Watton and Smart (Costs)
[2014] FCCA 2826
•5 December 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| WATTON & SMART (COSTS) | [2014] FCCA 2826 |
| Catchwords: FAMILY LAW – Costs – costs incurred by the parties comparable to the quantum of funds in dispute – offers made early in the proceedings when valuations and disclosure incomplete – no significant negotiation between parties – neither party wholly successful or unsuccessful – application for costs by one party not considered when made by that party significantly later than ordered – parties not focused on resolution – no order as to costs made. |
| Legislation: Family Law Act 1975, ss.10F, 12A, 12E, 60I, 75(2), 81, 90ST, 117 Federal Circuit Court Rules2001, rr.1.03, 4.04(1), pts. 14, 24 |
| Tate & Tate [2000] FamCA 1040 Donoghue v Stevenson [1932] All ER Rep 1 Thompson & Berg [2014] FamCAFC 73 Haset Sali v SPC Ltd [1993] HCA 47 Aon Risk Services & ANU [2009] HCA 27 Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46 Weir & Weir [1993] FLC 92-338 Black & Kellner [1992] FLC 92-287 Penfold v Penfold (1980) 144 CLR 311 Re JJT & Ors; Ex Parte Victoria Legal Aid [1998] FLC 92-812 Lennon & Lennon (Costs) [2012] FamCA 116 Browne & Green (2002) FLC 93-115 Davida & Davida (Costs) [2011] FamCAFC 61 Peake & Benedict (Costs) [2014] FCCA 2723 Prantage & Prantage [2013] FamCAFC 105 Bryant v Hawkesbury Radio Communication Co-operative Society Limited [2014] NSWSC 848 Ken Tugrul v Tarrants Financial Consultants Pty Ltd (No.5) [2014] NSWSC 437 Setka v Abbott [2013] VSCA 345 Yara Australia P/L v Oswal [2013] VSCA 337 | ||
| Applicant: | MR WATTON | |
| Respondent: | MS SMART |
| File Number: | PAC 3966 of 2010 |
| Judgment of: | Judge Harman |
| Hearing date: | 26 November 2014 |
| Date of Last Submission: | 26 November 2014 |
| Delivered at: | Parramatta |
| Delivered on: | 5 December 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Calokerinos |
| Solicitors for the Applicant: | Antwan Lawyers |
| Solicitors for the Respondent: | Mr Kirby as agent for Lewarne & Goldsmith |
ORDERS
Dismiss the Application in a Case filed 30 October 2014.
Dismiss the Response to an Application in a Case filed 20 November 2014.
Each party shall pay their own costs of and incidental to the determination of all present and past applications.
Remove all issues from the list of cases awaiting hearing.
IT IS NOTED that publication of this judgment under the pseudonym Watton & Smart (Costs) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PARRAMATTA |
PAC 3966 of 2010
| MR WATTON |
Applicant
And
| MS SMART |
Respondent
REASONS FOR JUDGMENT
The proceedings
The parties to these proceedings are no strangers to litigation before this Court.
As recently as 3 October 2014 the parties concluded proceedings before this Court with respect to property adjustment, child support and parenting.
Those proceedings had been commenced by an Application filed 15 October 2010 and the parties thus conducted their litigation over a period falling a few days short of four years.
The history of the conduct of the past proceedings was addressed at some length in the Reasons for Judgment delivered 3 October 2014 (commencing paragraph 18) and I do not propose to repeat it herein.
At the conclusion of the above proceedings a lengthy judgment was delivered and final orders made concluding all then extant controversies.
The proceedings have returned to the Court on this occasion to deal with an Application for Costs made by the husband.
Orders and directions as to costs
At the conclusion of the substantive proceedings it was anticipated that one party or the other (or both) might seek to make and press an Application for Costs. Costs had been reserved with respect to a prior adjournment of the hearing of the proceedings and the address of an interlocutory application.
On the day that judgment was delivered in written form the parties were invited to make submissions with respect to any costs which they sought to press. Neither party was in a position to do so and sought an opportunity to make further submissions on a subsequent date.
Procedural orders with respect to costs were made as follows:
24. In the event that either party shall seek to press an application with respect to costs (including but not limited to costs reserved at the conclusion of the interim proceedings) then a written minute of orders sought and outline of submissions in support of the relief sought shall be filed and served no later than close of business 31 October 2014.
25. Any application for costs not made within the above timeframe will be dismissed and any application for costs (as previously reserved or otherwise) shall be then deemed abandoned and dismissed for want of prosecution.
26. In the event that an application for costs is made then any submissions in response thereto shall be made in writing and filed and served no later than close of business 21 November 2014.
27. In the event that an order for costs is sought it shall specify the particular quantum of costs sought and the basis for calculation of those costs.
An Application for Costs is made by the husband by an Application in a Case filed 30 October 2014. That application is supported by both an Affidavit of the husband’s attorney and written submissions.
No Application for Costs is made accordance with the above directions by the wife. A Response to the Application in a Case has been filed and a substantial Affidavit has been filed.
The Response opposes the relief sought by the husband (seeking dismissal of the Application in a Case) and purports to then make and advance, on behalf of the wife, an Application for Costs. The wife seeks a number of orders in the alternative with respect to costs.
Each party, to some extent, purports to make an application for indemnity costs. The husband seeks that the wife pay an amount equal to 75% of “the costs in fact incurred by the husband” from 5 May 2011 until the conclusion of proceedings together with costs (whether indemnity or party-party) relating to the Application in a Case.
The wife seeks an order that the husband pay her costs on an indemnity basis for the period from 2 August 2010 until the conclusion of the proceedings or, in the alternative, the wife’s costs with respect to property adjustment (noting the proceedings were also listed for hearing to deal with issues of child support departure and parenting) from 27 November 2013 until conclusion or, again in the alternative, that costs be paid with respect to the determination of an interlocutory application previously made by the husband and dismissed.
The standing of the wife’s application
Clear and specific orders were made 3 October 2014 as to the timeframe for each party to make any application for costs. Each of the parties, to varying degrees, would appear to have disregarded those orders.
As was observed by the plurality comprising the Full Court in Tate & Tate [2000] FamCA 1040:
74. The interlocutory orders made by the trial Judge by way of case management, were no less orders of the Court. There were entitled to full and punctilious obedience. This Court has a duty to order its business with justice according to law. The Rules of Court are there to assist in the fair and timely preparation of matters for expeditious trial. Litigants in such matters also have the duty of full and frank – and we would add prompt – disclosure of relevant financial matters. Against that background the trial Judge’s specific orders achieved an even greater potency. They did not have to be expressed as “unless” or “guillotine” orders: they were interlocutory orders of a judge of a superior court of record [or the Federal Circuit Court] and to be obeyed as such according to their terms, which included specific times for performance.
75. It is not for litigants, appearing in person or otherwise, to pick and choose which orders they will or will not obey, or when they may condescend to comply with them. Such an attitude, amply evidenced in this matter, if adopted, brings its own nemesis. That is not only because it is contemptuous of the Court’s orders. It is also because it works injustice to the parties who do comply, and unfairness to that myriad of litigants waiting to have their matters despatched as soon as the Court can hear them. The luxury of procrastination – let alone deliberate disobedience – is a luxury of the past if it ever existed.
In the case of the husband an Application in a Case has been filed rather than simply a Minute of Orders. I am not critical of the husband for this. Indeed, it is entirely appropriate that a written application is filed specifying the orders to be sought. However, orders and directions were made on the basis that each party had, by their Application or Response, sought an order for costs and thus an “application” was already extant before the Court.
The husband’s application has not, as was directed, specified the quantum of costs sought by him or the method of calculation of such costs. The husband has, however, sought an order which is clear, specific and capable of understanding albeit, if successful, requiring assessment.
Importantly, the application made by the husband (together with his written material in support thereof) is filed within the timeframe fixed.
The wife did not, by the 31 October 2014, make any Application for Costs or file submissions in support of costs as sought or previously reserved. The orders made 3 October 2014 were clear and specific and, I am satisfied, not capable of misunderstanding nor open to interpretation. Indeed, some tacit corroboration of that proposition is given by the wife’s compliance with the order for the filing of a Response which was filed within the timeframe fixed.
I am conscious that rule 4.04(1) of the Federal Circuit Court Rules2001 might be argued by the wife to suggest that her Application for Costs (as contained in the Response to an Application in a Case filed by her) is properly before the Court. That rule provides:
Content of response
(1) A response may:
(a) indicate consent to an order sought by the applicant; or
(b) ask the Court to make another order; or
(c) ask the Court to dismiss the application; or
(d) seek orders in a matter other than the matter set out in the application; or
(e) make a cross‑claim against the applicant, or another party.
I am not satisfied that it is open to the wife to rely upon the above rule such as to place her Application for Costs before the Court contrary to the orders and directions made 3 October 2014.
It was argued by counsel for the husband that the wife’s Response, in its totality, should be disregarded and such that the husband’s application was, in effect, “undefended”. I reject that submission. The wife has filed a Response within the timeframe that was fixed. She is, accordingly, entitled to have considered that which she has placed before the Court in response and opposition to the husband’s position.
I do not propose to formally consider the wife’s Application for Costs as set out at paragraphs 3 – 5 of the Response to an Application in a Case. However, as will become apparent in a consideration of the husband’s application, I do not, by and large, consider that any such application by the wife would have merit. For the sake of abundant caution (and lest I am wrong in the above approach) I will make clear, in due course, the bases upon which the wife would, I am satisfied, fail as to costs.
Approach to financial litigation
Before proceeding to deal specifically with the evidence and submissions of the parties, I wish to be clear in outlining the approach which parties should take towards resolution of financial issues. The parties in this case would not appear to have done so.
Each of these parties seeks to rely upon offers that have been made by them at various stages of the proceedings. Each party has, assuredly, made settlement proposals. There have been impediments to the full and complete consideration of such offers at different times. Some of those “impediments” have been more substantial and/or more valid than others.
Property adjustment proceedings between parties under the Family Law Act 1975 (whether a married couple conducting their litigation under Part VIII or a de facto couple conducting their litigation under part VIIIAB) are and involve “commercial litigation”. Whilst there may be many circumstances surrounding their litigation which make clear objective focus more difficult there is no escaping the reality that these parties are conducting “commercial litigation”.
Property adjustment proceedings under the Family Law Act 1975 do not vary significantly from commercial litigation conducted between those engaged in commercial enterprise in the superior courts of each State and Territory. A husband and wife (the relationship that subsisted between these litigants) are not “buyer and seller” or “supplier and consumer”. However, the focus of the litigation is the same, being, the expeditious and cost-effective resolution of the dispute. To that extent the same considerations and obligations apply to both the parties to the litigation and their attorneys.
Difference arises as a consequence of the past intimate relationship between the disputants. The disputants in proceedings under the Family Law Act have not previously dealt with each other “at arm’s length”. However, that does not bear upon the obligations faced by them in the conduct of their litigation or the “primary purpose” of their litigation being to determine their respective interests and obtain “the fruits of their litigation”.
Litigants under the Family Law Act 1975 vary from litigants in a commercial dispute in two significant respects, namely:
a)Because of their prior intimate relationship emotionality might well impact upon or “cloud” their judgement or suggest that they might approach their litigation predisposed to distrust and focus upon non-relevant criteria. The circumstances of the separation or relationship might well predispose them to distrust of each other. These factors might well impact upon their ability to focus upon the “primary purpose” of their litigation being the resolution of their controversy. However, they are not matters which could or should impact upon the obligation of legal practitioners advising a party; and
b)Parties to proceedings under the Family Law Act 1975 are subject to the requirement of section 81 (or section 90ST in the case of a de facto couple) to “end their financial relationship”. That, of course, is not always a relevant consideration (indeed the contrary may be the case) as regards commercial litigation between parties who may wish to continue a commercial relationship with each other but who have sought to resolve a controversy between them consistent with the historical and fundamental role of the court to provide remedy and/or sanction.
Each of these parties has, by and large, been represented throughout these proceedings. The wife has been consistently represented by the same attorneys throughout the four year history of the proceedings. The husband was initially represented by Brydens, was, for a brief period, self-represented and finally, and for the period leading up to the allocation of trial dates and the final hearing itself, represented by his present attorneys, Antwan Lawyers.
Attorneys are bound by their primary obligation to the Court to ensure the effective and efficient conduct of proceedings and to thus aid in the effective administration of justice. Attorneys are also bound by the Legal Profession Act 2004 and by the New South Wales Professional Conduct and Practice Rules 2013 (Solicitors’ Rules).
The benefit of legal representation is that the propensity for parties in family law disputes to be “distracted” by emotionality, distrust and their natural pain, grief and turmoil post separation can be contained, addressed and redirected to a clear focus upon objectively relevant criteria.
It is often said (accurately so) that attorneys are “creatures of instruction”. Indeed they are. The role of the attorney is to obtain instruction and give advice. Having given advice it is the role or privilege of the client/party (subject to the professional duties and obligations of attorneys both to the Court and the profession) to determine the course of action they wish to pursue and thus the instruction they wish to provide to their attorney.
None of the above comment is intended to suggest that the attorneys retained by these parties have failed to comply with any of their obligations under the above legislation, rules or common law. Indeed, it is intended to acknowledge that the conduct of the litigation (whilst not perhaps each forensic decision therein) is determined by the parties on advice and through their attorneys acting on instructions.
This case, like so many, is typified by an extensive period of inquiry and pursuit of “disclosure”. Disclosure is fundamental to the successfully negotiated resolution of commercial disputes or, for that matter, any dispute. Parties must, to use a cliché, face each other “on a level playing field” and with goal posts firmly affixed at either end of the ground. To proceed to negotiate without adequate disclosure would be folly (both for the client and for the attorney who would then face significant Donoghue v Stevenson [1932] consequences and Lawcover suit).
Having established a level playing field (by both parties having completed adequate disclosure) the matter remained unresolved. Throughout such negotiation as occurred it would seem, especially after the husband’s change of lawyers, that the goal posts were constantly shifted. It would be difficult, if not impossible, for even the most skilled of goal kickers to “kick a goal” through moving goalposts. The posts (the law and parameters of negotiation established by the parties) must be clear.
In these proceedings there has been relatively constant complaint, up to and including the final hearing of the proceedings after some four years of litigation, as to “inadequate disclosure”. At the conclusion of the case it was certainly clear that a number of documents, which would have explained certain transactions, had not been made available, principally by the husband. However, those documents were not, ultimately, fundamental to the determination of the proceedings (either as to the constitution or value of the pool of property or the assessment of contributions or relevant adjustments pursuant to section 75(2) of the Family Law Act 1975).
Over the first two and a half years of these proceedings repeated adjournments occurred at the request of the parties or one or other of them to enable further “disclosure”. This particularly related to the assessment of income and capital gains tax liabilities of the parties. Those issues would appear to have been resolved or substantially resolved at a relatively early stage and certainly by 23 December 2011.
The role of the lawyer is certainly to advocate (as the American Bar Association Rules provided until recently to “zealously advocate”) on behalf of the client, to protect their interests and to maximise the “outcome” to their client in satisfaction or address of those issues. This must be done, however, within the ambit of that which is reasonably obtainable on both a gross and net basis. A client must not be permitted to lose sight of the costs which they have and will incur in the conduct of their litigation (those costs being the subject of disclosure pursuant to the Legal Profession Act and those costs incorporating not only financial costs) nor the reality that, in light of section 117 of the Family Law Act 1975, that costs may not be recovered.
A party’s position, on the basis of legal advice, must be determined by reference to legislation and prior precedent as our common law system dictates. The conduct of a case on a basis incapable of success by reference to precedent is ill advised.
Again, I pause to note that no criticism is levelled at the attorneys for the parties as to the advice that they have provided to the clients. That advice is not known save through the offers that each has now disclosed. However, the offers that the parties and each of them have made at different points in time would appear to reflect a commonality in positions, at least for the purpose of negotiation, at or about a 60/40 division of their pool of property in favour of the wife. That is, of course, the outcome that was ultimately determined by the Court.
The overriding role of the lawyer, as discussed by Abraham Lincoln some significant time ago, is encapsulated in the following:
Discourage litigation. Persuade your neighbours to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.
The parties would not appear, irrespective of encouragement from their attorneys and proposals formulated and put each to the other, to have found their way clear to “compromise” with each other and resolve their litigation. In doing so, the parties have incurred costs which are substantial. Those costs are significant without even considering or having regard to the costs to the Court and the taxpayers of Australia who provide funding therefore in managing and determining these proceedings including an additional day now devoted to this costs issue.
The husband estimates that his total costs are in the order of $164,000. This includes costs of $123,000 to his current lawyers (and presumably costs of $41,000 to his previous lawyers).
The wife estimates that her costs have been not less than $140,000.
By the conclusion of the hearing the parties were in relative agreement that there total pool of property (excluding superannuation) had a value of $3,291,921. The parties have spent more than $300,000 or approximately 10% of their total tangible assets in conducting their litigation. Sadly, it is not uncommon for parties to have expended similar amounts in litigating over much smaller amounts of money.
To place matters into a clearer and starker perspective the parties had, prior to the hearing, distributed the majority of their assets between them. Thus, at hearing, the primary dispute related to the division of a remaining fund of savings of $400,000 together with interest. Orders were ultimately made which saw the wife receive 71.6% of this amount (which, the wife asserts, saw her receive $303,644.30). The husband received approximately $118,000 (or slightly less than he owed his current lawyers at the conclusion of the hearing).
For these proceedings to have been conducted effectively all that was required of the parties and their attorneys was to determine (through factual inquiry, disclosure or negotiation) the following:
a)What assets comprise the pool of property available to divide?
b)What is the value of each item comprising the pool of property? The value of assets, liabilities and financial resources has largely been agreed between the parties at all stages of the litigation and was, at final hearing, largely agreed. The exception to this was, at least until December 2011, a difficulty in accurately quantifying the tax liability of each party resulting from the sale and distribution of proceeds of sale of certain shareholdings. However:
i)The property adjustment proposals made by the parties and each of them had sought to set aside a sum to meet any future, assessed liability; and
ii)The wife deposes that she had obtained the advice of a forensic accountant to seek to ascertain such tax liabilities. That evidence was never introduced into the proceedings and, in any event, could have been ascertained simply through the completion and lodgement of the wife’s tax return as would appear to have occurred well prior to the hearing of the proceedings. Both parties had determined their tax liability well prior to the final hearing and the wife had attended to payment of her liability;
c)What percentage should be applied to the asset pool? Additional questions might arise, although they did not in any significant fashion arise in these proceedings, as to whether the same percentage should be applied to all assets (such as tangible and non-tangible, i.e. superannuation assets);
d)How should the settlement be structured to achieve the percentage division of the asset pool? By reference to each party retaining tangible assets or superannuation already in their possession, apportionment of debt, et cetera, all that was left for these parties was to resolve division of the $400,000 HSBC Bank account.
By final hearing these parties were largely in agreement with each other as to each of the above steps. The dispute between the parties, at the conclusion of the three day hearing, was very much focused upon the percentage to be applied to the relatively agreed and certain pool of property.
It must be remembered that the parties had also been in dispute, at the commencement of the hearing, as to a child support departure application and parenting issues.
The child support departure application was not pressed and the parenting issues were confined to limited areas of controversy and principally matters such as whether the husband’s time with the children (which was agreed would be each alternate weekend during school terms) should conclude on a Sunday evening or Monday morning and what block periods of time should occur during school holidays (there being agreement that there would be block periods), and whether these would be subject to terms and conditions such as the husband being on leave from employment. These issues did not lengthen the hearing at all and the matter would still have required three days of hearing even if only addressing property adjustment disputes.
The other matter of concern which arises from the evidence of the parties and related to the issue of costs is the non-application of pre-action procedures.
Pre-action procedures
In Thompson & Berg [2014] FamCAFC 73 the Full Court opined:
It is accepted that the FCCR do not contain provisions in relation to pre-action procedures or the responsibility of parties and lawyers in achieving the main purpose of the rule.
The main purpose of the Rules is to be found in rule 1.03 of the Federal Circuit Court Rules and in the following terms:
Objects
(1) The object of these Rules is to assist the just, efficient and economical resolution of proceedings.
(2) In accordance with the objects of the Act, the Rules aim to help the Court:
· to operate as informally as possible
· to use streamlined processes
· to encourage the use of appropriate dispute resolution procedures.
(3) The Court will apply the Rules in accordance with their objects.
(4) To assist the Court, the parties must:
· avoid undue delay, expense and technicality
· consider options for primary dispute resolution as early as possible.
(5) If appropriate, the Court will help to implement primary dispute resolution.
The obligation upon the Court to operate informally is legislatively mandated by section 42 of the Federal Circuit Court of Australia Act 1999. To that end both the Federal Circuit Court Act and Federal Circuit Court Rules contain what might be described as a rebuttable presumption against more formal “litigation tools” such as discovery and administration of interrogatories (see section 45 of the Act and parts 14 and 24 of the Rules).
It would seem clear that whilst “pre-action procedures” under the Family Law Rules 2004 do not apply in proceedings conducted under the Federal Circuit Court Rules that a “main purpose” is established by the objects of the Rules and including the informal and expeditious determination of proceedings with a clear encouragement for the use of alternate dispute resolution procedures.
The phrases “alternate dispute resolution procedures”, “appropriate dispute resolution” and “primary dispute resolution” are not defined but would incorporate a broad range of non-litigious dispute resolution including:
a)Direct discussion between the parties (although this would appear, on at least one occasion, to have led to some uncertainty (see for example correspondence from the husband’s then attorneys to the wife’s attorneys 11 May 2011 as annexed to the written submissions filed by the husband);
b)Lawyer assisted negotiation; and
c)Mediation or family dispute resolution. I do not use the two terms in tandem to seek to conflate or equate them. The two terms are, however, regularly used interchangeably and perhaps explicably if not permissibly so in light of the significant similarity and overlap between the section 10F definition of family dispute resolution in the Family Law Act and any commonly accepted definition of mediation as a facilitative negotiation process as defined, for example, in the National Alternative Dispute Resolution Advisory Council (NADRAC) definition of mediation.
The parties would not appear to have considered, let alone attended, family dispute resolution or mediation or any other form of face-to-face settlement negotiation save a Conciliation Conference conducted by a Registrar of the Court. Certainly, as a precursor or alternative to litigation the parties would not appear to have considered such options. That may be explicable as the proceedings commenced on short notice in circumstances whereby the wife was concerned that the husband might deal with or distribute certain funds (the $400,000 fund the ultimate focus of the hearing).
In light of the Full Court’s decision in Thompson & Berg [2014] the Federal Circuit Court, when dealing with proceedings under the Family Law Act 1975, is left with no prescribed “pre-action procedures”. As the Full Court stated at paragraph 59:
In relation to pre-action procedures, the FCCR are deliberately silent and the same conclusion must be reached in relation to the failure to apply the FLR concerning the obligations on parties and lawyers.
The Federal Circuit Court Act contains provision for dispute resolution processes (part 4). However:
a)Part 4 specifically excludes proceedings under the Family Law Act 1975;
b)Part 4 does not apply specifically to “pre-action” but gives a power to refer parties to dispute resolution services once proceedings are before the Court; and,
c)The application of part 4 to Family Law Act 1975 proceedings is somewhat unnecessary in light of part II of the Family Law Act 1975 which provides the Court with the same or similar coercive powers to require parties’ attendance upon family dispute resolution or family counselling and, particularly in combination with section 60I as regards the mandatory “pre-action” consideration of family dispute resolution in parenting proceedings.
Part IIIA of the Family Law Act 1975 (sections 12A and 12E in particular) impose an obligation upon “family advisors” (legal practitioners falling within that group) to specifically consider and give advice as to the use of family dispute resolution and family counselling services. This might be considered to either inferentially support an obligation to take such steps as “pre-action” and in furtherance of the primary purpose of the Federal Circuit Court Rules (rule 1.03) and certainly includes an obligation to advise regarding the use of such services once proceedings are on foot (and subject to assessment of suitability for those services by family dispute resolution practitioners and family counsellors).
Finally, the Civil Dispute Resolution Act 2011 (Cth) is specifically excluded from applying to proceedings under the Family Law Act 1975. That legislation contains at section 4 a general statement of the reasonable steps to be taken by litigants and their advisors prior to commencing litigation[1].
[1]Genuine steps to resolve a dispute
Other than the common law obligations as to disclosure[2] there would not appear, post Thomson & Berg [2014], to be any prescribed pre-action procedures referrable to Family Law Act 1975 proceedings before the Federal Circuit Court. This is entirely out of step with all other Federal courts and with the superior and intermediate level trial Courts of each state and territory.
[2] See for example, Weir & Weir [1993] FLC 92-338 and Black & Kellner [1992] FLC 92-287.
This does not, however, alter the Court’s expectation that parties will, not only during their litigation but prior to its commencement, take all reasonable steps and do all things within their power to resolve their controversy or, at least, limit issues in dispute and requiring determination by the Court. Such an obligation is entirely consistent with High Court authority such as, Haset Sali v SPC Ltd [1993] HCA 47, Aon Risk Services & ANU [2009] HCA 27 and Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46.
From the material that has been filed by the parties it is unclear what, if any, pre-action steps were taken by them to seek to resolve issues in dispute. Further, during the conduct of their litigation, it is unclear what steps were taken by the parties, other than the limited offers that they have placed before the Court in the submissions of the parties, to seek to resolve their dispute or limit issues in dispute.
The parties’ proposals and evidence
In dealing with this application I have read and considered each of the documents identified by the parties and comprising:
a)In the case of the husband:
i)Application in a Case filed 30 October 2014;
ii)Affidavit of the husband’s attorney sworn 29 October 2014 and filed 30 October 2014;
iii)The husband’s written submissions filed 30 October 2014; and
iv)Oral submissions by the husband’s counsel 26 November 2014.
b)In the case of the wife:
i)The Response to an Application in a Case filed 20 November 2014;
ii)Affidavit of the wife’s attorney sworn or affirmed 20 November 2014 and filed the same date; and
iii)Oral submissions by the wife’s attorney 26 November 2014.
I have, in addition, reviewed the Reasons for Judgment delivered 3 October 2014, as well as those delivered with respect to the disposal of the husband’s previous Application in a Case being a judgment delivered 14 March 2014.
The husband seeks orders as follows:
The wife pay the husband’s costs incurred by him with respect to property adjustment orders between the parties from 5 May 2011 to date, such costs to be as agreed or in the absence of agreement, as assessed.
The wife pay the husband’s costs within 120 days from the date of these orders.
That the wife pay the husband’s costs of and incidental to the Costs Application in the Case, such costs to be agreed or in the absence of agreement, as assessed.
The wife, for her part, purports to seek orders as follows:
That the Application in a Case filed by the husband 30 October 2014 be dismissed.
The Respondent husband pay the Applicant wife’s costs of and incidental to this Response.
That the Respondent husband pay the Applicant wife’s costs on an indemnity basis with respect to property adjustment orders from the period 2 August 2010 to date.
In the event that the Court is not minded to make the order referred to above then the Respondent husband as a minimum pay the Applicant wife’s costs with respect to property adjustment orders from 27 November 2013 to date.
In the event that the Court is not prepared to make the order as referred to above then in that event the Respondent husband pay the Applicant wife’s costs on an indemnity basis of and incidental to the interim hearing and all preparation work for the interim hearing held in the matter on 1 February 2014, such Application in a Case of the Respondent husband that was wholly unsuccessful.
The husband’s case is primarily focused upon offers of settlement. The husband identifies three specific offers of settlement made by him in the proceedings comprising:
a)An offer made (when the husband was represented by Brydens) 5 May 2011. The effect of that offer is summarised as being a payment by the husband to the wife of $294,000 and on the basis that each party otherwise retain all assets and resources in their respective possession and that each be responsible for their own, respective tax liabilities (arising from the previous distribution of funds from the proceeds of sale of shares);
b)An offer made (again when the husband was represented by Brydens) 11 May 2011. The effect of that offer is summarised as being a payment by the husband to the wife of $347,000 and upon the same terms and conditions as above; and
c)An offer made (when the husband was self-represented) in or around April 2012. The effect of that offer is summarised as being a payment by the husband to the wife of $300,000 and, again, upon the same terms and conditions as above.
The husband does not lead evidence of any other offer made by him in the proceedings.
It is important to note with respect to the above offers and, in particular, those offers made whilst the husband was legally represented by Brydens, that the tax liabilities of the parties were not known. To this end the husband had prefaced those proposals upon the following:
Any calculation of settlement split should be based on a net amount of approximately $3 million with an amount of $350,000 set aside for each party to allow for the future tax liability.
The tax liability of each party was not dissimilar to that estimated by the husband but, once calculated, was found to be slightly less. The wife ultimately met a tax liability of $272,973. The husband’s tax liability was slightly more by a few thousand dollars.
At the time that the above offers were made the parties were also each very much engaged in allegation and counter allegation as to the adequacy or inadequacy of disclosure given by the other.
Immediately preceding these offers by the husband (which were contemporaneous with if not in response to settlement proposals made by the wife), the wife’s attorneys continued to seek from the husband financial disclosure. The documents sought by the wife’s attorneys were those which the husband was obliged to provide by parts 14 and 24 of the Federal Circuit Court Rules. Correspondence from the wife’s attorneys (annexure H to the wife’s attorney’s affidavit) enumerated the documents sought at that time. Whilst the letter is dated 24 February 2011 this would appear to be in error as the opening sentence of the correspondence refers to telephone discussions 12 April 2011.
The husband, for his part, raised issues as to disclosure such as occurred in the letter (the first offer above) 5 May 2011. The disclosure sought by the husband, however, was more tangential if not trivial than that sought by the wife (the husband seeking details of the children’s bank accounts and the financial circumstances of “the wife’s partner”).
As indicated above the three offers relied upon by the husband would appear to be the totality of settlement negotiations of the husband. That appearance arises from the failure of the husband to lead any further evidence as to any subsequent settlement negotiation. Accordingly, the last settlement offer put by the husband was in April 2012 and prior to his engagement of his current attorneys who conducted the proceedings on his behalf from May 2012. There is no evidence to suggest that any further offer was made or, indeed, the previous offers reaffirmed or repeated, at any time following their retention.
In opposition to the husband’s application for costs (and in purported support of an application for costs by the wife) the wife leads evidence of a history of settlement offers. The wife leads evidence of no less than eight settlement proposals commencing with an offer prior to the commencement of proceedings (August 2010) and concluding with an offer 27 November 2013 (some 10 months prior to hearing).
What is extraordinary regarding each of the offers made (being those of both the husband and the wife) is that each is prefaced as proposing an approximate 60/40 division in favour of the wife. That is the outcome which was ultimately ordered by the Court.
What would appear to have intruded into the minds of the parties such as to preclude them from settling their dispute were two issues:
a)
Uncertainty as to the composition of the pool of property.
This, in the early stages of the proceedings, would appear to have been driven largely by distrust and uncertainty on the part of the wife. The evidence at hearing made clear that the husband had been largely responsible for the conduct of the financial affairs of the parties during the marriage and that the wife, as a consequence, was somewhat unclear, at least in the early and initial stages of the proceedings, as to the assets which existed or might exist. As the proceedings dragged on a number of other factors arose to impede the capacity of these parties to apply a relatively agreed percentage, that which appeared common to the settlement proposals of both parties, to the asset pool. Principle amongst these were:
i)Uncertainty as to the precise tax liability of each party. However these tax liabilities were clear by 23 December 2011. The wife, at hearing, had attended to payment of and discharged her tax liability. The husband’s evidence would suggest that he had entered into a payment arrangement with the Australian Taxation Office, although his liability was clearly assessed and determined. It must be noted that the husband’s final settlement offer above, made in April 2012, concluded with the statement “number one issue to be resolved that has a significant effect on the net asset pool is the resolution of tax liability and this needs to be addressed by [the wife] on an urgent basis so that I final accurate number (sic) can be calculated. No settlement/agreement can be effected without notices of assessment from the ATO” [emphasis added];
ii)Confusion, especially on the part of the wife, as to the number of transactions which had occurred in disposing of shares and distributing proceeds arising therefrom. This is evidenced, for example, in the husband’s email correspondence April 2012 to which correspondence he annexes a draft balance sheet. The husband goes to some length to point out a suggested “double counting” of amounts arising from the sale of shares. This issue continued to bedevil the parties and the negotiation until day two of the final hearing when, finally, concession was made as to the amounts that should be included; and
iii)Ongoing distrust between the parties as to full and frank disclosure particularly as a consequence of the husband’s failure to provide documents that demonstrated his dealing with various funds (which transactions were largely comprised by documents in the husband’s name from overseas sources in which the wife could thus not obtain other than through the husband’s disclosure). These difficulties were ultimately overcome at trial by the concession by each party (as referred to at some length in the Reasons for Judgment delivered 3 October 2014) that the funds distributed and received by the parties should be included as the amount in fact received by them (which obviated any need to further pursue issue as to the expenditure of funds post receipt).
b)The husband’s financial position and ongoing child support. At or shortly after the separation of the parties the husband began to work, albeit for the same employer, in an overseas based position. The husband, during this period, paid a significant amount of child support and, taking into account the children’s private school fees, largely paid by the husband, an amount significantly in excess of that which would be assessed as payable by application of the Child Support (Assessment) Act 1989 formula. Once the husband’s employment terminated (during 2012) the husband returned to Australia and immediately commenced University studies for a Masters of [omitted]. The husband was not, at that time, in paid employment. The husband then began, in accordance with an administrative assessment issued based upon the husband’s “unemployment” to pay child support of approximately $32 per month. This led to significant tension and distrust between the parties and was the primary basis of the application by the wife to join child support issues. It was common ground between the parties that their three children continue to attend a private school incurring fees of some significance. Since separation those fees have been primarily met (and at times wholly met) by the wife.
The impact of this latter factor upon the attitude of the parties towards adjustments pursuant to section 75(2) of the Family Law Act 1975 (if not their attitude towards negotiation generally) cannot be underestimated. This is particularly so, as immediately prior to this significant change in circumstances the husband had received funds in excess of $2.3 million which he then set about dividing equally between himself and the wife and with an adjustment for the then value of the matrimonial home which the parties have agreed, at all times, that the wife would retain. It is this distribution which both led to the parties’ dispute, at hearing, being largely confined to the $400,000 HSBC bank account divided by the orders made by the Court and the wife’s cross-examination of the husband as to his propensity to act “unilaterally” in financial dealings.
The above division of funds had also occurred contemporaneous with the settlement proposals of the husband in May 2011. The wife was, at that time, somewhat aggrieved by that which she perceived as the husband’s unilateral determination of “an equal division” of funds as appropriate. The wife may also have perceived (and it is possible that it was so, though I need not make any determination as to the issue) that the husband, in retaining the majority of cash funds from this distribution, held “the upper hand” and had undermined any perception of equality of bargaining power between the parties.
This distribution of funds (and the retention of the $400,000 held back by the husband - that which remained invested to be fought over at hearing) also contributed to both the suggestion of urgency in commencing the proceedings and led to a number of interim and interlocutory applications for restraint and removal of restraint as regards the HSBC Bank account.
It is, perhaps, instructive to consider the practical outcome of the proceedings and the orders obtained by the wife.
The net effect of the orders made by the Court 3 October 2014, was that the HSBC fund was divided between the parties disproportionately, the wife receiving 71.6% of it and the husband the remaining 28.4%. The wife received the benefit of a superannuation splitting order (made by consent) which transferred to the wife from the superannuation interest of the husband an amount of $68,000. Each party otherwise retained all assets and resources in their respective possession and remained liable for all debts in their respective names (including assessed tax liabilities).
On the basis of the wife’s calculation (per the Affidavit 20 November 2014) the wife received, in addition to that which she already held:
a)A cash payment of $303,644.30; and
b)$68,000 in superannuation.
This represents a total adjustment in the wife’s favour of $371,644.30.
The wife had previously, from the larger source of funds distributed between the parties, paid a tax liability of $272,973.
If one were to view the ultimate outcome obtained by the wife by reference to the husband’s settlement proposals then there is some force and validity to the assertion that the wife, through the conduct of her litigation, received little net benefit. The second of the two offers enumerated by the husband had proposed that he pay to the wife a sum of $347,000 (the most generous of his proposals). This proposal would have seen each party retain their superannuation without adjustment. On the basis that the wife would, on the husband’s proposal and as ultimately transpired, retain her tax liability then the wife would have received approximately $43,000 cash more than she ultimately achieved at hearing but without the adjustment of $68,000 superannuation in her favour.
Similarly, if one were to have regard to any of the wife’s various offers, including a proposal made by the wife prior to the commencement of proceedings (the offer 2 August 2010) and subsequently quantified as a payment to her from the husband of $400,000, then the husband has not, on any view, done any better or significantly better at hearing (bearing in mind that he has retained his superannuation less the split out of $68,000) than he would have done by accepting the wife’s proposals.
Two additional factors impact upon the assessment of the above settlement proposals.
Firstly, the husband had, on or about 6 July 2010, received cash funds of $2,372,540.58. The husband had divided those funds equally between the parties and with an adjustment for the then value of the former matrimonial home. Thus, the parties were left, on their respective applications, to argue as to the manner by which the HSBC bank account ($400,000 plus accrued interest) was to be divided.
Secondly, the value of the matrimonial home, at the time of the July, 2010 division and at the time of hearing, varied. Accordingly, it is not entirely accurate to assess the outcome of the husband’s proposals (or the wife’s for that matter) on the basis of the outcome which they obtained. At trial the home had increased in value. Accordingly, it may well be that the husband’s settlement proposals (and those of the wife) were more attractive than the above analysis might suggest. Overall, however, I am not satisfied that the increase in value of the home impacted significantly upon the position of either party or the benefit which might have been derived by either through acceptance of the other’s proposals. The real benefit would have been a commercially realistic settlement without further costs.
I am satisfied that it is also relevant, as the evidence discloses, that the husband did not make any further settlement proposal following his offer April 2012 (when he was self-represented) whereas the wife continued to make settlement proposals primarily prefaced upon a 60/40 division in the wife’s favour. Whilst the husband has asserted and made clear in the description of methodology and calculation and formulation of his three proposals, that a 60/40 division was acceptable to him, his actions, following April 2014, were contrary to any desire on his part to resolve the matter on that basis.
The husband conducted his case at hearing prefaced upon an equal division of the pool. Indeed, at the outset of the trial, he sought a division slightly in his favour. The husband’s case, at that point (albeit to a lesser extent by the conclusion of submissions) was prefaced upon a misguided if not erroneous assertion of “special contribution”. That position was misguided not only as regards the state of law but the facts of the case.
In his closing submissions the husband asserted that contribution favoured him, as a consequence of his “special contribution” or “special skill” and as to 55/45%. The husband’s contention for equal division conceded an adjustment of 5% in the wife’s favour by reference to section 75(2) of the Act.
The wife conducted her case on the basis of equal contribution by the parties but seeking an adjustment by reference to section 75(2) of 15%. This was a tempering of the wife’s position as it stood at the commencement of the trial.
The wife asserts in her evidence that the joinder of parenting issues by the husband:
a)Caused “… The costs of the proceedings [to] escalate[d] as a result”;
b)“… Completely changed proceedings which the wife until (sic) had been facing”;
c)Resulted in the final hearing (as initially fixed December 2013) being adjourned “…at the request of the husband’s counsel with consequent loss of time and delay”. This was not so. The matter could not be heard and accommodated in the time fixed; and
d)Was ultimately unnecessary as “the court would notice the transcript will show that on the first day of the ultimate final hearing the respondent husband abandoned his parenting case to the extent that he was no longer seeking a week about shared parenting regime”. The husband did not, however, “abandon” his case. The parties remained at issue as to minor if not trivial aspects of the parenting orders to be made (as noted above issues such as whether the husband’s time should conclude on a Sunday evening or Monday morning and whether there should be an order which compelled the husband to be on leave from paid employment whilst soever the children would be in his care). The husband was ultimately successful in relation to these controversies and the wife unsuccessful.
The husband does not seek any order for costs with respect to the parenting aspect of the proceedings. However, there is some degree of artificiality in seeking to distinguish and differentiate between the various elements of the proceedings as all issues were heard and determined together.
The parenting aspect of the proceedings was significantly limited by the concession or amendment of application made by the husband at the commencement of the trial as well as the agreement of the parties that the Family Consultant who had prepared a Family Report in the matter would not be required for cross-examination. Ultimately, the parenting aspect of the matter, save the husband’s cross-examination by the wife’s counsel upon the above limited areas of dispute, did not occupy any significant period of the hearing.
From the above brief discussion of the evidence of the parties, I am satisfied that the impediments to resolution were numerous. However, none of those impediments related to uncertainty of the law or its application. The impediments substantially comprised:
a)Issues between the parties, at least in the early stages of the proceedings, as to the assessment and payment of tax;
b)The wife’s attitude towards the provision of disclosure by the husband. To some extent it would be fair to describe that the wife was not satisfied with the husband’s disclosure at any time up to and including the final hearing and that any provision of disclosure by the husband was “never enough”;
c)The husband’s attitude towards and payment of child support particularly following his return to Australia;
d)The husband’s argument, completely unsuccessful and ill-founded in law and fact, with respect to “special skill” and “special contribution”;
e)The wife’s confusion, as demonstrated by her evidence and balance sheet, as to the amounts to be included for division between the parties and which, at the commencement of the trial, involved some degree of “double dipping” or “double counting” of assets;
f)The husband’s attitude towards the assessment of contribution and his steadfast position, at trial, that contribution favoured him;
g)The difficulties which had arisen with respect to the assessment and payment of child support (and with the consequent assumption by the wife of the majority of the children’s private school expenses);
h)The conduct of the parties (plural) of unnecessary interim and interlocutory applications. This particularly applied to the husband’s application to be relieved of restraint as regards any dealing with the HSBC Bank account $400,000 which formed, in essence, the subject matter of the parties’ controversy at trial, and especially in circumstances whereby it was clear that:
i)The husband had consented to the order when initially made; and
ii)Release of funds or any significant proportion of them would render the wife’s application incapable of success;
i)The inability of the husband to provide any accounting for or explanation of the expenditure by him, for a period of approximately 3 years, of the $1.3million he had received in October 2010 from the proceeds of sale of shares (as to which see Judgments delivered by the Court 14 March 2014 and 3 October 2014); and
j)Issue as to the interest or otherwise of the husband’s in the estate of a deceased relative and/or a gift by him to his sister. The issue consumed some portion of cross-examination and was ultimately not pressed.
Ultimately, there is nothing in the evidence which would suggest that following April 2012 and the retention by the husband of his current attorneys that the husband made any overture towards a resolution of the proceedings, in whole or in part. Similarly, there is no evidence of any attempt by the parties, after April 2012, to actively resolve their dispute. Ultimately the biggest impediment to resolution was, perhaps, a lack of will or, if will to resolve was present, failure to manifest that will in action taken towards achieving that goal.
Based on the costs that these parties and each of them has incurred it is clear that they would each have been better off accepting the other’s offers in early 2012. Indeed, they would have been better off gifting the HSBC account or the majority of it to a charity. They would then have benefited many (rather than just their lawyers) and would have received the significant benefit of tax deductibility for the expenditure. The money would not have been available to them or their children but, on the basis that the matter concludes, it will not be available to them anyway.
Section 117
Any Application for Costs with respect to proceedings under the Family Law Act 1975 is dealt with and determined by reference to section 117.
Counsel for the husband has referred me to the erudite discussion of the interplay of sections 117(1) and (2) contained within the High Court’s decision of Penfold v Penfold (1980) 144 CLR 311 and, in particular, paragraphs 12 to 14 thereof and which I incorporate herein:
[12] It is an accurate description of s 117(1) to say that it expresses a general rule, provided that it is firmly understood that the sub-section is not paramount to s 117(2). As sub-s (1) is expressed to be subject to sub-s (2), the former must yield whenever a judge finds in a particular case that there are circumstances justifying the making of an order for costs.
[13] Sub-section (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order. Beyond this there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs. Consequently, with respect to their Honours in the Family Court, we do not agree with the suggestion made in the judgment under appeal that an order can only be made under s 117(2) in “a clear case”.
[14] Sub-section (2) does not, in our view, as a matter of law require the judge to specify the circumstances which justify the making of an order. It does not expressly say so, and in the context of the making of an order for costs there is no sufficient basis for making an implication. Judges very frequently make orders for costs without giving reasons or making findings, even when costs are in issue. The absence of reasons or findings does not in itself indicate that a judge has erroneously exercised his discretion to award costs, though it will place an appellate court in the position of examining the circumstances and of determining for itself whether the circumstances show that the discretion was erroneously exercised (Kent v Kent (1970) 92 WN (NSW) 503 at 505). Accordingly, in the absence of some positive legislative indication we should not attribute to Parliament the requirement that a judge must make particular findings in relation to an order for costs.
I am conscious, as was discussed by the High Court in Re JJT & Ors; Ex Parte Victoria Legal Aid [1998] FLC 92-812 that I must be satisfied as to both a justifying circumstance and the justice and equity of an order for costs before exercising the discretion created by subsection (2). I must, in doing so, consider each of the matters set out in section 117(2A).
Submissions by the husband are largely, if not wholly, confined to a discussion of and reliance upon offers of settlement as set out in the above discussion of evidence.
I am referred by the husband’s counsel to the decision of Murphy J in Lennon & Lennon (Costs) [2012] FamCA 116 and in particular paragraphs 70 – 74 and 88 – 89 inclusive and which paragraphs I incorporate herein:
Offers to settle – s 117(2A)(f)
70. Litigation in this Court is expensive and, it seems, increasingly so. The consistent emphasis of the procedures of this Court and indeed the Rules is to encourage – at every stage of the proceedings – conciliation and the resolution of disputes by agreement.
71. Further, and to that end, separate from the Court processes and procedures, the Court encourages actively the use of private alternative dispute resolution processes.
72. Where negotiation – whether formal or informal – fails, for whatever reason, there is, as a matter of practical reality, but one method by which parties can seek to avoid for themselves the cost of litigation. That is by making a written offer to settle demonstrating their bona fides and asserting clearly and unequivocally what they consider to be (relevantly) a just and equitable outcome of the proceedings the subject of their dispute.
73. Bona fide offers made in this way can be seen as involving significant peril if litigation is pursued in rejection of them. (See e.g., In the Marriage of Murray (1990) 14 Fam LR 311; In the Marriage of Steel (1992) 15 Fam LR 5; Pennisi & Pennisi (1997) FLC 92-774).
74. In Browne & Green (2002) FLC 93-115 the Full Court said (at [57]):
We think that whilst s 117 (2A) does not provide any direct guidance to where weight should be given in any one particular case, it is very important for the court to give proper consideration to written offers of settlement that have been made. The insertion of s 117C is a clear indication of the desire of Parliament to enable parties to avoid unnecessary litigation on indicating to the other party an appropriate basis upon which litigation can be settled. The failure to heed a reasonable offer in circumstances where there is adequate knowledge of the parties at the time the offer is made to give it a proper consideration, is something to which very significant weight indeed, ought normally be given.
…
88. Secondly, it was submitted that the husband could not accept the offers regarding property settlement without knowing what the parenting arrangement would be. In cases such as the present where both property and parenting issues are in dispute, it was submitted that those two matters are so interrelated that it is not possible to consider either of them discretely. I do not accept that.
89. There is no form prescribed in the Rules for making an offer. The Full Court has observed that an offer does not have to precisely accord with s 117C before it may be taken into account (see for e.g., Harris & Harris (1991) FLC 92-254; Kilch & Wood (2003) FLC 93-169). There is nothing preventing a party setting out extensively – indeed prosaically – the basis upon which they will accept an offer. It was open to the husband to respond to the wife’s offers setting out the property settlements he would accept, depending on various parenting arrangements. There is nothing to prevent it and much to commend it.
I propose to now turn to and consider each of the relevant factors set out in section 117(2A) of the Act.
The financial circumstances of each party
The husband is presently employed and undertaking part-time study.
The wife is not presently employed and has, as is conceded by the husband, “outdated employment skills”.
Each party has re-partnered. The financial circumstances of those partnerships are not known to the Court.
Whilst the wife is not in paid employment she has significant cash funds available to her. At the time of hearing the wife retained cash funds of approximately $800,000. With the cash funds that she has received as a consequence of the orders made by the Court she would now, subject to payment of her legal fees, be in receipt of cash funds in excess of $1 million.
The husband’s evidence at hearing was unclear as to what sum, if any, he retained from the funds of more than $1.3 million that he had received during 2010. The husband has an assessed tax liability which, if paid in full, would reduce this amount to approximately $1 million. He also has a liability to his lawyers (past and present) and which when paid would thus reduce his cash funds to approximately $900,000.
The above is not to suggest that the husband, in fact, holds funds of this quantum. The husband’s evidence at hearing would suggest that he is in parlous financial circumstances having expended most, if not all, of the funds that he had received, same having been eroded as a consequence of travel, purchase and resale of motor vehicles and living expenses. It was and remains noteworthy, however, that the husband has expended something approaching $1 million in three years representing “living expenses” of over $250,000 per year. This included, for a period, the husband making little contribution ($32 per month) to the financial support of the three children of the marriage and in the context of the husband questioning the wisdom of certain of the wife’s expenditure.
The financial circumstances of the parties go more to the justice and equity of any order as to costs as might be made rather than to a determination or justification for an order.
On the basis of the significant expense that the wife retains and has, to some extent, been forced to assume (the private school fees of the three children who are being educated in a manner agreed or previously agreed between the parents), I would have some concern as to the justice and equity of the imposition of costs upon the wife. This is further compounded by the failure of the husband, as directed, to quantify the costs that would in fact be sought by him.
On the basis that the husband seeks payment of an amount of 75% of his costs and as he has estimated his total costs in the sum of $164,000 one might extrapolate that his claim for costs is in the vicinity of $123,000. This figure is not dissimilar to that which the wife calculated as that which she would meet in paying the children’s school fees until each completed school.
Legal aid
Neither party has been in receipt of legal aid at any stage during these proceedings.
The conduct of the parties
Leaving aside the issue of offers of settlement (as to their timing, their absence or their rejection), the most substantial criticism raised by either party is that raised by the wife, of the husband regarding a failure to provide full and complete disclosure at any point during the proceedings.
As already observed I am satisfied that there is, to some degree, some justification for the view that the wife has not been and would never be satisfied that the husband has provided proper disclosure. There have been a myriad of adjournments to allow and permit the issue of disclosure to be further explored or for enquiries to be made by the parties such as the wife’s evidence that she had sought and obtained advice from a forensic accountant as to her tax liabilities even though that evidence ultimately has not been placed before the Court. A number of subpoenas were issued and voluminous documents produced.
Each party has sought to join issues to the proceedings late in the piece. Shortly prior to the scheduled hearing of the proceedings in December 2013 the husband joined parenting issues. Shortly prior to the ultimate and final hearing of the proceedings in September 2014 the wife joined child support issues.
As noted above the child support plea was ultimately not pursued. The husband’s plea the parenting relief (for equal shared care) was ultimately not pursued and the parties agreed, prior to the trial commencing, on the majority of orders to be made with respect to their children. To the extent that the parenting aspect of the matter proceeded at all the husband was substantially successful and the wife substantially unsuccessful.
Other than the above matters I am not satisfied that any issue arises from the conduct of the parties or either of them that would justify an order for costs against them or obviate against an order for costs in their favour.
Whether the proceedings were necessitated by failure to comply with an order
Whilst each party complains of a general lack of disclosure I am not satisfied that I could safely ascertain any such non-disclosure by either party at any particular time.
The husband specifically points to a number of interim appearances which, on his case, were necessitated by the wife and her pursuit of extraneous and erroneous orders for disclosure. The husband sets out seven Court events between 18 May 2011 and 26 September 2012 which, he complains, were unnecessary “interim appearances”.
I am not satisfied that any of the occasions were necessitated through any inappropriate action, inaction, application or resistance of same by either party.
I am concerned that a number of the appearances arose through misunderstandings between the parties as to the pool of property, the calculation of values (particularly of tax liabilities) and similar trifling matters which should have been resolved between the attorneys for the parties but were not. However, as an exercise of apportionment of culpability I am not satisfied that it would be safe or prudent to draw any conclusion or make any finding.
Whether either party has been wholly unsuccessful
I am conscious of the Full Court’s decision in Davida & Davida (Costs) [2011] FamCAFC 61 and the passage therefrom:
The other justifying circumstance is the husband’s relative success. True it is that the relevant paragraph in S.117(2A) refers to a party being “wholly unsuccessful”, but I think it is fair to say that the practice has been to look what one might term the relative merits of success between the parties, even if necessary doing that under the last matter mentioned in S.117(2A), being any “other” matter.
In this context “wholly unsuccessful” means there was no justified basis for the position adopted having regard to the outcome of the proceedings. Being “wholly unsuccessful” must look not just at the outcome but the position adopted by the party as well. This would apply to the husband’s misguided or erroneous prosecution of his position asserting that contributions should be found to favour him having regard to his “special skill” or “special contribution”.
In many proceedings before the Court it is difficult to determine what might constitute “success” or an absence of success.
As regards an absence of success I am concerned that, to some extent, neither party has been “successful”. This is connected with the discussion undertaken above. Neither party has achieved an outcome that is more favourable to them than that which they could (and should) have achieved through acceptance of proposals put by one or the other or through a sensible dialogical resolution of controversy.
On a net basis and having regard to the costs that each has incurred each party could be described as equally “unsuccessful”. Each is mutually disadvantaged by the approach they have taken to this litigation and its resolution.
I am not satisfied, as would be apparent from the above, that either party could be described as having been “wholly unsuccessful”
Offers of settlement
Clearly each party has made offers of settlement. Ironically, most if not all of the offers of settlement made, irrespective of whether made by the husband or the wife, have been prefaced upon a 60/40 division of the “matrimonial pool” in favour of the wife.
The outcome to the parties in both gross and net (after payment of costs) terms is discussed at some length above. Each would appear to have had scant regard for the reality that their costs would substantially erode the benefit that they would receive from any order made by the Court. In that regard I repeat my comments made in a recent decision of Peake & Benedict (Costs) [2014] FCCA 2723 as follows:
70. In the recent decision of Bryant v Hawkesbury Radio Communication Co-operative Society Limited [2014] NSWSC 848 Sackar J opined [at 110]:
In my view, in the modern era and consistent with section 56 of the Civil Procedure Act parties have an obligation to constructively collaborate not just on the issues to be ventilated but on the most efficient methods to do so. As has been otherwise said, litigation is not a game and the expense of the courts to the public is so great that their use must be made as efficient as is compatible with just conclusions.
71. Sackar J further opined [at 157]:
Whilst the system of justice administered by courts in this state is adversarial, in the modern era in my view parties have a distinct and clear obligation to cooperate with each other and the court to achieve a quick and inexpensive solution to their grievances including in my view good faith settlement discussions.
72. Commentary on the decision, in an excellent case note by Clayton UTZ in the LEADR Update August 2014 concludes:
As Sackar J's judgment shows, even a party with an 'open and shut' case may be effectively penalised on the issue of costs if they have exploited their position in the litigation for tactical advantage at the expense of a genuine attempt to resolve the dispute.
73. A growing body of case law, such as Ken Tugrul v Tarrants Financial Consultants Pty Ltd (No. 5) [2014] NSWSC 437 have begun to evince and demonstrate a particular attitude, albeit in that case founded upon a legislative “overriding purpose”, towards costs when parties have acted other than with a keen, deliberate focus upon limiting issues and exploring resolution of disputes.
74. In Setka v Abbott [2013] VSCA 345 the plurality of their Honours constituting the Victorian Court of Appeal (Warren CJ, Ashley and Whelan JJA) observed in a joint judgment:
…the over-arching purpose which, by operation of the Civil Procedure Act 2010, applies to both litigants and their advisers, is not simply a pious but toothless statement of the considerations which are to motivate participants, lay and professional, in civil litigation. So much was powerfully emphasised by this court in Yara Australia P/L v Oswal. The just, efficient, timely and cost effective resolution of the real issues in dispute in a case cannot be facilitated if a party and the party’s advisers do not take adequate steps to identify the issues which require determination early in the life of the proceeding.
75. In Yara Australia P/L v Oswal [2013] VSCA 337 the court, within the context of the “overriding purpose” established by the Victorian Civil Procedure Act 2010, referred at [52] with disapproval to “… the culture of unnecessary expenditure in civil litigation”.
…
184. “Hardball” or “scorched earth” litigation of this nature has no place in modern litigation and certainly not in litigation before the Federal Circuit Court of Australia. Such an approach sits uncomfortably with the mandated lack of formality which underscores the exercise of jurisdiction by this Court, whether in family law or general federal law. Such an approach cannot be reconciled with informality.
185. Whether or not there is a legislative mandate or a rule-based requirement to mediate and attempt to limit and define issues and resolve litigation, there is a clear expectation that parties will conduct their litigation in an outcome, resolution focused fashion. It is the clear expectation of courts that it will be so. Such expectations are signalled, for example, by the High Court in Haset Sali v SPC Ltd [1993] HCA 47 and Aon Risk Services & ANU [2009] HCA 27 as well as by Supreme Courts of each State and Territory and the Federal Court of Australia. The jurisprudence dealing with such approaches and expectations has occurred both prior to and post-legislative mandates such as section 60I of the Family Law Act and the Federal and the various State Civil Dispute Resolution Acts. Whilst such provisions may not strictly apply to proceedings pursuant to part VIIIAB of the Family Law Act it would be nonsensical (and create unwarranted and unnecessary inconsistency within the law) to suggest that within one area of specific jurisdiction and nowhere else that an obligation to conduct one’s legal affairs in a sensible, appropriate, cost-effective and resolution focused fashion does not apply.
186. Ignoring an obligation to conduct litigation in good faith (comprising, if nothing else, an expectation to make “genuine attempts” at settlement and with a view to resolution and effective use of resources, including time and money of both parties and the Court), is not to be encouraged, condoned nor rewarded. There is some particular parallel between the circumstances of this case and the Bryant v Hawkesbury Radio Communication Co-operative Society Limited [2014] litigation referred to above.
…
193. Litigation of this sort simply need not occur. Four days of Court time (plus the other Court events) should not and would not have been expended on these proceedings if the parties had been focused on the real issue in dispute between them and its resolution and had made any genuine attempt to achieve a resolution. I am concerned that considerations, issues and agendas unconnected with the attainment of justice have motivated one or both of these parties in conducting their litigation in the fashion that they have. In the case of Mr Prior, whose application for costs I must deal with, has conducted his litigation as a “fight to the death” on a jurisdictional point (together with the application to exclude evidence upon which he failed) and refusing to engage in any discussion, settlement negotiation, alternate dispute resolution or other process that might have achieved a resolution of the primary or real dispute.
It is entirely unclear how or why these parties, both legally represented (save for a period of approximately one month in April-May 2012 in the case of Mr Watton), were incapable of resolving what was, in reality, a relatively straightforward property adjustment case and which should, in the context of commercial litigation, be a matter readily compromised without recourse to litigation at all. It is all the more extraordinary and inexplicable that the parties have, between them, spent in excess of $300,000 to achieve an outcome which should have been plain to both and certainly their attorneys.
To the extent that offers have been rejected (and in the case of
Mr Watton’s last offer April 2012 there is no evidence to suggest its rejection although the offer is prefaced as conditional upon resolution and quantification of tax liabilities) each party is equally culpable.
Whilst I have indicated at the outset of this judgment that I do not consider the wife’s application for costs to be properly before the Court I am satisfied that:
a)The above comments would equally apply to the wife’s position and thus would not support an order for costs in her favour; and
b)To the extent that the wife might demonstrate an entitlement to costs with respect to the determination (unsuccessful as regards Mr Watton) of the Application in a Case seeking interlocutory relief in February-March 2014, such costs should be considered “costs in the cause” and would be offset against any modest entitlement which Mr Watton might be able to suggest if not demonstrate as regards the early stage of the proceedings.
The above findings, clearly, would mark the death of Mr Watton’s Application for Costs founded, as it is, substantially if not totally upon his three early offers of settlement made at a time when the pool was not entirely crystallised, values not entirely agreed or determined and those offers, particularly the last offer, clearly expressed to be conditional upon the occurrence of future events (i.e. resolution of tax issues).
To the extent that Mr Watton might establish any factors in support of his position he would then face the significant difficulty of the absence of disclosure by him, let alone explanation for the rejection of or failure to respond to the wife’s later offers of settlement made as recently as November 2013, at a time when the pool of property was abundantly clear and certain.
Indemnity costs
To the extent that the parties have each sought to agitate for an order in their favour on an indemnity basis I am conscious that some brief consideration must be given to this issue.
Overall, I am not satisfied that either party has established an entitlement to costs let alone indemnity costs. However, I would not wish it to be perceived that the issue had not been considered.
It is unclear from the husband’s case as to whether indemnity costs are, in fact, sought. However I have proceeded on the basis that they are. The wife’s Response (whilst I do not believe it is properly before the Court but which I have, in any event, and for abundant caution, considered) is clear in seeking an order for indemnity costs.
With respect to indemnity costs I incorporate that stated by the Full Court in Prantage & Prantage [2013] FamCAFC 105 and in particular that set out in paragraphs 76 – 86 thereof which I incorporate herein.
76. The law relating to indemnity costs has been well established in this jurisdiction for many years, a fact the trial Judge himself properly recognised.
77. This Court recognised in Kohan (supra) that there is nothing in the Act which inhibits the making of an order for indemnity costs. However, while acknowledging there is a discretion “in an appropriate case” to make an order for indemnity costs, the Full Court also said, at 79,605:
it is fundamental to the exercise of that discretion in the Family Court that the Judge should not only understand that such an order is a very great departure from the normal standard, but also that the Judge should know what the terms of the agreement are, to what extent it exceeds the parameters set by the scale and what its likely impact will be on the financial position of each of the parties. This impact is a relevant matter to which the trial Judge should have had regard, when considering the financial circumstances of each of the parties to the proceedings under s117(2A)(a), or perhaps even more as a relevant matter under paragraph (g). The degree to which a costs agreement departs from the established norm and the actual financial significance of such a departure may itself be a reason for not ordering costs on an indemnity basis.
78. The Full Court, when re-exercising the trial Judge’s discretion in Kohan, also said, at 79,615:
When considering what is just in this case, one must bear in mind that a party who enters into a costs agreement should be warned and must anticipate in this jurisdiction that each party might well have to bear his or her own costs, and that even if an order for party and party costs is made, the difference between party and party costs and costs payable under a costs agreement may consume all, or a substantial part, of the property order. In this particular case, the wife changed her solicitors in August 1990. It must then have been apparent to her, or at least to her new solicitors, that this might become drawn out litigation and that a rate of costs which amounted to three times the scale, exposed the wife to great risks. If she was willing to assume these risks, it does not seem just to saddle the husband with them. If they were not explained to her, she might have her own remedies.
79. At the time Kohan was decided, there was no mention of indemnity costs in the Rules. This is no longer the case, as will be seen from our recital of the Rules earlier. It will also be noted that the requirement for the Court to be informed of the terms of the relevant costs agreement has now been enshrined in the Rules. Notwithstanding this formal recognition of indemnity costs, this Court and trial Judges in this jurisdiction have routinely followed Kohan in holding that indemnity costs orders are to be seen as “a very great departure from the normal standard”. We consider citation of authority to this effect would be otiose, so well accepted is the proposition.
80. We know of one attempt in another jurisdiction to move away from the “usual rule” that costs are awarded on a party and party basis. In Marks v GIO Australia Holdings Ltd (1996) 137 ALR 579, Einfeld J gave reasons why the “usual rule” should no longer apply in the Federal Court of Australia.
81. The views expressed by Einfeld J were the subject of prompt criticism by the Full Court of the Federal Court in Re Wilcox, Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151, where Black CJ said at 153:
Recently, in Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128, Einfeld J expressed the view that it was wrong to begin any consideration of costs by reference to a usual rule. Rather, he considered, the question of costs should be determined on its merits without any usual rule or preconception as to the costs issue (see at 133). Other judges, however, have continued to follow the established approach (see, for example, MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236) and it was recently applied by a Full Court in McHattan v Saramoa Charters Pty Ltd (unreported, Federal Court, Full Court, 17 September 1996). Moreover, one of the difficulties with any different approach is that O 62 of the Federal Court Rules 1979 (Cth), the costs order, proceeds on the footing that in the ordinary case costs will be ordered on a party and party basis. This is now reinforced by the provisions of O 23, r 11(4). Order 23 provides for the making of offers of compromise and, in specified circumstances, r 11(4) provides for a presumptive entitlement to costs on a party and party basis up to and including the day an offer was made and for indemnity costs after that day. Another difficulty with any departure from the established approach, an approach described by Sheppard J in Colgate-Palmolive (at 233) as “entrenched”, is the uncertainty that a different approach would involve.
It may be that on some future occasion a Full Court will nevertheless be asked to reconsider the basis upon which indemnity costs orders in this Court should be made, but no such invitation was extended in this case and the present application for indemnity costs should be considered in accordance with the well established principles discussed by Sheppard J in Colgate-Palmolive and summarised by Hill J in John S Hayes.
82. Cooper and Merkel JJ went further in their joint judgment in Re Wilcox. They said at 156-157:
The issue whether costs should be ordered on a party and party basis or on an indemnity basis has acquired increasingly greater significance as the gap between the two bases appears to have grown.
The gap has highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur. These and other policy factors have been considered by the courts over a very long period in order to arrive at the principles which govern the undoubted discretion of courts to depart from ordering costs on a party and party basis and ordering costs on an indemnity basis. The principles were stated by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225.
The recent decision of Einfeld J in Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 has cast doubt on these principles. In Marks, after discussing s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA) and a number of policy considerations in relation to costs, Einfeld J concluded (at 133):
“The matter of the interaction of ‘the usual rule’, particularly as affects indemnity costs, with the statutory regime of the Federal Court Act is one which in my most respectful opinion requires fresh attention. An interpretation which I believe to be more in keeping with such a statutory provision is that the court is to start with no ‘usual rule’ or preconceptions as to the costs issue. Rather, the question of costs, like other aspects of the case, will fall to be determined on its merits. This means that the applicant for indemnity costs must put forward all of the circumstances which suggest that the most [r]igorous order should be made.”
In the light of that conclusion it is desirable that we set out our views on the manner in which the court's jurisdiction to award indemnity costs ought to be exercised.
Until Marks the principles enunciated in Colgate-Palmolive and generally applied in the Court were:
1. Section 43 of the FCA confers an absolute and unfettered discretion on the Court to make orders as to costs but the discretion must be exercised judicially.
2. In order to exercise the discretion judicially the following principles have been accepted by the Court as applicable:
(a) the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course;
(b) the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the Court in departing from the usual course;
(c) whilst the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.
83. Cooper and Merkel JJ went on to consider relevant provisions of the Federal Court of Australia Act 1976 (Cth) and the Federal Court Rules 1979. Having done so, their Honours said, at 158:
As was pointed out by Sheppard J in Colgate-Palmolive, the costs for which these rules provide are costs on a party and party basis. The rules do not deal with the award of costs on any other basis. Although the gap between actual costs and the scale rate used in determining party and party costs may be increasing, it is relevant to note that the criterion in r 19 in respect of the items for which costs may be recovered allows recovery of all such costs, charges and expenses as appear to the taxing officer:
“to have been necessary or proper for the attainment of justice or for maintaining or defending the rights of a party … ”
The rules apply unless otherwise ordered. The very fact and terms of the relevant rules suggest to us that, unless the justice of the particular case requires or some special or unusual feature arises, the rules should not be departed from by the making of some other order for costs in exercise of the jurisdiction conferred under s 43 [of the Federal Court Act]. The generality of the criteria for departing from the usual rule ensures that the discretion to depart from the rule can be exercised whenever the Court is of the view that after applying the criteria to the facts of the particular case, it is just to do so. Such an approach is consistent with the requirement that the discretion to award costs is to be exercised judicially.
However, there are other reasons for continuing to apply the principles that have been generally applied in the Court.
As was also pointed out by Sheppard J in Colgate-Palmolive, for the reasons discussed by him, the ordinary rule in favour of party and party costs, has been settled practice in the courts in England and Australia over a very long period of time. It is not readily apparent why that practice should be changed. It may well be that the scale rates, rather than the principles, require review.
Further, a general discretion of the kind suggested by Einfeld J is likely to give rise to greater disputation over costs than already exists, with possible inconsistency within the Court and between courts. Such outcomes do not advance and are not in the interests of the administration of justice.
The combination of these factors leads us to the view that the principles enunciated in Colgate-Palmolive as stated above ought to continue to be applied in the Court.
84. Our research shows that the Federal Court has continued to apply the “usual rule” that costs are payable on a party/party basis. See Boyapati v Rockefeller Management Corporation (No 2) [2008] FCA 1375, at [29] to [31], where Kenny J referred to the many cases where the rule has been applied in the Federal Court. We observe also that the rule was applied (and Re Wilcox was cited with approval) by this Court in Strahan & Strahan (Appeal Costs) [2009] FamCAFC 225 at [13] per Boland, Thackray and O’Ryan JJ.
85. The same rule is applied in the Supreme Courts of:
New South Wales (see Michos v Council of the City of Botany Bay (No 3) [2012] NSWSC 1465 at [7]);
Victoria (see State of Victoria v Grawin Pty Ltd [2012] VSC 157 at [24]);
Queensland (see Pine Rivers, Caboolture and Redcliffe Group Training Scheme Inc (t/as East Coast Apprenticeships) v Group Training Assoc Qld and Northern Territory Inc [2013] QSC 87 at [16]);
South Australia (see Kenneally v Pouras & Ors [2007] SASC 303 at [13]);
Tasmania (see Hayward v Forest Practices Tribunal (No 3) [2004] TASSC 14 at [6]); and
Western Australia, where in Re Malley SM; Ex parte Gardner [2001] WASCA 83, a bench of five Judges held that a special costs order (another description for an indemnity costs order) will only be made in exceptional circumstances.
86. It will accordingly be seen that if the trial Judge purported to depart from the “usual rule”, he would not only have declined to follow settled authority in this Court, but also authority applied in all other superior courts in Australia.
I do not consider that the evidence and submissions advanced by either party would bring them within the above circumstances or any circumstances which would warrant or justify an order for indemnity costs.
Other matters
I am satisfied that I need not consider any further or additional matters save those set out above.
By reference to the above evidence I am not satisfied that Mr Watton has made out a case for costs on an indemnity or party-party basis.
By reference to the above evidence I am not satisfied that Ms Smart has, to the extent that it may be considered that her “application” for costs is properly before the Court has made out a case for costs on an indemnity or party-party basis.
I am satisfied that each party should pay their own costs of and incidental to both the substantive proceedings, past interim or interlocutory proceedings and the present Application in a Case.
Accordingly, I make orders as set out at the start of this Judgment.
I certify that the preceding one hundred and fifty-two (152) paragraphs are a true copy of the reasons for judgment of Judge Harman
Associate:
Date: 5 December 2014
(1A) For the purposes of this Act, a person takes genuine steps to resolve a dispute if the steps taken by the person in relation to the dispute constitute a sincere and genuine attempt to resolve the dispute, having regard to the person's circumstances and the nature and circumstances of the dispute.
(1) Examples of steps that could be taken by a person as part of taking genuine steps to resolve a dispute with another person, include the following:
(a) notifying the other person of the issues that are, or may be, in dispute, and offering to discuss them, with a view to resolving the dispute;
(b) responding appropriately to any such notification;
(c) providing relevant information and documents to the other person to enable the other person to understand the issues involved and how the dispute might be resolved;
(d) considering whether the dispute could be resolved by a process facilitated by another person, including an alternative dispute resolution process;
(e) if such a process is agreed to:
(i) agreeing on a particular person to facilitate the process; and
(ii) attending the process;
(f) if such a process is conducted but does not result in resolution of the dispute--considering a different process;
(g) attempting to negotiate with the other person, with a view to resolving some or all the issues in dispute, or authorising a representative to do so.
(2) Subsection (1) does not limit the steps that may constitute taking genuine steps to resolve a dispute.
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