Skelly and Huxford & Anor

[2013] FamCA 1112

FAMILY COURT OF AUSTRALIA

SKELLY & HUXFORD AND ANOR [2013] FamCA 1112

FAMILY LAW – STAY – Where the applicant sought a stay of property orders pending an appeal against those orders – Where it is appropriate to stay the orders pending the determination of the appeal.

FAMILY LAW – COSTS – Where the second respondent, who was the intervener in the substantive proceedings, sought costs against both the husband and wife on an indemnity basis – Where the second respondent is a creditor of the wife –  Where it is not appropriate that an order for costs be made against the husband – Where it is appropriate that the wife pay one half of the costs of the second respondent – Where the court is not satisfied that the circumstances of the case are such that would require or justify a departure from the usual position – Where the application for indemnity costs is refused.

Family Law Act 1975 (Cth) ss 117; 117(2A); 90AE; 90AJ; 90AJ(4)
Family Law Regulations 2004 (Cth) reg 15AA(3)

Colgate-Palmolive Company v Cussons Proprietary Limited (1993) 46 FCR 225
Maitland Hospital & Fisher (No 2) (1992) 27 NSWLR 721
Maley & R Pty Ltd [2009] FMCAfam 588
Prantage & Prantage [2013] FamCAFC 105
Trahn & Long (No. 2) [2008] FamCAFC 194

APPLICANT: Mr Skelly

FIRSTRESPONDENT: Ms Huxford

SECOND RESPONDENT: Mr Preston

FILE NUMBER: SYC 1669 of 2010

DATE DELIVERED: 19 December 2013

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Aldridge J

HEARING DATE: 18 December 2013

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Haughton

SOLICITOR FOR THE APPLICANT: Solon Lawyers Solicitors

THE FIRST RESPONDENT IN PERSON: Ms Huxford

COUNSEL FOR THE SECOND RESPONDENT: Ms Mathias

SOLICITOR FOR THE SECOND RESPONDENT: CA Williams Legal

Orders

1. That conditional upon the applicant filing, within forty-eight (48) hours, a written undertaking diligently to prosecute his appeal, the orders made by Fowler J on 24 October 2013 are stayed until the determination of the appeal, or further order of the Court.

2. That the 1^st respondent is to pay one half of the 2^nd respondent’s costs, as agreed or as assessed, on a party/party basis.

3. That there is to be no order for costs as between the applicant and the 2^nd respondent.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Skelly & Huxford and Anor 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 SYDNEY

FILE NUMBER: SYC 1669 of 2010

Mr Skelly

Applicant

And

Ms Huxford

First Respondent

And

Mr Preston

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. These reasons were delivered orally.

2. This matter consists of an application by Mr Skelly, (“the husband”), for a stay of property orders made by Fowler J on 24 October 2013, pending an appeal against those orders and of an application by Mr Preston, the second respondent in these proceedings, for costs.

Brief background

1. Before turning to these matters it is useful to set out some background, which is taken from the judgment of Fowler J.  The hearing before him occupied 12 days and the parties also provided his Honour with extensive written submissions.  The proceedings between the husband and Ms Huxford (“the wife”) concerned the division of their property.

2. In April 2013 Mr Preston was granted leave to intervene in the substantive proceedings.  He claimed to be a creditor of the wife. 

3. In 2004 the wife acquired a property at B (“the B property”) for the sum of $500 000, borrowing $169 000 to complete the purchase.  The husband and the wife commenced to cohabit in that year. 

4. In 2007 the child of the relationship was born.  In April 2008 the parties married.  In August 2009 they separated.

5. In March 2010 the wife commenced a relationship with the Mr Preston.  This ceased in early 2011, but his Honour found that they remained friends for some time after that.

6. On 20 June 2011 a contract for the sale of the B property was entered into but did not proceed because a pest inspection had discovered an extensive termite infestation.  In 2011 Mr Preston lent the wife $26 508 to enable emergency repairs to be carried out.  In September 2011, pursuant to interim orders of the court, Mr Preston was paid $21 314, which he says he again lent to the wife.  In August 2012 the mortgagee of the property took steps to take possession.  Mr Preston paid the mortgagee $17 370 by way of mortgage repayment and arrears.

7. Repairs and renovations to the B property then commenced.  Mr Preston acted as project manager and paid subcontractors.  In December 2012 the B property sold for $535 000.  Some $55 000, being the proceeds of sale, continues to be held by the wife’s conveyancer.

8. In January 2013 Mr Preston asked the wife to repay him.  He suggested that she draw down on her superannuation fund for that purpose.  She refused. 

9. In February 2013 Mr Preston received $20 905 as a part payment, pursuant to an interim order of the court.  At the hearing Mr Preston ultimately sought payment of $62 000, the balance of what he said was owed.

10. Fowler J found that to be so.  His Honour found that the husband benefited from the work and that the cost of that work should be borne by the B property.  As the proceeds were not sufficient to discharge the debt, his Honour found that both parties should pay half the balance and he made an order to that effect.

11. The total property pool of the husband and wife, which excluded the wife’s pension (which was dealt with separately), but included the proceeds of the B property, was found to be $238 161.  The husband was found to be entitled to 62.5 per cent of that pool.

12. To give effect to those findings the husband was to retain his businesses, which had been valued as having no value and a property he owned at R (“the R property”).  He was to pay the wife $59 757 within 90 days, but, in default, the R property was to be sold and that sum paid out of the proceeds.

The husband’s stay application

1. I turn now to the husband’s stay application.  The principles to be applied in the stay application were stated by the Full Court in Trahn & Long (No. 2) [2008] FamCAFC 194 at paragraph 38 as set out below:

   38. These principles, both in the general law and in respect of parenting proceedings, are well settled (see The Commissioner of Taxation of the Commonwealth of Australia v Myer Emporium Limited (1986) 160 CLR 220 at 230; Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685. Jennings Constructions Limited v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681; Clemett and Clemett (1981) FLC 91-013; JRN & KEN v IEG & BLG (1998) 72 ALJR 1329 at 1332). The authorities stress the discretionary nature of the application which should be determined on its merits. Principles relevant to this matter included the following:

   ·the onus to establish a proper basis for the  stay is on the applicant for the stay however it is not necessary for the applicant to demonstrate “special” or “exceptional” circumstances;

   ·a  person who has obtained a judgment is entitled to the benefit of that judgment;

   ·the person who has obtained a judgment is entitled to presume the judgment is correct;

   ·the mere filing of an appeal is insufficient to ground a stay;

   ·the bona fides of the applicant;

   ·a stay may be granted on terms that are fair to all parties – this may involve a court weighing the balance of convenience and the competing rights of the parties;

   ·a weighing of the risk that an appeal may be rendered nugatory if a stay is not granted – this will be a substantial factor in determining whether  it will be appropriate to grant the stay;

   ·some preliminary assessment of the strength of the proposed appeal - whether the  appellant has an arguable case;

   ·the desirability of limiting the frequency of any change in a child’s living arrangements;

   ·the period of time in which the appeal can be heard and whether existing satisfactory arrangements may support the granting of a stay for a short period of time; and

   ·the best interests of the child the subject of the proceedings.

2. Counsel for Mr Preston submitted that in order to obtain a stay the applicant needed to show special circumstances and that stays are exceptional.

3. In doing so she referred to a number of authorities to that effect.  Many were High Court authorities dealing with applications for a stay pending an application for special leave to appeal to the High Court.  That is, an exceptional category of stay and quite different to the present case.  

4. I take the applicable principles to be those set out in Trahn & Long[1].  Thus it is not necessary for the applicant to demonstrate special or exceptional circumstances. 

   [1] Supra

5. Clearly, the mere filing of an appeal does not justify a stay. 

6. Five of the 31 grounds of appeal deal directly with the findings that the wife was liable to Mr Preston and that both parties should in the future be liable to him.

7. It is necessary then to deal a little bit more with that issue. 

8. On 20 August 2012 the wife entered into a written agreement.  The last three paragraphs provided:

   The parties agree that [Mr Preston] will undertake to do the required work on the [B] property, and will advance the sums required to have such work completed, and will recoup such amounts upon the sale of the above property.

   The parties agree that upon the sale of the [B] property any debt owed to [Mr Preston] will be secondary to the mortgage and any sale costs. 

   The parties agree that any surplus funds made by the [B] property in excess of the amount required after sale costs will be used to satisfy the debt to [Mr Preston] in the following manner.

9. There are then three paragraphs which deal with the order in which the debt to Mr Preston is to be repaid.  One possible meaning of these clauses is that Mr Preston’s claim will be limited to claims against the proceeds of the sale of the B property. 

10. That document was the subject of an email exchange on 30 August 2012.  Mr Preston wrote to the wife as follows:

    That document is fine to use for court purposes.  One amendment.  What’s the go with this paragraph?

    The parties agree that in the event that the repair of the [B] property is not completed to finality and ready for sale as per the agreement that [Ms Huxford] will have no liability towards [Mr Preston] under this agreement for the costs of the work done to the [B] property since the time of making this agreement or the mortgage payments made towards that property by [Mr Preston].

    I would be happier if there was a dated deadline for the completion of the works, this seems a little open ended unfair. 

    Could you create a more rational and appropriate paragraph.  I think it may also be misconstrued in that we have negotiated another deal.  No one in their right mind would agree to this.

11. The reply from the wife was –:

    Basically, that paragraph means that if you decide not to finish it or cannot finish it – in any timeframe – then I am not liable for the money you have spent.  Putting in a deadline only makes it more difficult for you, doesn’t it?  Can you think of a more rational and appropriate paragraph – considering you have assured me continually that you have the funds for it as well as assuring me it will be done by the end of September?  It also means that if you spend money on it (as you already have) I don’t have a liability towards you if you decide not to finish it (for example, if I decide I don’t want to be in a relationship with you or agree to you using children as labourers).  If you’re not happy with it then I am happy for you to get legal advice or stop work on the house – it’s your decision entirely.

12. It seems clear, therefore, that the wife and Mr Preston created the agreement just referred to for court purposes, whatever that might mean. 

13. On 21 January in a written document Mr Preston said:

    To Whom It May Concern:

    I, [Mr Preston] of …, do declare this day 21 January 2013 that [Ms Huxford] does not have a financial or material debt to myself.

14. He signed that document. 

15. I was informed, without dissent, that Mr Preston’s claim in the proceedings before Fowler J was originally for $118 645, but was reduced at some stage during the hearing. 

16. It is clear from other evidence adduced that there was a tempestuous relationship between the wife and Mr Preston which was at times spiteful. 

17. The husband asserts that there were in evidence documents showing that Mr Preston had claimed different sums for his work at different times. 

18. None of the above documents are referred to in his Honour’s judgment.

19. That may well be because none were raised in evidence or in submissions before his Honour.  However, on the application before me no one suggested that they were not.  One of the grounds of appeal is that his Honour gave insufficient reasons.  Other grounds relating to this issue challenge his Honour’s findings that the wife had an obligation to repay Mr Preston and that his Honour failed to have any or any sufficient consideration to the personal relationship between the wife and Mr Preston.  The documents to which I have just referred would appear to have some bearing on the outcome.

20. It can be concluded therefore that at least in relation to those matters, it may be said that the applicant has an arguable appeal. 

21. The husband further submitted that in the light of concessions made at the hearing by Mr Preston, the sum of $21 000 should have been deducted from the sum of $62 000.  Again, not being the trial judge, it is difficult for me to assess whether that was so or not.  Certainly, it was not suggested that that matter was not raised as an issue before the trial judge. 

22. I am therefore satisfied that the notice of appeal raises arguable issues in relation to the debt of Mr Preston.  If the appeal is allowed on that issue then in turn the property pool and the distribution of the assets between the husband and wife would be altered and may well require reconsideration. 

23. The appeal appears to be bona fide.  Any stay will be conditional upon an undertaking to prosecute it in a diligent manner. 

24. The husband asserts that his appeal may be rendered nugatory if no stay is granted because he may be unable to recover any of the funds payable to the wife and Mr Preston under the existing orders if they are later set aside. 

25. The wife’s evidence is that she has no home, very few assets and many outstanding accounts.  Her debts currently total $169 698.  If a stay is granted, she seeks a payment of $40 000 to pay the most pressing of them. 

26. Mr Preston’s financial position is not known.  He says that his company borrowed the funds used to fund the B renovations and is, accordingly, paying interest upon them.  He asserts that he has some $350 000 in equity in his home.  He gives no other evidence of his financial position.  Mr Preston does not give any evidence as to the value of the house or the extent of any encumbrance.

27. The husband’s solicitor said, in evidence before Fowler J in the proceedings, that Mr Preston advised the court that his business was going bad, and in the event that the payments were made to Mr Preston under the orders, and the appeal was successful against Mr Preston there was no guarantee that the assets would be available to the husband to recover any of the moneys ordered and paid to Mr Preston pursuant to the orders unless a stay is granted as per original.

Conclusion

1. The above is sufficient to raise a significant doubt that any payment made to the wife or Mr Preston could be recovered by the husband if the orders are later set aside.  Taking these matters into account, it is appropriate to stay the orders of Fowler J pending the determination of the appeal. 

2. In the event that such order was made, the wife sought orders that she and Mr Preston each be paid $40 000 by the husband.  Other than to identify her need for money, no basis for the making of these orders was provided.  They will not be made. 

The second respondent’s application for costs

1. I turn now to the issue of costs.  Mr Preston, the second respondent in these proceedings and intervener in the substantive hearing, seeks an order that his costs be paid on an indemnity basis by both the husband and the wife.  There was no other application for costs.  The wife appeared to submit that the payments of $40 000 sought by her related to costs, but that is not apparent on the face of the response filed by her or the nature of the orders sought.

2. The Application in a Case filed by Mr Preston relates to both the wife and the husband.  Order 1 as sought by him states:

   The wife and the husband to pay equally the reasonable expenses occurred as a necessary result of the order pursuant to section 90AJ(2) FLA and 15AA Family Law Regulations 1984 within 40 days.

3. Order 2 as sought in the Application in a Case filed by Mr Preston puts the same application another way, but relying upon section 90AJ(4). From the evidence and the submissions it became clear that the expenses referred to in the Application in Case were in fact Mr Preston’s costs of the proceedings before Fowler J. It also became clear, and the matter proceeded on the basis that if this claim failed, costs on an indemnity basis were sought pursuant to section 117 of the Family Law Act. There was no objection to the matter proceeding on that basis.

4. Section 90AJ applies because Fowler J made an order pursuant to section 90AE that both the husband and the wife be liable to Mr Preston for his debt.

5. Section 90AJ however refers to a party having incurred expense as a necessary result of the order.  Costs incurred prior to and in relation to the seeking of that order are not costs incurred as a result of that order.  Such costs to be made necessary by the order would arise after the making of the order.  As is envisaged by regulation 15AA(3), such expenses include legal and registration fees, which I interpolate are for the purpose of implementing an order, government charges and necessary communications.  This is consistent with the view that the expenses referred to in section 90AJ do not refer to legal costs in relation to the application for the making of that order. 

6. I was referred to Maley & R Pty Ltd [2009] FMCAfam 588. It does not point to a different conclusion. Accordingly, the section is not available as a basis for making the orders sought.

7. Section 117 confers a broad jurisdiction as to costs. The primary position is that parties should bear their own. Section 117(2A) sets out a number of matters to be considered when exercising the broad discretion to make a different costs order.

8. The financial position of the wife is poor as described earlier.  The financial position of Mr Preston is not known.  The financial position of the husband, according to Fowler J, is that after payment to the wife of $59 757 he will have net assets of $148 851.  Thus, at the time of the hearing he had net assets of $208 608. 

9. It was not suggested that any party was in receipt of legal aid.  It was not suggested that there was any conduct of the parties, in relation to the proceedings, that was relevant to the making of a costs determination.  There was no relevant failure to comply with orders that was relied upon by any party.

10. Mr Preston was successful, at least to the extent of obtaining orders for the payment of his reduced claim and for both the husband and the wife to be liable for payment. 

11. On 13 April 2013, Mr Preston made a written offer to the wife.  She conceded that her counsel, to whom the offer had been sent, had discussed it with her.  It was headed ‘Without Prejudice Save as to Costs’ and was as follows: 

    We refer to the above matter and advise that we have been instructed to discontinue our action if the following offer of compromise is accepted: 

    (1)Pursuant to section 90AE of the Family Law Act 1975, [Ms Huxford], the wife, be declared to be indebted to [Mr Preston], the intervener, in the sum of $61,272.13

    (2)And the sum of $61,272.13 be paid within 60 days from the date of the order. 

    We note that his Honour indicated this matter should be settled.  His Honour further indicated that costs orders may be awarded in the event that the parties fail to expedite the matter.  We indicate that we are not pursuing costs as part of the settlement, but if the matter does proceed, we will be actively pursuing [Mr Preston’s] costs be paid by the wife.

1. Thus, although there was no compromise on the figure, assuming that this was after the reduction of the claim to $62 000, there was the proposed abandonment of any claims to costs. 

2. It is important to note that this offer was not made to or apparently communicated to the husband.  This was a written offer to compromise the matter that needs to be taken into account in determining an appropriate costs order. 

3. The wife said that on 27 November 2012 she attended the court with a draft short minutes proposing that the B property be sold and that out of the proceedings Mr Preston be paid $71 210.79.  This was of course again before Mr Preston had joined the proceedings as intervenor.  The wife said that she had made 16 other offers to settle the proceedings, but none were in writing or were produced to the court. 

4. Fowler J said at paragraph 75 of his reasons for judgment:

   The wife conceded in her oral evidence and in her submissions that he sum of approximately $62 000 is owed to the intervener.  The husband has reluctantly conceded that he has benefited from the intervener’s work.  He submits, however, that any funds advanced by the intervener were advanced ‘because he was in love with Ms [Huxford], and he believed they were in a relationship’.  The Court does not agree with that submission. 

5. I infer from the above that whilst the wife supported the claim of Mr Preston, she was not formally prepared to agree to it unless the husband did so until she made the concessions in her evidence and submissions referred to by his Honour.  It is of significance that it was never suggested that the husband had engaged Mr Preston.  Whether or not the husband was aware of any of the arrangements between the wife and Mr Preston, he was not a party to them.  Whilst he may have benefited from them, as his Honour found, he was not contractually liable to Mr Preston.  No relevant offer was made by Mr Preston to him.

6. The court is also to consider any other matter it considers relevant. 

7. Mr Preston is not a party to the marriage. He has been found to be a creditor, inferentially a creditor of the wife. This is because an order under section 90AE was required to make the husband personally liable to Mr Preston. Whilst it is true that Mr Preston could have pursued his debt in a competent civil court, possibly less expensively, he obtained an order effectively securing his claim against the B property and for payment of any shortfall by the husband. This he could not have achieved in any other court. In any other court, if successful, prima facie, Mr Preston would have been entitled to an order for costs. Because the husband had benefited from the expenditure of Mr Preston, Fowler J found it was appropriate for the B property to bear the burden of Mr Preston’s claim. Thus, whilst the husband was never an owner of the B property, both it and the claim of Mr Preston against it were taken into account as property and liabilities of the parties.

8. There is evidence that he wife is suffering from financial difficulties, however she failed to accept a clear and unequivocal offer in writing from Mr Preston to pay him an amount she apparently always accepted as being owing.  The offer did not seek to charge the B property, thus, save for the time limit for payment, the parties – the wife, and certainly the husband, would have been better off by the wife accepting that offer. 

Conclusion

1. Taking into account all the above matters, it is appropriate that the wife pay a proportion of Mr Preston’s costs. 

2. In making that finding, I attach considerable significance to the written offer that is made.  The purpose of written offers of settlement is to try and reduce the expense and cost of litigation by directing people to the realities of their case. 

3. No such offers were made to the husband.  On the other hand, his financial position, whilst not strong, is less precarious than the wife’s.  He was, however, not a debtor of Mr Preston.

4. Taking these matters into account, the appropriate order is that the wife pay one half of Mr Preston’s costs.

5. Mr Preston could not pursue his claim directly against the husband because the husband was, until the orders were made by Fowler J, under no legal obligation to him.  In the absence of any written offer made to him and taking the other matters into account, as between Mr Preston and the husband there should be no order as to costs.

6. Mr Preston seeks an order that costs be paid on an indemnity basis.  The principles as to indemnity costs were set out in Colgate-Palmolive Company v Cussons Proprietary Limited (1993) 46 FCR 225. They were most recently considered by the Full Court of this court in Prantage & Prantage [2013] FamCAFC 105. In short, the court should not depart from the rule that costs should be awarded on a party and party basis unless the circumstances of the case so warrant. In Colgate-Palmolive, Sheppard J gave a number of examples of when indemnity costs might be awarded.  Save for one matter, no conduct of the kind described by his Honours is established in this matter.  The one that might apply is the imprudent refusal of an offer to compromise.  Even so, the matter remains a discretionary one.

7. In Maitland Hospital & Fisher (No 2) (1992) 27 NSWLR 721, the New South Wales Court of Appeal said there must be a consideration of the circumstances at the time the offer was made, and whether or not there was unreasonable or delinquent conduct in refusing to accept it.

8. Here, the offer made by Mr Preston involved no compromise to the sum that was ultimately found to be owing but simply abandoned any claim for costs.  Mr Preston had never sought to proceed with this claim in any other court or by any other means.

9. Given the vagaries of the nature of the relationship and the emails regarding the written agreement and the later acknowledgment of Mr Preston that the wife was not liable to him, the behaviour between the wife and Mr Preston can be described as unusual.  Seemingly, they simultaneously engaged in unpleasant, spiteful behaviour in relation to their separation, but cooperated in drafting up affidavits and documents to assist in the presentation of Mr Preston’s case.  In those circumstances, the failure to accept the offer cannot easily be categorised as unreasonable, imprudent or delinquent.

10. It is important to emphasise that I was not the trial judge and I am hearing the costs application because Justice Fowler’s commission has expired.  I have not had the benefit of the matter unfolding before me and I have not read the transcript.  Much, for the reasons just given, is not clear. 

11. I am, however, not satisfied that the circumstances of this case are such that would require or justify a departure from the usual course.  The application for indemnity costs is refused.

I certify that the preceding seventy-three (73) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Aldridge delivered on 19 December 2013.

Legal Associate: 

Date: 19 February 2014