Wicks and Smythe (No.2)
[2007] FMCAfam 436
•5 July 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WICKS & SMYTHE (No.2) | [2007] FMCAfam 436 |
| FAMILY LAW – Costs – indemnity basis – circumstances justifying an order for costs – reimbursement for the cost of valuation report. |
| Family Law Act 1975 (Cth) ss.117, 117C |
| Colgate Palmolive Company & Anor v Cussons Pty Limited (1993) 46 FCR 225 Kohan & Kohan (1993) FLC 92-340 Munday & Bowman (1997) FLC 92-784 Penfold v Penfold (1980) 144 CLR 311 |
| Applicant: | MS WICKS |
| Respondent: | MR SMYTHE |
| File number: | SYM 6735 of 2006 |
| Judgment of: | Henderson FM |
| Hearing date: | 21 June 2007 |
| Date of last submission: | 21 June 2007 |
| Delivered at: | Parramatta |
| Delivered on: | 5 July 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr Johnson |
| Solicitors for the Applicant: | Gells Lawyers |
| Counsel for the Respondent: | Mr Schonell |
| Solicitors for the Respondent: | Cara Marasco & Company |
ORDERS
The wife’s application for costs is dismissed.
The wife’s application that she be reimbursed the sum of $3,300, being her share of the cost of the report prepared by Merrell Associates Pty Ltd is dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Wicks & Smythe (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYM 6735 of 2006
| MS WICKS |
Applicant
And
| MR SMYTHE |
Respondent
REASONS FOR JUDGMENT
This is an application for costs which I heard on 21 June 2007. The wife seeks her costs of the litigation be paid by the husband. The wife’s case, in short, was that the orders made by me on 18 May 2007 resulted in the husband receiving a much lower figure by way of property settlement than the wife had offered to pay him in May 2006 which offer, she asserted, was open up to the day before the hearing.
The wife seeks indemnity costs from 9 May 2006 or, at the very least, from 27 July 2006.
Further, the wife sought an order the husband pay her an additional amount of $3,300.00 being her one half share of the cost of Merrell Associates Pty Ltd preparing a valuation of her business and the husband’s business pursuant to orders entered into on 27 November 2006 in relation to that discrete issue being order 13.
Mr Johnston of Counsel appeared by telephone for the wife and Mr Schonell of Counsel appeared in person on behalf of the husband.
Mr Schonell submitted that there should be no order as to costs.
I will deal with the issue of indemnity costs prior to dealing with the issue of costs at large.
The Law
Clearly the Court has power under section 117(2) of the Family Law Act 1975 (Cth) to order costs in contested proceedings. Section 117 is thus:
(1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AB and 118, each party to proceedings under this Act shall bear his or her own costs.
(2) If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
(2A) In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a) the financial circumstances of each of the parties to the proceedings;
(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c) the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g) such other matters as the court considers relevant.
In the decision of Penfold v Penfold (1980) 144 CLR 311, the High Court found that under s.117(2) the Court is required to make a finding that there are circumstances justifying the making of an order as an essential preliminary to the making of a costs order. Such a finding is thus an essential prerequisite for making a costs order under s.117(2), including an order for indemnity costs.
The High Court further held that the factors under s.117(2A) are not restrictive and the discretion to make an order for costs remains a broad one.
The Court has power to make an order for indemnity costs. That power is referred to in decisions such as Kohan & Kohan (1993) FLC 92-340. In that decision the Full Court consisting of their Honours Strauss, Lindenmayer and Bulley JJ found as follows:
In an appropriate case, the Court has discretion to order costs on an indemnity basis and such costs may be ordered where they have been incurred under a costs agreement which departs from the usual scale of costs. However, 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.
The Court further held that the impact of an indemnity costs order was a relevant matter which the court should have had regard, under section 117(2A)(a) and (g). The Court further stated that:
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.
Their Honours set out how the discretion to order costs ought be exercised:
The intent of sec 117(1) and (2) is that in the Family Court costs should not follow the event as a matter of course. However, where the justice of the matter requires, the Court may make such order as it considers just. It may depart from the scale of costs prescribed under the Rules but should not depart lightly from the ordinary Rules relating to costs.
In Kohan the orders made by Her Honour at the trial for indemnity costs was discharged by the Full Court and thus the appeal was upheld.
In the decision of Munday & Bowman (1997) FLC 92-784 by His Honour Chief Justice Holden of the Western Australia Family Court, he set out five criteria to be applied in exercising the discretion to order indemnity costs which he held were distilled from the decision of Justice Shephard of the Federal Court in the Colgate Palmolive case, Colgate Palmolive Company & Anor v Cussons Pty Limited (1993) 46 FCR 225. I bear in mind when dealing with those five criteria that in the Federal Court costs do follow the event unlike the Family Court.
The five criteria are as follows:
a)Where it appears an action is being commenced or continued in circumstances where a party should have known they had no chance of success.
b)Making allegations of fraud knowing them to be false.
c)There is evidence of particular misconduct that causes loss of time to the Court and to other parties.
d)The making of allegations which ought never to have been made or the undue prolongation of litigation.
e)An imprudent refusal of an offer to compromise.
Section 117C of the Family Law Act sets out offers of settlement which applies to proceedings under the Act:
(2) If:
(a) a party to proceedings to which this section applies makes an offer to the other party to the proceedings to settle the proceedings; and
(b) the offer is made in accordance with any applicable Rules of Court;
the fact that the offer has been made, or the terms of the offer, must not be disclosed to the court in which the proceedings are being heard except for the purposes of the consideration by the court of whether it should make an order as to costs under subsection 117(2) and the terms of any such order.
The Evidence
The wife’s evidence on the Costs application was contained in:
a)Wife’s Exhibit 1, the minute of orders sought.
b)Wife’s Exhibit 2 which consisted of letters dated 9 May 2006 from the wife’s previous solicitors, Alex Mijovich & Associates, and a letter dated 27 July 2006 from her current solicitors Gells Lawyers which she asserted contained offers of compromise and which the husband was imprudent in not accepting.
c)Wife’s Exhibit 3 which were the orders of the court made by my sister Federal Magistrate Housego on 27 November 2006 being order 13.
The Husband’s exhibits were Husband’s Exhibit 1 being letters of reply to the wife’s solicitor’s letter dated 22 May 2006 and 2 June 2006.
I was directed to read the parties affidavits in the interim proceedings before the court in November 2006, which I have done, in relation to conduct of the matter by each of the parties.
Those interim proceedings were brought by the husband on
6 November 2006 seeking a sale of the matrimonial home at Property N and the unit at Property H. The wife resisted that application on both fronts and in October 2006 by way of solicitors letter sought to lease Property N, despite having previously signed a sale agency agreement to sell the home in August 2006.
The result of the husband’s application was that there was in effect an agreement for sale of Property N and from the net proceeds of sale a discharge of the mortgage on the Property H unit.
It is fairly clear from the affidavits filed by each party in the interim proceedings that both asserted the other was failing to disclose vital financial information to the other, the husband in particular was most suspicious of the wife’s financial affairs and did not accept anything other than discovery of each and every transaction and business the wife had conducted.
The wife tried valiantly to hold onto the Property N property and there is a degree of brinkmanship in her conduct leading up to the husband bringing the matter to Court as the wife signed the contract for sale on the day of the interim Court proceedings.
I find that the letters of 9 May 2006 and 27 July 2006 constitute an offer of compromise under s.117C of the Act and I accept that they were not withdrawn formally other than the day before the hearing commenced, being the Friday before the Monday, when Mr Johnson prepared a minute of order as part of the wife’s case outline document offering the husband $10,000 to settle by way of property.
The circumstances of the hearing are this:
The matter was heard by me on 14, 15 and 17 May 2007. The hearing concerned both property and parenting orders.
The issue of parenting orders was in the main resolved on the morning of the first day of the hearing when I gave the parties time to prepare terms of settlement. There were, however, two remaining issues namely the quantity of time the husband was to spend with the child up until school age by way of holiday time and the issue of the time the child would spend with each his mother and father during the Christmas period, being Christmas Eve and Christmas Day.
Thus, when the hearing commenced, the live issues before the court were both parenting and property.
The offers of settlement made by the wife on 9 May 2006, on page 4 of the letter, provided this
a)That the husband receives the encumbered Property H property.
b)The wife retain the encumbered Property N property.
c)The husband receives a sum of $100,000 and further sum of $50,000 upon the eventual future sale of the Property N property.
d)The parties retain various items or personality.
I do not know how the husband could have accepted this offer, there being no time frame for him to be paid the sum of $150,000. The value of the unit at Property H was equal to the mortgage on the property at that time. Further there was no mention of parenting orders in this letter.
At the time of that offer, the parties were embroiled in a heated debate and discussion between their solicitors as to the failure of either of them to disclose their true financial position. However it is evident from the letter that the parties did know quite a lot of detail of the other’s financial position they just did not accept what they were being told or what they had seen. The wife was also fixed on retaining the Property N home where she and X were living
The husband was seeking both properties be sold to avoid the bank foreclosing.
In relation to the letter of 27 July 2006 from the wife to the husband, the offer was this:
a)A payment of $100,000 to the husband from the sale of the Property N house.
b)The husband receive the Property H unit.
c)A further $50,000 to be paid to the husband within 12 months.
d)Parenting orders were referred to in this order, namely the husband spend time with X one night during the week, one night each alternate weekend and with overnight time to increase when the child commences school and half school holidays when he attends school.
Looking at that offer in relation to the parenting matters, the husband did not accept the parenting offer. The orders made by consent at the commencement of the hearing and by the Court after the hearing were far more generous insofar as X’s time with his father was concerned than the wife’s offer.
The parenting aspect of the hearing occupied some 25 paragraphs of my Judgment of 165 paragraphs. My orders were that X was to spend time with his father:
1. a.In 2007 and each alternate year thereafter, from 4.00pm Christmas Day to a date calculated as seven (7) clear days thereafter, extending to one half of school holiday periods the year the child commences formal education and ending at 6.00pm on the last day.
b. In even numbered years the father’s time with the child during Christmas holidays and until the child attends formal education to commence at 9.00am seven (7) days prior to the 24 December 2007 and cease 9.00pm on 24 December 2007.
c.Upon the child commencing formal education the father’s time with the child in even numbered years will commence
i. 6.00pm on the last day of school to 9.00pm 24 December.
ii. And again for a further period of time in January to total with the time in Order 1(c)(i) as one half of the Christmas school holiday period and ending at 6.00pm on the last day. Such time in January to commence on a day as agreed, failing agreement, to commence Monday, the second week in January.
2.Otherwise than as provided in these orders, the child to spend each Christmas Eve with the father from 9.00am to 9.00pm Christmas Eve.
3.Until the child commences formal education the child to spend time with the father for three block periods of seven (7) days in each year as follows:
a. Being in 2007 the last week of July, the last week of October and the first week of December 2007.
b. In 2008, in each of the months March, June and October or as otherwise agreed.
4. Pursuant to section 65DA(2) of the Family Law Act 1975 the particulars of the obligations these orders create and the particulars of the consequences that may follow if a person contravenes these orders are set out in Annexure A and these particulars are included in these orders.
The father’s application in relation to block time and Christmas time with his son was completely successful and I rejected the wife’s position on the issue of how much time X was able to spend with his father.
In relation to the property issues, in hindsight the offer made by the wife if accepted would have resulted in the husband receiving $150,000 and a fully encumbered but rentable unit at Property H. This would have been a far superior result for the husband than the $70,000 I ordered he be paid. The offer did not break up the parenting and property aspects and the final words on the offer were:
This is an open offer of settlement however we have instructions to commence proceedings. Do you have instructions to accept service of documents?
I accept there was no reply to the offer.
There was time spent on the parenting issues at the final hearing both prior to the commencement of the hearing and during the hearing by the giving of evidence. Both the husband and wife gave oral evidence on this issue. I accept the bulk of time at the hearing was taken up by the property matters.
When one looks at the Judgment I delivered, a large portion of the judgment is taken up in dealing with the evidence of the wife that she had made a capital injection of some $623,000 into the marriage. That assertion by her was ultimately not accepted by me. Much of the trial was spent in pressing the wife on asserted contributions. The findings I ultimately made were that the wife at times double counted and /or embellished amounts she had paid into the matrimonial property.
The second matter that took some time at the hearing was the date of separation which the wife ran hard as an issue of credit. On that issue I found against the wife and accepted the date of separation as asserted by the husband.
The third time consuming issue was evidence by the wife that the failure of the (omitted) business was solely at the feet of the husband. I did not accept that evidence. I found the (omitted business) was a joint venture the parties entered into that was economically quite disastrous for them without fault on either side.
The wife failed to acknowledge, or glossed over, any initial capital contribution made by the husband to the parties’ assets and I found that their capital contribution had been equal during the marriage.
On the whole I preferred the evidence of the husband on matters of contest.
Indemnity Costs
The first issue is whether the above evidence constitutes a special or exceptional circumstance such that I should order indemnity costs. I do not see any special or exceptional circumstances. The husband has orders to spend time with his son which are far in excess of the offer put by the wife.
The husband has received by way of order half of the monies offered to him by the wife in July 2006. The mere fact the husband received less than the offer made in July 2006 is not determinative of this matter for the following reasons.
The wife’s costs are in the vicinity of $60,000. The husband’s costs are some $50,000. The husband is to be paid $70,000 thus he would receive no monies by way of property settlement if I ordered the wife’s costs to be paid by him. Consistent with the decision of Kohan that factor alone militates against my ordering indemnity costs.
However there are further factors relevant to the costs issue generally.
The wife’s conduct in the proceedings caused the husband some real difficulties. I found the wife’s figures were not reliable. The wife double counted and embellished her contributions on many occasions. Thus I can understand the husband’s reluctance to accept what the wife said at face value. The husband was required to bring the matter to Court to have the Property N home sold in November 2006 and the wife played a degree of brinkmanship on that occasion.
On the other hand the husband did not produce any real paper trail in order for Mr Merrill to determine his real income. However I note the wife asserted in her letter of 27 July 2006 that the husband did not earn sufficient income to pay the mortgage on the Property H property and that it needed to be rented out. I made a similar finding regarding the husband’s low income. Thus the wife must have had some idea of the husband’s income in July 2006.
Thus I reject the wife’s assertion that her costs on an indemnity basis should be paid from 9 May 2006 or 27 July 2006 to date. It cannot be a proper exercise of my discretion to order indemnity costs on these facts and thus deprive the husband of his property settlement. The wife’s application for indemnity costs is dismissed.
Costs
In relation to the costs generally the husband was required to bring the matter to Court in November 2006, as despite the wife’s offer to him to sell the Property N home in July 2006, in September 2006 she sought to retain the home and rent it out.
I am at a loss to understand how the wife could maintain that her offer of 26 July 2006 was still on foot at the hearing when:
a)the Property N home had been sold
b)the Property H unit was now unencumbered and was the only item of real estate in the parties possession.
The parties have each incurred enormous costs. The wife in the vicinity of $60,000 and the husband in the vicinity of $50,000. Those costs have been incurred in part by the attitude each took to the other and the mistrust between them.
Neither party gave confidence to the other by the disclosure they did or did not make prior to the hearing as to their financial position. In those circumstances, the conduct of each party, as I see the evidence, contributed to the enormous legal costs they have incurred to date and the fact that this matter took three days to complete.
I will now deal with the factors under s.117(2A).
Section 177(2A)(a). The financial circumstances of each of the parties to the proceedings. Neither party is in a good financial circumstance at present.
The wife has a capacity to earn considerable income and I made findings as to her business acumen and capacity which she continues to demonstrate today even in circumstances where she has a young child to care for. The wife has again established a business which after only nine months of operation is returning her an income. Her income during the marriage was four times the husband’s and that may well continue to be the case in the future. However, at present, the wife has received the property at Property H and is to pay the husband $70,000; therefore she has no cash to support herself or her son and will by my order be encumbered with a debt of $70,000. If the wife is unable to raise the money to pay out the husband the property is to be sold. The wife will need to borrow further monies to pay her costs bill.
In relation to the husband, he has received the sum of $70,000 and has a legal bill in the vicinity of $50,000. He has a modest income as a (occupation omitted). I found the wife’s income earning capacity was four times greater during the marriage than his.
Section 177(2A)(b). Whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party. Neither party is in receipt of legal aid.
Section 177(2A)(c). The conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters. Both parties conduct in this matter caused the litigation to be protracted. The wife took a particularly controlling view of the time her son should spend with the father in relation to block time and Christmas time and had the father not brought that application to the court his time with his son would have been very limited, both as to block time and Christmas time. The father was wholly successful in his application as to parenting.
In relation to the property aspect the wife had certainly made very generous offers to the husband offers on 9 May 2006 and 27 July 2006 to pay him far greater amounts of money than ultimately I determined should be received by him. However, the difficulty in the offers made by the wife, is that once Property N was sold the offer of 27 July 2006 insofar as it related to property was no longer able to be accepted and no fresh offer was forthcoming.
Additionally although the wife had signed a sales agreement to sell Property N in July 2006 her conduct was inconsistent with the offer of July 2006 in that she repeatedly sought to have the husband agree to retain Property N and rent it out.
Section 177(2A)(d). Whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court. Proceedings were not necessitated by the failure of a party to the proceedings to comply with previous orders of the court.
Section 177(2A)(e). Whether any party to the proceedings has been wholly unsuccessful in the proceedings; and Section 177(2A)(f). Whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer. The husband has been wholly successful in the proceedings in terms of the parenting issues. The wife has been wholly unsuccessful in the property proceedings in terms of the application she ran before me, namely that the husband be paid $10,000 by way of property settlement. Certainly in terms of the offers which she asserts were still on the table just prior to the property settlement that the husband receives $150,000, the wife was wholly successful. However I have found that the husband could not have accepted the May 2006 offer as it was open ended and that when Property N was sold late 2006 the July 2006 offer was not able to be accepted by the husband and could not have been still open as at the hearing.
Thus the only period in which the offer could have been accepted was between July 2006 and November 2006 which was at a time when despite the wife having signed a sales agreement to sell the home in July 2006 it was clear she had no real desire to sell Property N and wanted to retain the home and rent it out. This was the conduct that necessitated the husband bringing the application to court to sell the Property N home.
I do not see that there are any circumstances justifying the exercise of my discretion to order costs to the wife on any basis.
The wife’s conduct between July 2006 and November 2006 was inconsistent with her written offer of July 2006. That offer was not capable of acceptance after Property N was sold and the wife ran the hearing before me on the basis that the husband receive $10,000 when he received $70,000.
Does the justice of the case require I make an order for costs which is an order that departs from the norm? On the facts of this matter I find to the contrary in that to make an order for costs would not be doing justice in this matter. It is not sufficient to base an order for costs merely upon the sum awarded by me to the husband being less than an offer. The entirety of the proceedings must be looked at and the offer is to be seen in the circumstances of the case including the parties conduct. The husband was not imprudent in not accepting the offer of 27 July 2006 as that offer concerned both parenting and property, was only open until November 2006, and the wife’s conduct during that time was inconsistent with the offer in any event.
The wife’s application for costs is dismissed.
Reimbursement for the report of Merrell Associates Pty Ltd
In relation to the third order sought by the wife, namely that the husband pay her $3,300 being a reimbursement of monies paid by her for Mr Merrell’s report, I find as follows.
The relevant order is order 13 of 27 November 2006 which reads:
That the parties share equally in the costs of the expert in the first instance and the wife asserts that the only trading entity of hers is (omitted) and that her other businesses have no value. She reserves her right to seek that the husband reimburse her for any experts fees paid by her in the event that her assertion is found to be correct.
I accept the husband’s submission that all that order does is reserve the wife’s rights and is not a fetter to my discretion.
(omitted) was found to have no value. What was found to have value by Mr Merrell was (omitted), of $6,499 being an income stream from the time of sale up to the end of 2008. That asset was included by me in the matrimonial assets available for distribution.
The wife’s application for re-imbursement cannot succeed in these circumstances and is dismissed.
I certify that the preceding seventy five (75) paragraphs are a true copy of the reasons for judgment of Henderson FM
Date: 5 July 2007
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