Yanez & Yanez (No 2)
[2024] FedCFamC1F 166
•22 March 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Yanez & Yanez (No 2) [2024] FedCFamC1F 166
File number(s): PAC 5502 of 2018 Judgment of: ALTOBELLI J Date of judgment: 22 March 2024 Catchwords: FAMILY LAW – COSTS – SOLICITOR’S LIEN – Where the wife seeks indemnity costs against the husband – Where the husband’s former solicitor seeks a lien for unpaid costs due to him by the husband – Indemnity costs ordered in favour of the wife – Where both the wife and the husband’s former solicitor seek to recuperate their costs from the husband’s entitlement held in the wife’s solicitor’s trust account – Where the entitlement is less than the monies owed to the wife and the husband’s former solicitor – Where it is unlikely the husband will pay any outstanding monies – It is ordered that the husband’s former solicitor be paid first from the entitlement and the wife have a charge as against the reminder. Legislation: Family Law Act 1975 (Cth) ss 79, 90AA, 114, 117
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 12.17
Cases cited: Bhatt & Acharya (Costs) [2017] FamCAFC 71
Cross & Beaumont (2008) 39 Fam LR 389; [2008] FamCAFC 68
Edwards & Peters [2014] FamCAFC 51
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) & Fish & Another (2005) 33 Fam LR 123; [2005] FamCA 158
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1998] FCA 364
In the Marriage of I & I (No. 2) (1995) FLC 92-625; [1995] FamCA 80
Kohan and Kohan (1993) FLC 92-340; [1992] FamCA 116
Lenova & Lenova (Costs) [2011] FamCAFC 141
Macura v Sarasevic (No 2) [2019] NSWSC 1621
Marsh & Marsh (2014) 52 Fam LR 395; [2014] FamCA 361
Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664; [2015] FamCAFC 157
Parke & The Estate of the Late A Parke (2016) FLC 93-748; [2016] FamCAFC 248
Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
Phillips & Hansford (2020) FLC 93-941; [2020] FamCAFC 28
Twigg v Keady (1996) FLC 92-712; [1996] FamCA 115
Yanez & Yanez [2023] FedCFamC1F 284
Division: Division 1 First Instance Number of paragraphs: 77 Date of last submission/s: 31 October 2023 Date of hearing: Heard on the papers Place: Sydney Solicitor for the Applicant: Coleman Greig Lawyers The Respondent: Litigant in person Solicitor for the Intervener: N Lawyers ORDERS
PAC 5502 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS YANEZ
Applicant
AND: MR YANEZ
Respondent
N LAWYERS PTY LTD
Intervener
ORDER MADE BY:
ALTOBELLI J
DATE OF ORDER:
22 MARCH 2024
THE COURT ORDERS THAT:
1.The parties do all things necessary to cause the respondent husband’s (“the husband”) debt to N Lawyers Pty Ltd (“N Lawyers”) for outstanding legal fees, in the sum as agreed or assessed, to be paid from the husband’s entitlement pursuant to Order 6 of the orders made on 18 April 2023.
2.If the husband and N Lawyers fail to reach agreement in relation to the sum referred to above within 14 days of the date of these orders, Mr P from N Lawyers is to forthwith thereafter apply for his costs to be assessed and keep the applicant wife (“the wife”) advised of the progress of this process at all times.
3.Within 60 days of the date of these orders, the husband is to pay the costs of the wife in the amount of $302,772.
4.The wife be granted a charge as against the husband’s entitlement pursuant to Order 6 of the orders made on 18 April 2023 subject to Orders 1 and 2 of these orders, and she shall be permitted to reduce the sum payable to the husband pursuant to Order 3 of these orders.
5.All other applications before the Court are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Yanez & Yanez has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALTOBELLI J:
BACKGROUND
On 19 August 2022, Hannam J heard the application made by the wife (“the wife”) in relation to parenting orders for the parties’ child (“the child”) and property settlement orders on an undefended basis after the respondent husband (“the husband”) failed to engage in the proceedings. The Court delivered judgment on 18 April 2023 and made orders for the wife to have sole parental responsibility for the child and for the child to live with the wife and spend no time with the husband, and orders for an alteration of property interests as to 70:30 in the wife’s favour which resulted in a payment to the husband of $164,039 (Order 6). Reasons for judgment were provided, Yanez & Yanez [2023] FedCFamC1F 284 (“reasons for judgment”), and various passages will be referred to or reproduced where it is relevant.
The wife seeks an order for costs against the husband following the finalisation of the substantive proceedings. In her Application in a Proceeding filed 16 May 2023, the wife seeks an order that the husband pay costs on an indemnity basis in the sum of $302,772.74 or as otherwise assessed; or, in the alternative, the husband pay the costs of the wife on a party/party basis. The wife seeks that she have a charge as against the husband’s entitlement pursuant to Order 6 made on 18 April 2023 to reduce the settlement sum payable to the husband.
In his Response to an Application in a Proceeding filed 31 July 2023, the husband seeks that the wife’s application for costs be dismissed and the sum of $144,306.24, being the balance payable to the husband pursuant to Order 6 made on 18 April 2023 (less $19,732.76 paid to the Child Support Agency), be paid to the husband within 48 hours. In the alternative, the husband seeks that the sum of $60,339.75 (less $19,732.76 paid to the Child Support Agency and less $83,966.49 pending the application by N Lawyers Pty Ltd) be paid to the husband within 48 hours of the date of these orders.
On 16 May 2023, a Senior Judicial Registrar made orders by consent staying Order 6 made on 18 April 2023 and allowing for the wife’s legal representatives to release monies in the sum of $19,732.76 to the Child Support Agency to comply with the Notice received from the said agency. Therefore, the husband’s entitlement in the wife’s solicitor’s trust account has now been reduced to $144,306.24.
On 29 August 2023, Mr P, solicitor from N Lawyers Pty Ltd (“N Lawyers”), the husband’s former lawyers, appeared in person in support of his Further Amended Application in a Proceeding filed 4 May 2023 in which he sought, in effect, to be paid his legal costs in the sum of $83,966.48 out of the husband’s share of the sale proceeds ordered to be paid to him by Hannam J, in priority to any entitlement of the wife to the said monies. Doing the best the Court can to understand his case, Mr P was asserting that N Lawyers was either entitled to a lien, or was the husband’s creditor whose debt should not be defeated in whole or in part by any order for costs made in favour of the wife.
PRESENT APPLICATIONS
In support of her case, the wife relies on the following material:
(a)Application in a Proceeding filed 16 May 2023;
(b)Her affidavit filed 16 May 2023;
(c)Further Application in a Proceeding filed 16 May 2023;
(d)Her affidavit filed 16 May 2023;
(e)Written submissions filed 20 June 2023; and
(f)Written submissions in reply filed 7 August 2023.
In support of his case, the father relies on the following material:
(a)Response to an Application in a Proceeding filed 31 July 2023;
(b)His affidavit filed 4 August 2023; and
(c)Written submissions filed 31 July 2023.
In support of the claim by N Lawyers, Mr P relies on the following material:
(a)Further Amended Application in a Proceeding filed 4 May 2023;
(b)His affidavit filed 8 September 2023; and
(c)Written submissions filed 8 September 2023.
LEGAL PRINCIPLES IN RELATION TO THE WIFE’S COSTS APPLICATION
The law relating to costs in family law proceedings is well settled and is set out in detail in the Full Court decision of Parke & The Estate of the Late A Parke (2016) FLC 93-748.
An application for costs is governed by s 117 of the Family Law Act 1975 (Cth) (“the Act”). Section 117(1) of the Act sets out the general presumption that each party to the proceedings shall bear their own costs. This is subject to s 117(2), which provides that:
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), (4A) and (5) and the applicable Rules of Court, make such order as the court may make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
Section 117(2A) sets out the matters that the Court is to have regard to:
(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.
Although the Court is required to consider each of the abovementioned factors, their relevance to a particular matter will depend upon the circumstances of that case and they should be considered in that light. That is, no one factor prevails over another and it is a question of the weight that is to be afforded to each of the relevant factors depending on the circumstances of the matter (Medlon & Medlon (No. 6) (Indemnity Costs) (2015) FLC 93-664 at [24]). There is also “nothing to prevent any factor being the sole foundation for an order for costs” (Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) & Fish & Another (2005) 33 Fam LR 123 at [41]).
Whilst the applicant in a costs application must establish the circumstances justifying the making of a costs order, the Court is not limited to making such an order only in what has been described as a “clear case” (Penfold v Penfold (1980) 144 CLR 311).
DISCUSSION IN RELATION TO THE WIFE’S COSTS APPLICATION
Costs orders are made at the Court’s discretion based on the factors listed in s 117(2A) of the Act. The Court must consider all the factors in s 117(2A), and no one factor takes precedence over another (In the Marriage of I & I (No. 2) (1995) FLC 92-625). A discussion of these considerations follows.
Section 117(2A)(a): Financial circumstances of the parties
The wife acknowledges that she seeks costs in a sum greater than the husband’s overall entitlement and in the short term, the only means to satisfy such an order is from the husband’s entitlement pursuant to the final order.
In paragraphs 32–35 of her affidavit, the wife deposes that the husband is self-employed and is the sole director and shareholder of O Company. She states he was well known for his high‑quality work and provided the family with a significant income. She believes that the husband still works and operates O Company.
In his affidavit, the husband deposes that even if he were ordered to pay the wife’s costs, he does not have the money to do so, and it would result in him having to go bankrupt. He states as follows:
I have significant debts and lack of income and just seek the funds to enable me to clear my debts, get the help I need and start over, without the negative effect of going bankrupt.
The husband also denies that he still operates or that he is the sole director and shareholder of O Company as the company has been deregistered since late 2021 and he annexes a copy of an ASIC extract showing the deregistration. He deposes that although he used to earn a high income, it has declined significantly due to his declining physical health, mental health and addiction, downturn in the business, loss of tradesmen and the effects of COVID-19.
In his written submissions filed 31 July 2023, the husband states his current assets are funds in Westpac ($1,564.25), his business ($30,000), home contents ($20,000) and the sum awarded in the reasons for judgment ($164,039). He further states that although the reasons for judgment attributed a value of $30,000 and $20,000 to the business and home contents respectively, it is now worth $20,000 and $10,000 due to the status of the business and depreciation in equipment. The husband further states that he has liabilities of legal fees, various credit cards, monies used to purchase business supplies, various loans and unknown ATO liabilities. On the husband’s case, he therefore has a net property value of approximately $27,020.
In any event, a party’s inability to pay costs is not a bar to a costs order being made if that party’s conduct is found to warrant such an order (Cross & Beaumont (2008) 39 Fam LR 389) and mere impecuniosity is not a reason per se for declining to make a costs order (see, e.g., Lenova & Lenova (Costs) [2011] FamCAFC 141; Bhatt & Acharya (Costs) [2017] FamCAFC 71).
Although the wife accepts that the husband’s financial circumstances are a relevant consideration, she submits that the Court should not place disproportionate weight on this section as the balance of the considerations significantly favour the wife.
Section 117(2A)(b): Whether the parties are in receipt of legal aid
The husband states that he applied for legal aid assistance but the application was not approved prior to the filing directions in this application being due.
The wife is not in receipt of legal aid.
Section 117(2A)(c): The conduct of the parties and section 117(2A)(d): Failure to comply with orders of the Court
The wife submits that the husband’s conduct warrants an indemnity costs order. The Court will discuss the conduct of the parties as to the parenting and property proceedings separately.
Parenting
The wife submits that the husband intentionally concealed positive drug tests, habitually fell into non-compliance with parenting orders and drug test orders and maintained his position of seeking unsupervised overnight time with the child (in interim and final applications) in circumstances where he did not accept he posed any risk despite his drug and sex addictions.
In relation to the concealed positive drug test, the wife deposes to an instance where her solicitor requested the husband undertake urinalysis and hair follicle testing on 29 January 2019. On 20 February 2019, her solicitor received correspondence from the husband’s solicitors enclosing negative urinalysis test results indicating the results had been collected on 14 February 2019 (despite the husband being required to undertake testing within 48 hours of any request pursuant to previous orders). That correspondence also requested that the husband be permitted to spend time with the child on an unsupervised basis and referred to his drug use as a “former drug habit”. The wife then deposes to entering the former matrimonial home on or about 27 February 2019 and finding a urinalysis test collected on 31 January 2019 (in compliance with the 48-hour requirement) revealing a positive result for drugs. The wife details further correspondence between the solicitors whereby the husband accuses the wife of engaging in fraudulent conduct and obtaining the positive drug test result by unlawful means.
In response to this, the husband submits that he told his solicitor to disclose it, but his solicitor refused and asked him to re-take the drug test on the basis that he would not be able to see the child. The husband deposes that he “reluctantly agreed”.
The correspondence received from the husband’s solicitors implies they were not surprised by the positive drug test result disclosed by the wife and their conduct of subsequently filing an application seeking an injunction against the wife entering the home with no mention of the positive drug test result is nefarious. The Court finds that it is possible the husband received the alleged advice from his solicitor. However, whether the husband received this advice, it is still unacceptable behaviour by the husband and a serious attempt to mislead the Court.
In relation to the husband’s non-compliance with drug test requests, Hannam J finds at [38] and [54] of the reasons for judgment:
38.Throughout 2019 various requests were made by the mother through her solicitor for the father to undergo urinalysis drug-testing. Most requests were not complied with by the father in the time-frame specified in court orders and it would appear that at least one of the negative results produced by the father was tampered with and was inaccurate.
…
54.On various occasions in 2020 the mother through her solicitor continued to make requests for the father to undergo drug testing which were seldom complied with by the father in accordance with orders.
In relation to his non-compliance, the husband states that as he was suffering from a mental illness and addiction issues, this has caused him to “not think straight” and “do things which someone that is of sound mind may not do”. He also states that he did not see the point in funding the drug tests in circumstances where he knew it would be positive. Despite this, he submits he sought unsupervised overnight time because he has always seen himself as a good father to the child and would never put the child in harm’s way.
The Court finds that the husband unreasonably pursued unsupervised overnight time and protracted litigation in circumstances where he did not accept that he poses a risk and had no reasonable prospects of success. At [137] of the reasons for judgment, Hannam J states:
… The expert did not accept that the father had overcome his difficulties in managing his use of drugs and sex and opined that the father has been unable or unwilling to abstain and had rather continued to prioritise his own needs and desires over the needs of the child.
Property
In relation to property, the wife submits that she was required to file multiple interim applications because of the husband’s non-compliance with orders, the husband’s conduct was plagued with non-disclosure and the husband depleted the pool significantly (in breach of orders).
In response to the allegation that the wife filed multiple interim applications as a result of the husband’s non-compliance with orders, the husband largely relies on an assertion that he received incorrect advice from his former solicitors and he did not have funds, so he was forced to draw down on the property (despite there being orders preventing him from doing so). In any event, the husband submits, and the Court accepts, that costs have already been determined for these interim applications thus no weight can be placed on this point.
The wife deposes to the difficulty she experienced in obtaining disclosure from the husband. Justice Hannam finds at [241]–[242] of the reasons for judgment:
241.The wife makes complaint that the husband repeatedly ignored her requests for disclosure in relation to his business. Throughout the course of the proceedings she received only few documents from the husband relating to the financial records of the business. These documents include one bank statement, an ASIC company search, Tax Returns and financial statements for 2017 and 2019 and an ATO Statement of Account for the period 1 July 2018 to 30 April 2019. The wife was otherwise required to issue subpoenas throughout the proceedings.
242.In accordance with the authorities, the main impact of established non‑disclosure or partial disclosure of significant information by a party is that a court should not be “unduly cautious about making findings in favour of the innocent parties”[1]. Taking the issue of non-disclosure into account, I accept the submission of the wife that the husband through his company has significant earning capacity which far exceeds her earning capacity.
[1] Weir & Weir (1993) FLC 92-338, 8.
In relation to the non-disclosure, the husband submits that he did not keep proper financial records due to his poor mental health and addiction issues, but that he gave his solicitors access to his bank accounts so that they could disclose them. He further submits that he is “not good with computers or technology” and did what he could. Whilst it is unfortunate that the husband struggles with addiction issues and poor mental health, this does not change the position that the wife was placed in and the additional costs she incurred in dealing with such significant non-disclosure.
The wife submits that the husband depleted the asset pool significantly in deliberate non‑compliance with orders. The husband was restrained from further encumbering the parties’ properties (the Suburb D property, the Suburb L property and the Suburb C property) pursuant to orders made in December 2018. The wife deposes to the husband further encumbering the loan on all three properties throughout the substantive proceedings. In relation to the Suburb C property, the wife details (among others) amounts withdrawn by the husband of $3,500 to repay his credit card, $155,000 “in order to preserve the parties’ assets” and further amounts to pay his legal fees. The wife was required to send numerous correspondence, filed two interim applications and after a contested interim hearing before Foster J, she was appointed trustee for sale and awarded costs. In relation to the Suburb L property, Hannam J found that the husband increased the loan by $202,582 in the reasons for judgment at [170] and notionally added back the sum of $200,000 as an asset of the husband as he had recklessly depleted the loan account. In relation to the Suburb D property, the wife alleges the husband increased the loan in breach of orders in the amount of $20,976. It is noted that Hannam J found in relation to this at [178]:
178.I am of the view that the manner in which the wife seeks to add this sum back and bring it to account amounts to engaging in an accounting exercise which the authorities[2] make very clear is not the appropriate way to conduct the exercise of bringing expenditure into account. In circumstances where the Full Court has stated that addbacks are “the exception rather than the rule”[3], I do not consider it necessary to add this sum back to the notional property pool for distribution as sought by the wife in order to achieve justice and equity between the parties. I consider that it is more appropriate that the husband’s use of this account in his sole name is taken into consideration when assessing contributions of the parties.
[2] Dickons & Dickons [2012] FamCAFC 154 at [25] which was cited with approval in Babett & Falconer [2015] FamCAFC 124 at [44].
[3] Cerini & Cerini [1998] FamCA 143 at [46] which was cited with approval in Trevi & Trevi [2018] FamCAFC 173 at [28].
However, in this instance, the Court is assessing the conduct of the husband in relation to costs and not from the perspective of addbacks. It is also implied by the wife that she is not seeking a forensic exercise of the amounts wasted by the husband but rather depicting the husband’s conduct throughout these proceedings and the significant legal fees incurred in dealing with the husband’s continual non-compliance with orders.
In relation to this, the husband concedes that he increased the debt on the properties and again attempts to explain this by way of his mental health and addiction. The Court finds that the wife was unnecessarily burdened by legal fees in dealing with continued non-compliance by the husband in depleting the parties’ assets.
Other
The wife further relies on the fact that the husband disengaged from the proceedings in May 2021 and the matter thereafter proceeded on an undefended basis. Further, she states that the parties incurred significant costs of a single expert witness only for the husband to ignore the recommendations and then disengage.
The husband deposes to his reasons as to why he disengaged with the proceedings. These include: he did not have funds to pay for legal representation, he was not made aware of the final hearing dates and he expected to receive some form of written notice of the hearing; and he is unfamiliar with the legal process and assumed his previous affidavits would be considered as evidence in the final hearing. He also deposes to struggling with severe depression and having to disengage with the proceedings as a result of his poor mental health.
It should be noted that it is not the Court’s responsibility or the wife’s responsibility to inform the husband of Court events and proceedings in his matter. The onus is on the husband to check the Commonwealth Courts Portal to check when his own matter is next listed. Further, the husband disengaged from the proceedings in May 2021 and the matter proceeded undefended on 19 August 2022. The husband had the benefit of 15 months to inform the Court of his financial position and mental health issues.
The husband further submits that his disengagement from the proceedings saved the wife from further legal fees as her solicitors did not need to review any trial material and had no one to correspond with. This is a lack of understanding by the husband. The wife was put to the significant expense of a contested application including ongoing legal correspondence and a single expert only for the husband to disengage. The wife would not have had to meet these legal expenses if the matter was uncontested from the first place.
Section 117(2A)(e): Whether a party has been wholly unsuccessful in the proceedings
The matter proceeded undefended. It is conceded that the husband was wholly unsuccessful in relation to the parenting proceedings.
In relation to the property proceedings, the wife sought 80 per cent of the net property pool and she was awarded 70 per cent. The husband submits she was not successful in relation to property.
Section 117(2A)(f): Offers of settlement
The wife deposes to the history of offers made by her in the proceedings in paragraphs 144‑160 of her affidavit and concludes that all her offers were rejected. The wife particularly relies upon an open offer made by her to the husband on 22 January 2020. This offer had the effect that she receive 55 per cent of the overall asset pool at the time which translated to the wife receiving $1,213,995 and the husband receiving $986,455. This offer was rejected by the husband. Justice Hannam ultimately ordered that the wife receive 70 per cent of the overall asset pool which in fiscal terms awards the wife with $1,658,254 and the husband receiving $164,039.
In relation to this, the husband submits that it was entirely reasonable for him to reject this offer at the time based on the advice he received from counsel. He accepts that in hindsight he should have accepted the offer given what Hannam J ultimately ordered but that he was acting on advice that he would receive 65 per cent of the property pool at the time. He further submits that had the property proceedings been defended, the wife would not have received 70 per cent of the property pool. The husband made a counteroffer of an alteration of property interests as to 42 per cent to the wife and 58 per cent to the husband.
The Court can only do the best it can on the circumstances and evidence before it. Justice Hannam decided that an alteration of property interests of 70 per cent to the wife and 30 per cent to the husband is just and equitable. The wife clearly made an offer that is significantly less than what she ultimately received and this will be taken into account.
Section 117(2A)(g): Any other relevant matters
The husband submits that the Court should take into account his health issues and in particular, his mental capacity and addiction. He says that because of his addiction, he was not thinking straight or acting rationally which caused him to disengage in the proceedings. He asks that he be able to take what little amount has been awarded to him to sort out his debts and get the mental help that he needs to overcome his sickness.
The wife submits that it is the husband’s own conduct that has led to an outcome being unfavourable to him and whilst he is no doubt unsatisfied with the outcome, it is not appropriate for him to oppose a costs order on the basis that his financial situation is so poor.
The Court briefly addresses the husband’s submission that cost orders have already been made and the wife is seeking indemnity costs on some proceedings where costs have already been ordered. The Court accepts the wife’s submission that she has incurred total legal costs and disbursements of $330,358 but has deducted $27,586 which includes previous interim costs orders and legal fees added back by Hannam J in the reasons for judgment. Therefore, the wife seeks indemnity costs in the sum of $302,772.
The Court accepts that the husband is in a difficult situation and does urge him to seek help. However, this does not change his conduct throughout the proceedings of blatant non‑compliance and disregard for Court orders. The Court accepts that the wife has been put to the expense of unnecessary legal fees because of the husband’s conduct and the husband has unreasonably refused an offer that would have awarded him significantly more than what was ultimately ordered. The wife was also wholly successful in the parenting proceedings. A costs order will be made in favour of the wife.
INDEMNITY COSTS
The wife seeks an order for indemnity costs. The husband opposes this application.
It is well settled that when costs are ordered by this Court, such costs are payable on a party‑party basis. It has been held that the Court should not lightly depart from the ordinary rule (Kohan and Kohan (1993) FLC 92-340).
The provision relating to the calculation of costs is governed by r 12.17(1) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) which is as follows:
12.17 Method of calculation of costs
(1) The court may order that a party is entitled to costs:
(a) of a specific amount; or
(b)as assessed on a particular basis (for example, party and party, solicitor and client or indemnity); or
(c) to be calculated in accordance with the method stated in the order; or
(d)for part of the proceeding, or part of an amount, assessed in accordance with Schedule 3.
The rule further provides that:
(3) In making an order under subrule (1), the court may consider the following:
(a) the importance, complexity or difficulty of the issues;
(b)the reasonableness of each party’s behaviour in the proceeding including by having regard to the matters set out in subrule 12.08(2);
(c) the rates ordinarily payable to lawyers in comparable cases;
(d)whether a lawyer’s conduct has been improper, unfair, unreasonable or disproportionate;
(e)the time properly spent on the proceeding, or in complying with pre‑action procedures; and
(f)whether expenses (paid or payable) are fair, reasonable and proportionate.
In relation to an award of indemnity costs, the Full Court decision of Phillips & Hansford (2020) FLC 93-941, helpfully summarises the position as follows:
35. Indemnity cost orders are made only in exceptional cases (Kohan and Kohan (1993) FLC 92-340; Limousin v Limousin (Costs) (2007) 38 Fam LR 478; D & D (Costs) (No. 2) (2010) FLC 93-435).
36. Whilst the categories of cases in which indemnity cost orders may be awarded are not closed, it is accepted that such costs may be ordered where a case was pursued with “wilful disregard of known facts or clearly established law” and where there has been “an imprudent refusal of an offer to compromise” (Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233).
37. In relation to the first category, it has been said that indemnity costs may be awarded where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401) and where “a party persists in what should on proper consideration be seen to be a hopeless case” (J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers – Western Australian Branch & Anor [1993] FCA 70 per French J at 5).
The conduct of the husband falls within the parameters described by the Full Court and the findings made in these reasons support this conclusion. The husband pursued an application for unsupervised overnight time in circumstances where he was still consuming illicit substances and not providing any insight or evidence of managing his addictions. It is clear that had he been properly advised, he would have known this would have “no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397). Further, the husband’s actions in tampering with drug test results and deliberate non-compliance with orders makes this an exceptional case. In addition to the husband’s conduct, findings have already been made in these reasons that the husband was wholly unsuccessful in the parenting proceedings and unreasonably rejected an offer that was significantly more than what he ultimately received. The wife is entitled to indemnity costs in the sum of $302,772.
THE CLAIM BY MR P
In their Further Amended Application in a Proceeding filed 4 May 2023, N Lawyers sought the following orders:
1.[N Lawyers] (‘the Intervenor’) be party to these proceedings pursuant to Section 79(10) (a) of the Family Law Act 1975, (and, pursuant to r 6.05 of the Family Court Rules 2004);
2.That the Orders made 18 April 2023 ('the Orders'), Order 6 be suspended, until such time as this application in a proceeding for legal fees outstanding and payable by the husband be paid.
3.An order for a payment of the debt of $83,966.48 or such other sum as assessed, owed to [N Lawyers], by the 1st of August 2021 for legal services performed by [N Lawyers] and Counsel, pursuant to section 79 (1) of the Family Law Act 1975 from the $164,039 payable to the husband in the Orders, per Order 6.
4.In the alternative to orders 3, an order for a payment of the debt of $83,966.48 or such other sum as assessed, owed to [N Lawyers] by the Respondent Husband, for legal services performed by [N Lawyers] on behalf of the Respondent Husband, pursuant to section 79 (1) of the Family Law Act 1975 from the proceeds of sale of marital assets.
5.In the alternative to orders 3 & 4, pursuant to Part VIIIAA of the Family Law Act 1975:
a.The Respondent husband be substituted as debtor of the Intervenor in place of the Respondent Husband; and
b.The Respondent pay directly to the Intervenor the debt of $83,966.48 owed to the Intervenor.
6.That payment be made withing seven (7) days, of the date of these Orders.
To the extent that N Lawyers needed leave to intervene in these proceedings, such leave is granted.
It was very difficult to discern from the material filed by N Lawyers the precise legal basis on which his claim for costs against the husband should be prioritised over the claim of the wife in this case to costs. Both his oral and written submissions were unhelpful. The affidavit of Mr P sworn 7 September 2023 and filed the following day refers to non-existent annexures. No costs agreement was in evidence. None of the documents contained in his tender bundles seem relevant to the issues before the Court. There is correspondence, for example, with the husband’s son relating to recovery of the husband’s fees due to N Lawyers. The only evidence of a judgment for costs does not relate to N Lawyers or Mr P and the husband, but rather is a judgment entered against N Lawyers by a barrister in relation to unpaid fees which, presumably related to the husband’s matter. There is no evidence of, for example, a judgment obtained by N Lawyers against the husband. Based on N Lawyers’ own evidence, therefore, he seems at best to be a completely unsecured creditor of the husband, and whilst the inference may be drawn that he performed work for the husband there is no evidence before the Court of invoices rendered and the date thereof.
Mr P filed a Notice of Address for Service on behalf of N Lawyers on 19 September 2019. He ceased to act for the husband no later than 3 May 2021 when he filed a Notice of Ceasing to Act. It must follow that any costs incurred were incurred between those dates. The date of the final hearing was 19 August 2022, and orders were made on 18 April 2023.
Mr P neither contended, nor led evidence, to suggest that his costs had either been agreed by the husband or assessed.
Mr P did not refer to any statutory provision outside of the Act in support of his claim.
The husband himself appeared when this matter was mentioned before me on 29 August 2023 and it is clear from his submissions that he was both unhappy with the services rendered by his former solicitor and opposed any order that would result in his former solicitor being paid in priority to him let alone, the Court infers, the wife.
In the absence of any helpful submissions from Mr P, the Court will simply have to do the best it can in the circumstances. It will infer that, somehow, he contends that the evidence before the Court supports the existence of a lien over the husband’s share of the sale proceeds and that the facts justify a charge over the same which would give him, in effect, priority over any entitlement that the wife would receive to the same funds by way of order of this Court.
If a lien exists, putting aside the issue of the date from which it commenced to exist, since at least 15 July 2021 (the date of the first Application in a Case filed by N Lawyers) he has been asserting that he is a creditor of the husband in relation to unpaid legal costs.
If N Lawyers filed a Costs Notice in accordance with the Rules, such notice is not apparent from the Court’s file. The Financial Statement filed by the husband on 26 January 2021, his most recent financial statement on the Court’s file, makes no reference to any liability for legal costs. The balance sheet in the reasons for judgment likewise makes no reference to any liability of the husband for legal costs. Nonetheless, at [265] of the reasons for judgment, Hannam J appears to recognise that the husband’s solicitor was seeking to protect his legal fees.
In Marsh & Marsh (2014) 52 Fam LR 395, Aldridge J conveniently summarises the law relating to solicitor’s liens at [10]–[12]:
10.The applicant asserts that there is what is commonly described as a solicitor’s lien. In Firth & Centrelink (2002) NSWSC 564, Campbell J, as his Honour then was, conveniently summarised the law relating to solicitor’s liens as follows:
35.The authorities establish the following propositions concerning this right of the solicitor:
(a)The solicitor's right exists over money recovered through obtaining judgment in litigation, and also over money recovered through the settlement of litigation: Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; Roam Australia Pty Ltd v Telstra Corp Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4.
(b)The solicitor's right exists over both the amount of a judgment in favour of the client, and the amount of an order for costs in favour of the client: In The Estate of Fuld (No 4) [1968] P 727 at 736; Twigg v Keady (1996) 135 FLR 257 at 266 - 267 per Finn J; In Re Blake; Clutterbuck v Bradford [1945] Ch 61 (a case concerning a statutory charging order rather than a lien arising in equity's exclusive jurisdiction, but dependent on the same principle as the equitable right - see para44 below).
(c)It exists over money which is in the possession of the solicitor, and also over money which is in court (In Re Meter Cabs [1911] 2 Ch 557 at 562) and money which is owed to the client but not paid into court (In The Estate of Fuld (No 4) [1968] P 727; Re de Groot [2001] 2 Qd R 359 at 375)
(d)The solicitor need not be still acting for the client at the time that the money was recovered: In The Estate of Fuld (No 4) [1968] P727; Kelso v McCulloch (Supreme Court of NSW, Young J, 24 October 1994 unreported); Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; Roam Australia Pty Ltd v Telstra Corp Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4
(e)For the right to arise it must be shown that there is a sufficient causal link between solicitor's exertions and the recovery of the fund of money: Roam Australia Pty Ltd v Telstra Corp Ltd [1997] FCA 980, Lehane J, 22 September 1997, unreported at 4 - 5; Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33].
(f)The quantum of money for which the solicitor has the equitable right is the amount which is properly owing to the solicitor by the client, whether that amount be ascertained by taxation of a bill of costs, or assessment, or pursuant to a costs agreement: Roam Australia Pty Ltd v Telstra Corp Ltd [1997] FCA 980 (Lehane J, 22 September 1997, unreported at 4). In relation to those situations where taxation is necessary to ascertain the quantum owing to the solicitor, the solicitor's right exists in the fund prior to the occurrence of the taxation (Johns v Cassel (1993) 6 BPR 13,134 at 3,136 per Hodgson J; Twigg v Keady (1996) 135 FLR 257 at 289 per Kay J; In The Estate of Fuld (No 4) [1968] P 727 at 740; Roam Australia Pty ltd v Telstra Corp Ltd [1997] FCA 980 (Lehane J, 22 September 1997, unreported at 6).
(g)The solicitor's equitable right exists before the court is asked to intervene to protect it; it "arises immediately upon the recovery of monies through the exertions of the solicitor": Carew Counsel Pty Ltd v French [2002] VSCA 1 at [33]; if the lien is over the proceeds of an order for costs, it comes into existence at the time of making of that order for cost: Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266; Kison v Papasian (1994) 61 SASR 567. If the lien is over the proceeds of a settlement, it arises when the settlement agreement is entered into: Re de Groot [2001] 2 Qd R 359 at 368. (These statements concern when the lien comes into existence as an item of present property - they are not concerned with the ability of the solicitor to deal with the rights under the lien as future property before the fund is in existence.)
(h)The right of the solicitor is one which the solicitor can enforce against the client, entitling the solicitor to an injunction to prevent the payment of the fund to the client without notice to the solicitor until such time as the quantum of the solicitor's entitlement to be paid from the fund is ascertained: In The Estate of Fuld (No 4) [1968] P 727. If the quantum of the solicitor's entitlement has been ascertained, the solicitor is entitled to an order that the amount of his entitlement be paid to him from the fund, notwithstanding opposition from the client: Leamey v Heath [2001] NSWSC 1095 (Campbell J, 22 November 2001, unreported).
(i)The right can also be enforced against people other than the client, in certain circumstances. When the money recovered takes the form of a debt owed to the client, which has been assigned, the right of the solicitor will prevail over the rights of an assignee of the debt, save where the assignee is a bona fide purchaser for value without notice: Re de Groot [2001] 2 Qd R 359. (If the assignee is a bona fide purchaser for value without notice, it may be that priorities between the solicitor's right and the right of the assignee are to be determined in accordance with the rule in Dearle v Hall, (see Meagher, Gummow & Lehane, Equity Doctrines and Remedies, 3rd edition, at [819] ff) or it may be that the court considers who, of the solicitor and the assignee, has the superior equity - Re de Groot [2001] 2 Qd R 359 at 368 - 376 - but it is not necessary for me to consider that matter further.)
(j)If the client is a company which goes into liquidation, the solicitor is entitled, in relation to costs arising from work done before the start of the liquidation, to claim the full amount of the costs from the fund, and is not required to prove in the liquidation: In Re Born; Curnock v Born [1900] 2 Ch 433; In Re Meter Cabs [1911] 2 Ch 557. This has the same practical effect as enforcing the right against the other creditors of the company. The solicitor's lien attaches to property recovered through his exertions, even if the actual recovery occurs after the client goes into liquidation: North West Construction Co Pty Ltd (In Liquidation) v Marian [1965] WAR 205 at 211.
(k)Likewise if the client is a natural person who becomes bankrupt, the solicitor is not required to prove in the bankruptcy for the amount of costs incurred, but can recover the costs from the debt which is the result of his efforts: Guy v Churchill (1887) 35 Ch D 489; Worrell v Power & Power (1993) 46 FCR 214. The trustee in bankruptcy takes that debt subject to the equitable right of the solicitor to be paid his costs, and if the amount of the solicitor's costs exceeds the value of the debt, the debt does not vest in the trustee in bankruptcy at all; if the client is discharged from bankruptcy he can sue to enforce the debt as it never was property divisible among the creditors, and any amount that the client then receives is also subject to the solicitor's lien: Kison v Papasian (1994) 61 SASR 567
(l)If the client is the liquidator of a company in liquidation, the solicitor's lien over property recovered through his exertions is to be satisfied before the statutory order of priorities for distribution of the property of the corporation comes into effect: Jeffcott Holdings Ltd (in liq) v Paior (1995) 18 ACSR 213
(m)If the money recovered is held in the solicitor's trust account, and the solicitor is served with a garnishee notice, issued to enforce a debt which the client owes to another person, the garnishee notice is not effective to attach the money in the trust account, to the extent that the solicitor has a lien over it: Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266. Likewise if the money recovered is held by a third party, and a garnishee notice is served on that third party, the solicitor's lien prevails over the garnishee notice: Dallow v Garold; Ex parte Adams (1884) 14 QB D 543.
11.As is apparent from paragraphs (e) and (g), a lien can only arise if there is a sufficient causal link between the solicitor’s exertions and the recovery of the fund of money. It arises immediately upon the recovery of money through the exertions of the solicitor.
12. In Jackson & Richards (2005) NSWSC 630, White J said:
47.It is clear from paragraph 62 of the judgment of Sheller JA, which I have quoted, that the Court accepted that for a solicitor to be entitled to a lien over the fruits of litigation, those fruits must be “produced by the industry of the solicitor”. This is not an exacting standard. It is not necessary to demonstrate that a judgment or settlement came about as a result of specific efforts by the solicitor, but there must be some causal link between the solicitor having acted for the client in the proceedings and the resulting payment to the client.
(References omitted)
The material before the Court satisfies it that any right of N Lawyers in relation to the husband’s share of the monies identified in those orders arises because of the litigation that was conducted by N Lawyers on behalf of the husband. The chronology above demonstrates that whilst he ceased to act 15 months before the final hearing, he nonetheless represented the husband for approximately 20 months out of the 45 months between the date of filing and the final hearing. The Court file provides an insight into the work undertaken for the husband. The Court would have been assisted by the production of invoices or other equivalent evidence of work done. Nonetheless the cases (Macura v Sarasevic (No 2) [2019] NSWSC 1621 and the other cases referred to therein) seem to establish a very low threshold to cross before this requirement is satisfied.
If N Lawyers has a lien, it extends to the monies currently held in a controlled monies trust account for both the husband and the wife. The fact that he no longer represents the husband does not preclude him from asserting any lien that arises. There is no evidence before the Court that would lead it to conclude that there is not a sufficient causal link between the exertions of N Lawyers and the recovery of the funds ordered to be paid to the husband. The lien exists whether the precise amount of his costs have been ascertained by agreement or assessment although the quantification of the lien will depend upon agreement or assessment having first occurred. If there is a lien, it arose no later than the time the orders were made by Hannam J.
If the Court is incorrect about the first issue identified above, it would be satisfied that a solicitor’s lien exists in relation to the husband’s share of the property settlement proceeds.
How then, does N Lawyers’ lien rank, or coexist, with the wife’s costs entitlement? In the Full Court’s decision in Twigg v Keady (1996) FLC 92-712 the lien was described as a “particular lien”. The Full Court in Edwards & Peters [2014] FamCAFC 51 at [66] described this as follows:
…A “particular lien” protects interest in a judgment or award obtained by a solicitor’s exertions (Halsbury, 4th edition, vol 44, [254]) and is the type of lien discussed in Ex parte Patience; Makinson v The Minister (1940) 40 SR NSW 96, Worrell v Power (1993) 46 FCR 214 and Twigg v Keady (1996) FLC 92-712.
The Court is satisfied that the cases referred to above establish that N Lawyers has an equitable right against the monies ordered to be paid to the husband which resulted from the work that he performed for the husband. This equitable right arose no later than 18 April 2023 at which point in time the wife’s right to seek costs was merely hypothetical even if reasonably anticipated.
At this juncture it must be remembered that the wife seeks an order that she have a charge as against the husband’s entitlement pursuant to Order 6 made on 18 April 2023 to reduce the settlement sum payable to the husband. That part of her application has not been dealt with so far in these reasons. Presently she is an unsecured creditor as regards the costs order that the Court intends to make in her favour for reasons explained above. To grant the charge that she seeks would be to convert her status to that of a secured creditor. No compelling argument was made as to why she should be granted security over property (i.e., the order for payment to the husband) which is subject to the equitable interest of N Lawyers. As a matter of principle that should not be permitted in the absence of cogent facts and considerations of which there are none. Subject to that, however, the wife is entitled to her charge in relation to her legal fees as to the balance. The husband’s conduct in the proceedings, discussed above, justifies such course. On the material before the Court, there is otherwise no reasonable prospect that the wife would be paid her legal costs.
Whilst it is not strictly necessary to do so, the Court considers the alternative bases in Orders 4 and 5 in N Lawyers’ application.
To the extent that the orders sought by N Lawyers was based on s 79 of the Act, this Court lacks jurisdiction to make those orders. From 18 April 2023, when Hannam J made final orders altering property interests between the husband and the wife, this Court’s powers under s 79 were exhausted. In short, the Court became functus officio as regards to s 79 of the Act (Lenova & Lenova [2011] FamCAFC 114).
To the extent that orders were sought under Part VIIIAA of the Act, these provisions do not assist N Lawyers. Section 90AA explains that the object of this Part is to allow the Court, in relation to the property of a party to a marriage, to make an order under s 79, that is directed to, or alter the rights, liabilities or property interests of a third party. As concluded above, however, the Court’s powers under s 79 are exhausted. The cryptic reference to Part VIIIAA in the Application is not explained in submissions or evidence. Whilst s 90AA also refers to an injunction under s 114 of the Act, the Court is not required to guess the statutory basis of the relief sought. It is hard to see, however, how the orders sought could aptly be described as an injunction.
I certify that the preceding seventy-seven (77) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Altobelli. Associate:
Dated: 22 March 2024
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