Gormley & Gormley (No 2)
[2023] FedCFamC1F 433
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Gormley & Gormley (No 2) [2023] FedCFamC1F 433
File number: CAC 2949 of 2020 Judgment of: CAMPTON J Date of judgment: 29 May 2023 Catchwords: FAMILY LAW – PROPERTY – Application by the wife for litigation funding and for the husband to pay the stamp duty on a newly acquired real property – Where trial is in six weeks’ time – Where the property pool available for adjustment is significant – Where neither of the husband nor the wife have capacity to pay their legal representatives pending the trial – Where there is no evidence that the legal representatives for the husband and wife will cease to act if their fees are not paid pending the trial – Where no uneven footing nor unfairness between the husband and wife in their prosecution of the litigation is identified – Application for litigation funding refused – Where the wife has recently exchanged on a property and is unable to meet the stamp duty on the purchase – Where the husband asserts that any partial property payment sought by the wife would interfere with the operation of the parties’ business interests – Where the known penalty to be incurred upon late payment of the stamp duty must be weighed against the unknown prejudice identified by the husband – Where it is not in the interests of justice to make an order for a partial property order to be made in the context of this case – Application dismissed. Legislation: Family Law Act 1975 (Cth) ss 79, 80, 118 Cases cited: Gormley & Gormley [2023] FedCFamC1F 296
Marchant & Marchant (2012) FLC 93-520; [2012] FamCAFC 181
Medlow & Medlow (2016) FLC 93-692; [2016] FamCAFC 34
Ming & Dao [2020] FamCA 726
Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578
Salvage & Fosse (2020) FLC 93-966; [2020] FamCAFC 144
Strahan & Strahan (2011) FLC 93-466
Swift & Swift [2020] FamCA 991
Zschokke and Zschokke (1996) FLC 92-693; [1996] FamCA 79
Division: Division 1 First Instance Number of paragraphs: 50 Date of hearing: 25 May 2023 Place: Sydney Counsel for the Applicant: Mr Matthews KC with Ms Tulloch Solicitor for the Applicant: Orman Solicitors Counsel for the Respondent: Mr Harper Solicitor for the Respondent: Walsh & Blair ORDERS
CAC 2949 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS GORMLEY
Applicant
AND: MR GORMLEY
Respondent
order made by:
CAMPTON J
DATE OF ORDER:
29 May 2023
THE COURT ORDERS THAT:
1.That the relief sought in paragraphs 2 and 3 of the Amended Application in a Proceeding of the wife filed on 18 April 2023 be refused and the said Amended Application in a Proceeding be dismissed.
2.The costs of both parties of and incidental to the Amended Application in a Proceeding filed on 18 April 2023 be reserved to the trial listed to commence on 10 July 2023.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Gormley & Gormley (No 2) has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
CAMPTON J:
INTRODUCTION
These reasons determine the balance of the relief sought by the Amended Application in a Proceeding filed by Ms Gormley (“the wife”) on 18 April 2023, not dismissed by way of the order made on 21 April 2023. The relief dismissed on that date was paragraph 1 of the same application, seeking to join the husband’s father and a company as parties to the proceedings. The remaining relief is as follows:
2. That by 26 April 2023, the Husband pay to the wife the sum of $250,000 for legal costs, pursuant to s 117(2A).
3. That by the 15 May 2023, the husband pay the wife the sum of $215,200 for stamp duty costs on the [P Street Property] purchase.
(As per the original)
Mr Gormley (“the husband”) by a Response to an Application in a Proceeding filed on 23 May 2023 seeks that the wife’s application be dismissed.
For the reasons that follow, the relief sought in paragraphs 2 and 3 of the Amended Application in a Proceeding of the wife filed 18 April 2023 will be refused and the said application will be dismissed. The costs of both parties of and incidental to the application will be reserved to the trial listed to commence on 10 July 2023.
Background
The husband and the wife married in 2008 and separated on 28 February 2019. An order for divorce was made on 22 September 2020. They have two children, X who is currently 13 years old, and Y who is currently 10 years old. The husband and wife are each currently 39 years old.
The wife commenced proceedings as to the adjustment of property pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”) on 24 December 2020. She currently prosecutes final relief as contained in her Amended Initiating Application filed on 12 February 2023, that she transfer to the husband all of her interest in the five real properties owned jointly by the parties, and that he pay her an adjusting sum so as to effect a division of the property pool of 47.5 per cent in her favour. The husband filed a Response on 9 February 2021. He broadly agrees that the wife should transfer to him her interest in the five real properties, but seeks that the adjusting sum to be paid would effect a 20 per cent division of the property pool in her favour.
The matter is in the Major Complex Financial Proceedings (“MCFP”) list. On 12 August 2022, extensive orders and directions were made listing the proceedings for trial over five days commencing on 10 July 2023, being in about six weeks’ time. Neither party suggested during the course of the hearing on 25 May 2023 that the matter will not be ready to proceed to trial as listed or that it will not be heard and completed in the allocated five days. The management of the litigation and an assessment of the anticipated issues in dispute forecast an unlikelihood as to an extended period elapsing before any reserved judgment is delivered.
As recorded in the reasons for judgment delivered on 21 April 2023 (Gormley & Gormley [2023] FedCFamC1F 296), the value of the parties’ property interests available for adjustment is significant:
23.[The wife] contends that the value of the property of the parties available for adjustment is in excess of $30 million. The husband contends that it is in the range of $30 million.
For the purpose of this determination only, the wife said she would not take issue with a prior contention of the husband that the value of the property available for adjustment was $27 million.
Of the five real properties owned jointly by the parties, four are the rural properties transferred to the husband and the wife by the husband’s father without monetary consideration in mid-2014. Those real properties comprise a significant part of the current property of the parties. The fifth real property owned by the parties jointly was purchased by them in late 2017, and is also a rural property.
DOCUMENTS RELIED UPON BY EACH PARTY
In support of her Amended Application in a Proceeding filed on 18 April 2023, the wife relied on:
·Her affidavit dated 19 April 2023;
·Her Case Outline document filed 24 May 2023 (Exhibit 1);
·Her costs notice filed 25 May 2023 (Exhibit 7);
·The draft joint balance sheet filed on 5 July 2022;
·The husband’s Response filed 9 February 2021; and
·A bank statement for the two Q Bank accounts of the Gormley Family Trust for the period 1 April 2023 to 30 April 2023 (Exhibit 3).
By way of her Case Outline, the wife amended her relief without objection such that she sought that the husband pay to her the amounts of $250,000 and $215,200 within seven days of the making of orders (a total sum of $465,200).
In support of his Response to an Application in a Proceeding filed on 23 May 2023, the husband relied on:
·His affidavit filed 18 May 2023;
·His Case Outline document filed 24 May 2023 (Exhibit 2);
·His costs notice filed 24 May 2023 (Exhibit 6);
·A record of transactions for the Q Bank account number …33 of the Gormley Family Trust recording transactions between 26 April 2023 and 24 May 2023 (Exhibit 4); and
·A record of transactions for the Q Bank account number …04 of the Gormley Family Trust recording transactions between 26 April 2023 and 25 May 2023 (Exhibit 5).
The sources of power grounding the wife’s relief and the necessary preconditions and relevant considerations for making the order sought
As to her relief that the husband pay her $250,000 for litigation funding, the wife relied on the costs power pursuant to s 117 of the Act, or if that was not successful, then relied on s 79 and s 80(1)(h) of the Act.
As to her relief that the husband pay her $215,200 to meet the payment of stamp duty due subsequent to her exchange of contracts on 10 March 2023 to acquire the property at P Street, Suburb R (“the P Street property”), the wife relied on the power to make an interim of partial property order pursuant to s 79 and s 80(1)(h) of the Act.
Before an order as to costs can be made, the Court must be satisfied that the order is, in the circumstances, just (s 117(2) of the Act). Until that point, there is no power to make an order departing from the general rule that each party pays their own costs. Once enlivened, the discretion to make an order as to costs is governed by the considerations contained at s 117(2A) of the Act. There is no authority that contends that more than one of the factors in s 117(2A) need be present. Indeed, any one factor may be determinative.
In Salvage & Fosse (2020) FLC 93-966 (“Salvage & Fosse”) the Full Court identified that litigation funding orders have a long history and are made to alleviate the obvious unfairness of a party with control of the assets being able to marshal them to pay lawyers, leaving the other party to attempt to pursue the proceedings without being able to resort to property that might subsequently be transferred to them. That said, each application must be looked at according to its own particular facts and circumstances.
As to litigation funding, the principles relevant to the making of such orders were identified by the Full Court in Zschokke and Zschokke (1996) FLC 92-693. The Full Court in that decision said three matters were relevant regardless of “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” (at 83,217), being:
(a)A position of relative strength on the part of the respondent;
(b)A capacity on the part of the respondent to meet his or her own legal costs; and
(c)Inability on the part of the applicant to meet his or her legal costs.
The Full Court also identified that it may well be necessary for the Court to have regard to whether, in the circumstances of the particular case, it will be possible to take into account in the final proceedings any sum that might be payable under the order (at 83,217).
In Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 (at [30] – [32]), Brereton J said that in addition to the above three matters, the following are relevant for the purposes of a litigation funding order:
(a)An applicant should have “at least an arguable case for substantive relief which deserves to be heard”;
(b)There should be evidence of the applicant’s likely costs of the litigation;
(c)It is not essential that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis;
(d)An order may make provision for litigation expenses at a rate that appears reasonable in all the circumstances;
(e)An order can be for costs already incurred as well as for future costs and such matters as well as the question of whether the applicant’s lawyers will continue to act in the absence of a litigation costs order may be relevant to the discretion to make an order and the quantum thereof;
(f)Any such order should be framed to protect the parties from risk of injustice which could be done by requiring the funds to be administered by the applicant’s solicitors and applied only to meet the expenses referred to in the order.
While the exercise of the cost power carries with it a very broad discretion, that discretion must be exercised carefully for the purposes of litigation funding. The Full Court has affirmed that an order must be framed to protect the parties from any risk of injustice arising from the manner in which the funds are expended.
As to the exercise of an interim or partial property power pursuant to s 79 and s 80(1)(h), the Full Court in Strahan & Strahan (2011) FLC 93-466 (“Strahan”) revisited the principles effectible to interim or partial property orders, and set out effectively two steps being:
(a)First, establishing that s 80(1)(h) is enlivened. The test is not confined to “compelling circumstances”. Subject to the interests of justice, the usual approach in respect of s 79 is a once and for all order (see Swift & Swift [2020] FamCA 991 at [16]). That said, more is required than the mere fact that upon a final hearing the party seeking the order would receive the property sought (Marchant & Marchant (2012) FLC 93-520). The “overarching considering” as to the appropriateness of the exercise of an interim property power by the Court must be answered in the affirmative in the interests of justice; and
(b)The second step requires regard to be had to the “usual matters in a s 79 determination” and therefore some assessment of s 79 factors. Given it is an imprecise exercise in the making of these orders, any discretion ought be:
(i)Conservative so as to ensure the final property outcome is not compromised; and
(ii)That the remaining property is sufficient to meet the legitimate expectation of both parties at the final hearing; and
(iii)The interim or partial order is capable of being reversed or adjusted if it is subsequently considered necessary to do so
The Full Court in Medlow & Medlow (2016) FLC 93-692 reinforced the caution identified for trial judges in making orders by way of the exercise of an interim property power that have a real prospect of depleting the property of the parties. That said, as was explained by the Full Court in Strahan, s 80(1)(h) is a wide enabling provision for interim property decisions.
CONSIDERATION
The application for litigation funding
The wife submits forcefully that:
(a)The bulk of the parties’ property (being the five real property interests held jointly with the wife, and the interests in the Gormley Family Trust held by the husband with his father) is currently controlled by the husband. In comparison, the wife has only very modest property in her control.
(b)After separation, she received periodic spouse maintenance of $1,200 per week (funded by the Gormley Family Trust). She additionally received lump sum payments from the husband of $150,000 in 2021, $185,000 on 20 February 2023 in anticipation of the wife paying a deposit to purchase the P Street property, and $48,000 recently to fund her costs of the mediation undertaken by the parties on 3 March 2023;
(c)She has paid legal costs to date of $143,209, has outstanding costs of $39,626, and has accrued further costs not yet billed in excess of $100,000. Her costs notice records a further $210,000 will be incurred to complete the upcoming trial.
(d)The husband concedes on his own case, taken at its highest, that should he retain the parties’ five real properties, he will pay the wife an adjusting sum in the range of $5.4 million, such that a payment to her of $250,000 pursuant to a s 117 order will not expose him to any risk of injustice.
The husband does not put these matters into controversy. I find that the wife establishes that the current financial circumstances of the husband are vastly superior to those of the wife, that the quantification of her likely costs to complete the litigation and the value of the litigation funding order sought are reasonable, and that the making of any order for costs will not present any risk of injustice to the husband in circumstances where discretion is available to add-back paid legal fees at trial. Grounded from these matters, I am satisfied that a costs order made in the terms sought by the wife can be adequately accounted for as part of the final s 79 determination.
The wife identifies that at the date of filing her Amended Application in a Proceeding on 18 April 2023, the husband had access to two Q Bank finance facilities totalling in the range of $465,000 (Exhibit 3 records the balance of those facilities at 30 April 2023). She contends he could have paid her the sum of $250,000 from those facilities. At present, the value of the facilities are in the range of $168,000 (Exhibits 4 and 5 record the balances at 25 May 2023). She highlights that during late April and May 2023 the Gormley Family Trust has paid in the range of $73,000 possibly for livestock, $12,100 to barristers, $64,000 to an unknown recipient, $11,000 to acquire equipment, $126,000 to buy machinery, and a further $20,000 to another unspecified recipient.
She further identifies that the Gormley Family Trust has harvested significant produce. It is her case that any insufficiency in the Q Bank loan facility to meet the costs payment sought can be supplemented by a sale of all or part of the produce.
It is the wife’s submission that, grounded from all of the above circumstances, it is just for there to be an interim costs order on the terms sought so as to provide secured funds to her lawyers in anticipation of the trial commencing on 10 July 2023. She says absent controversy that she has no other source of funds to secure or make such payment.
In resisting the wife’s application, the husband highlights the wife’s paid legal fees (as recorded at [23(c)] above) dwarf his legal fees paid of $79,000 and unpaid of $18,247. His costs notice (Exhibit 6) records that he has accrued further costs not yet billed in the range of $19,000, and estimated future fees to the completion of the trial of $164,000. It is the husband’s firm evidence that he will not pay his lawyers any funds until after the s 79 proceedings have concluded, such that he and the wife are in the same position for the purposes of the forthcoming trial. He submitted that neither the wife’s solicitors nor counsel briefed for the trial have indicated that they will not continue to act for the wife should their fees not be paid or secured prior to the trial.
The husband contends (absent evidentiary foundation) that the wife was aware of the circumstances committing the Gormley Family Trust to acquire the machinery (for $126,000) and that her submissions on this subject matter were disingenuous.
It was further the husband’s submission that his affidavit evidence establishes that Q Bank has some form of charge or lien on the outstanding produce. Implicitly, his case is that any Q Bank security over the produce is valued at $700,000, being the value of one of the identified facilities. This is challenged by the wife, who identifies that there is no direct evidence to that effect.
In any event, it is the husband’s firm evidence that it is in the interests of both he and the wife to hold the identified produce in anticipation of produce prices improving later this year. The husband had the opportunity to put before the court direct evidence as to any bank security on the produce and as to its current and anticipated future value. He failed or neglected to do so. However, in the context of this interim hearing where the evidence of each party remains untested, I am unable to make reliable findings on these subject matters.
There may be some merit in the husband’s assertion that the balance of the Q Bank facilities is required for the continued operation of the parties’ extensive business interests, and implicitly that the payment of the current unallocated funds to the wife for litigation funding from those facilities will prejudice their continued operations. Again, this is a matter I am unable to make any determination about in the context of an interim hearing. The husband’s evidence cannot be rejected at this stage as being glaringly improbable.
Inquiry was made of the wife during the course of the hearing as to whether, consistent with the tenor of the husband’s affidavit evidence, she would agree to an interim order transferring her interests in the five real properties to the husband to enable him to refinance the existing facilities and pay to the wife the sum sought by way of litigation funding. The wife would not agree to this proposal, but said she would join in with the husband in approaching the bank to extend the existing facility or obtain a new joint borrowing facility, so as to facilitate the litigation funding payment. Having regard to the content and tone of correspondence between the solicitors for the parties up to the current time, and the short time period between now and the final hearing, there is little foundation to expect the parties to cooperate and achieve such further funding facility, if it was available, prior to the trial.
Ultimately the contention of the wife was the litigation funding order was just, having regard to the elections made by the husband in using the Q Bank finance facilities, as identified earlier in these reasons. It was her submission that the husband had embarked on a course of expenditure designed to deplete available funds to defeat her application. Absent the testing of the evidence by cross-examination, I am unable to accept that submission. She submitted that an order should simply be made in the term sought and that it be a matter solely for the husband as to how he complied with it.
In Ming & Dao [2020] FamCA 726 at [28], Austin J said:
Lest it have been overlooked, the courts do not entertain these interlocutory applications for litigation funding to ensure the convenience of regular cash flow for legal firms. They are entertained to accommodate disadvantaged litigants, by levelling the litigious playing field for them.
I give significant weight to the absence of evidence as to the prejudice occasioned to the wife if no litigation funding order pursuant to s 117 of the Act is made at this time. There is nothing to suggest that she will not be able to prosecute her relief for property adjustment without such an order, nor that her ability to do so will be compromised. There is no evidence to suggest that the funding order will enhance her prospects of obtaining justice.
Taking all the above matters into account, I am not persuaded that a litigation funding order by way of the costs power as sought by the wife is just in all of the circumstances. There is no obvious unfairness as between the husband and wife of the kind identified in Salvage & Fosse which requires alleviation. If the evidence of each party is accepted, weight ought to be given to the fact that neither party has capacity to pay their own legal costs at the current time, but will be more than adequately able to do that on the conclusion of the s 79 dispute. I accept the submission of the husband that no “levelling the playing field” is required or just, in circumstances where neither of them are disadvantaged as against the other for the purpose of the upcoming trial. They will each be required to pay their accruing legal costs from the fruits of the property adjustment orders.
In circumstances where, as recorded in these reasons:
(a)The trial is now less than six weeks away; and
(b)Each of the parties will each be required to pay their accruing legal costs from the fruits of the property adjustment orders;
I am not satisfied that the s 117 order sought by the wife is just at this point of the litigation.
The application for the husband to pay stamp duty
It was the wife’s evidence that the P Street property was listed for sale in early 2023, and that in early 2023 she sent the husband a text message advising him of her interest in acquiring the property. She gave summary evidence that the husband advised he had “sold [produce] and was happy to pay the $185,000 deposit” to facilitate her purchasing the property, and that he paid that sum into her bank account. The husband said he transferred those funds as a “gesture of goodwill and a genuine hope of resolution of the matter at mediation” (at paragraph 15 of his affidavit filed 18 May 2023).
The gravamen of the evidence of both the husband and wife is that they each hoped at the time of facilitating the wife putting a deposit on the P Street property that their dispute would resolve at mediation on 3 March 2023. It did not. There was no evidence as to the terms of any exchange after the mediation event as to how the wife would complete the acquisition of the P Street property in light of the litigation continuing.
Soon after mediation, without notice to the husband, the wife exchanged contracts to acquire the P Street property for the purchase price of $4 million. She paid a deposit of $200,000 on that date, comprising the $185,000 advanced by the husband and $15,000 she contends was borrowed from her family. Remarkably, the evidence suggests that she did not disclose the fact of the exchange of contracts nor the payment of the deposit to the husband until she filed her affidavit on 19 April 2023.
The wife’s current solicitors do not act on her behalf on the acquisition. The contract for sale has a completion date of late 2023. Implicitly at the date of the exchange the wife anticipated that the property adjustment dispute between she and the husband would be completed on a before that date, including by way of delivery of reasons for judgement.
It is the wife’s evidence that she is required to pay stamp duty in the sum of $215,200 on the contract to purchase the property on before 1 June 2023. Remarkably, she asserted in her affidavit:
16.I do not have the $215,200 to pay the stamp duty. I therefore seek an order that [the husband] pay me the sum of $215,200 for the stamp duty. If I do not pay the stamp duty by 1 June 2023, under the terms of the contract of sale I will be deemed in breach and may lose the property and my deposit.
King’s Counsel for the wife conceded at the hearing that the wife’s opinion as articulated above was not a proper construction of the terms of the contract. It was submitted that the wife’s conveyancer had advised that the New South Wales State Revenue Office will impose a penalty on the outstanding stamp duty from 1 June 2023 at a rate of 11.46 per cent per annum until the duty is paid. The reality of the penalty was in the range of $2,000 per month. The husband did not challenge this assertion.
Putting it another way, in the event the parties do not reach agreement on a final basis and their dispute reaches trial, the value of the penalty to be incurred by the wife on the outstanding stamp duty will be in the range of $8,000 (allowing for three months for judgment to be delivered). This quantum is de minimis compared to the value of the property pool available for adjustment between the parties.
Each of the husband and wife agree that it is just and equitable to adjust property between them, as identified by the High Court in Stanford & Stanford (2012) 247 CLR 108. They agree and I find it established that the title of real property will need to be changed having regard to the contributions made over the period of the relationship and the fact of their relationship having broken down and them living apart. The wife comfortably makes out a case as to s 79 factors in her favour. There is no suggestion that the making of the order sought in the context and circumstances of this case cannot be capable of being reversed or adjusted if it is subsequently considered necessary to do so.
The known penalty to be incurred should the stamp duty not be paid by 1 June 2023 is to be contrasted against the yet unknown and unquantified prejudice asserted by the husband should he be required to exhaust the Q Bank funding facility and/or sell produce to pay the wife $215,000, as recorded in [30]–[33] above. The contended prejudice may be illusory or it may be real and substantial. In the absence of evidence, a cautious approach should be taken to the quantification of this risk.
Again, the wife’s application for a partial property settlement must be considered in the context of the trial being only six weeks away, and it being uncontroversial that the result of the trial will be that an adjusting payment is made by the husband to the wife. Having regard to the above matters, I am not satisfied it is in the interests of justice for an order to be made for interim or partial property settlement for litigation funding in the terms sought by the wife at this time.
CONCLUSION
Paragraphs 2 and 3 of the Amended Application in a Proceeding filed on 18 April 2023 will be refused and the balance of her application dismissed.
Having regard to the proximity of the trial, each party’s cost of and incidental to the wife’s Amended Application in a Proceeding will be reserved to the trial. In the event, the trial does not proceed to completion within the five days allocated to it commencing on 10 July 2023, the wife is at liberty to bring such further application for litigation funding and/or interim property orders as she is advised.
I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Campton. Associate:
Dated: 29 May 2023
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