Atkins & Hunt And Ors
[2018] FamCA 14
•18 January 2018
FAMILY COURT OF AUSTRALIA
| ATKINS & HUNT AND ORS | [2018] FamCA 14 |
| FAMILY LAW – PROPERTY – Interim – Where in a matter remitted for by the Full Court for rehearing the wife seeks interim property orders for the husband to pay $412,000 on account of, or for application to, her legal costs and disbursements in instalments over 150 days and to pay her share of the costs of the single expert real property valuer – Where in the alternative the wife seeks a lump sum interlocutory costs order without the provision for that payment to be graduated or further in the alternative a dollar for dollar order – Where the wife seeks a final property settlement adjustment of 40 per cent of the net assets on the basis that she asserts the husband disposed of an asset which was his alter-ego and had an agreed value of in excess of $11 million – Where the husband says the wife should receive no further adjustment – Where, although overall the husband is in a significantly stronger financial position than the wife it is not appropriate to make an interim property order and it is more appropriate to deal with the matter pursuant to s 117 of the Family Law Act 1975 (Cth). FAMILY LAW – PROPERTY – COSTS – Interim – dollar for dollar order – Where consideration is given to whether the court can make a dollar for dollar order at a time when the quantum of future costs is not ascertainable – Where the overriding question is whether or not there are circumstances that justify making an interlocutory costs order which is just in the circumstances of a particular case and a dollar for dollar order is not precluded because its quantum is uncertain – Where it is unable to be found that an interlocutory lump sum costs order is just but it is just for a dollar for dollar to be made – Where the husband is to fund the valuations of the single expert real property valuer – Where leave is given to the wife to make a further application in relation to the costs of a forensic account – Where how the payment of interlocutory costs are treated at the final hearing will be a matter for the trial judge. |
| Family Law Act 1975 (Cth) DJL v The Central Authority (2000) 201 CLR 226 Zschokke & Zschokke (1996) FLC 92-693 |
| APPLICANT: | Ms Atkins |
| RESPONDENT: | Mr Hunt |
| 2nd RESPONDENT: | Mr J Hunt |
| 3rd RESPONDENT: | Mr D Hunt |
| 4th RESPONDENT: | N Pty Ltd |
| 5th RESPONDENT: | T Pty Limited |
| 6th RESPONDENT: | H Pty Limited |
| 7th RESPONDENT: | Mr EE Hunt |
| FILE NUMBER: | SYC | 425 | of | 2012 |
| DATE DELIVERED: | 18 January 2018 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Watts J |
| HEARING DATE: | 4 October 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Hand |
| SOLICITOR FOR THE APPLICANT: | Milevski Family Lawyers |
| COUNSEL FOR THE RESPONDENT: | Ms Gillies, SC |
| SOLICITOR FOR THE RESPONDENT: | Sexton Family Law |
| COUNSEL FOR THE 2ND – 7TH RESPONDENTS: | Mr Gray |
| SOLICITOR FOR THE 2ND – 7TH RESPONDENTS: | HWL Ebsworth Solicitors |
Orders
The husband do all acts and things necessary to pay the accounts rendered by Mr VV in respect of all real estate valuation reports prepared by him indicating the market value of each of the following properties:
1.1.The 2 parcels of land known as PH Street, Town W, being the land contained in Folio Identifiers:
1.1.1.…;
1.1.2.…
Registered in the name of N Pty Ltd.
1.2.The property situate and known as 2 PH Street, Town W, being the land contained in Folio Identifier … registered in the name of N Pty Ltd.
1.3.The 5 parcels of land known as 1 XX Street, Suburb YY being the land contained in Folio Identifiers registered in the name of N Pty Ltd:
1.3.1.…;
1.3.2.…;
1.3.3.…;
1.3.4.…; and
1.3.5.….
1.4.The property situate and known as 2 XX Street, Suburb YY, being the land contained in Folio Identifier … registered in the name of N Pty Ltd.
1.5.The property situate and known as 3 XX Street, Suburb YY being the land contained in Folio Identifier … registered in the name of N Pty Ltd.
1.6.The property situate and known as ZZ Street, Town K being the land contained in Folio Identifier … registered in the name of N Pty Ltd.
1.7.The property situate and known as 4 XX Street, Suburb YY being the land contained in Folio Identifier … registered in the name of F Pty Limited.
1.8.The property situate and known as AW Street, Town C being the land contained in Folio Identifier … registered in the name of Ms Atkins.
Pursuant to s 117 Family Law Act 1975 (Cth), from the date of these orders and within 7 days after payment by or on behalf of the husband of any monies in payment of accounts:
2.1.rendered by lawyers (solicitors or counsel) for the husband in connection to these proceedings;
2.2.rendered by accountants engaged by the husband or the solicitors for the husband to value the interest of the husband and wife in any business, company, trust or entity; or
2.3.rendered by valuers (apart from the valuer referred to in order 1) engaged by the husband or the solicitors for the husband to report on and value the real estate and personal property of the husband in any business, company, trust or entity in which he has an interest;
the husband pay or cause to be paid the same amount of money to the trust account of the lawyers for the wife, to be applied to her legal costs and expenses in connection to these proceedings.
Within 24 hours after the payment by or on behalf of the husband of any money referred to in order 2, the husband cause to be given to the wife’s lawyers, a memorandum stating the amount or amounts so paid to the lawyers.
The husband instruct his lawyers that all money paid to them including on his behalf, as referred to in order 2, shall be held in trust by them and not applied in payment until such time as the same amount has been paid by or on behalf of the husband to the lawyers for the wife on the record from time to time in these proceedings.
In the event that the payment to the wife referred to in order 2 is not made within seven (7) days thereafter, the husband is to direct his lawyers to pay 50 per cent of whatever is received (as referred to in order 4 and held by them in trust), to the lawyers for the wife.
The wife instruct her lawyers that the sums paid or cause to be paid by the husband to the lawyers for the wife pursuant to the preceding orders be applied by the lawyers for the wife in payment of the costs and disbursements incurred or to be incurred by the wife in the conduct of these proceedings, including but not limited to the reasonable costs and disbursements:
6.1.Rendered by solicitors or counsel for the wife;
6.2.Rendered by accountants engaged by the wife or the solicitors for the wife to value the interests of the husband in any business, company, trust or entity; or
6.3.Rendered by valuers (apart from the valuer referred to in order 1) engaged by the wife or the solicitors for the wife to report on and value the real and personal property relevant in these proceedings.
The question of how these payments of costs to the wife under orders 2 and 5 are to be treated at the final hearing shall be a matter for determination by the trial judge.
Leave is granted to the wife, on 14 days notice, to make any application she needs to make to assist her to pay a forensic accountant so that she can put her case as to the values of relevant entities and businesses at relevant times.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Atkins & Hunt and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 425 of 2012
| Ms Atkins |
Applicant
And
| Mr Hunt |
Respondent
And
| Mr J Hunt |
2nd Respondent
And
| Mr D Hunt |
3rd Respondent
And
| N Pty Ltd |
4th Respondent
And
| T Pty Limited |
5th Respondent
And
| H Pty Limited |
6th Respondent
And
| Mr EE Hunt |
7th Respondent
REASONS FOR JUDGMENT
The wife seeks interim orders so that she can continue to have the assistance of lawyers and experts in prosecuting the application against the husband and the 2nd to 7th respondents for:
1.1.Orders under s 106B of the Family Law Act 1975 (Cth) (“the Act”);
1.2.An order under s 79 of the Act including on the basis that N Pty Limited (“NPL”) was the alter-ego of the husband.
On 4 October 2017 the wife filed an Amended Application in a Case in which she seeks by way of interim property order:
2.1.Payment by the husband of $412,000 on account of, or for application to, her legal costs and disbursements in these proceedings. Those payments would be made in four instalments over a period of 150 days;
2.2.Payment in the first instance of her share of the costs of Mr VV, a real estate valuer;
2.3.In the alternative, the wife seeks a lump sum interlocutory costs order in the sum of $412,000 (without provision for that payment to be graduated) or further in the alternative a dollar for dollar order.
The wife also sought leave to be able inter alia, to make a further application for an order for interlocutory costs to cover valuation fees by a forensic accountant.
This matter has had a 10 day hearing before Aldridge J which concluded when his Honour made a final property order on 4 December 2014. The Full Court upheld an appeal against his Honour’s order and remitted the matter for rehearing. It was agreed at the first hearing that NPL had a value in excess of $11 million. The Full Court record at [5] of their Reasons for Judgment dated 28 April 2017:
A corporate structure involving, relevantly, the husband and his adult children, but not the wife, runs a business. It is a very profitable enterprise. The figures for the financial year preceding the trial reveal a turnover for the business approaching $150 million.
At the first trial, Aldridge J made a property settlement order that required the husband to pay the wife $174,747 and that the parties sell the property at Town M with the wife to receive 20 per cent of the proceeds of that sale, otherwise each party was to retain property that was in their power or control. His Honour also discharged the existing maintenance order and substituted the husband for the wife for a debt owed to NPL. Interim orders restraining the husband from altering his interest in NPL were discharged.
In the Full Court’s determination, all judges agreed that the question as to whether or not the court should attribute the full value of NPL to the husband was raised for the first time in the appeal. The plurality struck out the ground on the basis that it was not raised at trial but upheld other challenges made to the trial judge’s assessment of s 79(4)(e) considerations. Justice May concluded that given the unusual circumstances of the case, the merits of the wife’s alter-ego or puppet argument should be dealt with by the Full Court rather than dismissing those arguments on the basis they were not argued before Aldridge J.
On 7 September 2015, and after Aldridge J had freed the husband from previous orders restraining him from doing so, the husband disposed of 90 per cent of his controlling interest in NPL to his three sons for the sum of $90,000. Of that 90 per cent, 40 per cent went to Mr J (the 2nd respondent), 25 per cent went to Mr D (the 3rd respondent) and 25 per cent went to Mr EE (the 7th respondent). Because of other interests that Mr J held in the corporate structure he gained 52 per cent of the voting rights in H Pty Limited (the 6th respondent) (of which NPL is the majority shareholder); the entity controlling the franchise business. The husband asserts that this implemented earlier intentions and was a commercial arrangement necessitated by the requirements of the franchise agreement. Although it is yet to be fully argued, a claim made under s 106B of the Act is a claim made against a party "irrespective of intention" but on the basis that the court must have regard to the interests of and properly protect bona fides purchases or other persons interested.
On 4 October 2017:
8.1.The wife abandoned any Kennon claim that she had previously made before Aldridge J;
8.2.The parties were ordered to confer and agree about non-controversial facts;
8.3.The wife was to serve a request for specific discovery upon all respondents. The purpose was so that the wife could set out the facts which she relies upon to establish her s 106B claim and her “alter-ego” or “puppet” claim.
In order for the rehearing to successfully take place two essential things need to happen:
9.1.Assets need to be revalued, including valuing them at the date of the husband's disposition of control to his sons in 2015; and
9.2.Full disclosure needs to be given to the wife by the husband and the other parties to the litigation of all documents relevant to the alter ego/puppet issue.
In relation to the need to revalue various assets including real estate and entities in the corporate structure, on 3 August 2017 an order was made that Mr VV be appointed as the single expert real property valuer, reserving the issue as to how those costs would be met. Each party was given leave to call adversarial expert accountants in relation to all corporation and trust valuation issues in dispute in the proceedings. Given my decision in this interim application by the wife, the issue as to how those costs are to be funded will probably need consideration.
There is an issue about the current value of the husband's superannuation fund. The primary asset of the superannuation fund is the real estate from which the business operates. Mr VV will provide an updated valuation of that real estate to enable a valuation of the husband's interest in his superannuation fund to be refreshed.
LUMP SUM INTERIM PROPERTY ORDER
In Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466, the Full Court at 85,645 set out that when considering whether or not to make interim property orders, the “over arching consideration” is the interests of justice. It was not necessary to establish compelling circumstances. All that was required was that the exercise of power be appropriate. The Full Court went on to adopt what had been previously said in Harris and Harris (1993) FLC 92-378, namely that the power needed to be exercised within the framework of s 79 and the discretion had to be exercised conservatively.
The wife in her Amended Application for a final property settlement order filed 10 July 2017 seeks a property adjustment of 40 per cent of the net assets of the parties on the basis that at the final hearing, the wife will argue that the husband’s shareholding in NPL, which the husband held up until 7 September 2015, placed him in a position of complete control of that entity such that the company was his alter-ego and he was at liberty to deal with its assets as he chose. That is, the husband had at his disposal an asset which had an agreed value at the time of the trial before Aldridge J of a sum in excess of $11 million.
The facts upon which the wife seeks to rely to establish that claim have not yet been particularised and on 4 October 2017 I made orders that might further assist the wife in doing so. It is part of the wife’s assertion that dispositions by the husband to his children in September 2015 took place at a value which did not reflect the real value of the shares being transferred.
I am not in a position at this stage to make any comment about the respective strengths of the credibility of statements made by either the husband or the wife.
The wife sets out at paragraphs [88] to [107] of her affidavit filed 5 September 2017 information relevant to the contributions she asserts she made during the marriage.
On the face of the wife’s Financial Statement filed 5 September 2017, the current equity in her property at Town C is in the sum of approximately $100,000. The wife currently has about $1.1 million in debt including amounts owed to her lawyers in the approximate sum of $133,000. The wife’s lawyers have indicated that they will not continue to act for her unless there is some payment in respect of their future involvement.
At the rehearing the wife will assert, pursuant to s 79(4)(d) – (g) of the Act, that she is 62 years of age with no formal qualification and is unemployed and that her capacity to secure gainful employment is limited. She asserts her mental health is poor and is under the care of a treating psychiatrist. The wife currently has the ongoing benefit of a payment of spousal maintenance by the husband in the sum of $1,130 per week. She also receives $350 per week by way of rent from her property at Town C. The wife’s stated financial position is poor and on the face of what she filed, absent the payment of spousal maintenance by the husband, she would struggle to meet her day to day living expenses.
Senior counsel for the husband rehearsed the arguments that will be run in the rehearing of the s 79 proceedings, and points to the fact that the husband is 82 years of age and the wife 62 years of age. The husband says his financial position has deteriorated substantially since the hearing before Aldridge J. It was agreed between the parties that the husband had conducted the business for three decades before he commenced living with the wife in 2001. The husband and wife lived together for a period of about 10 years and married during that period. The wife did not make any direct financial contribution to the business, although she was in paid employment in that business (the husband saying she was overpaid for her personal exertion). Senior counsel for the husband asserts that it is an agreed fact that there was a long-standing plan during the period the parties were living together that the husband would retire. Senior counsel for the husband also raises the issue of the wife's earning capacity.
Senior counsel for the husband describes the wife's claim for 40 per cent of the husband's assets as an ambit claim.
The husband has invested monies by way of loan into a new company. He is the sole director and shareholder of that company. Senior counsel for the husband made a submission that this company is not the husband's alter ego, but without full argument and for the purposes of this application, I don't accept that submission.
The husband does have the assets in his superannuation fund. As indicated, the principle asset in his superannuation fund are the premises out of which the current business operates. If the dispositions which the husband has made are set aside he will have a far greater asset base than the wife.
Counsel for the wife pointed to approximately $230,400 in cash funds that might currently be available to the husband. Senior counsel for the husband submitted that even if that was so, taking those funds and allocating them to the wife's legal expenses would exhaust all the liquid funds available to the husband which would impact upon his ability to support himself and make ongoing interim spousal maintenance payments. In relation to the husband’s claim to have had limited financial capacity, the wife pointed to the husband’s actions in gifting a large amount of money and divesting himself of his shareholding for what she claims was nominal consideration.
I have some regard for the result reached by Aldridge J in the first hearing but am mindful the Full Court has remitted this matter back for rehearing on the basis that the wife has an arguable case for a better outcome than she received at the first trial including an outcome based on any successful argument that the husband's interest in the structure that ran the business was undervalued at the first trial. In addition, there is now the additional issue as to the effect of dispositions made by the husband in 2015, defeating any legitimate claim the wife may have.
Senior counsel for the husband asserted that during the course of this litigation the husband has paid out to the wife a sum of approximately $1.9 million as a result of interim orders made for spousal maintenance by Ryan J and Rees J; interim property and the implementation of the orders of Aldridge J made at the first trial.
At the rehearing the husband seeks that the wife’s application for a property settlement order be dismissed and that she receive no further alteration of property. He further seeks that the spousal maintenance order be discharged. Senior counsel for the husband points to the fact that absent success by the wife in her application to set dispositions aside and have the court find that the husband had the whole of the interest in the business worth more than the husband asserts, the pool of property remaining to be divided is $2.66 million.
Balancing this history, having regard to the respective financial positions of the husband and the wife and taking a conservative approach, I am not able to find it is appropriate to make an interim property order pursuant to s 79 of the Act for the sum of $412,000 which is sought by the wife and that it is more appropriate in the circumstances of this case to consider dealing with the matter pursuant to the provisions of s 117 of the Act.
INTERLOCUTORY COSTS
If no interim property order is made, the wife applies for lump sum funding of $412,000 by way of an interlocutory costs order, without the graduated payment proposed in the interim property application, or in the alternative a dollar for dollar order. The power to make either type of interlocutory costs orders is found in s 117(2) of the Act.
Statutory provisions
The relevant parts of s 117 are as follows:
Costs
(1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 118, each party to proceedings under this Act shall bear his or her own costs.
(2) If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
(2A) In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a) the financial circumstances of each of the parties to the proceedings;
(b) 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;
(c) 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;
(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f) 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
(g) such other matters as the court considers relevant.
[Emphasis added]
Can the Court make a dollar for dollar order?
In the event the court declined to exercise a discretion under s 117 of the Act, for a lump sum interlocutory costs order, the wife in the alternative seeks orders in a form commonly known as a “dollar for dollar” order.
A dollar for dollar order provides a set of machinery provisions to ensure that for any dollar the financially advantaged party spends on legal costs and disbursements on the case, the disadvantaged party is also provided a dollar to spend on their case. The wife seeks this order on the basis that such an order would, to some extent, “level the playing field”.
In Selena & Montez and Ors [2017] FamCA 583 McClelland J expressed doubt regarding the court’s power to make a litigation funding order under s 117 of the Act. After his Honour had discussed cases which made reference to costs orders being orders relating to costs which are “actually incurred” his Honour at paragraphs [94] and [95], made the following observations:
94.Finally, I would not have made an order for costs on a dollar for dollar basis as such costs would not be “certain and/or ascertainable” in accordance with the decision of the Full Court in Hogan & Hogan. In that case the Full Court held that the trial judge was in error in making an open ended order for the husband to pay the wife’s costs. In so deciding the Full Court stated:
Whilst recognising that the court has unlimited discretion in relation to costs, in our view, the whole tenor of the legislative provisions and the history of costs orders whether interim or final requires them to be either certain and/or ascertainable and any order must be just.
95. In my view the time at which the costs must be certain and/or ascertainable is the time at which the order is made. To decide otherwise would prevent review of any such order requiring the costs to be paid. An order for the payment of costs on a dollar for dollar basis is necessarily not certain and can only be ascertained by the occurrence of subsequent events which, in this case, are the payment of legal costs by the husband.
[Footnotes omitted]
If his Honour’s view is correct, no dollar for dollar order could ever be made. I respectfully disagree with his Honour’s opinion. His Honour’s reliance on Hogan & Hogan (1986) FLC 91-704 does not have regard to the differences between the facts in that case and the facts that would normally lead to a discretion being exercised to make a dollar for dollar order. In Hogan the Full Court overturned the trial judge’s order that the husband pay “the solicitor and own client costs and outlays of the wife’s solicitors… (including counsel’s fees) rendered by such from time to time to the wife”. This was an order which gave the wife’s lawyers an open cheque book, over which the husband had no control. It was argued unsuccessfully on appeal by the wife that the court would still retain some control when dealing with any application to enforce that order. Understandably the Full Court did not consider that an appropriate answer to the challenge to the order. A dollar for dollar order is fundamentally different. The financially advantaged party can choose and control what amount he or she spends on their own legal costs. It is not uncommon that, once a dollar for dollar order is made, the playing field is somewhat levelled by the financially advantaged party simply choosing to represent themselves so they don’t have to fund their spouse’s case against them.
In Vittorio & Oliphant [2017] FamCA 802 at [47] and [48] McClelland J refers to the views he expressed in Selena and goes on to emphasise the primary position set out in s 117(1) namely that “each party shall bear his or her own costs”.
It is in my view, also important to recognise that the general rule in s 117(1) is prefaced by the words “Subject to subsection (2)”. Justice Gill in Ryder & Bonham [2017] FamCA 979 made a dollar for dollar order and said:
97.Before allowing a departure from the general rule expressed in s 117(1) that each party bear their own costs, it is necessary to establish that there are, pursuant to s 117(2), circumstances that justify the departure. It is at that point that the discretion to make an order is enlivened. Until that point there is no power to make an order departing from the general rule.
98.Once enlivened, the discretion to make an order is governed by the requirement that the order, if made, be just, and that the determination as to whether any order should then be made, and the terms of that order, are governed by the considerations contained at s 117(2A).
Justice McClelland’s view in Selena does acknowledge at paragraph [84] that the jurisprudence in this jurisdiction has allowed for “a litigation funding order” but without reference to cases which have made earlier statements in respect of dollar for dollar orders.
In Farnell and Farnell (1996) FLC 92-681, Kay J said at 83,079:
In the Marriage of Gould, (Appeal EA 37 of 1994, judgment of 29 June 1994), the Full Court coram Fogarty, Kay and Graham JJ, overturned an order of the trial Judge wherein her Honour had ordered that pending trial, for every dollar that the husband had spent on his lawyers, he should provide the wife with a similar amount for costs. The trial Judge had ought [sic] to make that order to create what she saw as ''a level playing field''. The Full Court disallowed the orders on the basis that the wife had adequate finances to provide for her own costs by reason of a substantial recent inheritance. In the course of my reasons for judgment I said this:
“I wish to make comment on... the general philosophical views expressed by her Honour about endeavouring to achieve a level playing field by providing the wife with a dollar for dollar basis for costs. Whilst I agree with his Honour's [Fogarty J's] observations that this may not be an appropriate approach to these cases, I would also like to make reference to an article from the Chicago Daily Law Bulletin of 20 April 1992 which indicated that wives in these circumstances often have to spend much more than dollar for dollar to achieve a level playing field, particularly, and I quote – this is in reference to a survey of the American Bar Association Family Law Section:
‘Most of the lawyers agree that women will face higher legal bills in a divorce. Accordingly to 91% of those surveyed women splitting from their husbands will have to pay more for discovery. Husbands traditionally have had full control over the family finances and economic information. This means the wife's attorney must often engage in discovery to gain equal knowledge about assets and income. The lawyer has an obligation to undertake discovery to find out if there are assets in just the husband's name, or if the wife has no knowledge of them.’”
In Iphostrou & Iphostrou and Ors [2011] FamCA 20, Cronin J quoted with approval, a reported decision of O’Reilly J in G and T (2004) FLC 93-176. In that decision, her Honour referred to her previous unreported decision of McLean & McLean (unreported 30 January 2003) in which Her Honour said:
110.Section 117(2) provides that if the Court is of opinion that there are circumstances that justify it in doing so the Court may subject to subsection (2A) and the applicable Rules of Court make such order as to costs including by way of interlocutory order as the Court considers just. In my view, that provision provides sufficient power to make the “dollar for dollar” order subject to consideration of the matters in subsection (2A). That provision requires the Court to have regard to the financial circumstances of each of the parties to the proceedings, and certain other matters which are not relevant in this case.
In Selena McClelland J quotes Murphy J in Esdale & Schenk [2012] FamCA 111 where Murphy J with respect correctly observes that certainly since the Full Court’s decision in Strahan it is usual for a financially disadvantaged party to rely upon s 79 as the power to obtain a lump sum interim property settlement order for the purposes of funding litigation. Justice Murphy comments that s 117, whilst a possible relevant power, is little used because of the need to satisfy the requirements of the section before obtaining an order.
As indicated, dollar for dollar orders are most usually made relying upon s 117 of the Act. I agree with McClelland J that, if that is the power relied upon, in order to make a dollar for dollar order, a positive finding needs to be made under s 117(2) after the court has regard to s 117(2A) considerations.
Justice McClelland in Selena at [86] and [87] was concerned that, when dealing with a costs application at an interim stage, the court was not in a position to address all of the matters set out in s 117(2A). In particular in that case, he commented that he did not believe that he was “…at this stage of the proceedings, in a position to make a determination in respect to the competing contentions by the parties regarding the appropriateness or otherwise of their conduct in relation to the proceedings”.
In Poletti & Poletti (1990) 15 Fam LR 794, the Full Court was satisfied that an interlocutory costs order could be made under s 117 when the only provision of s 117(2A) discussed was s 117 (2A)(a) (the financial circumstances of each of the parties to the proceedings).
The Full Court in Fitzgerald v Fish and Anor (2005) 33 Fam LR 123 at [41] said:
…Nowhere in subs (2A) or elsewhere in s 117, is there any prescription that more than one factor must be present before an order for costs is made nor of comparative weight of the factors set out in subs (2A). As a consequence, there is nothing to prevent any factor being the sole foundation for an order for costs.
In Ryder & Bonham Gill J made a dollar for dollar order notwithstanding he was unable to make any findings in respect to s 117(2A)(c)-(f) considerations. That is likely to be usually so, although in this case the husband raises an issue relating to the wife’s conduct of the proceedings. Also it would be rare, if ever, that a party in a financial case would be in receipt of assistance by way of legal aid. That is so in this case.
When making a dollar for dollar order under s 117(2), the focus will usually be in considering the disparity of the financial resources available to the respective parties, including their ability or lack of ability to meet their litigation expenses (s 117(2A)(a)) and the unusual features of the matter (s 117(2A)(g) of the Act).
The making of a dollar for dollar order is a discretionary order that is usually made only as an order of last resort. Examples of circumstances which may attract the exercise of the discretion include:
46.1.Where:
46.1.1.The party who apparently controls significant financial purse strings pleads impecuniosity; and
46.1.2.The financially disadvantaged party cannot point to any particular fund or asset that might be available to help assist that party fund their litigation; but
46.1.3.The financially advantaged party seems to be able to fund their litigation through personal exertion income or structures that they directly or indirectly control (see for example, Zadenev & Zadenev [2014] FamCA 693 and Ryder & Bonham);
46.2.Where a financially advantaged party is a minority shareholder in a company and/or a discretionary beneficiary in a trust and directors or trustees seem more than willing to declare dividends or make distributions to fund litigation for the financially advantaged party against the disadvantaged party;
46.3.Where a financially advantaged party has relatives or associates who are prepared to fund the litigation against the financially disadvantaged party in circumstances where the financially disadvantaged party does not have the same support from third parties (Hurford & Hurford [2016] FamCA 328).
Once the relevant matters in s 117(2A) have been considered, then the overriding question is whether or not there are circumstances that justify making a costs order which is just in the circumstances of a particular case. In my view the statements made by McClelland J at [94] and [95] of Selena place an unwarranted gloss upon the preamble to s 117(1) and the clear words of s 117(2) of the Act. I do not accept I am precluded from making a dollar for dollar order because its quantum would not be certain and only able to be ascertained on each occasion the husband pays monies to his lawyers or other professionals for their services in respect of the case.
Is it just for an interlocutory costs order to be made?
I take into account the matters I have discussed above relating to the nature of the parties respective claims and their respective financial positions. Overall the husband is in a significantly stronger position than the wife.
Senior counsel for the husband seeks to distinguish G and T on the basis that in that case the trial judge made a finding that the wife had a strong prima facie case for a trust to be ignored as a sham. This matter however has been remitted by the Full Court for rehearing in part on the basis that the wife has an arguable claim relating to the value of the husband’s controlling interest in NPL.
I take into account the husband may be unable to totally recover any costs paid if ultimately the wife's claim fails but I balance that against the other possible final outcomes.
The husband raises in the context of an application under s 117, the conduct of the parties and specifically the failure by the wife to run in the first hearing before Aldridge J arguments in relation to “alter-ego” or “puppet” when that course was open to her at that time. It is argued that in so far as the rehearing occupies time dealing with those issues, the wife should not receive any order relying upon s 117 of the Act. I acknowledge there is some substance in the argument, and that should be a consideration under s 117(2A)(c) of the Act. However I am unable to otherwise make any finding under that subsection.
Senior counsel for the husband submits that the husband himself cannot point to a source of funds from which to pay his own legal and expert expenses. The wife points to the historical financial connection between the husband, his sons and the entities he once more closely controlled which are now controlled by his sons. To this point the husband has been represented before me by senior counsel.
I am mindful that the husband’s case will be assisted by the opposition by the 2nd to 7th respondents to the wife’s s 106B application. It is clear that in this litigation the 2nd to 7th respondents have a vested financial interest in ensuring that their father’s legal case is run as well as it can be. They have the ability to fund the litigation as they control the assets, which are the subject of the dispositions which the wife seeks to set aside, and which the wife says gave the husband control over assets valued in 2014 in excess of $11 million with turnover of $150 million per annum.
Balancing the relevant consideration in s 117(2A) I find that it is just to make orders under s 117 of the Act in this case.
Expert Costs
The case cannot proceed unless expert evidence is updated. The husband is in the stronger financial position. I will make an order that the husband in the first instance fund updated valuations by Mr VV. The wife shall also be given leave to make any application she needs to make to assist her to pay a forensic accountant so that she can put her case as to the values of relevant entities and businesses at relevant times.
Should the interlocutory costs order for lawyers be lump sum or dollar for dollar?
In relation to a lump sum costs order, senior counsel for the husband submitted that the wife’s assessment of her future costs is based upon assumptions as to the length of trial of five days including an allowance for 20 days of solicitor preparation of $3,000 each day. The wife also seeks an allowance for senior counsel for the final hearing. I have indicated to the parties that it is my intention in this case to case manage the way in which the matter is prepared so as to attempt to confine the issues.
The husband says the wife can fund her own case. The husband points to the following evidence by the wife in her affidavit filed 5 September 2017:
130.I do not have the financial means to meet the costs of this litigation.
131.I have borrowed money from my family and friends to assist me to meet the costs of the Appeal proceedings as well as barristers’ fees to appear on the spousal maintenance proceedings. I do not know if my family and friends will continue to provide me with money to meet me [sic] legal fees.
I accepted during submissions that given that evidence, the court could not be absolutely sure that the wife could not fund her litigation costs by borrowing further from family and friends. On the evidence however that has not happened so far in order to pay off the arrears of legal fees owed. Given the outstanding debts listed in the wife’s Financial Statement, I have significant doubt as to the capacity of the wife to further seek assistance from family and friends. It is a matter of balancing the likelihood of the husband having the capacity to fund his ongoing legal fees against the wife having the capacity to fund her ongoing legal fees.
Whilst I accept the possibility that the wife's family and friends might continue to support the costs of her litigation, on the balance of probabilities, it's more likely that the husband is in a stronger position to be supported by others than is the wife.
That said, I am unable to find that it is just to make an interlocutory lump sum costs order of $412,000 in the wife’s favour.
Senior counsel for the husband submitted the husband currently does not know where he himself is going to get money to pay for the litigation. Up until this point of time the husband has paid legal fees either from his own resources or from monies generated from arrangements with the other parties to this litigation. The husband says that he does not know whether or not the other parties to this litigation will continue to cooperate to provide him with litigation funding. Those circumstances, as articulated by senior counsel for the husband, are descriptive of ones in which, absent other solutions, a dollar for dollar order should be contemplated.
I find that the husband has a greater capacity than the wife and that he will be supported by his children as a result of the historical financial connections between himself and his children.
I find that it is just to make a dollar for dollar order.
The order that I make does not shut the wife out of making a future application for funding her lawyers’ costs. Her lawyers however should use any money they receive wisely and only for core preparation and investigation. I will look at the expenditure of any funds that the wife’s lawyers receive closely if I am required to further consider any future order for litigation funding. However as I have said I hope to limit the hearing to those matters that are genuinely controversial.
Form of the Order
The wife, inter alia, seeks orders as to how the solicitors for the husband disburse monies paid to them in trust by the husband and after her lawyers have received those monies into trust how they would disburse those monies.
In Ryder & Bonham Gill J, dealing with an application in similar form, found that:
112.Further, the order sought by the wife impermissibly seeks to bind third parties, being the lawyers involved in the proceedings. The obligations under the orders will be placed upon the parties rather than the lawyers.
With respect I disagree. Both the husband and the wife’s lawyers have a relationship with this court as its officers and are on notice of the orders sought because they represent the husband and the wife in the proceedings. In my view the lawyers for the husband and the wife can, as part of the making of a dollar for dollar order, be the subject of orders directing them as to how to deal with monies paid to their trust accounts.
The statutory basis for the power to make an order in the terms sought by the wife directed to both the husband’s lawyers and the wife’s lawyers can be found in s 34 of the Act (see Re Keith Hercules & Sons v Steedman and Others [1987] FCA 472 at [19] and [22] which deals with s 23 of the Federal Court of Australia Act 1976 (Cth) and is in identical terms to s 34 of the Act). This court also has the incidental and necessary power of a statutory court (DJL v The Central Authority (2000) 201 CLR 226 at 241; Woolf v Snipe (1933) 48 CLR 677 at 678-679; Re P’s Bill of Costs (1982) FLC 91-255 at 77,416-77,417; Weiss v Barker Gosling (1993) FLC 92-399 at 80,071). This, in my view, includes the power to make an order directed to the lawyers.
In addition, even if the order was not directed to the lawyers, should they act in a way that was contrary to the husband’s or wife’s obligations under the orders, they may be aiding or abetting a contravention of the order (see s 112AB(1)(b)(ii) of the Act).
To put the matter beyond doubt I shall alter the form of the wife’s proposed order to require both the husband and the wife to give their respective lawyers the relevant instructions.
Retrospectivity
The wife seeks the dollar for order be made retrospectively. There is power to make a retrospective order (see Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 at [31]). However any such order, as it applied to a past period, would remove a fundamental characteristic of the dollar for dollar order, namely the ability of the husband to control what is paid to the wife by making decisions about what he pays or someone else pays on his behalf for his legal costs and disbursements. I decline to make an order which is retrospective.
How the interlocutory costs order will be ultimately treated
As any costs order made at this stage is an interlocutory order, it is an order which needs to be taken into account in the determination of the final property hearing (Zschokke & Zschokke (1996) FLC 92-693 at 83,214- 83,215). The question of how these payments of costs to the wife are to be treated at the final hearing shall be a matter for determination by the trial judge.
I certify that the preceding seventy-two (72) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 18 January 2018.
Associate:
Date: 18 January 2018
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