Spurling & Spurling & Ors (No. 2)

[2017] FamCA 781

FAMILY COURT OF AUSTRALIA

SPURLING & SPURLING AND ORS (NO. 2) [2017] FamCA 781

FAMILY LAW – COSTS – Where it is appropriate to make a costs order in a specific amount – Where the wife was wholly unsuccessful in her s 106B application involving a third party

Family Law Act 1975 (Cth) ss 75(2), 106B, 117(1), (2) and (2A),
Family Law Rules 2004 (Cth) r 19.18

APPLICANT: Ms Spurling

1st RESPONDENT: Mr Spurling

2nd RESPONDENT: AX Pty Ltd

INTERVENOR: SZ Pty Ltd

FILE NUMBER: SYC 6010 of 2010

DATE DELIVERED: 28 September 2017

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Johnston J

HEARING DATE: 21 June 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Dura

SOLICITOR FOR THE APPLICANT: Milevski Family Lawyers

COUNSEL FOR THE 1ST RESPONDENT: Mr Macpherson

SOLICITOR FOR THE 1ST RESPONDENT:	Wilkinson Throsby & Edwards
COUNSEL FOR THE 2ND RESPONDENT:	Mr Macpherson

SOLICITOR FOR THE 2ND RESPONDENT: Wilkinson Throsby & Edwards

COUNSEL FOR THE 3RD RESPONDENT: Mr Svehla

SOLICITOR FOR THE 3RD RESPONDENT: Surry Partners Lawyers

Orders

1. That within 42 days the wife pay to the solicitors for SZ Pty Ltd the sum of $85,000 being the Court’s assessment of the appropriate costs of SZ Pty Ltd in these proceedings.

2. That the wife’s application in a case filed on 1 June 2017 be dismissed.

3. That the husband’s application in a case filed on 1 June 2017 be dismissed.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym  Spurling & Spurling and Ors (No. 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 6010 of 2010

Ms Spurling

Applicant

And

Mr Spurling

First Respondent

And

AX Pty Ltd 
Second Respondent

And

SZ Pty Ltd
Third Respondent

REASONS FOR JUDGMENT

Introduction

1. These are costs proceedings which arise out of substantive property proceedings between Ms Spurling (“the wife”), Mr Spurling (“the husband”), AX Pty Ltd (“AX”) and SZ Pty Ltd (“SZ”).  Each of the husband, the wife and SZ seek a costs order.

2. The property proceedings were complex due to several matters.

3. Firstly, it has been the husband who has taken responsibility for the financial affairs of the parties throughout the course of the marriage and its aftermath.  He was the breadwinner for the family.  The wife’s focus and major contribution was in relation to the welfare of the family and as primary parent to the parties’ children over many years.  A consequence of this arrangement was that the wife did not have a detailed knowledge of relevant financial matters arising from the marriage.

4. On the other hand, the husband had a detailed knowledge of the financial history of the marriage, all relevant business and financial dealings and about the structure of companies, trusts and superannuation funds which over the years formed the Spurling group of entities.

5. Secondly, the parties, mainly the husband, used this structure of companies and trusts for the purposes of their business and financial affairs, no doubt with the objective of maximising financial resources available for the benefit of the Spurling family.

6. Skill and acumen, probably together with some degree of good fortune have resulted in this structure of companies and trusts having delivered to the family a very comfortable standard of living.  However, upon the breakdown of the marriage and separation of the parties, things became complex in a financial sense.  The structure of the companies and trusts needed to be unravelled to enable the parties’ interwoven financial relationships to be separated as well.  This has been complicated.

7. The other matter which has compounded what, even otherwise, was a complex piece of litigation, was the fact that the husband sold the shares owned by AX in D Pty Ltd (DPL) without providing any notice of his intention to do so to the wife.

8. What has ensued is litigation which has proven impossible to resolve, other than by way of this Court’s determination.

9. In all these complex circumstances, it is unsurprising that the Court is now asked to determine applications for costs by the wife, the husband and SZ.

Applications

1. There are applications by:

   a)SZ Pty Ltd that the wife pay its costs in the proceedings fixed in the sum of $80,000;

   b)the husband that the wife pay his costs in relation to the unsuccessful s 106B and spousal maintenance applications; and

   c)the wife that the husband pay her costs of and incidental to the proceedings and in the event that any costs order is made against her in favour of AX or SZ, that the husband indemnify the wife in respect of any such order, which indemnification could be in whole or in part.  

The Applicable Law

1. Subsection 117(1) of the Family Law Act 1975 (Cth) (“the Act”) provides that subject to certain exceptions each party to proceedings shall bear his or her own costs. That is subject to a power given to the Court pursuant to s 117(2) to make a costs order if it is of the opinion that there are circumstances that justify it in doing so upon a consideration of the relevant matters set out in s 117(2A). Those matters are as follows:

   ·the financial circumstances of each of the parties to the proceedings;

   ·whether any party to a proceedings is in receipt of legal aid;

   ·the conduct of the parties to the proceedings in relation to the proceedings;

   ·whether the proceedings were  necessitated by the failure of a party to comply with previous Court orders;

   ·whether any party to the proceedings has been wholly unsuccessful in the proceedings;

   ·whether either party to the proceedings has made an offer in writing to the other party to settle the proceedings and the terms of any such offer; and

   ·such other matters as the Court considers relevant.

2. Rule 19.18 of the Family Law Rules 2004 (Cth) (“the Rules”) provides for the Court to make a costs order in a specific amount. Rule 19.18(3) provides that in considering making an order in a specific amount the Court may consider:

   ·the importance, the complexity or difficulty of the issues;

   ·the reasonableness of each party’s behaviour in a case;

   ·the rates ordinarily payable to lawyers in comparable cases;

   ·whether a lawyer’s conduct has been improper or unreasonable;

   ·the time properly spent on the case or in complying with pre-action procedures; and

   ·expenses properly paid or payable.

Applications and Submissions

1. In relation to the costs application by the third party intervenor, SZ Pty Ltd, SZ was drawn into the proceedings on the application of the wife to set aside the transaction by which it purchased the 34 DPL shares from AX, which as I said was brought about by the action of the husband as director of AX without any notice to the wife.

2. The wife sought orders that the transaction be set aside pursuant to s 106B of the Act. As I said in my reasons for judgment, this application was fatally flawed and could not succeed for the reasons given. Accordingly, it was dismissed.

3. Unfortunately for SZ, in resisting the wife’s application to set aside its purchase of the shares, it has incurred considerable legal costs.  An order in the specific amount of $80,000 is being sought and that in the event that the Court makes such an order, a further amount of approximately $27,000 is being sought for the costs of preparing and presenting SZ’s costs application.

4. The submissions on behalf of SZ were as follows.

5. Firstly and significantly, the wife has been wholly unsuccessful in her s 106B application against SZ.

6. Subsection 117(2A) of the Act refers to the conduct of the parties in relation to the proceedings. In this regard SZ conducted itself in the proceedings from the time it became a party to completion of the hearing with “a keen eye to reducing both SZ’s expenditure on legal costs, as well as the husband’s and the wife’s legal costs and expenditure”. From the end of December 2015 after SZ filed and served affidavits by Mr HH and Mr IJ until a matter of weeks before the commencement of the trial, SZ caused its lawyers to undertake as little legal work as possible. SZ conducted all interlocutory stages in proceedings in an extremely cost effective manner.

7. At the hearing, counsel for SZ refrained from cross-examining the wife, cross-examined the husband on matters material to determining the value of the DPL shares and cross-examined the wife’s expert, Mr F on matters relevant to the value of the DPL shares. All of SZ’s submissions related to the s 106B application.

8. The wife has sufficient capacity to meet a costs order because of the property orders made in her favour.

9. The parties should not be put through the costs assessment process in circumstances where the proceedings have continued over years and the costs are high. Accordingly, the Court should make an order for costs in a specific amount as provided for pursuant to r 19.18(1) of the Rules.

10. In addressing the matters referred to in subrule 19.18(3) counsel submitted that an order in a specific amount should be made having regard to:

    ·all of the matters referred to above;

    ·SZ should never have been added as a party to the proceedings and the s 106B application ought never have been made against SZ;

    ·SZ’s behaviour as a party in the proceedings has been reasonable;

    ·SZ should not be put to the further cost and expense of having to go through the assessment process;

    ·the costs both to SZ and to the wife of the assessment process ought to be avoided;

    ·the hourly rates charged by SZ’s solicitors and counsel are reasonable and within the rates ordinarily payable to lawyers in comparable cases;

    ·the disbursements claimed by SZ are expenses properly paid within the meaning of the rules;

    ·Johnston J having heard all of the evidence in relation to the s 106B application is in a good position to review SZ’s lawyers’ tax invoices (both solicitor and counsel);

    ·SZ’s total costs up to and including the date of final orders on 4 May 2017 were $107,042.84 (excluding GST).  SZ seeks an order in the specific amount of $80,000 which is a discount of approximately 30 per cent on its total costs for that period.

11. The submissions on behalf of the wife were as follows.

12. The wife opposes SZ’s application and seeks orders to the effect that the husband pay her costs of the proceedings, and in the event that any costs order is made against her, particularly in favour of SZ, that the husband indemnify her in respect of the whole or part of such costs. 

13. The thrust of the wife’s case is that it was the husband who at all times was the person who was in charge of the parties’ finances and the person who understood the details of the situation concerning each of the entities, particularly DPL.

14. This was not a complex case until the husband sold the DPL shares in 2013.  That was done in circumstances where the husband gave the wife no notice thereof and where orders had been made to put in train a process of valuation of those shares.  It is not correct for the husband to say that the wife was always well informed in respect of all financial matters and therefore at all times in a position to consider the various offers which had been made by the husband.  In fact, the wife was “behind the 8 ball” from that point in time and from the wife’s perspective, from that time the proceedings became complex and complicated.  The wife found herself in the position of being even more in the shadows about understanding the complexity of the financial affairs.  By way of example, counsel for the wife referred to the following:

    ·On 23 November 2010 the wife’s solicitors requested the husband’s solicitors to provide a copy of the husband’s Shareholder Agreement for DPL.  A couple of days later the wife’s solicitors were informed that the husband believed his Shareholders Agreement was in his files at the former matrimonial home.

    ·On 1 December 2010 the husband’s solicitors informed the wife’s solicitors that the DPL Shareholders Agreement was not currently available but they hoped to have a copy forwarded to the wife’s solicitors within a couple of weeks. The wife was subsequently informed that there was no Shareholders Agreement for DPL and that the relevant document was the company’s Constitution.

15. For a period the wife indicated to the husband that she did not require a valuation of the DPL shares but subsequently decided she wanted the shares valued both retrospectively and currently.  The parties were unable to agree on this because the husband opposed such valuation.  That matter was brought to a head before Loughnan J and consent orders were made that each party could obtain their own expert valuation.

16. Ultimately each expert valued the 34 DPL shares at a value considerably greater than the $350,000 which had been paid for the shares by SZ.  The wife suffered cost as a consequence of having to instruct her valuer, Mr F, in response to the husband’s expert, Mr G, which came about as a consequence of the husband not relying on Mr G’s affidavit and notifying the wife thereof on the first day of the trial.  It was unreasonable for the husband to point to the letter of his solicitors dated 2 October 2013 as sufficient for the wife to have taken the view that it was unnecessary for the parties to avail themselves of a valuation of the 34 DPL shares.  I shall refer to this letter below. 

17. From the wife’s point of view the husband had always been in control of the parties’ finances and was in a position to better understand what the position was, whereas the wife was not in such a position. Mr G, the husband’s valuer, had access to the company’s Constitution.

18. To level criticism at the wife in all these circumstances was unjustified.

19. The wife was only able to achieve limited disclosure in relation to DPL and the following paragraph from a letter dated 15 June 2011 from DPL’ accountants to the husband is an example of the difficulty she encountered:

    You should not provide your copy of the 2009 or 2010 statutory accounts as these include the detailed profit and loss statement and reference to [ZZ] Pty Ltd which are excluded in the above.

20. This was an indication that certain documents of DPL should not be provided.

21. In relation to conduct, it was submitted that the wife found it necessary to return to the Court on numerous occasions to enforce arrears of spousal maintenance and in respect of matters related to disclosure. 

22. In any event, although the situation was that there was no collusion or dishonesty at the time of the sale of the DPL shares, the transaction took place without the wife’s knowledge and in circumstances where the husband was aware that the wife was seeking specific orders in relation to the shares and there were orders for a method of valuation of the shares.

23. The submissions on behalf of the husband were as follows.

24. Firstly, the husband adopted the submissions made on behalf of the third party SZ.

25. In respect of the submission about the letter referred to above from DPL’ accountants to the husband cautioning him about providing certain documents by way of disclosure, it was submitted that there appears to have been some confusion on the part of the wife and her advisors that the husband had some degree of control in relation to DPL which was clearly not the case.

26. It has not been demonstrated by the wife how the husband’s non-reliance on Mr G’s valuation has caused cost to the wife.

27. In relation to alleged non-disclosure, much of this has been alleged non-disclosure of documents from SZ.  The wife appears to have assumed that the husband had the power to require SZ to produce documents for inspection by the wife which was not the case.  SZ was not his company.  In any event, it ill-behoves the wife to criticise the husband in relation to SZ when the Court has found that the wife’s case against SZ was “fatally flawed”.  The Court found the position in relation to SZ to be as was set out by the husband’s solicitor in his letter to the wife’s solicitors in October 2013.  The relevant paragraph of this letter is as follows:

    There is no point in a valuation of [DPL].  The shares were sold as [Mr Spurling] needed the cash to pay outstanding debts.  A purchaser approved by the majority shareholder was available – a condition of sale – and there was not otherwise a ready market available for these shares.

28. The wife was wholly unsuccessful in her s 106B application and the husband seeks that the wife pay his costs of responding to that application on an indemnity basis. This would be on the basis that the wife pressed on with her s 106B application in wilful disregard of the known facts. The wife was also wholly unsuccessful in her spousal maintenance application.

29. The conduct of the wife and her lawyers from time to time caused delay and this, together with the fact that the wife has changed solicitors many times, has caused repetition of work on behalf of the husband.

30. On 3 August 2012, the husband and wife reached agreement under the terms of which the husband would transfer his interest in the Suburb C apartment to the wife unencumbered, he would pay her $500,000, spousal maintenance of $1,000 per month for two years and there would be a superannuation splitting order with the effect that the wife would receive 54.73 per cent of the husband’s superannuation pension.  This was significantly more favourable to the wife than what she received from the judgment.  The wife changed her mind.

Discussion

1. I am not aware of the financial circumstances of SZ apart from finding in the proceedings that it purchased the shares from AX for which it paid $350,000.

2. In relation to the financial circumstances of the husband and the wife these have not changed significantly since the findings made in the judgment.  It was submitted on behalf of the wife that the husband is in a “vastly superior position to the wife”.  Strictly speaking this is correct until such time as the husband transfers the Suburb C property to the wife and pays to her the required sum of $764,101.  In the meantime, the husband’s obligation to pay spousal maintenance in the sum of $2,500 per week is to continue under the orders.  The terms of the property settlement under my orders cannot be ignored.  Out of a pool of available property and superannuation with a value of $3,271,915 the wife will have property and superannuation with a value of $2,126,745.  As indicated in the reasons for judgment the setoff of available property and superannuation in favour of the wife, taking account of s 75(2) matters, is a differential in dollar terms of $981,574.

3. The practical effect of the husband being required to transfer his interest in the apartment and pay to the wife the sum of $764,101 will be that his major asset will then be his superannuation pension valued at $2,029,940.  But because this is being received by way of periodic payments, in fact, he will be in deficit as I said in the judgment.

4. I do not accept in all these circumstances the submission that the husband is in a “vastly” superior financial position to the wife.

5. None of the parties are in receipt of legal aid.

6. There is nothing of particular significance about the conduct of the parties to the proceedings.  I have referred above to the wife’s assertions about failures on the part of the husband to disclose details about DPL and the limitations on this.  In this respect, I note that prior to the husband’s solicitor’s letter of 2 October 2013 that solicitor had forwarded to the wife’s then solicitor, Nicholl & Co a copy of the DPL’s Constitution.  That Constitution contained provisions about the relevant right of veto which was fundamental to any exercise in valuing the company’s shares.  Accordingly, knowledge of that requirement was clearly within the documents which had been made available by the husband’s solicitors to the wife’s solicitors. 

1. SZ’s application is on the basis that the wife has been wholly unsuccessful in her application for an order to set aside the share transfer pursuant to s 106B of the Act. It is the case that Mr HH and the husband had known one another for quite some years and Mr HH was aware that the parties’ marriage had broken down and they were engaged in proceedings in this Court. But I found SZ to be a bona fide purchaser. In these circumstances, in my view, it would be quite unjust for SZ to have to bear the entirety of its costs the Court having found the wife to have been wholly unsuccessful in her application against SZ.

2. I accept the thrust of the submissions by Mr Svehla for SZ that it would not be in any party’s interests for the costs to be referred for assessment which would obviously involve further cost. As Mr Svehla submitted, the s 106B proceedings between the wife and SZ were more akin to commercial proceedings than orthodox family law property proceedings. This was because the proceedings involved issues of valuation, shareholders’ and directors’ duties and legal issues more often litigated in commercial disputes rather than family law proceedings. I accept that as a consequence, there was a level of complexity or difficulty brought about by these issues which would justify a level of cost above that if an assessment was made strictly on a party/party basis.

3. The costs of SZ up to 4 May 2017 when the final orders were made in the property proceedings came to a total of $107,042.83.  As I have said, it is seeking that it be paid the amount of $80,000 which would represent approximately 75 per cent of those costs.  That would be a higher amount than would be likely to be assessed on a party/party basis.  But as I have said, in my view, the complexity of the issues involved for SZ make it just and reasonable for it to receive costs above a strict party/party assessment.  In my view, it would be reasonable in all the circumstances for SZ to be paid costs in the amount of $65,000 for its legal costs incurred up to 4 May 2017.

4. Annexed to the wife’s affidavit in support of her costs application was an amount of material which included what appeared to be most, if not, all of the correspondence, certainly from the wife to the solicitor concerning various offers and counter-offers which had been made over the period of the litigation.

5. Apart from the wife’s Initiating Application in which she sought an order that she have 55 per cent of the parties’ property and superannuation, I did not regard any of the offers to which counsel for the wife took the Court as offering a more attractive share of the available property and superannuation to the husband than what he received from the judgment.

Conclusion

1. What has happened in this case is that the wife had a poor idea about details of the financial circumstances of the Spurling group of entities.  She has had four firms of solicitors acting for her over the approximately six years from the time of initiating the proceedings.  She originally sought orders in relation to the DPL shares as part of her package of orders sought and at that time could not have understood the limitation on transfer of DPL shares brought about by the DPL Constitution. 

2. When the husband sold the shares to Mr HH who was known to the husband, without any notice to the wife this “excited suspicion” in the wife, to adopt Mr Walker’s elegant phrase.  The wife said she suspected that the shares were sold at an undervalue.  When her expert, Mr F, completed his report and valued the shares well above the $350,000 paid by SZ this could only have encouraged the wife’s “suspicions”.  The difficulty is that the limitation on transfer of the shares was either not sufficiently explained to Mr F or not sufficiently appreciated by him, and he arrived at a valuation which was unrealistic and could not be accepted by the Court.  This occurred notwithstanding that a copy of the DPL’s Constitution had been provided to the wife’s then solicitors, Nicholl & Co on 14 March 2013 and to the wife’s present solicitors on 26 March 2015.

3. As things turned out, the situation was precisely as described by the husband’s solicitor, Mr Hanrahan in his letter dated 2 October 2013 to the wife’s then solicitors, Paltos Briggs, which included the following:

   The [DPL] shares were sold at arms-length for valuable consideration to a buyer not associated with [Mr Spurling].  The sale, in fact any sale of [DPL] shares, required the approval of the majority shareholder.  That approval was given.  The sale was made where there was not an otherwise ready market.  The sale was at a premium price 47 per cent above the last trade of [DPL] shares.  The transactions are publicly recorded.  Neither our client nor any [Spurling] entity have a shareholding or controlling interest in the company.

4. Unfortunately for the wife she has been wholly unsuccessful in her s 106B application. As indicated above, SZ has been caused significant cost in resisting the wife’s application.

5. The husband also has incurred considerable cost in resisting the consequences for him if the wife’s s 106B application had been successful. As also indicated above, this was the major issue in the proceedings and the matter about which by far the most time was spent ventilating during the hearing. The wife was also unsuccessful against the husband in her spousal maintenance application. Clearly these aspects of the proceedings have caused the husband considerable cost. But in all of the circumstances I do not propose to make any order that the wife pay any part of his costs. After all, the husband sold the shares in circumstances in which he did not give any notice to the wife, where the parties had agreed on orders providing for a method of valuation of the shares and where the wife, although misguidedly as it has turned out, was seeking orders from the Court directly with respect to those shares. Had it not been for the shares’ sale none of this difficulty concerning the s 106B application would have come about.

6. In considering whether the husband ought to be required to indemnify the wife for part of a costs order against her in favour of SZ that matter is certainly relevant. Bearing in mind, however, the fact that the husband will no doubt have incurred costs in having resisted the s 106B and spousal maintenance applications, in my view, it would not be just to impose on him any responsibility to indemnify the wife.

7. The result therefore, is that it is the wife who shall have to bear the whole of the responsibility for failing in her application against SZ. 

Costs of preparation and presentation of the costs application

1. Each of the three parties has incurred significant costs in the costs proceedings.  It is submitted that the wife’s costs are in the vicinity of between $25,000 and $30,000.  I accept that SZ’s costs with respect to the costs proceedings are approximately $27,000. 

2. On 1 June 2017 the solicitors for SZ forwarded to those acting for the wife an offer to resolve the costs proceedings.  SZ’s solicitors indicated that their client had incurred costs of $107,042.83, but on a commercial basis and to obviate the need to prepare and present a costs application SZ would accept payment of $75,000 within 14 days.  That offer was rejected by the wife.  The wife made a counter-offer to pay SZ’s costs fixed in the sum of $30,000.  SZ’s solicitors communicated a further offer by letter dated 15 June 2017 that SZ would accept either the sum of $65,000 payable within 14 days of acceptance or that the wife would consent to an order to pay SZ’s costs as assessed on a party-party basis.

3. Unfortunately the costs proceedings did not resolve. 

4. As I have indicated, in my view, this is a case where it is appropriate for the Court to make a costs order in a specific amount.  In respect of SZ’s costs up to the date of making orders, namely 4 May 2017, it would be just to require the wife to pay to SZ the sum of $65,000.  In respect of SZ’s costs of preparing and presenting the costs proceedings, the amount claimed is approximately $27,000.  I take into account the relevant matters and particularly the offers to which I have referred above.  In all of the circumstances, in my view it would be just to require the wife to pay those costs in the amount of $20,000.  The wife would be required to pay the costs of SZ in the total amount of $85,000.  In my view this is an amount which is higher than would be likely to be assessed on a party-party basis.  But given the complexity of the matter and all the relevant circumstances referred to above, in my view, such a quantum is justified.

I certify that the preceding sixty-four (64) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Johnston delivered on 28 September 2017.

Associate: 

Date:  28 September 2017