Bogdanov and Pryor

[2013] FamCA 777

FAMILY COURT OF AUSTRALIA

BOGDANOV & PRYOR [2013] FamCA 777

FAMILY LAW – Property – interim property division – where all assets retained by wife – where appropriate to ensure level litigious playing field – lump sum order and “dollar-for-dollar” order made.

Osferatu & Osferatu [2012] FamCA 408

Family Law Act 1975 (Cth) s79, 80(1)(h)

APPLICANT: Ms Bogdanov

RESPONDENT: Mr Pryor

FILE NUMBER: BRC 9953 of 2012

DATE DELIVERED: 11 October 2013

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Tree J

HEARING DATE: 30 April 2013

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr. Page QC

SOLICITORS FOR THE APPLICANT: Jones Mitchell Lawyers

COUNSEL FOR THE RESPONDENT: Mr. Kirk QC

SOLICITORS FOR THE RESPONDENT: Hirst & Co

Orders

1. That within 14 days of the date of this Order, the Applicant Wife pay to the Respondent Husband the sum of $135.000.00.

2. That within seven days after payment by or on behalf of the Applicant Wife of any money in payment of accounts:

   (a)rendered by the Applicant Wife’s solicitors in respect of these proceedings;

   (b)rendered by any accountant, valuer of other expert engaged in respect of these proceedings;

   the Applicant Wife pay or cause to be paid the same sum of money to the Respondent Husband’s solicitors.

3. Any monies paid by or on behalf of the Applicant Wife as referred to in Order 2(a) or (b), are to be held in trust by the Applicant Wife’s solicitors, and within two business days of their receipt of such monies, she cause to be given to the Respondent Husband’s solicitors a memorandum stating the amount of amounts to be paid.

4. All money paid to the Applicant Wife’s solicitors by or on behalf of the Applicant Wife referred to in Order 2(a) or (b) be held in trust by the Applicant Wife’s solicitors and not be applied in payment of her legal costs and outlays until such time as the same amount has been paid or by or on behalf of the Applicant Wife to the Respondent Husband’s solicitors, and in the event that such payment to the Respondent Husband’s solicitors is not made within seven days after the payment by or on behalf of the Applicant Wife of any money referred to in Order 2(a) or (b), the Applicant Wife direct her solicitors to pay 50 per cent of the amount or amounts held by them in trust to the Respondent Husband’s solicitors.

5. The amounts paid by or at the direction of the Applicant Wife to the Respondent Husband’s solicitors pursuant to these Orders be applied by them only in the payment of the Respondent Husband’s legal costs and outlays incurred and to be incurred by him in the conduct of these proceedings, including but not limited to the reasonable costs and outlays:

   (a)Rendered by the Respondent Husband’s solicitors in respect of these proceedings;

   (b)Rendered by any accountant, valuer or other expert engaged in respect of these proceedings.

6. The payments made pursuant to Orders 1, 2 or 4 hereof are to be treated as part of the Respondent Husband’s entitlement to property settlement.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Bogdanov & Pryor 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 BRISBANE

FILE NUMBER: BRC 9953/2012

Ms Bogdanov

Applicant      

And

Mr Pryor

Respondent  

REASONS FOR JUDGMENT

introduction 

1. By his Amended Response to Initiating Application filed 11 February 2013, the husband sought orders that, by way of partial property settlement, the applicant wife pay him the sum of $500,000 within 14 days of the date of order. In the alternative, the husband sought a regime of orders commonly known as “dollar for dollar” orders to cover his anticipated costs of litigation. These orders were opposed by the applicant wife.

THE FACTS

1. The husband was born in 1965, and as at the date of these orders is 48 years of age. The wife was born in 1977, and as at the date of these orders is therefore 35 years of age. The parties commenced a relationship in 2005 and began cohabiting in January 2006. They married in 2009 at B Resort. They finally separated on 19 October 2012. There are three children of the marriage.

2. It appears to be common ground that at the time that the parties commenced the relationship, the wife had already commenced to operate a business trading as C Pty Ltd It also appears to be common ground that during the course of the relationship, that business grew enormously and became extremely successful. Whilst on the material before me the financial performance of the business is unable to be precisely established at this point in time, annexure G to the husband’s affidavit filed 28 November 2012 was a draft finance proposal to the ANZ bank of 1 September 2011, wherein it was asserted that sales in the business had now reached $1 million per month, and there was an estimated net income for the financial year ending 30 June 2012 of in excess of $4.6 million.

3. What is hotly in contest is the extent to which the husband contributed to that success, although it appears to be conceded that the husband was employed in the business up until separation. The extent to which the husband contributed to the business cannot be resolved at this point of the litigation on an interim basis.

4. On Tuesday 9 October 2012 the husband emailed the wife in the following terms:

   [Ms Bogdanov],

   Following my investigation of the company financials dating back over the last 7 years I can no longer sit back and allow you to put not only my future but our children’s and all of the wonderful people who work for us at risk any more.

   I found there has been rampant tax fraud instigated by yourself and [Mr D] that is in the millions of dollars.

   Even now after I got rid of him there is still hundreds if (sic) thousands of dollars in cash that you are hiding away and you still continue to do this weekly!

   I have raised this issue with you previously and your response is to threaten me and you have stated you will throw me out of the business and home and do whatever it takes to make that happen.

   I can no longer allow myself to be threatened with this and you to continue doing what you’re doing.

   ...

5. On 19 October 2012, being the day when the parties finally separated, the wife effected the removal of the husband from the C Pty Ltd business by changing the locks, alarms and codes at the business’ offices and employing security guards to keep him out. She further effected the removal of the husband from what had been the matrimonial home by employing security guards. She also caused his telephone to be disconnected. Thereafter she has retained exclusive control of the business and its cash flows, and has remained the sole owner of six real properties including a home at Suburb E which appears to be worth somewhere between $2.5 million and $3.5 million. In paragraph 13 of his affidavit filed 11 February 2013, the husband asserted that the net property pool was over $25 million, which was over 10 times more than the wife’s assertion of $2.475 million.

6. Since separation, the husband has commenced a new business in competition with that of the wife. It only commenced trading in February 2013 and hence is still in its infancy. Further, since it commenced trading, it appears as though it has entered into agreements with other investors, such that at paragraph 21 of his affidavit filed 29 April 2013, the husband asserted that he now held only approximately 20 per cent of the shares in the company which conducts the new business. Also in that affidavit he disclosed that he now receives a salary of $1500 after tax each week from that business, and that after meeting his costs of living, has about $300 per week remaining.

THE INTERIM PROPERTY APPLICATION

(a)The Law

1. In the recent decision of Osferatu & Osferatu [2012] FamCA 408, Watts J reviewed the relevant principles pertaining to applications for interim property division in the following terms:

   THE LAW TO BE APPLIED

   Approach to an application for an interim property order

   31.The Full Court in Strahan and Strahan (2011) FLC 93-466 revisited the principles applicable to applications for interim property orders. An interim property decision involves two steps.

   The first step

   32.First, it must be established that s 80(1)(h) Family Law Act 1975 (Cth) (“FLA”) was enlivened to allow an interim property settlement under s 79 FLA. The test for this was not confined to ‘compelling circumstances’. The Court in Strahan revisited the earlier well known statement made in Harris and Harris (1993) FLC 92-378 where the Full Court had said:

   “The exercise of the power should be confined to cases where the circumstances presented at that time are compelling. As a generality, the interests of the parties and the Court are better served by there being one final hearing of s 79 proceedings. However, circumstances may arise before there can be a final hearing which dictate that some part of the property of the parties should be the subject of orders. A common example is where both parties agree to the disposal of some assets pending the trial. However, we do not consider that it is confined to cases where the parties consent. Urgent situations may arise where it is necessary to exercise this power if injustice is to be avoided. Examples include cases where it is necessary to do so to avoid an asset being eroded or lost in the intervening period, and cases (beyond the maintenance power) where an order in favour of one party is necessary to preserve or obtain a home for or is otherwise necessary for the welfare of the children.”

   33.      In Strahan, the Full Court said:

   “[132] In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.

   …

   [139] We also emphasise that in order to establish an appropriate case for an interim property settlement order more is required than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.”

   34.As explained by the Full Court, s 80(1)(h) FLA is a wide enabling provision for interim property decisions, and there is no reason to limit it, by requiring a finding of ‘compelling circumstances’. All that is required before the power to make an interim property order is exercised, is an assessment of whether it would be “appropriate” to make an interim order, with the “overarching consideration” being the interests of justice. There may need to be evidence of the likely cost of litigation, but only if that is the reason or part of the reason that is propounded as to why it is appropriate that the order be made.

   Considerations about making an interim property order in “the interests of justice”

   35.The notion of a “level playing field” is one which almost axiomatically is in the interests of justice and an important matter to consider when deciding whether it would be appropriate to make an interim property order.

   36.In In the Marriage of J U and T Poletti (1990) 15 FamLR 794, Ellis, Strauss and Butler JJ quoted Ngyh J with approval at [796]:

   “…It is rather, as it certainly was in Wilson and Wilson [(1989) 13 Fam LR 205], a situation where one party to the marriage controls almost exclusively what might be described as the patrimony of the parties and has control of the bulk of the assets and funds of the parties, where an order may be made to ensure that the other party, who does not have the fortune of controlling those funds, at least has an equal or near equal opportunity to present his or her case...”

   37.One method sometimes adopted is to provide a disadvantaged spouse with a “dollar for dollar” order. That is, an order that the advantaged spouse has to pay the disadvantaged spouse one dollar for each dollar the advantaged spouse pays his or her own lawyer.

   38.The implementation of such an order is not as clean cut as the interim property order sought in this case and there is more ambiguity about which power is being exercised and what evidence is needed. There has been previous discussion in cases as to whether or not an application of this nature relies upon s 79 and s 80(1)(h) or s 74 or s 117 FLA.

   39.    In Farnell and Farnell (1996) FLC 92-681, Kay J said:

   “In the Marriage of Gould, (Appeal EA 37 of 1994, judgment of 29 June 1994), the Full Court coram Fogarty, Kay and Graham JJ[1], 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 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: 

   [1] The published report incorrectly states the constitution of this Full Court which was actually Fogarty, Kay and Renaud JJ.

   “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 per cent 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.’”

   40.Putting the sexist language to one side, nearly twenty years later the position of a former spouse, now in highly conflicted litigation, who has not played a significant role in controlling the finances of the parties, has not much changed.

The second step

41.As was discussed in Harris and confirmed in Strahan, the second step in making an interim property order is to have regard to the usual matters in a section 79 order (ss 79(2) and 79(4) FLA). A detailed inquiry is not required, but there must be some assessment of section 79 factors. Given it is an imprecise exercise, the interim property order has to be “conservative” so that the final outcome of property settlement will not be compromised by the interim property order. Either the remaining property needs to be sufficient to meet the legitimate expectations of both parties at the final hearing, or the order that is contemplated needs to be capable of being reversed or adjusted if it is subsequently considered necessary to do so.

42.Being a preliminary property order, the wife may choose to spend the money however she wishes.

43.        In Harris, the Full Court said:

As a generality, the interests of the parties and the Court are better served by there being one final hearing of sec 79 proceedings.

44.In Strahan, the Full Court said in exercising the wide and unfettered discretion conferred by s 79 and s 80(1)(h) FLA:

“Regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.”

45.A corollary of these statements made by the Full Court in both Harris and in Strahan is the proposition that as a generality, the interests of the parties and the court are better served by there being as few interim property applications under s 79 as possible.

1. I gratefully adopt his Honour’s analysis of the authorities, and propose to apply it to this application.

(b)The First Step

1. The question for my determination is whether or not it is appropriate to exercise the power to make an interim property order.

2. The following factors support the making of an order: –

• the wife has retained all of the parties assets;

• even on the wife’s case, the assets are considerable;

• the husband’s financial circumstances are somewhat parlous;

• whilst the husband has surplus income derived from his recently obtained employment with the new business, it is only to the extent of $300 per week;

• in the past the husband has had to borrow funds from friends in order to afford proper legal representation;

• it seems likely that the litigation will be complex, and may well involve a high level of conflict;

• the husband has already incurred legal expenses exceeding $130,000.00 and will likely incur considerable costs in the future.

1. The following factors do not support the making of an order: –

• the usual s79 order is a once and for all order made after a final hearing;

• given the wildly varying estimates of the value of the assets of the parties, it is difficult to make any firm prediction of the likely value of that pool;

• given the substantial difference between the parties as to the contribution which the husband made to the assets of the parties, it is presently very difficult to identify the likely range within which his entitlement lies;

• future events may impact upon the value of the parties assets at trial, including firstly, if it be true that the wife has engaged in tax evasion, any consequences of that being brought to the relevant authorities attention, and secondly, the extent to which the husband’s new business impacts upon the financial viability of C Pty Ltd

1. Upon balance, I think that the factors tend in favour of the conclusion that it is appropriate to make an interim order, principally to ensure that the parties are competing on level litigious playing field.

(c)The Second Step

1. I have already identified that the husband asserts that the value of the parties’ property is in excess of $25 million, which is more than 10 times the value asserted by the wife. I cannot resolve that conflict at this point of the litigation.

2. Further, as I have already indicated, the C Pty Ltd business was already operating at the time of the commencement of the parties’ relationship. It does not appear to be asserted that there was any direct financial contribution made by the husband to the development of the business thereafter. Rather it appears as though he asserts that his efforts as an employee comprise a substantial non-financial contribution to the value of that asset as at today’s date. On an interim hearing such as this, I cannot determine the extent of that contribution.

3. Likewise on an interim basis it is not possible to determine the parties’ respective contributions to the welfare of the family, save to say that it is clear that they have made extensive use of nannies.

4. As to s75(2) factors, leaving aside the husband’s new business, the wife has at least thus far retained the vast bulk of the parties’ income property and financial resources. Whilst the husband clearly retains earning capacity, it would appear to be nothing like the income stream associated with the C Pty Ltd business. That said, the husband does not press any claim per spouse maintenance, and indeed admits to a surplus of income over expenses of $300 per week. Plainly the parties enjoyed a high standard of living during the course of the relationship. Each party intends to continue to play a substantial role in their children’s lives.

1. Although in her initiating application filed 6 November 2012 the wife conceded that the husband ought receive 20 per cent of the net value of the parties’ property, in paragraph 46 of her affidavit filed 19 February 2013 she said “.. I no longer believe that [the husband] will receive 20 per cent of the net value of the asset pool.” The basis for that revised belief was not disclosed, but it may well be that in view of the husband’s conduct since separation, comprising opening a competing business and poaching staff away from the C Pty Ltd business, any reduction in its value will be sought to be attributed to him.

2. As I have indicated, the primary purpose of the interim property order which I propose to make is to ensure a level playing field of the parties in conducting their litigation in this court. It appears from exhibit H1, being a letter from the husband’s solicitors to him dated 30 April 2013, that he has already paid $30,000 to former solicitors, and has paid his current solicitors a further $20,000.  Whilst the letter is ambiguous, it appears as though there is a further sum of about $85,000 owing to his current solicitors. In that correspondence there is an estimate that the husband’s “future ongoing legal costs up to and including a final hearing may be as much as $250,000 having regard to the need for valuations of companies in real estate, the costs of mediation and the potential for further interim hearings.” As to that estimate, I accept the criticism made by the wife that it is unclear precisely how that estimate is arrived at, but nonetheless I accept that the husband’s future legal fees in this matter are likely to be substantial.

3. Because of the uncertainty as to the husband’s likely property entitlement, and the need to be conservative to ensure that an interim order does not exceed the final entitlement, I decline to make the interim property division sought by the husband in the sum of $500,000. Nonetheless I do propose to make an order for a lesser figure, calculated by reference to the outstanding legal costs due to the husband’s solicitors as at 30 April. As I have already indicated, exhibit H1 is ambiguous, however annexure BCP 2 to the husband’s affidavit filed 11 February 2013 seems to suggest that as at 4 February 2013 he owed approximately $60,000 to his solicitors which remains unpaid. From a combination of paragraph 12 of that affidavit, and paragraphs 23 and 24 of the husband’s affidavit filed 29 April 2013, it seems as though his new solicitors required the husband to pay $20,000 to them on account of counsel’s fees. There is then a further sum due to the solicitors of nearly $25,000 for work which they have done since 4 February 2013. There is therefore a total of $105,000 either paid or payable for his current solicitors costs, and a further approximately $30,000 which he has paid to his previous solicitors.

4. Against this background, the figure proposed by Mr. Page QC, in the event that I reached step 2, of $50,000.00 is as Mr. Kirk QC submitted, manifestly inadequate.  I therefore propose to order the payment of the whole of the sum of $135,000.00 by the wife to the husband as partial property settlement within 14 days. Such a sum is conservative and less, and perhaps considerably less, than the husband’s ultimate property entitlement.

5. However such an order will not, by itself, adequately provide a level playing field going forward. To achieve that it is appropriate that there be orders for a “dollar for dollar” regime in substantially the same form as contemplated in paragraphs 19 to 23 (both inclusive) of the husband’s Amended Response to Initiating Application filed 11 February 2013.  The consequences of such an order will see the total amounts received by the husband under these orders likely to still be well below the quantum of his ultimate entitlements.  I am persuaded that absent such an ongoing order there is sufficient prospect of injustice to the husband to warrant making it, and will so order.

I certify that the preceding twenty two (22) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Tree delivered on 11 October 2013.

Associate: 

Date:  11 October 2013