Banaszak and Executors of the Estate of Mr Mandia & Anor - [2014] FamCA 398

FAMILY COURT OF AUSTRALIA

BANASZAK & EXECUTORS OF THE ESTATE OF MR MANDIA AND ANOR

[2014] FamCA 398

FAMILY LAW – LITIGATION FUNDING – Applicant failed to produce evidence to justify the exercise of any head of power – Questions raised about estimated costs of lawyer acting for applicant.

Family Law Act 1975 (Cth)

APPLICANT:

Ms Banaszak

RESPONDENT:

Mr Peters & Mr J Mandia as Legal Personal Representatives of the Estate of Mr S Mandia

INTERVENOR:

Mr H Mandia

FILE NUMBER:

MLC

6072

2012

DATE DELIVERED:

16 June 2014

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

Cronin J

HEARING DATE:

10 June 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Brown SC

SOLICITOR FOR THE APPLICANT:

Peter Speakman & Co Pty

COUNSEL FOR THE RESPONDENT:

Mr Strum

SOLICITOR FOR THE RESPONDENT:

Marshalls & Dent

SOLICITOR FOR THE INTERVENOR:

Kenna Teasdale Lawyers

Orders

That the application filed 2 June 2014 is dismissed.

IT IS CERTIFIED:

That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend.
That all parties’ costs of this application are reserved for the trial judge.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Banaszak & Executors of the Estate of Mr S Mandia has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 6072 of 2012

Ms Banaszak

Applicant

And

Mr Peters & Mr J Mandia as Legal Personal Representatives of the Estate of Mr S Mandia

Respondent

And

Mr H Mandia

Intervener

REASONS FOR JUDGMENT

The facts underlying this interlocutory dispute are moderately simple. Ms Banaszak is 76 years of age and described herself as a retired person. On her version of events, she lived with Mr S Mandia from about January 2004 until February 2012. They lived as a couple in a de facto relationship. Mr S Mandia died in January 2013. His estate is now represented by his son and a solicitor Mr Peters; they are the executors of his will. Probate was granted by the Supreme Court of Victoria in August 2013.
Before the death of Mr S Mandia, Ms Banaszak (“the applicant”) commenced proceedings for a division of property under Part VIIIAB of the Family Law Act 1975 (Cth) (“the Act”). For reasons which remain unclear, the applicant did not set out precisely what orders she was then seeking. Until the hearing before me on 10 June 2014, that remained the case. When I inquired what the applicant’s claim was, senior counsel for her said that it was a minimum of 25 to 35 per cent of the “identified pool”.
For his part and now that of his executors, Mr S Mandia’s position was (and remains) that the applicant’s application should simply be dismissed.
The discrete application before me was filed on 2 June 2014. That arose because when the applicant’s substantive application was listed before me on 19 May 2014 as a first day before a judge, the issue of what might loosely be described as “litigation funding” arose. In addition to setting the case down for trial in a few weeks time, at the request of senior counsel for the applicant, I set an interim hearing date because he foreshadowed an application for litigation funding.
In the application filed 2 June 2014, the applicant sought (relevantly):
That on or before 17 June 2014 the Respondents pay to the applicant’s solicitors the sum of $500,000 by way of security for costs.
The application was supported by an affidavit by the applicant’s solicitor Peter Speakman.
By response filed by leave on 10 June 2014, the executors opposed the application and simply sought its dismissal.
The affidavit of Mr Speakman said that he was informed (by his client) that the applicant was unable to fund the ongoing legal fees associated with the proceedings and unable to borrow funds to meet the expenses. He said that he and his firm had been retained on a costs agreement. The costs agreement was attached to his affidavit. The costs agreement provided that the client had to pay anticipated disbursements on request and that she “may” also be asked to pay an amount to provide security for professional fees. He said that when accounts were rendered, they were payable immediately. In respect of those costs, his hourly rate was $360 per hour plus GST and there were other staff with similar but not quite as high charge out rates.
The affidavit of Mr Speakman went on to say that the firm required the client to pay retainers which were sufficient to cover anticipated fees and disbursements. As observed by counsel for the executors, that was not entirely consistent with the costs agreement. Mr Speakman went on to say that he was not prepared to continue to act on behalf of the applicant without being provided with a retainer to cover the outstanding and anticipated fees and disbursements. It must be observed that Mr Speakman and his firm had not been involved in the proceedings until March 2014. It seems that a firm of solicitors had acted for the applicant until that time when she changed practitioners.
Mr Speakman’s affidavit went on to say that he anticipated that the applicant would be required to pay the fees that included $99,920 billed but unpaid expenses to him, and further unbilled and unpaid expenses of $24,500. He then went on to say that he estimated further fees from the date of the affidavit until the conclusion of the hearing before me (some eight days) at a further $20,000. He expected fees for preparation for the trial including a mediation at $292,100. He totalled all of that to $436,521.
Counsel for the respondents submitted that the fees were high. I agree. Having regard to the matters to which I shall turn below, I have great difficulty understanding what the complexity of this case is about whilst appreciating that there is an intervener who is claiming one of the assets. For fees of $99,900 to be run up in a space of three months and for there to be $20,000 incurred by a solicitor over a space of eight days seems extraordinary. For the preparation of an affidavit and the readiness for trial to incur $292,000 seems excessive.
It is every client’s right to be represented by their lawyers of choice and Mr Speakman’s affidavit said that he anticipated further solicitor’s fees of $15,000 and junior counsel of $9500.
Mr Speakman said that following the hearing on 10 June 2014, he anticipated that there would be work associated with real estate valuation fees ($12,500) and forensic accounting fees of $15,000. He explained that the fees concerned a review of the financial documentation discovered including a “group” structure, its operation and taxation position and he included in those fees a conference with solicitors and counsel. Again, having regard to my understanding of what this dispute is about, I am perplexed as to how those fees are so high.
It has apparently always been the case that the parties intended to contemplate a mediation before trial. Mr Speakman said that his general preparation for the mediation including an analysis of the documentation produced, liaising with experts, reviewing their reports and then liaising with counsel not to mention correspondence with other solicitors and the attendance at the mediation would come to $25,000. Those were his fees because he anticipated counsel’s fees including one day’s preparation of $24,200. Again, I can only express my surprise at the extent of the amount of work to be done let alone the costs involved. Mr Speakman referred to the costs of preparation for trial which he estimated at $140,000. He expected a three day trial for senior counsel at $26,400 and such counsel would be assisted by a junior for five days at a total of $16,500. He expected his solicitor’s fees to be $5000 per day. Bearing in mind what this case is about and the assets in dispute, I find this evidence alarming.
All of this evidence was also relevant to the fact that in the first financial statement filed by the applicant, she deposed to the fact that she had over $400,000 in savings and by the time a second financial statement was filed in May 2013, those expenses had dropped to $300,000. It must be observed at that stage that she had engaged her previous solicitor and it would seem that legal fees have been paid to that firm of solicitors of $140,000. Those fees covered the period of time from the inception of the proceedings and must be compared with the expenses that Mr Speakman anticipated.
The applicant’s $300,000 soon disappeared having regard to those legal fees but she also paid accountant’s fees of $7000, repayment of part of her car loan of $10,000 and $55,000 for her general living expenses. She also repaid credit card expenses of $28,000. That debt had been shown in her financial statement in May 2013. Thus, Mr Speakman referred to the fact that there was now $60,000 left upon which she had to support herself. Clearly therefore, there was no money for the anticipated expenses not only of the hearing before me but also the anticipated trial which is only some weeks away. That is particularly important if indeed the parties are going to attend a mediation.
Apart from a modest motor car and those funds to which I have just referred, the applicant’s only other asset is an unencumbered home which she listed as being worth about $1 million to $1.1 million.
It was because of all of those facts and the statement of Mr Speakman that his firm would not prepare the trial without their expenses and legal fees covered that the application before this Court was made.
In case it is not apparent that my concern arises from the description of the expenditure anticipated by Mr Speakman, another concern relates to the nature of the proceedings themselves. As I earlier indicated, there is an intervener in the proceedings. He is the son of the deceased. The probate documents set out the assets and liabilities as then known to the executors. It was on the basis of that affidavit of inventory that the probate was granted. There would appear to be between $6 million and $7 million in assets in the estate. However, one of those assets is a property which has been valued by the executors at $3 million. That is the property that is claimed by the intervener. His claim is quite elaborate.
To the extent that the applicant only has a property worth approximately $1 million, it can be seen that as between the estate and the applicant, there is approximately $7-8 million if the intervener is unsuccessful. If the intervener is successful, the assets of the estate and the applicant are reduced to $4 million or $5 million.
Bearing in mind senior counsel’s estimate that the applicant would be seeking a “minimum” of 25 to 35 per cent of that sum, less what she already has of $1 million, the claim seems to me to be relatively modest.
As I earlier indicated, the applicant’s claim for interim relief is for $550,000.
It is clear on the evidence of Mr Speakman that the applicant needs $550,000 if she is not to encumber or sell the home that she currently owns. There is not sufficient cash available in her resources to be able to fund her litigation.
An issue of some controversy relates to the deceased’s will. Initially, the will drawn up by one of the executors made a specific bequest to the applicant of $150,000. Two subsequent codicils were made to the deceased’s will. They were not drawn by the original solicitor and it is apparently a subject of contention as to the circumstances under which they were drawn. Not only is there some argument about who drew the codicils but also the state of mind and mental health of the deceased. Whilst that issue was raised in an oblique way by counsel for the estate, I pause to note that probate has been granted including on the basis of the two codicils and there has not been any suggestion that the deceased did not have the presence of mind to make the codicils. I have presumed that would have arisen before the grant was made by the Supreme Court.
In the first of the codicils, the $150,000 referred to in the will was increased to $550,000. As I indicated, that is contentious. Also contentious apparently is the fact that the deceased had significant sums of money drawn from his account prior to his death. Where that fits into the ultimate dispute remains to be seen. All of this was drawn to my attention on the basis that the Court should be cautious about making any order in circumstances where it may not be able to be recovered notwithstanding the applicant’s unencumbered home to which I have referred.
Senior counsel for the applicant observed with that factual background, the applicant would be “legally disenfranchised” if a litigation funding order was not made. It is important to note that in opening his case, senior counsel for the applicant referred to the application as being a litigation funding application but indeed, the pleaded application was one of security for costs. It is trite to say that they are significantly different and each is underpinned by a different exercise of power. Whilst counsel for the respondents made some complaint about the nature of the pleaded application as distinct from the oral opening, the reality is that the executors came along to the Court well prepared for such argument.
Senior counsel for the applicant relied upon the affidavit of Mr Speakman and my attention was drawn to an earlier affidavit of the applicant filed in proceedings at an earlier time. Thus, the facts about what there is in dispute are highly controversial depending upon what ultimate view one takes of the intervener’s claim. Even without the intervener’s claim being successful, 25 per cent to 35 per cent of $8 million leaves the applicant exposed if she spends the legal fees to which I have earlier referred and one wonders just exactly what benefit there is in the litigation for her. It is not a matter for the Court to dictate how people conduct their litigation such as this but I cannot ignore the fact that there is an enormous amount of money being spent here for the claim only just now articulated.
The law in relation to the approach to such an application is clear (see Strahan and Strahan (interim property orders) [2009] FamCAFC 166 and Kyriakos and Kyriakos [2013] FamCAFC 22 and the observations of the Full Court in Marchant and Marchant [2012] FamCAFC 181).
The first approach is to decide whether it would be appropriate to make an interim order with the overarching consideration being the interests of justice. There is no longer any basis for the applicant to have to establish compelling circumstances for the order to be pursued and indeed made.
There are only three heads of power here applicable. The first relates to how the matter was pleaded as a security for costs application. If that is the head of power, the provisions of the Act lie in s 117. On the other hand, senior counsel for the applicant referred to the application as a litigation funding claim. To the extent that s 80(1) gives a general power to the Court, it must be exercised on the basis of some property claim. To the extent that there is a property claim here, because the parties were in a de facto relationship, the relevant provision is s 90SM.
Senior counsel for the applicant did not nominate which head of power was being pursued. Whilst it is not fatal for an applicant to not set out the basis of the application relying on a particular power, it is very important for the Court to do so to justify any order (see Kyriakos (supra)).
There is no evidence before the Court that would enable a determination to be made exercising the powers in s 90SM. There is no evidence of contribution. That too is not fatal. Before exercising any power in Part VIIIAB, s 90SM(3) requires that a court must not make an order unless it is satisfied in all the circumstances it is just and equitable to do so. The first step is to decide whether it would be just and equitable to make an order at all in this case (see Stanford [2012] HCA 52).
None of the evidence of Mr Speakman addresses the issue of not only the question of what contributions were made by the applicant but more importantly, any of the matters in s 90SF(3). None of the evidence supports an argument that it is just and equitable to make an order at all. It must be remembered that in Stanford, the High Court said that one must not assume that because of the nature of the relationship, an order would be made at all. During a relationship, parties make various decisions as to how their assets are to be acquired or indeed kept and none of that was addressed in this particular case.
Accordingly, there is no evidence upon which I could make a finding that it would be appropriate to make an interim order here in anticipation that it might ultimately be just and equitable to make an order at all.
I turn then to the exercise of the power in s 117 of the Act. Whether the application is one seeking an order for costs or as in this case, security for costs, the provisions of s 117 of the Act apply. That provision sets out clearly that in proceedings in this Court, each party shall bear their own costs unless there are circumstances that justify a departure from that principle. To the extent that the Court is so minded to find that there are justifiable circumstances, it must then take into account the matters set out in s 117(2A) of the Act. None of the evidence of Mr Speakman addresses any of those issues. It is clear that the applicant is in straitened circumstances in a cash sense. She does have the unencumbered home in which she has equity and Mr Speakman’s affidavit made clear that whilst there was a charge over the applicant’s property by virtue of the execution of the costs agreement, that was not what his firm was seeking.
In my view, there is no basis upon which I could find that there are justifiable circumstances here to depart from the principle that each party pays their own costs. There is no basis to say that the executors have adopted an attitude wherein one might anticipate that an order for costs might ultimately be made against them for some conduct or any of the other factors set out in s 117(2A).
In the circumstances, the applicant has failed to show any head of power that the Court can use here that would justify making any order at all.
In my view, the application must be dismissed.

I certify that the preceding thirty eight (38) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 16 June 2014.

Associate:

Date: 16 June 2014