Stanbury & Stanbury
[2021] FamCA 600
•13 August 2021
FAMILY COURT OF AUSTRALIA
Stanbury & Stanbury [2021] FamCA 600
File number(s): SYC 2960 of 2018 Judgment of: ALTOBELLI J Date of judgment: 13 August 2021 Catchwords: FAMILY LAW – COSTS – where non-party liquidators of company owned by the husband and wife sought to be joined to proceedings but filed a Notice of Discontinuance before being formally joined – where husband and wife sought costs against the liquidators – consideration of right of indemnity – costs order made. Legislation: Family Law Act 1975 (Cth) s 117 Cases cited: Commissioner of Taxation v Warner (No 2) (2015) 244 FCR 498; [2015] FCA 1281
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish (2005) 33 Fam LR 123; [2005] FamCA 158
In the Marriage of I & I (No. 2) (1995) FLC 92-625; [1995] FamCA 80
In the Marriage of McAlpin (1993) FLC 92-411; [1993] FamCA 71
Mead v Watson (2005) 23 ACLC 718; [2005] NSWCA 133
Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664; [2015] FamCAFC 157
Parke & The Estate of the Late A Parke (2016) FLC 93-748; [2016] FamCAFC 248
Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274
Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385; [2007] NSWCA 55
Tonks, in the matter of Ambient Rail Pty Ltd (in liq) v Fishwick [2020] FCA 1755
Number of paragraphs: 24 Date of last submission/s: 21 May 2021 Date of hearing: 21 May 2021 Place: Sydney Counsel for the First Applicant: Mr Fermanis Solicitor for the First Applicant: Gramelis Attorneys Solicitor Advocate for the Second Applicant: Ms Felicio Solicitor for the Second Applicant: Felicio Law Firm Counsel for the Respondent: Mr Skinner Solicitor for the Respondent: JHK Legal ORDERS
SYC 2960 of 2018 BETWEEN: MS STANBURY
First Applicant
MR STANBURY
Second Applicant
AND: MR D AND MR C AS LIQUIDATORS OF B PTY LTD ACN: … (IN LIQ)
Respondent
ORDER MADE BY:
ALTOBELLI J
DATE OF ORDER:
13 AUGUST 2021
THE COURT ORDERS THAT:
1.The Respondent pay the First and Second Applicants’ costs of and incidental to the Application in a Case filed by the Respondent on 25 March 2021 as agreed or as assessed, noting that the Respondent is entitled to a right of indemnity against the assets of B Pty Ltd ACN ….
Note: The form of the order is subject to the entry in the Court’s records.
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 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Stanbury & Stanbury has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALTOBELLI J:
The substantive matter before the Court is an alteration of property interests between a husband and wife, but the matter in respect of which these reasons for judgment relate is a costs application against a proposed intervener who sought to intervene but then discontinued their application before the matter was determined by the Court.
The interveners are the liquidators of a company known as B Pty Ltd. The wife was the sole director, and the husband the general manager of the company. On 25 March 2021 the interveners filed an Application in a Case seeking to be joined to these proceedings and seeking to recover funds from the parties, which the interveners allege ought to be credited to the company. The application was opposed by the husband and both the husband and the wife opposed the substantive claim made by the interveners. The application was listed for determination on 21 May 2021 but on 20 May 2021, the liquidators signed and provided to the Court a Notice of Discontinuance, which was subsequently filed on 21 May 2021 with leave of the Court. Neither the husband nor the wife objected to the discontinuance, but each sought costs. The wife sought costs as agreed or assessed, whereas the husband sought costs assessed at $6,600. A common theme of the submissions made on behalf of both the husband and wife was that they were put to expense in preparing a Response and an Affidavit in opposition to the liquidators’ Application in a Case.
THE APPLICABLE LAW
The law relating to costs in family law proceedings is well settled and is set out in detail in the Full Court decision of Parke & The Estate of the Late A Parke (2016) FLC 93-748.
An application for costs is governed by s 117 of the Family Law Act 1975 (Cth) (‘the Act’). Section 117(1) of the Act sets out the general presumption that each party to the proceedings shall bear their own costs. This is subject to s 117(2), which provides that:
If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as 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.
Section 117(2A) sets out the matters that the Court is to have regard to:
(2A) 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.
Although the Court is required to consider each of the abovementioned factors, it is plain that their relevance to a particular matter will depend upon the circumstances of that case and they should be considered in that light. That is, no one factor prevails over another and it is a question of the weight that is to be afforded to each of the relevant factors depending on the circumstances of the matter: Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664 at [24]. There is also “nothing to prevent any factor being the sole foundation for an order for costs”: Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish (2005) 33 Fam LR 123 at [41].
Whilst the applicant in a costs application must establish the circumstances justifying the making of a costs order, the Court is not limited to making such an order only in what has been described as a "clear case": Penfold v Penfold (1980) 144 CLR 311.
No one submitted that the Court did not have jurisdiction to make a costs order against an intervener who had not yet been formally joined and who had, indeed, filed a Notice of Discontinuance before the application was heard. In any event, the liquidators were a party to the Application in a Case filed by them on 25 March 2021. Consistent with authorities such as In the Marriage of McAlpin (1993) FLC 92-411 the Court is comfortably satisfied that it has jurisdiction.
DISCUSSION
Costs orders are made at the Court's discretion based on the factors listed in s 117(2A) of the Act. The Court must consider all the factors in s 117(2A), and no one factor takes precedence over another: In the Marriage of I & I (No. 2) (1995) FLC 92-625. A discussion of these considerations follows.
The Court had ample evidence before it about the financial circumstances of the husband and the wife. There is nothing about those circumstances which would either indicate or contraindicate the making of a costs order in their favour. There is little known about the financial circumstances of the liquidators but the very circumstance of the application that they proposed creates the strong inference that there are creditors who are owed funds as a result of the liquidation of the company. Counsel for the liquidators submitted that if costs were ordered, the liquidators would not be able to be indemnified from the assets of the company, because there were none. The Affidavit filed by the liquidators confirms this. The only assets available will be those that can be recovered from, in reality, the husband and wife.
None of the parties are in receipt of legal aid.
It is submitted against the liquidators that the fact of the Notice of Discontinuance and the late filing of the same are matters of conduct in relation to the proceedings which indicates in favour of the making of a costs order against them. There is substance to this submission. Counsel who appeared on behalf of the liquidators, Mr Skinner, submitted that the Notice of Discontinuance should not be interpreted as an indication that the liquidators would not pursue their claims, but only that they would not pursue their claims in the Family Court of Australia. It is hard to understand this submission. There was no suggestion, for example, that from a legal perspective the liquidators could not obtain the relief they sought in the Family Court as opposed to any other Court. The delay in the filing of the Notice of Discontinuance was unexplained. I am satisfied that the conduct of the liquidators in this regard weighs in favour of making a costs order against them.
There is no suggestion that the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the Court.
The fact of the filing of a Notice of Discontinuance is indicative of the liquidators being wholly unsuccessful in the present proceedings. Whatever the liquidators believe might be their prospects of success in another jurisdiction is irrelevant in the present context.
There was some evidence before the Court that an offer of settlement was made by the liquidators to the First and Second Applicants prior to the filing of the Application in a Case on 25 March 2021. In their Affidavit filed on 25 March 2021, the liquidators annexed as Annexure “10” an email sent from the solicitors for the liquidators to the solicitors of the other parties. The email, dated 24 February 2021, refers to a previous piece of correspondence which contained an offer to settle. However, there is no evidence of the terms of such an offer, only that the offer was now withdrawn. Similarly, Annexure “9” to the Affidavit contains an email dated 11 February 2021, which rejects an offer made by solicitor for the Second Applicant. Once again, the terms of the offer are not clear to the Court. Without clear evidence of the terms of the offers exchanged between the parties, the Court places little weight on this factor.
Section 117(2A)(g) of the Act enables the Court to consider such other matters as the Court considers relevant. In this regard, counsel for the liquidators submitted that in substance and effect the making of a costs order against the liquidators would mean personal liability for costs as there were no assets against which they could seek indemnity. As a matter of policy, he submitted, there should be no order for costs against the liquidators. The application was not an abuse of process. Their behaviour was not improper. They should not, in effect, be punished for fulfilling their statutory role.
With respect to learned counsel, the situation is more complex than that. For example, from the perspective of both the husband and the wife, they believe the liquidators were acting improperly, and that the application was an abuse of process.
The principles upon which a liquidator may be ordered to pay personally costs which have been ordered against the company in liquidation were discussed by the New South Wales Court of Appeal in Mead v Watson (2005) 23 ACLC 718 at [11] – [13]:
Principles upon which a liquidator may be ordered to pay personally costs which have been ordered against the company in liquidation
[11] Again, the principles articulated by the primary judge with respect to this aspect of the matter were not in dispute. Relevantly, the primary judge's discussion commenced with a comparison of the entitlement to costs of a liquidator with that of a trustee in bankruptcy. At [97] of the costs judgment in the context of unsuccessful litigation by a trustee in bankruptcy who was ordered to pay the costs of the successful party, his Honour referred to the trustee's right to recover those costs from the bankrupt's estate in accordance with the general law entitling trustees to an indemnity from the trust estate for all costs, charges and expenses properly incurred. The decision upon which his Honour relied as setting out the relevant principles was that of the Full Federal Court (Northrop, Wilcox and Cooper JJ) in Adsett v Berlouis (1992) 37 FCR 201.
[12] In that case, the Court in a joint judgment (at 211) approved the following passage from the judgment of Bowen LJ in In re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 562 (and cited by the primary judge in [97]):
A trustee can only be indemnified out of the pockets of his cestui que trust against costs, charges, and expenses properly incurred for the benefit of the trust — a proposition in which the word 'properly' means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestui que trust costs which his own solicitor had unreasonably and perversely incurred merely because he had acted as his solicitor told him.
(emphasis added)
[13] In [98] of the costs judgment, the primary judge cited the following passage from the joint judgment in Adsett at 211–12:
The critical question, in our view, is whether or not the conduct which gave rise to the burden of costs — whether costs ordered to be paid or costs incurred by the trustee in prosecution of the litigation — was proper in the sense explained in Beddoe; that is, whether the expenditure was reasonably, as well as honestly, incurred … [W]e issue the caution that the language in some authorities, many of which relate to gratuitous trustees, may mislead. Sometimes that language appears to require a degree of personal misconduct or wilful recklessness, as opposed to mere negligence, mistake or breach of the trustee's duty as set out above. We do not think that such a limitation can stand with cases such as Beddoe, which in our opinion correctly express the law. If the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not 'properly incurred'. The position is no different with a trustee in bankruptcy. Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of judgment.
(emphasis added)
(Emphasis in the original)
The general principle seems to be that a liquidator would have a right of indemnity against the company’s assets, if any. This right of indemnity, however, only arises if the legal costs were reasonably and honestly incurred. Thus, if the costs were incurred unreasonably or unnecessarily there would be no right under the general law of indemnity. The difficulty in this case, of course, is that the consideration of whether the costs were reasonably and honestly incurred makes little difference, as there are no assets against which the liquidators could seek indemnity.
The question of public importance is a relevant one. In the recent decision of Tonks, in the matter of Ambient Rail Pty Ltd (in liq) v Fishwick [2020] FCA 1755 Markovic J at [53] accepted the proposition that where directors breached their duties owed to a company, it is a matter of public importance that they be held accountable for the consequences of their breach. The Court notes that it is the liquidators’ role to make directors so accountable. The Application in a Case by the present liquidators may be seen in this light, and yet it remains strange indeed that they then discontinued the proceedings. The affidavit in support sworn by Mr D provided some prima facie evidence in support of their claim, but whether that relief could have been granted on an interim basis is another issue.
In Commissioner of Taxation v Warner (No 2) (2015) 244 FCR 498, Perry J explored the circumstances in which any order as to costs should specify that the costs be paid as an expense in the liquidation and not by the liquidators personally. At [39] Perry J records:
[39] The relevant principles, as identified by Hodgson JA (Ipp and Basten JJA agreeing) in Silvia v Brodyn Pty Ltd [2007] NSWCA 55 ; (2007) 25 ACLC 385 (Silvia) at [49]–[54], may be summarised as follows:
(1)There is a dichotomy between a case where the liquidator is sued, on the one hand, and a case where the liquidator initiates proceedings, on the other hand.
(2)In the latter case, the liquidator, like a trustee or personal representative, litigates at her or his own risk. Thus, if proceedings brought by a liquidator in relation to a company’s affairs are unsuccessful, then generally an order for costs will be made against that liquidator.
(3)The position is different where proceedings are brought against the liquidator. Generally in those circumstances, a costs order will be made in such a way that the liquidator does not incur any personal liability. This may be achieved by ordering that the company in liquidation pay the costs (if the company is also a defendant), or by ordering that the liquidator’s liability for costs be limited to the amount of assets of the company available for that purpose. As Oliver J explained in Re Wilson Lovatt & Sons Ltd[1977] 1 All ER 274 at 285 (in a passage which Hodgson JA (Ipp and Basten JJA agreeing) approved in Silvia at [50]):
I can quite see that there may be very powerful reasons of policy for a rule that a liquidator, when carrying out his functions and thus subjecting himself to the possibility of proceedings against him by parties who are discontented with the way in which he has carried out those functions, must be entitled to defend himself without being subjected to the risk of having costs awarded against him personally, because of course he cannot protect himself against claims being made. Unless there were some such rule it might be very difficult to get persons to take on the heavy responsibility of the liquidation of companies. It seems to me that it is quite a different matter where the liquidator himself takes it on himself to institute proceedings, whether they be proceedings in the winding-up or otherwise.
(4)The liquidator would generally be entitled to an indemnity from the assets of the company, although that may be denied if the liquidator has acted unreasonably.
(5)If the liquidator has acted unreasonably in defending the litigation, the liquidator may be made personally liable
The difficulty for the liquidators in the present case is that the litigation was initiated by them and thus was at their own risk. As such, the general approach as set out in Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 and adopted by cases such as Commissioner of Taxation v Warner (No 2) (2015) 244 FCR 498 and Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385 is to make a costs order against the liquidators personally, with their liability not limited to the amount of assets held by the company. Nonetheless a right of indemnity exists unless the liquidator acted unreasonably.
There is nothing in the evidence before the Court to suggest that the liquidators acted unreasonably. Thus whilst this Court concludes that an order for costs in favour of the husband and wife is appropriate, the order will also note that the liquidators are entitled to an indemnity from the assets of the company. In reality, of course, until assets can be recovered, the order made will be a personal order against the liquidators. Should recovery proceedings be initiated in another Court, this Court would consider a stay application in relation to the costs order made today. The husband and wife in this case need to appreciate that by seeking, and obtaining, an order for costs against the liquidators, they may in fact be giving the liquidators another reason to pursue recovery proceedings against them.
There is no basis for indemnity costs, nor is there sufficient evidence to quantify costs in a fixed sum. The order for costs will therefore be as agreed or as assessed.
I certify that the preceding twenty-three (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Altobelli. Associate:
Dated: 13 August 2021
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