Burt & Merrill
[2023] FedCFamC1F 1144
•24 February 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Burt & Merrill [2023] FedCFamC1F 1144
File number: MLC 9912 of 2013 Judgment of: MCGUIRE J Date of judgment: 24 February 2023 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Review of a decision - Applicant seeks review of an order by Senior Judicial Registrar dismissing an application for litigation funding against a third party company – Application granted
FAMILY LAW – PRACTICE AND PROCEDURE – Application that the third party company be joined as a third respondent to the proceedings for litigation funding – Application granted
Legislation: Family Law Act 1975 (Cth) ss 74,79, 117(1), 117(2) and 117(2A) Cases cited: Lao & Zeng (2021) FLC 94-053; [2021] FedFamCA1 17
Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
Salvage & Fosse (2020) FLC 93-966; [2020] FamCAFC 144
Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466; [2009] FamCAFC 166
Division: Division 1 First Instance Number of paragraphs: 30 Date of hearing: 23 February 2023 Place: Melbourne Counsel for the Applicant: Mr Indovino Solicitor for the Applicant: Vasilaras & Co Counsel for the Respondents: Mr Eley Solicitor for the Respondents: McKean Park Lawyers Solicitor for the Respondents: Serong Legal ORDERS
MLC 9912 of 2013 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR BURT
Applicant
AND: MS MERRILL
First Respondent
MR COUPE AS TRUSTEE OF THE BANKRUPT ESTATE OF MS MERRILL
Second Respondent
C PTY LTD (IN LIQUIDATION)
Third Respondent
ORDER MADE BY:
MCGUIRE J
DATE OF ORDER:
24 FEBRUARY 2023
THE COURT ORDERS THAT:
1.Within seven (7) days of the date of these orders the third respondent pay to the solicitors for the applicant the sum of fifty four thousand one hundred dollars ($54,100) such to be placed in trust and ultimately accounted to the applicant for fees and disbursements properly incurred.
2.The applicant Mr Burt have leave to bring an application for litigation funding pursuant to s 117 of the Family Law Act1975 (Cth) as against the third respondent company in liquidation C Pty Ltd (In Liquidation).
3.Costs of any or all of the parties of and incidental to this application be noted and reserved for determination by the trial judge.
4.By close of business Tuesday 28 February 2023 the applicant make file and serve an amended application to join C Pty Ltd (In Liquidation) as a third respondent to the substantive proceedings.
5.Not later than fourteen (14) days from the date of these orders the applicant and second respondent provide copies of any process including any applications, responses and affidavits filed by that party in these proceedings to the prospective third party liquidator.
NOTATION
6.Leave is given for the prospective third respondent, C Pty Ltd (In Liquidation), to not attend or participate in the s 90SN proceedings currently before this Court commencing final hearing on 28 February 2023 in the Federal Circuit & Family Court of Australia at Melbourne before Justice McGuire.
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).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish 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 of Burt & Merrill has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
McGUIRE J:
APPLICATIONS
I have before me an Application for Review of a Decision of a Senior Judicial Registrar of 24 January 2023 dismissing an application of Mr Burt (“the applicant”) made 14 December 2022 seeking orders, firstly, for interim spousal maintenance of $1,500 per week and litigation funding of $157,350 against an entity C Pty Ltd (In Liquidation).
It seems that the spousal maintenance element of the application was not prosecuted, and the Senior Judicial Registrar dismissed the Application for Litigation Funding, and hence the Application for Review now before me. Although the Review Application, again, seeks an order for spousal maintenance, this was not prosecuted before me. The Application for Litigation Funding remains live. It is trite to observe that such a Review Application comes before me as a hearing de novo. The background of this application is somewhat convoluted and complicated, and I will try to summarise it for these reasons as succinctly as I can.
BACKGROUND
The applicant is 71 years of age. He is a retired professional. He currently receives an age pension. The first respondent, Ms Merrill[1], is 54 years of age. She is an undischarged bankrupt, and her trustee in bankruptcy stands in her shoes in this application and in the substantive proceedings, with the first respondent taking no active role as yet. The second respondent is, therefore, noted as Mr Coupe as trustee. There is technically a third respondent but, at this stage, limited, on my understanding, to this discrete interlocutory application. The first respondent is the sole director of a company, C Pty Ltd (In Liquidation).[2] C Pty Ltd has assets consisting primarily of real property which is tenanted.
[1] “The first respondent”.
[2] “C Pty Ltd” also know as “the Company” or “the third respondent”.
The gross value of that real property is estimated at some $4.7 million. It has varying cash accruals from rentals of $17,000 per month, which are its only source of income. Those accruals currently sit at an estimated $75,000. It is common ground that C Pty Ltd was placed into liquidation in respect of a government land tax debt of some $26,000. The Australian Taxation Office is currently owed $246,000 but with taxation returns and assessments outstanding from at least as far back as 2017. Mr PQ, chartered accountant and registered liquidator, is appointed as liquidator for C Pty Ltd. Mr PQ has, I understand, previously made application to the Supreme Court of Victoria seeking assertive orders in respect of his management of C Pty Ltd and, in particular, to be able to sell real property to satisfy creditors, where I understand the applicant has placed caveats on such real property, to secure a claimed interest under the Family Law Act 1975 (Cth).
It followed, not surprisingly, that an associate judge of the Supreme Court of Victoria transferred those proceedings to this Court to be consolidated with the extant property proceedings being litigated in this Court. On 14 November 2013, the first respondent commenced proceedings in this Court for a property settlement pursuant to section 90SM of the Family Law Act 1975 (Cth) where the primary parties had lived in a de facto relationship. My colleague Berman J made final property orders on 10 August 2018. On 7 September 2018, the applicant lodged an appeal whereupon Berman J made an order on 27 September 2018 staying the execution of the property orders.
On 3 September 2019, the appeal was withdrawn with a right of reinstatement pending an anticipated application by the applicant to have the orders set aside under section 90SN of the Family Law Act 1975 (Cth). The applicant filed an application to set aside the final property orders on 19 September 2019, such application since amended on at least two separate occasions. It is applicant’s application under section 90SN to set aside the property orders which I am now seized of and which I have listed for trial before me next week, such being listed, on my recollection, from July 2022 with an estimated hearing time of two days and, as I said, to commence on 28 February 2023.
On 14 December 2022, the applicant first filed his Application for Litigation Funding. A Senior Judical Registrar heard and determined that application on 24 January 2023. The Application for Review was filed 7 February 2023 and came on for hearing before me yesterday, being 23 February 2023. It is not disputed that the Court has the power to make anticipatory orders requiring one party to provide another party with funds to conduct the litigation[3] where these Courts have long recognised it as often an uneven control of wealth or assets pending final resolution of property proceedings that brings the parties before these Courts.
[3] Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466; [2009] FamCAFC 166.
It is necessary for the Court to identify the source of power in making any order where options are available, including sections 74 and 79 of the Family Law Act 1975 (Cth) and their de facto legislation equivalents. In this case, the argument is properly, in my view, mounted utilising the costs provisions of section 117 of the Act, which, of course, provides a general rule, at subsection (1), that each party to the litigation in these Courts pays its own legal costs, but where that general rule is subject to a discretion enlivened in the Court at subsection (2), for the Court to make an award of costs to a party if there are justifying circumstances.
It is well established that the term “justifying circumstances” is not to be read as synonymous with “extraordinary circumstances.” Further, it is firmly understood that subsection (1) of section 117 is not paramount to subsection (2) and that the former must yield to the latter should there be such justifying circumstances.[4] In determining whether there are justifying circumstances and whether the broad discretion available to the Court is to be exercised, the Court is to reference each of the factors under section 117(2A). Although in an application such as this, for litigation funding, it might be the case that not every one of those factors is considered relevant.
[4] Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
It is also well established that a litigation funding order can be made against a third party, as is the case here and on the authority of Lao & Zeng.[5] It is opportune, at this point, to note that the status of the third respondent, C Pty Ltd, against whom the order is sought is, as I have said, limited from the transfer of proceedings from the Supreme Court of Victoria and limited, at this stage, to this discrete application. Where I accept that leave is required to bring an application against the third party, with reference to the corporations legislation, and where, on an oral application, yesterday, that leave was granted, whilst not by consent, it was not actively opposed in the circumstances, and was quite a proper position to be taken by the third respondent, I respectfully suggest.
[5] (2021) FLC 94-053; [2021] FedFamCA1 17.
Following the transfer from the Supreme Court, the matter came before me for mention where, it is fair to say, there was an understanding that the third respondent was not a keen participant in the section 90SN substantive proceedings, and as such, it followed that the third respondent was joined only discretely and conditionally in respect of this discrete application, as I have said. Nevertheless, the third respondent accepts the jurisdiction of this Court in respect of this discrete interlocutory application where it remains, in my view, the responsibility of the applicant to make application, as previously ordered, for joinder of the third respondent, C Pty Ltd, where that entity has indicated no interest in participating in the section 90SN application still listed for trial next week.
Sufficient authority assists me in isolating the matters to be addressed in determining an application for litigation funding, including but not limited to the following:
(1)the ability of the applicant to meet his own litigation costs;
(2)the ability of the applicant to source alternative finance for litigation;
(3)the ability of the relevant respondent or respondents to contribute to the applicant’s litigation costs;
(4)the complexity of the proceedings;
(5)the stage that the proceedings have reached when the application is brought, including:
(a)the proximity to trial;
(b)the timeliness or delay in bringing the application;
(c)whether the making of an order would bring delay upon the trial with consequent prejudice to any other parties; and
(d)any prejudice to the respondents, generally, who, of course, must also be accorded procedural fairness and justice in any balancing of such matters where prejudice is claimed by the applicant;
(6)the prima facie merits of the substantive case; and
(7)the nature and extent of the property pool and whether any such order can be attended to without bringing prejudice to a respondent in the sense that the substantive orders might eventually cover any advances made by way of litigation funding.
Counsel for the applicant helpfully referred me to a recent relevant decision of Salvage & Fosse[6] which restates and consolidates the relevant principles that I have listed above. The applicant’s case, as I understand it, is that he relies on his own affidavit sworn 12 December 2022 and an affidavit of his solicitor on the record, Mr IJ, sworn 19 January 2023. The applicant and Mr IJ were both made available for cross-examination by counsel for the second and third respondents. The applicant also relied upon his sworn financial statement of 12 December 2022. Importantly, the applicant came to this Court seeking litigation funding in the quantum of $157,300. He takes this amount from the affidavit of Mr IJ, who particularises the outstanding and anticipated costs of the forthcoming section 90SN trial at that amount, at paragraph 13 of his affidavit.
[6] (2020) FLC 93-966; [2020] FamCAFC 144.
Those anticipated costs are, again, helpfully particularised and separated in respect of solicitors’ costs, senior counsel’s costs, junior counsel’s costs, and disbursements outstanding and disbursements anticipated. The applicant’s affidavit exhibits a purported costs agreement provided by Mr IJ. That document is unsigned and undated. Indeed, at one point, it carries the name of a person not involved in these proceedings. It is neither probative nor of evidentiary value where I am not persuaded that even a signed document was returned to the solicitor. I can only agree with Mr IJ’s mea culpa from the witness box that it was “sloppy in the extreme” to exhibit such a document to his client’s affidavit.
In any event, both the applicant and Mr IJ deposed that the applicant’s instructions in respect of the substantive family law proceedings were made no later than August 2022 and probably in July of that year. It is clear that Mr IJ accepted the instructions from the applicant as a client and actively assisted him and, on the balance of probabilities, did so being aware of the applicant’s precarious financial circumstances. The Court file corroborates some considerable activity in respect of this matter since mid-2022 where, again, from July 2022 I had listed this matter for trial on 28 February 2023. The applicant and Mr IJ agree that, in December 2022, Mr IJ advised his client that he could no longer cover his costs in a form of being on spec but, required deposits into his trust account in advance to cover his fees and disbursements.
I pause to note that this is an entirely proper and not unusual practice for Mr IJ to have adopted. Not surprisingly, the applicant was unable to make payments to his solicitor or to commit to such payments, and hence the Application firstly before the Senior Judicial Registrar and now before me for litigation funding. The applicant’s unchallenged evidence is that he is an aged pensioner with an income supplement of some $500 per week from a company, called QR Pty Ltd. He deposes to a deficit, therefore, on my calculations, of some considerable amount on his outgoings from his income weekly.
The applicant’s available assets are negligible. He lives in a property the subject of contingent orders from Berman J where, again, on my understanding, the property was to be transferred to the applicant upon a cash adjustment by the applicant to the first respondent, or now to the second respondent, of some $640,000. Neither transaction or settlement has occurred pending the application before me and by reason of the stay of the orders made by Berman J, although I do not know the status of the stay of those orders given that an appeal was lodged, and the appeal was withdrawn, but that is not a matter to concern me today.
The applicant was cross-examined extensively as to alternative sources of finances. It is clear that he has paid or funded some $600,000, or perhaps more, of total legal costs to date of $1.5 million. I am unsure as to whether that amount relates solely to family law proceedings, but it matters little. The source of those funds was, not surprisingly, of some interest to the respondents. The applicant named a number of his benefactors. He refused to name others for reasons that escape me. I am able to find that his source of funds remains available by reason of his answer volunteered in cross-examination, “If they say no, then that’s the end of it,” which I interpret unambiguously to mean that the tap is still running, at least at this stage.
Significantly, and not really tested in cross-examination, was the applicant’s evidence on more than one occasion that the largess of his benefactors is for counsel and disbursements only. Why such a condition is placed on his funds is unknown and not for me to inquire, but as I say, without specific cross-examination as to this response, I accept what the applicant says. The case for the third respondent rests with the affidavit of Mr PQ, the liquidator of C Pty Ltd. Mr PQ was cross-examined by counsel for the applicant. He confirmed the following:
(1)that the Company was placed in litigation by an unpaid land tax debt of $26,000;
(2)that there is a current debt to the Australian Taxation Office of $246,000;
(3)that there are contingent further liabilities to the Australian Taxation Office from taxation returns and assessments to be completed from as long ago of at least 2017;
(4)that the Company has assets in the form of real property at a value of approximately $4.7 million;
(5)that the Company receives gross income of approximately $17,000 per month from rentals and that this is the sole source of income for the Company;
(6)that the current bank account balance of the Company is approximately $75,000, but where such balance has varied from $130 to around $97,000 where it is clear that gross income exceeds outgoings for water, rates, land tax and the like, but where I accept Mr PQ’s evidence that there are, on occasions, unexpected expenses for maintenance and the like for the properties;
(7)that his inquiries of the Australian Taxation Office have failed to confirm the first respondent’s evidence to the Court, at the original trial before Berman J, of a debt to the Taxation Office of $2.5 million where at least a part of this debt is understood to be attributable to C Pty Ltd; and
(8)that Mr PQ has ongoing fees and expenses in the management of the estate and where he could, potentially, be personally liable in some respects and that he has to complete a reconstruction of the financials for the company over a number of years before the financial position of the company is certain and crystallised, and I infer from that evidence of Mr PQ that he does not always receive the necessary assistance from the first respondent.
They are the cases for the parties. The second respondent trustee in bankruptcy, effectively, supports the opposition to the litigation funding argued by the third respondent. On the evidence, I am able to find that the subject matter of these proceedings, the substantive application, is complex and such that would ordinarily be assisted by the parties being represented by solicitors and counsel. I am not persuaded that the applicant, although a qualified professional, is reasonably able to conduct the litigation in person. I note his retired status, his age and his various medical conditions. On his own evidence, I am satisfied that the applicant has had the benefit of largess from various family members and friends.
That same evidence satisfies me, on the balance of probabilities, that those benefits remain open, if only by his own voluntary statement from the witness box, which I have quoted previously in these reasons, but it is worthy of re-mentioning: “If they say no, then that is the end of it.” I am satisfied that his source of funds is limited to the paying of counsel and disbursements. Again, this was his evidence repeated in the witness box and effectively unchallenged. Whilst given without further explanation, again, I do not consider it my position to inquire behind as to the rationale of such statement, and in those circumstances, I accept this as a condition that applies to the provisions of sources of such funds which are available to him.
I generally accept the evidence of Mr IJ as to the background of this application and his requirement for payment in advance of fees and disbursements. That is, he was instructed in about August 2022 and by December of that year it became apparent that the matter was complex, that the applicant was personally impecunious and that costs had been incurred, and further costs and fees were anticipated. I accept Mr IJ’s evidence that the fees incurred and anticipated costs for the two day hearing listed next week are reasonably set out in his affidavit material. Significantly, however, on the evidence, the applicant has and intends to continue to meet counsel’s fees and disbursements from other sources available to him.
That was his clear and unambiguous evidence, and it follows, on my calculations, therefore, and utilising Mr IJ’s own evidence that only the solicitors’ costs are relevant now to future litigation funding, which are reasonably estimated at $34,850 with outstanding solicitors’ fees of $19,250, giving a total of $54,100. The financial position of the third respondent as the anticipated source of the litigation funding is also relevant. I accept that the liquidator has responsibilities under the Corporations Act and in respect of his appointment; however, I also note, generally, the effect of the 2005 amendments to the Family Law Act 1975 (Cth) in respect of this Court’s options in relation to bankrupt persons or companies in liquidation.
I accept that there is a current bank account balance of approximately $75,000. I find that, generally, the income of the company exceeds the consistent outgoings, hence the accrual of $75,000, but I also accept that there are occasional additional expenses incurred. I accept the current undertaking of the company’s financial position as there being creditors of some $266,000 plus interest and perhaps penalties, but where the value of the property assets might be as much as $4.7 million. I also accept that it is very much a part of the liquidator’s function to be cautious, professionally and actually, and to be mindful of the need to be able to satisfy any and all of the creditors of the company.
I am generally satisfied however, at the present time, that the third respondent has funds available to meet a contribution to the claim for litigation funding, albeit not in the amount of $157,000 as it was originally sought in this application. There are other matters at hand that impact on the broad discretion that I carry under section 117 of the Act and with reference to the factors under subsection (2A) of section 117. Firstly, the conduct of the applicant in respect of these proceedings and any delays are matters properly raised by Mr Eley of counsel for the second respondent trustee in bankruptcy. Certainly, I accept that the applicant’s financial position appears to have been precarious since the filing of the substantive application as long ago as 2019, yet he brings the application for litigation funding essentially at the Court door, more particularly in December when the trial is listed in February, and where that trial was listed from a mention as long ago as July 2022.
Again, however, I generally accept the evidence of Mr IJ and the chronology he gives in relation to his professional relationship with the applicant. The question of delay is also relevant in other respects. For instance, an option for this Court is to make an order for litigation funding such to be sourced from the sale of real property, including the property currently occupied by the applicant. On consideration, this will, nevertheless and necessarily, bring an adjournment to allow time for the sale, and most likely, considerable time, and an adjournment of the trial now listed for next week where, in all probability, such trial would not be again listed before the end of this year.
I am satisfied that none of the other factors under section 117(2A) are relevant except to, perhaps, note that none of the parties are in receipt of a grant of legal aid. Taking into account all of the above matters, I conclude that I am satisfied, on the balance of probabilities, that the applicant has made out a case for litigation funding but only in a quantum relevant to his solicitor’s costs and in an amount of $54,100. I am satisfied that the third respondent has the capacity to meet the costs in that quantum, and in circumstances where any adjustments at the trial, whether by reinstatement of Justice Berman’s orders or by further trial, can take place so as to address what is in a sense, but not in this case, can be considered almost as a partial property settlement to be taken into account at another time.
But I stress this is not an order for a partial property settlement. I am satisfied that the third respondent has current capacity to contribute to the applicant’s costs in the quantum of $54,100. In exercising my discretion, I am mindful of the benefit to all of the parties of the trial listed for next week to take place next week, and this places issues of delay and alternative sources of finance, for example, from the sale of property, into context.
There will be an order that within seven days from the date of these orders the third respondent pay to the solicitors for the applicant a sum of $54,100 such to be placed on trust and ultimately accounted to the applicant’s fees and disbursements properly incurred. There will also be an order that the applicant have leave to bring an application for litigation funding pursuant to section 117 of the Family Law Act 1975 (Cth) as against the third respondent company in liquidation.
They are my reasons and orders, but as a postscript, I trust it is self-evident that the rationale for these reasons is, in part, based on the fact that I consider it a given that the trial of this matter will take place next week and I will not look kindly, at this stage, on any adjournment applications.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Ex Tempore Reasons for Judgment of the Honourable Justice McGuire. Associate:
Dated: 2 May 2024
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