Cirillo & Cirillo (No. 3)
[2021] FamCA 572
•9 August 2021
FAMILY COURT OF AUSTRALIA
Cirillo & Cirillo (No. 3) [2021] FamCA 572
File number(s): SYC 4192 of 2020 Judgment of: HARPER J Date of judgment: 9 August 2021 Catchwords: FAMILY LAW – INTERIM SPOUSAL MAINTENANCE AND LITIGATION FUNDING – Where enormous property pool and financial resources – Where husband concedes wife’s entitlement to partial property settlement and litigation – Where husband contends assets subject to debt financing arrangements which prevent payment to the wife at present – where evidence that husband has access to significant financial resources in Australia and Country H application granted. Legislation: Family Law Act 1975 (Cth) ss 79 and 117 Cases cited: Bing & Bing (2007) FLC 93-318
Strahan & Strahan (interim property orders) (2011) FLC 93-466
Number of paragraphs: 35 Date of hearing: 28 May 2021 Place: Sydney Counsel for the Applicant: Mr Campton SC Solicitor for the Applicant: Marsdens Law Group Counsel for the Respondents: Mr Todd Solicitor for the Respondents: Boyce Family Law & Mediation ORDERS
SYC 4192 of 2020 BETWEEN: MS CIRILLO
Applicant
AND: MR CIRILLO
First Respondent
MR BIRD
Second Respondent
MR TOBLER
Third Respondent
ORDER MADE BY:
HARPER J
DATE OF ORDER:
9 AUGUST 2021
THE COURT ORDERS THAT:
1.That within Twenty-One (21) days from the date of these Orders:
(a)Pursuant to Section 79 and Section 80(1) of the Family Law Act 1975 (Cth), and pending further order, the Husband pay or cause to be paid to the Wife a sum of $1,000,000.00 by way of partial property settlement; and
(b)Pursuant to Section 117 of the Family Law Act 1975 (Cth), the Husband pay or cause to be paid a sum of $500,000.00 into the trust account of the solicitors for the Wife, to be applied to her legal costs and disbursements in connection with these proceedings.
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 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Cirillo & Cirillo has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HARPER J:
These are property settlement proceedings after a final separation between the parties on 22 June 2020 after 45 years of marriage.
Ms Cirillo is the Applicant Wife (“the wife”). She is currently 69 years old. Mr Cirillo is the Respondent Husband (“the husband”). He is currently 74 years old.
According to the Wife’s Further Amended Initiating Application filed 6 November 2020 and the Husband’s Amended Response filed 7 January 2021, it is common ground that the parties agree on an equal division of the property pool. There is however a dispute about which party should retain RR Street, Suburb P in Sydney currently occupied by the Wife.
The wife filed an Application in a Case on 23 December 2020. The issues listed before me on 28 May 2021 were that part of the wife’s application seeking spouse maintenance, partial property settlement or litigation funding and a dollar for dollar costs order in the alternative. Other aspects of the wife’s application in a case for injunctive relief were heard and determined in a separate hearing before Altobelli J.
The wife seeks a total of $1,500,000. By way of an interim property order or lump sum spousal maintenance she seeks a payment of one million dollars ($1,000,000) and litigation funding of $500,000. Her alternate position is a dollar for dollar costs order, in the sense that she seeks a payment of three dollars for every dollar paid by the husband in legal fees.
The application is somewhat unusual in that there was no dispute that the available asset pool is enormous, anywhere from $80 to $144 million. This includes Suburb P in Sydney worth between $17,500,000 and $20,000,000 subject to a mortgage of about $2,000,000.
The husband conceded that there was no basis in principle or in the evidence to deny the wife’s application except that because of complicated financing arrangements, which I will describe in more detail later in these reasons, he was presently unable to pay the amounts sought by the wife.
On 25 January 2021 Registrar Ryan ordered the husband to file and serve a response within 21 days to the Amended Application in a Case. He did not. On 22 February 2021, Registrar Ryan recorded the wife’s Application in a Case filed 23 December 2020 had been listed for hearing on 28 May 2021 and extended the time for the husband to file a response to a further seven days. The husband did not comply with this direction. On 23 February 2021, Registrar Ryan again recorded the issues listed on 28 May 2021, being the partial property or litigation funding, identified that the wife relied on the affidavit from 23 December 2020 and directed the husband to file a response and affidavit by 2 March 2021, I note the orders say 2 March 2020 but that this was an error. The husband served an affidavit running to 148 paragraphs on 26 May 2021 two days before the hearing. The husband was not present in Court on 28 May 2021. I granted him leave to attend by telephone. I was told that he was actually in SS Town, Western Australia, at a resort convalescing from the stresses of litigation conducted in the Supreme Court of NSW. The wife objected to the husband being given leave to rely on this affidavit.
I refused leave. The husband was limited to relying on tendered documents. The husband gave no explanation in his affidavit of why his affidavit was filed so late. From the bar table I was told the stress of litigation in the Supreme Court of NSW had distracted him. This constituted no satisfactory explanation. I infer from this that the husband was capable of giving serious and proper attention to proceedings in the Supreme Court of NSW but chose not to do so in this Court. Furthermore, the husband consistently failed to comply with directions to file his material prior to the interim hearing. His approach to the wife’s Application suggested indifference.
According to the wife’s evidence, the husband controls all of the income earning property within Australia and outside Australia, and all of the marital assets, apart from the Suburb P property, where the wife currently resides, which is jointly owned. She claims, which I accept, that as between the husband and the wife, he controls the money, information, and documents. These contentions were not in dispute.
She contends the husband’s disclosure in these proceedings has been neither timely nor complete, at least so far.
It was accepted that the husband’s financial statement was inaccurate.
There was no dispute that the largest part of the parties’ wealth was held in several trusts. One is called the D Trust. This is what is commonly called a non-exhaustive discretionary trust. The husband is the sole shareholder and director of the present trustee, B Pty Ltd, and he is the appointer under the trust instrument establishing the D Trust. B Pty Ltd as trustee of the D Trust owns a four very valuable and profitable commercial properties, namely, LL Property which on 6 October 2020 was valued at $65,300,000, the MM Property valued at $32.3 million, the PP Property valued at $10,600,000.00, all in New South Wales, and the QQ Property in South Australia valued at $500,000. The total value of these assets is $108,700,000.
It was uncontroversial that as at April of 2021, the husband held as an asset, a loan account of $20,113,785 with the D Trust.
The other trust is D Investment Trust of which B Properties Pty Ltd is the trustee. This trust owns numerous properties located in Country H with a value said by the wife to be $40,000,000.
Outside the D Trust and D Property Trust, another trust called the Cirillo Family Trust (No. 2) operates F Pty Ltd in South Australia. The trustee is F Pty Ltd. The evidence showed that this trust has been the source of at least $50,000 for the husband’s personal legal fees and an aggregate amount of $180,000 paid between 22 June 2020, the date of separation, and 26 August 2020, into the husband’s NAB Classic Banking Account (BSB: … Account Number: …04).
According to the evidence of the wife, which the husband did not contest at the hearing before me, the husband himself owns numerous properties in Country H which in total have a value of approximately $15,000,000.
The wife relied on evidence which showed the husband has received into his personal accounts in the 2021 calendar year, and as at May 2021 some $900,000. There was no dispute he had sent $400,000 to Country H in the period February to May 2021. He acquired a motor vehicle 1 for approximately $500,000 in February 2021. Between 1 December 2020 and 21 May 2021, $920,929 had been paid in legal fees to the husband’s solicitors in the Supreme Court proceedings. In these proceedings the husband has paid legal fees of $23,404, there are unpaid fees of $215,654 and work in progress of $43,178.
The husband argued that although he accepted the wife had established an entitlement to the money she sought, he was unable to make any payment at present because the assets of the D Trust were subject to a restrictive financing agreement. This was entered into in December 2020 or January 2021 with G Pty Ltd ACN … as trustee for the G Trust (“G Pty Ltd”). It was a complex refinance. There was an Amendment and Restatement Deed and a Secured Loan Facility Agreement, by which G Pty Ltd provided finance up to a limit up to $53,600,000 to B Pty Ltd as borrower. It is unnecessary to analyse the terms of this finance arrangement in much detail. The primary repayment obligation is set out in clause 6.2 and importantly clause 6.2(a)(ii) requires B Pty Ltd as borrower to repay “the Principal Outstanding in an amount equal to…at the end of each calendar month or whenever required by [G Pty Ltd], all Surplus Cash Flow” which broadly speaking means profit.
Clause 12.3(e) requires the B Pty Ltd to notify G Pty Ltd as soon as it becomes aware of “any litigation, arbitration, administration or other proceeding in respect of it or any of its assets being commenced or threatened which is either: (i) in excess of $500,000; or (ii) if adversely determined would have or be likely to have a Material Adverse Effect”. The definition of Material Adverse Effect includes an effect which adversely effects B Pty Ltd’ ability to perform any of its obligations under the finance facility. It is relevant to note here that these proceedings were commenced before the finance arrangement was entered into, so it is reasonable to infer G Pty Ltd knew about this litigation before clause 12.3 was entered into and the wife argues this litigation does not fall within clause 12.3.
The husband relied in particular on clauses 12.15, 12.16 and 12.17. In his Case Outline, he summarised the effect of those clauses, correctly in my view, as follows:
3. Under clause 12.15 of the Refinance Agreement, B Pty Ltd and the Husband cannot dispose of any assets or make any transactions with any person unless it is on terms that are no less favourable than arm's length terms.
4. Furthermore, under clause 12.16 of the Refinance Agreement, B Pty Ltd is under an obligation to pay all revenue that it earns from the operation of the commercial properties in Sydney into a dedicated account (that G Pty Ltd can monitor) and can only withdraw funds from that account to pay direct operating expenses or other expenses as approved by G Pty Ltd.
5. Under clause 12.17 of the Refinance Agreement, B Pty Ltd ATF the D Trust is under an obligation not to make any distributions from the D Trust unless those distributions are reasonable (and no more or less favourable than if the payment was an arm's length transaction) and are paid with G Pty Ltd's prior written consent.
It is also important to note that by clause 12.23 B Pty Ltd is required to provide by 31 January 2021 a programme for the sale of the assets of LL Property. The evidence of the wife showed that the sale price for LL Property is likely to be in the vicinity of $78,000,000.
The husband argued the D Trust had traditionally the source of funds for him and the wife but by reason of the agreements with G Pty Ltd the trust assets could not be availed of to meet the payments sought by the wife, at least until the sale of LL Property, when it was common ground funds in excess of $20,000,000 would be available to satisfy the interim claims of the wife. The husband argued that his hands were, in effect, tied by the G Pty Ltd finance arrangements, and the wife’s arguments did not take account of a number of liabilities. The husband also pointed to evidence that the payment for the motor vehicle 1was made by loan funds.
The Full Court in Bing & Bing (2007) FLC 93-318; [2007] FamCA 418 held that where one party controls the vast pool of assets questions regarding the potential source of the funds to satisfy an interim property order is not an impediment to such an order being made. The Full Court said at 81,478:
...The mere assertion that there are no immediately available funds to provide to the applicant to enable him or her to continue on with the proceedings cannot simply be accepted at face value. 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.
...
Finally it has been asserted that the husband was and remains unable to raise the capital sum sought by the wife. This is a matter which may become relevant if and when the husband defaults in the order and an enforcement application is brought. However, the question of enforcement of the order remains a separate question from the propriety of granting the order in the first place.
I do not accept the husband’s reasons to deny making now the wife’s orders for partial property adjustment. The husband accepts the wife should receive half the marital assets. On an interim basis, and taking a broad brush approach to the evidence of the parties’ financial positions, I am persuaded the husband has access to extensive financial resources, quite apart from the assets of the D Trust, and he has capacity to meet a payment of $1,000,000 in circumstances where it is accepted the wife needs money to continue to live her life with dignity. I also accept the wife’s argument that the impediments to using the assets of the D Trust to which the husband points as reasons not to pay the wife now, have not, on the evidence, prevented him from having access to those assets to pay his own legal fees, for example, without causing a default in the financing arrangements with G Pty Ltd. At the date of this judgment, the sale of LL Property should be well advanced and close to settlement. In light of these conclusions and the likely arrival in the near future of approximately $20,000,000 of the surplus proceeds from the sale of LL Property, having considered the submissions of the husband carefully, I reject his arguments and will make orders as sought by the wife for partial property adjustment in the amount of $1,000,000. It is unnecessary to identify a particular source of these funds in light of the evidence of the husband’s extensive resources. I am satisfied the husband should make this payment within 21 days.
I note that the husband by the end of the hearing proposed orders that the parties be required to take all necessary steps to raise $1,000,000 by extending the mortgage secured against the Suburb P home with $500,000 to be paid to each of the wife and husband. The wife did not find this proposal attractive.
Counsel for the husband correctly drew attention the issue of the appropriate head of power under which to make an order for litigation funding. As noted, the wife seeks $500,000.
In Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 (‘Paris King Investments’) at [30] Brereton J referred to there being at least three requirements if an interim order for litigation expenses is to be made as an interim costs order under section 117(2), namely;
(1) a position of relative financial strength on the part of the respondent;
(2) a capacity on the part of the respondent to meet his or her own litigation costs;
(3) an inability on the part of the applicant to meet his or her litigation costs.
In Strahan & Strahan (interim property orders) (2011) FLC 93-466; [2011] FamCAFC 126 (“Strahan & Strahan”) when discussing the source of jurisdiction, Boland and O’Ryan JJ said at 85,632:
In Paris King Investments Brereton J, with whom on this point we agree, at [30] said that [Zschokke & Zschokke [1996] FamCA 79; (1996) FLC 92-693] ‘establishes that it is important, when contemplating an order for interim provision for litigation expenses, to identify the relevant source of power because it is the source of power that determines the necessary preconditions and relevant considerations for making the order’.
In Strahan & Strahan at 85,633 the Court also said “If the source of jurisdiction is s 117(2) of the Act then the court may make such order as it considers just provided there are justifying circumstances.”
I am satisfied on the evidence discussed earlier in these reasons that the husband holds a position of financial strength, has the capacity to meet his own litigation costs while the wife has very limited ability to meet her own litigation costs. In my view, there are plainly justifying circumstances for the exercise of discretion under s 117(2) to make a lump sum order for litigation funding in favour of the wife.
The deficiencies in the husband’s disclosure and the admitted inaccuracies in his financial statement reinforce this conclusion.
Consequently, it is not necessary to consider a dollar for dollar costs order.
I note here that the husband fully accepted that the wife was entitled to payment of a lump sum for litigation funding under s 79 of the Family Law Act 1975 (Cth) (“the Act”). If it had been necessary, I would have made an order for litigation funding pursuant to s 79 of the Act.
I will order the husband to pay $500,000 for litigation funding purposes also within 21 days.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Harper. Associate:
Dated: 9 August 2021
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