Edson and Whitney and Anor

[2020] FamCA 184

FAMILY COURT OF AUSTRALIA

EDSON & WHITNEY AND ANOR [2020] FamCA 184

FAMILY LAW –PROPERTY – Interim – Litigation funding – Where the husband seeks litigation funding from the second respondent – Where the second respondent is involved to protect her own assets – Where it is not just and equitable to make an order – Where the husband seeks a dollar-for-dollar order against the wife – Where the wife’s litigation is funded by her brother – Applications dismissed.

Family Law Act 1975 (Cth) s 117(2)

Knight v FP Special Assets Ltd (1992) 174 CLR 178
McAlpin & McAlpin (1993) FLC 92-411

APPLICANT: Mr Edson

1st RESPONDENT: Ms Whitney

2nd RESPONDENT: Ms B Whitney

FILE NUMBER: SYC 299 of 2018

DATE DELIVERED: 25 March 2020

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Rees J

HEARING DATE: 11 March 2020

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Batey

SOLICITOR FOR THE APPLICANT: Diamond Conway Lawyers

COUNSEL FOR THE 1ST RESPONDENT: Ms Clifford

SOLICITOR FOR THE 1ST RESPONDENT: Barkus Doolan

COUNSEL FOR THE 2ND RESPONDENT: Mr Johnston

SOLICITOR FOR THE 2ND RESPONDENT: Brown Wright Stein

Orders

IT IS ORDERED

1. That the husband’s application for the payment of lump sum costs by the 2^nd respondent is dismissed.

2. That the husband’s application for an order requiring the 2^nd respondent to waive security held over property owned by the wife is dismissed.

3. That the husband’s application for the payment of lump sum costs by the wife is dismissed.

4. That the husband’s application for a “dollar for dollar” costs order is dismissed.

5. That the matter be referred to a registrar for directions to enable the application of the husband pursuant to section 106B of the Family Law Act to be listed for hearing as a threshold matter.

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 Edson & Whitney 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: SYC 299 of 2018

Mr Edson

Applicant

And

Ms Whitney

Respondent

And

Ms B Whitney
Second Respondent

REASONS FOR JUDGMENT

1. Mr Edson (“the husband”) and Ms Whitney (“the wife”) married in 2001 and separated physically in 2018. They have two children aged 17 and 15 who live with the wife.

2. The substantive proceedings, relevantly, relate to property settlement.

3. The matter comes before the Court by way of the husband’s Application in a Case, seeking an order for the provision of litigation funding.

4. It is necessary to give some context to this application. What follows does not purport to be exhaustive and may contain inaccuracies being gleaned primarily from the husband’s chronology.

5. When the parties married, the wife owned a house in E Street, Suburb H (“E Street”) and a house in G Street, Suburb H.

6. In 2004, they purchased, in joint names, a property at F Street, Suburb H (“F Street”) for $885,700. That purchase was funded by a gift of $200,000 from the wife’s parents and a loan from the wife’s parents of $690,000 secured by mortgage.

7. In late 2007, the wife sold E Street for $626,000 and F Street for $935,000 and purchased D Street, Suburb C for $1,300,000 with a mortgage of $660,000.

8. On 13 December 2012, the wife signed a Deed of Loan (“the first Deed”) acknowledging advances totalling $1,040,000 from her mother. Interest was payable on the principal sum at the rate of 10 per cent, I assume compounding. The wife asserts that the amount now owed to her mother, pursuant to the first Deed, is in excess of $3,616,000.

9. The husband was not made aware of the execution or existence of the first Deed of Loan.

10. The wife deposed that the advances secured by the first Deed were made between 1989 and 2011.

11. The wife contends that, in addition to the money secured by the first Deed of Loan, and pursuant to a second Deed of Loan (“the second Deed”), she owes her mother other sums totalling almost $350,000.

12. In May 2013, the wife executed a mortgage in favour of her mother pursuant to the first Deed.

13. The husband and the wife separated in November 2013 or early 2018.

14. The sums asserted to be owed to the wife’s mother exceed the assets of the wife and, perhaps, of the marriage.

15. The wife, in her substantive application, seeks that there be no adjustment of property between the husband and the wife. That would have the effect that the husband would retain his superannuation which for the purpose of this application he values at $429,000.

16. In the course of submissions I was told that the husband has filed an application to set aside, I assume, the first and second Deeds of Loan and the mortgage, although I am unable to locate such an application on the file. The wife’s mother, I assume as a result of that application, has now been joined as the second respondent.

17. The other relevant asset of the marriage is the husband’s interest in a self- managed superannuation fund (“SMSF”). The assets of the fund include real property which will have to be valued to ascertain the value of the interest.

THE APPLICATION IN A CASE

1. The husband seeks orders in the following terms:

   1.That within 21 days the 2^nd Respondent... pay to the [husband]... a sum of $180,000 on account of the Husband’s legal expenses in respect of these proceedings and to be brought to account by the Trial Judge at the final hearing.

   2.That in default of the 2nd Respondent paying the monies referred to in paragraph 1, within 21 days of the making of these Orders, the [wife] will no later than 21 days thereafter do all acts and things and execute all documents necessary as to apply to borrow $180,000 on a capitalised basis (“the loan facility”) from a financial institution which loan facility to be secured against the property known as G Street, Suburb H... to be brought into account by the Trial Judge at the Final hearing.

   ...

   5.That in the event Orders in terms of paragraphs 1 and 2, of this application are not made, then payment for any valuations made in these proceedings be paid by the Wife and/or 2^nd Respondent in the first instance with the Husband’s share of the cost of the valuations to be determined by the Trial Judge.

2. In his Case Outline document, counsel for the husband sought a further order to the effect that the second respondent do all things necessary to lift any caveat or registered mortgage to permit the registration of any security necessary to permit the wife to give security for the borrowing of $180,000.

3. Further, the husband sought a “dollar for dollar” costs order in relation to any money paid by the wife, or on her behalf, in relation to legal, accountancy and valuation costs rendered to her.

4. The husband’s application is opposed by the wife and the 2^nd respondent.

5. It would appear from the Case Outline document of counsel for the husband that it is contended that the source of power for the “dollar for dollar” order is s117(2) of the Family Law Act 1975 (Cth).

6. In the course of argument, it was conceded that, in relation to the lump sum order, section 79 (by way of an interim property order) is not available as a head of power because, if the wife is successful in her contentions, there will be no payment to the husband and thus it cannot be contended that there could be restitution of any money paid pursuant to the interim order.

7. I do not consider that appropriate restitution could occur by making a splitting order in favour of the wife out of the husband’s superannuation entitlement in circumstances where the wife is 54 years old and in employment. A splitting order could not compensate her for a present liability which she would be required to repay by making payments to a bank or other institution now.

8. Thus I propose to consider the matter on the basis that the power to make the order sought is found in section 117(2).

9. There is no doubt that there is power to make an order for costs against a third party, in this case the 2^nd respondent.

10. In Knight v FP Special Assets Ltd (1992) 174 CLR 178, Mason CJ and Dean J stated:

    For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.

11. The Full Court of the Family Court in McAlpin & McAlpin (1993) FLC 92-411, having considered those and other authorities stated:

    We do not think that we should conclude our discussion of the matter, however, without saying that we think that the approach taken by his Honour in this case, is one that should be taken with great caution. It is one thing for a family or organisation to stand behind a party in proceedings under the Family Law Act, either by paying their costs or supporting them in the course of the litigation, but it is quite another matter, in most cases, to make orders against an impecunious party in the expectation that such other person or persons will discharge the orders on their behalf.

12. The husband seeks orders, firstly against the second respondent, then against the wife, for the payment of a lump sum of $180,000. If he is unsuccessful in the application for a lump sum, he seeks a “dollar for dollar” order.

APPLICATION FOR 2^ND RESPONDENT TO PAY A LUMP SUM

1. The second respondent became a party to the proceedings by virtue of the husband’s application to set aside the transactions between her and the wife.

2. There is no evidence that her involvement in the proceedings is on any basis other than the protection of her own interests.

3. There is no evidence that the 2^nd respondent is providing the wife with funds to pay her legal costs in these proceedings although she did assist the wife in funding other, unrelated, proceedings in the Supreme Court of New South Wales.

4. The wife deposes that she has a loan from her brother for legal fees in the sum of $111,000.

5. It cannot be asserted that the second respondent comes within the criteria suggested in Knight v FP Special Assets.

6. Exercising that “great caution” to which the Full Court referred in McAlpin, I cannot find that it would be just and equitable to make such an order against the second respondent.

APPLICATON THAT THE 2^ND RESPONDENT WAIVE HER SECURITY OVER REAL PROPERTY

1. The only substantial asset of the husband is his interest in the SMSF. It is conceded that there is no power to make any splitting order from the SMSF for the benefit of the 2^nd respondent.

2. That being so, there is no possibility that, if the 2^nd respondent were required to waive her security to allow the wife to borrow $180,000, thus diminishing the security for her asserted loan, and if the husband’s challenge is not successful, the 2^nd respondent can ever be compensated by the husband for her loss.

3. I am not required to determine whether there is power to make such an order in those circumstances.

4. It would not be just and equitable to interfere with the security where the beneficiary of the security could not be compensated for any loss occasioned.

APPLICATION FOR THE WIFE TO BORROW $180,000

1. It is clear from the wife’s Financial Statement, and appears to be conceded by the nature of the order sought, that she does not have $180,000. She discloses an income of $1,535 per week and expenses of $3,318. There was no challenge to those assertions. Thus on the face of her Financial Statement, the wife has no capacity to repay a loan and it is difficult to see how a prospective lender would be satisfied that she has such a capacity.

2. The next obstacle to the wife’s capacity to borrow is the security held against her real estate by the second respondent.

3. I have already determined that the 2^nd respondent should not be required to waive her security.

4. Thus I am not satisfied that the wife has capacity to borrow against her property.

THE “DOLLAR FOR DOLLAR’ APPLICATION

1. The wife has no capacity to meet such an order. She is borrowing from her brother to pay her legal fees.

2. I do not propose to make an order against the wife in the expectation that her brother will discharge her obligations on her behalf.

3. The husband’s applications will be dismissed.

4. However, in those circumstances, it is appropriate that the husband’s application to set aside the security held by the second respondent should be dealt with as a threshold issue and the matter will be referred to a registrar for directions to enable that matter to proceed.

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 25 March 2020.

Associate:

Date:  25/03/2020