Vranic and Vranic and Ors (No 2)

[2011] FamCA 994

FAMILY COURT OF AUSTRALIA

VRANIC & VRANIC & ORS (NO 2) [2011] FamCA 994

FAMILY LAW – COSTS

APPLICANT: Ms Vranic

1st RESPONDENT: Mr Vranic

2nd RESPONDENT: Ms Muncic

3rd RESPONDENT: M Pty Ltd

4th RESPONDENT: Mr P

FILE NUMBER: SYF 6740 of 2002

DATE DELIVERED: 23 December 2011

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Ryan J

HEARING DATE: By way of written submissions

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Oliveri Attorneys

ADVOCATE FOR THE 1ST RESPONDENT: Self represented

ADVOCATE FOR THE 2ND RESPONDENT: Self represented

ADVOCATE FOR THE 3RD RESPONDENT: Self represented

SOLICITOR FOR THE 7TH RESPONDENT: Sally Nash & Co

Orders

1. That compliance by the wife with r 19.08(3) of the Family Law Rules 2004 is dispensed with.

2. That Ms Muncic and M Pty Ltd jointly pay the wife’s costs incurred in relation to the following applications:

   (a)The application filed by the second respondent on 20 September 2005 to be removed as a party;

   (b)The application filed by the second respondent on 25 October 2005 to review the Registrar’s decision made in relation to the application filed 20 September 2005;

   (c)The application filed by the second and third respondents on 26 April 2006 for summary dismissal and/or to be removed as parties;

   (d)In relation to the wife’s costs application which commenced on 22 January 2007.

3. That the quantum of costs payable pursuant to the above orders shall be assessed and calculated on an indemnity basis.

4. Interest on the amount assessed is payable at the applicable rate set out in the Family Law Rules 2004 commencing from 28 days after the costs have been assessed.

5. By way of enforcement the second respondent shall pay the amount due to the wife within 28 days of assessment (or agreement) whichever is the earlier.  In the event the second respondent fails to pay the entire amount due within the relevant period the balance outstanding is payable by the second and/or third respondent.

IT IS NOTED that publication of this judgment under the pseudonym Vranic & Vranic is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 6740 of 2002

Ms Vranic

Applicant

And

Mr Vranic

First Respondent

And

Ms Muncic

Second Respondent

And

M Pty Ltd

Third Respondent

And

Mr P

Seventh Respondent

REASONS FOR JUDGMENT

1. Before the Court is an application by Ms Vranic (“the wife”) that Ms Muncic (“the second respondent”) and Mitch Properties Pty Limited (“the third respondent”) pay costs incurred by her resisting their applications filed in 2006 for summary dismissal and to be removed as parties in s 79 of the Family Law Act 1975 (Cth) (“the Act”) proceedings. The second respondent was the sole director and shareholder of the third respondent. On the application of the wife they were joined as parties in the property settlement proceedings she commenced against her former husband, Mr Vranic (“the husband”).

Background Facts

1. The wife commenced property settlement proceedings when she filed her initiating application on 19 December 2002.  At that time the husband was the only other party.

2. On 19 August 2003, interim financial orders were made in favour of the wife.

3. On 3 December 2003, the wife filed an application to enforce the orders made on 19 August 2003.

4. On 23 December 2003, Rose J made further orders in favour of the wife.

5. On 12 August 2005, the wife filed an amended application for final property settlement orders to which she joined the second respondent.  According to the wife the husband had surreptitiously transferred matrimonial assets to the second respondent and, because those transactions were impugned in the property settlement proceedings, the second respondent was a necessary party.

6. On 20 September 2005, the second respondent filed an Application in a Case to be removed as a party.  The removal application was dismissed by a Registrar on 18 October 2005.

7. On 25 October 2005 the second respondent filed an Application in a Case to review the Registrar’s decision.

8. On 15 February 2006, the wife filed a further amended application to which she joined the third respondent.  According to the wife the husband and/or the second respondent had surreptitiously transferred matrimonial assets to the third respondent and, because those transactions were impugned in the property settlement proceedings, the third respondent was a necessary party.

9. On 26 April 2006, the second and third respondents filed an application for summary dismissal and, in the alternative to be removed as parties in relation to which they sought indemnity costs against the wife.

10. On 18 August 2006, the applications of the second and third respondents were heard by Cohen J.

11. On 22 September 2006, Cohen J delivered reasons for judgment and made orders which dismissed the second and third respondents’ applications.  His Honour reserved costs for one month.

12. The wife’s costs application was listed for hearing before Cohen J on 22 January 2007.  The wife and her lawyer appeared before his Honour.  The second and third respondents and their representatives did not.  Cohen J ordered that within 21 days the second and third respondents file affidavits which explained why they and those representing them failed to appear, why they and/or their lawyers should not pay the wife’s costs of that day and why the solicitors failed to file and serve Notices of Ceasing to Act.  The costs application was adjourned for further hearing on 19 March 2007.

13. On 19 March 2007, the wife’s application for costs was heard by Cohen J.  During the hearing counsel for the second and third respondents argued that Cohen J was functus officio and could not hear the costs application.  His Honour adjourned the hearing to take written submissions on that discrete issue.

14. On 7 May 2007, Cohen J delivered reasons in which his Honour determined that he was not functus officio.  The matter was adjourned, part heard before his Honour, to a date to be fixed.  His Honour directed that the parties provide any written submissions within seven days.  Written submissions were not filed.

15. That the proceedings were strongly contested and involved matters of complexity is evident by the number of days and duration over which the property settlement and associated matters were then heard by Cohen J.  In this regard judgment was reserved in early 2011.  Throughout this hearing the second and third respondents were represented by solicitor and counsel. 

16. In August 2009, the husband became bankrupt.

17. On 20 August 2010, Maxwell William Prentice as Trustee of the Property of Mr Vranic (“the Trustee”) filed a Bankruptcy – Notice of Appearance and on 25 August 2010, the Trustee filed an Application in a Case in which he sought leave to intervene in the s 79 proceedings.

18. On 25 October 2010, the Trustee of the husband’s bankrupt estate was joined as a respondent to the property settlement proceedings.

19. By consent of the Trustee of the husband’s bankrupt estate and the wife, on 9 February 2011, Cohen J made final property settlement orders.  In summary, the wife was declared entitled to receive 60% of the vested bankrupt property of the husband as a secured creditor.

20. On 3 March 2011, Cohen J published reasons and made orders and declarations which in effect declared that the third respondent held its interest in a property at North Rocks in trust for the husband.  The third respondent was ordered to transfer its interest in that property to the Trustee of the husband’s bankrupt estate.  Relevantly, his Honour ordered that “costs in the proceedings to date” be determined by the judge who makes final orders in the proceedings.  The effect of this order was that his Honour aborted the part heard costs application made by the wife against the second and third respondents. 

21. Upon his Honour’s retirement the proceedings were docketed to me.

22. On 10 June 2011, I ordered that within 42 days the wife file and serve written submissions in support of her application for costs against the second and third respondents, that within a further 21 days the second and third respondents file and serve written submissions in reply and that the wife file and serve written submissions in reply within a further 21 days.  I was informed that issues in relation to whether to further claw back matrimonial assets transferred by the husband to the second and third respondents were under consideration by the Trustee of the husband’s bankrupt estate.  Thus rather than have those matters addressed by this Court these would be dealt with by another court.  The point being that because pursuant to the property settlement orders the wife ranked a secured creditor, it was both cost effective and efficacious for those matters to be undertaken by the Trustee.  As a consequence the only remaining issues for this Court were the husband’s spousal maintenance applications and issues in relation to costs.

23. The wife’s costs submissions were filed on 15 July 2011.  No submissions have been received from the second or third respondent.

24. On 7 October 2011, the solicitor for the second and third respondents filed a Notice of Ceasing to Act.

25. Excluding the wife’s application for costs, on 6 December 2011, I made orders, inter alia, which dismissed all outstanding applications.

26. On 20 December 2010, a letter was sent to the parties which informed them that judgment in the wife’s application for costs against the second and third respondents would be delivered at 9.30 am on 23 December 2011.

Discussion

1. Section 117(1) of the Family Law Act (1975) (“the Act”) is the provision concerning costs and provides the general rule that that subject to s 117(2), s 117AA, s 117AB and s 118, each party to proceedings under the Act shall bear his or her own costs. The wife did not submit that s 117AA, s 117AB or s 118 is relevant. If there are circumstances that justify it in so doing, the Court may make such order for costs pursuant to s 117(2) as the Court considers just.

2. As will shortly be discussed, there is evidence that the second and third respondents were complicit with the husband in the transfer to them of matrimonial assets the purpose of which was to put assets beyond the wife’s (and potentially this Court’s) reach.  They were wholly unsuccessful before the Registrar and on review to be removed as parties and before Cohen J in their summary dismissal application.  Whether considered individually or together these matters constitute circumstances which justify an order for costs in the wife’s favour.  

3. In considering what order, if any, should be made, whether on a party/party or on an indemnity basis (as sought by the wife), in so far as they are relevant I am required to consider those matters set out in s 117(2A)(a)-(g) of the Act.

4. Subsection (a) is concerned with the parties’ financial circumstances.

5. The solicitor for the wife submitted that the husband, with the assistance of the second and third respondent, was in a “vastly superior” financial position to the wife.  It is not the financial position of the husband that is relevant but the financial position of the second and third respondents.

6. The current financial circumstances of the wife and the second and third respondents are not before the Court. In the last financial statement filed by the wife on 5 August 2008, she disclosed $1.7 million in assets and $1 million in liabilities.  The second respondent, in her financial statement filed 5 August 2008, disclosed $1.9 million in assets (including superannuation) and $1 million in liabilities. The third respondent is currently under external administration with a receiver and manager appointed.

7. It is clear from the reasons for judgment delivered by Cohen J that there have been significant movements of assets between the husband and the second and third respondents for apparently deceitful purposes.  For example, his Honour said at paragraphs 60-62 of his judgment dated 3 March 2011:

   [Counsel for the second and third respondent]’s argument that there is, in any event, a resulting trust in favour of [the third respondent] because it supplied the balance of the purchase price to the extent of that supply and or was liable for it after the initial payments were made by or behalf of the husband, would be valid if it was not contrary to the intention of those involved; [the third respondent] through [the second respondent] and the husband. In all the circumstances, I am satisfied on balance that the real intention of the husband and [the second respondent] on behalf of [the third respondent] was to create a situation where any failure of the husband’s companies or bankruptcy of the husband, which on the evidence of their interdependency and their financial tribulations was highly predictable, would not result in loss to the husband. It was also convenient for the husband in his s. 79 case against the wife. The land purchase occurred after separation. What was really intended was an asset stripping and money laundering or warehousing exercise with the intention to shift a sizeable fund from the seeming control of the husband or companies he owned to [the third respondent] to be held in trust for him.

   It is not the first time he has done this. On 12 September 2001 he transferred the former matrimonial home in Strathfield to the wife from Sibroll because Sibroll was in financial difficulties. Sibroll owed a Ms Masiglione $100,000 and $30,000 was owed by it for land tax. Savio acted on the transaction.

   I am quite satisfied I should regard the intention to create the trust in favour of the husband as ousting any creation of a resulting trust in favour of [the third respondent] because it was the immediate supplier of part of the purchase price. It is particularly enlightening that in 2004, after the wife had commenced s. 79 proceedings, [the third respondent] obtained further businesses of the husband, the trucking business and the Scaffolding business. Even his interest in land at Russell Island became valueless with the involvement of Mr Tucev who, in my opinion, not by coincidence, was the apparent operator of a business with a name which one would ordinary expect to be part of the husband’s empire because of its name, type of business activity and the fact that it, too, was one of the tenants of Sibroll which moved to North Rocks. Mr Tucev was not called by the husband and no explanation for not doing so was given. There was no documentary evidence relating to his alleged loan to the husband which the husband could produce. Yet, despite Mr. Tucev’s security over the land, the husband eventually sold it, obviously with Mr Tucev’s consent, and did not pay him back.

8. However, given the current position of the Trustee in relation to the bankrupt estate of the husband and the interrelationship of that to the second and third respondents, the second and third respondents’ financial circumstances cannot be adequately established.  While it may be that the wife’s financial circumstances are somewhat superior, this factor does warrant comparative weight.

9. Neither party is in receipt of a grant of legal aid (subsection (b)).

10. Subsection (c) invites consideration of the conduct of the parties to the proceedings, including but not limited to their conduct in relation to pleadings, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters.

11. In this respect, the solicitor for the wife submitted that the unrealistic position adopted by the second and third respondents throughout the proceedings, including their persistence with their applications to be removed as parties resulted in increased legal costs to the wife and considerable delay in the determination of her application for final orders. The solicitor for the wife referred to the substantial body of evidence filed by the wife and which is detailed in the reasons for judgment delivered by Cohen J on 22 September 2006 (particularly paragraphs 18 – 26).  The conduct of the second and third respondents was described by Cohen J in his reasons for judgment dated 3 March 2011, in which his Honour said (at paragraph 17 and 60):

    As must already be appreciated, the credit of the husband and the second respondent was at the heart of these proceedings. The wife’s credit was not the subject of any concerted challenge and is virtually irrelevant to the issue I must determine. As she did not have much specific knowledge of the business affairs of the husband or the other respondents, but challenged the truth of their cases, she was largely left to rely on the husband’s evidence in chief and cross-examination and such documents she could gain access to. These have been sufficient to satisfy me to a very high degree that the husband and [second respondent] have been complicit in a long standing attempt to deceive the Court and wife over the husband’s interest in or involvement with [third respondent] and the land at North Rocks and that the credit of both the husband and [second respondent] is so lacking I could not believe anything either said which is in issue, has been challenged and would otherwise assist their cases.

12. Cohen J also noted the poor conduct of the husband and the second respondent in his judgment dated 22 September 2006 at paragraph 27:

    …The facts so far relied upon by the wife with the inferences she seeks to make seem to be capable of establishing a prima facie case that all three respondents have been engaged in an agreement for the husband to obtain an equitable interest in property held in the name of the third respondent without the husband holding any indicia of the title which was likely to be revealed by diligent search on behalf of the wife. Any interest held by the husband in North Rocks would be amenable to non-disclosure by the husband in s 79 proceedings and has not been disclosed. The evidence relied on by the wife with the inferences from it prima facie is also capable, in the alternative or additionally, of showing that the husband has an interest in the third respondent which has not been disclosed. There is, in my view, sufficient evidence of a conspiracy by the three respondents to defraud the wife in relation to her s 79 claim against the husband for it to be reasonably arguable as being the actual situation. It does not matter in the application for summary dismissal and discharge of the second and third respondents that there could well be explanations provided and proven by them which refute the initial appearance of a conspiracy to defraud the wife by each of the respondents.

13. The solicitor for the wife submits in relation to this conduct:

    The conduct of the second and third respondents was designed to assist the husband in deceiving the Court and in hiding his assets from the wife…Although to some extent they failed in their design, it was at great expense to the wife and they did in any event, manage to frustrate the wife’s application for a fair property settlement and they effectively delayed the the (sic) final hearing for several years during which time the wife was struggling to make ends meet.  The wife was forced to bring up the child of the marriage without any assistance for the husband as the husband claimed impecuniosity and refused to pay any maintenance despite the outstanding orders so made

14. Suffice to say, the findings of the Court in relation to the conduct of the second and third respondents in this matter weighs heavily in favour of a costs order being made in favour of the wife.

15. Subsection (d) relates to whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the Court.  No issues arise in relation to this subsection.

16. Subsection (e) requires the Court to consider whether any party to the proceedings has been wholly unsuccessful.  As was correctly submitted on the wife’s behalf, the application of the second and third respondents to be removed as parties heard first by a Registrar and on review by Cohen J in 2006 was wholly unsuccessful.  As was their application for summary dismissal.  Individually these matters weigh heavily in favour of the wife.

1. Subsection (f) is concerned with offers to settle the proceedings and the terms of any such offer.  There is no evidence of offers having been made.

2. There are no other relevant matters.

3. As I have already noted, the wife seeks an order for costs on an indemnity basis.  The Full Court of the Family Court in Kohan and Kohan (1993) FLC 92-340 said this of indemnity costs (at 79,614):

   The intent of s 117(1) and 117(2) is that in this jurisdiction costs should not follow the event as a matter of course. However, where the justice of the matter so requires, the court may make such order as the court considers just. As we have pointed out, the court may depart from the scale of costs prescribed under the Rules. However, the purpose of fixing a scale of costs must be understood to signify that they contain the normal rates of charges …

   Consequently, the court should not depart lightly from the ordinary rules relating to costs between party and party and the circumstances justifying the departure should be of an exceptional kind.

   …

   Indemnity costs orders are still an exception in this and other jurisdictions.  (citations omitted)

4. In Colgate-Palmolive v Cussons, Sheppard J identified circumstances where the exercise of discretion to award costs on an indemnity basis have been warranted, which included (at 234):

   ….the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud…; evidence of particular misconduct that causes loss of time to the court and to other parties..; the fact that the proceedings were commenced or continued for some ulterior motive…or in wilful disregard of known facts or clearly established in law …; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; an imprudent refusal of an offer to compromise … and an award of costs on an indemnity basis against a contemnor.

5. Sheppard J (at 234) went on to say that “[t]he question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.”

6. In Yunghanns (2000) FLC 93-029, the Full Court of the Family Court referred with approval to the decision in Colgate-Palmolive v Cussons and went on to say that “the categories of circumstances which enliven the discretion to award indemnity costs are not closed”.

7. The principles referred to in the cases discussed above apply to this case.

Conclusion

1. In this matter, Cohen J found that the conduct of the second and third respondents, prima facie, appeared to be tantamount to “conspiracy to defraud” and “deceit” of the wife and the Court.  This conduct significantly contributed to the frustration of the wife’s application for property settlement orders and significantly added to her legal expenses. This case clearly involves circumstances of an “exceptional kind”, as referred to in Kohan and the other authorities discussed above. Therefore in addition to finding that the circumstances of this case justify the making of an order for costs in favour of the wife I am strongly satisfied that the conduct of the second and third respondents, as well as their being wholly unsuccessful, warrant the making of a costs order in her favour on an indemnity basis; as assessed. 

2. In coming to this decision I have taken into account that the Court has not been informed if the wife is bound by a costs agreement. It is reasonable to infer that she is. It follows that I do not have evidence of the terms of the costs agreement, either with her solicitor or senior counsel who appeared on her behalf. While in some cases non compliance with r 19.08(3) might be fatal to an application for indemnity costs I am satisfied that this is such an exceptional case that it is appropriate to dispense with compliance by the wife with that rule. In this regard it is noteworthy that the second and third respondents did not complain about noncompliance.

3. The wife seeks that the second and third respondents be made jointly liable to pay her entire costs.  Given the nexus between the second and third respondents I agree this is appropriate.  In terms of the mechanics of securing compliance, because the third respondent is in external administration it would seem that the quickest method of achieving compliance is for recourse to first be had to the second respondent and, in the event of a shortfall then to the third respondent.  So that it is clear these latter comments relate to matters of enforcement and, in the event the wife prefers to take an alternate enforcement route, this is available. 

4. Although the second and third respondents did not concede the wife’s application for costs, they twice failed to file written submissions when ordered.  Combined with the matters discussed above an order that they pay the wife’s indemnity costs in relation to her costs application is justified.

5. For these reasons I make the orders identified at the start of this judgment.

I certify that the preceding fifty five (55) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Ryan delivered on 23 December 2011.

Associate:      S Mills

Date:              23 December 2011