FAMILY COURT OF AUSTRALIA

COTTER & EGGERS-COTTER (no 2)	[2015] FamCA 1008	

FAMILY LAW – COSTS – Where offer of settlement made – discretion still applicable – the question is whether it was unreasonable to reject the offer – limited costs orders – indemnity costs application rejected.	

Family Law Act 1975 (Cth)	

Calderbank v Calderbank (1975) 2 AllER 333
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Anor [2005] FamCA 158; (2005) Fam LR 123
Kelly and Kelly (No 2) (1981) FLC 91-108
Lenova and Lenova (Costs) [2011] FamCAFC 141
Munday and Bowman (1997) FLC 92-784
Prantage and Prantage [2013] FamCAFC 105
Richfield Investments Pty Ltd v Oversea-Chinese Banking Corp [2004] VSC 351	

APPLICANT:	Mr Cotter	

RESPONDENT:	Ms Eggers-Cotter	

FILE NUMBER:	MLC	7005		of	2014	

DATE DELIVERED:	18 November 2015	

PLACE DELIVERED:	Melbourne	

PLACE HEARD:	Melbourne	

JUDGMENT OF:	Cronin J	

HEARING DATE:	By way of written submissions	

SUBMISSIONS RECEIVED FROM:

THE APPLICANT:	Rohan Hoult of Counsel
C/- Farrar Gesini Dunn	
		
THE RESPONDENT:	Robin M Smith of Counsel
C/- CE Family Lawyers	

Orders
(1)	That the husband pay 25 per cent of the wife’s costs fixed on a party and party basis for the period from and including 11 September 2015 until the 1 October 2015 by agreement and failing agreement, as assessed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Cotter & Eggers-Cotter (No 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Family Court of Australia at Melbourne	

FILE NUMBER: MLC 7005  of 2014

Mr Cotter 	
Applicant

And

Ms Eggers-Cotter 	
Respondent

REASONS FOR COSTS JUDGMENT
1.	Ms Eggers-Cotter seeks an order that Mr Cotter to pay her costs arising out of orders I made on 21 October 2015.  The costs claimed are $43,277.16 which are said to be calculated on an indemnity basis.  
2.	The husband’s response is that there is no basis for an order for costs and particularly for indemnity costs.  His counsel submitted that there was nothing remarkable about the way the litigation was conducted.
3.	This application raises two questions. They are:
(a)	Should an order for costs be made having regard to:
•	The disparity of the financial circumstances of the parties; and
•	An offer made approximately two weeks prior to the commencement of the final hearing; and
(b)	If an order is made, should it be on an indemnity basis?
4.	Section 117 of the Family Law Act 1975 (Cth) (“the Act”) provides that in proceedings under the Act, each party shall bear their own costs unless there are circumstances to depart from that principle and if there are, the Court must before making any order, take into account the matters set out in s 117(2A) of the Act.
5.	In this case, the wife asserts that there are reasons to depart from the principle relying upon s 117(2A)(a) and (f).
6.	These were property proceedings heard over two days.  The Court found that the assets to be divided between the parties excluding their superannuation interests, total $4,778,000 (rounded off).
7.	In the published reasons I indicated (at paragraph 2):
2.	The issues to be determined were:
	(a)	The percentage each would receive or, more importantly, what cash adjustment should be made based on an otherwise agreed division or retention of their respective assets;
	(b)	Whether there were funds or assets of the husband not disclosed which should be taken into account;
	(c)	How to treat a liability which had been incurred to enable the wife to pay her legal fees;
	(d)	How to treat the modest liabilities of the wife relating to credit cards and a loan to her mother;
	(e)	Just what will be the husband’s taxation liability and whether it should be taken into account?; and 
	(f)	What (if any) financial orders should be put in place for the 18 year old daughter [Ms F] who is still at school and whose educational path remains unknown. 
8.	Attached to her submission relating to the costs application, the wife enclosed her lawyers’ bill of account as the justification for the claim earlier mentioned.  These proceedings had included parenting disputes right up until the first day of the hearing and as indicated in the reasons for judgment, they were resolved by a compromise between the parties.  In part therefore, even if an order for costs was to be made, it would be difficult to divide up that portion of costs attributable to the financial issues as opposed to that relating to the parenting matter.
9.	As this claim is largely about the offers that arose out of negotiations, what I said in the published reasons exposes the difference between how the parties litigated against how they negotiated.  In respect of the former, I said (at paragraph 13) in the published reasons how they described their dispute:
13.	As an overview, the husband sought the net property be divided so that the wife receive 55 per cent whilst the wife said the division should reflect 65 per cent to her.  Her counsel looked at other percentages including that of 62.5 per cent to show what that meant in dollar terms and the use to which assets could be put.  Each of those positions depends on what it is that is being divided.  In my view, a precise mathematical calculation is unnecessary such as for example in the inclusion of such modest items as furnishings.  Where the parties have included them, save for the matters I have set out below, I too have included them.  
10.	The “net property” does not include superannuation and as a result of the orders that were made anyway, each party now has $860,000 in superannuation funds.  That too had initially been contentious but was also compromised at trial.
11.	The wife’s submission relating to costs was drawn by counsel who did not appear at the trial.  It was submitted that the matters to which I shall turn in respect of s 117(2A)(a) and (f) could be seen from a number of matters.  It was submitted that the husband caused a loss of time because matters had to be canvassed and financial tax returns had to be examined which had not been adequately discovered.  The reality however was, that in respect of the loss of time, counsel appearing for the wife cross-examined discretely and expeditiously so no time was lost there.  Considerable time was spent in examining documents for the purposes of writing the reasons for judgment but that did not affect the cost issue.  
12.	The wife’s submission included that the husband’s evidence had not been helpful in the sense that the Court found his affidavit was misleading, his tax returns had not been completed and he had not given the wife access to a tax portal.  In respect of those, I was not prepared to blame the husband as there were others responsible for vetting his material and in respect of the tax portal, I consider that was a very late request by the wife.
13.	A complaint was also made by the wife about the absence of evidence from the husband’s accountant until the trial actually began but I note that the accountant was also acting for the wife.  Little can be said about that in terms of it causing delay.  Whilst the Court was critical also of the husband’s financial statement, it was a relatively modest problem in the total financial position.
14.	The first question therefore is why should the principle that each party bear their own costs not apply.
15.	Of the two grounds relied upon by the wife, the financial disparity should be considered first.  
16.	Counsel relied upon the Full Court decision in Kelly and Kelly (No 2) (1981) FLC 91-108 where it was observed that in that case, there was a great disparity in the financial circumstances of the parties.  The Court observed that the husband controlled assets which far outweighed those of the wife and she was not a legal aid recipient.  What the Full Court said was as follows:
These circumstances might well have justified an order for costs in the wife’s favour whatever the conduct of the husband in the proceedings.
Little more can be obtained from that statement other than what is already set out in s 117(2A)(a).  It is a factor to be taken into account where there is a vast disparity.  If it can be shown that a litigant who has no control or limited control of significant assets is hampered, the Kelly approach might be relevant.  That was not the case here.  
17.	Both parties will have significant assets as a result of the outcome of the proceedings.  The wife had access to funds to pay lawyers prior to the commencement of the trial. The focus of the wife’s attention was on the disparity of the parties’ incomes.  However, in my view, that issue was adequately explained in the reasons such that, with the husband’s obligations, the disparity could be seen as not quite as significant as the raw figures suggest.
18.	The financial circumstances of the parties does not justify for an order for costs.  
19.	In Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Anor [2005] FamCA 158; (2005) Fam LR 123, the Full Court observed that in relation to s 117(2A), no one factor must be present before an order for costs can be made nor does the legislation distinguish between the relevant factors and what weight should be given to them.  The Full Court observed that as a consequence, there was nothing to prevent any one factor being the sole reason for an order for costs.
20.	The second issue turns on the question of an offer of settlement made by the wife on 11 September 2015.  Annexed to the submission, the wife attached a letter written by her solicitors indicating that in the spirit of trying to resolve the matter, the wife made an offer that she would accept the sum of $250,000 together with six bottles of wine that were in the possession of the husband.  It would seem that offer was rejected and accordingly, lapsed.  
21.	Whilst the wife did not receive six bottles of wine (albeit that the wine in total in the proceedings seemed to have been agreed at $25,000), she certainly received the order for $250,000.  
22.	Counsel for the husband submitted this offer related to property only at a time when other issues were still alive.  
23.	Importantly, it was submitted, when the offer was made, the formal position of the wife was only as set out in her amended response.  The dilemma is that she had still not pleaded with particularity.  There may have been reasons for that such as she was still trying to work out what the husband had but in this case, any unknown would have been modest.  The husband would not have known what this offer was to be compared against.  True it is, he knew what the assets were and what the likely range of outcomes should be because he too had lived the relationship and had legal advice.
24.	Whilst resolving the property issue would have been sensible, it would not have resolved everything because the parenting and maintenance issues were still extant.  Those issues would not have been dependent upon the property outcome because of the discrete nature of those disputes.
25.	The wife relied upon the fact that in the letter written by her solicitors in September 2015, reference was made to a long-standing authority used in civil jurisdictions of Calderbank v Calderbank (1975) 2 AllER 333. That case however is generally used where costs follow the cause. It becomes relevant where a litigant pursues more costs than the usual court scale. It is undoubtedly a relevant authority in claims in this jurisdiction for indemnity costs.
26.	Calderbank offers are seen as useful in establishing that the rejection of an offer was unreasonable rather than that the offer was reasonable. To satisfy that test, the recipient of the offer must understand that rejecting something that was precise and clear in the context of the dispute creates a risk of being seen as unreasonable. Even in the civil jurisdictions, orders for costs are discretionary in many cases and courts endeavour to avoid the perils of hindsight (see Richfield Investments Pty Ltd v Oversea-Chinese Banking Corp [2004] VSC 351).
27.	To be unreasonable, the response to an offer must take into account the recipient’s perception of the sense of the outcome. It would be unreasonable to continue on with litigation after an offer was made if the intention of the recipient was to just make life unpleasant or to run up legal costs for the other party. A court can take into account that the recipient has legal advice and even though the exercise of the s 79 power is highly discretionary, making the outcome uncertain, lawyers are trained to make predictions within parameters. Those parameters are well known from the various cases that are reported.  That certainly should have been the case here.
28.	The husband’s submission was that the financial issues were unclear and that it was impracticable to consider the property in isolation from the other financial matters. It was therefore submitted that it was prudent for the husband to reject the offer.  I disagree. The property proceedings here were not interlinked with the other issues.  That can be seen in the maintenance claim for the parties’ adult daughter.  One was not dependent on the outcome of the other.
29.	The submission of the wife was that the offer reflected a better outcome for the husband than had been ordered by the Court. It is not to the point that the husband was offered a reasonable settlement but rather whether he was acting unreasonably in not settling as the husband was intending to pursue a case under which the wife would receive 55 per cent of the pool of assets, the wife was seeking 65 per cent.  Having regard to the significant disparity in the parties; earning capacities and a pool of about $4.7 million, 55 per cent was low and the wife was most likely going to receive more.  The parties set the parameters of the dispute and even allowing for their disagreement about what was being divided, the wife’s offer was well within those parameters.  I consider the husband was unreasonable in not compromising and accepting the offer.
30.	In Lenova and Lenova (Costs) [2011] FamCAFC 141, the Full Court considered an offer of compromise that had been made during the course of the litigation.  The Full Court held:
10.	In this jurisdiction, costs do not “follow the event”; the Act prescribes, relevantly, that “subject to subsection (2) … each party to proceedings under this Act shall bear his or her own costs” (s 117(1)).  As a result, a litigant, or prospective litigant, cannot rely upon a costs order following upon success in the action as a means of dissuading the other party from pursuing unmeritorious litigation or as a means of seeking to persuade the other party from pursuing litigation. 
11.	A timely offer in writing genuinely made might, then, be seen as an important part of a limited armoury available to prospective litigants seeking to avoid the costs of litigation.  Conversely, where, consequent upon success in an action, a litigant can point to the making of a genuine and timely offer having been made, that offer might be seen as an important (albeit not the only) matter in the exercise of the discretion as to the ordering of costs.  
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.
13.	Whilst regard is had to the financial circumstances of the respondent wife, she was advised by legal practitioners at each stage of the proceedings. She can, in our view, be seen to have known the risks of refusing to compromise in the face of a written offer made before the appeal was filed. That factor, together with the husband’s success in the appeal, warrants an order for costs being made in favour of the husband.
31.	I am satisfied that the wife made a genuine and timely offer as an attempt to resolve the proceedings that would have saved some money in relation to the final preparation for trial and counsel’s fees.  
32.	In the circumstances, rejection by the husband of what had been put by the wife on 11 September 2015 was unreasonable even without the wife’s formal orders being pleaded;  the husband had legal advice and must therefore be deemed to have considered his position carefully.  That justifies a departure from the principle that each party pays their own costs.
33.	However, that is not the end of the matter.  The Court is obliged to consider the matters set out in s 117(2A) before any order is made.  In this case, I have already dealt with the financial circumstances of the parties.  There are no legal aid considerations in this case.  Nothing I have said earlier nor in the reasons published for the final order justifies an adverse finding in respect of the husband in relation to conduct of the proceedings.  Whilst there was an indication of sloppiness in the preparation, that would not be something that I would find justifies an order for costs because it was not entirely of the husband’s doing.  Neither party has been wholly unsuccessful but the clearest s 117(2A) factor relates to the offer of compromise.
34.	In my view, the offer to settle these proceedings is a justifiable reason to depart from the principle that each party bear their own costs.
35.	The wife then sought costs on an indemnity basis.  In the submission put on behalf of the wife, reference was made to a number of decisions including Munday and Bowman (1997) FLC 92-784.  On any view however, to justify a very great departure from the rule adopted not only in this Court but in most courts around Australia, the applicant has to show that the circumstances are exceptional.  The wife relied upon the fact that there had been a refusal of her offer and in so doing, she said that the husband’s conduct was imprudent.  Imprudence is not always the exception and here, I find there was nothing exceptional about what the husband did.
36.	Hindsight is a wonderful thing but just how much consideration he gave to the offer remains uncertain.  In my view, it would be unreasonable to make a finding that his conduct was imprudent.
37.	Having regard to what the Full Court said in Prantage and Prantage [2013] FamCAFC 105, this is not a case in which the wife has established that the circumstances justify a finding that an order for indemnity costs should be made.
38.	There should be an order for costs calculated according to the scale.  The amount sought by the wife was prepared on the basis of the charge out rate of her respective solicitors and it is noticeable that various attendances and other work done give the appearance of parenting matters.  There were also matters associated with general preparation for trial in respect of other non-contentious issues.  In my view, the wife is entitled to costs only in respect of the period from the date of the receipt of the offer until the conclusion of the trial and only in respect of the property matter.  
39.	In my view, the fairest way to assess the costs is by allowing the wife 25 per cent of the party and party scale for the period from 11 September 2015 until the conclusion of the trial.  In my view, the parties will have to go to an assessment before a registrar if agreement is not reached.
40.	Accordingly I make orders as set out at the commencement of these reasons.
I certify that the preceding Forty (40) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 18 November 2015.

Associate:  

Date:  18 November 2015