Gadde and Gadde and Anor (No. 3)

[2016] FamCA 608

FAMILY COURT OF AUSTRALIA

GADDE & GADDE AND ANOR (NO. 3) [2016] FamCA 608

FAMILY LAW - INTERIM PROPERTY – distribution
FAMILY LAW - solicitor's lien - interests of creditor
FAMILY LAW - INJUNCTION
FAMILY LAW - COSTS - full indemnity basis

Family Law Act 1975 (Cth)

Firth v Centrelink (2002) 55 NSWLR 451
Grier v Malphas [2016] FAMCAFC 84
Mullen & De Bry (2006) FLC 93-293
Quickley & Pelissier [2016] FamCAFC 124
Strahan & Strahan (2011) FLC 93-466
Waugh and Waugh (2000) FLC 93-052 [45]

APPLICANT: Ms Gadde

RESPONDENT: Mr Gadde

INTERVENOR: Meyer Partners Pty Limited

FILE NUMBER: SYC 417 of 2015

DATE DELIVERED: 27 July 2016

PLACE DELIVERED: Canberra

PLACE HEARD: Sydney

JUDGMENT OF: Gill J

HEARING DATE: 12 & 20 July 2016

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Sweeney 12 July 2016
Mr Kearney SC 20 July 2016

SOLICITOR FOR THE APPLICANT: Barkus Doolan Family Lawyers

FOR THE RESPONDENT: No appearance by or on behalf of the respondent

COUNSEL FOR THE INTERVENOR:	Mr Alexander 12 July 2016
Ms Carter 20 July 2016

orders

IT IS ORDERED THAT:

1. Forthwith on the making of these orders the parties do all acts and things and sign all documents necessary so as to cause the sum of $300,000 standing to the credit of the National Australia Bank account number … BSB … held in the joint names of the husband and the wife to be paid to the wife, or as she may direct in writing.

2. Should the husband refuse or neglect to sign any document to give effect to these orders within a period of seven days of the making of these orders then a Registrar of this Court is authorised pursuant to s 106A to sign such documents to give effect to these orders.

3. Upon the wife filing an undertaking to pay the damages incurred by any person or entity as a result of this order, being the damages the court ultimately finds arose as a result of the order and should be met by her, until further order of the Court the husband is restrained in relation to the EE Company account in the name of Mr Gadde, Client Number …, as follows:

   (a)       From any dealing with the cash component of that account;

   (b)From dealing with the shares, securities or the like in relation to that account other than to sell them and retain the proceeds of their sale in the account.

IT IS FURTHER ORDERED THAT:

1. The wife has leave to serve a copy of these orders upon EE Company. 

2. The husband shall pay the costs of the wife of 20 July 2016 assessed on an indemnity basis in the sum of $5,700 and of the Intervenor of 20 July 2016 assessed on an indemnity basis in the sum of $330 within a period of 28 days from the date of these orders.

3. All outstanding matters in relation to the current applications in a case are adjourned for case management before Justice McClelland on 28 July 2016 at 9:30am.

4. The parties are at liberty to relist the matter at short notice in relation to the terms of the restraint on the EE Company account.

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 Gadde & Gadde and Anor (No. 3) 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 417 of 2015

Ms Gadde

Applicant

And

Mr Gadde

Respondent

And

Meyer Partners Pty Limited

Intervenor

REASONS FOR JUDGMENT

1. This judgment relates to interim property proceedings between the husband and wife.  Their relationship spanned approximately eight years during which each made significant financial contributions and together they had a child.  The wife seeks an interim distribution of property and restraints upon the husband dealing with certain items.  The Intervenor is the previous solicitor for the husband.  The Intervenor seeks orders to aid in enforcement of a debt said to be owed by the husband.

2. This matter came before me on 12 July 2016.  The husband did not attend and the matter proceeded in his absence.  Judgment on the property matters was reserved and the parties were given liberty to relist the matter on short notice.  The husband sought and obtained a listing for 20 July 2016.  He did not attend and the matter proceeded in his absence.

3. The matters before me on 12 July 2016 related to a number of interim property issues, encompassing a partial distribution and restraint upon dealing.  The wife asked for a partial property distribution of funds held by the parties in a National Australia Bank (“NAB”) joint account.  The wife seeks the payment to her of the whole balance of that account.  That order is opposed by the Intervenor (the former solicitors for the husband) who seeks to have preserved in the account a sum equal to the debt the Intervenor asserts is owed by the husband.  The wife seeks to restrain the husband from dealing with redundancy payments anticipated from his previous employer, V Bank.  The wife seeks to restrain the husband from dealing with an EE Company account.  Expedition of the final proceedings was also sought.

4. The husband did not have notice of the wife’s application to restrain him in respect of the EE Company account prior to the hearing on 12 July 2016.  Email correspondence between the husband and the wife’s solicitors shows that he was on notice of this aspect of the proceedings by 6.13pm on 12 July 2016.

5. The orders sought by the wife are as follows:

   1. That the hearing of these substantive proceedings be expedited for a period of 5 days on the first available date convenient to the Court.

   2. That forthwith upon the making of these Orders the parties do all acts and things and sign all documents necessary so as to cause the balance of the funds standing to the credit of the NAB joint account to be paid the wife, or as she may direct in writing.

   3. That the husband is hereby restrained from receiving or dealing with any funds and/or monies from [V Bank] and/or any subsidiary of [V Bank] (other than in accordance with Order 5), which constitute and/or amount to any of the benefits the husband retains by virtue of his previous employment by [V Bank] pending further order of this Court including but not limited to any deferred options or benefits the husband is entitled to receive from [V Bank].

   4. That the wife be entitled to serve a copy of these orders upon [V Bank] forthwith upon the making of these Orders.

   5. That pending further order, should the husband (or any entity in which he controls) become entitled to the payment of monies, funds, or shares by virtue of the Husband's entitlements with [V Bank], those funds shall be paid to a controlled monies in the parties joint names and held on behalf of both parties, and the parties shall do all acts and things and sign all documents necessary including all relevant consent and authorities to give effect to this order.

   6. That in the event order 3 to 5 are not made, that any payments the Husband receives from [V Bank] shall be categorised for the purpose of these proceedings as partial property settlement.

   7. That should the husband refuse or neglect to sign any document to give effect to these orders, then a Registrar pursuant to Section 106A shall be permitted to sign such documents, to give effect to these orders.

   8. Until further order, the husband is restrained by injunction from selling, signing, transferring or otherwise dealing with the shares or funds held in any account in which the husband has access or which account is held in the name of the husband of with EE Company.

   9. That the wife have leave to serve a copy of the Orders upon EE Company.

   10.That an order for indemnity costs in the sum of $5,700 be made in favour of the wife for the appearance on 20 July 2016.

6. In support of her application the wife outlines her present financial circumstances, which leave her unable to meet her living expenses from her own resources, accompanied by the need for funds to pay her lawyers.  She further alleges a failure on the part of the husband to comply with orders, a disposal of funds by him, a risk that further expenditure on the part of the husband may impinge upon the ultimate disposition of the matters and a non-disclosure of funds as supportive of the restraints sought.

7. The Intervenor sought only to ensure that any order in relation to the NAB account preserved sufficient funds ($29,744.12 plus interest) to await the determination of its claims against the husband.  The Intervenor also seeks indemnity costs in relation to the appearance on 20 July 2016, in the sum of $330.

The wife’s claim regarding the NAB account

1. On 23 December 2015 Stevenson J made orders dealing with part of the funds held by the parties in the NAB account.

2. The wife identified that her current application in relation to the NAB funds was made pursuant to s 79.  The interim property orders are pursued in order to defray both living expenses and legal fees.  She seeks the balance of the NAB account.

3. In support of her claim that she be paid the balance of the sum held in the NAB joint account the wife relies in particular upon [39]-[40] of her affidavit of 21 April 2016.  There the wife asserts a pool of property as set out in a balance sheet, including a balance in the NAB joint account of $390,000.  The assertion is made that, on the assumption that what are termed as add backs are allowed against the husband, [1] he has received 30 per cent of the matrimonial pool and has no further entitlements. 

   [1] Reference was made to the Full Court decision of Grier v Malphas [2016] FAMCAFC 84.

4. The following matters were also identified as justifying the orders sought:

   a)That such an order would be reversible, there being no suggestion that the amount would be dissipated and that there would be an inability to repay;

   b)That the taking of $300,000 from the NAB joint account would only constitute 15 per cent of the pool as reckoned by the Wife (per the balance sheet at [39] of the Affidavit of the Wife of 21 April 2016);

   c)That the balance sheet fails to take into account the EE Company account funds (now established by Exhibit W2 as approximately $600,000 as at 1 July 2016);

   d)The husband’s conduct in the proceedings, including applications for adjournments, a failure to prosecute his own application, non-compliance with the orders made by Stevenson J on 23 December 2015 and the incurring of significant legal costs;

   e)Failure on the part of the husband to disclose or account for monies;

   f)Anticipated legal costs on the part of the wife in the order of $500,000 (Annexure P of the Affidavit of the Wife dated 6 July 2016);

   g)Failure on the part of the husband to pay Child Support;

   h)Limited means of the wife;

5. The framework for making an interim property settlement has been set out by the Full Court in Strahan [118]:[2]

   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.

   [2] Strahan & Strahan (2011) FLC 93-466 at [118].

6. As to the first of these steps, being whether to exercise the power [132]:[3]

   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. 

   [3] Strahan & Strahan (2011) FLC 93-466 at [132].

7. In the competing applications for final orders, the wife and husband both seek an alteration of property interests.  Having to some degree pooled their financial resources during the relationship in a manner that is now inconsistent with their current relationship status, and noting their competing applications, I am satisfied that it is in the interests of justice that there be an alteration of property interests in the final disposition of the matter.

8. The matters outlined at 11(f)-(h) constitute circumstances that make it appropriate to commence to exercise the power now.  That is, it is contrary to the interests of justice that the wife be placed in a position where she is both reliant on borrowings from others for the proper upkeep of herself and her children, and is unable to pay legal fees toward the case where she can have access to matrimonial funds for those purposes.

9. As to the second of these steps, being the manner of the exercise of the 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.[4]

   [4] Strahan & Strahan (2011) FLC 93-466 at [137].

10. The key interests of justice consideration regarding the quantum of an order is that the interim adjustment ought sit within a likely ultimate distribution to the party in question.  Given the circumscribed nature of the consideration at this stage, a conservative approach is required.

11. It was put by counsel for the wife that a payment to the wife of $300,000 represents 15 per cent of the pool.  This equates to a pool of two million dollars, which corresponds to the addition of the husband’s and wife’s columns in the wife’s balance sheet.[5]  This balance sheet includes a number of items that may be considered contentious (eg items 22, 36 and the various add backs) but does not include the approximately $600,000 held in the EE Company account, nor an amount reflective of the drawings made by the husband on that account since December (an amount of at least $192,000).    

    [5] Reference [39] Aff 21 April 2016.

12. In my view $2 million is a conservative estimate of the relevant pool of assets.  Given the evidence of valuable contributions made by both the wife and husband and the fact of the disparity in their earning capacities there is no doubt that the wife will be entitled to more than 15 per cent of the net pool of assets.

The Intervenor

1. The position of the Intervenor was responsive to the wife’s application that the whole of the balance of the NAB account be paid to her.  The Intervenor sought that a sum equivalent to the amount claimed by it be retained in the NAB account pending the final disposition so that the debt may be enforced against that fund by reason of a fruits of action lien.

2. Such a lien does not currently exist.  It can only come into existence on “the recovery of monies through the exertions of the solicitor.”[6]  Although the husband has recovered monies in the past, and may in the future do so, the Intervenor seeks that the Court limit a remedy otherwise to be provided to the wife in the hope that this may provide a fund to meet its claims against the husband.

   [6]  Firth v Centrelink (2002) 55 NSWLR 451.

3. The Intervenor relies on s 75(2)(ha) of the Family Law Act 1975 as it is applied by s 79(4), being:

   The effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.

4. However, the particular force given to this consideration was suggested by the Intervenor to relate to the following:

   a.The powers of the Court with respect to the Husband and Wife would allow the adjustment of property held in a trust to effect a distribution to the Husband and Wife

   b.If this resulted in the Husband only receiving assets held on trust, this would allow no fund to be the subject of the Intervenor’s lien;

   c.The cash held at the NAB could, if distributed to the Husband in the final orders, provide something to which a lien could attach.

5. That is, it was argued that there was a particular advantage to the Intervenor if the husband was to ultimately receive an allocation from the NAB account that might not be available if the distribution took another form.

6. I am required to consider the effect upon a creditor of a proposed order, in this case the interim order in relation to the wife.  It is, in the end, an order in relation to the husband that may directly impact upon the Intervenor.  It is the form of that order (that is, whether the husband receives only an interest in a trust or receives part in cash) that may impact upon the Intervenor’s hope to enforce by means of a lien.  The Intervenor has not moved beyond speculation that an end result adverse to the Intervenor’s interest may happen.  I am not satisfied that the order sought by the wife is likely to adversely impact the ability of the Intervenor to recover on any debt owed by the husband.  While the impact of the order upon the Intervenor is a relevant consideration in the exercise of the s 79 power, the speculative and uncertain nature of any impact means that I accord it no weight in determining the disposition of the NAB account.

Basis for a restraint

1. The restraints proposed by the wife upon the V Bank payment and the EE Company account will require the finding that it is necessary to impose the restraints to prevent an abuse of the processes of the Court by frustration of the Court’s remedies.[7]  Key is the identification of factors relevant to the objective risk of disposition to defeat an order, as per the Full Court in Mullen v De Bry.[8] A finding of objective risk may be supported by “establishing on the balance of probabilities a risk or danger of a disposal of property intended to defeat an order”.[9] This assessment is made “having regard to the nature of the wife's claim in the property proceedings”.[10]

   [7] Waugh and Waugh (2000) FLC 93-052 [45]

   [8]Mullen & De Bry (2006) FLC 93-293 at [50].

   [9]  Mullen & De Bry (2006) FLC 93-293 at [48].

   [10] Waugh and Waugh (2000) FLC 93-052 at [45].

Restraint in respect of V Bank

1. Paragraphs 32 and 33 and Annexure Q of the wife’s affidavit of 6 July 2016 assert that the husband is to receive $50,000 from V Bank in July 2016, as a part of a payment flowing from a redundancy in or about October 2013.  It is part of an overall payment of $107,000.  The $57,000 already received by the husband is said to have been spent.  The wife seeks that any further redundancy payment be restrained.

2. The circumstances of the husband indicate uncertainty regarding his employment and his ability to retain employment, in particular due to the concerns expressed by the wife as to his mental health.  He is likely to have a legitimate need for the funds.  I am not satisfied that the disposition of these funds is either intended to or will jeopardise the wife’s legitimate property settlement claims.  The husband’s use of these limited funds does not carry with it the objective risk of disposition to defeat an order.[11]

   [11]Mullen & De Bry (2006) FLC 93-293 at [50].

1. I decline to restrain the husband in respect of the V Bank payment.

2. While I am asked to give a characterisation of any money received by the husband from V Bank as a partial property distribution, I decline to do so as it is a matter for the trial judge to determine, should it be an issue at trial.

The EE Company Account

1. The second restraint sought relates to an EE Company account.  On 4 June 2015 the husband paid a sum of $582,058.02 into that account (Annexure K to Part D of the wife of 21 April 2016).  Paragraph 36 of the wife’s affidavit of 21 April 2016 shows that between 11 June 2015 and December 2015 the husband had taken $89,000 from the EE Company account (Annexure L of Part D of the affidavit of the wife of 21 April 2016).  Annexure L supports the conclusion that various amounts were transferred to the account of the husband at his direction.  At page 47 of Part D the husband, in apparent explanation for the transfer, indicated that he had another “big legal bill” to pay.

2. Exhibit W2, being subpoenaed material obtained from EE Company and a handwritten summary prepared by the solicitor for the wife, shows an account addressed to the husband.  At 1 July 2016 the account appears to show a total equity of just over $600,000.  Between 24 March and 30 June 2016 it shows drawings of $192,000, apparently to the husband.  This supports the contention that the payments were made for the benefit of the husband.

3. While the genesis of the EE Company account is unclear, it is being treated by the husband as the property of the husband.  The deposit of almost $600,000 into the account, occurred at a time shortly after the breakdown of the relationship.  The use of the account by the husband, that is, by means of repeated drawings in 2016, became apparent on the granting of access to the subpoenaed material on the morning of 12 July 2016.  At face value, it should have been a matter disclosed by the husband.  The drawings of $281,000 could, depending upon their characterisation and the ascertainment of the pool, constitute 10 per cent of the pool.  The non-disclosure and the repeated drawings (the extent of which is not yet be fully established) raises what was described in Mullen as: [12]

   [T]he possibility (based on some evidence) of an intention or scheme (that)may, with other factors, be sufficient to establish the probability of an objective risk of disposal with intent to defeat an order

   [12]Mullen & De Bry (2006) FLC 93-293 at [49].

4. The combination of the possibility of an intention to defeat, a level of drawings that is significant in the context of the size of the pool and the size of the fund itself raises an objective risk of the defeat of an order.

5. Given that I do not know how the account operates, or the effect of simply preventing all transactions, the restraint will be limited in its terms, such that the account may only be dealt with by the husband for normal trading purposes, the proceeds of all sales are to be retained in the account and further drawings are not to be made upon the cash component of the account.  Should the terms create difficulties (noting the poor state of the evidence on this aspect at present) the parties will have liberty to relist at short notice.  The restraint will be contingent upon the wife giving an undertaking as to damages in the usual terms.

expedition

1. The wife seeks expedition.  This application is supported by the Intervenor.  There are insufficient matters identified to justify giving this matter priority over other matters currently awaiting hearing in the Sydney Registry.

2. There is, however, current capacity in the Canberra Registry to hear this matter on a final basis in March or April 2017.  The parties are at liberty to seek a transfer of the matter to that registry.

Indemnity costs

1. Costs were sought on behalf of the Intervenor and the wife for the attendance at Court on 20 July 2016.  Section 117 of the Act sets out the default position that each party bears their own costs, subject to circumstances, set out at s 117(2A), that justify a departure from this position.  Those circumstances are as follows:

   (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 facts, production of documents and similar matters;

   (d)whether the proceedings were 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.

2. The evidence in relation to the finances of the parties is that, for the wife, there is an immediate source of funds on the making of the orders regarding the NAB account.  The husband is not in such a position, but has had ready access to funds, in particular from payments out of the EE Company account.  While in the short term he will no longer have such access, I infer that these previous drawings mean that the husband has access to funds.  I do not know the financial position of the Intervenor.

3. There is no indication that any party is in receipt of legal aid.  I have not, on this application, been taken to any relevant offer in writing.

4. Paragraphs (c), (d) and (e) contain the most significant considerations in this case.  This matter was conducted without the husband on 12 July 2016 as he did not attend.  Judgment was then reserved in relation to the interim property matters.  Leave was granted for the parties to relist on short notice.  The husband sought and was granted a listing for 9.30 am on 20 July 2016.  The matter was called at 9.30 am and 9.45 am and there was no appearance for the husband.

5. Senior Counsel for the wife and the legal representative for the Intervenor each sought indemnity costs for the appearance on 20 July 2016 on the basis that:

   a.        The Husband sought the listing;

   b.        The Husband filed and moved no application before the Court;

   c.        The Husband did not attend; and

   d.        Their costs were thrown away.

6. The circumstances justify the making of an order for costs in favour of the wife and the Intervenor.

7. Each of the parties then sought that the order be made on an indemnity basis.  Senior Counsel for the wife indicated costs at $3,300 for Counsel and $2,400 otherwise for preparation.  The legal representative for the Intervenor indicated a sum of $330.

8. The principles to be applied in relation to indemnity costs are neatly set out by the Full Court in Quickley & Pelissier:[13]

   We then turn to consider whether costs should be awarded on a party/party or indemnity basis.

   In Colgate Palmolive Co and Another v Cussons Pty Ltd (1993) 118 ALR 248 at 256, Sheppard J referred to the “settled practice” that where a court orders one party to pay another party’s costs, the order is for costs to be paid on a party/party basis. His Honour also said “there should be some special or unusual feature in the case to justify the court in departing from the ordinary practice” at 257.

   In an appropriate case the court has a discretion to order costs on an indemnity basis. An order made in the exercise of that discretion is a very great departure from the normal approach and the circumstances justifying the departure should be of an exceptional kind (Kohan and Kohan (1993) FLC 92-340).

   In the recent case of Madin & Palis (Costs) [2016] FamCAFC 25 this Court made reference to the increasing number of applications for indemnity costs and said at [23]:

   Finally, we take the opportunity to observe that in so far as the appellant sought an order for indemnity costs, applications for such costs should only be made, and such costs will only be ordered, in the most extreme cases.  This is particularly so having regard to the fact that the primary rule in this jurisdiction is that each party should pay their own costs.

   [13] Quickley & Pelissier [2016] FamCAFC 124.

9. Accepting that costs awarded to fully indemnify litigants are a rarity, this is an exceptional case.  The husband did not attend the initial hearing.  The financial matters were reserved pending judgment, but the parties were given leave to relist at short notice.  At the husband’s request the matter was relisted.  Reasonably, given the possibility of substantive matters being raised, the wife was represented by counsel.  The husband then failed to attend.

10. An order for indemnity costs for 20 July 2016 will be made for both the wife and the Intervenor.

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Gill delivered on 12 July 2016.

Associate: 

Date:  27 July 2016