Darrow and Malden & Ors (No 2)
[2017] FamCA 660
•28 August 2017
FAMILY COURT OF AUSTRALIA
| DARROW & MALDEN AND ORS (NO. 2) | [2017] FamCA 660 |
| FAMILY LAW – COSTS – JURISDICTION – Where the application was dismissed for want of jurisdiction – Where the proceedings to determine if the Court had jurisdiction were proceedings in the inherent jurisdiction of the Court, not proceedings under the Family Law Act 1975 (Cth) – Where s 117 of the Family Law Act 1975 (Cth) does not apply – Where pursuant to s 79 of the Judiciary Act 1903 (Cth) costs should be determined in accordance with the Civil Procedure Act 2005 (NSW). FAMILY LAW – COSTS – Application by the respondents for indemnity costs – Wholly unsuccessful – Where the proceedings should never have been brought in the Family Court – Disregard of clearly established law – Second, third and fourth respondents entitled to indemnity costs – First respondent entitled to indemnity costs up until the date that the issue of jurisdiction was raised – Whether applicant and first respondent’s legal advisers should be ordered to pay some or all of the costs – Orders made for further submissions. |
Civil Procedure Act 2005 (NSW) s 98
Corporations Act 2001 (Cth) s 471B, Part VIIIAB
| Family Law Act 1975 (Cth) s 117 | |
| Chapman v Luminis Pty Ltd [2003] FCAFC 162 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 ReThe Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622 | |
| APPLICANT: | Ms Darrow |
| FIRST RESPONDENT: | Mr Malden |
| SECOND RESPONDENT: | Australia and New Zealand Banking Group Limited |
| THIRD RESPONDENT: | Mr Quaid and Mr Vincent |
| FOURTH RESPONDENT: | B Pty Ltd |
| FIFTH RESPONDENT: | D Pty Ltd (ABN …) (Deregistered) |
| SIXTH RESPONDENT: | Ms Egan | ||||
| FILE NUMBER: | NCC | 1896 | of | 2015 | |
| DATE DELIVERED: | 28 August 2017 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Rees J |
| HEARING DATE: | 14 August 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT AND THE FIFTH AND SIXTH RESPONDENTS: | Ms Nolan |
| SOLICITOR FOR THE APPLICANT AND THE FIFTH AND SIXTH RESPONDENTS: | Legal Minds |
| SOLICITOR FOR THE FIRST RESPONDENT: | Watts McCray |
| COUNSEL FOR THE SECOND RESPONDENT: | Mr Fernon |
| SOLICITOR FOR THE SECOND RESPONDENT: | Kemp Strang Lawyers |
| SOLICITOR FOR THE THIRD AND FOURTH RESPONDENTS: | Wiggins Cheffings Lawyers (no appearance) |
Orders
IT IS ORDERED
That the applicant pay the costs of the second, third and fourth respondents on an indemnity basis.
That the applicant pay the costs of the first respondent, on an indemnity basis, from the date of the filing of the Initiating Application until 29 September 2016.
That further to either or both s 99 of the Civil Procedure Act 2005 (NSW) and the implied power of this Court, the Court orders that:
(a)By 4.00 pm, on 18 September 2017, the solicitors for the applicant, Legal Minds, and the former solicitors for the first respondent, Watts McCray, file and serve by way of exchange an affidavit and any submissions on the question of the costs of these proceedings.
(b)By no later than 1 September 2017, the solicitor for the applicant is to provide a copy of these Orders to:
(i)the former solicitor for the applicant, Ms C; and
(ii)the former solicitor for the first respondent, Mr E.
(c)By 4.00 pm on 18 September 2017, the solicitors referred to in order 3(b)(i) and 3(b)(ii) above file an affidavit and any submissions on the question of the costs of these proceedings.
That the solicitors referred to in orders 3(b)(i) and 3(b)(ii) above have leave to inspect and uplift the court file for the purposes of copying it.
That on or before 6 October 2017, the solicitors referred to in orders 3(a) and 3(b) herein, file and serve any evidence and submissions in reply.
That this matter be listed for mention on 16 October 2017 before the Honourable Justice Rees.
That there be liberty to apply on three days’ notice by way of email to the Associate to the Honourable Justice Rees.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Darrow & Malden & Ors (No 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
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 r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: NCC 1896 of 2015
| Ms Darrow |
Applicant
And
| Mr Malden |
Respondent
REASONS FOR JUDGMENT
On 17 July 2017, judgment was delivered and Orders made in proceedings instituted in the Family Court of Australia (“the Family Court”) by the applicant, Ms Darrow against the first respondent, Mr Malden. The applicant and the first respondent had lived in a de facto relationship which ended in 1993.
At some time, the applicant had borrowed money from the second respondent and the sixth respondent had given a guarantee for that loan.
In 2015, proceedings were instituted in the Supreme Court of New South Wales (“the Supreme Court”) by the second respondent against the applicant and the sixth respondent seeking to recover the money owed.
The first respondent was not a party to the proceedings in the Supreme Court.
After the proceedings in the Supreme Court had been commenced, the applicant filed an Initiating Application in the Family Court. In addition to the applicant and the first respondent, the parties to the proceedings in the Family Court were:
· The second respondent, the Australia and New Zealand Banking Group Limited;
· The third respondents, Mr Quaid and Mr Vincent, who are the liquidators of the fourth respondent;
· The fourth respondent, a company in liquidation which was controlled by the first respondent;
· The fifth respondent, a company controlled by the applicant. The fifth respondent has not participated in the proceedings; and
· The sixth respondent, the applicant’s sister.
The application in the Family Court was dismissed on 17 July 2017 for want of jurisdiction.
All parties (except the fifth and sixth respondents) have made applications for costs. Directions were made for the filing of affidavit material and written submissions and the matter was listed before me on 14 August 2017 for oral argument.
On that day, there was no appearance on behalf of the third and fourth respondents although written submissions had been filed on their behalf by their solicitor.
The applicant’s position was that the first respondent should pay her costs of an Application in a Case filed on his behalf on 20 January 2016 seeking to strike out her application, on an ordinary (not indemnity) basis. Secondly, she sought costs of the Response to her Application in a Case filed on 11 March 2016 on an indemnity basis. Thirdly, she sought costs of and incidental to the Application in a Case filed 10 January 2017 (whereby she sought to have these proceedings dismissed for want of jurisdiction) as incurred from 13 October 2016, on an indemnity basis. Those applications for costs were opposed by the first respondent.
The first respondent sought an order that the applicant pay his costs of the whole proceedings on an indemnity basis.
The second respondent sought an order that its costs be paid by the applicant on an indemnity basis.
The third and fourth respondents seek an order that the applicant pay their costs on an indemnity basis.
There is no issue that the Family Court has power to determine whether it has jurisdiction and that the proceedings which were determined by judgment and orders on 17 July 2017 were validly determined.
There is no issue that the second respondent is entitled to costs. Although no argument was addressed to the issue of whether those costs should be paid on a party and party basis or on an indemnity basis, as sought, that issue will be determined.
However, a number of other issues arise:
· Whether any order for costs should be made;
· If costs are to be considered, what provisions should apply;
· The competing applications of the applicant and the first respondent arising out of allegations as to their conduct of the litigation;
· Who should pay the costs of the second respondent and on what basis;
· Whether the third and fourth respondents are entitled to costs, and on what basis should they be ordered;
· Whether costs should be paid on an indemnity basis.
Having heard the oral arguments on behalf of the applicant, the first respondent and the second respondent, and read the submissions on behalf of the third and fourth respondents, I reserved my decision.
I then raised with the parties present in Court the issue of whether the parties’ respective legal representatives should be personally liable for any costs order visited on his or her client. The possibility exists that any or all of the following could be ordered to pay some or all of the costs of the applicant and the respondent:
· The solicitor who prepared the putative binding financial agreement (“the financial agreement”) and advised the first respondent;
· The solicitor who advised the applicant in relation to the effect of the financial agreement;
· The solicitor for the applicant in the proceedings in the Family Court;
· The solicitor for the first respondent in the proceedings in the Family Court.
Directions were made for the solicitors involved in the preparation and execution of the financial agreement to be notified.
Further directions were made requiring the solicitors in the Family Court proceedings to file affidavit material and written submissions and for the solicitors who were instructed in relation to the financial agreement to file affidavits and written submissions.
That issue has been listed before me for further mention.
I propose to determine what costs, if any, are payable by the applicant and the first respondent. The issue of how those costs should be paid will await further evidence and submissions.
Should any order for costs be made?
Counsel for the applicant submitted that no order should be made. Counsel relied upon a decision of McHugh J in ReThe Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622 in the High Court where his Honour said at 624 to 625:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
(Footnotes omitted)
His Honour was, clearly, not considering a case where the proceedings had been instituted without jurisdiction, as was the case here.
Counsel for the applicant also referred the Court to the decision of the Full Court of the Federal Court in Chapman v Luminis Pty Ltd [2003] FCAFC 162.
Again, their Honours were not there dealing with an application made without jurisdiction.
This is an action in which the applicant could never have succeeded.
It is therefore appropriate to consider whether the costs incurred, unnecessarily, by the respondents should be paid by the applicant.
If costs are to be considered, pursuant to what provisions should they be considered?
Section 117 of the Family Law Act 1975 (Cth) (“the Family Law Act”) governs applications for costs in proceedings pursuant to the Act. Section 117(1) provides that, subject to s 117(2), each party shall pay his or her own costs.
Section 117(2) provides:
If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
Clearly, in order to enliven the provisions of s 117, there must be proceedings under the Family Law Act.
The present proceedings, which were a hearing to determine whether the Court had jurisdiction under the Family Law Act, a question determined in the negative, were proceedings in the inherent jurisdiction of the Court and not proceedings under the Family Law Act.
I accept the submissions of counsel for the applicant and counsel for the second respondent that by virtue of the provisions of s 79 of the Judiciary Act 1903 (Cth), the law of New South Wales is applicable to this application.
In New South Wales, costs are determined in accordance with s 98 of the Civil Procedure Act 2005 (NSW) which provides, relevantly:
(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
(2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court.
(3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings.
(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:
(a) costs up to, or from, a specified stage of the proceedings, or
(b) a specified proportion of the assessed costs, or
(c) a specified gross sum instead of assessed costs, or
(d) such proportion of the assessed costs as does not exceed a specified amount.
The competing applications of the applicant and the first respondent arising out of allegations as to their conduct of the litigation
Both the applicant and the first respondent rely on the manner in which the other conducted the litigation. It is therefore necessary to look at the history of the proceedings.
On 23 December 2014, the solicitors for the applicant wrote to the solicitors for the second respondent stating inter alia:
We confirm that our client is purported to have entered into a Binding Financial Agreement (“BFA”) with her former de facto partner, [the first respondent] on 20 December 2011. The effect of that purported BFA is considered to be the cause of the current financial imposition of our client.
There is doubt as to the validity (let alone existence) of the purported BFA. If a BFA is in existence it is claimed that our client was not properly advised by her former solicitors …. In accordance with section 90G of the Family Law Act 1975. We are instructed to proceed to make an application to set aside the purported BFA in the Family Court of Australia and to seek a revised financial settlement with our client’s former partner in the New Year. …
In addition to setting aside the BFA there is an issue as to the possible liability of our client’s former solicitors for the failure to comply with section 90G of the Act. It is expected that any claim in negligence may be filed simultaneously with the application to set aside the BFA using the accrued jurisdiction of the Family Court next year.
If our client’s application to set aside the purported BFA is successful it is expected that a fresh application for adjustment of property interests with our client’s former de facto partner can be made and an opportunity to consider servicing our client’s liability to the ANZ as part of that process.
The solicitors for the second respondent replied to that letter on 20 January 2015 stating, inter alia “ANZ is not prepared refrain [sic] from taking enforcement action for any further period. Please confirm that you are instructed to accept service of the court process on behalf of [the applicant].”
The application initiating these proceedings was filed on 22 July 2015 in the Newcastle Registry of the Family Court. The final orders sought in the Initiating Application are set out below:
Spousal Maintenance
1.That pursuant to Section 74 of the Family Law the First Respondent pay to the Applicant by way of spouse maintenance the sum of $800.00 per week, the first payment within seven days from the date of this order and thereafter weekly.
2.The First Respondent must do all acts necessary to pay spouse maintenance referred to in Order 1 into the ANZ account standing in the name of [the applicant] being account number …22, or as otherwise directed in writing by the Applicant, on the Friday of each week.
Alteration of Property Interests
3.These Orders are made by way of alteration of property interests pursuant to Section 79 of the Family Law Act 1975.
4.That the Third and Fourth Respondents shall sign all documents and do all things to transfer the single share in the Fifth Respondent to the Applicant.
5.Within 28 days, the First Respondent shall pay to the Applicant the sum equivalent to 50% of the net pool of assets of the Applicant and the First Respondent as determined in these proceedings or $300,000.00,whichever is the greater.
6.In default of compliance with Order 5 hereof, the First Respondent shall forthwith do all such acts and things and sign all such documents as may be necessary to list for sale by public auction the following parcels of land and improvements in the following priority order until compliance with Order 5 as follows:
[named properties]
7.For the purpose of implementation of Order 6 hereof:
[details of the process of sale of properties]
8.Upon completion of the sales pursuant to Orders 6 and 7 hereof, the Applicant shall do all things reasonably necessary to ensure that her solicitor disburses the proceeds of sale as follows:
8.1First, to pay all costs, commissions, and expenses of the sales and to pay any Council and water rates outstanding in respect of the properties;
8.2Secondly, to pay herself the sum equivalent to 50% of the net pool of assets of the Applicant and the First Respondent as determined in these proceedings or $300,000.00, whichever is the greater, together with any interest accrued thereon in accordance with the Family Law Rules from the due date for compliance with Order 5 hereof;
8.3Thirdly, to pay the balance then remaining to the First Respondent.
9.That as between the Applicant and the First Respondent, and subject to the above Orders, the Applicant and the First Respondent shall each respectively retain all interest in and entitlement to:
9.1All personal property now in his/her respective possession or control.
9.2All shares, debentures, units in unit trusts, bank, building society or credit union accounts standing in his/her sole name respectively.
9.3All interests in life insurance policies standing in his/her sole name respectively.
10.The Respondent is hereby restrained and injunction is granted, from disposing of any interest he has in any superannuation fund in his name or benefit other than in compliance with these orders.
11.Both the Applicant and the First Respondent hereby release the other from all actions, proceedings, claims, demands, costs and expenses whatsoever and howsoever arising which either of them had or may have against the other for or by reason of or in respect of any act, cause, matter or thing.
Superannuation
12.That from the operative time and in accordance with Paragraph 90MT(1)(b) of the Family Law Act 1975, whenever a splittable payment becomes payable in respect of the interest held by First Respondent, in the name of any superannuation interest (Fund) at the time of making these orders, the Applicant shall be entitled to be paid 50% (The Base Amount) of that splittable payment and there be a corresponding reduction in the entitlement the First Respondent would have received from such superannuation Fund but for these orders.
13.That having been accorded procedural fairness, these orders bind the Trustees to observe the requirements of the Family Law Act 1975 and the Family Law (Superannuation) Regulations 2001.
14.The operative time for these Orders is four (4) days after the service of the Orders on the Trustee.
15.When it is legislatively possible for the Applicant to do so, then the Applicant will do all things necessary including but not limited to her exercising her request pursuant to Regulation 7AO5 of the Superannuation Industry (Supervision) Regulations 1994 for the creation of a new interest in the Applicant’s name in the said Fund or fund of her own choosing with the value of the transferable benefits calculated in accordance with Rule 7A.11 of the Superannuation Industry (Supervision) Regulations 1994.
Declarations
16.Pursuant to Section 78 of the Family Law Act 1975 (Cth) (“FLA”) a declaration that the Applicant and her sister, [the sixth respondent], have no liability as against the First, Second, Third or Fourth Respondents, their agents or assigns in relation to the following contracts, dispositions, Deeds or transactions;
16.1mortgage No …66 registered on title of the property known as and situate at [F Town];
16.2mortgage No ..97 registered on title of the property known as and situate at [G Street, F Town];
16.3a Deed of Individual Guarantee and Indemnity allegedly signed and delivered by the Applicant’s sister, [the sixth respondent] to the servants or agents of the Second Respondent on or about 22 December 2011, in relation to an overdraft facility afforded by the Second Respondent to the Applicant, the Fourth Respondent and [H Pty Ltd]…;
16.4a Deed of Individual Guarantee and Indemnity allegedly signed and delivered by the Applicant to the servants or agents of the Second Respondent on or about 30 April 2012, in relation to an overdraft facility afforded by the Second Respondent to the Applicant, the Fourth Respondent and [H Pty Ltd]…;
17.In the alternative to 16.1, 16.2, 16.3 and 16.4 above, and pursuant to the provisions of Subsections 106B(1) and/or 106B(1A)FLA the following instruments, transactions, Deeds or dispositions be set aside;
17.1mortgage No …66 registered on title of the property known as and situate at [F Town];
17.2mortgage No …97registered on title of the property known as and situate at [G Street, F Town];
17.3a Deed of Individual Guarantee and Indemnity allegedly signed and delivered by the Applicant’s sister, [the sixth respondent] to the servants or agents of the Second Respondent on or about 22 December 2011, in relation to an overdraft facility afforded by the Second Respondent to the Applicant, the Fourth Respondent and [H Pty Ltd]…; and,
17.4a Deed of Individual Guarantee and Indemnity allegedly signed and delivered by the Applicant to the servants or agents of the Second Respondent on or about 30 April 2012, in relation to an overdraft facility afforded by the Second Respondent to the Applicant, the Fourth Respondent and [H Pty Ltd]…
Machinery Orders
18.That the parties shall do all acts and things necessary and give all consents and execute all documents and writings to give effect to these orders in the time periods prescribed.
19.That in the event that either party refuses or neglects to execute any deed, document or instrument necessary to give effect to these Orders, the Registrar of the Court be appointed pursuant to Section 106A of the Family Law Act to execute such deed, document or instrument in the name of the said party and do all acts and things necessary to give validity and operation to the deed, document or instrument upon the Registrar being provided with verification of such refusal or failure by way of affidavit.
Costs
20. The First and Second Respondents pay the costs of the Applicant in such proportions as the Court may determine.
By way of interim orders the applicant sought the following:
1.Pursuant to section 90K of the Family Law Act 1975 (“FLA”) the financial agreement made pursuant to section 90UD in Part VIIAB of the FLA between the Applicant and the First Respondent is set aside and declared void ab initio [sic].
Injunction
2.Pending finalization of this Application or further order of this Court, the Second Respondent is restrained from proceeding further with its claim in proceedings in the Supreme Court of New South Wales in the Common Law Division in the possession of Land List, Sydney Registry, Case number 2015/00106627.
3.That the First, Second, Third, Fourth and Fifth Respondents be and are hereby restrained by injunction from selling, transferring, mortgaging or in any way encumbering or otherwise dealing with the property situate and known as [F Town];
4.That the Second and Third Respondents be and are hereby restrained by injunction from selling, transferring or in any way encumbering or otherwise dealing with the property situate and known as [G Street, F Town];
5.Until further order, the Second Respondent is hereby restrained from exercising any rights under its loan documentation, any Deed of Guarantee or any mortgage secured over the properties known as and situate at [F Town] and [G Street, F Town] and in relation to any guarantee provided by the Applicant and/or her sister [the sixth respondent].
6.The Second and Third Respondents are restrained by injunction from making any claim to any money or property or removing any property in the possession of the Applicant and/or her sister [the sixth respondent] pending finalization of this application and further order of this Court.
7.Pending further order, the First Respondent is otherwise than provided pursuant to these orders restrained by injunction from diminishing or otherwise reducing, disbursing or accessing any funds held as superannuation to which he or any related party of the First Respondent may so be entitled.
8.Pending further order, the First Respondent is otherwise than provided pursuant to these orders restrained by injunction from selling, transferring or further encumbering or otherwise diminishing the value of the following parcels of land:
[named properties]
Interim Lump Sum Advanced Property Adjustment
9.Within 28 days the First Respondent pay from his superannuation or any other financial resources available to the First Respondent to the trust account of the solicitors for the Applicant on behalf and for the benefit of the Applicant and in relation to costs of the Applicant in these proceedings the lump sum of $250,000.00 (“Advanced property payment”).
10.The nature of the advanced property payment referred to in Order 9 is to be determined by the Court at the final hearing of these proceedings.
Spousal Maintenance
11.Pending further order, that pursuant to Section 74 of the Family Law Act the First Respondent pay to the Applicant by way of spouse maintenance the sum of $800.00 per week, first payment within seven days from the date of this order and thereafter on the Friday of each week.
12.The spouse maintenance referred to in Order 11 shall be paid into the Applicant’ s ANZ bank account standing in the name of [the applicant] being account number …22 or as otherwise directed in writing by the Applicant.
Procedural Orders for Financial Disclosure
13.Within 28 days, the Applicant and the First Respondent shall make full and frank disclosure of their financial circumstances pursuant to rule 13.04 of the Family Law Rules 2004.
14.The Applicant is granted leave to amend her Initiating Application after the First Respondent has complied with Rule 13.04 of the Family Court Rules 2004 [sic].
15.Within 28 days, the Second Respondent shall produce all documents, files, assessments, loan applications, loan approvals and related documents in its possession in relation to proceedings in the Supreme Court of New South Wales in the Common Law Division in the Possession of Land List, Sydney Registry, Case number 2015/00106627 for inspection by the parties at a location agreed between the parties and failing agreement at the offices of [the applicant’s solicitors] at the cost of the Second Respondent.
16.The First Respondent must file any Response and Financial Statement that he may wish to rely upon in relation to the Applicant’s Initiating Application filed herein within 28 days of the date of these orders.
17.The Second and Third Respondents must file any Response and any Affidavit they may wish to rely upon in relation to the Applicant’s Initiating Application filed herein within 28 days from the date of these orders.
It Is Certified
18.Pursuant to Rule 19.50 of the Family Law Rules 2004 this matter is reasonably required for the attendance of Counsel.
Costs
19.The First Respondent pay to the solicitors for the Applicant the sum of $15,000.00, such sum to be held in those solicitors’ trust account and to be disbursed for fees and disbursements as they fall due, incurred in the Applicant’s preparation of her case in these proceedings.
20.The First and Second Respondent pay the Applicant’s costs of and incidental to these proceedings as to one half each.
In the Initiating Application in answer to question 51 “Have the parties entered into a financial agreement or a Part VIIIAB Financial Agreement under the Family Law Act 1975 or under any relevant State or Territory legislation?” the applicant answered “Yes”.
In answer to question 55a “Did your de facto relationship break down on or after 1 March 2009 or if a resident in South Australia on or after 1 July 2010?” the applicant answered “No”.
It could have been expected that the applicant’s legal advisors would be aware that the Family Court has jurisdiction, in the ordinary course, in relation to de facto relationships which ended after 1 March 2009. Question 55a is the prompt.
On 19 August 2015, then solicitor for the first respondent wrote a letter to the applicant’s solicitors requesting particulars. The solicitor stated, inter alia:
As your client seeks relief in respect of a Financial Agreement made pursuant to section 90UD and seeks that the said document be set aside “and declared void ab inito (sic)”, the appropriate head of relief is to be found at section 90UM. Notwithstanding the same, and given the form in which your clients application has been articulated, the following particulars are sought in respect of the terms of section 90K. Should your client amend his [sic] relief to seek the same pursuant to section 90UM, identical particulars are sought pursuant to the terms of section 90UM.
There then followed a request for particulars specifically referring to the various provisions of section 90K or section 90UM of the Family Law Act.
The letter concluded:
We are instructed to raise clearly at the commencement of these proceedings that our client contends that there is no possible basis for the Court to set aside the Financial Agreement that the parties entered into, and that he views your client’s Application as mischievous, if not frivolous and vexatious, and he will pursue orders in relation to indemnity costs against her.
No reference is made in the letter of 19 August 2015 to the possibility that the parties had not “opted in” to the de facto regime and that, as such, the purported agreement was not a binding financial agreement.
The Response to the Initiating Application was filed on 20 August 2015. The first respondent in relation to each application sought that the application be dismissed and that the applicant pay his costs on an indemnity basis. The first respondent did not answer question 26a; “Did your de facto relationship break down on or after 1 March 2009 or if a resident in South Australia on or after 1 July 2010?”
Had the solicitors for the first respondent turned their minds to question 26a, they, too, might have considered the fact that the Family Court only has jurisdiction in relation to de facto relationships that end after 1 March 2009.
The first respondent did not answer question 21; “Have the parties entered into a financial agreement or Part VIIIAB Financial Agreement under the Family Law Act 1975 or under any relevant state of territory legislation?”
In an affidavit sworn on 11 November 2015 the applicant provided answers to the specific questions raised by the first respondent. In the affidavit, the applicant raised the issue of adequacy of the advice given to her in the following terms:
I assert that the Part VIIIAB Financial Agreement is not binding pursuant to the provisions of Section 90UJ(1)(b) in that I did not receive sufficient or adequate advice to amount to independent legal advice from a legal practitioner about the effect of Part VIIIAB Financial Agreement on my rights or about the advantages and disadvantages at the time that the advice was sought by me from my then solicitor to me making the Part VIIIAB Financial Agreement.
Clearly, the solicitor for the applicant did not turn his or her attention to whether or not the parties had “opted in” to the regime.
On 2 October 2015, the solicitors for the first respondent wrote to the applicant’s solicitors stating inter alia:
Our client is entitled to the presumption that the Financial Agreement entered into between he and your client on 20 December 2011 was appropriately entered into and binding and, as a result of that entitlement, any delay occasioned in these proceedings necessarily prejudices our client.
The first respondent filed an affidavit sworn on 19 January 2016. At paragraph 8(b) of that affidavit, the first respondent affirmed that the financial agreement was made pursuant to Part VIIIAB of the Family Law Act relying upon recitals V and W of the purported financial agreement.
At paragraph 10(a) of the affidavit, the first respondent stated that the interim application to set aside the purported agreement pursuant to s 90UM of the Family Law Act was misconceived.
At paragraph 40, the first respondent stated that, pursuant to the acknowledgment on page 9 of the financial agreement, it was his belief that the applicant had received a fully signed and dated copy of the financial agreement including the certificates signed by each of the solicitors as to their advice.
At paragraph 55, the first respondent stated “At all times, I have maintained that the Agreement is binding as between [the applicant] and I. [The applicant] and I implemented the provisions of the Agreement following entering into the Agreement.”
At paragraph 156, the first respondent stated:
(a)At all times since the execution of the agreement, I have relied upon the terms of the agreement (and its complete implementation by [the applicant] and I) and I have maintained that the Agreement is binding as between [the applicant] and I.
(b)In the circumstances where I say the Agreement is valid and binding, I am incurring significant cost in defending the relief sought by [the applicant] in the conduct of these family law proceedings.
As at 19 January 2016, the solicitors for the first respondent did not appear to have turned their minds to the question of “opting in” to the Family Law Act regime.
On 20 January 2016, the first respondent filed an Application in a Case in which he sought the following orders:
1.That [the applicant’s] pleadings contained in paragraphs 3 to 20 inclusive of [the applicant’s] interim orders application and paragraphs 1 to 19 inclusive of [the applicant’s] final orders application in her Amended Initiating Application filed on 15 September 2015 be struck out in full on the grounds that the pleadings fail to disclose a reasonable cause of action or case appropriate to the nature of the pleadings.
2.In the event that the Court does not make Order 1 herein, then, in the alternative and without concession:
2.1 That the proceedings be transferred to the Sydney Registry of the Family Court of Australia.
2.2 That the requirement for [the first respondent] to file a Financial Statement and make financial disclosure be dispensed with, pending a determination in respect of Order 2.3 herein, and to the extent necessary, paragraph (2) of the orders dated 21 December 2015 be reviewed, with the leave of the court if necessary.
2.3 That the Financial Agreement entered into between [the first respondent] and [the applicant] dated 20 December 2011 (“the Agreement”) be, and hereby is, declared a Binding Financial Agreement under the Family Law Act 1975 (Cth).
2.4 That the interim orders sought by [the applicant] be dismissed.
3. That [the applicant] pay [the first respondent’s] costs of and incidental to this application on an indemnity basis.
On 11 March 2016, the applicant filed a Response to an Application in a Case seeking, inter alia, that the Family Court proceedings be transferred and consolidated with proceedings on foot in the Supreme Court pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth).
Further particulars were sought by the first respondent and orders were made by consent on 8 April 2016. These orders provided for the applicant to file a document setting out the grounds upon which it is contended by her that the financial agreement should be set aside and the facts which it is contended support those grounds.
By letter dated 3 May 2016, the solicitors for the applicant provided the further particulars. In that letter the applicant stated that she relied upon s 90UM of the Family Law Act. There is no suggestion in the letter that any consideration had been given whether or not the parties had “opted in” to the provisions of the Family Law Act.
On 30 September 2016, Cleary J heard the Response to an Application in a Case which had been filed by the applicant on 11 March 2016. Prior to the hearing before Cleary J, each of the applicant and the first respondent filed written submissions.
Under the heading “Does the Applicant have a reasonable cause of action/legal merit?” it was submitted on behalf of the first respondent that the particulars provided by the applicant pursuant to the orders of Clearly J “do not in fact provide proper answers or give particulars of the claim of the Applicant and thus constitute no particularisation of the claim at all. They neither assist the Court in the determination of issues, nor do they enable other respondents to properly identify the nature of the case to be met.”
The submissions further state at paragraph 9:
c.The parties separated in 1993, continued to have a close financial and business involvement with each other until executing a document styled a “Binding Financial Agreement” on 20 December 2011, many years after their final separation and after several drafts had been past [sic] backwards and forwards between their respective Solicitors.
d.Prior to the service upon the [first respondent] of Initiating Application the Applicant had not asserted that she considered the Agreement was either not binding, was invalid or subject to being set aside.
e.To the extent that the Applicant suggests that she was not given any or any proper advice at the time the document was executed the [first respondent] is entitled, as he does, as to rely upon the certification attached to the Financial Agreement. In any event no particular provided alleges this is the case.
(Footnote omitted)
The gravamen of the submissions filed on behalf of the first respondent is that the purported binding financial agreement was a valid agreement.
The written submissions filed on behalf of the applicant dated 29 September 2016, raised, for the first time in this litigation, the prospect that the Court had no jurisdiction. In a footnote, counsel for the applicant stated:
The de facto parties’ relationship broke down in 1990 prior to Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008. The BFA, however, was entered into in 2011. The BFA is a statement that the parties opted in to the regime: see the Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008, Schedule 1, item 86A. Under item 86A the parties can choose to have the provisions of Division 4 of Part VIIIAB apply to their separation, namely agreeing to a s 90UD financial agreement under the Part. Once made, the choice is irrevocable, (item 86A(2)) if subitems 86A(3), (4), and (5) are met. Subitem 86A(5)(b)(i) and (ii) is noted to be problematic. The Court has power to undo this choice in certain circumstances, under item 86A(7) – (9). A court may make an order setting aside a choice if the court is satisfied that, having regard to the circumstances in which the choice was made, it would be unjust and inequitable if the court does not set the choice aside. A court setting aside a choice under subitem (7) may make such order or orders (including an order for the transfer of property) as it considers just and equitable to, so far as is practicable, return the rights of (a) the parties to the de facto relationship; and (b) any other interested persons affected by the choice to their position immediately before the choice was made. Were these powers exercised in the Supreme Court in the litigation before it this would mean that the First Respondent may well be the subject of relief granted in that court whether pursuant to section 90AE of FLA or otherwise.
On 30 September 2016, in the course of the hearing before Cleary J, her Honour sought clarification from the legal representatives in the following terms “If the Agreement were to be set aside would the parties choose to opt-in to the Family Law regime?”
Counsel for the first respondent replied “My client would need to be given certain advice but the time has not yet arisen for that advice to be given”.
On 13 October 2016, the solicitor for the applicant wrote a letter to the solicitors for the first respondent in the following terms:
We refer to the above matter and the oral hearing of the issues raised by the Response to an Application in a Case filed 11 March 2016, wherein [the applicant], sought to transfer these proceedings to the Supreme Court of New South Wales on 30 September 2016 before the Honourable Justice Cleary (the Transfer Application).
It has come to our attention that the problematic aspect mentioned at footnote 6 on page 7 of the Applicant’s Written Submissions made in support of the Transfer Application (the Submissions) may have an expanded implication.
In the National Seminar Series 2009 entitled “New De Facto Property Regime Handbook” (the Handbook) at pages 43 – 45, the author, the Honourable Justice Garry Watts, writing extra-judicially, suggests, by way of precedent, a form of the certificates to be given pursuant to sub‑item 86A(5) of the Family Law Amendment (De Facto Financial Matters And Other Measures) Act 2008 (No. 115, 2008) (the Amending Act) – Schedule 1. This certificate is a distinct certificate in respect of advice given prior to entry into the Part VIIIAB agreement on “the choice” to opt in to the Family Law Act regime (the Item 86A(5) Certificate).
In this case, the (purported) part VIIIAB Agreement executed by the parties to that agreement, does not have attached to it an Item 86A certificate or one that would apparently conform to the requirements in sub-item 86A (5). [The applicant] instructs us that she did not receive any such certificate, or indeed, any such advice.
In these circumstances, it may be that a potentially necessary precondition to opting into the Family Law Act regime has not been fulfilled. A question then arises as to whether the Family Court has jurisdiction to determine the controversy presently constituted before it.
The solicitors for the applicant went on to suggest that a joint letter be written to Cleary J setting out the issue and putting her Honour on notice that jurisdiction may, perhaps, not exist.
On 27 October 2016 before Cleary J, counsel for the wife raised the issue of whether or not the court had jurisdiction to deal with the matter. Counsel said “it’s a question as to whether or not the court has the power to exercise powers to set aside an agreement which is not properly brought before the Court under the umbrella of the regime.”
Later, counsel for the applicant said “… it’s something that is important, and it’s perhaps something that I should have twigged to more properly at the hearing before your Honour with respect to whether or not this is actually a controversy justiciable under the Family Law Act by reason of the failure to opt in prior to the agreement being entered into.” After some discussion about costs and whether the matter should be transferred to Sydney, counsel for the applicant stated:
I just wanted to impress upon your Honour and the parties while the matter is still in open court that none of the issues that I am presently raising was at all the subject of any discussions, and it does not constitute a review. It is a question as to whether or not these proceedings are, indeed, capable of being determined in the court, and if they are a nullity then they might be a nullity, which would render every decision that your Honour has made since a nullity. And I’m raising it for the benefit of the parties, despite the fact that they were approached in correspondence to express their view about a matter that is serious.
This court only has federal jurisdiction if it accrues to it. It is a superior court, and it may be an exercise within jurisdiction, but there’s no jurisdiction to determine the controversy. And I accept that this is a notation being made by an applicant who commenced proceedings in this court. Nevertheless, I am expressing this as a member of the New South Wales Bar acting in the administration of justice, my primary duty being to this court, that there is, in fact, in my view, a problem with respect to whether or not the parties have actually chosen for this Act to apply to their dispute …
On 7 November 2016, the solicitors for the applicant wrote to the solicitors for the first respondent seeking information in relation to an aspect of the proceedings.
On 23 January 2017 the solicitors for the first respondent wrote in reply stating:
The client declines to answer the query therein, pending the establishment of a de facto financial cause which, in this case, is dependent on the establishment of facts central to jurisdiction which are bona fide in dispute, and which have not yet been established.
Again no reference was made to whether or not the parties had “opted in” to the regime.
On 12 December 2016, the matter was listed before a Registrar for a first return date in the Sydney Registry of the Family Court. The Registrar noted that counsel for the applicant had identified a question about whether the Family Court had power to determine the application by virtue of the operation of the (opting in) provisions. A handwritten document was tendered by counsel for the applicant which clearly set out the basis on which it was contended that the application was without jurisdiction. Orders were made to the effect that the applicant file an Application in a Case setting out the orders sought. She did so on 10 January 2017, seeking a discrete hearing on the jurisdictional issues and the status of the financial agreement.
In relation to the position of the first respondent, the Registrar noted that the first respondent was to file and serve a response by 18 January 2017. The Registrar noted that “the Applicant’s position is, as at 12 December 2016, that her pleadings shall not be withdrawn”.
The first respondent’s solicitors filed his response on 25 January 2017, seeking orders to the effect that the applicant’s Application in Case be dismissed.
Orders were made setting the matter down for hearing to determine the questions raised in the Application in a Case filed on 10 January 2017, which were considered by me on 13 July 2017.
Before me, on that day, the first respondent, who appeared unrepresented, maintained his position that the purported binding financial agreement was valid and binding.
There is no evidence that, at any time, the solicitors for the first respondent turned their minds to whether the parties had “opted in” to the regime and consequently whether the parties could have effectively entered into a binding financial agreement.
In oral submissions in relation to the costs applications, the solicitor for the first respondent submitted that there was no obligation on the first respondent to inform the Court if they came to the view that the Court had no jurisdiction. Their only obligation, it was submitted, was to put the applicant to proof.
I reject that submission.
Every officer of the Court, including solicitors, has an obligation to inform the Court of matters relating to jurisdiction and to ensure that the Court does not fall into error. That was the basis of the submission made to Clearly J by counsel for the applicant. Counsel’s submission was against the interests of her client but entirely consistent with her duty to the Court.
Until 29 September 2016, all of the legal representatives appear to have been oblivious of the necessity for the parties to have “opted in” to the provisions of the Family Law Act.
Anything done in the proceedings before that date, by either the applicant or the first respondent, was done on the assumption that the Court had jurisdiction.
I do not consider that the Application in a Case to strike out the Initiating Application, although misguided, was so misguided as to warrant an order that the first respondent pay the applicant’s costs of defending it.
Similarly, I do not consider that the first respondent’s opposition to the transfer of the proceedings to the Supreme Court justifies the making of an order for costs. The first respondent was successful in that opposition. The application was not transferred.
In relation to both of those applications, both parties were mistaken as to the jurisdiction.
After 29 September 2016, it was not reasonable for the first respondent to continue to assert that the financial agreement was binding unless evidence was available to found that assertion.
After 29 September 2016, the solicitors for the first respondent, having been put on notice of a possible problem in relation to jurisdiction, had a positive obligation to turn their minds to whether there was evidence to support a submission that the Court had jurisdiction.
There is no evidence that they did so.
In those circumstances I propose to order that the applicant pay the costs of the first respondent up to and including 29 September 2016.
Thereafter, the costs of the first respondent will be borne by him, subject to an enquiry as to whether they should be borne by his legal advisers.
Who should pay the costs of the second respondent?
The application which initiated these proceedings was filed on 22 July 2015. The second respondent was named as a party. The following orders were sought by the applicant against the second respondent:
· In the substantive application, Orders 16, 17 and 20. In Order 20, the applicant sought an order that the second respondent pay a proportion of her costs.
· In the interim application, Orders 2, 3, 4, 5, 6, 15, 17 and 20. Again by Order 20, the applicant sought an order that the second respondent pay a proportion of her costs.
Thus it is clear that the involvement of the second respondent in the proceedings was as a direct consequence of the applicant naming the second respondent as a party and seeking orders which affected the interests of the second respondent, both on an interim and final basis.
Importantly, the applicant sought an order that the second respondent pay some or all of her costs of both the interim application and the final application.
As against the second respondent, the applicant has been wholly unsuccessful.
The first respondent was not responsible for the involvement of the second respondent in the proceedings.
The applicant should pay the costs of the second respondent.
Are the third and fourth respondents entitled to costs, and if they are so entitled, who should pay them?
On behalf of the applicant, it was submitted that the third and fourth respondents were never parties to the proceedings because they were never joined. Further, it was submitted that no order could have been sought against the property of the third and fourth respondents because there had been no compliance with s 471B of the Corporations Act 2001 (Cth) (“the Corporations Act”) which provides:
Stay of proceedings and suspension of enforcement process
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a) a proceeding in a court against the company or in relation to property of the company; or
(b) enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
These proceedings were commenced in the Family Court by filing a form of initiating application. In that application, the third and fourth respondents were named as respondents and orders were sought which affected the interests of the third and fourth respondents.
The fourth respondent (in liquidation) was a company incorporated in August 1992, while the applicant and the first respondent lived in a de facto relationship. The applicant and the first respondent were directors of the fourth respondent. In her affidavit sworn 11 November 2015, the applicant referred to the fourth respondent as “our company”.
The applicant deposed at paragraphs 29 and 30 of that affidavit:
On or about 17 December 1998 [the first respondent] arranged for the purchase of property located at [J Street F Town] by our company then named [B] Pty Ltd (now known as [B] Pty Ltd [the 5th respondent]) …
The purchase of the property at [J Street] was funded by giving a mortgage in favour of the National Australia Bank (“NAB”) that was granted under seal of [the fourth respondent].
The applicant further deposed at paragraph 43:
On or about 6 June 2006 [the first respondent] caused [the fourth respondent], to borrow $320,000.00 from [the second respondent] … Annexed hereto and marked with the letter “CC” is a copy of the purported mortgage in the name of [the fourth respondent] but registered in favour of [the second respondent] over the property at [J Street F Town] which is not owned by that company..
The final orders sought by the applicant against the third and fourth respondents are found at paragraph 16 of her Initiating Application where she seeks the following:
· At 16.1, a declaration that neither she nor the sixth respondent, have any liability in relation to the mortgage with [the second respondent] referred to above.
· At 16.3 a declaration that neither she nor the sixth respondent have any liability in respect of an overdraft facility afforded by the second respondent, inter alia, to the fourth respondent.
· At 16.4, a declaration that neither she nor her sister have any liability in respect of an Deed of Individual Guarantee and Indemnity given to the second respondent in relation to an overdraft facility of, inter alia, the fourth respondent.
In the alternative, at paragraph 17, the applicant seeks to set aside those transactions.
Whether the applicant proceeded under paragraph 16 or paragraph 17, the interests of the fourth respondent are affected and it was necessary to join the fourth respondent and, by virtue of their appointment as liquidators, the third respondents, as parties.
The applicant commenced the proceedings against the fourth respondent without regard to the provisions of s 471B of the Corporations Act. That does not, however, have the effect that the third and fourth respondents were not parties.
In the interim orders ought in the Initiating Application, the applicant sought, at paragraph 3, to restrain the third and fourth respondents from dealing with J Street F Town, a property in which the fourth respondent presumably, as mortgagor, claimed an interest. In paragraph 4 the applicant sought to restrain the third respondent from dealing with a property at G Street, F Town.
In paragraph 6 the applicant sought to restrain the third respondent from making any claim against her or the sixth respondent.
In so far as the applicant seeks orders against the third respondent, s 471B of the Corporations Act does not apply.
In so far as the applicant sought orders restraining the fourth respondent from doing certain things, ultimately she required the leave of the Court to proceed. The time to seek that leave was after the Court had determined that the purported financial agreement was not valid or was to be set aside. Until that determination had been made, there was no utility in seeking leave pursuant to s 471B of the Corporations Act.
Although it was ultimately found that the Family Court had no jurisdiction to determine the proceedings instituted by the applicant, those proceedings were instituted in the Family Court pursuant to the Family Law Rules 2004 (Cth).
Rule 6.01 provides:
A party includes the following:
(a) an applicant in a case;
(b) an appellant in an appeal;
(c) a respondent to an application or appeal;
(d) an intervener in a case.
As a named respondent to the Initiating Application, and entities against which orders were sought, the third and fourth respondents were parties.
They became parties because of the action of the applicant in naming them as parties and seeking orders against them.
The applicant should pay their costs.
Should costs be paid on an indemnity basis?
In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248, Sheppard J set out some of the circumstances in which there might be a departure from the ordinary rule that costs are ordered on a party and party basis at 256 to 257:
… it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152 evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Darrow J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Darrow J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Kent (SC(NSW)(CA), 27 Sept 1993, unreported) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records).
There is no doubt that the applicant, and those advising her, eventually became aware, and acknowledged, that the Family Court had no jurisdiction to determine a dispute between her and the respondents which had its basis in her assertion that the applicant and the first respondent had entered in what purported to be a binding financial agreement pursuant to the Family Law Act.
The application should never have been brought in the Family Court.
It is clear that no enquiry was made before the application was filed by those advising the applicant about whether the applicant and the first respondent had “opted in” to the provisions of the Family Law Act so as to bring themselves within the provisions of that Act which permit separated de facto spouses to enter into a binding financial agreement.
I am satisfied that the actions of the applicant, or perhaps more accurately, those advising her, come within the exception referred to by Sheppard J, constituting as they do both wilful disregard of clearly established law and the undue prolongation of a case by groundless contentions.
Costs should be paid on an indemnity basis.
I certify that the preceding one hundred and twenty-four (124) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 28 August 2017.
Associate:
Date: 28/08/2017
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