A recent case in which Gadens acted for a successful third party has provided a stark warning to participants in family law proceedings to carefully consider the merits of their arguments versus desires to be heard when litigating interim matters, or run the risk of orders for indemnity costs being made against them.
Pelton & Banbury and Anor (No. 2)  FamCA 17 was one of a series of fiercely contested interim hearings in the Family Court of Australia relating to the division of the matrimonial assets of Ms Pelton (“the Wife”) and Mr Banbury (“the Husband”). The second respondent and independent third party, Mr Hellis (in his capacity as trustee of his self-managed superannuation fund) was a shareholder in the business founded by the Wife and the Husband, who joined the Family Court proceeding as part of the power struggle ensuing from the couple’s separation.
As a federal court with original jurisdiction to hear civil matters under the Corporations Act 2001 (Cth), it was agreed upon Mr Hellis’ joinder that the Family Court was the most appropriate forum to ventilate the disputes between the parties. This avoided concurrent competing proceedings across different courts relating to the same factual matrix, with the Husband having foreshadowed also commencing proceedings in the Federal Court of Australia to enforce a shareholders agreement and bring related civil commercial claims.
Consent orders had also been agreed at a previous interim hearing in the Family Court vesting all decision making power of the companies operating the business in the Wife to the Husband’s exclusion, as a means to preserve the business’s ability to operate whilst the proceedings continued towards a Final Hearing in January 2020.
Without notice to the Wife or Mr Hellis, on 28 November 2019 the Husband instructed his solicitors to file civil proceedings in the name of the companies in the Supreme Court of Victoria against Mr Hellis and others seeking to recover losses the Husband alleged they had caused to the business as part of the power struggle. With the Husband having previously made similar threats and been warned against taking such actions, the solicitors acting for the Wife and Mr Hellis each put the Husband’s solicitors on notice that such actions were in breach of existing Family Court orders and they would seek indemnity costs against him if he did not desist. Whilst the Husband’s solicitors conceded that the Supreme Court of Victoria proceedings were required to be withdrawn, it was advised that the Husband intended to make an urgent application seeking the previous consent orders be varied to allow him to re-commence those proceedings.
Before he could do so, the Wife filed her own urgent application seeking an enforcement of the existing Family Court orders against the Husband together with an anti-suit injunction as well as indemnity costs, which was supported by Mr Hellis’ complimentary application. The Husband’s solicitors were also put on notice that the Wife and Mr Hellis would consent to the Wife’s application being dismissed without the need for a hearing if the Husband agreed to:
No written response was received to the Wife and Mr Hellis’ offer to dismiss the Wife’s application, with the Husband also failing to file any responding material. The matter then proceeded to an interim hearing where the Husband advised he would not pursue varying the existing consent orders and would consent to the making of a fulsome anti-suit injunction against him. The Husband would not however consent to the making of any costs orders against him, with the solicitors for the Wife and Mr Hellis each having submitted statements of costs including solicitors’ and Counsel’s fees from having to attend the interim hearing.
Section 117 of the Family Law Act 1975 (Cth) set outs the principles for costs applicable to litigants in the family law jurisdiction.
The presumption under section 117 is that, unless the Family Court is of the opinion that there are circumstances that justify it in doing so, each party shall bear their own costs. In determining whether costs orders are justified the Family Court has regard to the following matters:
Where justified, the Family Court generally will make orders on a party-party basis (with legal costs scaled to those prescribed under legislation) as opposed to on an indemnity basis (with legal costs recoverable at their full rate, which is often significantly higher). The making of orders for costs on an indemnity basis therefore require exceptional circumstances. Examples could include circumstances where a party should have known they had no chance of success and/or were unnecessarily prolonging litigation, have been fraudulent, have engaged in misconduct causing loss of time to the Family Court and other parties or have failed to accept an offer to compromise.
In view of the Husband’s actions in the lead up to the interim hearing, the Family Court found that the interim hearing was unnecessary but-for the approach taken by the Husband and awarded costs in favour of the Wife and Mr Hellis on an indemnity basis as sought. The Family Court was satisfied that exceptional circumstances had arisen whereby the Husband’s failure to accept the Wife and Mr Hellis’ offer to compromise, whilst also failing to file responding material to the Wife’s application, was unreasonable given he ultimately consented to the anti-suit injunction and confirmed he would not pursue a variation of the consent orders.
The Husband was legally represented and had been on notice for several months of the Wife and Mr Hellis’ response should he bring an action in the Supreme Court of Victoria as well as the effect of the consent orders previously made in the Family Court. Despite having been given the opportunity to avoid the interim hearing the Husband chose to proceed without a reasonable basis, at significant cost to the Wife and Mr Hellis which the Family Court determined they should not bear the burden of.
Though a pleasing result for our client Mr Hellis, litigation which results in orders for indemnity costs are inherently frustrating and costly for the aggrieved parties. Such orders can only be made following those costs having been incurred unnecessarily as a result of the other party’s exceptional actions, and are better characterised as required to make the aggrieved party whole as a result of (rather than as a penalty for) the other’s poor behaviour. With that said, the making of such orders may also send a message to the offending party that acts as a deterrent in future litigation.
When approaching the hearing of interim matters, parties should therefore think carefully about their prospects of success and whether reasonable offers to compromise have been made which would make such a hearing entirely avoidable. This can be difficult in emotionally charged proceedings such as those in the family law jurisdiction, and particularly where a party feels the court-process should provide them with the vindication of having their opinion heard in open court. However a moment of pause and introspection can result in the saving of much time, money and anguish for all parties involved, whilst also presenting an opportunity for parties to show each other that compromise can be reached on interim issues, and potentially on a final basis without the need for a Final Hearing.
At Gadens, our team of Family and Relationship Law experts is well equipped to advise and assist clients with all facets of matters in the family law jurisdiction, including where independent third parties become embroiled in Family Court disputes as a consequence of having to intervene in the proceedings or having been joined to the proceedings by one of the spouse parties.
As a part of an all-service commercial law firm, the Family and Relationship Law Team frequently engages with other Gadens specialist teams to provide clients with advice tailored to their personal circumstances. In the case of Pelton & Banbury, the Family and Relationship Law Team worked closely with the Corporate Advisory Team, who are well-placed to advise on and navigate complex commercial issues such as business and shareholders’ disputes.
We invite you to phone one of our partners if we can be of assistance to you or someone you know.
Jason Walker, Partner
James Langanis, Associate