Rupell and Rupell

[2007] FamCA 556

FAMILY COURT OF AUSTRALIA

RUPELL & RUPELL [2007] FamCA 556

FAMILY LAW - COSTS - Offers of settlement

Family Law Act 1975 (Cth) Section 117(1); (2); (2A); (2A)(f); (2A)(g)

APPLICANT: Mrs Rupell

RESPONDENT: Mr Rupell

FILE NUMBER: SYF 104 of 2004

DATE DELIVERED: 6 June 2007

PLACE DELIVERED: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 13 December 2006

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Foster

SOLICITOR FOR THE APPLICANT: Johnson Horsley Lawyers

COUNSEL FOR THE RESPONDENT: Mr Kearney

SOLICITOR FOR THE RESPONDENT: Broun Abrahams

Orders

1. Any rule not complied with by the applicant is dispensed with so that the applicant’s application can be heard.

2. The wife’s application in a case filed 13 October 2006 is dismissed. 

3. Either party may apply to relist the matter before me for further submissions in relation to the costs of and incidental to this application for costs by the applicant.

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 104 of 2004

Mrs Rupell

Applicant

And

Mr Rupell

Respondent

REASONS FOR JUDGMENT

ORDERS MADE 18 SEPTEMBER 2006

1. Following a hearing about altering the parties’ property, I made, inter alia, the following orders:-

   1.Pursuant to Section 79 Family Law Act an order be made in the terms of paragraphs 2-7.

   2.That within three months from the date of these orders, the husband pay to the wife by way of property adjustment the sum of $174,033.00 and in default of payment of the said sum by the due date, that such sum accrue interest at the rate prescribed by the Rules.

   3.That the wife be solely entitled to the properties at [W] and [C] and that the wife indemnify the husband in relation to any liability in respect of the mortgage to P Ltd.

WIFE’S APPLICATION FOR COSTS

1. The wife by way of application filed 23 October 2006 seeks an order:-

   That the husband pay the wife’s costs of and incidental to the [sic] these proceedings as from 22 December 2005 to date, including the costs of this costs application.

2. This application was filed slightly after the time provided by the rules.  No point was taken by Counsel for the husband in that regard and I will dispense with any rule that would impede me from dealing with the application.

HUSBAND’S RESPONSE

1. Counsel for the husband also submitted that any order that is made should not be “to date” but to the conclusion of the hearing of the matter on 27 January 2006.  Counsel for the wife did not make any submissions to the contrary.

2. The husband, in his response filed in court on 13 December 2006, sought orders in the following terms:

   1.That the wife’s Form 2 Application in a Case filed 13 October 2006 be dismissed.

   2.That the wife pay the husband’s costs of and incidental to that application.

3. However Counsel for the husband objected to submissions being taken in relation to the costs of this costs application before the result of the application is known.  Counsel for the husband inferred that further evidence would be sought to be lead by the husband in relation to that supplementary costs application presumably depending upon the outcome of the primary application for costs.

SHORT CHRONOLOGY

1. In January 2004 the husband handed to the wife a document that he refers to as “an offer”.

2. On 9 March 2004 the wife filed a property application.

3. On 19 September 2005 the property proceedings were listed for hearing but were “not reached”.

4. On 31 October 2005 the husband made an offer to settle on the following relevant terms (page 2 of exhibit “A”):-

   1.That our client transfer to your client all his right, title and interest in the property located at [C] subject to the mortgage to [P Ltd].

   2.That our client transfer to your client all his interest in the remaining net proceeds of sale of the [N] property being the sum of approximately $88,000 (as at 19 September 2005).

   3.That our client pay to your client the sum of $50,000 which sum will comprise:

   (a)a super splitting order in respect of our client’s superannuation interest of approximately $36,000;

   (b)a cash component of approximately $14,000.

5. On 22 December 2005 the wife made an offer for settlement in the following terms:-

   1.That our client retain the [C] property and that your client transfer that property to our client subject to the mortgage.

   2.That our client retain the remaining net proceeds of sale of the [N] property.  This amounts to approximately $50,000 (and not $88,000 as in your letter).

   3.That your client pay to our client the sum of $121,000 payable as follows:-

   3.1a splitting order in the sum of $36,000; and

   3.2a cash payment of $85,000.

6. On 16 January 2005 the husband rejected the wife’s offer and put a counter offer which was not referred to in submissions but which on its face is far less favourable than the result that the wife achieved in the final orders.

7. On 27 January 2006 interim orders were made transferring the [C] unit to the wife subject to her refinancing the existing mortgage.

8. On 18 September 2006 final orders were made, including those set out below.

EVIDENCE RELIED UPON

1. In support of her application the wife filed an affidavit sworn by her on 19 October 2006.

2. The husband relied upon an affidavit sworn by him on 11 December 2006.

3. The husband tendered a letter dated 31 October 2005 which was his written offer of settlement (exhibit A).

STATUTORY PROVISIONS

1. Section 117(1) Family Law Act (“FLA”) sets out the basic rule that each party to proceedings under the Family Law Act shall bear his or her own costs.

2. Section 117(2) FLA says if, in proceedings under this Act, the court is of the opinion that there are circumstances that justify in doing so, the court may make such order as to costs as the court considers just.

3. In considering an order under s.117(2) FLA the Court shall have regard to the matters set out in s.117(2A) FLA.

4. No submission was made relying upon s.17(2A)(b), (c), (d) or (e) FLA.

5. Submissions were made primarily focusing on considerations set out in s.117(2A)(f), (g) and (a) FLA.

6. I will deal with the issues in that order.

OFFERS OF SETTLEMENT (Section 117(2A)(f) and (g) FLA)

1. The law in relation to the consideration of offers is well known.  Nygh J in Robinson & Higginbotham (1991) FLC 92-209 said that it is quite clear that the purpose of paragraph (f) is:

   ...to ensure that offers to settle, if made seriously, are considered seriously, to ensure that the cost of litigation is avoided, the workload of this Court is lightened, and one other consideration is certainly that the party with the greater wealth is not placed in a position whereby he or she can wear out the other by simple attrition. 

2. That sentiment was emphasised by the Full Court in Brown v Green (2002) 29 Fam LR 428 where the Full Court said:

   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 (sic) give it a proper consideration, is something to which very significant weight indeed ought normally be given. 

3. The Full Court in Pennisi & Pennisi (1997) FLC 92-774 confirmed at page 84,547 that:

   …it 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 less 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 payments 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 that should be given to this factor in considering the question of costs.  The principle must not, however, be rigidly applied.  Offers must be seen in 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 it 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 is reasonable or not to accept an offer, no matter how close to the ultimate result the offer may be

The wife’s offer of 22 December 2005

1. The wife in submissions asserted that from 22 December 2005 she had in place an offer which would have required the husband to pay a sum equivalent to only 69% (or $53,000 less than) of the sum ultimately ordered. 

2. At first, that submission is difficult to understand.  An initial reading of that offer would seem to indicate that the wife was seeking, in addition to the C property subject to the mortgage, an amount of $50,000 under paragraph 2 of the offer and an amount of $121,000 under paragraph 3 of the offer.  This represents a total of $171,000. 

3. The reason the wife asserts the offer should be read as wanting $121,000 in addition to equity in the C property is because at the time the offer was made (and therefore also at the time of the hearing) the remaining net proceeds of sale of the N property had been paid towards the reduction of the mortgage on the C property. 

4. Counsel for the wife relied upon page 8 of the case summary on behalf of the applicant wife at the final hearing (exhibit 1).  That document records as part of the chronology:-

   00.07.2005 Property at [N] sold.

   Price:$500,000

   All net proceeds ($474,148) paid to reduce mortgage indebtedness to [H Trustee].

   $344,000 loan which had accrued to $386,000 with arrears was paid out.

   $480,000 loan which had accrued to $502,000 was reduced by a payment of $88,148 to $414,320.

5. Exhibit 2 was a statement of account in the names of the parties to H Pty Ltd.  It shows that on 17 June 2005 a payment was made of $88,148.77.  It confirms that on that date the loan which was $480,000 and had increased to $502,469 was reduced to $414,320.  The husband correctly asserted in his offer of 31 October 2005 that the net proceeds of the sale from the N property was $88,000.

6. Based on those facts Counsel for the wife submits that the offer that was made by her on 22 December 2005 should be seen as an offer that the matter be settled on the basis that she received $121,000 in addition to the then equity in the C property.

7. It seems clear from the wife’s offer that she was under the impression, at the time the offer was made, that there was approximately $50,000 available from the proceeds of the sale of the N property to which she could lay claim.  However, the wife actually got the net proceeds of the N property in the form of increased equity in the C property.

Conclusion in relation to the offer of 22 December 2005

1. I accept that the part of the order made under s.79 which is contained in paragraph 3 of the orders made by me on 18 September 2006 has to be compared to paragraphs 1 and 2 of the offer made by the wife on 22 December 2005.

2. It follows that the part of the order made under s.79 in paragraph 2 of the order of 18 September 2006 has to be compared with paragraph 3 of the offer made by the wife on 22 December 2005.

3. I consequently accept that the difference in the offer and what was received by the wife is a gain by her of $53,000 ($174,000 - $121,000). 

The husband’s offer in January 2004

1. The husband asserts in paragraph 2 of his affidavit sworn 11 December 2006 that he made a written offer to the wife in January 2004 and handed it to her.  The parties separated in 2004.  He says that at the time he made the offer to the wife the mortgage secured on the W and C properties totalled approximately $800,000. 

2. It is not disputed by the wife that the husband’s evidence in paragraph 2 of his affidavit sworn 11 December 2006 is accurate.  I accept Counsel’s for the husband’s submission that by the wife filing the property application on 9 March 2004 seeking different orders she had effectively rejected the offer that had been made. 

3. The offer took the form of a proposed agreement and is in the following terms:-

   Agreement

   I [the husband] agree to surrender all rights and interest in the properties known as [W] and [C].

   I agree to the sale of the property known as [N], the proceeds of which will pay off mortgage interest to [H Company] on the property [W], and [C] and or any debts which the wife could be held liable for.  At the time of settlement the solicitor acting for the sale of the said property [N] to attend to the payout of [H Company] and clearance of mortgage on both properties and the transfer of title of the [C] property.

   Further to the above both parties [the husband] and [the wife] agree to work together and run the joint bank account for a minimum of three months until such time as the [N] property is sold and fair trading time for [the husband] to attend to bank responsibilities during which time rent from both the [C property] and [N property] will be paid into the joint bank account and [the husband] will continue to honour commitments to outstanding accounts. 

   [The husband] will undertake to pay out the Toyota Corolla Registration No. […] which presently [sic] with ANZ Finance.

   Should there be a shortfall in proceeds from the sale of the [N] property [the husband] will take fill responsibility for the balance that is refinancing for balance. [sic]

   During this period of sale both parties agree to work jointly to find an amicable solution.”

4. Counsel for the husband concedes that this offer was not made “to settle proceedings within the terms of s.117(2A)(f) FLA” but says under s.117(2A)(g) FLA and under the common law (see Calderbank [1976] Fam 93; [1975] All ER 333; [1975] 3 WLR 586), I have the discretion to take what the husband did at this time into account. I accept the submission that I can take this offer made by the husband into account under s.117(2A)(g) FLA.

5. The substance of what the husband was proposing was that the wife receive the W property and the C property unencumbered.  The husband envisaged at that time that the N property if sold would produce a payout sufficient to clear the mortgages on both the W and C property.  The second last paragraph of the husband’s offer as set out above indicates that if there is a shortfall in the proceeds of sale of the N property, then the husband would take full responsibility for the balance by borrowing money to pay out that balance. 

6. Counsel for the wife refers to the husband’s January 2004 document as an invitation to treat rather than an offer.  This is because the final sentence of the document talks about “during this period of sale both parties agree to work jointly to find an amicable solution”.  Counsel for the wife submitted that the January 2004 offer was of the nature of “let’s have some meetings and work out some solutions”.  He said to call it an offer was a healthy gloss on the document.

7. Counsel for the wife says that there is no indication as to what the N property was worth at the time.  There is no indication as to the viability of the husband’s offer.  Counsel for the wife inferred that given the other findings in my reasons for judgment the wife would not have had any confidence that the husband could have fulfilled his obligation. 

8. Given that the husband’s evidence before me now is that the mortgage on the N property as at the date of his January 2004 offer was about $800,000, there would need to be some doubt as to whether or not a sale of this property in January 2004 would have achieved a figure sufficient to discharge the liability on the W and C properties.

9. I have noted at paragraph 283 of my judgment that the husband had instructed his lawyers in November 2004 that at an earlier point in 2004 in his view the N property was worth $770,000.  He asserted that there had been a 15% reduction ($115,500) which would have placed the then value of the N property on the husband’s estimation at $655,000.  I have no evidence to verify any of those values.

10. I note in my reasons for judgment that Mr G, a real estate valuer, gave evidence that the property was worth $625,000 if the property had been marketed on an ordinary basis as at the date of the interim orders for sale in January 2006.  Those interim orders were of course made in the context that notices had been issued by the mortgagee and that a sale was imminent if the parties were not able to secure a sale.

11. Counsel for the husband rightly points out that had the proposal been accepted by the wife and been converted into orders then the wife would have been able to enforce against the husband because he still would have the assets comprising his shareholding and loan account in his company.

Conclusion in relation to the husband’s January 2004 offer

1. I accept that annexure A to the husband’s affidavit does in fact contain an offer to the wife.  The offer is fairly clear in its terms.  Had the offer been accepted by the wife and orders made in accordance with that agreement then it couldn’t be said by the wife that it was an order that was nugatory or unable to be enforced.  The wife would have ended up in a better position than she is now. 

2. I conclude that the proposal that the husband made to the wife in January 2004 would have, if accepted by the wife, given her the opportunity to have both the W and C properties on an unencumbered basis.  As a result of the history of what has happened since January 2004 the wife has received (see her affidavit sworn on 19 October 2006) two properties with a combined estimated value of $703,453 with an outstanding mortgage of $505,000 and net equity of $198,453. 

THE FINANCIAL CIRCUMSTANCES OF THE PARTIES (Section 117(2A)(a))

1. The wife in her evidence says that her current weekly income is $1,420 per week.  Her outgoings are slightly less than this amount. 

2. The wife’s net asset position is as follows:-

   Equity in property   $ 198,453

   Bank accounts   669
   IBM shares   6,000
   Motor vehicle   25,400
   Amount owing under alteration of property orders        174,033

   $ 230,522

   Less debts:
   Personal loan   $ 8,912
   Credit card  10,255
   Legal fees  40,000
   Loan to daughter  5,000

   $ 64,167

   Net assets  $ 166,355

3. The husband has given fresh evidence that his current income is about $120,000 per year.  Although I was reluctant to accept that figure in my judgment (see pages 268 – 273) I accept that that is what the husband is now asserting he is currently earning.  In addition the husband receives a pension of about $1,200 per month (see judgment page 274). 

4. The husband has current assets of $674,000, liabilities $448,398 (including the amount of $174,033 owing to the wife).  He claims his net assets to be $225,667. 

5. Counsel for the wife submits that the husband has available financial resources at present in the form of his interest in the property holding company E Pty Ltd and his corporate loan account.  As I indicated previously those two assets are not as liquid as assets held by the wife. 

6. The husband says that he has no available liquid funds to meet a costs order and I accept that that is so.  He was still to arrange finance in relation to the balance of the monies payable pursuant to the orders for final property alteration.  I accept counsel for the husband’s submission that it was appropriate in this case, where the husband has to meet a substantial order which reduces his ability to meet a order for costs, to look at the end result of the property order when considering whether to order costs: see Marinko and Marinko (1983) FLC 31-307 at page 78,099.

THE HUSBAND’S HEALTH AT THE TIME OF REJECTING THE OFFER (Section 117(2A)(g) FLA)

1. The husband rejected the wife’s offer in a letter that his lawyers wrote on 22 December 2005. 

2. The husband says that in mid December 2005 he was extremely ill.  He says he was suffering from fevers, abdominal pains, vomiting and diarrhoea.  He says he was subsequently admitted to hospital 11 January 2006, again on 12 January 2006 and remained there after the second admission for seven days.  He was admitted for a gangrenous gallbladder which was surgically removed.  The husband said that during December/January it was difficult for him to give instructions to his solicitors.  I note in paragraph 46 of my reasons for judgement that the husband, whilst giving evidence before me at the end of January, was inconvenienced by the fact that he had had a recent operation for the removal of a gallbladder.

3. The husband’s evidence is not contested.  He has however managed to instruct his solicitors on the same day the offer was received to reject it.  I place little weight on the husband’s state of health.  There is nothing to suggest the husband could not comprehend what was being offered.  There is nothing to suggest that, given the negotiations that had preceded it, that the offer made by the wife was not fully comprehended by him.  He seems to have rejected it out of hand.  I therefore place little weight on the evidence relating to his health so far as that might be relevant to his rejection on 22 December 2005 of his wife’s offer of the same date.

CONCLUSION

1. Considerations of legal aid, the conduct of the parties, the failure of the parties to comply with orders or whether or not a party was highly unsuccessful are not matters of any relevance in this application.

2. The most weighty matters are the offers that were made by the wife on 22 December 2005 and by the husband in January 2004. 

3. By filing her application the wife rejected the husband’s offer.  The husband specifically rejected the wife’s offer. 

4. Had the wife accepted the husband’s offer in January 2004 she would in my view have produced a result which exceeded the result that she achieved at trial.  The current mortgages on her two properties are $505,000. The husband is to pay her $174,000. At the end of the day the wife may have ended up $331,000 ($505,000 - $174,000) worse off then she may have been had she accepted the January 2004 offer. 

5. I consider this to be a powerful relevant “other matter” for me to consider.  In my view it counter balances the weight that I place upon my consideration of the offer made in writing by the wife to settle the proceedings on 22 December 2005 (which the husband should have accepted at that point in the proceedings).

6. Whilst the husband’s annual income is far superior to the wife’s, his capital assets are not.  I accept that he would not be able to pay a costs order without further borrowing against assets which are locked into the company which he has a shareholding.

7. Whilst the wife’s application, based as it was on the offer of 22 December 2005, at first seemed to have some merit, on balance I do not consider it just to make a cost order in favour of the wife.  Accordingly I dismiss the wife’s application for costs.

8. I note the parties wanted to be able to relist the matter to argue the costs of this application.  It goes without saying, that given that part of the basis for this decision is the current respective financial circumstances of the parties any such application, by either party, is at their own risk as to costs in respect of that application.

I certify that the preceding sixty-six (66) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts

Associate: 

Date:  6 June 2007

IT IS NOTED that this judgment for all publication and reporting purposes be referred to as RUPELL & RUPELL