Impecunious litigant fails to avoid a costs order

Impecunious litigant fails to avoid a costs order

26. The application for costs falls to be determined according to the provisions of s 117(2A) of the Family Law Act 1975 (Cth). In the event that it is determined that the husband should pay the Applicants’ costs, the law in relation to indemnity costs will be considered separately. The relevant part of the section is set out below:

(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.

27. The Applicants and the husband have made written submissions.

The financial circumstances of the parties

28. There is no evidence before the Court of the present financial circumstances of the Applicants except that they have received almost $5,000,000 from the sale of H Street; they have funded the wife’s legal expenses by lending her in excess of $1,300,000 and they have lent the wife $1,500,000 to purchase a house for $1,300,000.
29. By operation of the orders made in the substantive proceedings, the husband will receive immediately approximately $48,000 by way of property settlement together with his share of the proceeds of sale of a property at B Street, Suburb C which may exceed some $700,000 after payment of costs, capital gains tax, adult child maintenance, payment to the wife by way of property settlement and payment to solicitors on account of Supreme Court costs.

The conduct of the proceedings

30. I accept the submission on behalf of the husband that the involvement of the Applicants in the proceedings, prior to 21 March 2016, was at the instigation of the wife. However, after that date, it was the husband who sought orders contrary to the interests of the Applicants.
31. I do not accept the submission made on behalf of the husband that, had the wife agreed to the husband receiving funds by way of interim property settlement, his claim could have been prosecuted in a more timely way.
32. On 24 August 2016, an order was made pursuant to which the husband received $200,000 in addition to the $50,000 he had already received from the proceeds of H Street. He spent the whole of that amount within a short period without making proper provision for his ongoing legal expenses.
33. The husband did not comply with the orders of 24 August 2016 as to the filing of a Statement of Claim within 28 days.
34. The husband’s application to adjourn the hearing on 2 November 2016 was wholly unsuccessful.
35. The matter could not proceed on 7 November 2016 because the husband had not filed his affidavit material as he had been directed to do.
36. When, after the appeal period had passed, the Applicants invited the husband to consent to the release of their funds, he did not respond and yet another appearance was required by the Applicants to secure an order for the release of their funds. Had the husband agreed, the legal costs incurred by the Applicants from 14 December 2016 until 10 April 2017 could have been avoided.

Whether any party has been wholly unsuccessful

37. The husband was wholly unsuccessful.

Offers of settlement

38. Senior Counsel for the Applicants submitted that an offer of settlement made by them on 7 October 2016 is relevant. The Applicants offered to settle on the basis that:
    • They be declared to be entitled to 50 per cent of the proceeds of H Street;
    • That they not be liable for any part of the costs of the purchasers in the Supreme Court;
    • That the husband pay their costs of $120,000.
39. Except in relation to the quantification of costs, that offer did no more than restate the Applicants’ position and suggested no compromise on their part.
40. There was, however, a relevant offer made by the Applicants on 7 October 2016 which was to invest the proceeds of H Street in a term deposit in order to maximise interest. The evidence does not assist me to know what interest rate was being earned in the controlled monies account so I am unable to find that more interest could have been earned in a term deposit.

Any other relevant matter

41. The Applicants submit that they were kept out of the use of their substantial funds from 21 March 2016 until 10 April 2017. There is no evidence of any particular investment that they were prevented from making but I accept that being prevented from making commercial use of almost $5,000,000 is a significant matter.
42. On behalf of the husband it is submitted that, as demonstrated by the fact that on two occasions, orders were made for interim property settlement, the Court would accept that the husband was under a financial disability. I do not consider this to be a relevant factor. In Lenova & Lenova (Costs) [2011] FamCAFC 141, the Full Court said:
    12. That consideration must, of course, be balanced against a litigant having a limited capacity to meet a costs order, as well as any other relevant considerations. But, a limited financial capacity to meet an order can not be determinative; if it were, a party would always be able to plead impecuniosity as a means of avoiding a costs order in circumstances where pursuit of the litigation has continued in the face of a reasonable offer to cease that litigation and the incurring of its attendant costs.
43. Nor do I consider that the matters of complaint about the conduct of the wife which are raised in the husband’s submissions are relevant to this determination.
44. All of these factors lead me to the conclusion that the husband should pay the Applicants’ costs incurred between 21 March 2016 until 10 April 2017.

INDEMNITY COSTS

45. The Full Court considered the law in relation to indemnity costs in Prantage & Prantage [2013] FamCAFC 105;(2013) 49 Fam LR 197 (“Prantage”). The majority set out the principles to be applied, confirming that the principles enunciated by Sheppard J in ColgatePalmolive Co v Cussons Pty Limited [1993] FCA 536; (1993) 118 ALR 248 (“Colgate-Palmolive”) should continue to be applied in the Family Court of Australia.
46. In Colgate-Palmolive Sheppard J set out the following principles or guidelines relating to the award of indemnity costs in the following passage, at 256-257:

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 (39 Ch D 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 Meatsappears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston ([1982] 1 All ER at 58) 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 8) in Tetijo: “the categories in which the discretion may be exercised are not closed”. Davies J expressed (at 6) similar views in Ragata.

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 inFountain and also by Gummow J in Thors v Weekes [1989] FCA 540; (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); 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 Kent (SC(NSW)(CA), 27 Sept 1993, unreported) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). 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.

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.

47. In Prantage, the Full Court referred to the requisite circumstances as “exceptional”.
48. In the present case, the husband maintained an argument against the interests of the Applicant that failed.
49. Such a course of action, while it is time-wasting and financially wasteful, is not exceptional.
50. Costs will be paid on a party and party basis.

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