Gray v Ferguson [2008] NSWSC 1066 | Case summary

5287/2007 DEBORAH ANNE GRAY v IAN ROSS McDOWELL FERGUSON JUDGMENT ON COSTS 1 His Honour: In this matter I gave judgment on 24 September 2008 and the question of costs consequences which follows my judgment have now been argued. The orders that I made on 24 September 2008 were as follows: 1. Upon tender by the plaintiff of the amount of $159,118 together with a discharge of the mortgage granted by the plaintiff and the defendant to the Commonwealth Bank of Australia with respect to the property at Gloucester Avenue, West Pymble, the defendant shall transfer to the plaintiff all his right, title and interest in the property at Gloucester Avenue, West Pymble. 2. In the event that the plaintiff does not tender the amount specified and the discharge of mortgage within 90 days of the date of this judgment, the parties are to sign all documents and take all steps necessary expeditiously and in good faith to sell the property at a fair market price. (a) The proceeds of sale, after payment of all necessary expenses, will be divided between the parties so that the plaintiff will receive 57.26% and the defendant the balance. (b) The plaintiff shall in any event take all necessary steps to ensure that the defendant obtains a release of the defendant's liability in respect of the overdraft facility with the Commonwealth Bank of Australia. 2 The plaintiff claims an order for costs in her favour on an indemnity basis and the defendant's primary submission is that there should be no order as to costs or, alternatively, that the plaintiff should pay the defendant's costs. 3 As is apparent from my judgment in paragraph 29 the plaintiff made an offer before these proceedings commenced. The offer was that the plaintiff would pay the defendant $165,000 for his interest in Gloucester Avenue, West Pymble and I noted that the value of his interest on the information before me at that stage put that interest at $163,000. 4 In the plaintiff's statement of claim filed 31 October 2007 the plaintiff sought an order that the defendant transfer his interest in the property to her for the sum of $160,000 or such other amount as the court sees fit and that the defendant pay the plaintiff the sum of $6,350. This was effectively a claim for a transfer of the defendant's interest in the sum of $153,650. This was a figure somewhat below the previous offer that had been made before the proceedings commenced. 5 In the defendant's statement of cross-claim he sought an order for the sale of the West Pymble property and that there be an order on adjustment for equal payment of contributions to mortgage payments pending settlement and that any proceeds be divided equally between the parties. 6 On 25 July 2007 which was two days before a mediation was due to occur, the plaintiff made another offer of settlement to the defendant. This was an offer to purchase the defendant's share in the property at West Pymble for $165,000 less the $6,350 which was an amount which had been withdrawn by the defendant from the plaintiff's bank account. That was a net offer of $158,650. The offer was only open for 7 days and included a provision that the plaintiff would ensure that the defendant was removed from any further liability in respect of the mortgage. It is apparent from the figures which I have quoted that the plaintiff's offer was not more favourable than the result achieved by a sum of $468. 7 The defendant made a number of submissions relating to (1) the respective financial positions of the parties (2) the exercise of the discretion having regard to the usual rules in these cases and (3) the result that should flow from the failure to make a full disclosure of the plaintiff's financial circumstances. The plaintiff's financial circumstances 8 It is plain from the evidence which I have referred to and the conclusions which I made in my judgment that the plaintiff was in a far stronger financial position than the defendant. Effectively the defendant only has superannuation and his legal half interest in the West Pymble property which is subject to a mortgage. It was submitted that the plaintiff has had the benefit of living in the house and because of the difference in financial circumstances it would be unfair to order the defendant to pay costs. So far as the benefit of living in the house is concerned this has already been taken into account in my judgment on the assessment of what was just and reasonable and, in my view, the disparity between these parties of their financial interests is not a matter which is appropriate to take into account in exercising the discretion. The exercise of the discretion having regard to the usual rules in these cases 9 The defendant's submissions made reference to the decision of Kardos v Sarbutt (No 2) [2006] NSWCA 206 and to the similarity of that case to the present case. In particular reference was made to the fact that this also is a case where the parties jointly owned the property which could have been subject to an application for appointment of trustees for sale under s 66G of the Conveyancing Act 1919 where in the ordinary course the usual order would be that the parties costs be payable out of the proceeds of sale. It was also submitted, to the extent that one looks at "the event" in rule 42.1 of the Uniform Cost Procedure Rules that the defendant was successful in that one of the orders which I made was for a sale if there was no purchase by the plaintiff of the defendant's interest. 10 The principles in Kardos v Sarbutt (No 2) have been dealt with by the Court of Appeal in a later decision of Baker v Towle [2008] NSWCA 73. In that case all members of the Court agreed that the starting point for the exercise of discretion in relation to costs incurred in proceedings under the Property (Relationships) Act 1984 must generally be rule 42.1 of the Uniform Civil Procedure Rules. Basten JA said at [9]: "The dictum in Kardos v Sarbutt (No2) to the effect that a 'starting position' was that the Court should make no order as to costs was restricted to the case where it could not be said that either party had been 'wholly or substantially successful' or had bettered his or her offer of compromise." 11 Beazley JA, with whom Matthews AJA agreed, referred in her reasons to the analysis of the event in the case of Vollmer v Hauber-Davidson [2005] NSWCA 237. After discussing the case Beazley JA said the following at paragraphs 20 to 25 as follows: "20 A review of the cases does not reveal any authoritative resolution of the meaning of " the event " within r 42.1. The discussion of the Court in Vollmer on the leave application indicates that " the event " could be defined or identified in a variety of different ways. The approach of Basten JA, to which I have referred at [10], adopts a similar approach . 21 The question as to what is " the event " will answer itself when an application is refused. In that case, the event will be the order for the defendant and, upon a straightforward application of r 42.1, the defendant will have the costs of the application unless the court makes some other order. 22 However, on the approach adopted by the Court on the leave application in Vollmer , " the event " may be identified in a variety of ways in the one case. It would be odd and, indeed, unfortunate, if the identification of " the event " in one way resulted in an order for costs, on the basis of "costs follow the event" whereas a different, but equally appropriate identification of " the event " meant a different application of the rules. The oddness in there being different possible applications of the rule (in this respect I am not referring to the exercise of the discretion under the rule) depending on the identification of " the event " raises in my mind the question whether this is the correct approach. In most cases, the costs order will almost invariably depend upon the exercise of the discretion. 23 The real question is what is the appropriate order for costs. An obvious starting point is the pleadings. However, the identification of the issues in the pleadings is likely to be only one of several considerations relevant to the costs order that ought to be made. The considerations may include whether any offers of settlement have been made and if so what those offers were. The discretionary considerations may also include the manner in which the proceedings are conducted. These are but 2 examples. There may be a whole range of relevant circumstances depending upon the particular case. 24 I would therefore prefer to treat the identification of the issues that arise on the pleadings as part of the consideration of matters relevant to the Court's discretion. In my opinion, that gives proper effect to r 42.1 and is consistent with the authorities and, in particular, the statement of McLelland J in Parker v McNair to which the Court referred in Vollmer (see [8] of the judgment on the leave application). 25 The difference between the approach that I prefer and the approach of Basten JA is probably more apparent than real. It will be apparent from what I have said, that where an order for adjustment is made, the costs order made will rarely, if ever, depend simply upon which party commenced proceedings. The question of costs needs to assessed in accordance with the facts and circumstances in each case and as the analysis undertaken by the Court in Vollmer indicates, no principles or general guidelines have emerged in cases under the Property (Relationships) Act . In this case, the effect of McLaughlin AsJ's costs order was that they be apportioned in the ratio of the adjustment that he ordered. As I have said, that decision was not challenged. The only reason to interfere with his Honour's specific order was so as to reflect the different adjustment that this Court has ordered. " 12 In this case we have a slightly unusual situation in that there was an offer before the proceedings commenced. That offer on the evidence before me was an offer by the plaintiff to purchase the defendant's interest for an amount which was at least $2,000 above the amount of the then value of the interest. No questions of costs were involved as proceedings had not commenced. This was plainly a reasonable position taken by the plaintiff prior to the proceedings commencing. 13 The next point to be observed is the claims made in the pleadings. The plaintiff plainly was seeking an order that she have the right to purchase the defendant's interest although the amount which was offered was as I have pointed out slightly less than the result which was ultimately achieved at the trial 18 months later. It is also apparent from the defendant's cross-claim that he would not agree to the sale to the plaintiff of his interest and he wanted the property sold. Of its nature such a claim would obviously involve the parties in more expense. The issue as to whether there should be a purchase by the plaintiff of the defendant's interest or a sale occupied time at the hearing. In paragraphs 29 to 31 of my judgment I dealt with the defendant's attitude to the plaintiff's claims. At paragraph 31 I referred to the lack of a valid reason being suggested as to why the property should be sold. In submissions before me the position advanced included that the rights of the parties under s 66G of the Conveyancing Act 1919 included the right to have trustees appointed for sale and that if a party decided to adopt that course it was his or her legal entitlement. 14 The offer made shortly before the mediation in July 2007 was one which was very close to the mark. Although the plaintiff did not better that offer I think appropriate to have regard to it and to note that the plaintiff's position taken at the time was not an unreasonable one in terms of amounts which she said she should pay for the defendant's interest. 15 As has been pointed out in the cases the definition of what is "the event" in these cases is difficult and is not appropriately the subject of general principles. Having regard to the pleadings there seems to be two events which are at the centre of the present action. One was whether the plaintiff should have the ability to purchase the defendant's interest and the second was the amount to be paid for that interest. On the first event the plaintiff was clearly successful. On the second event, when one considers the plaintiff's offers of settlement, she was not successful but plainly she was not unreasonable. So far as the defendant was concerned his position was that there should be a fifty percent split with him and that was after he had contributed to the mortgage. He did not do so and the result, which was an order in favour of the plaintiff for 57.26 percent of the net balance, was greater than he was maintaining in the proceedings. In these circumstances it would seem to me that the plaintiff has been substantially successful and, accordingly, subject to the matters I will now consider, I would order the defendant to pay the plaintiff's costs of the proceedings on the ordinary basis. As the plaintiff has not bettered any offers which she made it is inappropriate to consider costs on an indemnity basis and there are no other factors which might lead one to such a position. The result that should flow from the failure to make a full disclosure on the plaintiff's part 16 In this matter there was non-disclosure by the plaintiff of her proprietary interest in or claim to the property involving her previous de facto relationship. The amount of her interest was, of course, not definite but she acknowledged in cross-examination that she had a claim in the order of $40,000 being her initial contribution to the property. It is apparent from my judgment that I have not adjusted her other property apart from the consideration of non-financial contributions to that property by the defendant. There was also some cross-examination of the plaintiff as to the full disclosure by her to the taxation authorities of the income she received from her Surry Hills property. That cross-examination was inconclusive. Having regard to the fact that both parties contributed equally to the property in which they resided questions of additional income were not relevant to the findings I made. 17 The Family Court of Australia has consistently held that there is a clear obligation on a party to proceedings in that Court to make a full and frank disclosure of all relevant financial circumstances. That Court has adopted what was said by Lord Brandon in the House of Lords in Livesey v Jenkins (1985) AC 424 at 437: "I stated earlier that, unless a court is provided with correct, complete and up-to-date information on the matters to which, under s25(1), it is required to have regard, it cannot lawfully or properly exercise its discretion in the manner ordained by that subsection. It follows necessarily from this that each party concerned in claims for financial provision and property adjustment (or other forms of ancillary relief not material in the present case) owes a duty to the court to make full and frank disclosure of all material facts to the other party and the court. This principle of full and frank disclosure in proceedings of this kind has long been recognised and enforced as a matter of practice. The legal basis of that principle, and the justification for it, are to be found in the statutory provisions to which I have referred." 18 In a case where there has been a failure to make a full and frank disclosure there are practical problems involved in making orders when the court cannot identify a party's assets. I have referred to these difficulties in my judgment of Taggart v Gaston (Supreme Court of New South Wales, Macready M, 7 December 1992, unreported) and Dowrick v Sissons (Supreme Court of New South Wales, Macready M, 8 May 1996, unreported). However, those problems do not arise in the present case. The submission is that because of the failure to make a full and frank disclosure that circumstance should be taken into account in making an order for costs. 19 In Penfold v Penfold (1979-1980) 144 CLR 311 the High Court was concerned with an appeal in respect of an order for costs made under s 117 of the Family Law Act 1975 (Cth). Sub-section 1 of that section provided that subject to sub-section 2, each party to proceedings in the Court should bear his own costs. Sub-section 2 provided that if the Court is of the opinion in a particular case that there are circumstances that justify it in doing so, the court may, subject to the regulations, make such orders to costs and security for costs, whether by way of interlocutory order or otherwise, as it thinks just. 20 The trial judge had made an order for costs against the husband and that order had been set-aside on appeal to the Full Court of the Family Court . The relevant circumstance was a failure to comply with the obligation to make a full and frank disclosure. 21 The majority of the High Court at 316-317 referred to the matter in these terms: We are left, then, with the question whether there were justifying circumstances within the meaning of s. 117 (2). The question must be answered in the affirmative. True it is that the appellant obtained only some of the orders which she sought. However, it appears that she would have obtained other orders, those relating to the enrolment of the children as boarders in educational institutions, but for the circumstance that after the hearing before the vacation judge and immediately before the hearing before Allen C.J. in F.L.D. the respondent agreed to the arrangements proposed. Moreover, the transcript shows that it was only after the respondent's financial position had been investigated at the hearing that, in answer to questions put by the judge in cross-examination, he admitted that he could afford to pay the increased maintenance which was ultimately ordered. The respondent had filed a form 19 statement relating to his financial position. It presented a picture of the respondent as an insolvent, a man whose liabilities exceeded his assets. It made no mention of the very valuable assets which he owned and in which he had an interest. In his own right, as a beneficiary in an estate and through a company and a family trust he had interests in shares in W.C. Penfold Holdings Ltd. valued at not less than $800,000 and he enjoyed a substantial income. The form 19 statement gave no indication of these assets, with the result that the appellant was compelled to establish the respondent's financial position. Consequently, there was ample material from which the judge could find that there were circumstances justifying the making of an order for costs. The facts that the appellant failed in relation to the trust and the matrimonial home, and that the vacation judge dismissed the interlocutory application, though matters which are of relevance, are not of sufficient strength to deny the conclusion that there were circumstances justifying the making of the order. 22 In this case the breach was clearly an egregious one and as noted by the majority the appellant was compelled to establish the respondent's financial position. This point was also picked up by Murphy J at page 318 where His Honour said: "Presentation of a false statement of financial circumstances, which puts the other party to the trouble and expense of disproving it, is a circumstance which justifies an order for costs. Courts should regard such circumstances which tend to undermine the integrity of proceedings with great concern, and should do everything in their power to determine who is responsible in order to maintain that integrity." 23 Neither in the plaintiff's statement of claim or in her affidavits in support did the plaintiff purport to fully set out her financial situation at the commencement or at the conclusion of the relationship or, indeed, at the hearing. The question of the non-disclosure of the claim in respect of the earlier de facto relationship was first raised by the defendant who was obviously well aware of the claim. In paragraph 11 of the defence to the cross-claim this was effectively admitted by the plaintiff and she pointed out that the result of the case had not yet been determined. In the hearing before me there were applications by the defendant to inspect the file in those proceedings which were also in this Court. I declined to grant the defendant access to the file. There was also a notice to produce to the plaintiff to produce the pleadings and in due course the pleadings were produced and were tendered. 24 I only mention these matters to illustrate what might have been the steps taken to deal with the non-disclosure by the plaintiff. 25 Plainly there were some costs involved in issuing the notice to produce and these costs have been incurred because of the failure by the plaintiff to properly present her financial situation to the Court and the defendant has incurred these costs because of the failure. In my view, there ought to be an order that the plaintiff pay the defendant's costs in establishing the plaintiff's interest in her property relationships claim against her former partner, Mr White. It should be on an indemnity basis as it was a very clear breach of the duty to disclose. 26 Accordingly the orders I make are as follows:

Gray v Ferguson

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