Breno & Breno (No 2)
[2024] FedCFamC1F 373
•19 April 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Breno & Breno (No 2) [2024] FedCFamC1F 373
File number: SYC 2724 of 2021 Judgment of: HARPER J Date of judgment: 19 April 2024 Catchwords: FAMILY LAW – PROPERTY – EX TEMPORE – INTERIM – Where wife seeks joinder of two additional third parties and litigation funding – Where the property pool is substantial – Orders made for wife to receive payment categorised as a partial property settlement – Orders made to join the third party against whom specific relief is being claimed. Legislation: Family Law Act 9175 (Cth) s 106B and s 117
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 3.01
Cases cited: Agapetos & Armani [2023] FedCFamC1F 1072
Bing and Bing (2007) FLC 93-318; [2007] FamCA 418
Messana & Messana [2023] FedCFamC1F 365
Poletti and Poletti (1990) 15 Fam LR 794; [1990] FamCA 79
Salvage & Fosse (2020) FLC 93-966; [2020] FamCAFC 144
Wayne v Dillon (2008) 40 Fam LR 543; [2008] FamCAFC 204
Division: Division 1 First Instance Number of paragraphs: 24 Date of hearing: 19 April 2024 Place: Sydney Counsel for the Applicant and the Second to Ninth Respondents: Mr Dura SC Solicitor for the Applicant and the Second to Ninth Respondents: Diamond Conway Lawyers Counsel for the First Respondent: Mr Bell Solicitor for the First Respondent: Petkovic & Todd The Tenth Respondent: No appearance required ORDERS
SYC 2724 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR BRENO
Applicant
AND: MS BRENO
First Respondent
MR B BRENO
Second Respondent
MS C BRENO (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
HARPER J
DATE OF ORDER:
19 APRIL 2024
THE COURT ORDERS THAT:
1.The joint letter of instruction addressed to Mr E is marked as Exhibit “A”.
2.The handwritten document dated 19 April 2024 embodying two orders relating to a report by Mr E is marked as Exhibit “B”.
3.Orders are made in accordance with Exhibit “B”.
4.L Company be joined as a Respondent to the proceedings.
5.The Applicant Husband (“husband”) pay to the First Respondent Wife (“wife”) as partial property settlement the sum of $500,000 within 21 days.
6.The Amended Application in a Proceeding filed by the wife on 14 February 2024 and the Amended Response to Application in a Proceeding filed by the husband on 10 April 2024 are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Breno & Breno has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
HARPER J:
These are property proceedings between the applicant husband (“the husband”) and the respondent wife (“the wife”). The litigation is long-running but is listed for final hearing to commence on 10 July 2024, with an estimate of seven days.
There is presently no agreed joint balance sheet available, even in draft, pending the receipt of valuation evidence. However, it was common ground that the matrimonial pool is very substantial and no less than some tens of millions of dollars in value, including properties in Country F.
The wife filed an Amended Application in a Proceeding on 14 February 2024 which seeks orders for joinder of two corporations, namely M Pty Ltd and L Company. She also seeks litigation funding payable to her in the amount of $500,000, and orders concerning a letter of instruction to an expert.
The parties resolved their dispute concerning the letter of instruction to the expert on 19 April 2024 and orders can be made by consent in that regard. This judgment therefore deals only with the questions of joinder and litigation funding.
According to her Case Outline filed 18 April 2024, the wife relied upon her affidavit filed 12 March 2024 and the affidavit of her solicitor, Ms Angela Catherine Todd, filed 17 April 2024. The wife further relied upon her Amended Points of Claim filed 5 February 2024.
According to the husband’s Case Outline filed 18 April 2024, he relied upon his Amended Response to an Application in a Proceeding filed 10 April 2024 and his affidavit filed 27 March 2024.
JOINDER
The principles relating to joinder were not in dispute. The Court must join a party if their joinder is necessary to determine all issues in dispute in the proceedings. Rule 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) is in the following terms:
3.01 Necessary parties
A person whose rights may be directly affected by an issue in a proceeding, and whose participation as a party is necessary for the court to determine all issues in dispute in the proceeding, must be included as a party to the proceeding.
In relation to the question of necessity, Warnick J in Wayne v Dillon (2008) 40 Fam LR 543 said the following:
18. The word ‘necessary’ in r 11.02(1) must mean something more than ‘useful’ or ‘expeditious’. In my view, if there are available alternative means to joinder to the substantive proceedings, of obtaining from a third person or someone already a party what is needed to allow an applicant for joinder to establish an identified ‘case’, joinder is unlikely to be ‘necessary’.
Justice Campton J in Messana & Messana [2023] FedCFamC1F 365 made the following comment:
36. However, if a cause of action, recognisable at law, against a “third person” is particularised, then it is at least highly likely that joinder will be “necessary for the court to completely and finally determine all matters in dispute.”
The second and third respondents are the parents of the husband. They are parties already to the litigation and directors of both L Company and M Pty Ltd. A number of other entities have also been joined by consent, including H Pty Ltd, by orders made on 1 March 2024.
The wife has filed Amended Points of Claim on 5 February 2024 which sets out the basis for the relief she claims in respect of third parties to the marriage. By her Points of Claim, the wife seeks relief against L Company in the nature of an order pursuant to s 106B of the Family Law Act 9175 (Cth) (“the Act”) to set aside a transfer of a Country F property to it by the husband. In relation to the joinder of L Company, the wife also points out that the husband indicated consent to its joinder by documents filed for the purposes of 27 February 2024, including a Case Outline, and in open Court on that date.
I am also told that his solicitors have indicated they have instructions to accept service on behalf of L Company, although whether that is still the case was unclear. When the order was made by consent joining other third parties on 1 March 2024, the wife contends L Company was simply omitted from the list of joined parties by mistake. The husband now argues a joinder of L Company is not necessary because the second and third respondents are already parties and could be compelled by any appropriate Court order to caused L Company to take whatever steps the Court deems necessary to effect the relief that the wife claims in respect of the impugned transfer.
While there is some force in that submission, I am, however, satisfied the joinder of L Company is necessary to resolve all issues in dispute in the proceedings. L Company is a separate legal person to its directors and shareholders. Specific relief is sought against L Company pursuant to the Act which would, if successful, divest it of property. Accordingly, I am satisfied that L Company should be joined.
On the other hand, no specific relief is claimed against M Pty Ltd. The wife’s argument in relation to this corporation is that, according to the available material, the husband may have caused some $570,000 to be paid to M Pty Ltd, which payment may constitute a premature distribution of matrimonial assets. The wife argues that M Pty Ltd’s joinder would make the overall constitution of the proceedings tidier and be more convenient.
The husband argues that when it comes to joinder, the issue is necessity not convenience. He repeats the fact that his parents are already parties to the litigation and they are directors of M Pty Ltd.
Having considered the arguments of the parties, I am not satisfied that the joinder of M Pty Ltd is necessary in the absence of any specific relief claimed against it. If it has received $570,000 in dissipation of the matrimonial pool, this can be readily accommodated on the balance sheet or in the ultimate division of property according to well-settled principles, such as, for example, including the $570,000 as notional property. Accordingly, I am not satisfied M Pty Ltd should be joined as a party to the litigation.
LITIGATION FUNDING
The wife claims $500,000 in litigation funding. She justifies this figure on the basis that she has entered a litigation funding agreement with an entity called N Finance, pursuant to which she now owes some $275,462 which, according to her evidence, will be due for payment on 29 August 2024. She also has outstanding invoices of $245,741 and work in progress relating to this litigation of $53,870. Her solicitors filed a Costs Notice on 19 April 2024 which became Exhibit A, which indicates that no less than another $190,000 will be necessary to be paid to bring this litigation to conclusion at final hearing.
The wife claims that the husband has a ready source of funds to make a payment of $500,000 in the form of shares held in H Pty Ltd which had a value of about $6 million in January 2024. The wife did not seek by her order to characterise the nature of any payment for litigation funding. The possibilities are well known. They are to be characterised either as a partial property settlement pursuant to s 79 and s 80(1) of the Act, or a payment for future costs pursuant to s 117 of the Act.
The difference has importance to the extent that slightly different considerations may apply, depending on which type of payment is sought. Justice Campton set out the applicable principles recently in the decision of Agapetos & Armani [2023] FedCFamC1F 1072:
100.As to her relief that the husband be ordered to pay $800,000 or in the alternative $400,000 for litigation funding, the wife relied on an exercise of power by way of s 79 and s 80(1)(h) of the Act, and in the alternative, relied on the costs power pursuant to s 117 of the Act. She relied on s 117 of the Act for litigation funding by way of the “dollar-for-dollar” order. There is a long line of authority that provides power to the Court to make a litigation funding order, including on a dollar-for-dollar basis, pursuant to s 117 of the Act (Charisteas & Charisteas (2022) FLC 94-109 at [75]–[77]).
101.As to the exercise of an interim or partial property power pursuant to s 79 and s 80(1)(h), the Full Court in Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 (“Strahan”) identified the principles effectible to interim or partial property orders, and set out effectively two steps being:
(a)First, establishing that s 80(1)(h) is enlivened. The test is not confined to “compelling circumstances”. Subject to the interests of justice, the usual approach in respect of s 79 is a once and for all order (see Swift & Swift [2020] FamCA 991 at [16]). That said, more is required than the mere fact that upon a final hearing the party seeking the order would receive the property sought (Marchant & Marchant (2012) FLC 93-520). The “overarching considering” as to the appropriateness of the exercise of an interim property power by the Court must be answered in the affirmative in the interests of justice; and
(b)Second, the “consideration of the factors which are relevant to the exercise of power under s 79” (at [115]). Given it is an imprecise exercise in the making of these orders, any discretion ought be:
(i)Conservative so as to ensure the final property outcome is not compromised;
(ii)The remaining property is sufficient to meet the legitimate expectation of both parties at the final hearing; and
(iii)The interim or partial order is capable of being reversed or adjusted if it is subsequently considered necessary to do so.
102.The Full Court in Medlow & Medlow (2016) FLC 93-692 reinforced that a cautious approach should be adopted by primary judges in exercising an interim property power that have a real prospect of depleting the property of the parties. That said, as was explained by the Full Court in Strahan, s 80(1)(h) is a wide-enabling provision for interim property decisions.
103.Before an order as to costs can be made, the Court must be satisfied that the order is, in the circumstances, just (s 117(2) of the Act). Until that point, there is no power to make an order departing from the general rule that each party pays their own costs (s 117(1)). Once enlivened, the discretion to make an order as to costs is governed by the considerations contained in s 117(2A) of the Act. There is no authority that contends that more than one of the factors in s 117(2A) need be present. Indeed, any one factor may be determinative.
104.In Salvage & Fosse (2020) FLC 93-966, the Full Court identified that litigation funding orders have a long history and are made to alleviate the obvious unfairness of a party with control of the assets being able to marshal them to pay lawyers, leaving the other party to attempt to pursue the proceedings without being able to resort to property that might subsequently be transferred to them. That said, each application must be looked at according to its own particular facts and circumstances.
105.The principles relevant to the making of a litigation funding order were identified by the Full Court in Zschokke and Zschokke (1996) FLC 92-693 (“Zschokke”), regardless of “whether the matter was determined as an interim property settlement order under s 80(1)(h), or as an interim costs (or security for costs) order under s 117(2), or indeed even a maintenance order” (at 83,217), being:
(a)A position of relative strength on the part of the respondent;
(b)A capacity on the part of the respondent to meet his or her own legal costs; and
(c)An inability on the part of the applicant to meet his or her legal costs.
106.The Full Court in Zschokke also identified that it may well be necessary for the Court to have regard to whether, in the circumstances of the particular case, it will be possible to take into account in the final proceedings any sum that might be payable under an order grounded from s 117 of the Act (at 83,217).
107.In Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 (“Paris King Investments”), Brereton J said at [30]–[32] that in addition to the above three matters, the following are relevant for the purposes of a litigation funding order:
•An applicant should have “at least an arguable case for substantive relief which deserves to be heard”.
•There should be evidence of the applicant’s likely costs of the litigation.
•It is not essential that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis.
•An order may make provision for litigation expenses at a rate that appears reasonable in all the circumstances.
•An order can be for costs already incurred as well as for future costs and such matters as well as the question of whether the applicant’s lawyers will continue to act in the absence of a litigation costs order may be relevant to the discretion to make an order and the quantum thereof.
•Any such order should be framed to protect the parties from risk of injustice which could be done by requiring the funds to be administered by the applicant’s solicitors and applied only to meet the expenses referred to in the order.
108.While the exercise of the costs power carries with it a very broad discretion, that discretion must be exercised carefully for the purposes of litigation funding. An order must be framed to protect the parties from any risk of injustice arising from the way the funds are expended.
I take account of those principles in adjudicating this present dispute. In the circumstances, I am satisfied that it is appropriate to characterise the payment that I propose to order as a partial property settlement.
The husband resists any payment of litigation funding to the wife. He argued it would be wasteful, and if he is compelled to liquidate shares in H Pty Ltd to make the payment, it would generate liabilities for capital gains tax. I am satisfied the wife has demonstrated a basis for the amount she claims as litigation funding. In light of the substantial property pool, even on a cautious approach, there is little risk that the partial property order would not be capable of being reversed or adjusted, that the final property outcome will in any way be compromised, or the remaining property would not be sufficient to meet the legitimate expectations of both parties at final hearing. There was no dispute that the wife has an arguable case on a final basis, and I am not persuaded any injustice would result from an order in the amount proposed by the wife.
The matters posited by the husband in resistance to the order are not convincing, in my view. There was no dispute that he himself has brought about the sale of H Pty Ltd shares to a total value of $2,865,303 in early 2024, clearly with any attendant capital gains tax liability. In any event, the husband may choose to fund the liability by any available means. The Court will not require him to sell H Pty Ltd shares to do so. The Court needs only to be satisfied that the husband has sufficient financial resources to meet the order (Salvage & Fosse (2020) FLC 93‑966; Poletti and Poletti (1990) 15 Fam LR 794; and Bing and Bing (2007) FLC 93-318 (“Bing and Bing”)). In Bing and Bing the Full Court observed:
23. … If it is apparent that one of the parties controls a vast pool of assets (irrespective of whether those assets are readily capable of liquidation), then the Court has a broad enough discretion to enable an order to be made for the provision of funds by the holder of those assets to enable the other party to continue on with litigation.
I am satisfied that observation is apt for the present circumstances.
Accordingly, I propose to make an order for litigation funding as sought by the wife but characterised as partial property settlement. I make the orders as set out at the commencement of these reasons.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Ex Tempore Reasons for Judgment of the Honourable Justice Harper delivered on 19 April 2024. Associate:
Dated: 30 May 2024
SCHEDULE OF PARTIES
SYC 2724 of 2021 Respondents
Fourth Respondent:
D PTY LTD ATF D SUPERANNUATION FUND
Fifth Respondent:
G PTY LTD
Sixth Respondent:
G PTY LTD ATF G UNIT TRUST
Seventh Respondent:
H PTY LTD
Eighth Respondent:
O PTY LTD
Ninth Respondent:
O PTY LTD ATF SUPERANNUATION FUND 1
Tenth Respondent:
L COMPANY
0
4
2