.[10]
[10] Ibid at [89].
In respect of section 75(2) factors, Judge Heffernan was satisfied that no further adjustment was warranted in favour of either party. In this regard, he said as follows:
The husband and wife are both in good health and, at their respective ages, have many years of potential for gainful employment ahead of them. They are both in good health. Neither party has the care or control of a child of the marriage under the age of 18 years. Each party has assumed responsibility for supporting themselves and neither has a duty to maintain another person. Each of them has an entitlement to enjoy a reasonable standard of living. That will be possible with an equal division of the assets. This has been a lengthy marriage but I have concluded that the income earning capacity of neither of them has been affected by that circumstance.[11]
[11] Ibid at [94].
Having found that the net non-superannuation property pool amounted to $1,317,405.00, the effect of these findings was that each party was required to leave the proceedings with property to the value of $658,702.50.
Given his assessment of the value of the items of property to be retained by the husband ($781,380.00), and the value of the items to be retained by the wife ($532,617.00), Judge Heffernan calculated that it was necessary for the husband to pay the wife the sum of $126,085.50. In these circumstances, the court made the following orders:
1.There be a 50:50 division of the net assets of the parties including superannuation with the following orders to give effect to the same:
(a) Within 60 days of the making of these orders, the husband shall do all acts and things and sign all documents necessary to transfer to the wife all of his interest and estate in the property situated at B Street, Suburb C in the State of South Australia (‘the former matrimonial home’) being the whole of the land comprised and described in Certificate of Title Register Book Volume … Folio … at the expense of the wife.
(b) Within 60 days of the making of these orders the husband shall pay to the wife the sum of $126,085.50 (or such other amount as may be required to achieve a division of assets between the parties in the proportion of 50% to the husband and 50% to the wife).
2.The wife shall retain the following assets free of any claim by the husband:
(a) The former matrimonial home including the furniture and personal effects therein SAVE AND EXCEPT for the husband’s office furniture, washing machine and clothing and personal effects;
(b) The settlement sum;
(c) Her estate and interest in the D Street, Suburb E Trust;
(d) Her separate savings and investments;
(e) Her Motor Vehicle 1;
(f) Her shares; and
(g) Any other assets in her name or in her possession.
3.The husband shall retain the following assets free of any claim by the wife:
(a) The Roverati Family Trust and the F Street Trust;
(b) His separate savings and investments;
(c) The Motor Vehicle 2; and
(d) Any other assets in his name or in his possession including but not limited to the husband’s office furniture, washing machine, clothing and personal effects.[12]
[12] Orders of Judge Heffernan dated 24 March 2020.
As will become apparent, in due course, issues regarding how Judge Heffernan approached the issue of the parties’ respective contributions, in the form of the inheritance received by each of them, during the currency of their marriage, have become controversial. In particular, criticisms were levelled, on appeal, that he had failed to provide adequate reasons in respect of how he approached the apparent discrepancy in the quantum of each of the parties’ respective inheritances.
In this context, Judge Heffernan found as follows:
Throughout their marriage, the parties each received a significant inheritance from their parents’ estates, which was placed in various trust entities.
Following the death of the wife’s father in September 2003, the wife inherited a one-quarter interest in the property located at D Street, Suburb E, with her three brothers. The property was valued at $189,000 and was rented, with a rental bank account balance of $12,547.
In June 2006, a discretionary trust called the ‘D Street, Suburb E Trust’ was established with the wife and her three brothers being the trustees and their children being the beneficiaries of the Trust. The property and the rental bank account balance were transferred into the Trust.
Upon the establishment of the D Street, Suburb E Trust, the wife and her three brothers generally agreed that any rental income received by the Trust would be distributed to their children. The wife has never received any distribution from the D Street, Suburb E Trust and this is expected to continue.
The husband’s father died in 2006. Following his death, the husband inherited one half of his estate, which included the property located at F Street, Suburb G, Woodville West, cash and investments.
The total value of the inheritance alleged to have been received by the husband is set out at paragraph 62 of his trial affidavit as follows:
a)F Street, Suburb G: $255,000;
b)Conveyancing fees to transfer F Street, Suburb G
into his sole name: $11,281;
c)Sale proceeds from the vacant block of land at Suburb Z: $90,010;
d)126 Company AA shares: $6,247;
e)898 Company BB shares: $9,429;
f)195 Company CC shares: $719;
g)Cash: $72,782
Total: $445,486
The wife asserts that the husband has overstated this value and that the value of the husband’s inheritance was $404,619.64. In the context of a marriage of over 30 years’ duration, the effect of an overstatement in this amount is minimal to the contributions taken as a whole.
In March 2007, the husband established the ‘F Street Trust’, of which he is the appointor, trustee and primary beneficiary. He transferred the property at F Street, Suburb G and the sum of $11,650 he inherited from his father’s estate into the name of the Trust.
The property at F Street, Suburb G has been retained by the Trust as a rental.
During the trial, the husband’s counsel tendered the Financial Statements for the F Street Trust for the years, which indicated that the Trust made distributions totalling $79,108.51 to the parties including distributions towards the Roverati Family Trust. The wife conceded that these distributions were either re-invested or applied by the parties’ towards household expenses.[13]
[13] Ibid at [65]-[74].
These findings were central to how the majority of the Full Court elected to approach the appeal. Essentially, it was held that it was axiomatic from these findings, which were not challenged in themselves on appeal, that there had been a significant difference in the amount each of the parties had inherited and, in addition, the income produced by these inheritances had been utilised in significantly different ways.
This led the Full Court to determine that Judge Heffernan had erroneously assessed the parties respective financial contributions and had failed to provide adequate reasons in respect of his assessment of these issues.
THE SUBSEQUENT APPEAL
As he was entitled to do, following the delivery of judgment, the husband appealed to the Full Court. His Amended Notice of Appeal, filed on 16 September 2020, relied on three grounds, which essentially related to the issue of how Judge Heffernan had approached the respective inheritances of the parties.
In essence, it was the husband’s position that Judge Heffernan had given insufficient weight to the fact that his inheritance was significantly greater than that of the wife and the income generated by it had been utilised for joint family purposes, in contrast to the income generated by the wife’s inheritance.
The three grounds of appeal were as follows:
•The learned primary judge erred in assessing the contributions of the parties in giving no weight, or insufficient weight, to the inheritance received by the husband.
•The learned primary judge failed to consider the use to which the parties’ respective inheritances were applied in assessing the parties’ contributions.
•In assessing the contributions of the parties, the learned primary judge gave inadequate reasons.[14]
[14] See Roverati & Roverati [2021] FamCAFC 89 at [11] (Strickland and Ryan JJ).
The majority of the Full Court (Strickland and Ryan JJ) found merit in the husband’s first two grounds of appeal. The majority found as follows:
An analysis of the inheritances demonstrates that the husband’s inheritance was far great in value than the wife’s. When received it was valued at least at $404,619.64, whereas the wife’s was valued at approximately $50,000. Thus, it can be immediately be seen that the husband’s financial contribution in this regard was significantly more than the wife’s, and that is without taking into account the income subsequently derived therefrom, and the increases in value of the assets over time, let alone the use made of that income and those assets.[15]
[15] Ibid at [32].
Essentially, the Full Court found that Judge Heffernan had failed to give a proper degree of weight to the fact that his inheritance represented approximately 30% of the relevant asset pool, when viewed against his analysis of the parties’ other contributions. This had resulted in His Honour’s reasoning process being defective. In these circumstances, the Full Court found as follows:
[I]t is not possible to discern from the reasons for judgment, how his Honour treated the inheritances or their use holistically with the myriad of the other contributions made by the parties. There is no mention of the inheritance in his Honour’s assessment of contributions…they are simply overlooked and thus, an essential aspect of the husband’s case at trial, in reality probably the pivotal aspect of his case went unanswered. The assessment of contributions is a comparative exercise and when, as here, a relevant and important aspect of contributions is not considered in the ultimate evaluative exercise, the reasons are inadequate and the conclusion reached cannot stand.[16]
[16] Ibid at [40].
In dissent, Austin J considered that, although Judge Heffernan’s reasons were succinct, it could not be said that he had overlooked the parties’ various and disparate contributions over their lengthy marriage of some 33 years. Ultimately he concluded that it could not be said that Judge Heffernan’s discretion had miscarried given his analysis of the parties’ multifarious contributions over many years.
The Full Court dismissed a Notice of Contention, filed on behalf of the wife, which asserted that Judge Heffernan had erred in failing to notionally add-back, a sum of money referable to his legal fees. Otherwise, the Full Court did not quibble with the pool of assets and liabilities determined by Judge Heffernan.
In these circumstances, the majority elected to re-exercise the distraction previously residing with Judge Heffernan in its disposal of the appeal. In these circumstances, it determined that the relevant asset pool should be divided 55%/45% in the husband’s favour to reflect properly the effect of the inheritance received by him.
In these circumstances, the majority of the Full Court made the following order:
The appeal be allowed.
Paragraph 1 of the order made on 24 March 2020 be set aside, and in lieu thereof the following order be made:
There be a 55 per centum/45 per centum division of the net assets of the parties, excluding superannuation, in favour of the husband, with the following orders to give effect to the same:
Within 60 days of the making of these orders, the husband shall do all acts and things and sign all documents necessary to transfer to the wife all of his interest and estate in the property situated at B Street, Suburb C, in the State of South Australia (‘the former matrimonial home’) being the whole of the land comprised and described in Certificate of Title Register Book Volume … Folio … at the expense of the wife.
Within 60 days of the making of these orders the husband shall pay to the wife the sum of $56,807.
This is the nub of the husband’s application for costs. It is his position that the earlier offer made by him is in almost identical terms to that determined by the Full Court – namely, a 56%/44% split resulting in a payment to the wife of $65,000.00.
In his dissenting judgment, Austin J focussed on the practical implications of the change of percentage adopted by the majority, which he did not consider significant in objective terms and so obviously indicative of error. He said, perspicaciously in the context of the current proceedings, the following:
The majority, by re-exercising discretion in the appeal, have concluded that the appellant’s contributions should be assessed at 55 per cent in lieu of 50 per cent, as was found by the primary judge. Given the established value of the parties’ property, the percentage differential amounts to about $65,000, which is contextually quite modest. In my respectful view, in the particular circumstances of this case, that differential does not tend to show the decision was plainly wrong because it exceeds the generous ambit within which reasonable disagreement is possible, but rather tends to show a modest difference in the exercise of discretion.[17]
[17] Ibid at [77] (Austin J).
Accordingly, what is clear from the appeal judgment is that there was ultimately no great controversy about the construction of the relevant asset pool, apart from issues to do with add-backs and, from the husband’s perspective, the major issue was what he regarded as his superior financial contributions referable to his significantly larger inheritance received during the marriage.
Given the Full Court found that Judge Heffernan had fallen into error in the exercise of the discretion conferred upon him, both the husband and the wife were granted a costs certificate pursuant to the provisions of the Federal Proceedings (Costs) Act 1981 (Cth).
THE CURRENT APPLICATION
The Full Court delivered its decision on 11 June 2021. The husband filed the application currently before the court on 14 July 2021. In his application, the husband seeks orders, which can be summarised in the following terms:
·The wife pay his costs of and incidental to the proceedings before Judge Heffernan from 1 November 2017 to 24 March 2020 as agreed or taxed;
·In the alternative, the wife pay the husband’s costs as calculated pursuant to Schedule 1 of the Federal Circuit Court Rules in an amount of $13,559.00;
·In addition, the wife pay the husband’s costs of the cost application, again pursuant to the relevant Schedule to the Federal Circuit Court Rules in an amount fixed in the sum of $3,547.00.
As previously indicated, the central plank of the husband’s application for costs is a letter, which his solicitor forwarded to Ms Roverati’s solicitor on 3 October 2017. This closely followed an unsuccessful Conciliation Conference, between the parties, which occurred on 19 September 2017. It also occurred shortly after a mention of the case, before Judge Heffernan, which occurred on 28 September 2017.
It was on this mention date that Judge Heffernan allocated the case to trial on 21 June 2018. Significantly, in his order, Judge Heffernan noted that the parties’ respective counsel (who also incidentally appeared at trial) had indicated that the evidence to be led, at trial, would be confined to the parties themselves; there would be no issue regarding a valuation of the property; and the question, for the trial, was about contributions.
In this context, in my view, the husband forwarded a closely considered and calibrated offer to resolve the proceedings and so avoid the trial scheduled for the following year. In the offer,[18] the husband calculated the net asset pool to amount to a sum of $1,410,029.00. In respect of this pool, he proposed that it be divided 56%/44% in his favour.
[18] See Affidavit of Mr Roverati filed 9 July 2021 at Annexure B.
To effect this division, he proposed that the wife retain the former family home; her interest in the D Street, Suburb E Trust; her car; and some other items of personal property; whilst he retained the other trusts, including the one relevant to his inheritance.
The effect of the offer, was summarised by the husband’s solicitors, in the following terms:
We advise that our client’s settlement offer would amount to your client receiving net non-superannuation assets (including the settlement sum) in the amount of $627,129.00 and our client receiving net non-superannuation assets (after the payment of the settlement sum) in the amount of $786,310.00. This amounts to approximately a 56/44 distribution of assets in favour of our client.
The settlement sum referred to above, required to bring about the 56%/44% adjustment was $65,000.00 or some $8,193.00 more than the amount awarded to the wife, by the majority of the Full Court, after it determined on a 55%/45% division of the relevant net assets.
The offer in question was marked without prejudice save and except as to costs and was stipulated to be made on the basis of a Calderbank offer. The husband now relies on this letter to found his current application for the costs incurred by him in the trial before Judge Heffernan from the date the letter was despatched to the conclusion of the judgment.
In addition, the husband points to what he would categorise as his straitened financial circumstances. At present, it is his evidence that his business does not provide him with an adequate livelihood. He currently has three clients only which generate an income of approximately $1,000.00 per annum.
In addition, he reviews income tax returns for another company. He is paid between $1.83 and $9.41 for each return he reviews. In the last financial year, this led to him having an annual income of just over $9,000.00. Otherwise, as he is not entitled to social security, he has supported himself from income received from investments and drawing down on his savings. It is his case that his age and compromised health preclude him from other lines of work.
Mr Roverati has recently completed a statement of his financial circumstances. This reveals a weekly income of $425.00, which exceeds his estimated weekly expenditure by about 20%. He estimates his current asset backing to be $731,268.00. He is living in the F Street, Suburb G property.
In these circumstances, he contends that the wife is in a superior financial position to him given her on-going employment at the Employer Y and her receipt of a proportion of the rent derived from D Street.
Ms Roverati concedes that she earns $63,000.00 per annum. She deposes that she has paid her own legal fees – the quantum of which she has not disclosed – throughout the proceedings to date from her own resources or by loans from family members. She estimates that she has borrowed at least $50,000.00 in this way to fund the case.
She too has filed a recent statement of financial circumstances, which discloses a loan in the amount of $22,000.00 from her son, which Ms Roverati asserts she has used to pay for recurrent expenses. Unlike the husband, her income exceeds her recurrent expenditure by about $300.00 per week. She estimates her level of asset backing to be $680,888.00.
Ms Roverati deposes that she wishes to reduce her hours of employment because she wants to spend more time with her grandchildren. She has utilised the majority of her accrued savings to pay the amount due to the husband as a consequence of the appeal judgment. Essentially, it is her position that her financial position is also fraught with difficulty.
Essentially, it appears to me that these proceedings have been an unmitigated financial disaster for each of the parties. Although it is easy to be wise after the event, it must be the case that it was highly regrettable that the proceedings could not have been settled prior to trial. Sadly, the financial resources committed by each of the parties to the issues at the centre of this case were out of proportion to the gravity and quantum – in economic terms – of those issues.
The wife provides the following grounds for opposing the husband’s application for costs:
I say that there is nothing in the applicant’s affidavit to suggest that my conduct in not accepting the applicant’s Calderbank offer dated 3 October 2017 or in terms of any aspect of the proceedings was unreasonable.
I also say that I was not wholly unsuccessful in the appeal or, put another way the applicant was not wholly successful in the appeal.[19]
[19] See Affidavit of Ms Roverati filed 1 November 2021 at [25]-[26].
Counsel for the husband characterises these as blunt assertions without substance to support them. On the other hand, counsel for the wife asserts that the proceedings should be regarded as being finely balanced throughout and, as such, open to the prospect of different minds forming different views as to what was the appropriate outcome of them. An analysis most opportunely supported by the dissenting judgment of Austin J.
In these circumstances, it is contended that it would be essentially unjust to make any order for costs against the wife given the discretionary nature of the decision, which was found in favour of the husband by what is axiomatically only a slight degree, particularly given the burden of costs already borne by her and her own limited financial means.
Accordingly, those appearing for Ms Roverati submit that the husband has not established any ground for departure from the ordinary rule in family law proceedings that each party bears his or her own costs.
THE LEGAL PRINCIPLES APPLICABLE
Section 117(1) of the Act abolishes for the purpose of family law proceedings, the general rule that, in civil proceedings, costs follow the event. It provides that each party should bear his or her own costs in such proceedings.
However, pursuant to section 117(2), if the court is of the opinion that there are circumstances that justify it in doing so, it may, subject to a number of stipulated considerations, make such order as to costs as it considers just.
The relevant considerations are set out in section 117(2A) of the Act and are as follows:
•The financial circumstances of each of the parties to the proceedings;
•Whether any party to the proceedings is in receipt of legal aid;
•The conduct of the parties to the proceedings, including in respect of issues of discovery and production of documents;
•Whether the proceedings were necessitated by the failure of a party to comply with previous orders of the court;
•Whether any party to the proceedings has been wholly unsuccessful in the proceedings;
•Whether any party has made an offer in writing to settle the proceedings and the terms of any such offer;
•Such other matters as the court considers relevant.[20]
[20] Family Law Act 1975 (Cth) s 117(2A).
The court’s discretion to make an order for costs is a wide one and includes the authority to make an order for indemnity costs. However, the discretion remains one which must be exercised carefully and judicially.
In the case of In the Marriage of I & I (No.2),[21] the Full Court said as follows:
Section 117 confers upon the court a broad discretion in relation to costs. That discretion is one which the Court should not seek to fetter. As was pointed out by the High Court in Penfold v Penfold:
It is an accurate description of s 117(1) to say that it expresses a general rule, provided that it is firmly understood that the subsection is not paramount to s 117(2). As subs (1) is expressed to be subject to subs (2), the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs.
Subsection (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order. Beyond this there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs.[22]
[21] In the Marriage of I & I (No 2) (1995) 22 Fam LR 557.
[22] Ibid 558 (Nicholson CJ, Ellis and Buckley JJ).
Section 117C deals specifically with offers of settlement. Section 117C(2) provides as follows:
If:
(e)a party to proceedings to which this section applies makes an offer to the other party to the proceedings to settle the proceedings; and
(f)the offer is made in accordance with any applicable Rules of Court; the fact that the offer has been made, or the terms of the offer, must not be disclosed to the court in which the proceedings are being heard except for the purposes of the consideration by the court of whether it should make an order as to costs under subsection 117(2) and the terms of any such order.
At relevant times when the previous rules were in force, Part 10.1 of the Family Law Rules 2004 (Cth) stipulated how an offer to settle was to be made in family law proceedings. In general terms such offers are to be made in writing and not filed with the court. Offers can be made as without prejudice or open. It is not asserted by either party that there was any procedural defect in the relevant order in these proceedings.
It is frequently the case that litigants in family law proceedings have no personal experience of the court system or dealing with legal professionals. A case involving division of marital property or arrangements for children may be the first time they have ever even entered a courtroom. Necessarily such cases are replete with emotion and, as such, do not enable the individuals concerned to exercise dispassionate judgment about the issues raised, and the cost, both in emotional and financial terms, of pursing their preferred outcome.
Although I have not been exposed to either Mr Roverati or Ms Roverati in the previous litigation before the court, it would appear to be the case that neither can be considered a sophisticated litigant. Rather each must be considered a legal neophyte. As previously indicated, with the benefit of hindsight, this was a case crying out to be resolved. There were no complex issues about the construction of the pool of assets. Rather the parties had divergent views about the quantification of their contributions in percentage terms.
This is not an uncommon phenomenon in family law proceedings. As Austin J tellingly points out, the dollar figure represented by five per cent of the relatively circumscribed asset pool in the present matter is one of between $50,000.00 and $65,000.00. In such circumstances, it makes no sense for the parties to have allocated similar sums to adjudicate the issue, which could only be sourced from their joint resources.
The parties are each in their early to mid-sixties. Their best income earning days are behind them. They do not have deep pockets or wealthy associates. They needed to resolve the financial issues arising from the end of their lengthy marriage as expeditiously and as cost efficiently as possible. They were provided with a Conciliation Conference and attended a private mediation to no avail.
Accordingly, the only realistic option left to them was one of adjudication, but in objective terms, they were not in a position to easily afford such an intervention. The potential costs of such litigation were not in proportion to the range of likely outcomes in the case, which was not one characterised by undue complexity. The case cried out to be resolved in order to protect the parties concerned from the deleterious financial and emotional consequences of litigation.
Regrettably the case could not be resolved. It proceeded to trial. Equally regrettably, the discretion of the trial judge was found to have miscarried. Mr Roverati’s apprehension that his inheritance had not been accorded sufficient weight was vindicated. Because the error was not one which could be assigned to either of the parties and because each had borne the costs of the appeal, both were granted appeals costs certificates.
Thankfully, the cost of a second trial were avoided, given the comparatively simple issues raised in the first trial but the fact remains, if Ms Roverati had accepted the offer made by the husband both the first trial and the appeal would have been avoided and the parties would have not been put to the expense of either. In addition, each would have been spared the emotional trauma necessarily implicit in proceedings such as these and the community itself would not have been put to the expense of having to provide the adjudication required.
Hindsight is a wonderful thing. Acrimonious litigation, in the context of high stakes proceedings involving arrangements for children and the division of property – decisions likely to have long term ramifications for the individuals concerned – do not assist to bring cool-headed and objective decisions to how litigation is to be conducted. It is for this reason, the court should not easily depart from the general rule regarding costs in family law proceedings.
Every case has its idiosyncratic features, which must be balanced against each other in order to ensure that whatever order for costs is made, it is a just and fair one. The general rule that parties bear their own costs in family law proceedings can be modified only if one or more of the circumstances set out in section 117(2A) is established.
The previous regulatory regime applicable to costs and which was in force at the time of the first trial was the Federal Circuit Court Rules 2001 (Cth). These Rules have been repealed and replaced by the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”), which came into force on 1 September 2021. Chapter 12 thereof deals with costs.
If the court determines to make an order for costs, it has a wide discretion as to the calculation of such costs. Pursuant to rule 12.17, it may order costs in a specific amount or to be assessed on a particular basis, including in respect of party/party; solicitor/client; or indemnity costs.[23] It may also direct that costs be calculated pursuant to a methodology prescribed in schedules to the Rules.
[23] Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 12.17.
In brief, the schedules concerned enable the calculation of costs on either a party/party basis or by reference to fixed court events. The procedure in respect of the latter methodology is clearly designed to allow the ready calculation of costs, by either the parties themselves or the court, which have been incurred following the various procedural stages of litigation from filing to finalisation with judgment.
The schedule in question is referenced in the Federal Circuit and Family Court of Australia (Division 2) (Family Law) Rules 2021 (Cth), particularly rule 4.01, which provides that in applying Chapter 12, the court may apply the events based cost system detailed in Schedule 1.
Accordingly, the court in the present matter may make an award of costs based on fixed fees relating to the preparation of the case up until certain stages or, as the husband advocates as his primary position, make an award for costs to be taxed, the latter approach requiring the application of Part 12.6 of the Rules.
If this second approach is adopted, pursuant to rule 12.17(3), amongst other things, the court may have regard to the reasonableness of each parties’ behaviour in the proceedings concerned, and the level of expense sought and whether they are fair, reasonable and proportionate to the matter concerned. Rule 12.08 provides a list of criteria, for the court to apply, as to whether costs have been incurred fairly, reasonably and proportionately.
They include whether the lawyers acting for parties have made reasonable efforts, subject to the client’s instructions, to resolve the dispute through negotiation. Accordingly, the current costs regime is focussed, to a very significant degree on minimising the exposure of parties to unnecessary costs by encouraging and supporting negotiation. For obvious reasons, offers to settle form an ancillary to these objectives.
In the present matter, shortly after the failed Conciliation Conference and a few days after the matter was listed for trial, Mr Peters, the husband’s solicitor forwarded to Mr Di Rosa the relevant offer to settle. To my mind, the timing of the offer was significant. It was made whilst the issues subject to conciliation should have been fresh in the minds of all the actors concerned. In addition, it was made well in advance of the significant costs, necessarily arising from the preparation of the case for trial, had been incurred. Clearly, it was a device intended to protect each of the parties concerned from incurring these potentially crippling costs.
DISCUSSION
It is now appropriate to consider whether there are any circumstances which justify a departure from the general rule provided by section 117(1) by virtue of any of the considerations specified in section 117(2A).
The financial circumstances of the parties
The purpose of an inquiry under section 117(2A)(a) is to enable “the court to have some concept of the relative financial positions of the parties”.[24]The parties share one financial attribute. The end of their long marriage has been a financial disaster for each of them, given their respective ages and the imminence of their retirement from the workforce. Two households cannot live as cost effectively as one.
[24] See Browne v Green (2002) 29 Fam LR 428, 432 [20] (Kay, Coleman and Warnick JJ).
Fortunately each was able to retain a piece of real property in which to live. However, on even the most cursory form of analysis, neither was in a position to afford the cost of this litigation. The husband has an extremely limited income and is effectively living off his savings. The wife is a modest income earner. In my view, the husband is in the more parlous financial position. This has some significance given that he was the instigator of the proposal to resolve the case.
Receipt of legal aid
Neither party was in receipt of legal aid during these proceedings. Accordingly, this is not a relevant consideration.
Conduct of the parties
There is nothing to indicate that the relevant proceedings were unduly protracted by reason of any dereliction, by either party, in respect of issues of disclosure; filing documents and the like.
Failure to comply with previous orders
This is not a relevant consideration in this matter.
Party wholly unsuccessful
The wife places significant emphasis on this consideration. It being her submission that it cannot be said that either party was entirely successful in the appeal and the issues before the trial judge were closely balanced with neither party being entirely successful in the outcome propounded by them at the outset of the trial.
I am not sure how the matters which arise under section 117(2A)(e) have any great application to the husband’s application for costs. At trial, it cannot be said that either party was wholly successful but nor can it be said that one party was wholly unsuccessful. The initial property proceedings were not a zero sum game. There was always going to be a division of property. The controversy in the case was on the parameters of that division in percentage terms.
The husband commenced the trial on the basis that contributions favoured him 60%/40%; whereas the wife asserted that contributions favoured her 55%/45%. The trial judge accepted neither position. As such it is argued that the neither party can be considered wholly vindicated by the manner in which the trial judge approached the case or the manner in which the Full Court re-exercised its discretion following the appeal, both resulted in an outcome in between those proposed by the parties.
Issues relating to contribution remained the controversy on appeal. The husband was the appellant. The Full Court agreed that the trial judge had misconceived his case in respect of the weight to be given to his inheritance. As such, he was significantly vindicated on appeal, which the wife was not inclined to concede. Her notice of contention, regarding the construction of the asset pool, was dismissed.
The misfortune for the parties, which the first trial and subsequent appeal encapsulate, is that the percentage of the property pool, awarded to the husband, to vindicate the point taken by him on appeal, when translated into percentage terms, resulted in a modest award of property to him, in dollar terms.
In my view, given the rejection of his offer to compromise, the husband was entitled to put his best foot forward in respect of how he presented his case at the first trial. He was not obliged to present a case in keeping with the offer to settle that was made by him. By rejecting the offer and failing to make an acceptable counter, it was the wife’s conduct which largely rendered the first trial inevitable with its inevitable accretion of costs.
Offers to settle in writing
This, along with the respective financial circumstances of the parties, constitutes the most important consideration in this case. The import of section 117(2A)(f) is to ensure that, when offers to settle are made, they are seriously considered by the other party concerned.
Litigation is expensive and for that reason is not to be embarked upon lightly. Accordingly, courts such as this one should encourage the parties to litigation to seek a compromise of their proceedings and should discourage a party from cavalierly disregarding any reasonable offers to settle.
Generally speaking, negotiations between the parties and/or their legal advisers, to compromise proceedings under section 79 of the Act are privileged.[25] Section 117(2A)(f) does not specifically delineate how an offer to settle proceedings is to be made, other than it is to be made “in writing”. Section 117C is more specific. It authorises offers to settle in accordance with rules made by the court and stipulates that such offers are not be disclosed to the court itself, until such time as an application arises under section 117(2) of the Act.
[25] See In the Marriage of Steel (1992) 15 Fam LR 556, 560 (Nicholson, Strauss and Nygh JJ).
Part 4.2 of the Rules stipulates that an offer to settle is made without prejudice, unless the offer states that it is an open offer. Such offers need not be filed with the court. They may also be withdrawn. They remain privileged until an issue of costs arises following the completion of the matter.
Accordingly, sections 117(2A)(f) and section 117C, together with the applicable rules, recognise the procedure known as a “Calderbank” letter or offer. This procedure was described in Cross on Evidence as follows:
This procedure, known as the Calderbank letter or offer, was first used in matrimonial cases, but is now recognised to be of general application. The consequence of marking an offer “without prejudice save as to costs” is that the document and its contents are treated as being without prejudice for the determination of the substantial issues between the parties – they are privileged. But they may be used after these issues are determined, for the purpose of deciding the incidence of costs. Where the payment into court procedure is available, it is prudent that it be used.[26]
[26] J D Heydon, Cross on Evidence (Lexis Nexis, 12th ed, 2020) 1018 [25360].
In Browne v Green, the Full Court said as follows:
We think that whilst s 117(2A) does not provide any direct guidance to where weight should be given in any one particular case, it is very important for the Court to give proper consideration to written offers of settlement that have been made. The insertion of s 117C into the legislation is a clear indication of the desire of Parliament to enable parties to avoid unnecessary litigation by indicating to the other party an appropriate basis upon which litigation can be settled. The failure to heed a reasonable offer in circumstances where there is adequate knowledge of the parties at the time the offer is made to give it a proper consideration, is something to which very significant weight indeed ought normally be given. It is clearly a circumstance that would justify the making of an order for costs in favour of the husband.[27]
[27] See Browne v Green (2002) 29 Fam LR 428, 439 [57] (Kay, Coleman and Warnick JJ).
As previously indicated, in my view, the offer drafted by Mr Peters, on behalf of the husband, was carefully considered and calibrated. The offer was placed firmly in the context of what were the relevant assets of the marriage. This was not a case where the components of the asset pool were amorphous or ill-defined nor was it a case characterised by incomplete disclosure or some level of financial power imbalance between the parties concerned.
In these circumstances, the offer can only be described as a both credible and genuine attempt to reach a compromise satisfactory to each of the parties’ concerned and so spare them the mutual burden of unnecessary legal costs. In this context, in my view, the timing of the offer is central. It came at the end of the conciliation process and well before the costs incumbent in preparing the case for trial had been incurred.
As such, its only motivation can be to avoid costs and achieve an early resolution. This would have been advantageous to not only the parties themselves but also others users of the family law system. In general terms the system and its users benefit when final hearings are avoided and the resources of the court can be redirected.
Clearly, the offer did not achieve this outcome as the wife was not inclined to accept it. This was the major factor which led to each of the parties incurring the significant legal expenses of the trial, to their mutual detriment. As matters have transpired, it was not financially prudent for her to have rejected the offer in question, which clearly articulated that it would be utilised later, if appropriate, in respect of any adjudication of costs.
The offer is almost congruent with the manner in which the majority of the Full Court resolved the appeal instigated by Mr Roverati. The appeal recognised Mr Roverati’s superior financial contributions and determined the parties’ percentage entitlements in almost exactly the same terms as proposed by the husband in his settlement offer. He was entirely successful on the appeal.
In Pennisi v Pennisi,[28] the Full Court of the Family Court said as follows:
[I]t is not the law that an offer of greater or equivalent value to that which results from the Court will lead to an order for costs in favour of the offeror… We would also add that just because an offer is marginally less than the amount ordered by a Court does not mean that it is not a factor to be taken into account in determining whether costs should be awarded…
The plain words [of section 117(2A)(f)] do not limit a Court’s attention to offers which are greater than the amount awarded. Nor does the paragraph state what consequences flow from whether the offer is greater or lesser than the amount awarded, or how much that is the case. Words of limitation should not be imported into the provision and nor should it be read as though offers in proceedings under the Act carry the same consequences as payment into Court in common law matters.
We do however, consider that the closer the offer is to the award when the offer is under the amount awarded by the Court, the more weight should be given to this factor in considering the question of costs. The principle must not, however, be rigidly applied. Offers must be seen within the context of the case and the extent of the offeree’s knowledge of the parties’ financial circumstances while the offer is live. In the family law jurisdiction, it is not uncommon to find relationships where one party, often the wife, has significantly less grasp of the parties’ financial arrangements, or the financial circumstances are so complex that if would be premature to accept an offer. There are also cases where the contents of the offer are in themselves the subject of disputed value and legitimate subject matter for determination. These and other features of the context of offers must be taken into account when considering whether it was reasonable or not to accept an offer, no matter how close to the ultimate result the offer may be.[29]
[28] Pennisi v Pennisi (1997) 22 Fam LR 249.
[29] Ibid 259-60 (Nicholson CJ, Barblett DCJ and Faulks J).
Clearly the congruence of the offer made by Mr Roverati to the amount ultimately awarded to him call for the factors arising under section 117(2A)(f) to be given significant weight. As indicated above, this was not a case were the wife had a lesser grasp on the parties’ financial circumstances. There was no controversy, arising from the papers, that his inheritance was significantly greater than that of the wife.
As such, it cannot be said the offer in question was in any way premature. In my assessment, it was objectively unreasonable, in the circumstances of this case, given the extent of the asset pool, for the wife to have rejected the offer. Mr Roverati’s offer was a commercially based and pragmatic compromise motivated by his understandable desire to avoid expensive and emotionally draining litigation.
CONCLUSIONS
At the end of the day, it is the responsibility of the court to balance the various matters set out in section 117(2A) to arrive at a result, which it considers just. I am well aware of the serious consequences for the wife, if an order for costs is made against her. She is not in a strong financial position. However, she is more financially secure than the husband, given her continued employment.
In my view, it would result in an injustice to the husband, if the wife was able to escape the consequences of rejecting the husband’s carefully considered offer, with its explicit threat as to costs, by merely pleading tightened financial circumstances now. In my view, this would not be a just outcome, particularly given the emphasis the legislature has placed on the consensual resolution of family law cases and the avoidance of unnecessary costs. Accordingly, I have reached the conclusion that an award for costs should be made in the husband’s favour.
The more difficult aspect of the case is considering what should be the quantum of those costs. Adoption of the relevant schedule results in the figure calculated by the husband’s solicitor of $13,559.00. This is not likely to fully compensate Mr Roverati for the cost incurred by him on the two day trial. In my view, it represents a just award of costs given the issues arising in the case.
I propose to allow a further sum of $1,200.00 in respect of the costs application itself. In my view, the costs application was itself capable of resolution. I calculate this sum by reference to the fee allowed for a short hearing. Although contentious, the issues raised by the costs application were not unduly complex.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and twenty (120) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 17 December 2021
3
0