W Companies and George and Anor

[2015] FamCA 31

FAMILY COURT OF AUSTRALIA

W COMPANIES & GEORGE AND ANOR [2015] FamCA 31

FAMILY LAW – COSTS – Where the husband’s application that the wife pay his costs is dismissed – Where the third party applicants (six companies) seek the wife pay their costs of compliance with subpoenas issued to each of them – Where it is found that the legal costs incurred by the applicants were appropriate – Order made that the wife pay the applicants’ compliance costs

Family Law Act 1975 (Cth)

Family Law Rules 2004

Moriarty and Moriarty 41 [2009] Fam LR 336

APPLICANT: W Companies

RESPONDENT: Ms George

RESPONDENT: Mr George

FILE NUMBER: SYC 7612 of 2011

DATE DELIVERED: 27 January 2015

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 23 May 2014

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Bartier Perry Lawyers

COUNSEL FOR THE RESPONDENT: Mr Batey

SOLICITOR FOR THE RESPONDENT: York Family Law

COUNSEL FOR THE RESPONDENT: Mr Richards

SOLICITOR FOR THE RESPONDENT: Clinch Long Letherbarrow

Orders

1. The husband’s oral application that the wife pay his costs in relation to this application be dismissed.

2. It is noted that the following entities collectively seek an order that the wife pay their costs of compliance with the subpoenas issued on 16 January 2013:

   2.1.V1 Pty Limited (ABN …);

   2.2.V2 Pty Limited (ABN …);

   2.3.V3 Pty Limited (ABN …);

   2.4.W Pty Limited (ABN …);

   2.5.N Pty Limited (ABN …); and

   2.6.N Pty Limited as trustee for N Trust (ABN …),

   (collectively “W Companies”)

3. The wife pay the W Companies the costs of compliance with subpoenas issued on 16 January 2013 in the total sum of $15,926.00.

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 7612 of 2011

W Companies
Applicant

And

Ms George

Respondent

And

Mr George

Respondent

REASONS FOR JUDGMENT

1. The applicants are six companies, namely:

   1.1.V1 Pty Limited (ABN …);

   1.2.V2 Pty Limited (ABN …);

   1.3.V3 Pty Limited (ABN …);

   1.4.W Pty Limited (ABN …);

   1.5.N Pty Limited (ABN …); and

   1.6.N Pty Limited as trustee for N Trust (ABN …)

   (collectively the “W Companies”).

2. On 2 August 2013 the W Companies appeared on the return date of the subpoenas (in accordance with rule 15.26(1)(c) Family Law Rules 2004 (“the Rules”). The court made an order granting leave to the W Companies to bring an application in relation to compliance costs in respect of subpoenas.

3. On that same day an order was made that the wife pay the companies the costs of the proceedings that were dealt with on that day. The companies have taken steps to have those costs fixed by the process provided in the Rules.

4. The issue of any adjustment in respect of that costs order as between the husband and wife was reserved and is dealt with in the separate reasons for judgment in respect of the proceedings between the husband and the wife that have been published today.

5. By way of Application in a Case filed 12 March 2014, the W Companies seek a costs order against the wife for compliance with subpoenas issued on 16 January 2013 in the sum of $17,209.43. That amount was amended during oral submissions to a sum of $15,926.

6. The wife, in a Response in an Application to a Case filed 24 April 2014, sought an order dismissing the application by the W Companies, and in the alternative sought that the husband pay the costs for compliance and that the W Companies pay the wife’s costs in relation to this current application.

7. The applicants relied upon an affidavit by Mr Stuart filed 12 March 2014 and paragraphs 8 to 19 of a further affidavit filed by Mr Stuart on 23 May 2014.

8. The wife relied upon parts of a voluminous affidavit filed by her on 24 April 2014. Much of that affidavit deals with communication between the husband and wife which is not of any relevance to this application. I was invited by counsel for the wife to read the affidavit with a view to assessing the extent to which the wife sought to minimise the trouble to which the W Companies were put by the wife’s request for the provision of financial information about the operations of those companies.

9. The husband’s final position in submissions was that he did not seek to take any active part in the hearing of this application (notwithstanding the fact that any quantification of compliance costs may eventually be wholly or partly the husband’s responsibility depending upon the outcome of the issue of any adjustment between he and the wife in respect of compliance costs generally). The husband at the end of the hearing however, did seek costs of the day against the wife on the basis that order 2 sought in the wife’s Response filed 24 April 2014 was that the husband pay compliance costs if they were ordered against the wife. All parties agreed that order 2 as sought in the wife’s response had been dealt with during the final hearing. The husband’s position at the outset of this hearing was that he wanted an adjournment application. The husband will be affected by the outcome of this application but chose not to participate during submissions. It would not be just to grant the husband’s costs of the day against the wife in these proceedings and I dismiss the husband’s application that the wife pay his costs in respect of this application.

10. Section 123(1) Family Law Act 1975 (Cth) (“the Act”) allows the judges or a majority of them to make Rules of Court and in particular, ss 123(1)(g) of the Act allows the rules to prescribe matters relating to the costs of proceedings.

11. Rule 15.23(3) of the Rules is in the following terms:

    A named person [who is the recipient of a subpoena] may apply to be reimbursed if the named person incurs a substantial loss or expense that is greater than the amount of the conduct money or witness fee payable under this rule.

12. Counsel for the wife submitted that the provisions of s 117 of the Act apply in this case. Section 117(1) of the Act is in the following terms:

    (1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 118, each party to proceedings under this Act shall bear his or her own costs.

13. Counsel for the wife argues that the third party recipients of subpoenas had sought an order for reimbursement of their costs of compliance by filing an Application in a Case and as such, had become parties to proceedings as that expression is used in s 117 of the Act.

14. “Proceedings” is defined in s 4 of the Act as:

    “proceedings” means a procedure in a court, whether between parties or not, and includes cross proceedings or an incidental proceeding in the course of or in connection with the proceedings.

15. It is clear that what I have before me is a proceeding, but as the definition of “proceedings” makes clear, proceedings can be between a party and a non-party. In my view, the third party recipient of a subpoena who seeks compliance costs is not a party to the proceedings within the definition of s 117(1) of the Act and as a result, the provisions of s 117 of the Act are not strictly applicable to this application. Section 117(2) and s 117(2A) of the Act, however, provide useful guidance as to how to approach the exercise of discretion in this case.

16. I should emphasise at the outset that this application is not about whether or not it was probable that had the husband taken a more active role in obtaining documents for the single expert in this case from companies with whom he had a close association, costs would have been ameliorated. That is an issue between the husband and wife, with which I have dealt in the reasons for judgment in the substantive proceedings. Rather, this is a case about whether or not a third party who has been put to particular trouble and expense in litigation in which they have no stakeholding, should be appropriately reimbursed.

17. The quantum claimed by the W Companies is partially for legal fees paid to their own lawyers to advise them in relation to how to proceed in respect of the subpoenas issued by the wife, orders that had been made by the court, and partly a quantification of the costs of employees of the companies to carry out the necessary tasks in order to make the information and documents available.

18. The applicant quantifies the sum of $15,926 in the following manner:

    The [W] Companies’ costs of compliance with the subpoenas in the sum of $15,926 is comprised of the following:

    a)Legal costs of $9,359.43, including those related to:

    1.    Correspondence between Bartier Perry and the [W] Companies regarding the subpoenas immediately after service, including preparing to file a notice of opposition, and negotiation as to partial compliance with the subpoenas, in the amount of $6,600 (incl GST). The costs of Bartier Perry in the sum of $6,600 can be broken down as follows:

    ·157 one minute units for Denise Wright, Executive Lawyer (at the rate of $572.00 per hour including consideration of the subpoenas, reviewing correspondence to York Family Law regarding the scope of the subpoenas and considering action required.

    ·434 one minute units by  Stuart Hughes, Associate (at the rate of $451.00 per hour including GST) for tasks including consideration of the subpoenas, emails to and from the [W] Companies regarding the subpoenas and seeking instructions, correspondence and telephone calls with York Family Law regarding the scope of the subpoenas and proposals for compliance with the subpoenas.

    ·120 one minute units by Chris McCaffery, Consultant (at the rate of $572.00 per hour including GST) for tasks including correspondence with the [W] Companies and taking instructions regarding the subpoenas.

    ·40 one minute units by David Creais, Executive Lawyer (at the rate of $572.00 per hour including GST) for tasks including reviewing correspondence to York Family Law regarding the subpoenas.

    ·198 one minute units by Gavin Stuart, Executive Lawyer (at the rate of $572.00 per hour including GST) for tasks including considering the subpoenas, taking instructions from the [W] Companies, directing action to be taking, reviewing correspondence to and from York Family Law and drafting confidentiality agreement.

    ·99 one minute units by Monica Allen, Associate (at the rate of $451.00 per hour including GST) for tasks including correspondence with York Family Law and client, and drafting application to set aside subpoenas.

    2.    Costs of the agreement and the ongoing partial compliance with the subpoenas in the amount of $2,759.43 (incl GST).

    The [W] Companies’ costs of partial compliance with the subpoenas as required by the Court’s orders, in the amount of $7,850.00 as follows:

    ·[Mr QQ], Consultant, 2 days at $1,800/day - $3,600

    ·[Mr RR], Accountant, 4 days and 2 hours at $698.08/hour - $2,967

19. The overall claim is therefore in the sum of $15,926 ($6,600 + $2,759 + $3,600 + $2,967).

20. The actual work done by the employees of the company, Mr QQ and Mr RR is summarised in paragraphs 8 to 19 of Mr Stuart’s affidavit filed 23 May 2014:

    Compliance with the subpoena

    8.    The agreement as reflected in the orders required the [W] Companies to engage with the expert as its premises and incur the cost and expense of that time during which Mr [QQ] and Mr [RR] could not perform their usual duties.

    9.    I am instructed that during the day to day course of his employment, Mr [QQ], as General Manager of V3 Pty Limited, is responsible for the management of relationships with customers of the W Companies, and has 26 people who report directly to him. Mr [QQ] is also responsible for managing the turnover of the [W] Companies.

    10.  I am informed that during the day to day course of his employment, Mr [RR], as Group Accountant for the [W] Companies, manages the finance team who are responsible for the financial aspects of the [W] Companies, including dealing with debtors and creditors. Mr [RR] is also responsible for other tasks including the preparation of monthly reports and resolving tax issues.

    11.  In the usual course of his employment, Mr [QQ] charges [V3 Pty Ltd] the sum of $1,800 per day for his consultancy services.

    12.  Mr [RR’s] rate of $1,000.00 per day as previously claimed has been calculated incorrectly. The correct rate for Mr [RR] is in fact $698.08 per day, based on a percentage of his salary. Accordingly, the amount claimed in relation to Mr [RR’s] involvement ought to be $2966.84.

    13.  I am instructed that throughout the course of complying with the subpoenas, Mr [QQ] and Mr [RR] were required to respond to a number of requests for documents and information made by the single expert, Ms [KK].

    14.  The inability of the parties to agree on the terms of Ms [KK’s] attendance at [W Pty Ltd] on 4 April 2013 put the [W] Companies to the further expense of instructing Bartier Perry to follow up the arrangements.

    15.  In the course of their further correspondence with the single expert, the [W] Companies were also put to the expense of instructing Bartier Perry to clarify matters regarding the documents produced pursuant to the subpoenas.

    Documents produced by [W] Companies

    16.  I am instructed that the documents produced under subpoena by the [W] Companies were not all readily accessible to the [W] Companies, and were either stored in archived discs or in an electronic database.

    17.  As described in the letter from Bartier Perry to York Family Law Dated 22 April 2014 (which appears at annexure G of  my affidavit of 28 February 2014), Mr [QQ] and Mr [RR] had to firstly identify which documents were relevant and then locate the relevant documents so they could be collated and prepared for production.

    18.  I am also instructed that a number of the documents sought pursuant to the subpoenas were stored on a MYOB system. I am instructed that the MYOB system only stores documents for a period of two years and that any document sought which relate to any prior period requires the MYOB system to be “re-booted” with the older information.

    19.  I am instructed that in order for the [W] Companies to access documents from a prior period, they had to retrieve archived discs, set up a new instance of MYOB, and then re-load the software and data. This was a time consuming process.

21. I accept the submissions of the applicant that this was not a case where it was simply a matter of the company producing documents. There was an involvement between the wife on the one hand, and the companies on the other, over a lengthy period. Pages 358 through to 365 of the wife’s affidavit filed 24 April 2014 details documents produced by the companies.

22. Counsel for the wife invited the court as an exercise of overall discretion, to simply dismiss the applicant’s application on the basis that it was just part of the natural process of the administration of justice and relied upon comments made by Cronin J in Moriarty and Moriarty 41 [2009] Fam LR 336. Although counsel for the wife does not specifically refer to any particular part of that judgment, Cronin J relevantly makes the following comments at paragraphs 51 through to 56:

    51.  There may be a tendency to focus on the claims of a professional person whose profits are determined by time. However, the same issue would arise for a bobcat driver who contracts out at an hourly rate or a consultant who charges on either a time billing or value billing basis or for a police officer whose department takes him “off line” so that documents can be collated and brought to court. These claims are often based upon time lost in responding to a subpoena.

    52.  In Deposit & Investment Co Ltd (Receivers Appointed) and Others v Peat Marwick Mitchell & Co (1996) NSWLR 267, Bainton J (at 292-293) said the income of a firm of solicitors in any period must first meet its fixed and its variable costs. Anything that remains was divisible among the partners. His Honour pointed out that if a non-professional employee devoted time to searching for documents to answer a subpoena, it was an additional cost which must be met and should be recompensed. If a partner was required to perform such a task, that did not increase the expense to the partnership but it did reduce the income. His Honour was of the view that the effect on the bottom line was the same in principle, though not in amount, because the partner's charge-out rate would exceed an employed solicitor's charge-out rate. His Honour said that that may be overcome by that partner working longer hours, but if that occurred, the end result was that the firm had lost the financial benefit of those longer hours by having the partner’s ordinary working hours rendered in fact non‑income producing by having to search for documents to answer a subpoena.

    53.  Bainton J held that if a firm was required to answer a subpoena, it was entitled to be reimbursed in respect of a partner's time spent on that task at the ordinary charge-out rate. If the work was done by an employed solicitor, the reimbursement should be at that solicitor's charge-out rate provided the partner or employee would be otherwise devoting that time to chargeable work.

    54.  There are three reasons why that principle should not apply to a professional person who receives a subpoena from this Court. The first is that there is nothing in the rules nor should there be that gives any profession or business sector a right to claim expenses based upon their respective scales or charges. It is inappropriate for a court to look at those scales as anything more than a guide. For example, a solicitor who charged their client based upon a costs agreement would be seeking indemnity costs if not more, as in this case, if the court simply gave them what was sought.

    55.  The second reason is that even if a court considered the scale or charge-out rate, is it the loss to the recipient or the firm that is to be compensated? What does a court factor into its deliberations for overhead expenses, taxation and the like? It becomes a difficult and unwieldy task.

    56.  The third reason is that the subpoena process is an integral part of the administration of justice. If we are to enjoy the benefits of a justice system, the community must be prepared to bear that cost to some degree. For example, Bainton J referred to a legal firm losing the financial benefit of a partner or employee’s longer hours by non-income producing activity. The same could be said of the bobcat driver who has to work a little longer to make up for the time lost in collating and dealing with the subpoena. In my view, that is a facet of community responsibility.

23. Counsel for the wife conceded that the part of the applicants’ claim that relates to amounts they have paid to their own lawyers to seek advice about the subpoenas in the sum of $9,359 ($6,600 + $2,759) is not an amount in relation to which the applicants, as the recipients of the subpoenas, have made any profit.

24. The balance of the applicants’ claim is based upon the usual charge-out rates of Mr QQ and Mr RR.

25. In the proceedings between the husband and wife (although the matter was finally the subject of agreement) on 13 November 2013, the wife had filed an affidavit by Ms KK, a single expert who had carried out a valuation in relation to the interest of the husband and wife in the W Companies. The wife in these proceedings did not seek to rely upon any of the evidence in that affidavit to establish that the companies operated at a particular profit ratio of income in excess of expenses. In those circumstances, it is unsafe in this case for me to assume that the charge-out rates of Mr QQ and Mr RR represent anything other than what the company requires by way of income to pay their remuneration which is an expense to the company. I am unable to find the company is making a profit by claiming the charge-out rate they have in relation to Mr QQ and Mr RR.

26. Cronin J in Moriarty at [59] – [62] said:

    58.  The determination of what is substantial is very subjective. In my view, it means that the expense must be large causing loss; it must be unusual in the sense of requiring normal activity to be stopped; or it must cause an unfair inconvenience having regard to the fact that the recipient has nothing to do with the litigation.

    59.  Assessment of the reasonableness of burdens involved in complying with a subpoena must take account the capacity of a party to collect and produce the documents. That means that in a large organization, the capacity to cover the expense is greater than in a small organization (see Lucas Industries v Hewitt (1978) 18 ALR 555 and G and D & D (2005) FamCA 1429).

    60.  Notwithstanding the administration of justice issue, the rules are not intended to put the individual presenting the documents in a position where they lose income or capital. The rule however refers to a substantial expense and each situation must be determined on its peculiar facts.

    61.  However, if the subpoena is simple and clear, requiring the production of the recipient’s own documents, the inconvenience is intended and expected to be minimal.

    62.  Thus, in a case where a professional fee is claimed or the bobcat driver claims significant hours of “downtime”, the question still remains whether the finding, collecting, collating, marshalling and producing the documents or materials required the attention of the owner, partner or professional or whether it could be done by a clerical person albeit with some ownership or professional oversight. It is that question that the judicial officer has to ask in every case.

1. I find that legal costs incurred by the applicants were appropriate given the width and scope of the subpoenas, as initially served upon the applicants. I take into account the description provided in paragraphs 8 to 19 of Mr Stuart’s affidavit filed 23 May 2014 (set out above) as to what the companies had to do to comply with the subpoenas. I find that the initial subpoenas were not simple and clear and that the finding, collecting, collating, marshalling and production of the documents and materials was a substantial exercise leading to a substantial loss or expense on behalf of the companies.

2. The second of the wife’s submissions relied upon the overall proposition that she had attempted to minimise the costs of production of documents and a broad submission that the applicant incurred unnecessary costs in complying with her requests. Counsel for the wife referred to a number of annexures to Mr Stuart’s affidavit which was said to be supportive of this proposition. I find that they provide little, if any, support for the submission made. In fact, annexure A to Mr Stuart’s affidavit filed 12 March 2014 raises at the outset the difficulty with the width and scope of the subpoenas. It is true that the applicants and the wife reached a compromise which potentially limited the amount of work that the companies would have had to have done had they complied with the initial subpoenas, but the costs for compliance that the applicants seek relates to the actual work they ended up doing under that compromised agreement.

3. Apart from a general statement by counsel for the wife that the companies had in some way incurred unnecessary costs, counsel for the wife did not point to any specific part of the applicant’s claim that would underpin such a finding.

4. Rather, a submission was made that I would:

   ....unfortunately have to wade through much of the correspondence in respect of whether or not the applicant in this case was making a reasonable attempt to comply with the subpoena or was just, what we would submit, just running up costs.  

5. There is nothing I have read that would indicate the applicants were “just running up costs”.

6. The wife did not submit that there had been some collusion between the applicant and the husband that would disentitle the applicant from the orders that they sought.

7. Having read the relevant evidence to which I have been referred, there is nothing which would disentitle the applicants to an order against the wife for compliance costs.

8. When considering the exercise of discretion, the list of matters contained in s 117(2A) of the Act is a useful reference. The financial circumstances of the wife are set out in the reasons for judgment, published this day, relating to property settlement between the wife and the husband. I am generally aware of the overall value of the applicants given my knowledge of the interests of the husband and wife in the W Companies (having regard to the fact that the valuation of their interest in the companies has been discounted by 40 per cent given their minority shareholding in the companies). There is no suggestion that either the applicant or the wife is in receipt of legal aid. The applicants conduct has not been inappropriate nor have the applicants failed to comply with any order. This is not a case where there has been any litigation between the applicant and the wife that would lead to a conclusion that one or other has been wholly unsuccessful in the proceedings. Whilst there has been an offer by the wife in an attempt to resolve the issue of the quantum of compliance costs, the offer made was for $3,000 inclusive of the costs order that had been made on 2 August 2013. I infer this offer would give the companies no or minimal compensation in relation to their costs for compliance. There are no other matters of any relevance.

9. The W Companies are entitled to an order that the wife pay them compliance costs in the sum of $15,926. 

I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 27 January 2015

Associate:   

Date:  27.1.2015