LexisNexis Practical Guidance®

As offers of settlement must be made in proceedings relating to property, where there is a failure to make such an offer, a costs order will only follow if no genuine attempt is made to resolve the parties’ dispute.

Section 117 of the Family Law Act 1975 (Cth) provides that each party in family law proceedings shall pay their own costs, subject to any order made by the court. See Parties normally bear their own costs.

However where a party does not comply with the case management rules, before making a costs order against a party, one of the matters the court must take into account is whether either party has made a genuine offer to settle the matter in writing to the other party. Written offers of settlement can therefore be a critical factor in persuading a court to make, or not make, a costs order.

The Family Law Rules 2004 (Cth) provide for occasions during the litigation process at which written offers of settlement must be made. See Compulsory offers of settlement in property cases. These occasions are intended by the court to focus the parties and their legal representatives on the resolution of the proceedings, to assist in the identification of disputed issues and to reduce costs of holding a hearing.

Both the Family Court (of Australia and Western Australia) and the Federal Circuit Court insist that parties attend a dispute resolution conference to discuss their alteration of property proceedings. Usually termed a “conciliation conference”, either a registrar or an impartial mediator will encourage parties to come to an agreement in the form of Consent Orders that are approved by the court in order to discontinue the proceedings.

Apart from compulsory offers of settlement, a party may make a proposal to settle proceedings at any time, before or after the proceedings have commenced. Any offer must be made in writing and may not be disclosed to the court except in respect to a costs application.

Practice Tip: Practitioners should read Farmer v Panshin [2014] FamCAFC 78; BC201451184 which looked at offers to settle and costs orders following protracted litigation.

Offers of settlement can also be withdrawn by written notice at any time but may be the subject of a costs application if the other party is not provided with adequate time to consider a counter-offer. See Withdrawal of offers of settlement.

All offers of settlement must be made in writing and should be authorised and signed by the client prior to being proposed. Before submitting an offer, the lawyer should provide the client with a Costs Notice indicating those fees which have been paid, are outstanding and costs that are likely to be incurred if the matter should go to trial. Consideration should be given as to whether an order to pay costs should be included in the offer.

The provisions of s 117 of the Family Law Act 1975 (Cth) apply equally to proceedings in the Family Court of Australia and the Federal Circuit Court of Australia. In WA, for cost disputes in relation to married parties s 117 of the Family Law Act 1975 (Cth) applies while for de facto couple and matters concerning ex-nuptial children, s 237 of the Family Court Act 1997 (WA) applies. This is a mirror provision of s 117 Family Law Act 1975 (Cth).

A costs agreement is a contract between a solicitor and client are governed by the legislation regulating the legal profession in the State or Territory in which the solicitor practices. As in any contract, a costs agreement must state that it is an offer which is accepted by the client, either by way of writing (usually by the client signing the agreement) or by conduct (the client giving instructions after the agreement is received).

A costs agreement sets out how and when a client will be charged in family law proceedings.

Costs incurred by a client may include:

• •professional fees and expenses;
• •disbursements such as photocopying and facsimile charges;
• •fees for medical reports or other expert reports;
• •court filing fees;
• •fees of process servers/agents; and
• •barrister’s fees.

A costs agreement must be fair and reasonable. The existence of a costs agreement between solicitor and client does not preclude disciplinary proceedings against a solicitor for overcharging.

The State and Territory legislation which should be considered is:

• •New South Wales — Legal Profession Uniform Law 2014 No 16A (NSW);
• •Queensland — Legal Profession Act 2007 (Qld);
• •Victoria — Legal Profession Uniform Law Application Act 2014 (Vic);
• •Australian Capital Territory — Legal Profession Act 2006 (ACT);
• •Northern Territory — Legal Profession Act 2006 (NT);
• •South Australia — Legal Practitioners Act 1981 (SA);
• •Western Australia — Legal Profession Act 2008 (WA) (but note that WA has announced its commitment to adopting Uniform Law. Practitioners should consult the Law Society of WA to find out further details about when the Bill is intended to be introduced and proposed commencement dates); and
• •Tasmania — Legal Profession Act 2007 (Tas).

Solicitor/client costs (including the regulation of costs agreements and costs dispute resolution) in the Family Court are governed by the legislation regulating the legal profession in the state or territory in which the solicitor practices.

New South Wales and Victoria have adopted the Legal Profession Uniform Law to regulate the legal profession, the contents of a costs agreement and the management of complaints.

See Costs agreements with clients.

At various stages in proceedings, a solicitor in a family law matter must provide their client, the court and all other parties with a costs notice setting out information relating to costs and expenses incurred and projected. These requirements will come about either by court direction or by operation of the relevant Rules applicable to the Court in which the proceedings are heard, which require a solicitor to provide to the client, immediately prior to each court event, a written notice of:

• •the client’s actual costs, both paid and owing, up to that court event;
• •the estimated future costs of the client up to and including each future court event; and
• •any expenses payable to any expert witness.

A copy of that notice must also be provided to the other party and to the court.

See Notification as to costs.

Since the inception of the Federal Circuit Court (formerly the Federal Magistrates Court), that court has declined to become involved in rules relating to solicitor/client costs and has made rules only in relation to party/party costs when ordering costs against a party. Solicitor/client costs in respect of proceedings conducted in the Federal Circuit Court are governed by the legislation regulating the legal profession in the State or Territory in which the solicitor practices.

The rules of the Family Court as to costs (Ch 19 of the Family Law Rules 2004 (Cth)) do not generally apply to family law proceedings in the Federal Circuit Court.

The general principle in family law matters is that each party pay their own costs.

It can often arise in practice that one of the parties — both during the marriage and after separation — controls the majority of the assets, or the liquid assets, of the marriage. This can give the party in control of the funds an unfair advantage in the proceedings because they can more easily fund lawyers, accountants and other experts to provide advice in the proceedings, where the other party does not have that ability.

The control of those funds can come about through registered ownership of particular assets (eg invested funds) or through the operation of a business that is a matrimonial asset, or simply by virtue of one party earning significantly more than the other party.

In cases such as these, the party without the funds for the litigation can make an application to the court for an order for what is colloquially called “interim costs”.

An application for “interim costs” can be brought under any one of three heads of court power under the Family Law Act 1975 (Cth), namely:

• • an interim property order under s 80(1), which in turn directs the court to the provisions of ss 79 and 75(2);
• • a spousal maintenance order under ss 72 and 74; and
• • a costs order under s 117(2) either to fund ongoing litigation or as security to prevent abuse of court process.

There are equivalent provisions which apply for de facto parties in Western Australia under the Family Court Act 1997 (WA).

In Paris King Investments v Rayhill [2006] NSWSC 578, Brereton J spoke of these three possible juridical bases for interim costs orders in family law proceedings and noted that “it is important, when contemplating an order for interim provision for litigation expenses, to identify the relevant source of power — because it is the source of power that determines the necessary preconditions and relevant considerations for making the order”: at [29]–[30].

It is open to an applicant to rely on any or all of those heads of power in making an interim application for costs as long as it is clear which head of power you are relying on and that your affidavits in support make it clear the evidence your client is purporting to rely on in support of each element required for each head of power. An important consequence is that if an order is made as an interim property order, then the amount received by the applicant is received "on account of" the entitlement to a property settlement. Arguably, if an amount is received by way of spousal maintenance, or for costs, then the amount is not to be included when the final settlement calculations are done. Generally, when a court makes an interim costs order, it will specify that the trial judge (rather than the judge hearing the interim application) should determine how the payment is to be categorised and its effect at the time of the final property settlement.

It should be noted that an order for interim costs is not (usually) an order made pursuant to s 117(2), and accordingly the considerations set out in that section do not always apply. An application for “interim costs” is, in fact, generally an application for a “part property settlement” and is an order made under ss 79 and 80(1). Alternatively, sometimes an application for “interim costs” is actually an application for security of costs whereby a party seeks an amount be “secured” to ensure that it is available to meet any future cost order made in favour of any of that party once orders determining the matter in dispute have been made.

An application can be brought at any time after the substantive property application has been filed.

The circumstances in which an application for interim costs is called for can be seen in When can an application be brought?

In any application for interim orders, the court is confined to the (generally untested) evidence before it and accordingly will only make orders on an interim basis when it is clearly necessary to do so. This is even more the case in cases where the order sought involves the transfer or use of property, rather than for its preservation.

When deciding under which power an application for interim costs will be made, the applicant should refer to relevant case law as to applicable principles to guide the court. In most cases the court will rely on achieving a just and equitable result in making a decision in order to balance the interests of both parties and protecting their assets until a final determination is made. Often the court will leave the characterisation of a payment made at interim stage for the trial judge to decide when the nature of the pool of assets, income and needs of the parties has been fully explored.

See What principles will the court apply?

First it is necessary to identify the basis on which the application is brought. The case may be presented as an interim property settlement application, a spousal maintenance application, an application for costs, or any combination of those bases. The evidence required will depend on the legislative provisions sought to be relied upon for the making of the proposed orders as applications pursuant to s 117(2) of the Family Law Act 1975 (Cth). Applications for interim property settlement and applications for spousal maintenance are all determined differently and require different evidence to satisfy the respective tests.

The evidence required will depend on the basis for the case being brought.

Practice Tip: The importance of clearly establishing the legal basis (and relevant evidence) for an applications for costs is highlighted in the recent Full Court case of Rankin and Rankin [2017] FamCAFC 29 in which an order made by a trial judge that “the sum of $170,000 should be paid to the wife’s solicitors on account of her legal costs” was appealed on the basis that it was made as a cost order pursuant to s 117 but the trial judge erred by not considering s 117(2A) of the Family Law Act 1975 (Cth). The Full Court found that a judge could, in certain circumstances, make an order for a party to pay the other’s legal fees out of the net assets prior to final determination and division of the assets — even if it is paid from post-separation income. Care needs to be taken when seeking the order to make it clear that it is a s 79 order — not a costs order (ie, one under s 117).

See What evidence is required?

Orders made to give security for costs not yet incurred are made under s 117(2) usually in limited circumstances such as where the conduct of a party has caused significant delays to the proceedings, where they are likely to be wholly unsuccessful or where there has been a settlement offer. The financial position of the parties is very much under scrutiny in such an application.

See Security for costs.

Assessment in relation to the costs incurred and charged in a family law matter may be undertaken either:

• • as a result of a challenge against an account rendered by the solicitor to the client (solicitor/client costs); or
• • as a result of a costs order being awarded against a party in the proceedings if the parties are unable to reach an agreement in relation to the quantum of the costs order (party/party costs).

There are two separate costs orders that may be made in the Federal Circuit Court and the Family Court (of Australia or Western Australia) in relation to party/party costs. They are:

• • costs on an indemnity basis. This means that the costs to be assessed may be charged in accordance with the costs agreement entered into between the client and solicitor; and
• • costs as agreed or assessed. This means that the costs are to be assessed in accordance with Pt 19.1 of the Family Law Rules 2004 (Cth) or Pt 21 of the Federal Circuit Court Rules 2001 (Cth) and the Schedules included in those Rules.

If an order for costs on an “agreed or assessed” basis is awarded, the parties are, after preparing a bill of costs, able to agree on the quantum to be paid. If no agreement is reached, the bill of costs will be required to be assessed.

In New South Wales, costs disputes are dealt with by way of an administrative process using the services of a costs assessor or review panel rather than in the court. In Victoria, disputes are dealt with in the Costs Court, as part of the Supreme Court.

In other States, matters such as lawyer/client, third party payer/law firm disputes are dealt with in accordance with the Supreme Court of each State or Territory.

Where the client disputes the practitioner’s bill, the practitioner is required to provide an itemised account of all amounts claimed, the date of the occurrence and details of the work carried out and in accordance with the costs agreement and disclosure document originally provided to the client. Conditional costs agreements are not permitted in respect of family law matters. Interest does not accrue until at least 30 days after providing the bill and must reflect the provisions in the original costs agreement.

Where either the client remains unsatisfied or the law practice has been unable to recover, they can apply to the State Supreme Court for a costs assessor to be appointed. The costs assessor has wide powers to request documents and can refer the conduct of a law practice to the Office of the Legal Services Commissioner if they believe there has been professional misconduct.

See also Preparing a bill of costs in assessable form.

Where a court orders either costs on a party/party basis or on an indemnity basis against a party, the applicant is entitled to a payment of costs that were “reasonably incurred” in the course of the litigation. If the parties cannot come to an agreed settlement, the paying party will be required to file an itemised account as well as the costs agreement between the client and the law practice as a reference point. Once the documents are filed by the applicant, the respondent will file a Notice Disputing Itemised Costs Account.

In the Family Court, the registrar will make the assessment of costs according to the Family Law Rules 2004 (Cth) applying Sch 3 while in the Federal Circuit Court, either the court itself or a registrar will make a costs assessment applying the Federal Circuit Court Rules 2001 (Cth). Once a costs assessment has been made, an order will be issued in the court, or a certificate of determination will be issued by a costs assessor. It is possible to apply for a review of a costs assessment by way of rehearing in both the Family and Federal Circuit Courts and in the Supreme Court of any State or Territory.

See also Having a bill of costs assessed.