Costs Judgment: A Cautionary Tale of Litigation Conduct in Family Law

Introduction

In Piovene & Muhlfeld (No 4) [2024] FedCFamC1F 733, the Federal Circuit and Family Court of Australia rendered a landmark decision on costs in family law proceedings. Justice Schonell ordered indemnity costs against the applicant, underscoring the Court's intolerance for unmeritorious litigation and imprudent rejection of settlement offers. This case demonstrates the discretionary yet principled approach under section 117 of the Family Law Act 1975 (Cth) in awarding costs to ensure fairness and deter misuse of judicial resources.

Facts and Issues

Facts:

1. The applicant sought a declaration that a de facto relationship existed between himself and the respondent.
2. The Court had previously ruled there was no de facto relationship (Piovene & Muhlfeld (No 3) [2024]) and declared the applicant's case wholly unsuccessful.
3. The respondent sought indemnity costs due to alleged unreasonable litigation conduct and imprudent rejection of settlement offers.

Issues:

1. Whether the applicant's conduct justified an award of costs under section 117 of the Family Law Act 1975.
2. Whether the costs should be awarded on an indemnity basis.
3. What factors under section 117(2A) should weigh most significantly in the Court's decision?

Application of Law to Facts

Justice Schonell applied section 117(2) of the Family Law Act 1975, which empowers the Court to deviate from the general rule of each party bearing their own costs where "justifying circumstances" exist.

1. Financial Circumstances (s 117(2A)(a)):

• The applicant's financial position was precarious, but impecuniosity alone does not bar a costs order (Nada v Nettle (Costs) [2014] FLC 93-612).

1. Conduct of the Parties (s 117(2A)(c)):

• The applicant's conduct, including false allegations and unsubstantiated claims about "fake messages," significantly increased costs and prolonged litigation.

1. Success in Proceedings (s 117(2A)(e)):

• The applicant was wholly unsuccessful, a compelling factor in awarding costs.

1. Settlement Offers (s 117(2A)(f)):

• The respondent made two realistic offers, both of which the applicant imprudently rejected, further exacerbating litigation costs.

1. Exceptional Circumstances:

• The applicant's allegations, later abandoned, were deemed groundless and contributed to the respondent incurring unnecessary costs.

Judgment Analysis

Justice Schonell's decision reflects careful consideration of precedent, fairness, and public policy:

1. Costs Order Justification:

• The applicant's actions satisfied the threshold for "justifying circumstances" under section 117(2), warranting costs against him.

1. Indemnity Basis:

• The Court emphasized the exceptional nature of indemnity costs orders, citing cases such as Kohan and Kohan (1993) FLC 92-340 and Colgate Palmolive Company v Cusson Pty Ltd (1993) 118 ALR 248. The applicant’s conduct in rejecting settlement offers and pursuing false claims met this threshold.

1. Proportionality:

• By certifying senior counsel, the Court acknowledged the necessity and proportionality of the respondent's legal expenses.

1. Reasoning:

• Justice Schonell reasoned that the applicant's imprudent refusal to settle and abandonment of baseless claims justified indemnity costs from the expiry of the first settlement offer.

Precedents Relied Upon

1. Penfold v Penfold (1980) 144 CLR 311 - Articulating the "justifying circumstances" standard for costs.
2. Colgate Palmolive Company v Cusson Pty Ltd (1993) 118 ALR 248 - Outlining principles for indemnity costs.
3. Kohan and Kohan (1993) FLC 92-340 - Exceptional circumstances for indemnity costs in family law.

Take-Home Lesson

Litigants must approach family law disputes with honesty, reasonableness, and an openness to settlement. Courts view with disfavor any conduct that increases costs unnecessarily, and indemnity costs orders may follow where litigation is pursued unreasonably or offers to settle are imprudently rejected.