Somers and Collier (No.2)

[2017] FCCA 2571

FEDERAL CIRCUIT COURT OF AUSTRALIA

SOMERS & COLLIER (No.2) [2017] FCCA 2571

Catchwords:
FAMILY LAW – Costs application in relation to proceedings for declaration of de facto relationship – indemnity costs sought – jurisdictional issue raised and rejected – financial circumstances – conduct – consideration of offers of settlement – costs ordered on a party/party basis.

Legislation:

Civil Procedure Act 2005 (NSW), s.98
Federal Circuit Court Act 1999, ss.10, 18
Family Law Act 1975 (Cth), ss.4, 4AA, 117, 90RD
Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth), s.86
Federal Circuit Court Rules 2001, Sch.1

Cases cited:

Barry & Dalrymple (Costs) [2011] FamCA 365

Biggar & Crow [2017] FamCA 594

Browne & Green [2002] FamCA 791

Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536
Darrow & Malden & Ors (No 2) [2017] FamCA 660
Kohan & Kohan (1993) FLC 92-340
Latoudis v Casey (1990) 170 CLR 534
Madin & Palis [2016] FamCAFC 25
Penfold v Penfold (1980) 144 CLR 311
Vize & Gadsden [2016] FamCAFC 167

Applicant: MS COLLIER

Respondent: MR SOMERS

File Number: SYC 7198 of 2013

Judgment of: Judge Sexton

Hearing date: 5 October 2017

Date of Last Submission: 5 October 2017

Delivered at: Sydney

Delivered on: 24 October 2017

REPRESENTATION

Counsel for the Applicant: Ms Barnett

Solicitors for the Applicant: Watts McCray

Solicitors for the Respondent: Schultz Toomey O’Brien Lawyers

THE COURT ORDERS THAT:

1. The Respondent to the Application in a Case filed on 27 July 2016 pay the costs of the Applicant in the sum of $25,000 by payment to the Applicant’s solicitors within 14 days.

2. The Application for costs of the costs application be dismissed.

IT IS NOTED that publication of this judgment under the pseudonym Somers & Collier (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYC 7198 of 2013

MS COLLIER

Applicant

And

MR SOMERS

Respondent

REASONS FOR JUDGMENT

Introduction

1. This is a costs application brought by the respondent to proceedings for a declaration under s.90RD of the Family Law Act 1975. The application for the declaration was dismissed on 30 June 2016.  An appeal against that decision was dismissed on 11 July 2017 with costs.  

2. The Applicant in these proceedings (“the Applicant”) seeks indemnity costs of $81,538.51, or in the alternative, party/party costs as assessed. At the hearing, the Applicant’s counsel agreed with the Respondent’s figure that if calculated in accordance with Schedule 1 of the Federal Circuit Court Rules, the costs would be $24,498 (+$154 +$305 in disbursements), a total of $24,957. The Applicant also seeks her costs of the costs application on an indemnity basis. The Respondent asks that both Applications be dismissed, or in the alternative payment of party/party costs in a fixed sum in relation to the trial only.

3. The Applicant’s counsel argues that the Court must apply N.S.W. law to the Application, because the Court has no jurisdiction to apply the costs power conferred by the Family Law Act 1975. In the alternative, if the Court rejects that argument, the Applicant seeks costs under s.117(2) of the Family Law Act.

4. The Applicant relies on her Application in a Case filed 27 July 2016, her affidavits sworn on 25 September 2017 and 26 July 2016, and counsel’s written and oral submissions.  The Respondent relies on his further amended response, his affidavits sworn on 4 October 2017 and 23 August 2017, the affidavit of his solicitor sworn on 25 September 2017, and his solicitor’s written and oral submissions.

5. The Applicant was represented by Ms Barnett of counsel, the Respondent by Mr Rafty, solicitor. 

Legal principles

1. Counsel for the Applicant argues that in the substantive proceedings, the Court was exercising its inherent power to make its determination regarding a jurisdictional fact. Given the Court found that there was no de facto relationship, neither the Family Law Act nor the Federal Circuit Rules apply to this Application. The question of costs must therefore be addressed under s.98 of the Civil Procedure Act 2005 (NSW).

2. Ms Barnett relies on the authority of a single Judge of the Family Court, Justice Rees, in the matter of Darrow & Malden and Ors (No 2) [2017] FamCA 660. Counsel submits that where the Court, as here, finds no jurisdiction in the substantive case, the Court has no jurisdiction to apply the Family Law Act to a subsequent costs application.

3. In Darrow & Malden and Ors (No 2), the substantive application was dismissed for want of jurisdiction. A de facto relationship had ceased in 1993, and the parties entered into a binding financial agreement in 2011, but had not opted into the legislative regime as required under the De Facto Financial Matters and Other Measures) Act 2008 (Cth).  Rees J said[1]:

   Clearly, in order to enliven the provisions of s.117, there must be proceedings under the Family Law Act.

   [1] Darrow & Malden and Ors (No 2) [2017] FamCA 660 at paragraph 30

4. In Darrow & Malden & Ors (No 2), the proceedings were not instituted under the Family Law Act 1975, but rather under the provisions of the Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth). On this basis, the decision of Darrow can be distinguished. In the decision of Biggar & Crow[2], in which proceedings were instituted for a declaration under the Family Law Act, Rees J applied s.117 of the Family Law Act to the question of costs after dismissing the application for want of jurisdiction. The Full Court on the appeal in this case raised no issues of jurisdiction when making an order for costs.  [See also Vize & Gadsden [2016] FamCAFC 167 in which the Court implicitly applied s.117 on costs; Barry & Dalrymple (Costs) [2011] FamCA 365 in which the Court expressly relied on s.117 on costs].

   [2] Biggar & Crow [2017] FamCA 594

5. The Court’s subject matter jurisdiction may be conferred by “laws made by Parliament”[3]. In this case, the Family Law Act 1975 confers jurisdiction on this Court in respect of de facto property matters.  The Court exercised this jurisdiction to determine the question of whether or not “a de facto relationship existed or never existed, between [the parties]”[4] by consideration of the criteria in s.4AA(2) of the Act. The jurisdiction of the Court extends to associated matters[5]. I am not persuaded the question of whether or not the applicant for a declaration under s.90RD was successful or unsuccessful, has any bearing on the question of the Court’s jurisdiction. S.117(2) of the Family Law Act provides that:

   if in proceedings [my emphasis] under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may… make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.

   S.4 of the Act defines “proceedings” as:

   a proceeding in a court, whether between parties or not, and includes cross-proceedings or an incidental proceeding in the course of or in connexion with a proceeding.

   [3] Section 10 Federal Circuit Court Act 1999

   [4] Section 90RD(1) Family Law Act 1975

   [5] Section 18 Federal Circuit Court Act 1999

6. I therefore find that the Court has jurisdiction under the Family Law Act to determine the question of costs in relation to proceedings brought under the Family Law Act, whatever the outcome of those proceedings.   

7. The usual rule in family law proceedings is that each party pay his/her own costs[6]. However, the Court may order costs if it is of the opinion that there are circumstances that justify it in doing so[7], subject to s. 117(2A). The Court must find justifying circumstances as an “essential preliminary to the making of an order” for costs.[8]  In Latoudis v Casey (1990) 170 CLR 534, the High Court stated[9]:

   …in exercising its discretion to award or refuse costs, the court should look at the matter primarily from the perspective of the defendant…. Costs are not awarded by way of punishment of the unsuccessful party…

   [6] Section 117(1) Family Law Act 1975

   [7] Section 117(2) Family Law Act 1975

   [8] Penfold v Penfold (1980) 144 CLR 311 at paragraphs 315 and 316

   [9] Latoudis v Casey (1990) 170 CLR 534 at paragraph 13

8. The Court has a broad discretion to order costs and an order can be made on the basis of one or more of the factors in (a) to (g).  The Applicant bears the onus of persuading the Court that there should be a departure from the general principle, and that it is just to make a costs order.  If that onus is discharged, the Applicant must satisfy the Court that indemnity costs are appropriate.

Submissions and findings

1. The Applicant submits that costs should be ordered because the Respondent was completely unsuccessful in the proceedings; offers of settlement were made prior to the commencement of the litigation and rejected, but if accepted would have left the Respondent in a significantly better financial position; and the Respondent approached the proceedings with little attention to accuracy in either factual or legal matters.

2. Mr Rafty submits that the Respondent had an arguable case, and should not be punished for pursuing his claim, particularly given the disparity in the parties’ financial positions.  

3. I find that the factors that support a departure from the usual principle that each party pay his/her own costs, are:

   a)The Respondent was wholly unsuccessful;

   b)The Respondent’s conduct in adducing inaccurate evidence required the Applicant to incur additional expense in responding to it;

   c)The Applicant’s solicitors foreshadowed a costs application if he proceeded with his application, and was unsuccessful;

   d)The Applicant made offers of settlement before the litigation commenced which, if accepted, would have left the Respondent in a substantially better financial position.

4. I am satisfied the circumstances justify the making of a costs order.

5. In deciding what (if any) order should be made, on the basis of each party’s submissions, I have regard to (a) the financial circumstances of each party; (c) the  conduct of the parties in relation to the proceedings;  (e) whether either party has been wholly unsuccessful;  (f) whether an offer was made.

The financial circumstances of each party

1. The Applicant is aged 59 years. She says she is no longer working and as a result of her health and age, she will not work again. Counsel submits she must therefore rely on her assets as she ages. She relies on an income of approximately $35,817 a year by way of a pension from her Superannuation Fund. She owns her home in (omitted), unencumbered, (valued at $760,000) and has superannuation of approximately $315,691. She has two cars and a modest share portfolio.

2. The Respondent’s solicitor is critical of the Applicant for failing to provide any objective evidence of the value of her home, and for failing to adduce any medical evidence as to her incapacity for work. He points out that the Applicant would pay little, if any, tax on her pension income.  Mr Rafty submits that the Applicant enjoyed a high income when she worked for (employer omitted) in the 2013 financial year, and may still have the capacity for employment if she chose to stay in Sydney, but instead moved to (omitted) after the litigation commenced in order to improve her defence to any property claim by the Respondent. Mr Rafty submits that the Applicant has already paid her legal fees, proving her capacity to do so.

3. The Respondent is 62 years of age, in full time employment as a (occupation omitted), earning approximately $900 a week, but meeting rent of $275 a week for shared accommodation.  Having sold his only property to pay his legal fees, he has $269,214 remaining, a car, superannuation of $154,722 and no other assets of significance. If his friend and landlord sells his unit, or requires the Respondent to leave, the Respondent’s rent would be considerably higher. The Respondent has had to meet his legal costs of the trial and the appeal, a total of $151,146.61.  Mr Rafty submits the Applicant is in a markedly superior financial position.

4. It is not necessary for the Court to examine in close detail each party’s financial position in a costs hearing. It is enough to consider each party’s position in broad terms[10]. On the basis of the financial information available, I find that while both parties are of modest means, I agree with the Respondent’s solicitor’s submission that the Applicant has greater financial security than the Respondent.  I have regard to this finding.

The conduct of the parties in relation to the proceedings[11]

[10] Browne & Green [2002] FamCA 791 at paragraph 26

[11] This factor includes, without limitation on its generality, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters.

1. The Applicant’s counsel highlights the Court’s findings as to the Respondent’s credit, to support the submission that the Respondent’s evidence, which contained a number of factual errors and inconsistencies (acknowledged in cross examination) resulted in increased costs for the Applicant. The Applicant’s solicitor was required to respond to inaccurate content in letters, and to spend additional time preparing for hearing to respond to the Respondent’s assertions.  I accept this submission and take it into account.

Whether any party to the proceedings has been wholly unsuccessful in the proceedings

1. The Respondent was wholly unsuccessful in the proceedings. However, I accept the Respondent’s solicitor’s submission that the jurisdictional issue could not be compromised in the same way as a property case could be compromised. The declaration would either be made or not made. I also accept his submission that this was not a case in which the Respondent had no prospects of success, particularly in relation to the period in which the Respondent was living with the Applicant.  However, the Court accepted the Applicant’s evidence over the Respondent’s evidence in relation to each of the many aspects of the relationship examined for the purpose of determining the question of jurisdiction. The Respondent was therefore wholly unsuccessful in relation to each of the criteria relevant to the nature of the relationship, as well as the final determination.   I give these findings considerable weight.  

Whether a party has made an offer in writing to the other party to settle the proceedings and the terms of any such offer

1. The Applicant relies on two offers of settlement made before the litigation commenced. I agree with Ms Barnett that the Respondent would have been considerably better off had he accepted those offers, than he is now.  I agree with counsel that the Respondent was put on notice that the issue of costs (including indemnity costs) would be sought by the Applicant, yet he chose to pursue the litigation.  I accept counsel’s submission that the Respondent was made aware of the weakness of his case, particularly in regard to the public aspects of the relationship. 

2. Mr Rafty submits that the Respondent held a genuine belief that he was in a de facto relationship, and therefore his rejection of the two offers before the litigation commenced was not an “imprudent refusal of offer of compromise” as referred to in the decision of Colgate.[12] The Court noted that the Respondent believed there was a commitment for the parties to live together as a couple at some stage.  If the question of jurisdiction had been found in his favour, as the Respondent expected, Mr Rafty submits that it would not have been unreasonable for the Respondent to reject the two offers. Mr Rafty submits the Respondent’s offer of 1 August 2013 for the Applicant to pay him $155,000 would then have been a reasonable offer, being only 10% of the net pool of assets of the parties at that time.   While I accept that the Respondent believed he would succeed on the jurisdictional question, and that he would achieve a better result than the Applicant’s offers, I find he gave insufficient regard to the clear weaknesses in his case which were highlighted in correspondence from the Applicant’s solicitors at the time her offers were made.

   [12] Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536

3. I have therefore taken the Applicant’s offers of settlement into account.

Indemnity costs

1. The Applicant seeks an amount of $81,538.51 by way of indemnity costs.

2. Indemnity costs will only be ordered in the most extreme cases. The Full Court in Kohan & Kohan (1993) FLC 92-340 said that such an order is “a very great departure from the normal standard.”  This principle has been strongly restated in the recent Full Court decision of Madin & Palis (Costs)[13] where it was said[14]:

   This is particularly so having regard to the fact that the primary rule in this jurisdiction is that each party should pay their own costs.  Unfortunately, however, applications for indemnity costs are increasingly being made in this jurisdiction, thereby imposing further burdens on the court’s limited resources and causing further unnecessary expense for litigants.

   [13] Madin & Palis [2016] FamCAFC 25

   [14] Madin & Palis [2016] FamCAFC 25 at paragraph 23

3. Ms Barnett submits for the Applicant that without an order for indemnity costs in her favour, the Applicant will suffer financial hardship given the quantum of legal costs incurred and given she is no longer able to work.  The Applicant’s only asset of significance is her home in (omitted).

4. Mr Rafty submits for the Respondent that this case does not fall into the ‘exceptional category’ required by the authorities. He contends that the Applicant was made aware that she would not be entitled to indemnity costs. The costs agreement the Applicant signed advised that at best, she could expect only a proportion of her costs, a figure under $30,000.        

5. I am not satisfied exceptional circumstances exist to justify an indemnity costs order in the Applicant’s favour. However, given my findings, I am satisfied that a costs order is justified. In determining quantum, I have regard to my findings and the calculation based on Schedule 1 of the Rules[15].  I am satisfied a costs order in the sum of $25,000 is reasonable and I order accordingly.  

   [15] Federal Circuit Court Rules 2001, Schedule 1

6. As the Respondent holds funds in cash, he will have 14 days to pay.

Costs of the costs application

1. The Applicant seeks her costs of the costs application.

2. In her Application in a Case for costs filed 27 July 2016, the Applicant sought costs in accordance with the Federal Circuit Court Rules. Mr Rafty was given minimal notice of the Applicant’s change in position to argue that the court has no jurisdiction to apply the provisions of the Family Law Act to the question of costs. I have found Ms Barnett’s submissions on this issue misconceived. I am satisfied that counsel’s submissions caused Mr Rafty to spend additional time on his preparation of this case, and lengthened the costs hearing. I also note that on the jurisdictional issue, the Applicant was wholly unsuccessful. In these circumstances, and given my findings on the Respondent’s financial position, and the quantum of costs ordered in relation to the trial, I have determined to make no further order for costs.

I certify that the preceding thirty five (35) paragraphs are a true copy of the reasons for judgment of Judge Sexton

Date:  24 October 2017