Indemnity costs – when do they apply in Family Law Proceedings

By Deborah Awyzio, Accredited Family Law Specialist

The position in relation to costs in proceedings commenced pursuant to the Family Law Act 1975 is governed by Section 117 of that Act. That section clearly sets out the principle that each party to a proceeding should bear their own costs.

In order to make a costs order, there must be circumstances that justify it. The matters the court is to consider in determining whether there are circumstances to justify the making of a costs order are set out in Section 117(2A) as follows:

  • the financial circumstances of each of the parties to the proceedings;
  • whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
  • the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
  • whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
  • whether any party to the proceedings has been wholly unsuccessful in the proceedings;
  • whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
  • such other matters as the court considers relevant

A party’s capacity to be able to meet a costs order is not the sole determining factor. There is authority to suggest that if the circumstances justify a costs order being made, the mere fact that a party’s financial circumstances would suggest difficulty in the party satisfying a costs order, is not a bar to the costs order.[1]

Not one of the factors listed in Section 117(2A) trumps the others. It is a matter of applying appropriate weight to all of the circumstances of the case.[2]

The recent case of Medlon & Medlon  (No. 6) (Indemnity costs) [2015] FamCAFC 157 (13 August 2015) sets out the principles in relation to indemnity costs:

  • The ordinary rule where a court orders costs is that they are paid on a party and party basis.[3]
  • Where the justice of the case demands, an order other than for party and party costs may be made.

Some principles that apply in determining whether the justice of the case demands indemnity costs were set out in the case of Munday v Bowman (1997) FLC 92-784 as follows:

(a)       Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts (see Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd. [1988] FCA 202; [1988] 81 ALR 397.

(b)       Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud (see Fountain Selected Meats (Sales) Pty. Ltd. (supra).

(c)        Evidence of particular misconduct causing loss of time to the court and to other parties (see Tetijo Holdings Pty. Ltd. v Keeprite Australia Pty. Ltd (unreported, Federal Court, 3 May 1991)).

(d)       The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (see Ragatta Developments Pty. Ltd. v Westpac Banking Corporation (unreported Federal Court, 5 March 1993)).

(e)       An imprudent refusal of an offer to compromise.

In the case of Medlon & Medlon  (No. 6) (Indemnity costs) [2015] FamCAFC 157 (13 August 2015) indemnity costs were ordered in circumstances where the Wife persisted with an application (which was ultimately dismissed), seeking to restrain the Husband’s lawyers from representing him, without evidence of any scandalous allegations made against the Husband’s lawyers to support her application and where it was found that the applications should never have been brought and never had any chance of success.

[1] D & D (Costs) (No. 2) (2010) FLC 93-435

[2] Medlon & Medlon  (No. 6) (Indemnity costs) [2015] FamCAFC 157 (13 August 2015)

[3] Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536