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Costs Battle Denied: Court Declines to Award Legal Costs in Contentious Property Settlement Case

Introduction

The Federal Circuit and Family Court of Australia recently ruled in Ongaro & Abadzhiev (No 2) [2024] FedCFamC1F 878, a case concerning legal costs following a contentious property settlement. The case revolved around Mr. Ongaro’s application seeking costs from Ms. Abadzhiev, arguing that she unreasonably rejected a settlement offer. Justice Berman’s judgment examined whether an order for costs was justified under section 117 of the Family Law Act 1975 (Cth), ultimately ruling that no order for costs should be made, leaving both parties responsible for their own legal expenses.

Facts and Issues

Facts:

  • The case followed property settlement proceedings concluded in Ongaro & Abadzhiev [2024] FedCFamC1F 653, where assets worth millions were divided 52% to the wife and 48% to the husband.
  • Mr. Ongaro sought an order for costs amounting to $115,000 on a solicitor-client basis and an additional $15,000 for the application itself.
  • Central to the property settlement was the valuation and treatment of certain assets, including:
  • The Abadzhiev Family Trust’s 25% stake in the N Unit Trust.
  • The applicant’s Super Fund 5 pension, valued at $423,322.
  • Alleged debts owed to the parties’ adult daughter.
  • Various addbacks for legal fees and other financial transactions.
  • The husband argued that the wife should have accepted his 5 October 2023 settlement offer, which he claimed closely mirrored the final judgment.
  • The wife contended that she was not wholly unsuccessful in the substantive case, and her decision to reject the offer was reasonable given valuation uncertainties.

Legal Issues:

  1. Whether the court should depart from the default position under s 117(1) of the Family Law Act 1975, which states that each party should bear their own costs.
  2. Whether the wife unreasonably rejected the husband’s offer, warranting a costs order under s 117(2A).
  3. Whether the husband's application was filed within the required time limit.
  4. Whether the conduct of the parties justified an award of costs.

Application of Law to the Facts

Legal Principles:

Section 117(1) of the Family Law Act 1975 provides that each party is generally responsible for their own legal costs unless special circumstances justify a costs order. Factors considered under s 117(2A) include:

  • Financial circumstances of the parties.
  • Conduct during proceedings.
  • Compliance with court orders.
  • Whether any party was wholly unsuccessful.
  • Settlement offers and whether rejection was reasonable.

Relevant case law included:

  • Robinson & Higginbotham (1991) FLC 92-209: Establishing that serious offers must be given due consideration.
  • Murray & Murray (1990) FLC 92-173: Addressing whether withdrawn offers can still be considered in cost applications.
  • Goold v Commonwealth (1993) 114 ALR 135: Clarifying the use of purchase offers in valuing property.
  • Roydon & Roydon (2024) FLC 94-194: Stating that rejecting an offer must be unreasonable to justify costs.

Analysis of the Judgment:

  1. No Clear "Winner" in the Main Case:
  • The wife was not "wholly unsuccessful," as her arguments regarding asset valuation had merit.
  • The husband succeeded on some points, such as excluding his Super Fund 5 pension from the asset pool, but failed on others.
  • The final settlement did not significantly favor one party over the other.
  1. Settlement Offer Rejection Was Reasonable:
  • The husband's 5 October 2023 offer was based on a $170,000 valuation of the N Unit Trust interest.
  • Expert valuation evidence (the GG Report) suggested a much higher value, creating uncertainty.
  • The wife was not given sufficient time (only 14 days) to properly assess the offer.
  1. Timing of the Cost Application:
  • The husband’s application for costs was filed two days late.
  • The court noted this issue but considered it a minor procedural matter rather than a decisive factor.
  1. Conduct of the Parties:
  • Both parties complied with court orders and presented their cases in a reasonable manner.
  • The wife’s claim regarding money owed to the daughter was unsupported by direct evidence, making it a weak argument but not sufficient to warrant a costs order.
  1. Financial Circumstances Did Not Justify Costs:
  • Both parties had substantial financial resources, reducing the need for a compensatory costs order.

Reasoning Behind the Judgment:

Justice Berman found that:

  • While the husband's settlement offer was serious and reasonable, the wife’s rejection was not "wholly unreasonable" given the valuation uncertainties.
  • The financial resources of both parties meant there was no compelling need for costs orders.
  • The litigation, although complex, was not conducted in a manner that warranted penalizing either party with costs.
  • The husband's application for costs, although arguable, did not meet the high threshold required under s 117(2A).

Conclusion: The application for costs was dismissed, and both parties remained responsible for their own legal expenses.

Take-Home Lessons

  1. Costs in Family Law Are Not Automatic – Even if one party achieves a better outcome, costs orders are only made in exceptional circumstances.
  2. Settlement Offers Must Be Reasonable and Considered Carefully – If a party unreasonably rejects a settlement offer, they risk a costs order against them, but mere rejection does not automatically justify one.
  3. Valuation Disputes Can Complicate Cost Decisions – Where asset valuations are uncertain, courts may consider it reasonable for parties to reject offers based on disputed figures.
  4. Timely Filing Matters – Even minor procedural delays in filing can become an issue, though courts may overlook them if they do not impact substantive fairness.
  5. Financial Capacity Influences Cost Decisions – Where both parties have substantial assets, courts may be less inclined to shift legal costs.

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