Southwell and Jane and Anor
[2012] FamCA 43
•16 January 2012
FAMILY COURT OF AUSTRALIA
| SOUTHWELL & JANE AND ANOR | [2012] FamCA 43 |
| FAMILY LAW – COSTS - Security for costs sought by third party - Costs orders under s 117 - Power to make orders for and against corporations |
| Family Law Act 1975 (Cth) |
| DJL v The Central Authority (2000) 201 CLR 226 |
| APPLICANT: | Mr Southwell |
| RESPONDENT: | Ms Jane |
| 2ND RESPONDENT: | Southwell Investments Pty Ltd |
| FILE NUMBER: | MLC | 1893 | of | 2007 |
| DATE DELIVERED: | 16 January 2012 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 21 December 2011 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Wood |
| SOLICITOR FOR THE APPLICANT: | Taussig Cherrie Fildes |
| COUNSEL FOR THE RESPONDENT: | Dr Wilson SC with Mr Thompson |
| SOLICITOR FOR THE RESPONDENT: | Pinto Law |
| COUNSEL FOR THE RESPONDENT: | Mr P Davis |
| SOLICITOR FOR THE RESPONDENT: | Middletons |
Orders
That the application filed on 9 December 2011 by Southwell Investments Pty Ltd is dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Southwell & Jane and Anor is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC1893 OF 2007
| Mr Southwell |
Applicant
And
| Ms Jane |
Respondent
And
| Southwell Investments Pty Ltd |
2nd Respondent
REASONS FOR JUDGMENT
By Application in a Case filed 9 December 2011, Southwell Investments Pty Ltd (“the company”) seeks an order against Ms Jane (“the wife”) for the security of its costs in the property proceedings between the husband and the wife.
The company in its capacity as the trustee of a family trust was joined to the proceedings by order of the Court. The issue involving the company is contentious. The husband (supported by the company) maintains that a sum of $215,000 should be added to the pool of assets to be divided between he and the wife on the basis that it is a sum owed to him by the trust. He points to the fact that the loan has been extant in the company’s books for something like 15 years. The wife maintains that the same loan is worth much more based on equitable principles yet to be argued.
The substantive proceeding came to an abrupt halt as a result of the issue of the joinder of the company and there have been a number of interlocutory orders and reasons given since. It is now suggested that the trial can resume.
Because of the impending resumption of the trial, the security for costs application was made. It was opposed by the wife.
On 21 December 2011, the matter was argued by Mr Davis of Counsel for the company and Dr Wilson of Senior Counsel with Mr Thompson for the wife. Mr Wood of Counsel appeared for the husband but his interest in this issue was more of a watching brief.
A number of matters were argued but the first and critical one related to jurisdiction to make a security for costs order in favour of the company. Because it is a jurisdictional point, it must be considered first. As such, I turn to the respondent-wife’s argument.
Dr Wilson submitted that the starting point was s 117 of the Family Law Act 1975 (Cth) (“the Act”). He pointed to the s 117(1) provision that makes clear that each party shall bear his or her own costs subject to s 117(2) (emphasis mine). His submission was that as a matter of statutory construction, s 117(1) does not say his or her or its own costs. Thus he said, the presumed legislative intent was that costs were to be borne by the natural persons to the proceedings and that there is no power to make an order where the party is a corporate entity.
Dr Wilson then submitted that the situation was not altered by s 117(2). He pointed to the fact that s 117(2) was silent about the party against whom orders for costs could be made. A supplementary submission filed on the following day further pointed to the language used in s 117(2A).
Mr Davis responded to the oral submission (and was not heard on the supplementary submission) by rejecting that approach and indicating that common sense dictated the contrary. It did however raise a complication because Dr Wilson’s predecessor (it was said) in arguing for the joinder of the company, had said the Court could be comforted by the fact that if the wife was wrong about the reason for the joinder, the company’s position could be ameliorated by a costs order. That, submitted Mr Davis, gave rise to a need to review the joinder order. For the reasons that follow, that will not be necessary.
I reject the submission put on the wife’s behalf.
Relevant Law on ss 117(1), 117(2) and 117(2A)
In Penfold v Penfold (1980) 144 CLR 311, the High Court examined s 117 (as it then was, see 314) in some detail and observed at 315:
It is an accurate description of s. 117 (1) to say that it expresses a general rule, provided that it is firmly understood that the subsection is not paramount to s. 117 (2). As sub-s. (1) is expressed to be subject to sub-s. (2) the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs.
Sub-section (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order. Beyond this there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs.
The issue was under much more scrutiny in Re JJT; Ex parte Victoria Legal Aid (1998) 195 CLR 184 where the High Court again examined the provision albeit the issue was also about the nature of the order for a legal aid body to provide funding. The issue of the possibility of making an order against a corporation was the subject of comment bearing in mind that one of the parties was such an entity. The judgments about s 117 are helpful here:
Gaudron J said at para 2 at 188 (relevant citations omitted):
The power conferred by s 117(2) of the Family Law Act 1975 (Cth) ("the Act") is a power to "make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just." That power is not simply a power to make an order for costs. Were it so, it would only authorise orders to indemnify for "costs actually incurred in the conduct of litigation". However, a power to make an "order as to costs" is a broader power. And when regard is had to the consideration that s 117(2) expressly authorises interlocutory orders, that sub-section must, in my view, be construed as authorising orders requiring a party to proceedings under the Act to provide another party with funds to conduct those proceedings.
And at paras 4 and 5 at 189, her Honour said:
One other matter should be noted with respect to s 117(2), namely that its terms are, if anything, wider than the bare power "to award costs" considered in Knight v FP Special Assets Ltd. Accordingly, it follows that the sub-section authorises orders against persons who are not parties to proceedings in the exceptional circumstances in which that course is appropriate. At least that is so if the order is one which indemnifies for costs actually incurred, an order of that kind being properly described as an "order as to costs".
Notwithstanding the width of the power conferred by s 117(2) of the Act, an order under that sub-section must, as Hayne J points out, be an "order as to costs [or] security for costs".
Gummow J at para 11 at 191 said:
…[w]hilst s 117(1) is directed to the carriage by the parties of their own costs, Penfold v Penfold established that s 117(1) must yield to s 117(2) whenever the court forms the opinion "that there are circumstances justifying" it in making an order of the description in s 117(2). That sub-section speaks not of parties but of certain orders.
Kirby J, although dissenting in respect of the substantive issue, said of the provision (at para 14 at 191-192):
Limits upon such wide statutory powers may be imposed by constitutional law. Sometimes controls are imposed by the statute itself. But where, by valid legislation, a power to award costs is afforded to a court in general terms, the grant of power should be given an ample interpretation and not narrowly construed.
And, at para 67 at 211, Kirby J said:
The provisions of s 117(2) appear in words of perfect generality. There is no reason in those words or in the rules of statutory construction, to restrict the operation of the section so that it does not apply to a corporate body such as VLA. Whether this might be done conformably with the Constitution is another question. But it is one that does not arise at this stage of these proceedings.
Hayne J at paras 90-92, at 219, said:
On its face, then, the reference in s 117 to "costs" is a reference to "costs" as that word is ordinarily understood in the law: the amount which the person to whom the order is directed must pay to some party to the litigation as partial indemnity for the professional legal fees and expenses incurred by that party in the course of the litigation. Section 117(1) provides, in effect, a prima facie rule that each party is to bear his or her own costs of the proceeding but that prima facie rule is subject to the operation of s 117(2) which, in turn, is dependent upon the court concluding "that there are circumstances that justify" the making of an order.
Section 117(2) enables the Family Court to make orders "as to" costs and that may well enable a broad range of orders to be made. The subject-matter of those orders must, however, be "costs": a power to make orders "as to" costs does not enable the court to make orders dealing with something other than costs.
The section also makes provision for orders as to "security for costs". This kind of order is, of course, well known. Although it is an order which requires the provision of security against costs which have not yet been incurred (that security being provided, usually, by payment of a sum to be held for application in accordance with a future order or the provision of some other security) the subject-matter of the order is still, at its roots, the costs which a court may order one person to pay to another as partial indemnity for the professional fees and expenses incurred in the litigation.
Callinan J at para 124 at 225 said:
Sub-section 117(1) of the Family Law Act authorises a departure from what may be taken as the usual course in litigation, that costs follow the event, to provide that parties will, subject to s 117(2) and s 118, be required to bear their own costs. Sub-section 117(2) confers a broad general jurisdiction (subject to s 117(2A) and the Rules of Court) to make such orders as to costs, and security for costs as the Court considers just.
And, finally, his Honour at para 132 at 227 said:
The source of the power, if any, to make the order in question must be found in s 117(2).
What must be distilled from those statements is that s 117(2) is a source of power not restricted by s 117(1). It is a wide power. The distinction between the two provisions is that one speaks of parties and the other speaks of orders. Having regard to those matters, there is no to restrict the operation of the section so that it does not apply to a corporate entity.
Re JJT; Ex parte Victoria Legal Aid was considered and followed by the Full Court of this Court in I Limited & Chester and Ors (Costs) [2011] FamCAFC 51 at 40 (15 March 2011). No concern was there raised about the source of the power nor of the ability of the Court to make orders for costs involving corporate entities.
Dr Wilson drew my attention to DJL v The Central Authority (2000) 201 CLR 226 in which the High Court said that the Family Court of Australia had no inherent jurisdiction except for such power to regulate and control its own process. I am not exercising an inherent power because s 117(2) is the clear source of power to make the order.
I find there is power in s 117(2) to make a security for costs order if the circumstances so justify it.
Security for Costs Application
I turn then to the issue of the security for costs application by the company.
Mr Davis referred me to Luadaka & Luadaka (1998) FLC 92-830 as the principles that should be followed in an application for security of costs. In Gerber & Bradley (formerly Gerber) and Ors (Security for Costs) [2011] FamCAFC 206, Finn, May and Strickland JJ observed as follows:
In the recent decision of the Full Court (Coleman, Thackray and Strickland JJ) in Palma & Caleffi and Anor (Security for costs) [2011] FamCAFC 174 the following principles, which govern an application for security for the costs of an appeal, were set out (adopting what was said by an earlier Full Court (Finn, May and Thackray JJ) in Sawer & Sawer [2007] FamCA 140):
19. The power in this Court to make an order for security for costs is to be found in s 117(2) of the [Family Law Act 1975 (Cth) (“the Act”)], which is in the following terms:
If, in proceedings under this Act, the court is of [the] opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
20. The provisions of s 117(2A) are as follows (- s 117(4) and (5) are not presently relevant):
In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a)the financial circumstances of each of the parties to the proceedings;
(b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, 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;
(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g)such other matters as the court considers relevant.
21. The authorities establish that in exercising the discretion to order security for costs, it may also be relevant for the Court to consider in addition to the financial circumstances of the parties and the other five specific matters mentioned in s 117(2A), the following matters:
a) the prospect of success of the litigation;
b) whether the claim for security is made bona fide;
c)whether or not an order for security would stifle the litigation;
d)whether or not the litigation may involve a matter of public importance;
e) whether or not there has been a delay in bringing the application for security;
f) whether there would be difficulty in enforcing an order for costs
(Luadaka v Luadaka (1998) FLC 92-830; Jones and Jones (2001) FLC 93-080; Adult Guardian and Mother's Parents and B and Child's Representative (2002) FLC 93-116.)
Whilst those authorities are clear, so is the provision set out in Rule 19.05 (2) of the Family Law Rules 2004 which reads as follows:
In deciding whether to make an order, the court may consider (my emphasis) any of the following matters:
(a)the applicant's financial means;
(b)the prospects of success or merits of the application;
(c)the genuineness of the application;
(d)whether the applicant's lack of financial means was caused by the respondent's conduct;
(e)whether an order for security for costs would be oppressive or would stifle the case;
(f)whether the case involves a matter of public importance;
(g)whether a party has an order, in the same or another case (including a case in another court), against the other party for costs that remains unpaid;
(h)whether the applicant ordinarily resides outside Australia;
(i)the likely costs of the case;
(j)whether the applicant is a corporation;
(k)whether a party is receiving legal aid.
The evidence relied upon by the company was set out in the affidavit of the company’s solicitor. Although there was some concern expressed about the capacity of the solicitor to do so, I am satisfied that as this is an interlocutory matter, the evidence is admissible and relevant to the issue to be determined. The solicitor referred to correspondence in which it was said that the company claimed that as a result of the late joinder, it had faced considerable costs and prejudice and as a result of some of my observations in the joinder judgment, security by way of a charge over the wife’s property should be given. The costs incurred to date excluding counsel’s fees amounted to over $50,000. Thereafter, the solicitor set out the estimated ongoing costs which included trial work and disbursements totalling over $128,000. Reference was then made to the company having duties in its capacity as a trustee, to other beneficiaries. The affidavit ended with a statement that the solicitor believed the company had a good “and valid” defence to the wife’s statement of claim.
The wife filed an affidavit pursuant to an earlier order but it was not specifically directed to the security for costs claim
I turn then to the submissions of the parties.
The company’s position was that this litigation was nothing to do with it and it should not have been involved. It was submitted that the wife had already received a partial settlement of property and that money had largely gone into a house resulting in her having a “fighting fund” of $700,000. The company was seeking a charge over the house (not a cash payment) to secure its potential costs claim and as such, there was no prejudice to the wife in such an order.
It was submitted that looking at the “weakness” of the wife’s case, she was likely to get a costs order and if that occurred, the company would be involved in further litigation to enforce its order because it was unlikely that the wife would voluntarily pay.
The nub of the company’s submission related to the merits of the wife’s case. Mr Davis submitted that the wife took a “tactical” decision to broaden the pool of assets by pursuing an argument about interest on the $215,000 loan. The statement of claim pleaded the following:
6.By an agreement on a date the wife does not know and cannot specify in the 1980’s….the husband agreed with (the company) on its own account and/or as trustee…that the husband would leave the funds to which he was entitled with (the company)-
(a)for the purpose of investment by (the company) with other funds it held in its own right and/or as trustee…
(b)alternatively by way of a loan of funds to (the company) in its own right and/or as trustee…to be invested with other funds ….. in consideration for which the husband would be entitled to a proportionate share of the return on investment of such funds by and/or would be entitled to interest on such funds.
(There follows thereafter, some particulars which assert the agreement referred to could be implied by various conduct)
In an amended defence to that statement of claim, leave to file for which was given at the hearing, the company pleaded:
6.It denies paragraph 6. Further it says that the particulars provided do not support the allegation and the paragraph should be struck out.
I have earlier ruled that the company should be joined as a party over its opposition. I did so on the basis that all of the evidence was not necessarily closed (see reasons for judgment 20 September 2011).
There seems to me to be as much a legal argument as a factual one. Even if the evidence is closed and nothing more is adduced, it will be noticed that the pleading alleges the agreement can be construed by implication. Further, final submissions have not been made and I am unaware of what arguments the wife may put as to the authorities. Whilst Mr Davis submitted he could not think of an authority where equitable relief could be applied in a case where the facts only supported a contract, I am open to hear what the wife ultimately wishes to submit on that matter.
Having regard to the reasons I have previously given, it would not be appropriate to go further into the merits of the claim beyond saying that it remains to be seen.
Dr Wilson SC submitted that if I found there was jurisdiction, it was a discretionary matter. He took me to Rule 19.05 and specifically noted the change in terminology between sub-rule (1) and (2). On any view, the whole concept of the rule is designed to look at the claimant for the substantive relief so that in the interlocutory application for security for costs, it is the position of that substantive claimant that is under scrutiny.
Before examining the specifics of the rule, I want to address a point raised by Dr Wilson about the meaning of security for costs. He submitted that these types of orders usually only applied in civil jurisdictions where litigants were outside of the state or where companies might avoid judgments because of solvency problems. It was submitted there was nothing like that here as all parties were participating in the litigation.
The concept of security for costs is not new. Perhaps unlike the two examples given by Dr Wilson, in this Court it is really designed to protect parties who are being forced to litigate unnecessarily and who incur costs that might never be recovered. When one considers the description of Hayne J earlier referred to in which his Honour said such orders required the provision of security against costs which had not been incurred but which a court might order one person to pay to another as partial indemnity for the professional fees and expenses incurred, the problem becomes circuitous. That definition requires a consideration of the circumstances under which a court might ultimately make such an order. The provisions of s 117(1) of the Act make clear that this is a court where costs do not normally follow the event. As such, a case in which an order might be made would only be if there were circumstances justifying a departure from the principle that each party pay their own costs.
In the recent decision of the Full Court of this Court in Palma & Caleffi and Anor (Security for costs) [2011] FamCAFC 174, albeit in relation to an application relating to an appeal, the Full Court referred to the observations made by the Full Court (Finn, Boland and Murphy JJ) in Halsbury & Halsbury [2008] FamCAFC 170 which I repeat without any intention that it be seen as a criticism of the parties or their practitioners in this case:
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.
…
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.
Although that decision concerned an appeal, there are certain similarities. The wife has filed her statement of claim as ordered. The defence has joined issue. The matter therefore needs to be heard as quickly as possible to conclusion. Thus, there is something of a conflict between the principle that the Court should allow the case to move on as against some restriction which has to be determined. The fact that security by way of a charge is sought as distinct from cash, is in my view, not to the point.
Application
In respect of rule 19.05 therefore, and looking at it from the wife’s perspective, there is no doubt she has reasonable financial means. She has equity in her home. She is not impecunious. She could therefore provide security over her home albeit that such a charge supported by a caveat might create practical problems if she decided to provide a similar charge to her own solicitors.
Rule 119.05(2)(d) suggests that one of the matters that a court may consider is the prospects of success or merits of the case. Apart from the fact that any determination of the prospects of success or merits of the substantive proceeding could only be seen on the material available, unlike an appeal where there are identifiable fruits of a judgment, a trial at first instance in a property matter has to be determined on the evidence according to law. The law in respect of the division of property requires that a court only make an order if it is deemed just and equitable to do so (s 79(2)). Normally, one would expect that until that point was reached, it would be hard to envisage how the principle espoused in s 117(2) could arise to entitle that court to be satisfied that there were justifiable circumstances to make a costs order and depart from the principle in s 117(1). I have already ruled that there is a cause to be litigated in this case. That means no more than that no determination could yet be made justifying an order to divide the property of the parties. In addition, to endeavour to do more than that, in other words, to hypothesize, might compromise a trial judge’s position particularly in a part heard case such as this one. As such, I do not think it is appropriate in this case on the material presented to make any determination about the merits.
In respect of reference in the rule to the genuineness of the application, it is my view that the rule is intended to contemplate the substantive claim not the application for security of costs. The wife came to the litigation and started the case on the basis of an agreed loan of $215,000 but that altered thereafter. It is well-known in this case but not yet in evidence, an accountant has endeavoured to value the loan on some form of interest basis and as would be understandable, the capital sum far exceeds $215,000. I would not therefore find there was no genuineness in the application.
There does not seem to me to be any basis upon which the wife could argue that making an order of the type contemplated would stifle her claim. It was put by Dr Wilson that she might desire to pay her lawyers but having regard to her equity in the home, an order would have little effect and to the extent that there was a practical problem of getting around a caveat, an approach to the Court would surely solve that.
This is not a case which might be defined by the rule as of public importance.
This is also not a case where there are outstanding costs orders.
The solicitor for the company set out the likely costs for his client but that was predicated on the basis of a commercial arrangement between solicitor and client. As Mr Davis conceded, the company was not asking for an order which might be seen as calculated according to some indemnity costs principle.
Ironically, in circumstances where the wife argued that there was no jurisdiction to make a costs order in favour of a corporation, the rule seems to contemplate that being a company has some significance. I have presumed it has something to do with the example given by Dr Wilson about companies and solvency. Either way, it is not relevant here.
The provisions of the rule are however, not exhaustive and the Court is entitled to look at other considerations. One such consideration is that argued by the company that there would be further and costly litigation if the company had to enforce a costs order after the substantive trial. If there is sufficient equity in the wife’s assets now, it is hard to see how that is a problem. Costs orders can be incorporated in final divisions of assets but if that were not the case, further litigation would involve the unsuccessful wife in incurring further costs and possibly interest. One of the specific provisions of s 117(2A) is whether orders of the Court have been complied with.
Conclusion
Balancing all of the issues above, I could not find that the company is exposed to some risk of not recovering costs if the wife was unsuccessful and a costs order was thereafter made against her in favour of the company. Accordingly, I could not find that there is a basis to make an order for security of costs here.
I certify that the preceding Forty Five (45) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 6 January 2012.
Associate:
Date: 16 January 2012
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