Dunn & Dunn (No 4)
[2022] FedCFamC1F 264
•26 April 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Dunn & Dunn (No 4) [2022] FedCFamC1F 264
File number(s): ADC 5380 of 2020 Judgment of: BERMAN J Date of judgment: 26 April 2022 Catchwords: FAMILY LAW – PROPERTY – Litigation funding – Where the applicant seeks litigation funding and the respondent opposes the application – Where the proceedings have been bifurcated with final hearing of the parenting matters to be heard first – Where an interim consent order was previously made for a payment to the applicant lawyer’s trust account– Where payment has been made or will soon be made – Consideration of the applicant’s costs – Where the applicant asserts the respondent has the financial resource of his legal practice – Where the monies paid pursuant to the interim consent order are to be quarantined for the purpose of mediation and the final hearing with respect to parenting matters - Orders.
FAMILY LAW – PRACTICE AND PROCEDURE – Discovery – Where the applicant seeks discovery of documents in relation to the respondent’s legal practice – Where the documents sought arise from a valuation of the practice obtained in the proceedings - Where the respondent opposes the application on the basis of legal professional privilege and confidentiality – Where cost of compliance due to the number of files would be substantial - Consideration of the principles to be applied – Relevance of documents – Where it is unclear how the documents would assist the Court or the valuer – Orders made for the parties to instruct the valuer with respect to discrete issues.
Legislation: Family Law Act 1975 (Cth) ss 80(1)(h), 117, 117(2),
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) ch 6
Federal Court Rules 2011 (Cth) Pt 20
Cases cited: Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063
Commonwealth v Milledge (1953) 90 CLR 157
Dennis v ChambersInvestment Planners Pty Ltd [2012] FCA 63
Hatton & Attorney-General of the Commonwealth of Australia (2000) FLC 93-038
Klearchos & Klearchos [2015] FamCAFC 217
Lenehan & Lenehan (1987) FLC 91-814
Little & Little (1990) FLC 92-147
Lucas Industries Ltd v Hewitt (1978) 18 ALR 555
Martin & Martin (No 2) [2014] FamCA 232
Smith & Smith (1991) FLC 92-261
Strahan & Strahan(Interim Property Orders ) (2011) FLC 93-466
Woley & Humboldt (No 3) [2009] FamCA 546
Division: Division 1 First Instance Number of paragraphs: 90 Date of hearing: 16 and 22 March 2022 Place: Heard in Adelaide, delivered in Melbourne Counsel for the Applicant: Mr Anderson Solicitor for the Applicant: Clelands Lawyers Adelaide Pty Ltd Counsel for the Respondent: Mr Belperio Solicitor for the Respondent: Jordan & Fowler Family Lawyers ORDERS
ADC 5380 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS DUNN
Applicant
AND: MR DUNN
Respondent
ORDER MADE BY:
BERMAN J
DATE OF ORDER:
26 APRIL 2022
THE COURT ORDERS:
1.That the applicant be restrained and an injunction granted restraining her from instructing her solicitors to disburse any money received following the sale of motor vehicles and livestock pursuant to order 3 of orders made 14 February 2022 for any other purpose than the mediation that occurred on 29 March 2022 or on such other date as it may have been heard and for the payment of the applicant’s legal fees in respect of the parenting proceedings listed for hearing on 16 May 2022.
2.That the parties at their joint expense, payable by the respondent at first instance, instruct Mr V to provide an opinion as to the following:
(a)The method and manner by which he would be prepared to give an opinion as to the extent that impaired and unrecoverable WIP and debtors of M Pty Ltd should be brought to account;
(b)The extent to which the orders sought by the applicant as to paragraph 2.1 and 2.2 of her Application in a Proceeding filed 23 February 2022 are of any utility in determining the extent to which impaired and unrecoverable WIP and debtors of M Pty Ltd should be brought to account.
3.That time is extended to 4.00 pm 30 April 2022 to comply with Order 1 of orders made 14 February 2022.
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 Dunn & Dunn has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BERMAN J
INTRODUCTION
Ms Dunn (“the applicant”) has filed an Application in a Proceeding on 23 February 2022 seeking orders that Mr Dunn (“the respondent”) pay to her solicitors within 28 days, the sum of $108,750 by way of litigation funding pursuant to s 117(2) of the Family Law Act 1975 (Cth) (“the Act”) and that the respondent make discovery of the following:
2.1An up-to-date debtors and unbilled WIP summary for files of [M Pty Ltd] as at the date of this Order;
2.2In relation to each file listed in the summary referred to in paragraph 2.1 herein, documents directly related to the husband’s and [M Pty Ltd’s] obligation of disclosure of costs to each client and related to the issue of recoverability of debtors and WIP…[1]
[1] Application in a Proceeding filed 23 February 2022, page 6.
The orders sought by the applicant are opposed by the respondent.
The proceedings have been bifurcated such that the competing applications of the parties in respect of the future parenting arrangements for their children are listed for final hearing on 16 May 2022.
The property proceedings are not yet the subject of a trial date and there remains significant concern that the parties will not be able to properly prepare the matter for hearing in a timely fashion.
The parties seek to resolve their differences by mediation.
On 22 March 2022, judgment was delivered in respect of the respondent’s application to suspend or discharge the order for spousal maintenance made in favour of the applicant on 17 March 2021.[2]
[2] See Dunn & Dunn (No 3) [2022] FedCFamC1F 172
LITIGATION COSTS
When making an order for litigation or interim costs a relevant source of power must be identified.
In this case, the most obvious source of power is s 117(2) of the Act. It is of course open to consider whether an order should be made under s 80(1)(h) of the Act.
The power to make an order for costs on an interim or final basis is set out in s 117 of the Act which provides:
(1)Subject to subsection (2), subsections 45A(6) and 70NFB(1) and sections 117AA and 117AC, each party to proceedings under this Act shall bear his or her own costs.
(2)If, in proceedings under this Act, the court is of the opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A), (5) and (6) 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.
(2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a)the financial circumstances of each of the parties to the proceedings;
(b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of fact, production of documents and similar matters;
(d)whether the proceedings where necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g) such other matters as the court considers relevant.
In Klearchos & Klearchos [2015] FamCAFC 217, the Full Court confirmed that a trial judge in considering an interim application for costs, is required to consider the matters as set out in s 117 of the Act and specifically s 117(2A).
In relation to litigation funding, the financial circumstances of each of the parties is likely to be the most relevant consideration.
In Strahan & Strahan(Interim Property Orders ) (2011) FLC 93-466 at 85,631, Boland and O’Ryan JJ analysed the relevant authorities in respect of an application for interim costs and stated:
80.In Poletti & Poletti (unreported, Family Court of Australia, 2 March 1990) Nygh J, when describing an application for “interim costs”, referred to the reasons of the Full Court in Wilson and Wilson (1989) FLC 92-033 (“Wilson”) and said it is a “situation where one party to the marriage controls almost exclusively what might be described as the patrimony of the parties and has control of the bulk of the assets and funds of the parties, where an order may be made to ensure the other party, who does not have the fortune of controlling those funds, at least has an equal or near equal opportunity to present his or her case”: see also In the marriage ofPoletti (1990) 15 Fam LR 794 (“Poletti”) at 796 per the Full Court (Ellis, Strauss and Butler JJ). The Full Court in Zschokke at 83,220 made a number of relevant remarks about the “desirability of legal representation for both parties in family law”.
BACKGROUND
The applicant has in part met her legal fees and disbursements as follows:
(a)By the payment of $23,663.25 from the total sum of $49,000 paid in accordance with Order 3 of orders made 16 June 2021;
(b)The sum of $15,000 in accordance with Order 1 of orders made 1 October 2021;
(c)Borrowings from the applicant’s parents in the sum of $44,523; and
(d)When the applicant was employed and able to do so, she paid the sum of $700 per week pursuant to an agreement with her solicitors to ensure their continuing representation.
By Amended Reply filed 28 January 2022, the applicant sought partial settlement of property or litigation funding in the sum of $100,000 which sum was to be satisfied from the sale of motor vehicles and equipment in the possession and control of the respondent, together with the livestock.
If the application for litigation funding was unsuccessful then the applicant sought an order pursuant to s 102NA(1)(c)(i) of the Act such that she would have representation for the purpose of any cross-examination of the respondent.
It is conceded by the respondent that a mandatory ban in respect of cross-examination of the respondent would apply and there was no opposition to such an order being made.
The Amended Reply was supported by an affidavit of the applicant setting out her current and future legal costs and disbursements as at 28 January 2022.
As at that date, the applicant was responsible for the following outstanding legal fees:
(a)Clelands Lawyers in the sum of $32,660 plus GST together with disbursements of $204;
(b)BB Lawyers in the sum of $28,038.80;
(c)CC Lawyers in the sum of $4,837.64; and
(d)Mr EE in the sum of $440.
As at 28 January 2022, the sum of $23,447.25 remained in the Clelands Lawyers’ trust account.
As at that date, the applicant received an estimate of future disbursements up to and including the trial to commence on 16 May 2022 as follows:
(a)The applicant’s share of the valuation of M Pty Ltd conducted by Mr V in the sum of $2,970;
(b)The applicant’s share of the valuation of motor vehicles by Mr DD in the sum of $500 to $1,000; and
(c)The applicant’s share of the costs of the preparation of the updated/addendum family report by Ms E in the sum of $1,250.
In addition, counsel estimated the sum of $45,000 plus GST for a five day trial (including preparation) and solicitors estimated a further cost of between $30,000 and $40,000 plus GST for their work up until and including the trial.
The applicant therefore sought the sum of $85,000 to $100,000 in respect of further legal fees and disbursements for the period 3 February 2022 to the conclusion of the trial commencing 16 May 2022.
The application to sell motor vehicles and livestock was predicated upon an estimate that the motor vehicles may be sold for a total of $55,830 with a further $55,000 estimated to be received from the sale of the livestock.
The status of the applicant’s outstanding and anticipated legal fees could conveniently be divided as to the legal fees outstanding to her former and current solicitors and the focus of the Amended Reply, namely that she receive litigation funding that would enable her to complete the parenting proceedings.
The Amended Reply was listed for hearing on 14 February 2022. The interim proceedings were resolved by a consent order in the following terms:
1.That the husband provide updated discovery on oath by no later than 4.00pm on 15 February 2022 NOTING THAT the List of Documents annexed to his Affidavit filed on 28 January 2022 is as at 30 September 2021.
2.That the husband pay the sum of $5,000 to the wife towards the spousal maintenance arrears within fourteen (14) days.
3.That the husband do all things necessary to sell all vehicles and [livestock] owned by the husband as set out below, with the net proceeds of sale to be deposited into the Clelands Lawyers Trust Account for an on behalf of the wife by way of partial property settlement:
…
(As per the original)
It is common ground that the motor vehicles, or at least most of them, have been sold. The sale proceeds have either been paid or will soon be paid directly to Clelands Lawyers’ trust account.
The parties are not able to agree upon a suitable valuer to conduct a valuation of the livestock for the purposes of their sale and in the absence of a valuation, the parties are discussing the sale of the livestock by auction.
The Court has not been assisted by any evidence as to the sale of motor vehicles and the quantum of funds received nor the method and manner by which the livestock are to be sold.
It is likely, although not necessarily conceded by the applicant, that her assessment of the extent of net proceeds to be received from the sale of motor vehicles and livestock will fall significantly short of her expectations.
The consent orders of 14 February 2022 have been superseded or at the very least rendered nugatory by the current Application in a Proceeding seeking litigation funding.
The applicant has been informed by her solicitors that as at 3 March 2020, she has outstanding work in progress (“WIP”) of $40,000 plus GST, has incurred counsel fees of approximately $3,000 plus GST for an attendance on 14 February 2022, a further sum of $3,000 plus GST for an attendance on 28 February 2022 and a significant counsel fee for the preparation of drafting and settling of particulars of claim as against the second respondent.
The applicant summarises her position by reference to a summary of future costs and disbursements as set out in a schedule marked “AS1” to her affidavit of 7 March 2022.
A short summary is that the likely total costs of the applicant will be in the further sum of $232,964 (for both parenting and property proceedings) with an estimated deficit at the end of the parenting hearing of $57,382.
The applicant’s solicitors rely upon their terms of engagement and costs agreement and have advised the applicant that if she is unsuccessful in securing a lump sum payment from the respondent to pay her legal fees then they will cease to represent her. As considered, the alternative position for the applicant is an order pursuant to s 102NA of the Act. The difficulty with such an order is that the applicant’s current solicitors are not prepared to represent her for the sum that is to be received pursuant to s 102NA funding and it is not controversial that at this stage of the proceedings, even if an order was made, the applicant would not be able to secure representation for the upcoming trial.
A convenient summary of the applicant’s costs position is set out in the respondent’s outline of case summary document as follows:
A Estimate of work in progress $53,900 B Estimated mediation costs (for mediation on 29 March 2022) $15,000 C Estimated costs of parenting trial $53,620 D Amount expected to be contributed by the applicant prior to trial $72,000 Short fall balance $50,520
The applicant’s counsel argues that there have been a number of events in the course of the litigation which could not have been reasonably foreseen at the date of the applicant’s Application in a Proceeding filed 28 September 2021. It is asserted that significant extra work has been required as a result of variations sought by the respondent to the existing parenting orders, the respondent’s application for the release of certain documents to be used in the criminal proceedings and work undertaken by the applicant’s solicitors to ensure that Mr V was provided with all possible assistance to enable the timely preparation of his valuation report.
The applicant also contends that the consent order of 14 February 2022 required the respondent to provide updated discovery on oath by 4.00 pm on 15 February 2022, with the notation that the list of documents annexed to his affidavit filed 28 January 2022 is as at 30 September 2021.
It appears that the list of documents has not been updated as ordered.
The applicant’s counsel contends that it is fundamental to the course and conduct of proceedings that each of the parties make full and frank disclosure of documents. It is asserted that the respondent failed in his obligation to do so and as a result, the Court should find that the respondent is able to meet his legal fees as and when they fall due and to take a robust approach to the application for litigation funding. In the absence of appropriate discovery and disclosure, it is submitted that the Court should readily find that the respondent has the financial resources to meet the order as sought by the applicant.
The conundrum for the parties is that other than the value of the respondent’s interest in M Pty Ltd, the balance of the pool is modest and subject to charge by Mr Q who has provided significant funds to the respondent and his father.
The applicant concedes that now that the motor vehicles and livestock have either been sold or are in the process of sale, there is no other obvious source of funds available to the applicant other than the general assertion that the respondent has the financial resource of his business.
The respondent has not assisted the conduct of the proceedings by his non-compliance with the order for discovery to update his September 2021 list of documents.
The difficulty is that there is no reason to assume that the current financial position of the respondent’s business is significantly different from the assessment of the value as determined by Mr V.
Moreover, it is not as simple as asserting that monies are owed to the respondent’s business and if they could be collected then there would be a resource available to the applicant. The consideration is more complex and must bring to account the extent to which money received by the business is then utilised in outgoings. It is not Mr V’s observation that the business has available to it significant funds surplus to requirement.
Simply making an order that requires the respondent to pay litigation funding at a particular level without there being some enforcement pathway does not assist the applicant in having the parenting proceedings disposed of.
I bring to account the provisions of Div 12A of the Act and note the five principles pursuant to s 69ZN. The tenor and focus of Div 12A is to ensure that parenting proceedings are child focused and are dealt with in a timely fashion. The paramount consideration is to assist the children by the timely resolution of the proceedings. Ongoing litigation is never in the best interests of a child.
Whilst it is not possible to anticipate the ebb and flow of litigation and therefore the extent to which legal fees can be incurred, I do not consider that there has been any exacerbation of the parenting proceedings. They are relatively straight forward and are likely to be dealt with in short compass. Whilst it is surprising that the parties have not been able to reach agreement as to the future parenting arrangements for the children, it is difficult to understand the anticipated cost of the parenting proceedings for what is likely to be a three to four day trial.
The consent orders made on 14 February 2021 were predicated upon the applicant receiving the funds from the sale of cars and livestock specifically to enable at least the bifurcated parenting proceedings to be heard and determined.
I propose to put in place orders that will have the effect of quarantining the monies to be received by the applicant’s solicitors for and on her behalf from the sale of cars and livestock, with those funds to be used for the purpose of mediation and then the parenting proceedings listed for hearing on 16 May 2022.
DISCLOSURE
The respondent does not oppose an order that he disclose documents as sought in paragraphs 2.3 to 2.5 of the Application in a Proceeding. The respondent opposes the relief sought in paragraphs 2.1 and 2.2 of the application. The documents sought by the applicant arise from the observations of Mr V in his report dated 2 February 2022 which is annexure “FF1” to the Affidavit of Ms GG filed 3 February 2022. At paragraph 30 of the report, Mr V observed the following:
The business has accumulated a material quantum of work-in-progress (WIP) and debtors. As at 30 June 2021, the combined value of WIP and debtors was $6,821,970. I note part of the reason for the high balance is the fact that the Husband has not effected write-offs in view of the current Family Law proceedings.
(As per the original)
Mr V met with Mr FF, the manager for the respondent’s business, and worked through a sample of WIP and debtor balances. The focus of Mr V was to better understand the extent to which management of WIP and debtors fall into the category of impaired, unrecoverable or recoverable.
Mr V considered that the approach of Mr FF was speculative and at paragraph 91 the following is said:
A number of patterns emerged including:
•Many balances should have been written off years ago;
•[Mr FF] would have written off many balances after performing his original assessment but it was decided not to do so in view of the matrimonial proceedings;
•There are many balances which are simply residual balances. For example, there may be a [WIP] balance from a matter where the matter has been billed and the funds collected but residual [WIP] was incurred in tidying up the matter and that [WIP] was never going to be recoverable but simply was not written off;
•There appeared to be matters where [WIP] had been billed without prior consultation with the client or without any or adequate engagement letter. There was subsequently a compromise with the client but the remaining debtor and [WIP] balances has not been written off;
•The ongoing evolving staffing complement may have resulted in inefficiencies that have reduced recoverability of balances;
•Inexperience – [Mr FF] identified a matter where the [business] was instructed to issue proceedings to recover a debt of about $6,000 for a client. The total time spent on the recovery was between $20,000 and $30,000. The client was successful and agreed to pay over the funds collected but that resulted in a significant under recovery;
•…
Mr V accepted that by a consideration of a sample of the files, the recovery of any amount in some instances was doubtful.
Mr V considered that he could proffer an opinion as to a methodology to deal with the WIP and debtors for the purposes of a valuation.
Paragraph 104 of the V report sets out the respondent’s assessment of WIP and debtors together with the tax allowance. As previously discussed, WIP or debtors that are the subject of recovery are nonetheless income into the practice and subject to expenditure and taxation.
The focus of the applicant appears to be upon the following figures:
WIP impaired $270,950 WIP unrecoverable $365,100 Debtors impaired $2,255,800 Debtors unrecoverable $3,380,500
Mr V appeared to accept the unrecoverable WIP and debtors as asserted by the respondent. He attributed a value to the business of $1,974,650 as at 30 June 2021 inclusive of personal or related entity loan balances, noting that this was before the adjustment to the impaired value of debtors and WIP with a combined after tax value of $1,895,062.
The area of contention was capable of further refinement in that Mr V records that the respondent included balances as “impaired”[3] at 100 per cent, in circumstances where Mr V considered there may be a very real risk of no recovery.
[3] Valuation Report by Mr V dated 2 February 2022, paragraph 118.
The problem is summarised by Mr V as follows:
118.… Significant work would be required to form an opinion on the recoverability of the individual balances but even then, there would be a high degree of subjectivity required. Further to that, there is a major assumption that the [business] can or will invest the time and funds necessary to convert the [WIP] and collect the debtor balances that are impaired. It is noted that a material quantum of the impaired debtors and WIP is quite old going back as much as 7 years.
The documents sought by the applicant are set out in paragraphs 2.1 and 2.2 of her application and are opposed by the respondent.
The respondent further contends that the number of files in question are over six hundred. It is also asserted by the respondent that even were there to be no issues, the very nature of the exercise that would need to be undertaken in order to satisfy the orders sought by the applicant would be beyond the resources of the business and the costs of compliance would be substantial.
To some extent the applicant recognises some of the concerns raised by the respondent and agrees that any document sought should be the subject of redaction.
The problem is not simply redacting the name of a client but rather the file itself would need to be anonymised in such a way that the information on the file would not likely disclose the identity of the client.
The exercise is forlorn of hope.
Even were the files to be the subject of some level of scrutiny and interrogation, the extent to which WIP or a debtor amount is recoverable may well be dependent upon whether enforcement proceedings are issued and if they are eventually successful in recouping and recovering some of the impaired or potentially unrecoverable WIP and debtors in a manner that is cost effective.
Principles to be applied
Chapter 6 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) imposes an obligation of full and frank disclosure on the parties to proceedings in this Court and provides specific mechanism by which that obligation must be fulfilled.
Despite the breadth of the duty to disclose, there are concerns about the over broad disclosure of documents in family law proceedings. The restriction on the obligation of discovery has been the subject of discussion as it relates to subpoenas to produce documents. Smithers J in Lucas Industries Ltd v Hewitt (1978) 18 ALR 555 at 570 said the following:
The purpose of the process of subpoena is to facilitate the proper administration of justice between parties. For that purpose it is the policy of the law that strangers who have documents may be put to certain trouble in searching for and gathering together relevant documents and bringing them to court. It is according to the same principle that persons who have knowledge of facts are put to the inconvenience of being brought to court and required to give evidence.
In Hatton & Attorney-General of the Commonwealth of Australia (2000) FLC 93-038, the relevance of documents in the context of a subpoena was considered by the Full Court and the following examples were given where a court may determine that it is proper to set aside a subpoena:
·If the subpoena is for an improper purpose, namely to obtain discovery against a third party.
·Where it might be oppressive to comply with a subpoena.
·Where a party embarks upon a “fishing expedition”.
·That the subpoena should be set aside because it lacks relevance to the proceedings.
In Martin & Martin (No 2) [2014] FamCA 232 at [28], Cronin J found that the focus of the Court should be whether it was “on the cards” that the documents would materially assist. His Honour considered his own comments in Woley & Humboldt (No 3) [2009] FamCA 546 where he said:
39.In Hudson Timber and Hardware Limited v Chaudhary Group Pty Ltd [2002] FCA 832 the Full Court of the Federal Court examined the issue of apparent relevance and said that the relevant principles governing the obtaining of documents on subpoena which have “apparent relevance” were that inter alia:
(1)The relevance of documents was not limited to documents directly admissible in themselves in proof of an issue raised in pleadings; and
(2)If a class of document which has material forensic relevance could be shown to exist, then a subpoena would not normally be set aside.
The obligation to make discovery is not in the abstract but rather, requires the parties to consider the relevance that documents may have to an issue in dispute. The objective should be to assist the Court in the disposal of an issue or the dispute in general.
At an early stage in the proceedings it is not necessarily easy to define the issues and therefore the extent to which a document or a category of documents may have a sensible relevance. As the proceedings progress, the issues are cast more clearly and accordingly, the parties are better able to ascertain what documents are truly relevant and germane to the task that the Court is required to undertake.
In recent years, superior courts have taken a more modern approach to general discovery. In part, this is as a result of the enormous amount of documentation that is involved and the burden and cost of discovery in many cases where it may not be necessary. The discovery process has been criticised as having disadvantages, including the swamping of parties with masses of material which tend to delay the proceedings and to fog the real issues.
On 1 August 2011, the Federal Court of Australia adopted the Federal Court Rules 2011 (Cth) and its revised regime for discovery in Pt 20. These changes have impacted upon the extent and the cost of discovery.
Part 20 provides for:
·Increased judicial control of discovery;
·A default or standard form of discovery (r 20.14) that requires the documents be “directly relevant” to issues in the pleadings and in the party’s “control” after conducting a “reasonable search”; and
·A more flexible and responsible non-standard discovery regime (r 20.15) that can be tailored to the specific case, such as those that are likely to be document intensive, especially where the documents are stored electronically.
The new regime for discovery in Federal Court proceedings is on the basis of two principles, namely that a party must not apply for discovery unless the making of an order will “facilitate the just resolution of the proceedings as quickly, inexpensively and efficiently as possible”[4] and that a party is not able to provide discovery unless the court has made an order for discovery.
[4] Federal Court Rules 2011 (Cth) r 20.11
The focus is to prevent unnecessary discovery: see Dennis v ChambersInvestment Planners Pty Ltd [2012] FCA 63.
In Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063, the following is said:
8.For that purpose under the 2011 Rules, discovery is to be given only when ordered by the Court rather than pursuant to any private arrangement between the parties (r 20.12). Under both sets of Rules, documents must be directly relevant to the issues raised in the proceedings by pleading or affidavit or affidavits accompanying the originating application. In addition, it is necessary that the documents must meet at least one of the following criteria (r 20.14(2) of the 2011 Rules):
(a) The documents are those on which the party intends to rely;
(b) The documents adversely affect the party’s own case;
(c) The documents support another party’s case;
(d) The documents adversely affect another party’s case.
9.While more extensive and special discovery may be permitted where the party satisfies a Court as to the need (r 20.15 of the 2011 Rules), the overriding objectives and purposes must always be borne in mind.
Accordingly, the purpose of the Federal Court Rules 2011 (Cth) is to require parties to consider the extent to which discovery is required and whether documents are necessary as being relevant to the issues raised, that a party is aware of them and that they are or have been in a party’s control.
For discovery to be the subject of an order, the document must pass the “directly relevant” test.
The test is aimed at narrowing the scope of discovery in the sense of requiring the document be directly on point and that it tends to prove or disprove the allegation in issue.
It is understood that the current proceedings do not necessarily fall within the category of “commercial proceedings”. It is also important to differentiate proceedings under the Family Law Act 1975 (Cth) where the parties may have different levels of control and advantage. In many cases, without the clear obligation on a party to make full and frank disclosure, matters that could well be relevant to the issues that the Court needs to determine may not be known by any other means.
Accordingly, the Family Law Rules impose a more generous obligation in respect of discovery than might now be the practice in other superior courts. That obligation falls short of discovery without forensic focus.
Without there being a clear basis to understand how the documents as sought by the applicant, albeit in a redacted form (if that was even possible), would assist in the Court and Mr V being better able to determine the likely extent of recoverability of impaired and unrecoverable WIP and debtors, the exercise is without forensic focus and in any event is likely to involve onerous costs of compliance which are not able to be satisfied by the applicant and may well be beyond the reasonable resources of the respondent.
It may well be that what is sought by the applicant may have relevance but it seems that the issue is best informed by Mr V rather than the Court embarking upon a process which may involve significant cost and effort but without resultant benefit.
I propose to order that the parties instruct Mr V to consider the issue of the likely recoverability of impaired and unrecoverable WIP and debtors.
I also propose to order that the costs of Mr V further considering the impact of impaired and recoverable WIP and debtors on the value of the legal practice be paid by the respondent at first instance.
THE VALUE OF THE RESPONDENT’S BUSINESS
The High Court in Commonwealth v Milledge (1953) 90 CLR 157 at 162 considered what was required in arriving at a valuation in the following terms:
it was to be decided, not by a strict adherence to precise arithmetical calculations, but by a common-sense endeavour, after consideration of all the material before the court, to fix a sum satisfactory to the mind of the court as representing the value contained in the land on [the date for valuation] … The problem was not to eliminate [idiosyncrasies] of the individual opinions; it was to form an estimate which really satisfied his Honour’s mind as being the value of the property to the plaintiff on the material date.
It may well be a possible outcome that despite the best endeavours of a single expert valuer or valuers, the evidence may not enable a court to embark upon a common sense endeavour to value the respondent’s interest and if it is attended by significant uncertainty which does not allow for the application of proper principles then the court is able to consider a sale of the asset which would bring to account any taxation liability. See Little & Little (1990) FLC 92-147, Smith & Smith (1991) FLC 92-261 at 78,759 and Lenehan & Lenehan (1987) FLC 91-814.
The respondent’s stated concern that the business is in a precarious financial position may well be a portent of the inevitability of winding up the business.
I make orders as appear at the commencement of these reasons.
I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 26 April 2022
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