X Pty Ltd and Ors and Merhi (No 2)
[2015] FamCA 862
•15 October 2015
FAMILY COURT OF AUSTRALIA
| X PTY LTD AND ORS & MERHI (NO 2) | [2015] FamCA 862 |
| FAMILY LAW – COSTS – Where seven third party companies seek their expenses in complying with subpoenas previously upheld by the Court over objection– Where twelve third party companies seek their costs arising from the proceedings in respect to those subpoenas – Where the husband seeks his costs from the wife and the wife seeks her costs from the third party companies – Where the Court finds the seven third party companies are entitled to all reasonable expenses incurred – Where the Court finds the wife was wholly unsuccessful in respect to the four subpoenas that were set aside – Wife to pay the costs of four of the twelve companies on a party/party basis – Costs of the husband reserved to the final hearing – Wife’s application for costs dismissed. |
| Family Law Act 1975 (Cth) s 117 Chen v Chan (No 2) [2009] VSCA 233 |
| FIRST APPLICANT: | X Pty Ltd (ACN 000 659 521) |
| SECOND APPLICANT: THIRD APPLICANT: FOURTH APPLICANT: FIFTH APPLICANT: SIXTH APPLICANT: SEVENTH APPLICANT: EIGHTH APPLICANT: NINTH APPLICANT: TENTH APPLICANT: ELEVENTH APPLICANT: TWELFTH APPLICANT: THIRTEENTH APPLICANT: | MerhiCo Finance Pty Ltd (ACN …) A Pty Ltd (ACN …) B Pty Ltd (ACN …) Merhi Bros Apartments Pty Ltd (ACN …) Merhi Brothers Investments Pty Ltd (ACN …) Merhi Group Holding Company Pty Ltd (ACN …) C Pty Ltd (ACN …) D Pty Ltd (ACN …) Mr E Merhi Holdings Pty Ltd (ACN …) Merhi Bros Holding Pty Ltd (ACN …) F Pty Ltd (ACN …) Mr G Merhi |
| RESPONDENT: | Ms Merhi |
| FILE NUMBER: | SYC | 511 | of | 2014 |
| DATE DELIVERED: | 15 October 2015 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | McClelland J |
| HEARING DATE: | Dealt with by way of written submissions |
REPRESENTATION
| COUNSEL FOR THE FIRST TO TWELFTH APPLICANTS: | Mr Lethbridge SC |
| SOLICITOR FOR THE FIRST TO TWELFTH APPLICANTS: | HWL Ebsworth |
| SOLICITOR FOR THE THIRTEENTH APPLICANT: | Mr Lewis of Sexton Family Law |
| SOLICITOR FOR THE RESPONDENT: | Mr Wilkie of Neville & Hourn Legal |
The Court Orders that:
The respondent wife is to pay the reasonable expenses incurred by the following companies, as agreed or assessed, in complying with the subpoenas served upon them by the respondent wife:
(a) X Pty Ltd (ACN …);
(b) A Pty Ltd (ACN …);
(c) B Pty Ltd (ACN …);
(d) Merhi Bros Pty Ltd (ACN …);
(e) Merhi Bros Investments Pty Ltd (ACN …);
(f) D Pty Ltd (ACN …); and
(g) Mr E Merhi Holdings Pty Ltd (ACN …).
For the purposes of Order (1) above, the reasonable expenses of the companies shall be:
(a) Labour costs;
(b) An additional loading of 20 per cent on labour costs; and
(c) Photocopy expenses.
The respondent wife is to pay one twelfth of the costs of the applicant companies incurred collectively, in respect to these proceedings, to each of the following companies:
(a) MerhiCo Finance Pty Ltd (ACN …);
(b) Merhi Group Holding Company Pty Ltd (ACN …);
(c) C Pty Ltd (ACN …); and
(d) Merhi Bros Holdings Pty Ltd (ACN …).
Further to Order (3) above, the respondent wife is to pay the costs incurred exclusively by each company referred to in Order (3), in respect to work undertaken for each company which was over and above that undertaken in respect to the applicant companies collectively.
Further to Order (3) and (4) above, the costs to be paid by the respondent wife are to be calculated from 13 March 2015, being the date of filing of the Application for Review.
The costs payable, pursuant to Orders (3) and (4) above, are to be those costs that are agreed between the parties, or otherwise assessed, on a party / party basis.
The respondent wife’s application for costs against the applicant companies is dismissed.
The issue of costs as between the husband and the respondent wife is to be reserved to the final hearing of the substantive proceedings.
The Court certifies that:
Pursuant to Rule 19.50 of the Family Law Rules 2004 (Cth), the applicant companies have reasonably engaged senior counsel.
IT IS NOTED that publication of this judgment by this Court under the pseudonym X Pty Ltd and Ors & Merhi (No 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC511 of 2014
| X Pty Ltd |
First Applicant
And
MerhiCo Finance Pty Ltd
Second Applicant
And
A Pty Ltd
Third Applicant
And
B Pty Ltd
Fourth Applicant
And
Merhi Bros Pty Ltd
Fifth Applicant
And
Merhi Brothers Investments Pty Ltd
Sixth Applicant
And
Merhi Group Holding Company Pty Ltd
Seventh Applicant
And
C Pty Ltd
Eighth Applicant
And
D Pty Ltd
Ninth Applicant
And
Mr E Merhi Holdings Pty Ltd
Tenth Applicant
And
Merhi Bros Holding Pty Ltd
Eleventh Applicant
And
F Pty Ltd
Twelfth Applicant
And
Mr G Merhi
Thirteenth Applicant
And
| Ms Merhi |
Respondent
REASONS FOR JUDGMENT
Introduction
On 30 July 2015, the Court made orders and delivered reasons for judgment in relation to an application by twelve third party companies (“the applicant companies”) to review a Registrar’s decision dismissing their objections to subpoenas filed by the wife.[1] The husband, who is the applicant in the substantive proceedings, supported the applicant companies in their objections to the subpoenas. The Court directed the parties to file and serve written submissions as to the costs of compliance with the subpoenas.
[1] X Pty Ltd and Ors & Merhi [2015] FamCA 622.
The applicant companies have each sought costs in respect to:
(1)The production of documents in compliance with those subpoenas that the Court upheld; and
(2)The proceedings that arose from their objections to the subpoenas.
The wife and the husband have also sought costs in respect to the proceedings which arose from the objections to the subpoenas.
The applicant companies fall within three categories. The first category of companies are those in which the husband has no interest and has held no office or employment. The second category of companies are those in respect to which the husband is or was an office holder but has no interest. The third category of companies are those in which the husband has an interest and is or was an office holder.
The orders made on 30 July 2015 set aside subpoenas addressed to four companies which fall within the first category of companies. Those companies are:
a)MerhiCo Finance Pty Ltd;
b)Merhi Group Holding Company Pty Ltd;
c)C Pty Ltd; and
d)Merhi Bros Holdings Pty Ltd.
In these reasons for judgment, those companies will be conveniently referred to as “the four successful companies”.
F Pty Ltd (“F”) is also a company which fell within the first category. That company provides accountancy services to the other eleven applicant companies. F, however, has produced documents and has negotiated an arrangement with the wife in respect to the expenses incurred in producing those documents.
Mr E Merhi Holdings Pty Ltd is also a company in the first category but it is alleged that Mr E Merhi Holdings Pty Ltd owns or has owned property that has been occupied by the husband and/or the wife. A subpoena to that company was upheld but varied to require production of a more limited category of documents relating to that issue.
The Court narrowed, but did not dismiss, subpoenas issued to the following companies:
a)X Pty Ltd;
b)A Pty Ltd;
c)Merhi Bros Pty Ltd;
d)Merhi Bros Investments Pty Ltd;
e)D Pty Ltd; and
f)B Pty Ltd.
Issues
The issues therefore are:
(1)Are the applicant companies entitled to their expenses reasonably incurred in respect to the retrieval, collation and production of documents in compliance with the subpoenas?
(2)Are the applicant companies entitled to costs incurred by the proceedings arising from their objections to the subpoenas?
(3)Is the husband entitled to costs in respect to his support of the applicant companies’ application in these proceedings?
(4)Is the wife entitled to costs in respect to her opposition to the application by the applicant companies and the husband to set aside the subpoenas?
Expenses of the applicant companies - Subpoenas
Submissions
The wife argued that the issue of conduct money that the wife is required to pay the applicant companies is dealt with by rule 15.23 of the Family Law Rules 2004 Cth (“the Rules”) which relevantly provides:
Conduct money and witness fees
(1)A named person is entitled to be paid conduct money by the issuing party at the time of service of the subpoena, of an amount that is:
(a)sufficient to meet the reasonable expenses of complying with the subpoena; and
(b)at least equal to the minimum amount mentioned in Part 1 of Schedule 4.
Part 1 of Schedule 4 of the Rules specifies that the minimum amount for conduct money to be attached to a subpoena is $10.
The applicant companies argued that, pursuant to rule 15.23 and more specifically (1)(a), “it is open for the Court to make the orders sought” for the wife to pay the reasonable expenses of the applicant companies’ in complying with the subpoenas on the basis that “the costs incurred by [the companies] far exceed the amounts provided by way of conduct money and [the companies] should be recompensed in a reasonable amount….”
The Court was not provided with an itemised schedule of expenses incurred, in respect of complying with the subpoenas, nor other information that would assist in determining the “reasonable expenses” incurred by the applicant companies. Albeit the Court notes that the last date of compliance with the subpoenas was 20 August 2015 and the applicant companies’ submissions were received by the Court on 13 August 2015.
Consideration
The law in respect to the issues raised in this matter is summarised in the decision of Butler J in the Marriage of Kennedy and Evans, Trust Bank (Intervener).[2] In that case, Butler J considered the concept of reasonable expenses in complying with a subpoena and determined that a third party, required to produce documents to the Court in compliance with a subpoena, is entitled to recover the costs actually incurred but is not entitled to recover profit costs in respect to that production.
[2] (1994) FLC 92-514.
In terms of costs actually incurred, Butler J held that the subpoenaed party is entitled to include labour, together with a margin for additional statutory on costs, but is not entitled to add a component for profit in calculating those costs.
Consistent with the reasoning of Butler J, the Court will order that each of the seven companies, that are required to produce documents pursuant to the orders made on 30 July 2015, may recover an amount equal to the salaries or wages paid by those companies for the time occupied by staff in searching for the documents required to be produced, together with an additional loading of 20 per cent in respect to statutory on costs or similar payments such as superannuation, sick leave, long service leave, holiday pay and workers compensation.[3] The calculation of that loading is necessarily imprecise but, in the circumstances, is considered to be fair and equitable.
[3] Ibid at 81,307 – 81,308.
Costs of the applicant companies – The proceedings
The applicant companies argued that they are entitled to their costs in respect to the proceedings arising from their objections to the subpoenas.
In Markoska & Markoska and Anor (Costs) (2011) 46 Fam LR 598, Murphy J usefully summarised the relevant principles as follows:
6. The Family Law Act 1974 (Cth) (the “Act”) provides that, as a general rule, each party to proceedings under the Act shall bear their own costs (s 117(1)). But, the Court retains a discretion to award costs in circumstances considered appropriate to justify an award.
7. The Court is required to have regard to a number of specified matters in the exercise of that discretion (s 117(2A)). Yet, while regard must be had to those matters, the discretion ultimately remains at large (s 117(2A)(g)).
8. Thus, it is not necessary for a court to be satisfied that all of the factors enumerated in s 117(2A) of the Act are satisfied before an order for costs is made. (See generally Fitzgerald (as Child Representative for A (Legal Aid Commission of Tasmania)) & Fish and Another [2005] FamCA 158; (2005) 191 FLR 294; 33 Fam LR 123)
9. So too, it is not necessary for an applicant for costs to satisfy “any additional or special onus”; rather what is required is “a finding of justifying circumstances as an essential preliminary to the making of a order” (Penfold v Penfold [1980] HCA 4; (1980) 144 CLR 311 at 315-316).
The application for costs, by the applicant companies, is based primarily on paragraphs (a), (c) and (f) of section 117(2A) of the Family Law Act 1975 (Cth) (“the Act”). Section 117(2A) relevantly provides:
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 respect to paragraph (a), the applicant companies acknowledged that they are in a superior financial position to the wife; but nonetheless argued that the wife has sufficient financial resources to meet any relevant costs order.
In respect to paragraph (c), the applicant companies argued that the wife was “wholly unsuccessful” in respect to the subpoenas addressed to the four successful companies because the subpoenas were set aside in their entirety.
The applicant companies argued that they were substantially successful in respect to their argument that the subpoenas addressed to the remaining applicants should be narrowed.
Finally, the applicant companies argued that, in terms of sub-paragraph (f), the solicitor acting on behalf of the applicant companies had, in correspondence with the wife’s solicitors, offered to meet with a view to discussing reducing the scope of the subpoenas. That offer was rejected by the wife’s solicitors.
The husband's application for costs was based on similar arguments to those advanced by the applicant companies.
The wife argued against costs being ordered against her on the following basis:
(1)The wife is in an inferior financial position, as contemplated by section 117(2A)(a).
(2)Other than in respect to the four successful companies, the wife argued that she was substantially successful in upholding the subpoenas.
(3)Although the wife’s solicitors declined the invitation to meet with the solicitor for the applicant companies they had by correspondence, invited the applicant companies to specify what documents they were prepared to produce.
In respect to that third point, the wife argued that, in the absence of the applicant companies indicating to the wife what documents they were prepared to produce, it was unreasonable to expect the wife to effectively "bid against herself" by unilaterally narrowing the scope of the subpoenas.
Consideration
There is no question that the wife was "wholly unsuccessful" in the proceedings in respect to the four successful companies as each of the subpoenas to those companies were set aside.
Of lesser significance in the exercise of the Court’s discretion is section 117(2A)(f), insofar as the solicitor for the applicant companies requested the solicitor for the wife meet to discuss a mutually acceptable arrangement in respect to the production of document. As indicated, the solicitor for the wife declined that invitation on the basis that the companies had not identified those documents which they were prepared to produce and it was unreasonable to expect the wife to "bid against herself."
The wife's request for the solicitors for the companies to actually indicate the documents they were prepared to produce was based on a false premise. As indicated in the reasons for judgment delivered on the 30 July 2015, subpoenas are not in the nature of discovery and it is for the issuing party to justify the basis upon which the they require the documents to be produced; rather than imposing the obligation on the subpoenaed entity or party to indicate those documents which they are prepared to produce.[4]
[4]X Pty Ltd and Ors & Merhi [2015] FamCA 622 at [29] and [38].
It was therefore an imprudent decision on the part of the solicitors for the wife to decline the invitation to meet with a view to attempting to resolve the company's concerns.
Finally, while the applicant companies acknowledge that they are in a superior financial position, the wife acknowledged that her financial circumstances are as set out in her financial statement filed on 31 January 2014, which relevantly states her:
(1)estimated income as $1 557 per week;
(2)estimated assets as $2 423 152;
(3)superannuation as $80 000; and
(4)liabilities as $6 000.
Having had regard to paragraphs (a), (c) and (f) of section 117(2A), the Court orders that the wife is to pay the costs incurred by the four successful companies in respect these proceedings for the period since 13 March 2015 being the date the companies filed their Application for Review of the decision of Registrar Chayna.
Quantification of costs
Complication can arise in circumstances where those parties, in whose favour a costs order is awarded, were represented by a firm of solicitors who also appeared on behalf of unsuccessful parties or, more relevantly in this case, not wholly successful companies. In those circumstances, it is appropriate to apply what has become known as the "rule of thumb". That rule applies where joint costs have been incurred by respondents who engage a single solicitor to represent those respondents who have been both successful and unsuccessful.
In Chen v Chan (No 2),[5] the Court of Appeal of the Supreme Court of Victoria summarised the rule of thumb principle in the following terms:
Where a number of parties have had the same representation, there is a ‘rule of thumb’ as to the apportionment of costs, namely that, where some of those parties have been successful and others have not, each successful party is only entitled to his or her proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his or her behalf. The primary issue for determination in such a case is that of fairness as between the parties, having regard to the manner in which the trial, or appeal, has been conducted.
[5] [2009] VSCA 233 at [10].
The rule of thumb principle was recently considered in some detail in James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland (No.2).[6] After analysing relevant authorities, McDougall J held that the “rule of thumb may be used in some ‘ordinary and straightforward cases’ as a safe guide to the exercise of the costs discretion.”[7] The present case is sufficiently straightforward for the principle to be applied and, in the absence of assistance from the parties as to a more appropriate approach, it will be applied in the exercise of the Court’s discretion to award costs.
[6] [2015] NSWSC 970.
[7] Ibid at [56].
Applying the rule of thumb principle, it is reasonable to assume that each of the four successful companies were responsible for paying one twelfth of the legal costs incurred by the applicant companies collectively. Accordingly, each of the successful companies will be awarded one twelfth of costs incurred by the applicant companies collectively, together with any additional costs incurred solely on behalf of the successful companies individually.
The Court certifies that senior counsel’s fees were appropriately incurred on the basis that:
(1)the wife’s solicitors indicated that the advice of senior counsel had been obtained;
(2)the solicitor for the applicant companies gave notice that if the matter could not be resolved in discussions then senior counsel would be retained;
(3)the legal issues were reasonably complex; and
(4)the proceedings had potentially significant implications for the applicant companies in terms of costs incurred in producing the documents and the potential disruption that exercise would cause for the applicant companies.
Costs will be payable on a party-party basis as agreed or assessed.
The Husband’s Costs
As noted, on substantially the same basis as that advanced by the applicant companies, the husband argued that that he was entitled to an order for costs in his favour
The wife opposed such an order and argued that the reason why the wife was required to issue the subpoenas in the first place was as result of the non-disclosure, or inadequate disclosure, provided by the husband of his financial circumstances.
The Court is not, at this stage of the proceedings, prepared to determine that the presumption set out in section 117(1) should not be applied in respect to costs incurred by the husband.
In deferring consideration of that issue, the Court has had regard to the comments by Murphy J in Markoska (supra)[8] that it may be appropriate to consider costs incurred in interim proceedings in the context of the wider litigation between the parties.
[8] (2011) 46 Fam LR 598 at 605[41]-[43].
In that context, as noted, the wife argued that the reason why the subpoenas were issued was as result of the non-compliance of the husband with the husband's obligations of disclosure under the Act and the Rules.
Whether disclosure by the parties, as required by the Act and the Rules, has occurred, will be an issue of potential significance in terms of considering the application of section 117(2A)(c). The adequacy of the disclosure that has occurred will become apparent at the final hearing. Accordingly, the issue of costs as between the wife and the husband will be reserved until the final hearing.
The Wife’s Costs
As noted, the basis upon which costs have been awarded in favour of the four successful companies is that they have been "wholly successful". In so far as the wife has sought costs against the remaining seven companies, it cannot be said that the wife has been "wholly successful" and on that basis, costs will not be awarded in favour of the wife as against the applicant companies.
I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of the Honourable Justice McClelland delivered on 15 October 2015.
Associate:
Date: 15.10.2015
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