$25K Costs Order Lost to Recipient

Prior to 3rd March, 2022, Mr Naiman, the Husband in proceedings first before the FCFCOA Division 2 and transferred to Division 1, held the benefit of a costs order against his Wife's parents' entity to the tune of $25,000.

However, on 3rd March, 2022, His Honour Justice Austin sitting in the Appellate Division delivered bad news to the Husband, when determining that the costs order was invalid.

In proceedings in the Federal Circuit Court of Australia, later becoming Division 2 of the Federal Circuit and Family Court of Australia, the Husband had caused a Subpoena to be issued directing a corporate trustee associated with the Wife's parents' to produce documents for use in the proceedings.

The entity, K Ltd, lodged a Notice of Objection and there was argument concerning the Objection, which was determined in the Husband's favour, dismissing the objection on 7 October, 2020.

The Judge of Division 2 called for submissions on costs.

The submissions were filed and served, but the costs issue was not resolved until 2 December, 2021, when the Judge delivered a decision requiring K Ltd to pay the Husband's costs in the sum of $25,000 and for the Husband to pay K Ltd, Subpoena compliance costs of NZD$2,600.

Written reasons followed, published in January, 2022.

Pausing there, you can see the Husband in your mind's eye, instructing his lawyers to make a demand for payment and thinking positive that some of his extensive legal costs were about to be defrayed.

The problem for the Husband was that the Judge of Division 2, had earlier determined to transfer the proceedings to Division 1 of the Court on 21 September, 2021.

K Ltd appealed the decision and its very first ground of appeal, was to the effect that the transfer of proceedings resulted in the Judge of Division 2 and Division 2 of the Court generally, no longer being seized of any jurisdiction to make a further order, including the costs orders made in December, 2021. The ground was advanced on the basis that those orders made after transfer, were invalid and fatally flawed: Janssen & Janssen?[2015] FamCAFC 168;?(2015) FLC 93-665?at?[23]–[38].

The Wife conceded the appeal by filing a submitter notice and the Appellate Division listed the appeal so as the Husband could answer the threshold question of how the the first ground of appeal could possibly be resisted.

Justice Austin recorded, "The husband could not bring himself to admit that [the appeal could not be resisted], but he could only conversely submit that it was "possible" the appeal may fail on that point."

The Husband pinned his hopes on Section 138 of the Federal Circuit and Family Court of Australia Act 2021, which provides that:

Decisions to be final

A judgment or decision of the Federal Circuit and Family Court of Australia (Division 2) is valid and binding until set aside, even if it is given or made in excess of the Court's jurisdiction.

His Honour Justice Austin dashed the Husband's hopes in this respect by rejecting that argument, in determining that Section 138 would only save defective Orders made in Division 2 of the Court if they were under collateral attack for nullity in other proceedings under the Act within original jurisdiction. His Honour determined that Section 138 could not protect attack in the Court of Appeal given the Appellate Division is the very place where defective orders are identified and dealt with by discharge.

His Honour drew clear support from the Explanatory Memorandum published in relation to the FCFCOAA, reproduced below:-

Clause 138 – Decisions to be final

537. Clause 138 provides that a prospective judgment or decision in the FCFC (Division 2) is valid and binding until set aside, even if it is made in excess of the FCFC (Division 2)’s jurisdiction.

538. Under clause 10, the FCFC (Division 2) is a court of record. This is consistent with the Federal Circuit Court’s status as a court of record under section 8 of the Federal Circuit Court Act. The designation of the FCFC (Division 2) as a “court of record” rather than a “superior court of record” (as the FCFC (Division 1) is under clause 9), may lead to orders made by the FCFC (Division 2) being regarded as having the status of orders made by an inferior court, and as such, when made in jurisdictional error, would be void ab initio. In Janssen and Janssen, the Full Court of the Family Court stated that the significance of not designating a Court to be a superior court of record is that “unless [the Act] or another legislative provision provides that an order of that court made in excess of jurisdiction until it is set aside, the order is a nullity”.

539. This may be a particular issue in the context of enforcement of financial orders and obligations in family law and child support proceedings. Clause 138 makes clear that the legislative intention is for prospective orders made by the FCFC (Division 2), even if tainted by jurisdictional error, to not be void ab initio, and instead be valid and binding until set aside.

The Husband's last gasp was to ask that Justice Austin re-exercise discretion, but of course, His Honour determined there had been no valid exercise of jurisdiction in the Court below, so as to trigger a re-exercised power.

The consolation prize was a Costs Certificate.

For the Husband, it must have felt like being left out in the cold and being handed a pair of socks.

What to Take from the Decision

If you are before a Court which is about to transfer proceedings on application by a party or on the Court's own motion, practitioners should be bold enough to call for any reserved issues to be dealt with before transfer, and if unsure, ask for the opportunity to consider your client's position before the transfer is ruled upon and then make any necessary application you may be instructed, in order to bring reserved issues to conclusion.

It would have been nice to think that the legislators did not intend for this sort of injustice to arise and would have made specific transitional provisions to cover same, given that they ought not to have intended by the remerger, that case management and discretionary outcomes would have been unintentionally hampered. Certainly for this Husband, his success at law must feel like a costly exercise.

The other issue is the delay in the delivery of a costs determination between October, 2020 and December, 2021. The delay between 2020 and transfer was almost 12 months and should really never have happened.

Thinking things through for the Husband, I am wondering whether he can still have success. Given the costs order made by the Judge of Division 2 is invalid, then the costs issue has not been finally determined. Certainly, this transitional arrangement statement from the Chief Justice stands out,

"2.1 If:

1. a proceeding was commenced in accordance with the old rules; and
2. the proceeding was not finally determined before the repeal of those rules;

the proceeding must be continued in accordance with the new rules."

The proceeding must be continued.

Good luck to Mr Naiman!

Link to decision here.