Karbines & Karbines and Anor (Intervenora**s Costs)

[2008] FamCA 391

FAMILY COURT OF AUSTRALIA

KARBINES & KARBINES AND ANOR (INTERVENER’S COSTS) [2008] FamCA 391

FAMILY LAW – COSTS – costs sought by first intervener – husband wholly unsuccessful in opposition to intervener’s claims – failure of husband to respond to reasonable offer of settlement by intervener – costs order against husband just in circumstances – wife had conceded to payment of amount claimed by intervener  and agreed to sale of property by date of hearing – not just and equitable for wife to bear any share of costs of hearing or subsequent costs application – whether costs to be on solicitor/client basis or party/party basis – departure from ordinary rule that costs on party/party basis not justified – Order: husband and wife to jointly and severally pay intervener’s costs of and incidental to application prior to date of hearing on party/party basis – husband to pay intervener’s costs of and incidental to application from date of hearing, including application for costs, on party/party basis.

Family Law Act 1975 (Cth) s 117

Colgate- Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225
JEL v DDF (Repayment on Appeal, and Costs) (2001) 28 Fam LR 119
Argyropoulos and Argyropoulos and Ors [2007] FamCA 323

APPLICANT: Mrs Karbines

RESPONDENT: Mr Karbines

INTERVENER: C Pty Ltd (In Liquidation)

FILE NUMBER: MLF 2479 of 2005

DATE DELIVERED: 6 June 2008

PLACE DELIVERED: Mount Gambier

PLACE HEARD: Mount Gambier

JUDGMENT OF: Dawe J

HEARING DATE: 26 May 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Jordan

SOLICITOR FOR THE APPLICANT: Maddens Lawyers

THE RESPONDENT: In person

COUNSEL FOR THE INTERVENER: Mr Barnett

SOLICITOR FOR THE INTERVENER: Norman Waterhouse

Orders

1.That the husband and wife jointly and severally pay the intervener C Pty Ltd (In Liquidation) the costs of and incidental to the application of the intervener prior to the 17 March 2008 on a party/party basis such costs to be as agreed or in default of agreement as taxed.

2.That the husband pay the intervener C Pty Ltd (In Liquidation) the costs of and incidental to the application of the intervener from the 17 March 2008 including the application for costs such costs to be on a party/party basis as agreed or in default of agreement as taxed.

3.Further consideration of any claim by the wife to be indemnified by the husband or reimbursed by the husband for the costs to be paid to the liquidator is adjourned to be determined with the final orders for property settlement between the husband and wife.

IT IS NOTED that publication of this judgment under the pseudonym Karbines and Karbines and Anor (Intervener’s costs) is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: MLF 2479  of 2005

Mrs Karbines

Applicant

And

Mr Karbines

Respondent

And

C Pty Ltd (In Liquidation)
Intervener

REASONS FOR JUDGMENT

Introduction

1.The first intervener, C Pty Ltd (In Liquidation) seeks orders for costs of and incidental to its application. I delivered judgment on the intervener’s application on the 2 May 2008 which concluded with the following orders:

“1.It is declared that the husband and wife hold the property at [Queensland], being Lot […] on Registered Plan […] in the County of […] and Parish of […], Title Reference […] (“the [Queensland] property”) on constructive trust for the intervener [C] Pty Ltd (In Liquidation) ACN […] to the extent of the sum of SIXTY FIVE THOUSAND THREE HUNDRED AND ONE DOLLARS [$65,301.00].

2.That if the said sum of SIXTY FIVE THOUSAND THREE HUNDRED AND ONE DOLLARS [$65,301.00] has not been paid to the intervener [C] Pty Ltd (In Liquidation) by the 30^th June 2008 the liquidator shall be entitled to sell the [Queensland] property by public auction or private treaty.

3.   The proceeds of sale are to be paid as follows:

3.1in payment of the reasonable costs of and incidental to the sale;

3.2in payment of the mortgage to the Commonwealth Bank of Australia;

3.3in payment of the sum of SIXTY FIVE THOUSAND THREE HUNDRED AND ONE DOLLARS [$65,301.00] due to the first intervener [C] Pty Ltd (In Liquidation);

3.4the balance of proceeds of sale to be held in trust by the liquidator in an interest bearing account pending further order of this Honourable Court.”

2.The orders made were in terms similar to those sought by the liquidator in his application.

3.As indicated in those reasons the husband opposed the orders sought by the first intervener.  On behalf of the wife it was submitted that she conceded the intervener’s claim in the sum of $65,301 (the amount sought by the liquidator) and supported an order for sale of the Queensland property to secure payment.  If costs were awarded against the wife she also sought an order that she have liberty to subsequently argue that the costs be apportioned solely to the husband.

4.Following upon the success of the liquidator in obtaining the orders of the 2 May 2008 C Pty Ltd (In Liquidation) seeks an order as to costs of and incidental to his application and specifically:

“That the husband and wife be jointly liable to pay its party and party costs of and incidental to the application and that the husband be liable to pay the difference between its party and party costs and its solicitor and client costs being the solicitor and client costs as and from the 28 February 2008.  In the alternative the liquidator seeks an order that the husband solely pay its costs on a solicitor and client basis.”

Background

5.At the hearing of the intervener’s application on the 17 March 2008 the liquidator Mr R, Chartered Accountant and the husband gave oral evidence.  I received the affidavit of the liquidator and by reference part of the affidavit of Mr McGrath.  The husband relied on his affidavit received by the Court on the 17 March 2008.  (The day of the hearing).

6.My reasons for judgment of the 2 May 2008 included findings that I accepted the evidence of Mr R.  I made certain findings concerning the husband’s evidence, including paragraphs 29 and 30 as follows:

“29.The husband’s evidence concerning the arrangements between the husband and wife and the Company and his mother was at times inconsistent.  The documentary evidence of the accounts of the Company and the husband’s income tax returns contradict some of the evidence of the husband.

30.I am satisfied that the evidence clearly indicates that the husband, as the day to day manager of the Company, and the husband and wife as directors of the Company used the Company’s money to make the payments which were due to be paid on the mortgage over the property in Queensland.  The evidence also establishes that the Queensland property was purchased by the husband and wife in their personal capacity.”

7.In the affidavit of Mr McGrath, the solicitor for the liquidator, filed on the 19 May 2008, Mr McGrath refers to offers made to the husband and wife.

8.In the letter of the 29 November 2007 (annexure “DGM1”) addressed to the husband the solicitor for the liquidator set out the claim of the liquidator for the sum of $65,301 and put the husband on notice of the claim for an equitable interest in the Queensland property. The letter sought the husband’s position in relation to the claim and the orders proposed. 

9.By letter of the 8 January 2008 (annexure “DGM2”) to Patrick Cash and Associates, the lawyers then acting for the husband, these claims were repeated.  The letter concluded:

“That interest is now the subject of a separate hearing listed before the Honourable Justice Doyle (sic) on Monday 17 March 2008 at 10.00 am in Adelaide and the details of which are contained in an order dated 14 December 2007.

We enquire as to your client’s position in relation to our client’s claim and the declaration and orders sought noting that solicitors for the Wife have previously suggested that their client is likely not to oppose the orders sought subject to any agreement with respect to costs.

In addition, our client remains concerned about the ongoing costs being incurred and obviously would prefer to resolve this matter without the need to embark on a formal hearing.

We look forward to receiving your prompt response.”

10.By letter dated the 29 February 2008 (annexure “DGM4”) the liquidator’s lawyers wrote to the lawyer for the husband.  That letter referred to the orders I made on the 14 December 2007 in relation to preparing the matter for hearing.  At the end of that letter an “Offer of Settlement” was made as follows:

“Offer of Settlement

In any event, our client remains anxious to avoid the costs of the preparation and hearing of our client’s application which will be incurred by all parties and we are instructed on a strictly without prejudice basis (save as to costs) to offer to settle the matter on the basis that the Husband and Wife accept our client’s claim in the sum of $65,301.00 together with our client’s costs being the costs of the investigation together with the legal costs fixed in the sum of $20,000.00 (inclusive of interest) for a total amount of $85,301.00.

In the circumstances of the impending hearing, your urgent response is appreciated.”

11.The solicitors acting for the husband informed the liquidator’s solicitors by a letter of the 7 March 2008 that they were no longer acting for the husband.

12.By letter of the 12 March 2008 (annexure “DGM6”)  the solicitors for the liquidator again wrote to the husband and referred to their previous correspondence.  The solicitors in that letter reminded the husband of the orders made on the 14 December 2007 requiring the parties comply with certain steps (including that the husband file and serve any affidavit material upon which he was to rely, annexing any documents upon which he intended to rely by the 22 February 2008 and provide a summary of argument to the Court and each other party by the 7 March 2008).  The letter concludes:

“We note that you have failed to comply with the orders as to disclosure, or indicate the basis upon which our client’s application is to be opposed, or provide any evidence in support of any such opposition.

In the circumstances, we place you on notice that we will oppose any application to adjourn the proceedings on 17 march 2008 or otherwise seek to produce evidence either by way of affidavit or oral evidence and will be seeking orders in terms of our application detailed at paragraph 17 of the affidavit of Mr [R]  dated 30 November 2007.

We invite you to reconsider your opposition noting that the wife proposes to consent to the orders sought.  Should we be required to proceed to hearing and failing your positive response by close of business on Friday 14 March 2008, we will seek indemnity costs and reserve the right to produce this letter in that event.

Costs

We confirm that our client will on a strictly without prejudice basis accept the sum of $65,301.00 in full and final settlement of the claim, together with costs fixed in the sum of $20,000.00 in respect of the application, subject to various matters raised in previous correspondence.

To assist you in considering the offer with respect to costs, we attach the schedule prepared by the liquidator detailing costs specific to the application which are in the nature of costs of an expert, together with copies of our various accounts issued for the relevant period (ex costs with respect to unrelated matters arising from the liquidation).

The costs incorporate hearings on 27 February 2007, 18 July 2007, 26 November 2007 and 14 December 2007.

In addition, various affidavit materials have been prepared including the affidavit of [Mr R] dated 3 May 2007, the affidavit of the writer dated 17 July 2007, the affidavit of the writer dated 16 November 2007 and the affidavit of Mr [R] dated 30 November 2007.

In addition, there are the relevant preparation costs with respect to the hearings and the matters the subject of the affidavit.

It is our view that the offer made by our client reflects a substantial discount in what would otherwise be the costs for which the husband and wife would be liable should the matter proceed to taxation.

We seek your instructions as a matter of urgency and in any event prior to close of business on Friday 14 March 2008.”

13.The husband did not accept any offer and did not make any counter-offer or other proposal to the liquidator.

14.The husband opposes the intervener’s application for costs.  The counsel for the wife acknowledges that the intervener is entitled to an order for costs, but seeks that any costs order should be made against the husband only.  In the alternative the wife does not oppose an order for costs provided that the wife retains the right to seek to recover any such costs from the husband as part of the property settlement proceedings.

15.At the hearing on the question of costs the husband submitted to the Court that the liquidator had been “misinformed and misrepresented the position”.  He submitted that the claim of the liquidator was “outside the scope of the Family Law Case”.  He made oral submissions to the Court.  He said “ASIC have been contacted by him and are considering his request to have the winding up action reversed”.  When pressed to consider the specific application of the liquidator for costs of the proceedings the husband submitted that they “should definitely not be paid their costs”.

The Law

16.In paragraph 16 of my judgment of the 2 May 2008 I said:

“16.The Family Court of Australia has the jurisdiction to make the orders sought by the liquidator.  (No objection was taken by any of the parties to the Family Court deciding the issues.)”

17.In paragraph 17 and 18 of my judgment of the 2 May 2008 I dealt with jurisdiction and concluded that the issue then before the Court was one which was properly before the Family Court of Australia for determination.

18.The provisions of section 117 of the Family Law Act relate to a party’s application for costs. The intervener draws attention to those provisions. In particular, sub-section 117(2) requires the Court to find that there are circumstances that justify the Court making an order for costs. Subject to sub-section (2A) the Court is permitted to make such order as to costs as the Court considers just. The Court is required to consider the matters set out in section 117(2A).

Discussion and Findings

19.Section 117(2A)(a) refers to

a.the financial circumstances of each of the parties to the proceedings

20.The particular detailed circumstances of each of the husband and wife are yet to be determined.  However, the assets and liabilities of the husband and wife will be sufficient to meet the payment of the liquidator’s costs.  The amount likely to be available to the husband and the wife may change as a result of the status of the ongoing liquidations of C Pty Ltd (In Liquidation) and B Pty Ltd (In Liquidation) and the possibility that further claims may be made by the liquidators.

21.The liquidator has the financial circumstances disclosed in the most recent report of the liquidation.  The alleged debts are substantial and the alleged assets minimal.  Whether the assets and liabilities are as alleged will await the conclusion of the liquidation.

(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.

22.Not relevant.

(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, inspections, directions to answer questions, admission of facts, production of documents and similar matters.

23.The husband did not comply with the orders made on the 14 December 2007 within the time provided. 

24.His alleged explanation for the payment of monies by the company in relation to the Queensland property mortgage (namely, that it was rent being paid by the company for the use of the Queensland property) was provided to the Court only on the day of the hearing before me on 17 March 2008.  (His explanation was not accepted by me).

(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the Court

25.The husband did not comply with the previous procedural orders, however the action by the liquidator was not necessitated by the failure of the husband in that regard.

(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings.

26.The husband has been wholly unsuccessful in his opposition to the liquidator’s claims.  The wife has also been unsuccessful in opposing the order that the liquidator be declared to have an interest in the real estate in Queensland.  The wife was otherwise consenting to an order for the payment of the sum of money sought by the liquidator and was also consenting to the sale of the property in Queensland in order to raise funds to make the payment.

(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.

27.As clearly set out in the correspondence from the liquidator to the parties, offers were made by the liquidator to resolve the matter on the basis of payment of the sum of $65,301 and the sum of $20,000 costs.  Information about the basis for the costs was provided.

28.The husband failed to respond to that offer which was at the time a reasonable offer.

(g)  such other matters as the court considers relevant.

29.The liquidator submits that the application was brought in the interest of the creditors of the company.

Conclusion on Costs

30.Considering all of the factors in section 117 and in particular that the husband has been wholly unsuccessful in opposing the orders sought by the intervener and the offers of settlement made by the intervener prior to the hearing before me, I am satisfied that it is just in all the circumstances to make an order for costs in favour of the intervener against the husband.

31.By the commencement of the hearing on the 17 March 2008 the wife conceded the payment of the amount claimed and agreed to the sale of the Queensland property.  Taking this into account it is not just or equitable for her to bear a share of any costs of the following hearing before me or the subsequent costs application.

Costs on Party/Party Basis or Solicitor/Client (Indemnity) Basis

32.When considering whether the costs of this matter should be on a solicitor/client basis or on a party/party basis, the intervener has referred me to authorities including Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225. Page 233 the judgment of Justice Sheppard of the NSW District Registry states:

“4 In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v Barnes (supra) at 141 said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require". Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston (supra) at 637; namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at p 8) in Tetijo, "The categories in which the discretion may be exercised are not closed". Davies J expressed (at p 6) similar views in Ragata (supra).

5.Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

6.It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.”

33.The intervener also referred to the decision of the Full Court of the Family Court in the matter of JEL v DDF (Repayment on Appeal, and Costs) – (2001) 28 Fam LR 119 paragraphs 49 to 73. In particular paragraph 62 and following referred to the issue of indemnity costs.

34.At paragraph 66 the Full Court said:

“66.In Yunghanns v Yunghanns (2000) 26 Fam LR 331 : FLC 93-029 the Full Court specifically acknowledged the category of cases that may give rise to an indemnity order are not closed.  The court said at Fam LR 339;  FLC 87,471:

It will suffice to say that the categories of circumstances which enliven the discretion to award indemnity costs are not closed and that it is not a condition precedent to the exercise of the discretion that some collateral purpose or species of fraud be established against the party against whom such an order is sought.  All that is required is that the court asked to exercise the discretion be satisfied that some “particular facts and circumstances of the case in question warrant the making of an order for the payment of costs other than on a party and party basis” : per Shepherd J (sic) in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233 : 118 ALR 248 at 257 : 28 IPR 561 at 570.”

35.At paragraphs 68, 69 and 70 the Full Court said:

“68.We accept the proposition that the objective of the statutory provision in relation to written offers is to encourage settlements and to reduce the cost of litigation to the parties and the community.  That, however, does not mean that the failure to accept an offer will necessarily result in an order for indemnity costs.

69.As the Full Court said in Kohan, above, at Fam LR 259;  FLC 79,614-5:

In so far as an unaccepted offer of compromise which exceeds a judgment may justify an order for costs, the general practice in this jurisdiction so far has been to order no more than costs on a party and party basis.  Even in cases where there has been dishonest concealment of assets or income as in Penfold v Penfold (1980) 5 Fam LR 579 ; FLC 90-800 and Oriolo and Oriolo (1985) 10 Fam LR 665 ; FLC 91-653, no more than party and party costs have been awarded.

70.In our opinion, the failure to accept an offer which in retrospect, perhaps, should have been accepted is without more, insufficient to justify the making of a costs order on an indemnity basis.  The rejection of the offer must be at the very least imprudent.  We express no opinion as to when the rejection of an offer may be so classified.  It is clear to us in the circumstance of this case that the rejection of the offer, although unwise in retrospect was not imprudent.”

36.The liquidator claims that the husband’s failure to accept the offer made in February 2008 justifies an order being made against the husband on a solicitor/client basis for the costs of the liquidator after that date. 

37.The liquidator also relied upon the authority of Argyropoulos & Argyropoulos and Ors [2007] FamCA 323. In that decision Her Honour Justice Carter referred to the Colgate-Palmolive Company and Another v Cussons Pty Limited (supra) case and the Family Law Rules.  Rule 19.19(1)(b) gives the Court power to order costs on a lawyer and client basis or on an indemnity basis and directs the Court to consider certain factors.  Her Honour concluded that the party “properly advised should have known that he or she had no chance of success”.

38.Having considered all of the authorities on this matter I am satisfied that the husband has been wholly unsuccessful in the particular proceedings and specifically did not respond to the offer of settlement which was a reasonable offer at the time it was made.  However I am not satisfied that the factors in the claim made by the liquidator and the behaviour of the husband in this matter can be categorised as falling outside the ordinary rules relating to costs on a party and party basis, nor that there are circumstances of an exceptional kind justifying a departure from that rule.

39.I am satisfied however that there are circumstances which justify the payment of the liquidator’s costs on a party and party basis (the reasonable offer and the husband’s lack of success).

40.The liquidator also sought that the order for costs include the costs of and incidental to the argument in relation to costs.  The liquidator has been successful in the application.  The husband has not been wholly unsuccessful in that I have not determined that the husband should pay the liquidator’s costs on a solicitor and client basis.  This is one factor I take into account.  However, in substance the liquidator has been significantly successful in his application for cost.

41.In relation to the application of the wife that I make the order only against the husband I am not satisfied that the wife has presented a case which would restrict the liquidator’s rights to recover costs against both the husband and wife on a joint and several basis for costs prior to the 17 March 2008.  I propose to adjourn further consideration of any claim by the wife to be indemnified by the husband or reimbursed by the husband for the costs to be paid to the liquidator.  Such determination will await the consideration of the final orders for property settlement between the husband and wife.

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Dawe.

Associate: 

Date:  6 June 2008