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Property – Wife contravened order via her solicitor’s retention of net sale proceeds of property in satisfaction of a costs order – Those costs had not been assessed and sale proceeds were otherwise payable to husband

In Hogan & Cabral [2020] FCCA 23 (10 January 2020) Judge Terry heard the husband’s contravention application in which he complained that the wife’s solicitor had improperly withheld $29,836.76 of net sale proceeds that were otherwise payable to him pursuant to a final order. The wife contended that she had not breached the order as the husband had been ordered to pay costs, which she said pertained to the entirety of the litigation. The husband argued that the costs order pertained to a single application in which the wife was appointed trustee for sale. He also contended that the costs could not be retained by the solicitor, where they had not been fixed, agreed nor assessed.

The Court said (at [2]-[4]):

“ … [T]he orders required the net sale proceeds of a property in Suburb A Victoria to be paid as to 70% to Ms Cabral (‘the wife’) and 30% to Mr Hogan (‘the husband’).

The property was sold on … 2018 and $190,148.95 was paid into the trust account of the wife’s solicitors …

On 11 December 2018 [the wife’s solicitor] … paid $27,163.24 to the husband which was $29,881.45 shy of 30% of the money in trust.  He informed the husband that the wife was entitled to retain the remaining amount pursuant to a costs order made in her favour on 3 May 2018.

The Court continued (from [50]):

“On 4 June 2018 the wife’s solicitor sent to the husband by email a Bill of Costs covering the wife’s costs from 16 May 2016 to 16 May 2018 in the sum of $41,300.60. The bill was made up of solicitor’s fees of $30,709.60, counsel’s fees of $10,120.00 and postage of $474.00.

[51] The covering email said:

We enclose herewith by way of service our Memorandum of Costs as per the orders of his Honour Judge Middleton on 3 May 2018.’

( … )

[62] Judge Middleton said nothing which suggested that he intended to make a costs order for the entirety of the proceedings which had commenced on 28 July 2016 and the order he pronounced does not say that either.

( … )

[65] Judge Middleton was not dealing with the substantive application on 3 May 2018; he adjourned that to another day. The only application before him was the application in a case in which costs had been sought of and incidental to that application. … I am comfortably satisfied that the only interpretation open is that on 3 May 2018 the wife was awarded the costs of and incidental to her application in a case filed on 26 April 2018 [for the appointment of a trustee for sale].

( … )

[71] Order 4 of the orders made on 3 May 2018 provided for costs to be as agreed or assessed and neither has ever occurred.

[72] … [T]he wife’s counsel suggested to [the husband] … that he could have asked for an assessment when he received the Bill, her point being that because he did not do so he could not now complain about the amount which had been deducted from his share of the sale proceeds.

[73] The wife’s counsel was apparently relying on the fact that at the end of the Bill which the wife’s solicitor sent to the husband there is a notice referring to s 309(1) of the Legal Profession Act which states that if the recipient wishes to dispute the bill they may:

‘ … refer the dispute to the Legal Services Commissioner for mediation … Apply to the Supreme Court of New South Wales, Costs Assessment Scheme, for an assessment

( … )

[75] Section 74 of the Legal Profession Uniform Law Application Act 2014 deals with costs assessments and s 74(1) provides as follows:

(1) An application for assessment of the whole or any part of ordered costs may be made by –

(a) a person who has paid or is liable to pay those costs, or

(b) a person who has received or is entitled to receive those costs.

[76] The husband is a legal practitioner. He ought to have been aware that the NSW Act applying to the legal profession would contain such a provision and he could have applied for a costs assessment pursuant to s 74(1). However so could the wife and in circumstances where the order provided for the husband to pay costs as agreed or assessed and where there had been no agreement it was incumbent on the wife to apply for an assessment of costs before an amount was retained by her solicitor and applied for her benefit without the husband’s agreement.

[77] On this basis alone the wife’s solicitor had no right to retain on the wife’s behalf the sum of $29,836.76 from the husband’s share of the sale proceeds.

( … )

[79] The wife’s primary defence to the contravention application was that the order made on 3 May 2018 justified the amount of $29,836.76 being retained by her solicitor from the husband’s share of the sale proceeds.

[80] This is not correct but it does not automatically follow that she has contravened the order.

[81] In the affidavit she filed … the wife also asserted that the 11 April 2016 orders provided for net the proceeds of the sale of the property to be disbursed as to 70% to the wife and 30% to the husband. She said that this did not impose any obligation on her to pay anything to the husband’s solicitor or to the husband and therefore she had not contravened the order.

[82] I do not accept that submission.

[83] Notwithstanding the way in which Order 7(f) is worded the orders as a whole clearly place on obligation on each party to ensure that the net proceeds of sale are distributed in accordance with Order 7 and that they each receive no more than the share of the sale proceeds to which they are entitled.

[84] The husband created a situation where it was impossible for any of the net proceeds of sale to be paid to his solicitors as required by Order 7(f) and the fact that the wife authorised payment of the husband’s share of the money as well as her own to her solicitor’s Trust Account is understandable. It may have been the only option available to her as something had to be done with the sale proceeds.

[85] However that did not justify the wife retaining $29,836.76 to which she was not entitled and her solicitor could only have withheld this amount from the husband on her instructions.

[86] I am satisfied on the balance of probabilities that the wife has contravened Order 7(f) of the orders made on 11 April 2016.

( … )

[88] Section 112AC of the Family Law Act deals with reasonable excuse in the contexts of a property contravention …

[89] … [T]he wife did not claim that her solicitor had acted contrary to her instructions. Her response to the contravention application was to say that she was not in breach of the order …

[90] The wife could only have relied on s 112AC(2) but the onus would have been on her to establish on the balance of probabilities that she had a reasonable excuse and to satisfy the court that she should be excused and I could not have been satisfied that she should be excused.

[91] The wife has had the opportunity since the contravention application was filed to reconsider her position about the meaning of the 3 May 2018 order and to reflect on the fact that costs were never agreed or assessed. She has failed to change her position and make financial recompense to the husband and it would not have been appropriate to excuse her contravention of the order on the basis that at the time of the contravention she did not understand the obligation imposed on her.”

The wife was found to have contravened the order, and the case was adjourned for submissions as to penalty and as to whether an order should be made to ensure compliance with the order contravened.

 

Editor’s note – Our “Latest Notable Cases” this month contained six more case notes with summaries of the following:

Financial agreements – Interim costs order made to fund the  challenge of a financial agreement contained error as the court failed to assess “nature and quality” of property claim that would follow the setting aside of the agreement – Agreement “came into effect” pursuant to s 90UI upon separation, not when it was signed

Children – Vexatious litigant’s leave application fails where primary motivation in seeking parental responsibility orders was to ultimately challenge deceased mother’s will

Children – Children had refused to see their father for 2 years – Orders erroneously made in hope rather than any experience of compliance

Property – Non-commutable disability income insurance payment was not “property” as monthly payment contingent upon husband establishing entitlement each month

Children – Registrar’s refusal to file Initiating Application due to non-provision of a s 60I certificate was improper – Power to dispense with certificate can only be exercised by the Court once proceedings have commenced

Property – Liquidator of trust enjoined from dealing with real estate interests, where husband and wife were the trust’s biggest creditors and wife sought to retain the interests as part of her settlement