Russo & Dorsey & Anor (No. 2)

[2014] FamCA 641

FAMILY COURT OF AUSTRALIA

RUSSO & DORSEY AND ANOR (NO. 2) [2014] FamCA 641

FAMILY LAW – COSTS – Where the applicant seeks an order that the first respondent pay her costs of property settlement proceedings on an indemnity basis – Where the first and second respondents seek orders for the applicant to pay their costs of the proceedings – Where the first and second respondents are in breach of orders to pay the applicant $100,000 – Whether there are justifying circumstances for an order for costs – First and second respondents ordered to pay the applicant’s costs of the proceedings on a standard basis

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

Penfold v Penfold (1980) 144 CLR 311
Prantage & Prantage (2013) FLC 93-544
Watson & Watson (2013) FLC 93-530

APPLICANT: Ms Russo

FIRST RESPONDENT: Mr Dorsey

SECOND RESPONDENT: Dorsey Pty Ltd atf B & C Dorsey Trust

FILE NUMBER: BRC 3499 of 2012

DATE DELIVERED: 6 August 2014

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Kent J

HEARING DATE: 6 August 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr James

SOLICITOR FOR THE APPLICANT:

Buchanan Legal

SOLICITOR FOR THE FIRST RESPONDENT:

Mr Ross, Collas Moro Ross

SOLICITOR FOR THE SECOND

RESPONDENT:

Mr Troedson, Cleary Hoare Solicitors

Orders

It is ordered that:

1. The First Respondent and Second Respondent pay the Applicant’s costs of and incidental to the proceedings to be agreed or assessed on a standard basis; including, but not limited to, the costs of:

   a.the Applicant’s interim application for spousal maintenance and interim costs heard and determined by Justice Forrest on 10 September 2012; and

   b.        the Application in a Case filed 10 September 2012 heard by Justice Forrest on 8 October 2012.

   IT IS FURTHER ORDERED THAT:

2. By 4.00 pm on 11 August 2014 the Applicant file and serve any application for enforcement upon which she intends to rely and the material in support of such Application.

3. Subject to the filing and service of the Application in a Case referred to in paragraph (2) hereof, the Application be listed for hearing before the Honourable Justice Kent at 9.00 am on 25 August 2014 at the Family Court, Brisbane Registry.

1. All extant applications be dismissed and removed from the pending cases list.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Russo & Dorsey and Anor (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 BRISBANE

FILE NUMBER: BRC 3499 of 2012

Ms Russo

Applicant

And

Mr Dorsey

First Respondent

And

Dorsey Pty Ltd atf B & C Dorsey Trust
Second Respondent

EX TEMPORE REASONS FOR JUDGMENT

1. Following a two day trial on 10 and 11 June 2014, on 26 June 2014, I made Orders and delivered Reasons for Judgment in respect of property settlement proceedings pursuant to Part VIIIAB of the Family Law Act 1975 (Cth) (“the Act”).

2. One of the orders made on 26 June 2014 was that each party be at liberty to make an application or applications for costs in accordance with Rule 19.08 of the Family Law Rules 2004 (Cth).

3. On 23 July 2014, the applicant filed an Application in a Case seeking costs orders.  Subsequently, the first and second respondents each filed an Application in a Case seeking orders for costs on 24 and 25 July 2014 respectively.  Further, the first and second respondents each filed a Response to the applicant’s Application in a case.

4. In summary, the applicant, via her Application in a Case filed 23 July 2014, seeks orders which would provide:

   (1)That within 30 days of these orders, the first respondent pay on an indemnity basis the applicant’s costs of and incidental to the proceedings including, but not limited to, the costs of:

   (a)The applicant’s interim application for spousal maintenance and interim costs heard and determined by Forrest J on 10 September 2012; and

   (b)The Application in a Case made 10 September 2012 and heard by Forrest J on 8 October 2012. 

   (2)If the first respondent fails to make payment of the applicant’s costs as ordered herein, then the second respondent pay the said sum to the trust account of the solicitors for the applicant.

5. The first respondent, via his Application in a Case filed 24 July 2014, seeks:

   1.        That the Applicant pay the First Respondent’s costs.

   2.Further / alternatively, that the lawyer for the Applicant pay the Applicant’s costs thrown away; alternatively, that the Applicant’s lawyer otherwise pay the First Respondent’s costs or so much thereof as the Court deems appropriate.

6. By reference to the first respondent’s Response filed 5 August 2014, he seeks that the applicant’s Application be dismissed and that the applicant pay the first respondent’s costs of and incidental to the Application in a Case to be assessed. 

7. The second respondent, via its Application in a Case filed 25 July 2014, seeks orders that:

   1.That the Applicant pay the Second Respondent’s costs of and incidental to the proceeding on an indemnity basis, or alternatively on a standard basis, since the date of the Order so joining the Second Respondent.

   2.That the Applicant pay the Second Respondent’s costs of and incidental to the Application in a Case made 10 September 2012 and heard by Justice Forrest on 8 October 2012 on an indemnity basis, or alternatively on a standard basis.

   3.That the Applicant pay the Second Respondent’s costs of and incidental to this Application in a Case made on 24 July 2014.

8. To similar effect with respect to its Response to an Application in a Case, the second respondent seeks orders that the applicant’s Application in a Case be dismissed and that the applicant pay the second respondent’s costs of and incidental to that Application.

9. In support of her Application for costs, the applicant has filed an Updated Financial Statement and an affidavit of her solicitor, Stephen Buchanan, both filed on 23 July 2014.  At paragraphs [7] and [8] of that affidavit, Mr Buchanan deposes, firstly, that the applicant has paid $12,705 in legal costs but currently has outstanding legal costs, including disbursements, in the amount of $240,310.95.  Mr Buchanan confirms in that affidavit, “…we have agreed to carry the legal fees…” from the outset of the matter.

10. On the evidence of the first respondent, he has incurred a liability for $261,580.09 in legal fees, as is set out in paragraphs [4] and [5] of his affidavit in response filed on 5 August 2014.  Of that sum, the first respondent has paid only $12,705.92.

11. For its part, the second respondent has incurred $170,576.15 in legal fees, as is referred to in paragraph 10 of the affidavit of Mr Troedson filed 25 July 2014.  Of that amount, $78,576.56 has been paid, with $91,999.59 remaining owing.

12. It can thus be seen that between them, these three parties have spent or incurred liabilities for legal fees in a total amount of $675,172.19.  I observe in passing that it is disgraceful that such an amount has been incurred over a case of this kind.  Other solutions ought to have been found.  Between them, the respondents have incurred or spent $431,000 in costs.  The outcome of the case was that the applicant was relieved of responsibility for a deed of loan under which she was liable for an amount of about $265,000 and was otherwise to have the benefit of an order for the payment to her of $100,000. 

13. The evidence provided in the applicant’s case at the outset of this hearing confirms that the sum ordered to be paid has not been paid.  It was due for payment by the first respondent on 26 July 2014.  The orders that I made following the trial included an order that if the first respondent failed to pay the amount, then the second respondent was obliged to pay the amount.  Plainly, the second respondent also has not complied with that order.  Today, on its behalf, Mr Troedson made a submission to me to the effect that a term of reasonable time ought be imported into the order I made, but no authority was advanced to me for that proposition.  I reject the submission.  In my judgment, both the first respondent and second respondent are plainly in breach of the orders. 

14. When a party is in breach of orders of the Court, a question arises as to whether the discretionary rule not to hear any application from the party ought be applied.  In Watson & Watson (2013) FLC 93-530, the Full Court of this Court recently considered the discretionary rule and its discussion in earlier cases including Fahmi & Fahmi (1995) FLC 92-637. Commencing at paragraph [36] of that judgment, there is a summary of the principles to be applied. Firstly:

    Procedural justice dictates that the fact that a party has disobeyed an order of the Court is not of itself a bar to the party being heard on a subsequent application brought by that party.

15. Secondly:

    In courts exercising jurisdiction under the [Family Law] Act, the rule, when it operates, gives rise to a discretion not to permit a party being heard.

16. Thirdly:

    The rule applies where facts establish disobedience of an order, even though there has been no application for the party to be dealt with for contravention or contempt, and no determination has been made that the party is guilty of a contravention or contempt.

17. Fourth:

    The Court may, in its discretion, refuse to hear a party in breach of an order only if that party makes an application in the same proceeding or in the same cause in which the disobedience of an order has occurred.

18. That is clearly the position here.  The costs applications I have referred to plainly arise in the same proceedings leading to the primary orders that were made. Fifth:

    No question as to a party being heard arises if that party is defending, rather than bringing, an application.

19. That is, the first respondent and the second respondent are permitted to be heard, and the discretionary rule has no application, with respect to the respondents being heard on the applicant’s application for costs.  Finally:

    Where the discretion arises the exercise of it depends upon the balance between that party’s right to procedural justice, including the right to be heard, and public policy considerations.  Those public policy considerations include that if the party’s disobedience is such that, so long as it continues, it impedes the course of justice in the cause by making it more difficult for the Court to ascertain the truth, or to enforce the orders which it may make, or the party’s further application constitutes an abuse of process in the circumstances, then the Court is unlikely to exercise its discretion in favour of hearing the party or entertaining the application of the party.

20. In my judgment, the discretionary rule applies in the circumstances of this case, and neither the first respondent nor the second respondent ought be heard on their Applications for costs as against the applicant.  For reasons which will become apparent, even if I had entertained those Applications, it would be seen that they would not have enjoyed any success.

21. The argument today centred upon, to some extent, offers of settlement being made by each party in the course of these proceedings.  The fact of the matter is that having regard to the outcome in the case, no offer was made by any party which was the same or more generous to the other party as the outcome in the case.  There was an earlier offer made by the applicant, which I interpret to mean, despite submissions that it was unclear, that she would accept, effectively, $200,000 in satisfaction of her property claim.  That offer was made on 3 August 2011 at a very early stage and long before the substantial costs to which I have referred were incurred. 

22. For his part, the closest the first respondent came in terms of offers was simply to discharge the deed of loan to which I have referred.  There was no offer for any payment of a cash sum, and the offer came in circumstances where at a time, well after substantial costs had already been incurred, that offer was made. 

23. Section 117, subsection (1) of the Act contains the provision sometimes described as the usual rule that each party to proceedings under the Act shall bear his or her own costs. Section 117(2) of the Act relevantly provides that in proceedings under the Act if the Court is satisfied that there are circumstances that justify in doing so the Court may, subject to, inter alia, s 117(2A), make such order as to costs as the Court considers just.

24. It is important to recognise that subsection (1) expressing the usual rule is expressly stated to be subject to the following subsection to which I have referred.  Whilst s 117 is now in a somewhat different form to the form in  which it was when considered by the High Court in Penfold v Penfold (1980) 144 CLR 311 (“Penfold”) the statements of principle flowing from the High Court are still apposite. In that case, the High Court held that s 117(1) of the Act is not paramount to s 117(2), and that as s 117(1) is expressed to be subject to s 117(2), the former must yield whenever a judge determines in a particular case that there are circumstances that justify it in making an order.

25. It is clear from the decision of the High Court in Penfold and indeed in other decisions of this Court including of the Full Court that s 117(2) requires a finding of justifying circumstances as an essential preliminary for the making of an order for costs.

26. In this case, I am satisfied that there are justifying circumstances for the making of a costs order in favour of the applicant.

27. I will not repeat in any detail the Reasons for Judgment I delivered on 26 June 2014 but reference to those Reasons in full would amplify the brief references to them which I now make.

28. In short, there were two significant issues that arose on the trial of these proceedings.  The first concerned whether the property of a family discretionary trust may be regarded for the purposes of the proceedings as property of the first respondent, as was the applicant’s contention.  A second issue concerned a loan deed dated 2 December 2010 between the applicant as borrower and the first respondent as lender.

29. For the reasons outlined in the Reasons for Judgment I delivered on 26 June 2014, the applicant was not successful with respect to the second issue concerning the loan deed.  That is, I did not accede to her case that the subject of the loan deed should be treated as a gift rather than as a true liability.  However, she was successful on the other major issue in the case as to whether the property of the subject trust – that is, the property of the second respondent – could be regarded for the purposes of the proceedings as property of the first respondent.

30. On 31 October 2012 Forrest J delivered his reasons and made orders that included, inter alia, that the second respondent be joined as a respondent to the proceedings.  That rested upon a determination that the second respondent was a necessary party to the proceedings.  There would appear to be some attempt in the submissions provided by the second respondent today on this application to revisit that.  All that need be said about that is that the Application of the applicant plainly was directed to the property of the first respondent.  On my findings, that property included the property of the second respondent.

31. The applicant was put to far greater expense than would otherwise have been the case had sensible approaches been taken by the first respondent and the second respondent to the issue being agitated by the applicant.  As at the outset of the trial, the first respondent and the second respondent contended that the assets of the first respondent were encumbered by – and that the first respondent had a legal liability to the second respondent for - $27.8 million being the amount of the judgment by default that had been obtained by the second respondent as against the first respondent.

32. As at the outset of the trial, the first and second respondents were united in their contention that the first respondent had relinquished all control in the trust, at least by December 2010.  For the reasons outlined in my Reasons for Judgment I did not accept these contentions.  Had those contentions been made out as the applicant confronted as at the very beginning of the trial, the obvious follows.  That is, in determining the assets of the parties to the relationship or either of them, there would have been a finding contended for by the first respondent that he was in a negative position to the tune of some tens of millions of dollars.

33. For the reasons set out in some detail in my Reasons for Judgment delivered on 26 June 2014, I made findings that the first respondent had, at all material times, maintained control of the trust.  On that basis, I was satisfied that the property of the trust was to be regarded as property of the first respondent for the purposes of the proceedings.  It was on that basis that orders were made assessing by reference to that pool of property and in the result on a combined pool including the assets of the second respondent, I made orders having the effect of providing to the applicant 8 per cent of that combined pool.  That was reflected in the orders ultimately made for the applicant’s liability under the deed of loan to be discharged and for her to receive a cash payment of $100,000.

34. It was not to the point as at the trial nor indeed now on the submissions of the second respondent for it to be said that the first respondent retained a superannuation interest of $1.8 million. Whilst it is the case that under the terms of the Act superannuation interests are to be treated as property, it does not mean by virtue of the provisions of the Act that superannuation is converted into property. That is, any order directed to the first respondent’s superannuation in terms of any rollover of that superannuation in favour of the applicant would have remained as superannuation and not cash or property to which she could have ready access.

35. Turning then to the relevant considerations in subsection (2A), those considerations need to be kept in mind in circumstances where the applicant is seeking an order on an indemnity basis as opposed to the standard basis.  Insofar as the financial circumstances of each of the parties to the proceedings are concerned, again, that can be referenced to my principal Judgment.  Plainly, the applicant is in a parlous financial state as is confirmed in her most recent financial statement, and the first respondent/second respondent are in a far superior financial position to her.  In short, there is no reason to suppose that on the combined financial circumstances of the first and second respondents, they do not have the capacity to meet an order for costs.

36. In terms of subsection (c) there were attempts to address particulars concerning the conduct of the parties to the proceedings in relation to the proceedings.  Each agitated some complaints against the other in that respect.  It seems to me that most significant here is the conduct I have earlier referred to.  That is, the first respondent and the second respondent maintaining what seemed to me to be an artifice for the purpose of these proceedings, and that was compounded by the feature that after these proceedings were commenced the first respondent launched District Court proceedings in respect of the deed of loan.

37. It was always going to be the position, once property proceedings under the Act were commenced, that relevant loans such as that would be taken into consideration, and indeed it can be seen from my final Judgment that is precisely what occurred in my determination. It was unnecessary and in the sense of adding unnecessarily to costs for the first respondent to have embarked upon proceedings in another court when the subject matter of those proceedings could have been determined here and were determined here.

1. There is also the feature of the artifice of the second respondent launching proceedings against the first respondent and obtaining a judgment in default.  I discussed that in my primary Reasons.  Again, it impacted upon the need for the applicant to take action to prevent the position being reached that the first respondent effectively divested himself of, or charged, all property in favour of the second respondent and that was the basis for the Application that was heard and determined by Forrest J.

2. It could not be suggested that the applicant was wholly unsuccessful in the proceedings, nor could that be said of the other two parties in the sense that the orders sought by the applicant included very substantial cash sums and potentially the unwinding of the trust by virtue of the setting aside of various documents under s 106B of the Act, and that the respondents were at least successful in resisting those applications.

3. I have already briefly discussed the question of offers of settlement within the meaning of subsection (f).  I have noted in particular that at an early stage of the proceedings the applicant made an offer to accept a cash sum of $200,000 and what seems to me to be then an extinguishment of liability otherwise.

4. The first respondent’s offer to extinguish the same liability under the deed of loan with no cash offer being made came much later in the proceedings and could not be said to be more advantageous to the applicant at that stage given the substantial costs that had been incurred by the applicant at that stage.

5. Whilst I am satisfied that there ought be an order for costs in favour of the applicant as against both respondents, I am not satisfied that the order ought be made on an indemnity basis.  The authorities of this Court including the recent Full Court authority of Prantage & Prantage (2013) FLC 93-544 referred to in the applicant’s submissions emphasise that it is a very great departure to make an order for costs on an indemnity basis as opposed to a party and party basis.

6. I am mindful that the position adopted by the first respondent and the second respondent so far as the trust issue is concerned added significantly to the expense and time involved in the proceedings, but so too can it be said that offers made by the applicant in the latter stages of the proceedings represented a departure from reality in terms of a likely outcome of the case.  On that basis, I do not propose to accede to the application that there be an order for costs on an indemnity basis.

7. For these reasons, I make the Orders set out at the commencement of these Reasons.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 6 August 2014.

Associate: 

Date:  6 August 2014