Tolarno & Tolarno (No 2)
[2022] FedCFamC1F 184
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Tolarno & Tolarno (No 2) [2022] FedCFamC1F 184
File number(s): MLC 4394 of 2018 Judgment of: WILLIAMS J Date of judgment: 24 March 2022 Catchwords: FAMILY LAW – COSTS – Wife’s application for indemnity costs following a successful summary dismissal of the husbands application for variation of final orders – Where the husband seeks the costs application to be dismissed – Consideration of relevant principles including s 117 provisions – Consideration of indemnity costs – Where the wife contends the husband had no chance of success and there was an imprudent refusal of an offer to compromise by the husband – Husband ordered to pay wife’s costs on a party/party basis on scale with counsel’s fees as charged, including senior counsel. Legislation: Family Law Act 1975 (Cth) ss 79A, 117 Cases cited: Buckley & Buckley [2013] FamCAFC 150
In the Marriage of I & I (No 2) (1995) 22 Fam LR 557
Tolarno & Tolarno [2021] FedCFamC1F 232
Sfakianakis & Sfakianakis [2019] FamCAFC 54
Worth & Worth (No. 2) [2019] FamCAFC 126
Division: Division 1 First Instance Number of paragraphs: 53 Date of hearing: 1 March 2022 Place: Melbourne Counsel for the Applicant: Mr Dunlop Solicitor for the Applicant: Nicholes Family Lawyers Counsel for the Respondent: Mr Atkinson Solicitor for the Respondent: Pearsons Lawyers Pty Ltd ORDERS
MLC 4394 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS TOLARNO
Applicant
AND: MR TOLARNO
Respondent
ORDER MADE BY:
WILLIAMS J
DATE OF ORDER:
24 MARCH 2022
THE COURT ORDERS THAT:
1.Within 30 days of the date of these orders:
(a)the husband pay the wife’s costs of and incidental to the husband’s Initiating Application filed 20 October 2020, on a party/party basis on the applicable scale, as agreed;
(b)the husband pay all counsel’s fees, including senior counsel, incurred by the wife, of and incidental to the husband’s Initiating Application filed 20 October 2020.
2.In default of agreement within 30 days, the wife’s costs be assessed by a Registrar of the Court, and the husband pay the assessed costs to the wife within 30 days of the assessment.
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 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Tolarno & Tolarno has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
WILLIAMS J
INTRODUCTION
The issue for determination by the court is whether the husband should pay the wife’s costs of and incidental to the husband’s Initiating Application filed 20 October 2020 which was amended on 15 December 2020.
On 30 November 2021, I summarily dismissed the husband’s Amended Initiating Application and published my reasons (Tolarno & Tolarno [2021] FedCFamC1F 232 (“Tolarno & Tolarno”)). The factual background of the dispute is referred to in my earlier reasons at [7]–[14], which I do not propose to repeat.
On 24 December 2021, the wife attempted to file an Application in a Proceeding seeking the following orders:
(a)Pursuant to section 117 of the Family Law Act 1975 (Cth), within 30 days the Husband pay the Wife the sum of $192,028.21 on account of the Wife’s costs incurred of and incidental to responding to the Husband’s Initiating Application filed 20 October 2020 and Amended Initiating Application;
(b)IN THE ALTERNATIVE, pursuant to section 117 of the Family Law Act 1975 (Cth) the Husband pay the Wife’s costs incurred of and incidental to responding to the Husband’s Initiating Application filed 20 October 2020 and Amended Initiating Application, to be assessed on an indemnity basis by a Registrar of the Court, and the Husband to pay the assessed costs to the Wife within 30 days of the assessment being received;
(c)IN THE ALTERNATIVE, pursuant to section 117 of the Family Law Act 1975 (Cth) the Husband pay the Wife’s costs incurred of and incidental to responding to the Husband’s Initiating Application filed 20 October 2020 and Amended Initiating Application, to be assessed on such basis deemed appropriate by the Court, and the Husband to pay the assessed costs to the Wife within 30 days of the assessment being received;
(d)Such further or other orders as this Court sees fit.
Due to the court shutdown during the Christmas break, the Application was sealed on 2 February 2022. On 24 December 2021, the wife filed an affidavit in support of her Application and on 4 February 2022 she filed a further affidavit.
Contemporaneously with the costs application, the wife filed a further Application in a Proceeding seeking, pursuant to the slip rule, amendment of the super splitting orders made in July 2020, to enable both parties to obtain superannuation rollover relief (“the slip rule application”). That application was made in accordance with the directions made by the Court on 30 November 2021, as suggested by Senior Counsel for both parties.
The slip rule application was resolved during the course of this hearing, with some minor amendments made to the order orders sought by the wife. Both parties conceded that the amendment sought could be made pursuant to the slip rule and neither party required reasons for the orders so made.
On 25 February 2022, the husband filed a Response to an Application in a Proceeding and a corresponding affidavit seeking orders that the wife’s application for costs be dismissed.
At the commencement of this hearing, counsel for the husband made an application for an adjournment of the hearing, on the basis that Queen’s Counsel for the husband, who had represented him at the hearing on 20 October 2021 was not available and that the costs schedule of the wife’s costs had only been provided to the husband’s solicitors a few days prior.
The application for adjournment was refused, subsequent to the Court confirming that counsel for the husband was in a position to proceed with costs submissions. I also advised the husband’s counsel that a costs order would not fix costs and there would be further time to contest the calculation of the wife’s costs. There was no utility in incurring costs of a further hearing.
LEGAL PRINCIPLES
Section 117(1) of the Family Law Act 1975 (“the Act”), states, subject to the provisions of s 117(2), that the general rule in proceedings in this court, is that each party to proceedings, shall each bear his or her own costs.
Section 117(2) of the Act provides as follows:
If, in proceedings under this act, the court is of the opinion that there are circumstances that justify it in doing so, the court may subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
Section 117(2A) of the Act provides, that in considering what order (if any) should be made for the payment of costs, the court shall have regard to the following matters:
(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.
In the Marriage of I & I (No 2) (1995) 22 Fam LR 557, the Full Court said that the relevant matters in s.117(2A):
“…must all be taken into account and all balanced in order to determine whether the overall circumstances justify the making of an order for costs”
I will now address each of the relevant considerations.
Section 117(2A)(a) the financial circumstances of each of the parties
Counsel for the wife relied upon paragraphs 38 and 39 the wife’s affidavit filed 4 February 2022. At the time of the final hearing in July 2020, the net matrimonial asset pool for division between the parties was either $10,259,215, according to the husband or $11,582,377 according to the wife.
The final orders which were entered into by consent provided for the wife to receive a cash payment of $4 million together with a transfer of the 1 N property, which was then valued at $1.3 million. The husband retained the balance of the parties’ assets, which included a business, eight properties including farming and commercial properties which generate income.
In his affidavit filed 25 February 2022 the husband deposes to borrowing funds to enable him to make the cash payment to the wife, which has resulted in him being responsible for loan payments of approximately $26,000 per month. He deposes to a current income of $9,000, (presumably per month) and that his loan obligations are subsidised by his son to the extent of $17,000 per month.
Section 117(2A)(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
Neither party is in receipt of legal aid.
Section 117(2A)(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
Counsel for the wife relied upon paragraphs 14 to 25 of the wife’s affidavit filed 4 February 2022 as to the husband’s conduct. The affidavit refers to the application filed by the husband on 20 October 2020 which sought a suite of orders, including an extension of time to pay $4 million to the wife, the wife pay and indemnify the husband and associated entities, all taxation and compliance costs to implement the transfer of the 1 N property to the wife and the husband and wife equally pay any costs of stamping the relevant trust deeds. The orders sought to vary the final orders made in July 2020, which provide for the husband to be liable for such costs. On 15 December 2020, the husband filed an Amended Initiating Application seeking a further extension of time to pay the $4 million to the wife.
On 15 December 2020, the matter was listed in the Judicial Duty List and orders were made adjourning the application to 24 December 2020, with provision to vacate that hearing if the husband made the payment to the wife. If he did so, then the matter was adjourned to 23 February 2021. The husband paid the wife prior to 24 December 2020 and the matter was listed before Hartnett J on 23 February 2021. At that hearing, orders were made for the husband to file and serve, within 21 days, points of claim particularising the legal and factual basis for the orders sought by him.
In his Case Outline filed on 23 March 2021, the husband abandoned his claim for the wife to be liable for costs arising from the transfer of the 1 N property and for the parties to share equally, the costs of stamping the relevant trust deeds. In lieu of that application, he sought to retain the 1 N property and pay the wife $1.3 million in cash, which was the valuation of the property obtained for the trial in July 2020. He sought to vary the July 2020 orders as a mechanical as opposed to a substantive variation, or to pursuant to s79A of the Act.
Subsequently, the wife sought summary dismissal of the husband’s application, which was ultimately heard on 20 October 2021.
Counsel for the wife referred to my reasons for judgment of the wife’s application for summary dismissal, Tolarno & Tolarno at [84] and [87], as to the futility of the husband’s application to retain the 1 N property and his conduct.
As to the issue of which entity should be the registered proprietor of the 1 N property, the wife submits that prior to the hearing of the application for summary dismissal, the wife agreed with the husband’s proposal about the registered proprietor of the 1 N property. Despite that issue being resolved, the husband proceeded with an application to retain the property and pay the wife cash.
In his submissions in response, counsel for the husband submitted that there were two distinct phases of litigation subsequent to the final orders made in July 2020. The first phase was to enable the husband to extend the time for payment from October 2020 to December 2020. He required an additional two months to pay the settlement funds to the wife, which he did in December 2020. The wife was ultimately not prejudiced by the delay as she received an additional $52,000 or so interest as a result of the delayed payment.
The second phase of the litigation subsequent to the final orders, was the husband’s application for rectification of the orders and alternatively, an application pursuant to s 79A of the Act, which was filed on 15 December 2020, because he asserted that the July 2020 orders were unclear, unworkable and unyielding.
It was further submitted the husband’s conduct was not malicious and an application to the Court was required in any event, to rectify identified problems with the superannuation splitting orders, so that roll over relief could be obtained by the parties. The deficiency in the superannuation orders was first identified at paragraph 4.1 of the report of the husband’s expert, Mr BB, which is annexed to his affidavit of October 2021. That issue was ultimately rectified during the course of the costs hearing, by a slip rule amendment which was consented to by both parties.
Second 117(2A)(d) Whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court
From the wife’s perspective, the proceedings were necessitated by the husband’s failure to make payment by the due date and thereafter, his desire to revisit the final orders and retain 1 N.
The husband’s affidavit is replete with difficulties he faced obtaining finance to pay the wife, although he ultimately did so.
Section 117(2A)(e) whether a party to the proceedings has been wholly unsuccessful
There was no substantive dispute that the husband had been wholly unsuccessful. In the context of the orders made on 30 November 2021, it would be challenging to submit otherwise.
In his affidavit filed 25 February 2022, the husband accepts that he was unsuccessful in his application to retain 1 N and pay the wife cash in lieu, but despite the dismissal of his application, he submitted the issue of the slip rule rectification remained outstanding.
Section 117(2A)(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
As to an offer to compromise, counsel for the wife relied upon two letters comprising exhibit W-1 to the wife’s affidavit filed 4 February 2022. The first of those letters, dated 18 January 2021 contained a proposal for settlement whereby the wife would sign documents to transfer the 1 N property characterised as property of the self-managed superannuation fund, conditional upon the husband meeting the costs associated with the transfer, including the establishment of a self-managed superannuation fund in the wife’s name. The second letter dated 22 February 2021 reiterated the wife’s proposal set out in the letter of 18 January 2021, in the context of her not agreeing to an adjournment, as proposed by the husband.
Counsel for the husband submitted that the refusal of the offer to compromise should not be characterised as imprudent because the Order 5 of the July 2020 orders provided for the costs of transfer to be jointly shared by the parties, and the wife’s offer proposed that the husband should meet all costs. The husband’s refusal to compromise was therefore not unreasonable.
Section 117(2A)(g) any other matters the court considers relevant
The wife raised the following additional matters:
(a)significant detriment caused by the husband’s failure to comply with court orders including:
(i)costs incurred in responding to the husband’s application and enforcement of orders;
(ii)denied the benefit of ownership of the 1 N property;
(iii)the husband receiving income from 1 N from farming and livestock on the property, when she was entitled to receive the income as from July 2020;
(iv)depriving the wife of the use of the property which could have generated farming income for her.
The husband did not make any submissions relevant to this consideration.
DISCUSSION
I have considered the submissions of both counsel and conclude there are circumstances which warrant an order for the husband to pay the wife’s costs. I do so primarily for the following reasons:
(a)both parties have significant assets;
(b)notwithstanding the husband’s claimed cash flow problems, impecuniosity is no bar to an order for costs being made where it is otherwise warranted: Buckley & Buckley [2013] FamCAFC 150;
(c)although the husband’s application for an extension of time for payment was reasonable and the wife was adequately compensated by the payment of substantial interest, there was no legal basis for the application seeking to retain the 1 N property and pay the wife cash and the husband should not have pursued the application which was summarily dismissed (Tolarno & Tolarno);
(d)once the wife agreed to the registered proprietor of the 1 N property, in accordance with the husband’s expert advice, the husband should not have proceeded with his further application;
(e)the slip rule amendment, which was ultimately resolved by consent, could have been resolved by the parties without court intervention, as foreshadowed by both senior counsel during the summary dismissal application;
(f)the wife’s deprivation of the use and enjoyment of ownership of the 1 N property, including foregoing possible income from the property, because of the husband’s failure to transfer 1 N to her.
INDEMNITY COSTS
As I am satisfied that there are justifying circumstances for an order for costs, the outstanding issues are whether costs should be ordered on the usual party/party basis, or the exceptional indemnity basis.
The principles as to the basis on which indemnity costs should be ordered is set out by the Full Court in Worth & Worth (No.2) [2019] FamCAFC 126 (“Worth”), as follows:
9.The authorities are clear, that for the usual basis to be departed from, exceptional circumstances need to be demonstrated (see, eg, Limousin & Limousin (Costs) (2007) 38 FamLR 478). The categories of such circumstances are not closed (Yunghanns & Yunghanns (2000) FLC 93-029), but some examples are provided in the oft-quoted decision of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 (“Colgate-Palmolive Co”), and usefully, Holden CJ in Munday v Bowman (1997) FLC 92-784 at 84,660, drew from his Honour’s decision the following:
(a)Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts.
(b)Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud.
(c)Evidence of particular misconduct causing loss of time to the court and to other parties.
(d)The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
(e)An imprudent refusal of an offer to compromise.
In support of an order for indemnity costs, counsel for the wife relied upon two factors referred to in Worth, namely:
(a)where it appears an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success; and
(b)an imprudent refusal of an offer to compromise.
Counsel for the husband submitted that if the court determined a costs order should be made in favour of the wife, then the circumstances of the matter were not sufficiently out of the ordinary to warrant an order for indemnity costs.
Counsel for the wife submitted, as the wife’s application for summary dismissal was successful, it was self-evident that the proceedings should never have been commenced by the husband, and that those proceedings had no chance of success.
The husband’s position as to the necessity of his application is set out at [25]–[27] of these reasons. I have no difficulty with the reasonableness of phase one of the husband’s application, namely, an extension of time to pay the wife. There are obviously circumstances where a party requires additional time to pay a capital sum and an application for extension of time for payment, is unremarkable, and could not be properly categorised as having no chance of success. If that were the end of the matter, an order for indemnity costs could not be justified.
However, as to phase two, the husband’s conduct of filing an application seeking the wife bear costs of the rectification of title to the 1 N property and the costs of transfer, when the final orders provided otherwise, is a significant factor. As is his decision to abandon that application and seek alternate relief, namely the retention of the 1 N property and payment of a cash sum to the wife, particularly when she had agreed with the husband’s expert as to the correct entity to hold the title to the 1 N property.
I agree with the submission of counsel for the wife that the outcome of the wife’s application for summary dismissal, is self-evident that phase two of the proceeding had no chance of success.
As to the slip rule amendment as a justification for the proceedings, I accept both sides sought an amendment of the orders to enable rollover relief, and orders to that effect were made at the conclusion of the costs hearing.
The husband contented he was unable to agree to the wife’s proposed orders rectifying the problem because he no longer engaged the accountant the wife sought to appoint and that the wife was no longer a director of Tolarno Pty Ltd, as contemplated by the proposed orders. Neither argument was particularly compelling and was readily able to be addressed. It was regrettable that the parties were unable to resolve that issue prior to the costs hearing.
As to an imprudent refusal of an offer to compromise, with the benefit of hindsight, the preferable financial decision for the husband would have been to accept the wife’s offer of 18 January 2021, as the costs incurred subsequent to the settlement proposal, including the hearing of the summary dismissal application, far outweighed the costs which would have been incurred by the husband in acceding to the proposal. However, in the context of the protracted negotiations leading to the final property orders, it is understandable why the husband may have felt aggrieved to accept such a proposal when the wife herself was seeking to vary the final orders to improve her financial position, to the detriment of the husband.
In the Schedule of Costs annexed to her Outline of Case filed 28 February 2022, the wife sought $153,426.35 indemnity costs arising from the husband’s application filed 20 October 2020 and a further $11,065.75 for costs arising from her application for costs filed 24 December 2021; a total of $164,492. The quantum was calculated in accordance with a costs agreement annexed to the wife’s affidavit filed 4 February 2022. The quantum claimed, calculated according to scale was $100,206.75. The quantum claimed is less than that sought in the wife’s application filed 24 December 2021, where she sought costs of $192,028.21.
Whether the wife’s costs should be paid on an indemnity basis is finely balanced, however, after weighing up the submissions of both counsel and in particular considering the quantum of costs sought by the wife, which seems extravagant both pursuant to the costs agreement or calculated on scale, I am not satisfied that the circumstances warrant an order for indemnity costs.
Counsel for the wife submitted that if indemnity costs were not ordered, the court should consider a hybrid costs order: see Sfakianakis & Sfakianakis [2019] FamCAFC 54 (“Sfakianakis”).
In Sfakianakis, the Full Court said at [12]:
As the decision in Colgate -Palmolive Co v Cussons Pty Ltd (1936) 46 FCR 225 at 223–234 (“Colgate-Palmolive”) and the extensive authorities referred to in it make clear, the categories for the making of special costs orders are not closed and may be made whenever the particular facts and circumstances warrant it. That position is reflected in s 117(2) of the Act.
CONCLUSION
In this matter, I propose to make an order that the husband pay the wife’s costs of and incidental to the husband’s Initiating Application filed 20 October 2020, on a party/party basis on scale and I intend to order the husband to pay the wife’s counsel’s fees, including senior counsel and junior counsel’s fees as charged, rather than according to scale. It is clearly appropriate that the wife engaged senior counsel, as did the husband. That strikes the appropriate balance of costs which should be paid by the husband. In the event the costs the parties are unable to reach agreement as to quantum within 30 days, the costs be assessed by a Registrar and paid by the husband within 30 days of the assessment. The wife’s counsel’s fees are to be paid by the husband within 30 days of the orders.
I will make the appropriate orders.
I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Williams. Associate:
Dated: 24 March 2022
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