Stoian & Fiening (Costs)
[2014] FamCA 944
•3 November 2014
FAMILY COURT OF AUSTRALIA
| STOIAN & FIENING (COSTS) | [2014] FamCA 944 |
| FAMILY LAW – COSTS – Costs order of a specific amount – principles to be applied in ordering a fixed sum in lieu of assessment – circumstances where order for costs in a fixed amount ought be made – Rule 19.18(1)(a) of the Family Law Rules 2004 (Cth) read with main purpose of Rules (Rule 1.04) and achieving main purpose (Rule 1.07) FAMILY LAW – COSTS – Conduct justifying an order for indemnity costs of an issue FAMILY LAW – COSTS – Offer of settlement – whether sufficient to justify an order for indemnity costs |
| Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth) |
| Idoport Pty Ltd v National Australia Bank Limited & Ors, Idoport Pty Ltd v Donald Robert Argus [2007] NSWSC 23 Kohan & Kohan (1993) FLC 92-340 Munday v Bowman (1997) FLC 92-784 Penfold v Penfold (1980) 144 CLR 311 Prantage & Prantage (2013) FLC 93-544 Robinson & Higginbotham (1991) FLC 92-209 |
| APPLICANT: | Ms Stoian |
| RESPONDENT: | Mr Fiening |
| FILE NUMBER: | BRC | 8141 | of | 2011 |
| DATE DELIVERED: | 3 November 2014 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Kent J |
| HEARING DATE: | By way of written submissions filed 1 August 2014; 3 and 10 September 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Kirk QC |
| SOLICITOR FOR THE APPLICANT: | Keating Lehn Solicitors |
| COUNSEL FOR THE RESPONDENT: | Mr Nelson |
| SOLICITOR FOR THE RESPONDENT: | Martin Solicitors |
Orders
It is ordered that:
The husband shall pay to the wife:
(a)all of the wife’s costs of and incidental to the issue of the Type O boat “AB” (“the boat”) on an indemnity basis including, but not limited to:
(i)all costs incurred in seeking disclosure from the husband in relation to the boat, including in respect of its sale;
(ii)all costs incurred in her solicitors corresponding or communicating with the husband or his solicitors or with the brokerage firm of Mr P concerning the boat;
(iii)all costs incurred in association with obtaining and filing the affidavit of Mr C;
(iv)the wife’s costs of and incidental to the directions hearing before Registrar Coutts on 31 May 2012 and the compliance hearing before Registrar Coutts on 13 August 2012;
(v)the wife’s costs of and incidental to preparation of, and forwarding by, her solicitors of the proposed consent orders on 31 May 2012;
(vi)the wife’s costs of and incidental to all communications concerning the sale of the boat and establishing the truth as to that sale;
(b)the wife’s costs of and incidental to the substantive proceedings on and from 16 March 2012 on a party and party basis; and
(c)the wife’s costs of and incidental to this application for costs on a party and party basis.
Pursuant to Rule 19.50 of the Family Law Rules 2004 (Cth) (“the Rules”) certification is given to the wife for engagement of senior counsel.
Pursuant to Rule 19.18(1)(a) of the Rules the costs ordered by these Orders be fixed in the amount of $80,000.
The husband is to pay to the wife on account of the costs ordered to be paid by these Orders the amount of $50,000 within sixty (60) days of these Orders, that is on or before 2 January 2015.
The husband is to pay the balance sum of $30,000 by equal monthly instalments over twenty-four (24) months commencing on 2 February 2015 together with interest at 5 per cent per annum calculated monthly on the outstanding balance from 2 January 2015 until final payment.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Stoian & Fiening (Costs) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 8141 of 2011
| Ms Stoian |
Applicant
And
| Mr Fiening |
Respondent
REASONS FOR JUDGMENT
Introduction
On 15 September 2011 the Applicant, Ms Stoian (“the wife”) commenced property settlement proceedings pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”) against the Respondent, Mr Fiening (“the husband”).
Following three days of trial on 4 and 5 March 2013 and 28 January 2014, on 7 July 2014 I made Orders and delivered Reasons for Judgment (“the trial reasons”) in respect of those property settlement proceedings. I do not propose to repeat here all of the trial reasons relevant to this application, but the trial reasons together with these reasons explain the determinations reached on this application.
Relevantly, as set out in [215] of the trial reasons, I determined a net pool of assets and financial resources, including superannuation interests, of the parties or either of them of $1,119,755.
At [256] I determined that the wife was entitled to a contribution-based assessment of 88 per cent/12 per cent in her favour, with no adjustments for s 75(2) factors (at [268]). The significant disparity between the parties was attributable to the much greater disparity of the initial capital they each contributed at the outset of a relatively short relationship and the fact that substantial capital losses were sustained. Eighty-eight per cent of $1,119,755 meant that the wife retained the benefit of, or received, the sum or value of $985,384.40, while the husband’s 12 per cent equated to $134,370.60 (at [257]).
A number of issues were raised in the substantive proceedings concerning the husband’s credibility. In particular, the husband’s dishonest and fraudulent conduct with respect to the sale of a then jointly owned asset on 3 June 2012, a Type O boat named “AB” (“the boat issue”) was prominent.
The trial reasons, particularly at [63] to [88] and [180] to [193], address the boat issue and record relevant findings I made as to the husband’s attempts to deceive the wife and gain a financial advantage for himself.
At [278] of the trial reasons, I made the following observation with respect to an application for costs by the wife:
Given the nature of the husband’s fraudulent conduct surrounding the sale of the boat and the consequent burden for legal costs the wife incurred in pursuing that issue, including the costs associated with obtaining [Mr C’s] evidence, there would appear to be no reason for the wife not to have her costs of and incidental to that issue met by the husband on an indemnity basis. However, as other costs issues may (if not agreed) require determination in the light of these Reasons and orders, and all costs issues are more appropriately dealt with together, I will await the filing of applications pursuant to Rule 19.08 of the Family Law Rules (2004) before determining any costs issue or costs order.
On 1 August 2014 the wife filed an Application in a Case seeking costs orders and on 3 September 2014 the husband filed a Response to the wife’s costs application.
Pursuant to her Application in a Case filed 1 August 2014 the wife seeks orders which would provide:
1.That the Husband pay the Wife’s costs of and incidental to these proceedings:
a.On an indemnity basis from the commencement of these proceedings on 15 September 2011; or
b.On an indemnity basis from the date of the Wife’s Offer of Settlement of 16 March 2012; or
c.On a party and party basis from 15 September 2011 to the date of the Wife’s Offer of Settlement on 16 March 2012, and then on an indemnity basis from 16 March 2012; and
d.Such costs to include the Wife’s reserved costs of the adjourned Conciliation Conference on 16 February 2012.
The wife’s written submissions (also filed 1 August 2014) contain:
In the event that Your Honour is prepared to Order a lump sum as opposed to having the costs assessed then:
(i)the total costs (including Counsel’s fees) incurred by the Wife from the commencement of proceedings on 15 September 2011 to date are $216,101.64.
(ii)the costs yet to be incurred in respect of this Costs Application are in the course of being incurred and would need to be dealt with separately;
(iii)in the event that Your Honour is only minded to Order party/party costs, Ms Keating has, in her affidavit, given a general estimate that such would be around 46-51% of the professional fees incurred by the Wife.
The husband, via his Response to the wife’s Application in a Case filed 3 September 2014 seeks:
1.That the Husband pay the Wife’s costs of pursuing evidence in relation to the sale of the boat on the indemnity basis fixed in the sum of $8,500.
2.The parties otherwise bear their own costs of the proceedings.
In support of her application for costs, the wife has filed written submissions and an affidavit of her solicitor, Kathleen Keating, both filed on 1 August 2014. That affidavit records that the then total costs of $216,101.64 incurred by the wife since the commencement of these proceedings is comprised of:
a)Counsel’s fees in the amount of $38,791.50, of which $3,591.50 remains outstanding;
b)Professional fees of $172,605.74, of which $43,616.01 remains owing, and;
c)Expert’s fees and other outlays of $4,704.40.
Further, on 10 September 2013 the wife’s solicitor filed submissions in response to the husband’s costs submissions. Pursuant to [5] therein, the wife has incurred further legal fees of approximately $17,499 in pursuit of this application for costs orders.
Therefore, on my calculations the wife’s total solicitor and own client costs to date are estimated to be $233,600.64.
Justifying circumstances
Section 117(1) of the Act provides that, subject to subsection (2) (and other sections not relevant here) each party to proceedings shall bear his or her own costs.
Section 117(2) of the Act provides that in proceedings under the Act, if the Court is satisfied that there are circumstances that justify it in doing so, the Court may, subject to s 117(2A) of the Act, make such Order as to costs as the Court thinks just.
In Penfold v Penfold (1980) 144 CLR 311 (“Penfold”), the High Court held that s 117(1) is not paramount to s 117(2) and that as s 117(1) is expressed to be subject to s 117(2), the former must yield whenever a judge determines in a particular case that there are circumstances that justify making an Order.[1]
[1] See also Mallet v Mallet (1984) 156 CLR 605 (Wilson J).
It is clear from the decision of the High Court in Penfold, and indeed in other decisions of this Court, including of the Full Court, that s 117(2) requires a finding of justifying circumstances as an essential prerequisite to the making of an order. The matters which might justify the making of a costs order are potentially extensive (s 117(2A)(g)) but must include regard being had to a number of matters specified in s 117(2A)(a)-(f) of the Act.
Moreover, to establish justifying circumstances, it is not necessary that a party establish what might be termed extraordinary or exceptional circumstances. There merely needs to be the existence of circumstances which justify an order in favour of the party seeking an order for costs.
Consideration of the matters identified in s 117(2A) may yield the conclusion that not only are there justifying circumstances for the usual costs order to be made, that is, party and party costs; but circumstances which justify an exercise of discretion to make the very great departure from that norm by ordering costs on an indemnity basis.[2]
[2] See Kohan & Kohan (1993) FLC 92-340 and Prantage & Prantage (2013) FLC 93-544.
Indemnity costs of the boat issue
As earlier noted, the husband concedes an order being made that he pay the wife’s indemnity costs of pursuing evidence in relation to the sale of the boat albeit he contends that such costs ought be fixed in the amount of $8,500. I note that is the minimum amount of professional fees, estimated by the wife’s solicitor, which the wife expended as a result of the husband’s fraudulent conduct surrounding the sale of the boat.[3]
[3] Affidavit of Kathleen Keating filed 1 August 2014, at [9].
The trial reasons record at length the discussion and findings made concerning the boat issue. Relevantly at [64] of the trial reasons I recorded my finding, by reference to the boat issue, that the husband’s credibility as a witness and his personal honesty and integrity were demonstrated to be fundamentally flawed.
At [78] of the trial reasons I found that the husband’s conduct, in attempting to secure a financial advantage for himself, went beyond a failure to provide full and frank disclosure, and rather went as far as attempting to pervert the course of justice by attempting to have a witness provide false evidence to corroborate the husband’s attempt to defraud the wife and to mislead this Court.
Further, the trial reasons record findings that the Court was not prepared to act on the uncorroborated evidence of the husband either generally or in respect of his assertions regarding the sale of the boat or his disbursal of the sale proceeds.
At [86] of the trial reasons I accepted the corroborated evidence of the wife, that is, the wife received $33,960 of the boat sale proceeds and that the husband paid $6,501 of the proceeds towards the Property A mortgage, leaving a balance of $51,539. I thus accepted the wife’s evidence and approach that this was the sum that should be accounted for by the husband and made orders to that effect.
It was contended by the wife that the now repealed s 117AB of the Act applies to the circumstances here. Section 117AB provided for the provision of costs where false allegation or statement made. Section 117AB provided:
(1) This section applies if:
(a) proceedings under this Act are brought before a court; and
(b)the court is satisfied that a party to the proceedings knowingly made a false allegation or statement in the proceedings.
(2)The court must order that party to pay some or all of the costs of another party, or other parties, to the proceedings.
In Prantage & Prantage (2013) FLC 93-544 (“Prantage”) the Full Court undertook a comprehensive review of the relevant law relating to the now repealed s 117AB of the Act and of the settled law relating to orders for costs including indemnity costs in this jurisdiction.
It follows from, or is confirmed by, Prantage, relevant to this case, that:
a)Because the subject proceedings here were instituted prior to the amending act[4] which repealed s 117AB, the amendments, including the repeal of that section, are not operative in relation to these proceedings or this application for costs. Thus the former s 117AB applies.
b)Application of the decisions on s 117AB cited with approval in Prantage results in the conclusion, by reference to the findings recorded in the trial reasons here, that the husband “knowingly made a false allegation or statement in the proceedings” by deposing at [86] of his affidavit filed 1 March 2013 to telling the wife a blatant lie; by falsely creating an “email receipt” to mislead the wife and her solicitors; and by attempting to illicit a witness in the proceedings to provide false evidence to corroborate the husband’s version. As the terms of s 117AB are satisfied the general rule expressed in s 117(1) that each party shall bear his or her own costs no longer applies. The Court retains discretion both as to the proportion and quantum of costs payable even when s 117AB applies.
c)The usual rule when costs are ordered is that they are ordered on a party and party basis and it is fundamental to the exercise of discretion in considering an order for indemnity costs that:
i)it is recognised that an order for costs on an indemnity basis is a very great departure from the norm; and
ii)the Judge should know to what extent costs on an indemnity basis exceeds the parameters set by the applicable scale of costs. The requirement for the Court to be informed of the terms of any relevant costs agreement is enshrined in the Rules (r 19.08(3)).
d)It is the conduct of the party as a litigant not conduct as a spouse which is relevant to the issue of costs and indemnity costs. There is no rule that indemnity costs will be ordered where the party was guilty of ethical or moral delinquency in the antecedent facts giving rise to the litigation.
[4] Family Law Legislation Amendment (Family Violence and Other Measures) Act 2011 (Cth).
As to (d), in Prantage the plurality of the Full Court stated at [102] and [103]:
102. It is important in this context to recognise, as Lindgren J did in NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77 at [56], that there is no rule that indemnity costs will be ordered “where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation”.
103. Lindgren J went on to point out (original emphasis):
Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party’s conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.
I am satisfied that the husband’s relevant conduct with respect to the boat issue constitutes conduct as a litigant, given the absolute duty of disclosure by litigants in s 79 proceedings before this Court.
It is for these reasons that s 117AB obliges the making of a costs order against the husband. I record the husband’s concession in relation to this issue, as contained at [6] to [7] of his written submissions filed 3 September 2014, wherein he states that he is prepared to proceed on the basis that a costs order be made on an indemnity basis fixed as a lump sum in the amount of $8,500 as estimated by the wife’s solicitors (at the lower range).
Quite apart from s 117AB and even if no concession were made by the husband I am comfortably satisfied that with respect to the boat issue this is a clear case for an order for indemnity costs against the husband. This was conduct within the meaning of s 117(2A)(c) which so significantly departed from proper conduct as to be determinative of the issue. That is, none of the other s 117(2A) factors discussed further below displace the conclusion that an order for indemnity costs of this issue is warranted.
Moreover, given the chronology of relevant events set out in [66] to [77] of the trial reasons I am satisfied that the husband’s conduct infected the integrity of the directions hearing held on 31 May 2012 and the compliance hearing held on 13 August 2012, both before Registrars in accordance with the Court’s case management procedures to manage the readiness of cases for trial; and the wife’s costs ought include her costs of and incidental to those hearings.
Costs of the proceedings otherwise
Leaving aside the discrete issue of costs in relation to the boat issue, the husband seeks that the parties each bear their own costs. The wife’s primary position is that the husband should pay the wife’s costs of the whole of the proceedings, on an indemnity basis, from their commencement.
In this case, there are several central contentions agitated by the wife as justifying circumstances. Firstly, the wife refers to three offers of settlement made by her to resolve the proceedings, in particular, the first offer made on 16 March 2012 following the conclusion of a mediation conducted by the Honourable Brian Jordan on 12 March 2012. I note that offer was rejected by the husband on 23 March 2012.
The wife further refers to the feature that the manner in which the husband conducted himself in the substantive proceedings made it more onerous, expensive and time consuming for the wife. In support of this contention the wife refers to the significant issues of credit surrounding the husband’s evidence; the husband’s repeated failure to comply with Court orders and directions; the husband’s failure/resistance to provide complete disclosure; and the husband’s making of a misleading representation in relation to the boat issue.
Ms Keating’s affidavit in support of the wife’s costs application details the instances and manners in which the husband’s conduct during the proceedings, including his failure to comply with orders and directions, caused delay and added expense to the wife. I accept that evidence and thus the contention that the husband’s conduct added to the wife’s legal expenses.
With respect to the parties’ financial circumstances, it is submitted on behalf of the wife that, “[t]he Husband has a substantial income and earning capacity vastly in excess of that of the Wife” as was found at [262] of the trial reasons. In contrast, the wife has not worked since five years prior to the final hearing of the proceedings in March 2013.
The wife contends that if a compensatory order is not made in the terms she seeks her entitlement under the final orders of 7 July 2014 will be substantially diminished from that which was determined to be just and equitable. In support of this contention it is submitted on behalf of the wife that:
The Judgment delivered by Your Honour sees the Wife receive payment by the Husband in the sum of $268,718.40; however, the Wife may well be required to pay from that amount the sum of $216,447.90 back to her superannuation fund and has been Ordered to then pay 88% of any penalties imposed by the Taxation Department in relation to the monies withdrawn from the superannuation fund (refer to Your Honour’s Judgment at paragraph 16).
That contention, on the face of it, would seem to overlook or diminish the feature that the wife will retain the benefit of any amount paid back to “her” superannuation fund; and the evidence discussed in the trial reasons as to avoiding or minimising penalties if the fund is restored.
In terms of the considerations under s 117(2A) of the Act, offers of settlement assume particular prominence in many cases as a consideration the Court takes into account. That is rightly so, as an offer of settlement is often the only protective mechanism available to a litigant to ultimately minimise the costs of protracted financial litigation.
In Robinson & Higginbotham (1991) FLC 92-209 at p 78,417 (“Robinson”), Nygh J observed in relation to offers of settlement:
It is quite clear that the purpose of that provision is to ensure that offers to settle, if made seriously, are considered seriously, to ensure that the cost of litigation is avoided, the workload of this Court is lightened, and one other consideration is certainly that a party with greater wealth is not placed in a position whereby he or she can wear out the other by simple attrition. …
Similar emphasis upon offers to settle are made in other decisions of this Court, including the Full Court, such as Browne & Green (2002) FLC 93-115, Murray v Murray (1990) FLC 92-173, Steel & Steel (1992) FLC 92-306 and Pennisi & Pennisi (1997) FLC 92-774.
For an offer of settlement to be given particular prominence or weight in the determination the Court should be satisfied that the settlement offer was more favourable to the party who refused to accept it than the orders ultimately made.
The wife made three offers of settlement to the husband on 16 March 2012, 9 August 2012 and 21 December 2012. Schedules comparing the offers of 16 March 2012 and 21 December 2012 with the final orders of 7 July 2014 are helpfully set out in the written submissions filed on behalf of the wife. I accept the accuracy of the comparisons there made.
The evidence before me establishes that on 16 March 2012 solicitors for the wife wrote to the husband’s then solicitors, confirming in writing the offer of settlement made by the wife at the conclusion of the mediation on 12 March 2012. That offer included the following terms:
The offer made by our client was on the basis that she receive 80% of the value of the net asset pool agreed upon at the Mediation as detailed below (noting that the valuation of the assets were determined either by a single expert or were agreed values between our respective clients):-
Equity in the [B Street] property
$290,000
Equity in [Property A]
$175,000
[Fiening] Superannuation Fund (subject to taxation issues)
$515,000
Your client’s 2 other personal superannuation entitlements
$17,000
Boat
$80,000
Total:
$1,077,000
As earlier noted, the husband rejected that offer on 23 March 2012.
It is contended on behalf of the wife that under the final orders the wife received in excess of $96,000 more than she was prepared to receive under the offer, however the wife incurred significant costs to achieve such orders.
It is the husband’s position that the wife’s initial offer devalued the pool as it did not take into account three items which were excluded from the pool determined at trial, that is, a tax liability of $31,000 owing by the husband in respect of G Pty Ltd; a loan of $10,696 owing by the wife to one Mr D; and withdrawals by the parties from the Stoian Superannuation Fund totalling $216,447.90. The husband contends that had these liabilities correctly been included in the pool contained in the wife’s offer, then the wife would have been seeking 80 per cent of a pool valued at $1,378,171.90, which equates to $1,102,537.52, being an amount which exceeds that which the wife received under the orders.
However, as is highlighted by the wife in her response submissions (at [1.2] to [1.5]), the G Pty Ltd tax liability and the Mr D loan were included in the pool at trial, as is reflected in the balance sheet at [215] of the trial reasons. Further, the wife maintains that it would be inaccurate to include those liabilities as part of the pool in the wife’s initial offer as they were not in existence at the time the offer was made. I accept that proposition.
The wife’s final offer to settle dated 21 December 2012 proposed a division of 78 per cent/22 per cent in the wife’s favour of a pool valued at $1,058,004.71. Based on the comparison schedule included in the wife’s written submissions, it appears that under the orders the wife received in excess of $160,000 more than what was offered by her in her final settlement offer. Conversely, the husband would have received more, had he accepted that offer, than he ultimately received pursuant to the final orders made.
It is submitted on behalf of the wife that the significance of the final offer “…is that as part of that Offer, the Wife was prepared to bear her own costs if the Offer was accepted by the husband by 11 January 2013. Such costs incurred by the Wife, at that date, totalled $122,035.28.” However, as is reflected at [4] of that offer, if the husband did not accept the offer on or before close of business on 11 January 2013, the wife’s proposal for settlement remained open on the basis that the husband pay the wife’s costs incurred after that date on an indemnity basis.
It is clear that since the judgment of Nygh J in Robinson earlier referred to, this Court has continued to emphasise the importance of parties resolving matters where possible and participating in a variety of means to do so. The Court has limited resources and parties need to be mindful that there is always the prospect, if justifying circumstances exist, that they litigate at their peril in terms of the potential for an order for costs being made, particularly where offers are made and particularly where the case concerns financial issues.
The discretion under s 117(2) of the Act is given context having regard to the feature that the primary position expressed in s 117(1) is that each party should bear his or her own costs, but it is a broad discretion, and it is not one which is to be read in a restrictive way.[5]
[5] See Collins and Collins (1985) FLC 91-603.
The wife’s primary contention on this application is that there ought be an Order for indemnity costs either from the commencement of these proceedings on 15 September 2011 or from the date of her first offer of settlement on 16 March 2012. It seems to me that it is well-settled by authority that the Court should not lightly depart from the ordinary rules relating to costs between party and party, and that as distinct from an Order for party and party costs, something truly exceptional must be shown for an Order to be made on an indemnity basis. That is true both of this jurisdiction and of other jurisdictions.
In this jurisdiction, relevant authorities to that effect are outlined in Prantage.
Conclusions
In terms of s 117(2A)(a), the parties’ respective financial circumstances are outlined in the trial reasons, also taking into account the effect of the final orders made. Neither party advanced on this application any substantial change in their respective financial circumstances to those considered at trial. Plainly, the wife is in a superior position asset-wise than the husband, but the husband is in a superior position, employment income-earning wise, to the wife. However, as the trial reasons reflect, the wife was originally in a vastly superior asset position to that of the husband in any event.
The husband points to the potential impact upon his financial circumstances if he is prosecuted as a result of my findings concerning the boat issue and my referral of that issue and his conduct to relevant authorities. Whilst the prosecution of an offence or offences against the husband may have that adverse effect (if and when that were to occur) undue emphasis upon that as a factor on this application would unfairly transfer some responsibility for that conduct indirectly from the husband, where it belongs, to the wife, where it does not.
Whilst it is clear, as set out in the trial reasons, that the husband’s capacity to earn from employment not less than $140,000 gross per year, probably for the balance of his working life to notional retirement, is superior to the likely employment capacity of the wife for the balance of her notional working life, there are some factors which reduce that disparity. Obviously, the husband must pay tax on his gross earnings. The wife has the capacity to generate earnings from her capital particularly with respect to the total amount of funds she has invested in superannuation as a consequence of the final orders. The husband has the obligation to support his current wife and young child whilst the wife has historically had financial support from her partner.
Viewed holistically, the parties’ respective financial circumstances do not yield the conclusion that the husband’s financial circumstances compared to those of the wife are such that this is a factor of itself weighing in favour of an indemnity costs order, as distinct from the usual order. Conversely, the husband’s financial circumstances are not so constrained as to present as a factor weighing against the making of any order for costs against the husband, if other factors point in that direction.
Reference has already been made to the husband’s conduct beyond the boat issue, in several respects, relevant to sub-paragraph (c) and (d) of s 117(2A).
In terms of the central contentions advanced respectively by each party at trial it can be concluded that the husband was substantially, if not wholly, “unsuccessful” within the meaning of sub-paragraph (e) of s 117(2A). The husband fell well short of his central contention that property adjustment orders ought be made which resulted in him receiving or retaining 25 per cent of the net property interests of the parties on his contentions as to the items and values to be brought into account.
That noted, it is the fact that it was only at the outset of trial that the wife, by her counsel, acknowledged that her claim for spousal maintenance must be dismissed.
Of fundamental significance, as already discussed, are the offers of settlement made by the wife within the meaning of sub-paragraph (f) of s 117(2A). I am satisfied that the offer of settlement the wife made to the husband on 16 March 2012 was less favourable to the wife, and more favourable to the husband, compared to the final orders ultimately made. I am satisfied that had the husband accepted that offer the husband would have not only received a greater share of available property but both parties would have avoided substantial expenditure on legal costs and outlays.
In my judgment, having determined that the wife should have her indemnity costs of the boat issue the appropriate and just order as to the costs of the proceedings is to order that the husband pay the wife’s costs of the proceedings, on and from the date of the offer on 16 March 2012, on a party and party basis.
I am not persuaded that the fact that the wife bettered her offers of settlement is of itself sufficient to justify an order for indemnity costs.
Whilst the husband’s evidence concerning his parents’ care; the issue of child support; the sale of Property A property; and the sale of the Mercedes Benz vehicle were particular matters the subject of criticisms in the trial reasons; and Ms Keating’s affidavit evidence otherwise addresses failures in the husband’s conduct during the proceedings; I am not satisfied that these matters are of sufficient gravity as to alter the basis upon which costs ought be ordered. In other words, whilst I am satisfied that these are matters which weigh in favour of a costs order being made, in my judgment they do not justify the very great departure from the usual order for costs on a party and party basis.
As will be obvious, I have declined to make any order for costs with respect to the period from commencement of the proceedings up until the wife’s first offer on 16 March 2012.
Costs of this application
The wife has not succeeded in obtaining an order for indemnity costs either for the whole of the proceedings or in respect of the period pre-dating her first offer, save with respect to the boat issue.
However, the wife has succeeded in obtaining costs orders and the husband has been wholly unsuccessful in resisting the orders for costs that are to be made.
In my judgment it would not be just in these circumstances for the wife to have to bear her own costs of obtaining the costs orders that are to be made and on that basis I am satisfied that it is just that an order be made for the husband to pay the wife’s costs of and incidental to this application for costs on a party and party basis.
Certification for senior counsel – rule 19.50
Whilst it is submitted on behalf of the husband that it would be appropriate to certify for Counsel under r 19.50 of the Rules it is contended that it would not be appropriate to certify for senior counsel.
Rule 19.50 provides as follows:
Rule 19.50 Certificate as to counsel
The judicial officer hearing a case may certify that it was reasonable to engage a lawyer (including Queen’s Counsel and Senior Counsel) as counsel to attend for a party.
It is important to note that whilst the wife retained senior counsel she did not retain junior counsel in addition. That is, the wife seeks certification for one counsel, albeit senior counsel, and not for both senior and junior counsel.
In my judgment, with respect to the engagement of senior counsel, it is not the appropriate test of reasonableness under r 19.50 to view the case in retrospect and, if it can be said that an experienced junior counsel could have adequately managed the party’s representation, this renders the conclusion that the engagement of senior counsel was unreasonable. There are, it seems to me, a number of factors to be considered.
First, senior counsel was engaged to “attend” a final property trial, not an interim or interlocutory hearing. I do not here imply that an interim or interlocutory hearing is never of sufficient complexity or gravity as to make it reasonable to engage senior counsel. An interim or interlocutory hearing will sometimes involve complex issues either factually and/or legally and the outcome may have significant consequences. The point to be made is that the nature of the hearing, and thus the significance of the attendance, is an important consideration. At issue here were final property orders sought at a trial.
Second, and related to the first, on the case mounted by the husband as to the “pool” of assets for which he contended; the entitlement of 25 per cent he contended for; and his contention that the wife ought bear sole responsibility for any consequences of the substantial withdrawals historically made from the parties’ self-managed superannuation fund; the wife would have no capacity to restore the fund and thereby avoid or minimise the imposition of substantial financial penalties. The evidence and findings about this are discussed in some detail in the trial reasons. On that case the wife’s remaining assets, after penalties imposed on the superannuation fund she retained as was likely if the fund were not restored, would be modest indeed. The wife had a lot at stake, given the husband’s case.
Third, whilst final submissions to this effect were not ultimately pursued at trial; it was a theme of the husband’s affidavit evidence and oral evidence at trial that in relation to one of the central issues in the case, the substantial loss of capital, responsibility for that could or ought be attributed to conduct of the wife as to real properties bought and sold; and the expenditure upon the overseas holiday at the outset (as examples). That aspect aside, the fact that there was a substantial loss of capital from the outset gave the case some greater than usual legal and factual complexity in assessing contribution-based entitlements, as is reflected in the trial reasons.
Fourth, but allied with the above, the husband mounted a case as to the value of his initial capital contribution that had to be tested against, amongst other things, the historical financial performance of his business at the time by reference to, and analysis of, historical financial records.
Fifth were the conduct issues, particularly the gravity of the husband’s conduct with respect to the boat issue and the shadow that cast over other disputed disclosure issues, giving the case a layer of complexity.
In my judgment the nature of the attendance, a final trial of property proceedings; the nature of the issues involved as outlined above and more fully in the trial reasons; and the potential consequences for the wife having regard to the case agitated against her by the husband; combine in supporting the conclusion that it was reasonable, within the meaning of r 19.50 of the Rules, for the wife to engage senior counsel and I certify accordingly.
Should the costs be fixed or assessed?
Rule 19.18 of the Rules provides for the methods of calculating costs. These include, in r 19.18(1)(a) the Court fixing upon a specific amount for costs or, in (b) an order for the costs to be assessed on a particular basis.
The wife contends that the costs she seeks ought be in a fixed sum to avoid further costs being incurred.
On behalf of the husband it is submitted that aside from fixing the indemnity costs with respect to the boat issue at the sum of $8,500; and potentially fixing counsel’s fees at “something less than half the amount claimed”; any costs ordered should be assessed.
Rule 19.34 of the Rules sets out the principles of assessment to be applied. Relevantly sub-rule (1) provides that a Registrar must not allow costs that, in the opinion of the Registrar:
(a) are not reasonably necessary for the attainment of justice; and
(b) are not proportionate to the issues in the case.
Sub-rule (2) applies to costs ordered on an indemnity basis. It requires the Registrar to allow all costs “reasonably incurred and of a reasonable amount” having regard to, among other things, the matters expressed in that sub-rule.
Sub-rule (3) applies to the assessment of costs as between party and party and provides that a Registrar must not allow:
(a)costs incurred because of improper, unnecessary or unreasonable conduct by a party or a party’s lawyer;
(b)costs for work (in type or amount) that was not reasonably required to be done for the case; or
(c)unusual expenses.
There would be an obvious benefit to both parties, in terms of achieving finality and avoiding for the parties yet further significant expense, delay and inconvenience, if the costs ordered were in a fixed amount. One example, taken from Ms Keating’s affidavit at [4] is that the costs of preparation of a bill of costs on an indemnity basis are estimated at $25,000 plus GST and the estimate for a party and party costs statement is $17,500 plus GST.
As against that, it is submitted on behalf of the husband that in the absence of itemisation of the claimed costs it is not known whether the total amount of the wife’s solicitor and own client costs pursuant to the costs agreement between the wife and her solicitors are likely to be reduced, on a party/party basis, to something in the range of 46-51 per cent, that percentage being deposed to by Ms Keating based upon an estimate provided by professional costs’ assessors.
In Idoport Pty Ltd v National Australia Bank Limited & Ors, Idoport Pty Ltd v Donald Robert Argus [2007] NSWSC 23 (unreported delivered 7 February 2007) Einstein J in the Equity Division of the New South Wales Supreme Court considered an application by the National Australia Bank Limited and associated defendants for costs fixed in a gross sum of in excess of $61 million. Section 98(4)(c) of the Civil Procedure Act 2005 (NSW) provided for the court to make an order for costs of “a specified gross sum instead of assessed costs”. That can be said to be a similar provision as r 19.18(1)(a) allowing this Court to order costs in a specified sum.
Commencing at [8] of his judgment Einstein J discussed the applicable principles in these terms:
8.As may be expected in what is likely the largest claim ever made in this country for a gross sum costs order, both parties took the court to the authorities which inform the principled exercise of the relevant discretion. Notwithstanding that some areas of difference arose concerning disparate parameters/appropriate emphases, in terms of the application of the appropriate principles, there were in the main no areas of serious disagreement.
9.For present purposes it seems convenient to commence with the recitation of the principles which inform the exercise of the discretion;
i.the purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum NL v Johnson (1995) 57 FCR 119, Von Doussa J page 265: [following Purchase J in Leary v Leary [1987] 1 All ER 261 who described the purpose of the rule allowing the fixing of a gross sum as “the avoidance of expense, delay and aggravation involved in protracted litigation arising out of taxation” (All ER page 265)];
ii.the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum at [16];
iii.the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738, per Giles JA at [22]; [following (Wentworth v Wentworth (CA, 21 February 1996, unreported, per Clarke JA) and adopted in Sony Entertainment v Smith (2005) 215 ALR 788];
iv.a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrison v Schipp at [22];
v.the gross sum “can only be fixed broadly having regard to the information before the Court”: Beach Petroleum at 124;
[in Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enables fixing a gross sum “only if I apply a much broader brush than would be applied on taxation, but that…is what the rule contemplates”.]
vi.nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119 at 120;
vii.in terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL & Anor v Johnson & Ors (No. 2) (1995) 57 FCR 119, put the matter as follows, at [16]:
“On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary “fail safe” discount on the cost estimates submitted to the Court: Leary v Leary at 265…”
I respectfully adopt Einstein J’s summary of the relevant principles, by reference to authority, as the principles that ought be applied to r 19.18(1)(a) of the Family Law Rules 2004 (Cth) (“the Rules”).
In addressing the requirement to act judicially Einstein J further observed (commencing at [10]):
i.although the principles set forth above are helpful in providing guidance to the Court as to the manner in which the discretion to make a gross sum costs order is to be exercised, ultimately whether an approach is logical, fair and reasonable falls to be determined by reference to the particular case before the Court;
ii.as explained by Purchase LJ in Leary v Leary [1987] 1 WLR 72 at 76:
“The unlimited discretion given by Ord. 62, r. 9 must be exercised in a judicial manner. How the powers are to be used varies widely from case to case and each case must be considered on its own merits. It is easy to envisage cases where a judge could be said to have acted unjudicially, e.g. by clutching a figure out of the air without having any indication as to the estimated costs; receiving such an estimate without the details being made available to the other side; or refusing a request to hear submissions on such a schedule if the party against whom the order is to be made makes, on reasonable grounds, an application to be heard”;
iii.the requirement that the power to award a gross sum should be exercised judicially does not mean that it must be exercised in any scientific or formulaic manner; At the heart of the judicial function is the responsibility to weigh up competing factors and considerations, many of which might conflict, to reach a determination. Acting judicially carries with it an obligation to apply the rules of natural justice, to act impartially and to apply the law to the facts. …
After referring to several High Court authorities outlining the nature and exercise of judicial power Einstein J continued at [11]:
11.In the result it is not an arbitrary exercise of power for the Court to weigh up competing factors and make a determination, even if, as is often the case, the task cannot be undertaken in a mathematical or precise manner. As the Court of Appeal found in Norris v Blake (by his Tutor Porter) [No. 2] (1997) 41 NSWLR 49 mathematical weightings of potential outcomes in loss of chance cases might be unsustainable and reliance rather should be placed on more intuitive methods to determine a loss: at 71-73. Similarly, the courts are frequently required to estimate damages that are not capable of precise quantification and require a degree of approximation and even guess work [Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83, 138 and 153; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at [37] – [38]].
12. The Court is no stranger to intuitive determinations, or determinations made without absolute precision, arrived at by acting judicially: cf Murray v Shillingsworth [2006] NSWCA 367 per Santow JA at [10]. It is misconceived to suggest that such determinations or approaches are arbitrary.
I am satisfied in this case that the Court can arrive at an appropriate fixed sum on the materials available applying an approach taken to estimate costs on a logical, fair and reasonable basis. I am satisfied that the power to fix a sum can be exercised judicially and that the parties have had an adequate opportunity to make submissions on the matter. In short, I am satisfied that the purpose of the subject rule to avoid the expense, delay and aggravation involved in further litigation surrounding assessment of costs ought in this case be achieved and is achievable.
I am fortified in the conclusion that, accepting that r 19.18(1)(a) is “to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation” that purpose or object ought be attained in any case where it is possible to so do by reference to the Rules more generally.
For example, r 1.04 expresses the main purpose of the Rules and provides as follows:
Rule 1.04 Main purpose of Rules
The main purpose of these Rules is to ensure that each case is resolved in a just and timely manner at a cost to the parties and the court that is reasonable in the circumstances of the case.
Rule 1.06 mandates that the Court applies the Rules to promote that main purpose.
Rule 1.07 relevantly provides:
Rule 1.07 Achieving the main purpose
To achieve the main purpose, the court applies these Rules in a way that:
(a) deals with each case fairly, justly and in a timely manner;
…
(c) is proportionate to the issues in a case and their complexity, and the likely costs of the case;
(d) promotes the saving of costs;
(e) gives an appropriate share of the court’s resources to a case, taking into account the needs of other cases; and
…
Fixing the amount of costs
The total of the wife’s estimated solicitor and own client costs, including her costs of this application, are $233,600.64. That total includes the amount of $36,530.40 incurred by the wife up until expiration of her first offer and ought be deducted, leaving a balance of $197,070.24.
Ms Keating deposes, and on behalf of the husband it is accepted, that “the amount of $8,500 (at a minimum) was incurred by my client in relation to the Husband’s fraudulent conduct surrounding the sale of the boat.” This is likely to be something of an undervalue of the subject costs given that I would include the wife’s costs of the hearings before the Registrars earlier referred to.
Treating the sum of $8,500 separately there is a balance remaining of $188,570.24.
The median of the range deposed to by Ms Keating at [41.3] of her affidavit is 48.5 per cent. In my judgment it is reasonable to adopt that median given that the source of the range provided is an expert firm of costs’ assessors.
Applying 48.5 per cent to $188,570.24 produces $91,456.56 and adding the amount of $8,500 produces a total of $99,956.56.
With reference to the percentage reduction, by more than half, based upon the range provided by the costs’ assessors probably absorbs all solicitor and own client components of the overall costs. That is, the husband’s complaints about hourly rates charged and the use of two legal practitioners when meetings were held with the husband are matters which, if they were made out as unreasonable on an assessment, are likely absorbed within the estimated percentage deduction. Such a substantial estimated percentage discount is no more or less than a reasonable estimate to absorb, globally, any items not reasonably incurred or in a reasonable amount and is directed to allow for the difference between party/party costs under the schedules in the Rules and solicitor and own client costs pursuant to a Costs Agreement.
However, there is in my judgment a need to discount the above total of $99,956.56 by reference to a further factor.
One of the central issues identified in the trial reasons at [11] to [13] as permeating the property settlement proceedings was the consequences of the substantial withdrawals from the subject superannuation fund in breach of the Superannuation Industry (Supervision) Act 1993 (Cth). Both parties were complicit in breaching that law. As the trial reasons reflect at [105] to [168] it loomed as an issue of some complexity in the proceedings and costs were incurred in addressing that issue. It would be antithetical to the requirement in s 117(2) of the Act that a costs order be “just” that either party be compensated for costs incurred by reason, directly or indirectly, of the consequences of their breaches of the law.
Ms Keating deposes at [10] of her affidavit that the wife’s costs of the hearing on 28 January 2014 were $11,649.88. That hearing was required by the Court and was directed to determining whether or not the Australian Taxation Office had determined upon any penalties to be applied to the self-managed superannuation fund by reason of the wrongful withdrawals that had been made from that fund. It was directed to the Court’s task of identifying the likely value of the fund in the light of any penalties to be imposed by the Australian Taxation Office. Thus, that component of the costs should not form part of the wife’s recoverable costs, which reduces the total to $88,306.68.
Allowing for that total to be discounted by an allowance for other costs referrable to that issue I fix upon the total of $80,000 as a fair and reasonable and logical estimate of the total of costs that ought be met by the husband. In making that discount I take into account the extent to which the wife’s affidavit of evidence in chief for the trial addressed this issue; the estimate of time involved in that issue at trial; and the parties’ competing submissions with respect to that issue.
In this respect I emphasise that the wife did have to meet the husband’s case that she be solely responsible for the consequences of the withdrawals from the fund. The wife’s evidence for trial necessarily had to descend to some detail of the dates and amounts and period over which the withdrawals were made to meet that case.
Orders
At [4.1] of her written submissions filed on 1 August 2014 the wife squarely raised the issue of the terms of payment of a lump sum urging for “an upfront payment of $50,000” with the balance payable, together with interest at 5 per cent by instalments. The husband thus had an opportunity to address the issue of payment of any ordered costs but his written submissions filed on 3 September 2014 do not address that issue beyond the broad submission that any ordered costs should be assessed.
Specifically, the husband did not address his capacity or otherwise to meet an upfront payment of $50,000 notwithstanding his having had the opportunity to so do.
In these circumstances and taking into account that the outcome of the final orders made did not leave the husband with significant non-superannuation assets and that he must rely upon his income to meet a costs order (unless he sells the property he retains as a result of making the cash payment to the wife) the husband should have 60 days to meet an upfront payment of $50,000 towards the costs and otherwise have a period of two years to meet the balance by instalments, together with interest at the rate of 5 per cent as contended for by the wife.
I acknowledge that interest at 5 per cent is less than the rate prescribed by the Rules but I am satisfied that imposing that rate of interest provides a fair outcome to both parties.
I certify that the preceding one hundred and fourteen (114) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 3 November 2014.
Associate:
Date: 3 November 2014
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