Separovich v Ferrao

Court of Appeal (NSW)|2011-11-14|Before: Beazley JA, McColl JA, Macfarlan JA

Date of Decision: 2010-03-24 00:00:00 Before: McLaughlin AsJ File Number(s): SC 6423/2008

Judgment 1BEAZLEY JA : The Court gave its principal judgment in this matter on 6 July 2011: Separovich v Ferrao [2011] NSWCA 180, in which it dismissed the appeal against orders made by McLaughlin AsJ pursuant to the Property (Relationships) Act 1984, s 20 in respect of the adjustment of property of the parties. At the time the Court delivered the principal judgment, the determination of the appeal against the costs order made by McLaughlin AsJ remained outstanding, pending the parties making further submissions thereon. The Court also stood over the making of an order for the costs of the appeal, to enable the parties to make submissions as to the appropriate order each sought in that regard. 2The Court gave directions as to the filing of written submissions in respect of the outstanding costs issues. The respondent filed written submissions in accordance with the directions given. No submissions were filed by the appellant in response to the respondent's submissions.

Principles relating to costs in proceedings brought under the Property (Relationships) Act 7The Civil Procedure Act 2005 and the Uniform Civil Procedure Rules 2005 (UCPR) govern the Court's powers in respect of costs of these proceedings. Pursuant to the Civil Procedure Act , s 98(1) subject to, relevantly, the provisions of the UCPR, costs are in the discretion of the Court. The power conferred by s 98(1) is subject to UCPR, r 42.1. That rule provides, relevantly, that: "... if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs." 8In Vollmer v Hauber Davidson (No 2) (Supreme Court of New South Wales, Macready M, 24 August 2004, unreported) the Master had identified, as the matter determining costs, the fact that the respondent had commenced the proceedings under the Property (Relationships) Act and that it had been necessary for him to do so. 9On appeal: Vollmer v Hauber Davidson [2006] NSWCA 79; (2007) DFC 95-400 Hislop J considered (Mason P and Ipp JA agreeing) that the Master had failed to take into account certain relevant considerations. His Honour, at [21], reasoned as follows: "a) In the absence of agreement between the parties it was necessary for them to resort to the courts, whether pursuant to the Act, the Conveyancing Act 1919 s 66G or general equitable principles to obtain finality in respect of their property interests. b) The parties were unable to reach agreement in respect of the adjustment of their interests, neither being prepared to make a realistic settlement offer to the other. c) In these circumstances the commencement of the court proceedings was necessary from the perspective of each party, not just the respondent. d) The fact that the respondent issued a Statement of Claim and the appellant a Cross-Claim, rather than vice versa, was a chance event. Accordingly it should not be regarded as a relevant factor in determining the costs issue, a proposition which counsel accepted on the appeal. e) The effect of the Master's adjustment of the parties' interests was that the appellant's share of the property was valued at approximately $220,000, the respondent's at approximately $520,000. As is apparent from a comparison of the Master's orders and the pleadings, each party was unsuccessful in that he or she failed to obtain the adjustment that he or she sought, though each was successful in exceeding the adjustment that the other party offered. These were material considerations which were not taken into account by the Master." 10It followed, in the Court's opinion, that the Master had erred in the exercise of his discretion: House v R [1936] HCA 40; 55 CLR 499 at 504-505. It was thus necessary for the costs discretion to be re-exercised. The Court concluded that, having regard to the considerations to which Hislop J had referred, the appropriate order was that each party should pay his and her own costs of the proceedings in the court below. 11In Dunstan v Rickwood (No 2) [2007] NSWCA 266; 38 Fam LR 491, this Court (McColl JA, Beazley and Ipp JJA agreeing) held that the starting point for an order for costs in proceedings brought pursuant to the Property (Relationships) Act was that costs follow the event in accordance with UCPR, r 42.1. Dunstan v Rickwood (No 2) has been followed not only in New South Wales, but in Tasmania, in Bellchambers v Jackson [2009] TASSC 113; and in South Australia, in Hutchinson v Ellis [2010] SASCFC 71 at [40]. 12In Esma Fay Towle v John Graham Baker [2007] NSWSC 357 the Associate Judge ordered that the costs of the proceedings be paid in the same proportion as he had adjusted the parties' interests in property under the Property (Relationships) Act , s 20. The order made was that the appellant should pay two-thirds of the respondent's costs at trial. The order was upheld on appeal: Baker v Towle [2008] NSWCA 73 (Beazley, Basten JJA, Mathews AJA). 13In agreeing that the Associate Judge's order was appropriate in that case, I expressed the view that such approach did not involve a " usual rule " that an award of costs in applications under the Property (Relationships) Act should reflect the proportion of interests in property as adjusted by the court. As I stated, at [9], the discretion conferred by UCPR, r 42.1 was not fettered in that way. See Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72, especially at [21]-[22] and [35]; Dunstan v Rickwood , especially at [38]; Hayes v Marquis [2008] NSWCA 10 at [14] and [145], which establish that it is inappropriate to confine the discretion conferred by the Civil Procedure Act , s 98 and UCPR, r 42.1. 14Basten JA, obiter, raised the question as to what constituted " the event " for the purposes of the rule in r 42.1 that " costs follow the event ". I was of the opinion that that was not an issue that required ventilation in that case. For my part, I considered that the real question was what was the appropriate order for costs in the case at hand. In that regard, I noted that an obvious starting point in the determination of that question was the pleadings, but that was likely to be only one of several considerations relevant to determining whether an order, other than that costs follow the event, should be made and if so, what order ought to be made. Other considerations might include whether any offers of settlement had been made and, if so, what those offers were. Another discretionary consideration might be the manner in which the proceedings were conducted. As I indicated, at [23], those were but two specific examples within a possible range of relevant circumstances depending upon the particular case. Mathews AJA agreed with this aspect of my judgment. My approach has also been followed by the Victorian Court of Appeal: Apostolidis & Ors v Kalenik & Ors (No 2) [2011] VSCA 329 at [40]. 15In Jensen v Ray [2011] NSWCA 247 Brereton J (Campbell JA and Sackville AJA agreeing) accepted that the view he had expressed in Kardos v Sarbutt (No 2) [2006] NSWCA 206, that in cases under the Property (Relationships) Act the starting point should be that each party should pay their own costs, had been rejected in Dunstan v Rickwood (No 2) . His Honour recognised, in accordance with that authority, that the starting point was that costs should follow the event, in accordance with UCPR, r 42.1. 16In Jensen v Ray , the trial judge had ordered that the plaintiff pay the defendant's costs, assessed at $24,422.40 on the basis that the plaintiff had failed and the defendant had succeeded. As Brereton J noted, the basis for that order had been removed by the outcome of the appeal, which had been allowed. However, in accordance with the principle in Dunstan v Rickwood (No 2) , that the starting point was that costs follow the event, his Honour ordered the defendant pay the plaintiff's costs, as on the appeal was that the plaintiff was successful on the claim. Brereton J added, however, at [67], that a costs order should not have a disproportionate impact on the adjustment of the interests in property of the parties, having regard to the amount in issue. Accordingly, his Honour fixed the costs payable in the sum of $15,000.

The costs appeal 17By his notice of appeal: ground 9, the appellant contended that: "His Honour erred in making an Order for costs and/or failed to provide [him] with procedural fairness." 18In his written submissions in support of this ground, the appellant argued that his Honour did not hear submissions in respect of the question of costs. Rather, his Honour, having seemingly formed a view that the respondent was wholly successful in the proceedings, made an order for costs in her favour, notwithstanding that the respondent did not achieve the result she sought in her statement of claim. The appellant submitted that the costs order effectively left him receiving nothing from his Honour's orders in respect of the adjustment of property between him and the respondent. 19In support of his argument that he was denied procedural fairness, the appellant submitted his Honour did not give him an opportunity to argue the question of costs. 20On the hearing of the appeal, counsel for the appellant agreed that the costs appeal might be best left until the determination of the appeal and hence his oral submissions were advanced in an abbreviated way. Counsel indicated that the point on the appeal from the costs order was " just a procedural fairness issue ". He pointed out that his Honour had not considered relevant authority in respect of costs in cases under the Act. Counsel acknowledged that the order made was an order that " costs follow the event ". The appellant's counsel submitted that the respondent had not received the whole of the result she had sought in her statement of claim. He argued, therefore, that it was hard to see how, necessarily, the appropriate order was costs should follow the event. Counsel handed up a decision of Barrett J in Paino v Paino [2006] NSWSC 886. In that case, Barrett J ordered that each party was to bear his or her own costs (subject to certain amounts not presently relevant). However, that case was decided prior to this Court's decision in Dunstan v Rickwood (No 2) and, accordingly, is not presently relevant to the principled approach which should be taken to an order for costs in proceedings under the Property (Relationships) Act .

The respondent's further written submissions on costs 21In accordance with the Court's directions, the respondent filed further submissions regarding costs. In those submissions, she submitted that she had been substantially successful on her claim, albeit that the order made in her favour was not identical to that sought in her statement of claim. She had also successfully resisted the appellant's cross-claim. She contended, therefore, that " the starting point " of UCPR, r 42.1 should be applied. As I understand this submission, it was that there was no basis for the Court to order otherwise, in the exercise of its discretion under UCPR, r 42.1. The respondent also submitted that the appellant had been wholly unsuccessful in his cross-claim and, accordingly, she ought to be awarded the costs expended in defending it. 22The respondent raised other discretionary considerations that supported the order for costs in her favour. In particular, she relied upon the appellant's conduct of the trial, which she contended lengthened the trial and put her to additional costs. In this regard, she referred to the unfavourable findings concerning the appellant's credit in relation to answers he gave under cross-examination; his assertion of contributions made by his parents, which were not supported by evidence; and his failure to make full and frank disclosure in respect of his gambling activities, which had involved additional expense to the respondent in relation, for example, to subpoenas to support her evidence as to his gambling activities. The respondent submitted that, by way of comparison, no adverse finding had been made as to her behaviour in conducting the proceedings: see Baker v Towle at [23]. 23The respondent additionally sought that the costs order in her favour be made on an indemnity basis from the date of an offer of compromise she made on 18 August 2009, prior to the hearing of the matter. She submitted that the terms of the offer were significantly more favourable to the appellant than the orders made at trial. The offer of compromise was annexed and it is clear that the offer, made under UCPR, r 42.14, was more favourable to the appellant than the order made by the Court. In the usual circumstances, therefore, the respondent would be entitled to an order for indemnity costs as from the day following the day on which the offer was made in accordance with r 42.14(2)(b)(ii).

What is the appropriate order for costs? 24As counsel for the appellant submitted in his oral submissions, the real complaint made in respect of McLaughlin AsJ's costs order was that the appellant had not been afforded natural justice, in that he had not been given an opportunity to make submissions in respect of costs and his Honour had failed to consider the authorities relevant to costs. With respect, this submission fails to acknowledge the manner in which proceedings in the court are usually conducted and the manner in which orders for costs are usually made. In the normal course, parties conduct their proceedings, judgment is reserved and an order for costs made, as a matter of course, as part of the orders made at the time of the giving of judgment. 25In the usual case, the court makes an order that costs follow the event. That is, an order for costs is made in favour of the successful party, payable by the unsuccessful party. If, in a particular case, a party wishes to argue that some other order ought to be made in the exercise of the court's discretion, there are at least four opportunities in which to do so. First, as part of the submissions made at the conclusion of the evidence, a party may submit that the case is one where some order, other than that costs follow the event, ought to be made. Secondly, a party may indicate to the court at the conclusion of the hearing that, depending upon the outcome of the proceedings, it may wish to make submissions as to costs. As the plurality judgment in Aktas v Westpac Banking Corp Ltd [2010] HCA 47, at [7], indicates, foreshadowing such an application is a wise, and perhaps necessary, precaution. Thirdly, a party may seek to make submissions immediately after judgment is delivered. Fourthly (and more procedurally correctly as compared to the third opportunity), a party may utilise the provisions of UCPR, r 36.16(3A), which provides: "If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered." 26The appellant did not use any of those possible processes. In such circumstances, the fact that the primary judge followed the usual course of applying UCPR, r 42.1 cannot be said to constitute procedural unfairness. 27Strictly, that is sufficient to dispose of ground 9 of the notice of appeal in the manner in which it was argued on the appeal. However, to give full consideration to the written submissions, I would add that the appellant has not indicated why there was an error in his Honour's application of the starting point of the costs rule in UCPR, r 42.1. Further, the matters raised by the respondent as to the conduct of the proceedings were also matters which it would be appropriate to take into account to support the order made by his Honour. 28That leaves for consideration the respondent's further application, that the costs order made in her favour at trial be paid on an indemnity basis from the day following an offer of compromise she made on 18 August 2009. In my opinion, the time for making that application was at the time judgment was handed down, or in accordance with r 36.16. As I pointed out in the principal judgment, at [79], the respondent did not inform the trial judge of that offer, apparently taking the view that it was not necessary, having regard to the outcome. In the absence of having sought a different order at the time of judgment, or seeking to challenge the primary judge's costs order by notice of cross-appeal, there is no basis upon which she is now entitled to a variation of the trial costs order based upon her offer of compromise.

Costs of the appeal 29The respondent seeks an order that the appellant pay her costs of the appeal, she having been successful thereon. She further seeks an order pursuant to r 42.14 that costs be made on an indemnity basis from the day after an offer of compromise made on 11 October 2010 in respect of the appeal and a letter apparently intended to be a Calderbank offer dated 24 November 2010 in respect of the costs of the appeal containing alternative proposals: Calderbank v Calderbank [1976] Fam 93 at 106. The October offer of compromise purported to be made pursuant to UCPR, r 20.26, rather than UCPR r 51.47: cf UCPR, r 51.48. Each offer was expressed to be open for acceptance for a period of one calendar month from its date. 30The effect of acceptance of either the October offer of compromise or the second of the alternative proposals in the November letter would have been that trial orders were set aside, the respondent transferred her interest in the Gwandalan property to the appellant (subject to the Westpac mortgage), the appellant was relieved of the burden of paying the respondent $160,000 (entirely under the October offer and as to $80,0000 under the second alternative November offer) and the respondent transferred a portion of shares she held in a public company to the appellant. In addition, under each alternative in the November offer of compromise there was to be no order as to the costs of the appeal. 31In my view, the respondent's failure to express the October offer to be made pursuant to UCPR, r 51.47 may be treated as an irregularity: Civil Procedure Act , s 63(2)(a). Accordingly, the October offer may be treated as a valid offer of compromise. Pursuant to the UCPR, a party may make more than one offer of compromise in relation to the same claim and such offers may be open at the same time or for part of the same time. For my part, I am of the opinion that a party may make more than one offer regardless of whether such offers are made under the rules, or by way of Calderbank offers, or a combination of either, that is, an offer under the rules and a Calderbank offer. The offeree has the option of choosing any one of such offers within the time specified for acceptance. Where no offer is accepted, I am of the opinion that the offeror may have the benefit of a favourable costs order in respect of the first offer, provided that the result of the proceedings, or in this case, the appeal, is no more favourable to the offeree than the offer and there are no discretionary reasons why an order for indemnity costs should be made: see Hillier v Sheather (1995) 36 NSWLR 414. No discretionary reasons have been advanced here to warrant departure from the respondent's prima facie entitlement to an indemnity costs order: UCPR, r 42.15A. In my opinion, in this case the respondent should have an indemnity costs order following from the first offer. 32Accordingly, I propose the following orders:

The appellant's appeal against the costs order made by McLaughlin AsJ be dismissed;
Order that the appellant pay the respondent's costs of the appeal, those costs to be paid on the ordinary basis up to and including 11 October 2010 and thereafter on an indemnity basis. 33McCOLL JA : I agree with Beazley JA. 34MACFARLAN JA : I agree with Beazley JA.

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