Finazzi & Finazzi
[2012] FamCA 102
•1 March 2012
FAMILY COURT OF AUSTRALIA
| FINAZZI & FINAZZI | [2012] FamCA 102 |
| FAMILY LAW – PROPERTY – Partial property settlement – where wife seeks $350,000 to pay legal fees and other expenses – where approximately $1.4 million has already been spent by the parties on legal and expert fees, of which the wife has paid the significantly greater proportion – where the trial is yet to conclude – where further fees will be incurred when the trial is completed – whether the interests of justice require the exercise of power under s 79 and s 80(1)(h) on an interim basis – where the wife provides evidence that she is unable to obtain funds from elsewhere to pay her legal fees – where the funds sought must be obtained either by way of further loan from the husband’s business, or through the sale of certain real property – where the husband says he cannot borrow the amount sought from the business (without running the risk of sending the business into liquidation), and should the properties be sold, loans over the properties will result in the bank immediately taking 90 per cent of any proceeds – where neither one party nor the other should be in a more advantageous position in respect of the payment of fees in preparation for trial when the source of funding is the business – where orders made providing for a payment of up to $150,000 to each of the solicitors for the wife and the husband. |
| Evidence Act 1995 Family Law Act 1975 (Cth) |
| Blueseas Investments Pty Ltd & Mitchell (1999) FLC 92-856 JEL & DDF (2001) FLC 93-075 Steinbrenner & Steinbrenner [2008] FamCAFC 193 |
| APPLICANT: | Ms Finazzi |
| RESPONDENT: | Mr Finazzi |
| FILE NUMBER: | BRC | 3023 | of | 2010 |
| DATE DELIVERED: | 1 March 2012 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Murphy J |
| HEARING DATE: | 20 February 2012 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Page SC |
| SOLICITOR FOR THE APPLICANT: | Jones Mitchell Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Kirk SC |
| SOLICITOR FOR THE RESPONDENT: | Hopgood Ganim Lawyers |
Orders
IT IS ORDERED THAT
As and by way of partial settlement of property pursuant to s 79 of Family Law Act 1975 (Cth):
As and from the date of this Order each of the parties shall do all such things and sign all such documents as might be needed so as to require their respective legal practitioners to:
(a)provide to each of them via e-mail a memorandum of account in respect of costs and outlays owing by each of them to their respective legal practitioners as at 4.00pm on Friday 16 March 2012 and by that time on each second Friday thereafter;
(b)provide contemporaneously therewith to the solicitor for the other party via e-mail a copy of each such account
The husband shall, within five (5) working days of the receipt of each of the accounts referred to in paragraph 1 of these Orders:
(a)cause to be paid to his legal practitioners and the legal practitioners for the wife the amount of each such account until he shall have paid to each such practitioner not more than the total amount of $150,000;
(b)contemporaneously with each such payment, cause to be provided to the legal practitioners for the wife all such documents as are necessary so as to identify the source of the funds so paid and the manner in which all such payments are entered in the books of account of the entity or entities from which the payments emanated.
Upon payment by the husband of a total amount of $150,000 to each of his legal practitioners and the legal practitioners for the wife in accordance with paragraphs (1) and (2) of these Orders:
(a)Paragraph 1of these Orders be discharged; and
(b)Each of the parties shall thereafter and until the conclusion of the trial of this matter provide to the other via e-mail a copy of each and all accounts received by each of them from their respective legal practitioners within five working days of receipt of same; and
(c)each of the parties be restrained from making any further payments to their legal practitioners unless and until the party first gives not less than 14 days notice of their intention to pay any such fee, specifying the amount intended to be so paid and the source or sources of funds intended to be used in respect of any such payment or unless the court otherwise grants leave.
The question of how each and all payments provided for in these Orders shall be treated as between the parties in the final settlement of property between them be reserved to the trial before Murphy J continuing from 4 June 2012.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Finazzi & Finazzi has been approved by the Chief Justice pursuant to s 121(9)(g) of the Act.
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 3023 of 2010
| Ms Finazzi |
Applicant
And
| Mr Finazzi |
Respondent
REASONS FOR JUDGMENT
The trial of the proceedings for settlement of property between the parties to this marriage commenced on 12 December 2011. In the lead up to those proceedings it became clear that expert evidence central to their determination would not be available, or, at least, not available so as to permit both parties to be prepared in respect of it. The trial was adjourned part-heard to be heard over a further five days commencing 20 February 2012.
On 20 February, a voluminous report from a single expert accountant, Mr B, was filed. The parties each have “shadow experts” and earlier directions have been made with respect to the expert evidence emanating from Mr B and those experts. On 20 February it was again necessary to adjourn the trial part-heard. The matter is now listed to be finalised over five days from 4 to 8 June 2012.
Against that background, the wife has filed an Application in a Case seeking a partial property settlement.
The Application and Response
The wife seeks the following orders:
1.That the Husband pay to the Wife the sum of three hundred thousand dollars [sic] ($350,000) with such sum to be paid to such bank account as nominated by the Wife in writing on or before 10.00am on 20 February 2012.
2.In the event that the Husband fails to meet the payment pursuant to Order 1 above, each [sic] the Husband and Wife, in their personal capacity and in their capacity as trustee and/or director of the relevant entities, shall do all acts and things and sign all documents required to sell the following properties [properties thereafter specified].
3.That the proceeds of sale of each property referred to at Order 2 above shall be distributed in the following manner and priority:-
a)To discharge all debt secured by mortgage against the relevant property; and
b) The balance to be paid to the Wife.
4.That the Husband meet the Wife’s costs of and incidental to this Application.
5. Such other Orders as this Honourable Court deems appropriate.
That Application is resisted by the husband who seeks an order that the Application be dismissed.
It is asserted on the husband’s behalf that there is no evidence before the Court that the wife’s legal practitioners will not continue to act for her if the orders sought are not made; that the husband has no capacity to meet any such orders; and, consistent with principles laid down by the relevant authorities to which reference will shortly be made, that the wife has herself the capacity to obtain the funds to meet those costs.
In an overarching sense it is argued on behalf of the husband that the order is not necessary to establish a “level playing field”, that being a theme in the context of the overriding requirement to achieve justice and equity evident from the relevant authorities.
On 9 November 2011 I made an order that the husband should pay one half of valuation fees the total of which were estimated at about $100,000. I said in reasons at that time:
7.The parameters of the property dispute to be determined by me are these. The wife’s case is that she could receive not less than 40 per cent of a net pool which she says could not be less than $45 million. That is to say she would receive in the region of about $18 million, inclusive of any property which she currently retains.
8.The husband contends that the “pool” will likely have a net value closer to $30 million and that the wife will receive not greater than 25 per cent of that pool. It is also said that she already has about $6 million. Thus, it is contended, her entitlement will be about $1.5 million from the husband.
I also observed in those reasons that:
17.The husband contends that the significant business interests which he has are facing very difficult times. He deposes that the group is presently behind in its payments to the bank and has only been able to make one amortisation payment during this calendar year of just over $100,000, and that the group has been unable to pay the $125,000 per month required of it by the bank.
The evidence before me on this Application indicates that events have moved on significantly in the three months since that judgment was delivered.
It was recognised in Strahan & Strahan (2011) FLC 93-466, to which further reference will be made below, and in cases decided since (see e.g., Vanin & Vanin [2012] FamCA 16, per Watts J), that imprecision will attend many of the calculations which need to be performed at this interim stage of proceedings. That is all the more so in a case such as the present where not only is the value of “the property of the parties or either of them” within the meaning of s 79 significantly in issue, but the asserted difference in the values contended for could be in the region of $15 million.
The Existing Levels of Costs
One cannot help but be troubled by the amount of legal and other costs in this litigation. This is not a piece of commercial litigation between multinational corporations; it is a s 79 Application in respect of the property of two individuals who are parties to a marriage – a marriage, it might be added, of some 15 years duration.
Ms Murray, a solicitor in the employ of the solicitors for the husband, deposes to the husband having paid legal and expert’s fees of about $300,000 as at 12 December 2011. The wife deposes to having incurred legal and expert’s fees totalling just over $1 million. The combined total of legal fees and amounts paid to other experts is, then, nearly $1.4 million to date. There is yet to be a trial concluded. It is estimated the combined total of fees for the finalisation of that exercise will exceed $300,000. The expenditure of the best part of $2 million in fees on litigation between former marriage partners borders on the obscene.
It is said that a significant portion of the costs incurred by the wife and, as a result, the disparity in expenditure between the parties, is explained by the husband’s recalcitrance and failure to disclose documents and/or information. In that respect, it is asserted that the wife will seek an order for costs in respect of that issue irrespective of the outcome of the proceedings.
The $350,000 claimed by the wife in these proceedings comprises $30,000 in outstanding fees to her solicitors; $5,000-$10,000 in respect of the instant application; $95,000 being “legal fees incurred up to the commencement of the hearing on 20 February 2012”; an estimate of $50,000 in respect of the legal fees incurred at the hearing itself [that is to say the 20 February 2012 hearing which is part heard], giving a total of about $180,000. An additional amount of $165,000 is claimed in respect of “[m]onies to service my borrowings and my general living costs and expenses pending final judgment and/or my receipt of settlement monies.” A significant proportion of the borrowings pertain to legal fees.
The “Pool” and Potential Outcomes
A report from the single expert Mr B (Exhibit B1) postulates two scenarios with respect to the “[J Group]” (“the Group”) which, for present purposes, it can be accepted is the repository for the majority of the wealth of the parties. Scenario one postulates the Group as a going concern. Scenario two postulates it being “unable to continue as a going concern”.
Those two scenarios also involve differences in the valuations of real property forming part of the assets of the Group. Mr B’s upper limit adopts the wife’s property values for that real property and postulates the value of the Group as a going concern at $25.8 million and, if unable to continue as a going concern, at $15.9 million.
Mr Kirk SC, who appears on behalf of the husband, points out that Mr B’s valuation (which is subject to challenge by Mr L who will be called as an expert on behalf of the husband) postulates a significant goodwill component in the former scenario. The husband (and Mr L) each say there is no goodwill in the Group. The valuation also includes an amount of $4 million for a rent roll which the husband also asserts has a nil value. Further, Mr B’s valuation takes no account of what is asserted to be significant taxation liabilities. Those issues provide at least some indication of the extent to which there might be a variation in the “pool” as ultimately found.
Mr Page SC argues on behalf of the wife that the husband’s contention that the wife receive 25 per cent of the net assets based on a net value of $20 million, with the wife retaining property with a gross value of about $6.6 million would see the wife needing to be able to repay to the husband $1.95 million if she was to be awarded the $350,000 which she seeks in this Application. It is clear from the evidence to which I have just referred, that there is the potential for that $1.95 million figure to be significantly greater in the event that “the pool” is significantly less than the $20 million forming the basis of the calculation just referred to. Of course, many other permutations are possible.
Despite this, the essence of the argument advanced by Mr Page SC is that the payment to the wife can be “clawed back” because there is property currently in the hands of the wife which she is restrained from dealing with which would permit of the money sought by her being repaid if a scenario significantly more pessimistic than that for which she contends is ultimately found by the Court.
The main thrust of the argument made on behalf of the husband, however, is that the husband, who funds his domestic and business expenditure from the Group (predominantly, I gather, by way of drawings to a loan account held in his name within an entity or entities within the Group) does not have the capacity to pay the $350,000, nor has it been established that he has any such capacity.
It is common ground that the National Australia Bank which is the financier (or at least principal financier) for the Group has required the Group to sell down assets in order to meet a structured repayment program in respect of its significant borrowings with that bank. It also appears to be common ground that the bank’s agreement with the husband on behalf of the Group is that the bank shall retain 90 per cent of the sale proceeds of real properties sold in accordance with that arrangement, with the Group/husband retaining 10 per cent. Sales have occurred and are continuing.
The central assertion by the husband is, then, that there is no capacity to meet the orders sought by the wife. The wife accepts that the husband bases his opposition on the assertion that “he is not in a position to advance any amount to the wife and asserts that he is unable to meet payment of his own legal and accounting expenses” (par [2] written outline for the wife).
What Principles are Applicable to This Application?
In written submissions, counsel for the wife contends that the power to be relied upon for the orders sought is found in ss 79 and 80 of the Family Law Act 1975 (Cth) (“the Act”).
The foundation for the line of authority that might be described for convenience as culminating in the decision of the Full Court in Strahan can, as it seems to me, be traced back to what the Full Court said in Blueseas Investments Pty Ltd & Mitchell (1999) FLC 92-856 at [54]: a “…highly relevant matter that distinguishes litigation under the Family Law Act from ordinary civil litigation … is the fact that very often the wealth of the parties is controlled by one rather than both of them.” In my view, that proposition can be seen to be borne out in this case.
One of the consequences that flows from that position (as is the case here) is that this control brings with it a significantly more intimate knowledge of the workings of the Group by one party than that possessed by the other party. Here, Mr Page SC submits that this is evidenced by reference to the reliance placed by the husband upon the financial controller for the Group, Ms M.
In Strahan the majority (Boland and O’Ryan JJ) referred to a two-step, or two-phase, process in determining an Application of the type under consideration in the present case. The first stage (where the issue is “procedural” or “adjectival”) requires a determination of whether the interests of justice require the exercise of power under s 79 and s 80(1)(h) on an interim basis. In that regard, it was authoratively determined that it is not necessary for an applicant to show “compelling circumstances”.
In doing so, the majority held (at [132]), “[i]n 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.” Thereafter, their Honours made clear that the Court is obliged to consider the provisions of s 79 of the Act, but subject to the limitation that the Application pertains to an interim hearing rather than a final hearing.
Thirdly, and importantly, consideration must be given to the “adjustment issue” or the “clawback issue”, or the “reversibility” of the order (see also Zschokke & Zschokke (1996) FLC 92-693; Gabel & Yardley (2008) FLC 93-386).
The majority in Strahan also pointed out 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” (at [139]).
Their Honours also referred to the need to balance “…the risks of unduly limiting the final orders that can be made (or even potentially defeating parties’ claims or legitimate expectations) against the circumstances said to show that it is just and equitable to make interim orders.” In doing so, the Court cited with approval the remarks of Reithmuller FM in Wenz & Archer (2008) 40 Fam LR 212 at [52].
What is required in addressing “the first step” has been described in a number of different ways (see the discussion in Strahan at [128]; citing Reithmuller FM in Wenz & Archer). They include:
· The consideration of the need for, and effect of, interim orders weighed against the risks that the exercise of the power on an interim basis will interfere with the power of the court to make “just and equitable orders on a final basis…”
· The order must be just and equitable; according to at least a preliminary view of the likely “range of outcomes”.
· Balancing the risks includes a consideration of not only the quantum of the orders but also the risk of “unduly limiting the final orders that can be made (or even potentially defeating parties’ claims or legitimate expectations)…”
· A party who “…has an irresistible claim to a substantial share of the property of the parties should [not] be held out of that property while the matter is litigated, left to rely upon applications for exclusive occupation of the matrimonial home or spousal maintenance alone, particularly where the parties are asset rich but have relatively modest incomes …”
· A party should not “…be denied the ability to liquidate assets when there are real needs for those resources, such as to meet debts which may result in the party being pursued by creditors…”
The Wife’s Arguments in Support of the Order
It is said that the wife’s costs have been very significant and that “…unfortunately the Wife will continue to have to pay such costs and expenses.” The report of the single expert Mr B is voluminous and complex and the wife will need to receive advice in respect of it. The wife has retained, and will call, her own adversarial expert and she needs to obtain a report from that expert and, presumably, seek advice from that expert as well. It is also said that the wife “…seeks continued disclosure by the Husband. So also the Husband seeks continued disclosure by the Wife.” Finally, it is pointed out that the trial will take a further 5 days in June.
It is clear, for the purposes of the current proceedings that, as the wife contends, the husband is in control of the vast majority of the parties’ wealth. It is also clear, at least for the purposes of this Application, that there is a significantly greater knowledge and understanding of the workings of the Group on the part of the husband when compared to that of the wife.
It is also true, as contended by the wife, that the husband has at his disposal an employee who has intimate knowledge of the Group and works as its financial controller. I agree that this presents a significant advantage to him in terms of knowledge and understanding of the financial workings of the Group and any projections about it, its future profitability and its capacity to meet all expenses as and when they fall due. That advantage extends to dealing with the complexities associated with the preparation of this litigation.
The affidavit of the wife deposes: “I am advised by my lawyer that his firm requires payment up front, and that the firm is not prepared to ‘carry’ my costs and outlays in these proceedings.” That deposition occurs in the context of the wife also deposing in that same affidavit that the “…total value of our joint and separate net assets is approximately $43,000,000…” and that her solicitors have advised her that she has “…a strong prima facie case and good prospects of obtaining a final property settlement for an amount in excess of that which the Husband has sought in his Initiating Application …, being 25 per cent of our joint separate net assets…”
That is, the wife deposes that, based on her contention as to the “pool” and her advice as to her “worst case scenario”, she will receive in excess of $10.75 million – that is to say a payment to her of about $4 million if she retains the approximately $6.6 million in assets she has in her name.
The wife deposes to having funded her legal fees thus far by:
a)An amount paid by the husband of $48,005.82 through the Group;
b)$44,000 on her credit card;
c)$21,000 from savings;
d)$38,975 proceeds of the sale from her partner’s motor vehicle;
e)$300,000 borrowings from the Westpac Bank;
f)$440,000 additional borrowings from the Westpac Bank;
g)$99,500 from savings and further borrowings from the Westpac Bank.
The wife has borrowed $800,000 from which she has partly met her legal expenses to date. It is said the wife has no assets which she can realise so as to provide sufficient funds to pay her current and future costs. The bulk of the property owned by her is cross-collateralised with the Group’s indebtedness to the bank and 90 per cent of any net sale proceeds of any cross-collateralised property would be paid to the National Australia Bank (see written outline by counsel for the wife at [16]-[18]).
The wife also deposes to having no further capacity to borrow. At paragraph 29 of her affidavit she deposes that she has “…also made enquiries with [W litigation financing service] and [has] been advised that all of their funding is capped to a limit of $150,000 and they will require security by way of registered mortgage over real property.”
Mr Page SC contends on behalf of the wife that the husband has had the use of a loan account, which, by his admission, has increased by about $1 million in the last year or so. Mr Page SC also asserts that we know that the husband’s legal fees are met from this same loan account and that the proceeds from the sale of properties (10 per cent in accordance with the agreement with the bank) have been applied to the reduction of mortgages secured over the husband’s home. It is argued that the loan account is a significant advantage which the husband has over the wife.
The Husband’s Arguments in Opposing the Order
Mr Kirk SC points to the fact that the wife deposes (at [31] of her affidavit) that $165,000 is sought not by way of legal fees but to “…service [her] borrowings and [her] general living costs and expenses…”
Mr Kirk SC argues that the husband is already committed to pay, through his loan account, the sum of $3,500 per week in respect of expenses associated with the wife and the parties’ youngest child. In addition, it is common ground that the husband pays a range of expenses which are set out in the wife’s affidavit. They include: rates and water charges; land tax; telephone expenses including a mobile phone; electricity; insurance building and contents; gardening; pool expenses; fuel card, registration etc in respect of a motor vehicle; private health insurance. The total of that expenditure is not deposed to.
Mr Kirk SC also points to the fact that the husband deposes in his trial affidavit of evidence-in-chief that he has no borrowing capacity. That proposition was not challenged during his cross-examination in the first part of this trial.
It is uncontroversial that, whatever else might be said about the Group and its future prospects or current value, its primary financier has required a sell down of assets and regularised repayments resulting therefrom whereby each quarterly sale of property results in 90 per cent of the net proceeds being paid to the bank.
Although the wife contends that part of the 10 per cent of sale proceeds received by the husband was used to pay down the mortgage on the husband’s home, Ms M deposes to the fact that this was a requirement of the bank. She also deposes that, while the balance of the husband’s loan account has increased over the last 12 months, none of that, she asserts, translates to any betterment in the husband’s lifestyle.
The husband contends that his position in this litigation has always been based upon the fact that the Group is in a parlous financial position. For example, his counsel points to the fact that the husband has always sought s 79 orders from the Court to the effect that it is just and equitable for any amount payable to the wife be paid off over a period of 5 to 8 years because of the Group’s financial position.
It is also contended on behalf of the husband that the wife can borrow from W litigation financing service. It is pointed out that the wife does not depose that it is impossible to borrow those funds; rather what she deposes is that security is required by them. It is argued that security is available so as to meet that requirement. That contention appears to be supported by the evidence before me.
It is also submitted that the wife has an additional option. It is contended that nowhere in the affidavit material filed on behalf of the wife can be seen a statement by her solicitors that, if the required $180,000 in respect of legal costs is not obtained through W litigation financing service (or, indeed, any other source) that her solicitors will cease acting for her. It is argued that the highest that position can be put is the assertion made by her (not her lawyer) that “…the firm is not prepared to ‘carry’ my costs and outlays in these proceedings” and that the “firm requires payment up front” (at [32] of the affidavit of wife.)
Counsel for the husband also points to what he contends is an alternative order contained at paragraph two of the orders sought by the wife. In effect he says that the husband has no real issue with the properties there referred to being sold and says, as an example, that the property referred to at subparagraph (c) of that paragraph is already on the market.
The difficulty is, he says, that if the properties are sold, they are properties which are subject to the arrangement with the National Australia Bank with the result that the bank will immediately take 90 per cent of any proceeds. Further, it is submitted, even if that order was made, there is no guarantee the properties would be sold and the monies available to be expended on legal fees by the wife prior to the trial.
Each of those propositions also appears to be supported by the evidence before me.
Counsel for the husband points out that the wife deposes to owning two pieces of real property that are neither secured in respect of loan facilities in the wife’s sole name nor cross-collateralised with the Group’s borrowings. Counsel also points out that the costs agreement between the wife’s solicitors and herself provides for those solicitors to require security by way of mortgage or the like for their fees.
Expert Evidence and the Husband’s Loan Account
The report from the single expert Mr B includes this opinion (at [67]):
In my view the risks to the [J Group] remaining a going concern are significant with its ultimate survival depending on:
i. The ongoing support of its banker;
ii. Tax instalment arrangements with the ATO;
iii.The sale of property assets held for investment, specifically the [Suburb V] property;
iv.Sales to clients;
v.Managing its options arrangements with respect to the availability of property to be sold to clients.
At paragraph 63 of that same report, Mr B says:
Since the preparation of my Draft Report dated 24 May 2011, the business has not achieved forecast sales levels and has experienced significant cash flow problems arising from this and the terms of its financing arrangements with the National Australia Bank.
Mr B goes on to refer to a shortfall of about $120,000 as at 31 January 2012 in respect of the required repayments to the National Australia Bank; new requirements for instalments of BAS, with the December BAS amounts being approximately $518,000 across the Group; and, unpaid tenant gap payments of approximately $180,000. Again, Mr B says that these matters raise “…a question as to the ability of the [J Group] to remain a going concern.”
Mr L, who will be giving expert evidence on behalf of the husband, gave similar opinions in an earlier report prepared by him dated 5 December 2011. He says (based, it might be noted, on discussion with “[J Group] management”) that the Group (at [101]):
(a)is in default of its original debt obligations to the NAB
(b)is in default of its subsequent arrangements with the NAB
(c)is in default of its obligations to another lender which it has accessed, which in itself is a breach of the [J Group’s] obligations to the NAB
(d)has accessed an unconventional lender … to develop [S Investments], to provide $13.6 million of debt funding a facility of, but as at the time of writing, the [J Group] has received no formal confirmation that the lender has the capacity to fund this full amount.
Mr L goes on to say:
102.It is therefore quite apparent that the [J Group] has serious solvency issues. I also note that the [J Group] has not been able to meet its company tax obligations, its rental guarantee obligations, and its put option obligations as and when they fall due as a result there are a large number of creditors of the [J Group] that could potentially trigger formal insolvency action against the group.
Mr Page SC points to the sum of approximately $100,000 which the husband will need to find to fund his further representation at the trial. The point made by Mr Page SC is that, no doubt, the loan account will be the source of those funds (as it has been in the past) and that therein lies the difficulty for the wife; funds appear to have been found by the husband for his purposes through the loan account as and when they are needed, but the wife has had access to no such funds for her legal fees.
Mr Page’s central argument in respect of capacity to pay is that when one looks at the loan account, in conjunction with the 10 per cent variation in the amounts required by the bank upon asset sales, more can be found so as to pay the wife the sum for which she contends.
Perhaps the strongest pillar in that argument can be seen in the cash flow forecasts provided by the Group’s financial controller Ms M to Mr B on 21 December 2011 which are referred to in paragraph 24 of the wife’s affidavit and exhibited to it. Those cash flow forecasts project to the end of the financial year 2012. Contained within them is a number of what are described as “Extraordinary Items”, one of which is “Matrimonial Settlement and Auditorium Construction” to which an amount exceeding $1 million is attributed.
No note to that forecast, or indeed any other evidence, identifies what is meant by either of those items or the amount attributed to each component. The reference to an auditorium is, it is surmised by Mr Kirk SC, a reference to something spoken about by the husband in his evidence in the part of the trial concluded before me, where he refers to the building of such a place for the holding of seminars and the like.
The contention arising from that item on behalf of the wife is plain: if the husband is there making provision for the payment of $1 million, or some proportion thereof, in his budget forecasts, then, despite his protestations, he has the capacity to meet payment of $350,000 as required by the wife.
In respect of that document, Mr Kirk SC points to it being dated 22 November 2011 and argues that, since that time, as both the evidence of Mr B and Mr L refer, the sales expectations and the revenues emanating from them, have not been met. Mr Kirk SC argues, in addition, that the projection is done on the basis of projected monthly inflows ranging from about $1.25 million to about $1.9 million, but, Mr Kirk SC again points to the evidence of Mr B and Mr L which reveals that those projections of revenue have been significantly more optimistic than that which has in fact been achieved.
Should an Order Be Made and On What Terms?
Counsel for the wife contends that the first step is satisfied here and that the real debate relates to the nature and the quantum of any order that might be made. I disagree.
In some cases, the Court can posit confident predictions about “best case” or “worst case” scenarios so as to permit of conservative, imprecise calculations to be performed on an application of this type. That is not the case here.
Significant difficulties attend a finding, albeit on an interim or preliminary basis, as to the justice and equity of an order of the present type when there is a very wide variation in the respective contentions as to the “pool” of property and a variation in outcomes contended for with a consequent very large disparity in the potential results of the litigation in dollar terms.
As earlier pointed out, those disparities are productive not only of very large disparities in potential results, but also of a number of different permutations of what an ultimate result might mean in dollar terms. I have earlier referred to a calculation done by Mr Page. An alternative calculation based on a “pool” of $11 million or less (Mr B’s “non-going concern” value based on the wife’s property values, less the rent roll with an as yet undetermined tax liability) would, if the husband’s contention was made out, result in the wife receiving about $2.75 million with a consequent payment to the husband in the region of $4 million. The potential for “clawback” when the bulk of the property owned by the wife is cross-collateralized decreases concomitantly.
Equally, of course, if the wife was wholly successful in the sense of achieving the maximum contended value of the “pool” and received the proportion of that “pool” that she seeks, it could plainly be said that she has “an irresistible claim to a substantial share of the property” and an entitlement to significantly more than the approximately $6.6million that she holds and the $350,000 that she seeks. In that event, there could be no issue about “clawback”.
Thus, in respect of at least three of the matters which the court should consider in the “first phase” of the application, findings are fraught with difficulties.
There can be no doubt that the husband’s position is, and has consistently been on the evidence before me, that the justice and equity of any orders to be made pursuant to s 79 must include a careful consideration of both the taxation consequences of the orders and, more urgently, whether those orders might provoke the liquidation of the Group.
Of course, adverse consequences resulting from orders do not necessarily point to them not being made, but I accept, certainly on an interim basis, such a potential consequence is directly relevant to the proceedings. Indeed, it is in my view, precisely the sort of consideration that the majority in Strahan had in mind when referring to the need to consider whether the risk of the exercise of power on an interim basis will interfere with the power of the court to make just and equitable orders on a final basis (Strahan at [128]).
In that regard it is to my mind important that their Honours in Strahan specifically referred to one of the risks associated with interim orders being “…unduly limiting the final orders that can be made (or even potentially defeating parties’ claims or legitimate expectations) [when balanced] against the circumstances said to show that it is just and equitable to make interim orders” (Strahan at [128] citing Wenz at [52]).
In my view, those factors are important pointers to an order of the type sought by the wife not being just and equitable on an interim basis.
Yet, as the majority in Strahan makes clear, a balancing exercise must be performed with justice and equity as the criteria. Those legitimate concerns must be balanced against injustice to the wife occasioned by her not having available to her the funds to complete the litigation that is now almost concluded.
In my view, in assessing justice and equity, attention must turn not only to the question of whether the wife’s solicitors will or won’t cease acting for her (although direct proof of the latter – which is lacking in this case - will frequently be a powerful factor in the exercise of discretion). Considerations such as the delay that might be occasioned to preparation or breaks in the continuity of preparation are also relevant particularly where, as here, the representation is of long standing and where very significant fees have been expended already.
Moreover, because the ultimate test is the justice and equity of any interim order, it is not in my view necessary for an applicant to establish that every possible avenue of obtaining funding for representation has been exhausted; such a requirement would fly in the face of the very factor central to the exercise of power identified in Blueseas, above.
There is relative unanimity on the expert evidence before me that considerable difficulties confront the Group, albeit that this evidence is, as yet, untested. But, it is through the Group, in one form or another and most likely through the loan account, that the husband will meet his legal fees. Like the wife’s solicitors, the husband’s solicitors will not “carry [the husband’s] legal costs…” (see [24(h)] of the affidavit of Rachel Murray, filed 17 February 2012).
Within the bounds of what, for the purposes of this limited enquiry, appears to be very difficult financial times for the Group, the husband has control over the dissipation of funds within the Group so as to facilitate payment of his legal fees. It is true, as his counsel argues, that this same source funds very significant monthly payments for the wife’s (and their youngest child’s) benefit. But it is not said, nor on the evidence before me does it seem as if it could be said, that these payments have precluded, or will preclude, his capacity to access resources within the Group to pay his legal fees.
I have already made comment on what I consider to be the grotesquely large amount paid in legal fees by the parties, of which the wife has paid the significantly greater proportion. The husband points to the latter in opposition to the order sought by the wife. The wife asserts that the quantum of her fees arise from the husband’s recalcitrance and failure to disclose and, she says, this will found a future application that he pay some or all of those costs, irrespective of the ultimate settlement of property ordered.
Those issues cannot be resolved within the instant proceedings. For present purposes, within the confines of these interim proceedings, there is no firm evidentiary basis upon which a finding could be made that the wife’s fees ought not to have been incurred or are unwarranted (in the sense of not being justifiable) or, indeed, what, if any, proportion of them have been incurred, as alleged, as a result of the husband’s recalcitrance or failure to disclose. Accordingly, it does not seem to me to be just or equitable to take account of the quantum of the wife’s erstwhile legal fees as a factor in the current exercise of discretion.
On the evidence before me, I am persuaded that justice and equity requires an order to be made with the effect of requiring the Group (which will be the central component of an ultimate just and equitable settlement of property between these two parties) to bear an equal burden in so far as its resources are used to meet the legal fees of one party or the other.
In my view, justice and equity would see no discrimination in the treatment of the parties in that respect; neither one party nor the other should be in a more advantageous position in respect of the payment of fees in preparation for trial when the source of funding is the Group. The fact that the husband, through the Group, meets other expenses for the wife and, importantly, the parties’ youngest child, does not, in my view, alter that conclusion.
Whatever may or may not ultimately be found in respect of the borrowing costs or other expenses making up the $165,000 component of the amount claimed by the wife, I am not persuaded that those costs should be met by way of a partial property settlement order covering the approximately 14 weeks or so to the completion of the trial.
I consider, then, that justice and equity requires the making of an order, but only to the extent that each of the parties are afforded the same sums from the same source or sources which, in turn, emanate from the property to which they each claim an entitlement.
In my view that is best achieved by orders which facilitate equal payments being made to both husband and wife by way of partial property settlement up to a limit which I consider should be the lower of the estimates of the total amount required by both parties to prepare for trial, namely $300,000.
Further, in circumstances where as yet untested allegations are made about recalcitrance, failure to disclose and the like and where, plainly, the husband is in a superior position in relation to the workings of the Group, I consider it appropriate to make orders ensuring, as best as an be done on an interim basis, transparency in and about the payments to be made.
I order accordingly.
I certify that the preceding eighty-eight (88) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Murphy delivered on 1 March 2012.
Associate:
Date: 1 March 2012
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