Searle Holdings Pty Ltd & Pencious & Anor (Security for Costs) (No 2)
[2014] FamCAFC 184
•26 September 2014
FAMILY COURT OF AUSTRALIA
| SEARLE HOLDINGS PTY LTD & PENCIOUS AND ANOR (SECURITY FOR COSTS) (NO. 2) | [2014] FamCAFC 184 |
| FAMILY LAW – APPEAL – COSTS – Where an intervener brought an application in an appeal for security for costs and this application failed – Where the respondent sought indemnity costs against intervener – Where there are circumstances that justify an order for costs being made – Where there are no circumstances to warrant a departure from the usual rule of ordering party and party costs. |
Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
Halsbury & Halsbury [2008] FamCAFC 170
Searle Holdings Pty Ltd & Pencious and Anor (Security for Costs) [2014] FamCAFC 58
| Family Law Act 1975 (Cth); s 117 |
| APPLICANT: | Searle Holdings Pty Ltd as Trustee of the Searle Family Trust |
FIRST RESPONDENT: | Mr Pencious |
| SECOND RESPONDENT: | Ms Searle (formerly Pencious) |
| FILE NUMBER: | MLC | 11069 | of | 2008 |
| APPEAL NUMBER: | SOA | 36 | of | 2013 |
| DATE DELIVERED: | 26 September 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Thackray, Strickland & Ainslie-Wallace JJ |
| HEARING DATE: | In chambers by written submissions |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 28 May 2013 |
| LOWER COURT MNC: | [2013] FamCA 375 |
REPRESENTATION
| SOLICITOR FOR THE APPLICANT: | Halperin & Co Pty Ltd |
| SOLICITOR FOR THE FIRST RESPONDENT: | Altona Legal |
| SOLICITOR FOR THE SECOND RESPONDENT: | Adrian Abrahams Family Lawyers |
Orders
The applicant pay the first respondent’s costs on a party/party basis of and incidental to the application for security for costs filed on 14 October 2013 as agreed and in default of agreement, as assessed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Searle Holdings Pty Ltd & Pencious and Anor (Security for Costs)(No. 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE |
Appeal Number: SOA 36 of 2013
File Number: MLC 11069 of 2008
| Searle Holdings Pty Ltd as Trustee of the Searle Family Trust and Mr Pencious |
First Respondent
and
| Ms Searle (formerly Pencious) |
Second Respondent
REASONS FOR JUDGMENT
Introduction
On 28 May 2013 Benjamin J made orders in property settlement proceedings between the husband and the wife. Searle Holdings Pty Ltd, as trustee of the Searle Family Trust (“the intervener”) was a party to the proceedings before Benjamin J. The wife’s parents are the sole shareholders and directors of Searle Holdings Pty Ltd.
The participation of the intervener in the proceedings before the trial judge arose because the husband contended that the wife had an interest in the Searle Family Trust which had a presently ascertainable value. He further contended that the trust owed him money.
Both of those contentions were rejected by the trial judge. The husband was ordered to pay the intervener’s costs of the hearing.
It is unnecessary to set out the trial judge’s orders in full save as to indicate that he ordered the wife to pay $346,720 to the husband by way of property settlement. Of that sum, the wife was later ordered to pay the following amounts to be held on trust and applied in payment of costs orders against the husband:
a)$157,834, in respect of a costs order in favour of herself; and
b)$100,000, in respect of a costs order in favour of the intervener.
The husband appealed both the property orders and the costs order in favour of the intervener.
By Application in an Appeal filed 14 October 2013, the intervener sought an order that the husband provide $37,180 as security for the intervener’s costs of the appeal.
The application for security for costs
The intervener’s application for security for costs was heard by the Full Court on 5 March 2014 and dismissed on 8 April 2014. In arguing for such an order, the intervener asserted that the husband was impecunious, having no assets within the jurisdiction from which any potential order for costs against him could be met. The husband agreed that he was impecunious and contended that of the funds that had already been released to him, much had been expended on his legal costs of the trial and the balance not yet expended, $45,000, was held by his solicitors in trust against the legal costs of the appeal.
The intervener’s application was dismissed because we considered that the husband’s appeal was not entirely without merit and, further, that to make the order sought by the intervener would stifle the appeal.
On the question of the costs of the application for security for costs, the parties sought and were granted leave to file written submissions. It was further agreed that the submissions would be considered in chambers and the issue determined without need for a further hearing.
Costs submissions
The husband sought an order that the intervener pay his costs of and incidental to the application for security for costs and that those costs be taxed on an indemnity basis if they could not be agreed.
The intervener contended that no order for costs should be made in relation to the failed application.
The husband’s submissions as to costs address s 117(1) and (2) of the Family Law Act1975 (Cth) (“the Act”) and the paragraphs of s 117(2A) that are relevant to this matter. The intervener’s submissions also address these points and it is useful for us to consider the competing contentions in the same way.
Financial circumstances of the parties - s 117(2A)(a)
It was submitted for the husband that at the time of the intervener’s application, it was clear that his financial circumstances were significantly constrained and that those of the intervener were superior to his. Further, it was argued that, by reason of the orders of the trial judge, such funds to which he was entitled were held in trust pending the determination of orders for costs. This evidence, taken with the husband’s evidence that he was in receipt of a disability pension, ought to have put the intervener on notice that an order for security for costs would stifle the appeal.
The intervener relied on findings made by the trial judge about the husband to support a submission that the husband had access to funds and submitted that the husband’s assertion of impecuniosity needed to be “considered in light” of those findings. This submission was not amplified, but it seems the intervener argues that the husband may in fact have access to funds or assets. In particular, the intervener relied on the trial judge’s findings that the husband had lent $295,000 to a relative in Greece; had taken $165,000 of the parties’ money from a safe; and had $243,779 “on term deposit” with a company.
The trial judge, while accepting that the husband removed money from a safe, found that the money was most probably used by the husband to support his lifestyle over and above the funds he received by way of compensation for a motor vehicle accident. His Honour’s reasons do not suggest that the husband retained any of that money. As to the money lent to a relative, his Honour apparently accepted the loan had been made, but criticised the husband for not requiring the payment to him of interest on the loan. His Honour did not find that the husband had access to that money, but rather treated it as a poor investment. According to the trial judge’s reasons, at the time of separation of the parties, a sum of $243,779 was apparently held in a term deposit by a company which was an alter ego of the parties and the wife asserted that the husband had spent that money. While his Honour made no direct finding as to the assertion, since the trial judge included the sum of $243,779 in the list of assets to be retained by the husband, it is clear he accepted the argument that the husband had previously had the benefit of that money. His Honour did not find that the husband retained those funds or still had access to them.
His Honour’s findings fall short, in our view, of establishing that the husband had access to funds.
It was further argued by the intervener that the husband did not produce to the trial judge any proof of his receipt of a disability pension. The trial judge clearly accepted that the husband had, in the past, received periodical payments from the Victorian Transport Authority in respect of an injury and, accepted that the husband was in receipt of a disability pension at the time of the hearing. However, his Honour found that the husband could work if he wished.
The intervener argued that the bringing of the application for security for costs was still reasonable in the circumstances of the husband’s apparent lack of funds. It was further contended that it was only a few days before the hearing of the application that the husband raised his impecuniosity. It seems that this was argued in support of the reasonableness of the intervener’s actions in seeking the orders.
The intervener submitted that it was reasonable to bring the application because the intervener believed that the husband may not have assets in the jurisdiction from which to pay any costs ordered in the intervener’s favour.
Although the husband raised his lack of funds with which to meet any ordered security shortly before the hearing of the intervener’s application, his general financial circumstances, even in the light of the trial judge’s findings, lend strong support to the husband’s argument that at all relevant times, the intervener should have understood that an order for security for costs would have stifled the appeal. Indeed, the husband’s apparent lack of funds was the basis on which the application was brought by the intervener.
Conduct of the parties to the proceedings – the husband’s prospects of success on the appeal - s 117(2A)(c)
The husband argued that the intervener’s application was ill-considered because its assertion that the appeal had no prospects of success was not tenable. It was argued that the reasons of the trial judge and the grounds of appeal clearly raised important controversies. Further, it was submitted that the trial judge’s finding in relation to the money said to be owed by the intervener to the husband was not supported by the evidence. The intervener submitted that the husband’s grounds of appeal were imprecise and general and did not refer to important pieces of evidence in the trial.
The grounds were far from perfect, however, the controversies raised in the notice of appeal were tolerably clear despite the way in which the grounds were framed.
During the hearing of the application for security for costs, counsel for the intervener retreated from the argument that the appeal had no merit and said that it had “little or doubtful” merit. This, in our view was a most important concession, and quite properly made since it seemed to us that some of the husband’s contentions were at least arguable. Thus, the argument that the appeal was “foredoomed to failure” was not tenable.
Whether any party to the proceedings has been wholly unsuccessful in the proceedings - s 117(2A)(e)
There can be no argument but that the intervener’s application has been wholly unsuccessful.
Offer of settlement - s 117(2A)(f)
By letter of 24 February 2014, the husband sought to compromise the intervener’s application by offering $7,500 by way of security. The intervener did not respond to this offer.
The intervener submitted that it was reasonable not to accept the offer in light of there being $45,000 held by the husband’s solicitor pending the determination of the security for costs application.
It might be thought that, because one of the bases on which the intervener brought the application for security was the husband’s apparent lack of funds and the application was brought in the knowledge that the $45,000 was held against the husband’s legal costs of the appeal, there may have been some attraction in accepting what was offered. However, the offer was not accepted.
Discussion
The husband’s appeal was not obviously doomed to fail – as was ultimately properly conceded by counsel for the intervener.
Although his Honour was critical of the husband’s disclosure and credibility, his findings did not allow a conclusion that the husband had a source of funds or assets to which he could have recourse to pay any security ordered. In the absence of being able to point to a source of funds, the almost inevitable consequence of such an order would have been to stifle the appeal.
We accept the submission of the intervener that merely not accepting an offer of compromise more favourable to the intervener than the ultimate outcome does not compel an order for costs. It is nonetheless a significant matter to be taken into account on the question of costs.
Although not a matter referred to in the submissions, we observed at [49] in our substantive judgment that the application for security for costs was argued at a time when, procedurally, the appeal itself was ready to be heard. We recorded that it seemed “somewhat unfortunate that the parties’ energies and resources were not better employed in arguing the appeal”. In making those observations we referred to paragraphs from the judgment in Halsbury & Halsbury [2008] FamCAFC 170, which are worth repeating:
34.Before concluding we take the opportunity to make the following observations regarding applications for security in relation to the costs of an appeal. Such applications appear increasingly to be taking up the time and resources of the litigants and of the Court. The proper place of such applications and the competing rights that lie at the heart of such applications need to be borne in mind by those seeking them.
35.Appeals are a part of our system of law. They operate as part of the proper checks and balances on the actions and decisions of trial judges. Litigants have a right to appeal in circumstances where they, properly and bona fide, allege error on the part of the trial judge (subject of course to the requirements in certain circumstances of leave to appeal being granted). That right to appeal is an important part of our system of law. It should not be fettered except for good reason.
36.The remedy for those who have a basic right to enjoy the fruits of their judgment and who have that right disturbed by an appeal which is ultimately held to be unmeritorious, is to receive confirmation of the right by the dismissal of the appeal, and, frequently, to have their costs met by the unsuccessful appellant. Although it needs to be recognised in this jurisdiction that s 117
of the Act has the potential to impact on the latter part of that remedy.
37.As we earlier indicated, in the present case both parties put before us relatively detailed arguments in support of, and in opposition to, each ground of appeal. Furthermore, in the present case the wife had already demonstrated her bona fides, by having prepared and filed the appeal books on 7 November 2007. Thus the appeal could well have been heard in the Full Court sittings in which the application for security was heard.
38.Indeed, in our view, and with great respect to the husband and those advising him, the hearing before us of the security application at which it should be noted the husband was able to be legally represented, would have been better devoted to the hearing of the appeal itself.
39.It is also important to stress (but without in any way reflecting on the conduct or intentions of those involved in the present case) that applications for security for costs should not be regarded as a method of funding a respondent’s costs of legal representation in an appeal. This consideration should particularly be borne in mind in this jurisdiction where the fundamental rule regarding costs is that contained in s 117(1) of the Act, being that each party pays his or her own costs.
In all of the circumstances, we are of the view that there are circumstances here that justify making a costs order in favour of the husband.
Indemnity costs
The husband sought an order that any costs ordered to be paid by the intervener be on an indemnity basis.
The authorities concerning the ordering of indemnity costs are well known and do not need to be extracted at length in these reasons, save to say that the circumstances of the case must be such as to warrant a departure from the usual rule of ordering party and party costs (see Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225).
Nothing put to us warrants such a departure and we do not propose to make an order for indemnity costs.
I certify that the preceding thirty five (35) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 26 September 2014.
Associate:
Date: 26 September 2014
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