Felice & Felice
[2011] FamCA 162
•28 February 2011
FAMILY COURT OF AUSTRALIA
| FELICE & FELICE | [2011] FamCA 162 |
| FAMILY LAW - PROPERTY – interim property orders – referring the papers for investigation in relation to potential of revenue fraud and other matters – whether the conclusion of proceedings should await the referral of the papers |
| Family Law Act 1975 (Cth) |
| Strahan and Strahan [2009] FamCAFC 166 |
| APPLICANT: | Ms Felice |
| RESPONDENT: | Mr Felice |
| FILE NUMBER: | SYC | 3491 | of | 2008 |
| DATE DELIVERED: | 28 February 2011 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Loughnan J |
| HEARING DATE: | 28 February 2011 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr S. Thomas |
| SOLICITOR FOR THE APPLICANT: | Lapaine Pomare & Forster |
| COUNSEL FOR THE RESPONDENT: | Mr T. Hodgson |
| SOLICITOR FOR THE RESPONDENT: | Julie Singleton Solicitors |
Orders
That the substantive proceedings be adjourned to a date to be fixed by arrangement between the legal representatives and Justice Loughnan’s associate.
IT IS NOTED
It is the intention of the Court that the adjournment facilitate any reasonably foreseeable investigation and the outcome of any such investigation arising from the referral of the papers foreshadowed on 26 November 2010.
IT IS FURTHER ORDERED
That the husband cause to be paid to the wife from the proceeds of sale of the property at L in the state of New South Wales, the sum of $40,000.00 within seven days of receipt of the proceeds of sale.
That the husband cause the solicitor for the wife to be advised of the progress of the sale of that property AND leave is granted to the parties to restore the matter to the list on giving seven days’ notice to each other and to the court in relation to that order.
That the costs of the parties be reserved.
It is noted that publication of this judgment under the pseudonym Felice & Felice is approved pursuant to s 121 (9) (g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 3491 of 2008
| Ms Felice |
Applicant
And
| Mr Felice |
Respondent
REASONS FOR JUDGMENT
These were proceedings for property settlement that were listed for hearing over three days commencing 24 November last year. At the end of that time it was discovered that there was in issue in relation to valuation that the parties thought had been resolved. Therefore the hearing needed to be adjourned. At that point I informed the parties that I would be referring the papers in relation to the potential of revenue fraud and other matters, and I wanted submissions about the timing of the referral. I was asked to put the matter over so that the wife’s lawyers could take instructions on that issue and the matter was put over to today.
The orders I made, relevantly, were the proceedings were adjourned to 10.00 am 28 February 2011 in relation to the question of the timing of a referral of the papers for investigation in relation to potential revenue fraud in respect of non payment of compulsory superannuation payments, the income tax relating to the parties, and to Business 1, and in respect of alleged practices in that business which may have the effect of perpetrating a fraud on an insurance company and others. That date was also to be the return date of any application filed on behalf of the wife for interim financial relief and served within 21 days from 26 November 2010. I made directions for filing of documents. The substantive hearing was adjourned to a date be a fixed and the court noted the proceedings were adjourned after the close of the parties oral evidence and subject to evidence in relation to the valuation of assets referred to, and evidence in relation to the outcome of the referral of papers, prior only to submissions to be made in the proceedings.
On 13 December 2010 an application in a case was filed on behalf of the wife in which she seeks, in summary, a payment within 28 days by the husband to her of $350,000 and failing that, that the husband cause the sale of a licence owned by a trust and disbursement from the proceeds of $350,000 to the wife, and the balance to the husband by way of partial property settlement. She seeks costs and an order that I don’t really understand in relation to the assessment of costs.
There is a Response from the husband. He seeks that the application be dismissed and a stay of the proceedings pending the finalisation of any investigations that result from the referral of the papers. That order is opposed by the wife but if it is granted she seeks that the stay be conditional on the payment of $350,000.
The wife says that she needs funds to pay legal fees for these proceedings; in order to acquire a better motor vehicle; and to meet a credit card debt. It is her case that the husband has, since the parties separated, had exclusive control of all of the assets of the marriage, which include interests in real estate, including the former matrimonial home which he occupies, and the control of the property of a trust, being a licence. She complains that she has not had access to those funds over the long period since separation and that will continue into the indeterminate future while any investigations are conducted. It is her case that by his formal applications, the husband has acknowledged that she should variously be paid $500,000 or perhaps $300,000 in respect of her property settlement claim. Although she does not concede that either sum is the limit of her claim, she argues that in the circumstances, it would be proper that a payment be made to her. She says that the payment would appropriately come, if the husband can’t make arrangements within his own resources, from the sale of the licence.
It is the husband’s case that there is no basis for the payment. The argument is that there are no compelling circumstances requiring a payment to the wife, that there is real uncertainty, or the potential for uncertainty in relation to the inquiries that may follow the referral of the papers, and therefore there is a question about the final pool of assets. It is submitted that it is difficult to identify the value of the wife’s property settlement claim. It is submitted that there is no pressing need on the wife’s case for money for legal fees, for a motor vehicle or anything else. It is argued that she has been managing, that there is no suggestion that without payment of their costs her solicitors would cease to represent her. Therefore, the argument goes, a conservative approach would involve not making a distribution at this stage.
I flagged with the husband’s counsel the possibility of a payment to the wife out of the proceeds of sale of a property at M, and I was told that the husband would agree to an order that the wife be paid $40,000 from those proceeds.
The argument on behalf of the wife is that I should not delay the proceedings, should proceed to make orders for property settlement. That would leave the parties with their rights under section 79A, if some serious mischief was done to the pool as a result of the referral. It was submitted on behalf of the wife that I could not make an enforceable order in relation to the proceeds of sale of the property at M because it is a property not solely owned by the husband. I was encouraged, on a number of occasions, to be brave in relation to making interim property orders in the circumstances of this case. A significant argument in the wife’s case is that it is manifestly unfair that the wife has been left out of the access to family funds for a long period, and that period is now going to be extended for some indefinite period.
There is a Full Court decision of Strahan, the neutral citation is [2009] FamCAFC 166. That case involved an application for interim costs. The wife sought an advance of $5 million. The case was said to involve a very significant pool of assets. In the course of that decision, the Full Court considered the law in relation to interim costs and the law and the development of the law in relation to interim property settlement. Relevant segments of the reasons for judgment of the majority, who were Boland and O’Ryan JJ are:
84. In Paris King Investments Brereton J, with whom on this point we agree, at [30] said that Zschokke “establishes that it is important, when contemplating an order for interim provision for litigation expenses, to identify the relevant source of power because it is the source of power that determines the necessary preconditions and relevant considerations for making the order”.
85. We also observe that in Kendling v Kendling (2008) 39 Fam LR 404 (“Kendling”) the Full Court (Finn, Warnick and Boland JJ) at [35] concluded that more than one order may be made in the course of s 79 proceedings to fund the litigation expenses of a party. We accept that more than one order may be made, and it is not essential that a second order necessarily be made under the same head of power. In other words, for example, a first order may be made under s 117 and a subsequent order may be made by way of an interim property order under s 80(1)(h) provided the power is identified, and the principles applicable to the exercise of that power are observed.
….
90. In Zschokke at 83,217 the Full Court said that “whether the matter was determined as an interim property settlement order under s.80(1)(h), or as an interim costs (or security for costs) order under s.117(2), or indeed even a maintenance order”, three matters would all be relevant, namely:
1.a position of relative financial strength on the part of the respondent;
2.a capacity on the part of the respondent to meet his or her own litigation costs;
3.an inability on the part of the applicant to meet his or her litigation costs.
The Full Court at 83,218 said that two criteria identified by the trial judge in that case “being complexity in the financial affairs of the respondent and a need for an expert investigation into those affairs” are not necessary pre-conditions for the making of an order under any of the possible heads of power. However, “the complexity of, or need to investigate, the respondent's financial affairs would be a factor or factors, the existence of which would add considerable weight to the case for an order of the type in question”.
91. In Paris King Investments Brereton J at [30] said:
Thus, where an interim order for litigation expenses is to be made as an interim costs order under s 117(2), and probably also if it is to be made as a maintenance order under s 74, there are at least three requirements: first, a position of relative financial strength by the respondent; secondly, a capacity on the part of the respondent to meet his or her own litigation expenses; and thirdly, an inability by the applicant to meet her or his litigation expenses from her or his own income assets or financial resources.
Brereton J in this passage did not suggest that the three “requirements” were relevant if an order was made under s 79 of the Act.
92. In Zschokke the Full Court at 83,215 identified further matters to be taken into account in relation to an order under s 79 and s 80 (1)(h) of the Act. The Full Court said that “[i]t would seem an essential part of such an order that the advance of funds be a matter which the trial Judge must take into account, or at least have regard to, in the determination of the final property settlement” (emphasis added). …….
…..
96. In Paris King Investments Brereton J at [30] and [31] said that in addition to the three matters described in Zschokke, where the order was made pursuant to either s 74 or s 117 of the Act:
•an applicant should have “at least an arguable case for substantive relief which deserves to be heard”: Chester v Chester (1995) FLC 92-612 (“Chester”) at 82,107 per Moss J;
•there should be evidence of the applicant’s “likely costs of the litigation”: see Wilson and Chester;
•“it is not an essential precondition” that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis: Columb and Columb (unreported, Family Court of Australia, Fogarty J, 27 November 1987); see however Coomes and Coomes (1995) FLC 92-558 per Cohen J;
•an order may “make a provision for litigation expenses at a rate that appears reasonable in all the circumstances”;
•an order can be made “in respect of costs already incurred as well as of future costs”;
•“whether the order is to be in respect of costs already incurred or costs to be incurred, and whether the applicant’s lawyers will continue to act in the absence of provision for costs to be incurred, may be relevant to the discretion to make an order, and its’ quantum”;
•“any such order should be framed to protect the parties from any risk of injustice arising from the manner in which the funds are expended” and this may be done “by requiring that the funds be administered solely by the applicant's solicitors and applied only to meet the expenses referred to in the order, with detailed records being maintained to permit review by the Court at the time of the exercise of its discretion in the substantive property proceedings or on the final determination of the issue of costs”: Breen.
We observe that Brereton J at [33] also said that “many of the foregoing considerations [he described] are less important, though not necessarily irrelevant, where what is relied on as a source of power” is an interim property order under s 79 and s 80(1)(h).
97. In Kendling the Full Court suggested at [48] that it is not necessary to require “itemised bills of costs” or that the costs “be at scale” or that a taxation or assessment under the Family Law Rules 2004 (Cth) (“the Rules”) is required. …...
…..
99. The next issue that arises is whether, if the order is sought pursuant to s 79 of the Act, there are other matters that have to be taken into account. In Zschokke the Full Court at 83,216 referred to the decision of the Full Court in Harris and said that although in that case the application was not for the provision of funds to pay for litigation expenses, the statements of principle are equally applicable to a case where there was such an application. In Harris the Full Court said at 79,929 - 79,930:
We do not doubt that the Court has power in a proper case in s.79 proceedings to make what may be conveniently described as an interim order, that is an order dealing with some of the property of the parties prior to the final hearing. We do not consider that it is necessary to draw a distinction in terminology between an “interim” order and a “partial” order.
But in the exercise of that power the following matters need to be considered:
(1) The exercise of the power should be confined to cases where the circumstances presented at that time are compelling. As a generality, the interests of the parties and the Court are better served by there being one final hearing of s.79 proceedings. However, circumstances may arise before there can be a final hearing which dictate that some part of the property of the parties should be the subject of orders. A common example is where both parties agree to the disposal of some assets pending the trial. However, we do not consider that it is confined to cases where the parties consent. Urgent situations may arise where it is necessary to exercise this power if injustice is to be avoided. Examples include cases where it is necessary to do so to avoid an asset being eroded or lost in the intervening period, and cases (beyond the maintenance power) where an order in favour of one party is necessary to preserve or obtain a home for or is otherwise necessary for the welfare of the children.
…
(2) It is an exercise of the s.79 power. Consequently it must be performed within those parameters. Since it is not the final hearing the Judge is unlikely to have the final findings, but the exercise must fall within that general framework and the material available at that time.
(3) Of necessity it is likely to be a somewhat imprecise exercise. Consequently, it must be exercised conservatively and the Judge must be satisfied that the remaining property will be adequate to meet the legitimate expectations of both parties at the final hearing, or that the order which is contemplated is capable of being reversed or adjusted if it is subsequently considered necessary to do so.
100. There is no controversy about the matters described by the Full Court in sub-paragraphs [2] and [3] in relation to the exercise of jurisdiction pursuant to s 79 and s 80(1)(h) of the Act and they are consistent with what the Full Court said in Zschokke. However an issue arises as to whether the exercise of the power referred to in sub-paragraph [1] introduced a requirement of compelling circumstances. ……
….
And later the majority says
113. There is only one exercise of the power under s 79 of the Act. However, this power may “be exercised by a succession of orders until the power … is exhausted” and the power is exhausted “when there remains no property … with respect to which orders by way of alteration of interests in property could be or have been made.”: Gabel v Yardley per Bryant CJ and Coleman J at [57]. As Finn J in Gabel v Yardley at [125] said: “it is only the final order, which deals on a final basis with all known property of the parties, which completes the one single exercise of the s 79 power”. Further, an earlier order whether made under s 79(6) or s 80(1)(h) is capable of alteration at any time prior to, or as part of the final exercise of the s 79 power: Gabel v Yardley per Bryant CJ and Coleman J at [69] – [73] and Finn J at [126].
The approach to an application for an interim property order
114. Given that there is only one exercise of power under s 79 of the Act and that it is preferable that there be one final hearing of s 79 proceedings, an issue arises as to the circumstances in which there may be an earlier exercise of the power. We propose to only deal with this issue in the context of s 80(1)(h).
….
118. We agree with the submissions of senior counsel for the Wife in relation to the approach to be taken to the hearing of an application for an interim property settlement order. There are two stages to the hearing of such an application where the power is to be exercised pursuant to s 80(1)(h) of the Act. This is recognised by the fact that although the power under s 79 should ordinarily be exercised on a once only basis, “circumstances may arise before there can be a final hearing” where the power is exercised. Thus the first step is to resolve whether to exercise the power before a final hearing and if it is resolved to do so then the second step involves the exercise of that power.
119. The power to make an order for costs pursuant to s 117 of the Act may not require the two stage approach because the power in that provision may be exercised at any time during proceedings and what has to be established are “circumstances that justify” the making of an order. …...
….
123. In considering the Full Court’s use of the expression “compelling circumstances” in Harris it is important to remember, as Reithmuller FM recently observed in Wenz v Archer (2009) 40 Fam LR 212 (“Wenz v Archer”) at [49], referring to the reasons of the Full Court (Kay, Warnick and Boland JJ) in Mullen and De Bry (2006) FLC 93-293, that “some care needs to be taken to ensure that explanations of the reasons for the result in a particular case should not be taken as new principle”.
And later the majority says
132. In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
133. In Harris at 79,930 the Full Court gave some examples of circumstances where it may be appropriate to exercise the power being “where both parties agree to the disposal of some assets pending the trial” and “[u]rgent situations” to avoid injustice. Another example is where, as in this case, one party requires funds to assist in defraying the costs of litigation without which funds an injustice may be caused.
134. Then turning to the substantive step we adopt what the Full Court said in Harris at 79,930 in relation to the second and third matters which we will now discuss.
135. In relation to the second matter, as the jurisdiction under s 79 of the Act is being exercised the provisions of that section must be considered and applied but with limitations given that it is not the final hearing. There is also no requirement of compelling circumstances in relation to the substantive step.
136. As to the third matter identified at 79,930 by the Full Court in Harris, in discussion before us it was described as the “adjustment issue” or “claw-back issue”. It was submitted by senior counsel for the Wife that it is relevant to consider whether an order would give the applicant “more than they would be indubitably entitled to on a final hearing” or alternatively “would it give them so much that it could not be adjusted on a final hearing?” As we have observed the Full Court in Zschokke at 83,220-221 stressed the importance of consideration of the “adjustment issue” if the power in s 80(1)(h) of the Act is being exercised. We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. As Finn J said at [126] the interim order must be “capable of alteration at any time prior to, or as part of, the final exercise of the s 79 power”.
137. Once a court proceeds to exercise the power in s 79 of the Act, being in the substantive phase, a court is required to undertake consideration of the matters in s 79(4) including by reference to s 79(4)(e) the matters in s 75(2) so far as they are relevant. However consideration of such matters may be brief and if it is established that “it seems likely to the Court that … the applicant … will be likely receive by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made”: Zschokke; Polletti and Polletti per Nygh J and Wenz v Archer. As senior counsel for the Wife submitted, “provided scope can be found within the assets of the parties for an order of the size sought … then that should be the end of the matter”. In other words, in such circumstances the applicant would only be receiving what he or she was entitled to receive when the power was exhausted.
138. The legislation does not prescribe what the Full Court in Zschokke at 83,218 described as “preconditions” and nor would we seek to exhaustively prescribe matters that may be relevant to take into account in the exercise of the discretion under s 80(1)(h) of the Act. As to the three “criteria” identified by the Full Court in Zschokke, we accept that an inability on the part of an applicant for an interim property order to defray the costs of litigation to meet his or her litigation costs would be a relevant matter to take into account at the procedural or first stage. Senior counsel for the Wife submitted that it may be relevant at the substantive or second phase in reviewing the “necessarily limited and impressionistic budget for costs” to ensure that the application is bona fide. We are of the view that it may be that any issue about the bona fides of an application is relevant at the procedural phase in the context of considering if in the interests of justice it is appropriate to make an order before the final hearing.
139. We also emphasise that in order to establish an appropriate case for an interim property settlement order more is required than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.
140. As to the other matters being a position of relative financial strength on the part of the respondent to an application and the capacity of the respondent to meet his or her own litigation costs, there is no doubt that the financial circumstances of both parties are relevant at the substantive stage and may also be relevant at the procedural stage. Senior counsel for the Wife submitted that all of the matters discussed by the Full Court in Zschokke are self-evident and we accept that this is so in relation to at least two of the matters being the need for funds and the financial circumstances of both parties.
141. As to the various matters discussed by Brereton J in Paris King Investments which we have discussed above, we do not propose to deal with all of what his Honour said, however we make the following observations about some of the matters. Obviously the applicant should have “at least an arguable case for substantive relief which deserves to be heard”. Further, in determining at the procedural stage whether to exercise the jurisdiction there may need to be evidence of the applicant’s “likely costs of the litigation” given that the need for funds to defray litigation costs and expenses is the circumstance propounded as to why it is appropriate that an order be made. We also accept that “it is not an essential precondition” that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis.
Learned counsel for the wife was not able to take me to a principle, that says, one party not having access to the matrimonial funds for any period, is a basis in itself for considering such an order. Something more is required that just asking for access to funds.
On the other hand I can make an interim order in favour of the wife, inter alia as an exercise of power under section 79. That should be done conservatively. There are no pre conditions to the making of such an order but an order should not be made in the wife’s favour that could be greater than she would receive as a final settlement of property. There is no requirement to find compelling circumstances. There is no requirement for interim costs that a solicitor would abandon a client without payment of costs.
If I was to be brave, as Mr Thomas invited me to be, it seems to me that perhaps even beyond the formulations that have been used in those authorities, consideration is needed of the unique circumstances of family law property proceedings. What is being sought here, is not the property of another party. The wife seeks access to her own money. In those circumstances, and subject to the requirement not to take a step that cannot be undone, it is illogical that there would be any restriction on access to those funds or any detailed enquiry as to the purposes for which the funds are to be used. It should matter not whether funds are sought to replace a refrigerator or a motor vehicle or to take a trip to Acapulco. As is often said, life does not stop between separation and final orders. It is not for the court or for the husband to second guess the wife in relation to whether a motor vehicle is using too much petrol, or whether it is safe or unsafe. As I say, these are the parties’ assets, and whether she wants to use the money for that or for some other purpose is neither here nor there. To the extent that the head of power would be maintenance, one would allow a level of latitude in terms of somebody setting out their needs, whether it is to pay debts, or whether it is to replace a tired asset in the interim proceedings, on the basis that that could be remedied on a final basis.
The Court should not exhaust the power under section 79, or to take a step which means that something is done that cannot be undone, in aid of a just and equitable division of property. The circumstances here are difficult because the referral of the papers does not involve a single issue. There is the potential for revisiting of social security payments over several years, and of course there is the issue about penalties that might arise in relation to that. There are the taxation implications that might arise in relation to income tax, in relation to payroll tax, in relation to the requirements for superannuation contributions; and then there is the issue about the outcome of an investigation in relation to the dealings between Business 1 and its clients, whether insurance companies or otherwise.
So if ever there was a case where one couldn’t be confident about quarantining the damage that might be caused in the worst case by a referral, this is it. Thus it is very difficult to identify an amount that would unambiguously be available for division between the parties. Further, as has been raised by both counsel, there is the issue of knowledge and complicity. If there is found to be a problem in one of those various areas, there is a question as to whether that is something that would be visited against one party alone, in which case recourse in the first instance would be had to the assets of that party, or whether it is something that the parties should share responsibility for.
On the other side of the coin, an interim step which jeopardises the former matrimonial home, has implications not just for the interim housing of the husband, but also the parties’ children. The husband objects to the interim sale of the licence in that it is the source from which the mortgage on the former matrimonial home is being serviced. There is nothing in that argument as it would be open to the husband to argue for part of the licence proceeds to apply to the mortgage by reduction of the principal or by application of funds to mortgage instalments.
I cannot lay at the feet of either party particular responsibility for anything that might be found to arise out of the investigations that may result from the referral of the papers. That means I cannot assume, for example, that any damage done to the husband by an interim distribution is fair enough, because he will be found solely responsible for the conduct that has given rise to the referral of the papers. I am not in a position to make that finding.
I have indicated already that the husband will agree to an order in relation to the property at M proceed and I will make that order. I concede the concern raised on behalf of the wife that the husband cannot cause compliance with that order but inasmuch as he has consented there is a very strong case if the payment is not made, to look for other ways of providing funds to the wife.
So in relation to the two issues that I am to determine:
Whether the balance of the proceedings should await the investigations.
Because of the breadth of the referral and the possible consequences, it seems to me that the conclusion of the proceedings should await the referral of the papers and the reasonable foreseeable consequences of that referral. Of course, the parties can bring the matter back and argue that, through the effluxion of time or through advice received from the various authorities, the hearing should continue.
Interim property settlement
For the reasons that I have given, I will make the order that has been flagged with the parties.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Loughnan delivered on 28 February 2011.
Associate:
Date: 10 March 2011
16
0
1