Salt and Salt

[2014] FamCA 1088

FAMILY COURT OF AUSTRALIA

SALT & SALT [2014] FamCA 1088

FAMILY LAW – COSTS -

Family Law Act 1975 (Cth) s117(1), s117(2A)

Hartnett & Sampson (Costs) [2007] FamCA 1456
McAlpin and McAlpin (1993) FLC 92-411 at 80,215
JTT; Ex parte Victoria Legal Aid (1998) FLC 92-812
D & D Costs (No. 2) (2010) FLC 93-435
Limousin & Limousin (Costs) (2008) 38 Fam LR 478
Kohan and Kohan (1993) FLC 92-340
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248.

APPLICANT: Ms Salt

RESPONDENT: Mr Salt

FILE NUMBER: BRC 5313 of 2014

DATE DELIVERED: 5 December 2014

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Hogan J

HEARING DATE: 29 September 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Galloway

SOLICITOR FOR THE APPLICANT:	Schultz Toomey O'Brien Lawyers
COUNSEL FOR THE RESPONDENT:	Ms McMillan of Queen’s Counsel

SOLICITOR FOR THE RESPONDENT: Butler McDermott Lawyers

Orders

IT IS ORDERED

1. That the Applicant pay the costs of B Pty Ltd as trustee for the B Unit Trust (B Pty Ltd) of and incidental to the Application for interim orders filed 25 August 2014 with such costs:

   (a)to be paid on a party/party basis in an amount agreed between the Applicant and B Pty Ltd or, failing agreement, as assessed on a party/party basis; and

   (b)to be paid within 60 days of the making of a final order in, or final resolution of, the property settlement proceedings between the Applicant and the Respondent.

2. The Respondent pay to the Applicant the sum payable by her to B Pty Ltd pursuant to Order 1, with such sum to be paid to the Applicant within 30 days of the making of a final order in, or final resolution of, the property settlement proceedings between the Applicant and the Respondent.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Salt & Salt 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 5313 of 2014

Ms Salt

Applicant

And

Mr Salt

Respondent

REASONS FOR JUDGMENT

1. The Application for interim orders contained within the Initiating Application filed by the wife on 25 August 2014 (the Application) was finalised when Orders were made by consent on 29 September 2014. On that day, Counsel for the purchaser (B Pty Ltd as trustee for the B Unit Trust (“B”)) of a business previously operated by the husband and others sought an order that the wife pay, on an indemnity basis, his costs of and incidental to the Application.

2. In the event that B obtains such order, the wife seeks, in essence, an order requiring the husband to indemnify her in respect of any amount she is required to pay to B.

The Application – why was it filed?

1. The husband and wife commenced cohabitation in about September 1997 and married in 2000. There is one child of the marriage, currently 15 years of age. Each of the parties has an adult child from a previous relationship.[1]

   [1]          Affidavit of Wife filed 25 August 2014, at paragraph 2.

2. It is uncontroversial that the parties and their children were supported financially during the relationship by the profits and proceeds flowing from the husband’s business. For example, before their separation, they had received significant monies sourced in the business, including income of about $250,000.00 per annum and annual dividends of approximately $120,000.00.

3. On 3 February 2014, one of the husband’s business partners (the financial controller of the business) offered to purchase the husband’s 70 per cent interest in it for about $4,500,000.00.[2]

   [2]          Affidavit of the Wife filed 25 August 2014, Annexure KRS 1.

4. The husband and wife separated on about 8 March 2014. On 28 March 2014, the wife’s solicitors sought that the husband disclose business financial statements, including tax returns for the 2011, 2012, and 2013 financial years.

5. On about 23 April 2014, the wife’s solicitors asked the husband to undertake that he would not dispose of, sell or encumber the business in any way other than in the usual course of business. The wife had received no response to this when she filed an Initiating Application on 18 June 2014.

6. The husband was served with this Initiating Application and the wife’s supporting affidavit on 25 July 2014.

7. On 13 August 2014, the husband finalised a Deed of Agreement of Sale of Shares and Deed of Charge. By the Sale of Share Agreement[3], the husband contracted to sell 1,000 shares in C Pty Ltd to D Pty Ltd (free from encumbrances) – for $33,333.00. The contract was to be completed on 1 September 2014. E (Partnership), by the Deed of Charge,[4] further charged all of its property in favour of B as security for a loan of $1,500,000.00. This loan was to be repaid on the demand of the mortgagee, and was subject to interest of 0 per cent, which interest rate was capable of increase at the notice of the Mortgagee.  

   [3]          Affidavit of the Wife, filed 27 August 2014, Annexure KS 5.

   [4]          Affidavit of the Wife, filed 27 August 2014, Annexure KS 6.

8. On 15 August 2014, the wife’s solicitors received correspondence from the husband’s solicitors by which they:

   a)acknowledged receipt of the documents filed in these proceedings; and

   b)told the wife - for the first time - that the husband intended to sell the business; and

   c)provided an unsigned copy of the Sale Agreement between the husband and the purchaser.

9. The price for the business shown in the unsigned Sale Agreement provided to the wife was $1,000,000.00. Consequently, the husband’s 70 per cent interest was to be sold for $700,000.00 – an amount significantly less than the $4,500.000.00 offered by the husband’s business partner only months earlier.

10. On 18 August 2014, the wife’s solicitor gave the husband’s solicitor notice of the wife’s intention to seek injunctive relief. Updated financial statements were requested.

11. On 25 August 2014, the wife’s solicitors filed an Amended Initiating Application seeking, relevantly, that:

    a)the husband’s business partners and entities controlled by them, through which their respective interests in the business were owned, be joined to the proceedings; and

    b)B be joined to the proceedings; and

    c)pursuant to s106B of the Family Law Act1975, the contract for sale of the husband’s business be set aside; and

    d)valuations of the parties’ assets be obtained.

12. The wife gave the proposed third parties notice of her Application, indicating that it was to be heard on 28 August 2014, so they could be heard, if they wished, in relation to the orders sought.

13. Given the matters outlined in paragraphs 5, 10 and 11 above, the wife’s actions in seeking the orders originally sought in the Amended Initiating Application filed 25 August 2014 seem, to me, to be entirely reasonable and understandable.

14. When the parties, the proposed third parties and B appeared on 28 August 2014, the husband and wife agreed about a number of matters, the nature of which is apparent from a perusal of the terms of the Order made by consent that day. Further, upon B’s ‘without admission as to liability’ Undertaking to agree to extend the completion date of the sale of the business to 30 September 2014, the balance of the Application was adjourned for about one month to enable a jointly engaged expert to value the business and express an opinion about the appropriateness or otherwise of the sale price.

15. On 19 September 2014, the jointly engaged expert produced his Report (the Report).

16. On 25 September 2014, the wife filed a Further Amended Initiating Application, the effect of which was that she no longer sought to join B to the proceedings

17. On 26 September 2014, the wife amended the Further Amended Initiating Application filed 25 September 2014 to seek that the husband’s interest in cash at bank held by the business be paid to the trust account of her solicitors and invested pending further order. She did so because she asserted this money was not an asset covered by the Sale Agreement for the business but was, instead, an excluded asset.

18. On 26 September 2014, the wife filed a further Amended Initiating Application. Included within the interim/ final Orders sought was that:

    a)the husband’s 70 per cent interest in the cash at bank, being the excluded Asset from Sale, estimated at $515,000.00 (per paragraph 119 at page 24 of the Joint Single Expert Report) be paid to the trust account of Schultz Toomey O’Brien Lawyers and invested pending final order.

19. The jointly engaged expert set out, at paragraph 119 of the Report, his understanding of the “nett assets being purchased”.  He included cash at bank (which amounted to $735,863.00) as an “excluded asset”, noting at paragraph 121 that: “Under the Sale Agreement, cash at bank is not being transferred with the business and I have included this under excluded assets”.

20. Further, the joint expert makes it clear later in the Report[5] that he considered the cash balance of $735,863.00 to be part of the working capital of the combined business operated by E Partnership and C Pty Ltd and not as forming part of the assets to be transferred under the Sale Agreement.

    [5]          See:  Paragraph 150(a).

21. On 26 September 2014, B’s solicitors wrote to the wife’s solicitors outlining their client’s opposition to the wife’s contention that the cash at bank was an excluded asset for the purpose of the Sale Agreement for the business. They called on the wife to amend the latest version of the Amended Initiating Application (filed 26 September 2014) to delete proposed interim order 1 and advised that, if she pursued an order in those terms at the hearing on Monday 29 September 2014, B reserved its rights in relation to any remedies available relating to any loss or damage suffered in connection with the sale of business agreement, the business and the proceedings.[6]

    [6]           Exhibit 1.

22. The Sale Agreement defines the “Assets of the Business” to mean those items specified but not “Excluded Assets”.  The term “Excluded Assets” is defined to mean “all assets owned by the seller and not used in the business, together with the assets which are listed in Part A(a) of Schedule Two, and the goodwill.”

23. Part A(a) refers to particular loan accounts and personal motor vehicles.

24. It is, I think, apparent that the joint expert’s classification of the cash at bank as “part of the working capital” of the combined business would, of itself, have the consequence – contrary to his assertion as an accountant – that such funds are excluded from those covered by the definition of “Excluded Assets” in the Sale Agreement:  that is, the cash at bank, forming part of the business’ working capital, is clearly an asset used in the business.

25. Following an exchange of correspondence, the wife filed a further Further Amended Initiating Application late on 26 September 2014 - the order in relation to cash at bank was no longer pursued.

26. Senior Counsel for the husband submitted it was accepted that cash at bank was an included asset for the purpose of the Sale Agreement for the business by no later than 27 September 2014 – a Saturday.

27. Counsel for the wife submitted that B’s solicitor had sent an email confirming the same on 27 September 2014.[7] Counsel for B submitted that the wife’s position was not clarified until the morning of the hearing.

    [7]          See Exhibits 5 and 7.

Applicable principles

1. Section 117(1) of the Family Law Act 1975 (Cth) (the Act) provides that each party to proceedings under the Act shall bear his or her own costs. However, if the Court is satisfied there are circumstances which justify it, the Court may make such order as to costs as it considers just.[8]

   [8] Section 117(2) Family Law Act (1975) (Cth).

2. In considering what order, if any, as to costs should be made, the Court must have regard to the matters set out in s 117(2A) of the Act.

3. Whilst B is not a party to the proceedings under the Act, the Court has power to make an order in the terms sought by B: see McAlpin and McAlpin (1993) FLC 92-411 at 80,215; Re:; - JTT; Ex parte Victoria Legal Aid (1998) FLC 92-812 per Kirby J at 64, as helpfully summarised by Benjamin J in Hartnett & Sampson (Costs) [2007] FamCA 1456.

The submissions relevant to B’s Application for an order for costs

1. Counsel for B submitted the following would persuade the Court there are circumstances which justify the making of an order that the wife pay B’s costs of and incidental to the Application and that it is just that such order is made:

   a)the wife had no proper grounds on which to seek an order in terms of Clause 1 of the Amended Initiating Application filed 26 September 2014 because the terms of the Sale Agreement make it clear that cash at bank is an included asset - in essence, the wife’s contention that cash at bank was an excluded asset under the Sale Agreement was clearly incorrect and a contention which was doomed to fail;  and

   b)B’s appearance on 29 September 2014 was necessitated by the wife’s amendments to the orders sought in the series of Amended Initiating Applications filed on her behalf - B had to appear at the hearing because the orders to be made would likely bind them.

2. Counsel for the wife resisted the making of an order for costs, submitting that:

   a)the wife had not acted improperly in bringing the application given the husband’s failure to disavow her of her understanding that his interest in the business remained an asset of the parties – it was not until he filed his Response on 19 August 2014 that it became clear the sale was on foot and she was ambushed by notice of the concluded sale of the business;

   b)the wife’s Application for orders dealing with cash at bank was appropriate given the contents of the Report, particularly given that she was not a party to the Sale Agreement - and, therefore, could not have known what was negotiated or contracted - and that neither the husband nor his business partners attempted to correct her interpretation when the Report was produced;

   c)the wife had acted properly in putting the proposed respondents on notice of her Application and B’s attendance at the first hearing was similarly appropriate given the potential impact on it of the orders she then sought; and

   d)it was unnecessary for B to attend at the hearing on 29 September 2014 because the orders, as drafted in the Further Amended Initiating Application filed 26 September 2014, sought relief only against the husband: specifically, as the order sought 70 per cent of the husband’s interest in the cash at bank it could not be seen to require B to appear.

3. Senior Counsel for the husband submitted: 

   a)B’s solicitors indicated that cash at bank was an included asset on Friday 26 September 2014;  and

   b)correspondence to the other parties indicated that cash at bank was an included asset;  and

   c)the wife’s solicitors indicated on the Saturday before the appearance that they were content and understood cash at bank was an included asset;  and

   d)when asked, the husband responded promptly on Friday afternoon, to indicate cash at bank was an included asset. 

4. I am persuaded that the circumstances justify the making of an order that the wife pay B’s costs of and incidental to the Application.

5. I do not accept the submission that the order sought by the wife in the further Amended Initiating Application filed 26 September 2014 did not require B to appear on 29 September 2014. The manner in which the relevant clause is drafted clearly raises the contention that the cash at bank is an excluded asset.  I accept the submission made by Counsel for B that his client had, in essence, no option but to prepare to appear on 26 September 2014 to argue its contention that cash at bank was not an excluded asset.  Had the relevant clause referred only to the husband’s interest in the proceeds of the sale of the business, the position would, obviously, have been different.

6. I further accept the submission to the effect that, whatever the view expressed by the joint expert accountant engaged to prepare the Report, the determination of the status of the cash at bank is a matter for the interpretation of the terms of the Sale Agreement.

On what basis should an order for costs be made?

1. Unless there are exceptional circumstances, an order for costs should be made on a party and party basis: see D & D Costs (No. 2) (2010) FLC 93-435 in which the Full Court reviewed extensively earlier authorities, including Limousin & Limousin (Costs) (2008) 38 Fam LR 478 and Kohan and Kohan (1993) FLC 92-340, and also Sheppard J’s decision in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248.

2. Having regard to the principles outlined in such authorities, I am not persuaded that the circumstances of this case are such as to warrant a departure from the usual course that an order for costs should be made on a party and party basis.

The wife’s application that the husband should indemnify her

1. Counsel for the wife submitted the Court would be persuaded to conclude that the circumstances justify the making of an order that the husband pay the costs ordered to be paid by the wife to B. As well as relying on those matters relied upon to resist an order being made in favour of B it was submitted that:

   a)it was the husband’s “mischief” which necessitated the Application: in particular, his action in notifying the wife of his “intention” to sell the business on 15 August 2014 in circumstances where an agreement had, in fact, been concluded on 11 August 2014;[9] and

   b)the basis on which the wife sought orders in relation to the distribution of proceeds of sale was, if not encouraged, tacitly accepted by the husband’s continued referral to anticipating the sum of $700,000.00 and such sum being included in the asset pool of the parties; and

   c)the husband furthered the wife’s misunderstanding about the manner in which the cash at bank was to be considered by failing to correct the Report’s contention that cash at bank is an excluded asset.

   [9] Husband’s affidavit filed 19 August 2014, at [68].

2. In opposing such an order, Senior Counsel for the husband submitted that:

   a)the Application in relation to the cash at bank arose only after the preparation of the Report and in circumstances where the Sale Agreement makes it clear that cash at bank is an included asset;  and

   b)the correspondence from B’s solicitors dated 16 September 2014 made it clear that cash at bank is an included asset;  and

   c)it is erroneous to suggest the husband furthered any misapprehension that cash at bank was capable of being subject of orders because such misunderstanding came from the Report; and

   d)the further iterations of the wife’s Application (2 and 3) could not lie at the husband’s feet because, when he was asked to clarify his position in correspondence dated 26 September 2014, he responded quickly; and

   e)the wife’s financial position is much stronger than that of the husband, particularly given the sale of his primary income generating asset.

3. I am satisfied that the circumstances justify the making of an order that the husband pay to the wife the amount she is required by the order made today to pay to B and that such order is just.

4. I consider that the husband’s conduct in failing to provide the wife with notice of his intention to sell his interest in the business and his subsequent actions in providing her, initially, with an unsigned copy of the Sale Agreement are matters which led to the pressured circumstance in which the wife and her advisers were required to act. 

5. The Report was, after all, only received by no later than 24 September 2014. The wife had not been party to any discussions related to the sale of the business.  She was confronted with the repeated assertion by the jointly appointed expert that the cash at bank was an excluded asset.  She advised the husband and B by the Saturday before the Application was returnable that she accepted B’s position that the cash at bank was not an excluded asset. 

1. Both parties’ financial positions are yet to be fully clarified.  Whilst it may ultimately be that the wife’s financial position is stronger than that of the husband, the haste and pressure associated with the formulation of the wife’s interim Application (as amended over time to reflect changes in her understanding of the position) had its genesis in his decision - made after proceedings had commenced - to sell the business without prior reference to the wife.

2. Given that the parties’ income producing asset has now been sold, it is just to provide that the respective payments they have been ordered to make occur after the finalisation of the property proceedings currently on foot.

I certify that the preceding forty-seven (47) paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hogan delivered on 5 December 2014.

Associate:     

Date:    5 December 2014