Iphostrou & Iphostrou and Ors
[2011] FamCA 20
•18 January 2011
FAMILY COURT OF AUSTRALIA
| IPHOSTROU & IPHOSTROU AND ORS | [2011] FamCA 20 |
| FAMILY LAW – PROPERTY – Litigation funding – Order in complex commercial dispute – Dollar-for-dollar order |
| Family Law Act 1975 (Cth) |
| G and T (2004) FLC 93-176 McD and McD (unreported) O’Ryan J 8 October 2001 McL and McL (unreported) 30 January 2003, O’Reilly J Strahan (2009) FamCAFC 166 |
| APPLICANT: | Ms Iphostrou |
| RESPONDENT: | Mr Iphostrou |
| SECOND RESPONDENT: | P Iphostrou |
| THIRD RESPONDENT: | J Iphostrou |
| FILE NUMBER: | MLC | 8731 | of | 2009 |
| DATE DELIVERED: | 18 January 2011 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | THE HONOURABLE JUSTICE CRONIN |
| HEARING DATE: | 13 December 2010 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | MR BURNSIDE QC WITH MR THOMPSON |
| SOLICITOR FOR THE APPLICANT: | HALLETT WEST |
| COUNSEL FOR THE RESPONDENT: | MR NORTH SC WITH MR WOOD |
| SOLICITOR FOR THE RESPONDENT: | BELLELI KING & ASSOCIATES |
| COUNSEL FOR THE 2ND AND 3RD RESPONDENTS & ORS: | MR DENTON SC WITH MS DJOHAN |
| SOLICITOR FOR THE 2ND AND 3RD RESPONDENTS & ORS: | NATALIE ROMPOTIS |
Orders
That within seven (7) days after the payment by or on behalf of the husband of any money in payment of accounts rendered by his solicitors including in relation to expenses associated with the preparation of his case, the husband pay or cause to be paid the same sum of money to the solicitors for the wife.
That within 24 hours after the payment by or on behalf of the husband of any money referred to in paragraph (1) of these orders, the husband cause to be given to the wife’s solicitors, a memorandum stating the amount or amounts so paid to the solicitors.
That all money paid to the solicitors for the husband including on his behalf arising out of paragraph (1) of these orders shall be held in trust by the solicitors for the husband and not applied in payment until such time as the same amount has been paid by or on behalf of the husband to the solicitors for the wife.
In the event that the payment referred to in paragraph (3) is not made within seven (7) days thereafter, the husband is to direct his solicitors to pay 50 per cent of whatever is received and held by them in trust, to the solicitors for the wife.
That the amounts paid pursuant to these orders to the solicitors for the wife are to be applied by them in payment of the costs and disbursements incurred by the wife in the conduct of these proceedings.
That the question of the categorisation of any payments made pursuant to these orders shall be matters for determination by the trial judge.
That the wife’s application for interim orders relating to litigation funding be otherwise dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Iphostrou & Iphostrou is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 8731 of 2009
| MS IPHOSTROU |
Applicant
And
| MR IPHOSTROU |
Respondent
And
P IPHOSTROU
2nd Respondent
And
J IPHOSTROU
3rd Respondent
REASONS FOR JUDGMENT
Ms Iphostrou (“the wife”) seeks orders to assist her with litigation funding in proceedings against Mr Iphostrou (“the husband”) and a variety of other individuals and corporate entities. The action against the other parties relates to setting aside transactions under s 106B of the Family Law Act 1975 (Cth) (“the Act”).
As a general proposition in an application for litigation funding, if the order is to be made by virtue of s 80(1)(h) of the Act, the applicant has to establish:
(a)whether the power should be exercised before a final hearing; and if so,
(b)the power is to be exercised within the parameters of s 79 of the Act.
If the power to be exercised is pursuant to s 117 of the Act, the applicant must first point to the circumstances that justify the making of an order bearing in mind the s 117(1) provision that otherwise requires each party to bear their own costs.
In this case, the wife seeks to rely on both provisions.
In respect of the application under s 80(1)(h) and consequently s 79, there is not sufficient evidence to enable me to make any order.
In respect of s 117 however, there are justifying circumstances as is required under the Act. However, the nature and extent of the order must, of necessity, be limited. There is insufficient evidence to enable me to make an order for what might be seen as a contribution towards the costs that the wife has already incurred. However, I am satisfied there is more than sufficient evidence to enable me to make what is known as a dollar-for-dollar order for the period from now until trial. My reasons are set out below.
The wife filed her application on 25 November 2011 and the only part of that which is relevant to these proceedings is set out in paragraph 2. She there sought an order of an interim nature that the husband pay by way of litigation funding order and/or interim property settlement, the sum of $500,000 with a characterisation of that sum to be reserved to the trial judge.
The wife relied upon three affidavits. The first was her own and the others were by her solicitor and by a Mr K which I ruled admissible in earlier rulings.
The husband’s response was to simply seek a dismissal of the wife’s application. His position can be encapsulated by reference to the submissions of his senior counsel. The husband pointed to the document setting out his financial circumstances filed 12 December 2009 in which he identified the one item of property in which he had an interest which was the former matrimonial home. He said everything else was disputed. He said that the husband had sworn to that material and it was asserted that nothing had changed.
The wife’s case can be encapsulated in the submissions of her senior counsel. He said that the material obtained by the wife showed gross discrepancies in the financial resources of the parties and even in the event of a factual dispute here, the husband had a capacity to find money that the wife had not.
Mr Burnside QC on behalf of the wife pointed to a variety of documents which on their face, were completely inconsistent with the picture painted by the husband as to his ownership and control of a variety of complex entities involved in the commercial enterprise. The transactions involved the parties’ sons or, if the wife’s view is correct, the husband using the names of his children. Senior counsel for the wife said there was “something strange going on” in that the impression the husband was giving amounted to a distancing of himself from the ownership and control of those entities.
The evidence of the wife was that the parties married in September 1986 and had six children, four of whom had survived. She had always been a homemaker except for a brief period of employment within the family business as she described it.
She pointed to the fact that at the commencement of the relationship neither party had any assets and had borrowed money to buy a block of land upon which the home was ultimately built. The wife detailed the husband’s working history as a truck driver and then in 1987, she said her father gave her a block of land which was sold and the money used by the husband to start his business.
The wife detailed various properties that were acquired from 2007 onwards and also her contribution in painting the offices of a warehouse to save money. She then said that the husband expanded the business and began what was called “F Services”.
In around 2004, the wife worked in an administrative capacity within the business but she said that the burden of homemaker and parent pushed her to end that role within a year. As will be evident when I deal with the evidence put by the husband, he has a very different view.
One of the things that is controversial in this case is the timing of the separation of the parties. The wife asserted that it was on 16 May 2009 that the husband who had earlier moved into another house, told her the marriage was ended. The husband’s position as I shall set out below, was markedly different. He said the parties had been separated for many years.
The wife said that apart from the equity in the home and a small amount of money in the bank, there were no other significant assets under her control. She conceded that she only had a passing familiarity with the husband’s business. She then set out in detail all of the real properties, companies, chattels and motor vehicles that she said were “assets” “registered in the husband’s name” or were “associated” with him. As will be seen below, the husband very much disputes that.
The wife then said that she “appreciated” recently that, in or about October 1998, she and the husband were made bankrupt and she recalled attending at the offices of the Insolvency Trustee Service of Australia and signing documents that she was given. Thereafter, she conceded that she applied for a “single mother’s pension” and used that money to pay for food and children’s needs until 2007. She said she also applied for child support but never received it because any correspondence was handed to the husband’s accountants.
It will be seen from even the wife’s evidence that there is a considerable dispute about the public face of the wife’s position in relation to the nature of the relationship.
The wife said that in or about 2005, the husband acquired a business known as B Products. The husband denied any knowledge of it.
In August 2008, the wife said the husband acquired H Shipping as a business. She referred to how that acquisition was implemented. Again, the husband’s position was entirely different.
In relation to the nature of the relationship between the parties, despite the husband’s assertion that they had been long separated, the wife said the parties holidayed together throughout 1999, 2000, 2002, 2004, 2005 and on the Gold Coast in December 2008. Again, the husband had a different explanation.
The wife relied upon a number of documents including business cards which showed corporate titles given to or by the husband. The wife said that these were examples of the husband’s control of the group of entities.
The wife also pointed to the fact that in 2007 and thereafter, the husband acquired various credit cards which he used to pay business expenses relating to the entities as well as his personal expenditure. On any view, there has been extensive and remarkable expenditure but where all this fits in is difficult to know.
The wife’s evidence was that she needed significant funds to conduct these proceedings. She relied upon a letter of her solicitors dated 29 November 2010 indicating that she currently owed $195,000 to her lawyers and that with the anticipated hearings and preparation ahead of her, her total costs were likely to be in the vicinity of $867,000.
The evidence of the wife’s solicitor and her forensic accountant highlighted the various inconsistencies between the documents that the wife had been examining and the position that the husband had portrayed in his affidavit material.
In his affidavit, the husband said that he was a consultant to F Group Holdings Pty Ltd. He either did not admit or joined issue with the allegations set out in the affidavit of the wife. He said many of the allegations had previously been made and he had responded to them.
The husband described the business which was operated through G Business Pty Ltd as running into financial difficulties. That company went into liquidation in 1998. The husband was made bankrupt. He described the home to which the wife referred as being worth about $220,000 but which was encumbered to the extent of $200,000.
The husband said that after being made bankrupt, he obtained employment initially as a mechanic.
The husband was adamant that in 1998, the parties had already separated and denied that he had suggested the wife make false claims for a pension and child support. He said he had not lived at the same address as the wife after late June 1998 although he made trips there for the purposes of the children. He said that he had slept there overnight but always in a separate room from the wife.
The husband described the wife’s evidence about the business history as inaccurate. He said he worked through his bankruptcy with the director of F Services Pty Ltd and after his discharge from bankruptcy in 2001, he worked for the company for a further two year period. His involvement in the company was recognised by the owner who was then in the process of retirement and who permitted him to take up a financial interest in the business. No payment was made to the then owner other than a weekly annuity.
In 2006, the husband said that F Services Pty Ltd was restructured and he was made the sole director and shareholder. This company was the trustee of a unit trust. The units according to the husband were owned by two separate companies.
The husband then detailed a variety of transactions all of which must be examined but save for the fact that there were some statements by the husband that he was a shareholder, I have not been able to discern whether he has any significant interest in the shares and hence in the equity of the entities.
Much had been made by the wife about the acquisition of H Shipping Pty Ltd. The husband said that he entered into an arrangement with a Mr BA under which Mr BA had no exposure to liabilities. Those liabilities were to fall upon the shoulders of the husband. The commercial arrangement between them led to the acquisition of H Shipping Pty Ltd in August 2008 for $6 million. The husband set out the details of the part payment and then the ongoing obligation to pay the balance of $2 million. He said that he was solely responsible for guaranteeing the purchase price. A dispute arose with the business vendor and the husband refused to pay the balance due. The dispute led to litigation which the husband lost and a bankruptcy position looms. The husband went through proceedings in the Federal Court by way of an appeal and was unsuccessful. He then said he appealed to the High Court of Australia for special leave as a last resort but his application was there dismissed. I am not entirely sure where that leaves him in terms of not only his bankruptcy but also his capacity to participate in these proceedings.
In relation to the specific assets identified by the wife in her affidavit, the husband set out pages of response in which he denied ownership and in some cases, knowledge of these properties alleged by the wife. In some cases, the husband pointed to entities as the owners but then distanced himself from any ownership of the entity.
In relation to H Shipping Pty Ltd, he said that whilst he was a director, his son was a shareholder.
The husband set out the details about the various equipment involved in the business and pointed to the fact that they were owned by a corporate entity. I am not at all sure that I understand who owns the shares in some of those entities.
The husband answered all of the allegations of the wife. In relation to suggestions that he was involved in transactions in a capacity as owner, he denied the same. In relation to company documents relied upon by the wife, he said that they were prepared without his knowledge or agreement. He gave explanations for various receipts concerning items that were purchased for his daughter. He explained the fact that the wife had been receiving company funds because of the actions of the adult sons but the two sons have now chosen to cease those payments. He claimed he had no ability to convince them otherwise.
In relation to the wife’s application for litigation funding, the husband said that all of the expenditure incurred by him was predominantly for business purposes and he was not the only card holder for any of the company accounts.
He said he did not own any of the vehicles or pieces of equipment.
Having been asked to look at his financial statement, I note it was filed on 12 December 2009. It shows income of $1500 per week and that various expenses were paid by others for the benefit of the wife. The “others” to which he referred was shown as F Services. He estimated that those expenses amounted to about $1000 per week.
In respect of his own expenditure, he estimated that he spent $1035 per week. In respect of property, he said that the only thing he owned was the interest in the matrimonial home and $190,000 worth of house contents. He said that he had no financial resources other than those to which he had otherwise referred.
One significant dispute between the parties related to whether the various corporate entities owed the husband money. The wife pointed to a document obtained from the computers of the entities showing that he was owed millions of dollars. The same document but formally completed and lodged for corporation purposes, not only showed that he did not have such an asset but that he owed the corporate entities money. No explanation was given as to why that might be so and no doubt it will be the subject of intense scrutiny and ultimate cross-examination.
In any situation of an interlocutory nature where the facts are controversial and in dispute, a court cannot make findings of fact. Findings of fact form the basis upon which orders are made within jurisdiction. There are many disputed facts here all of which are contained in affidavits that currently remain untested.
I turn first to the question of a litigation funding order by way of a partial distribution of property. In Strahan [2009] FamCAFC 166, the Full Court set out the two step process that I have earlier mentioned. In their reasons for judgment, Boland and O’Ryan JJ said:
137.Once a court proceeds to exercise the power in s 79 of the Act, being in the substantive phase, a court is required to undertake consideration of the matters in s 79(4) including by reference to s 79(4)(e) the matters in s 75(2) so far as they are relevant. However consideration of such matters may be brief and if it is established that “it seems likely to the Court that … the applicant … will be likely receive by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made”: Zschokke; Polletti and Polletti per Nygh J and Wenz v Archer. As senior counsel for the Wife submitted, “provided scope can be found within the assets of the parties for an order of the size sought … then that should be the end of the matter”. In other words, in such circumstances the applicant would only be receiving what he or she was entitled to receive when the power was exhausted.
138.The legislation does not prescribe what the Full Court in Zschokke at 83,218 described as “preconditions” and nor would we seek to exhaustively prescribe matters that may be relevant to take into account in the exercise of the discretion under s 80(1)(h) of the Act. As to the three “criteria” identified by the Full Court in Zschokke, we accept that an inability on the part of an applicant for an interim property order to defray the costs of litigation to meet his or her litigation costs would be a relevant matter to take into account at the procedural or first stage. Senior counsel for the Wife submitted that it may be relevant at the substantive or second phase in reviewing the “necessarily limited and impressionistic budget for costs” to ensure that the application is bona fide. We are of the view that it may be that any issue about the bona fides of an application is relevant at the procedural phase in the context of considering if in the interests of justice it is appropriate to make an order before the final hearing.
139.We also emphasise that in order to establish an appropriate case for an interim property settlement order more is required than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.
140.As to the other matters being a position of relative financial strength on the part of the respondent to an application and the capacity of the respondent to meet his or her own litigation costs, there is no doubt that the financial circumstances of both parties are relevant at the substantive stage and may also be relevant at the procedural stage. Senior counsel for the Wife submitted that all of the matters discussed by the Full Court in Zschokke are self-evident and we accept that this is so in relation to at least two of the matters being the need for funds and the financial circumstances of both parties.
The majority said that the applicant for the funds had to have at least an arguable case for substantive relief which deserved to be heard. I have that here. Their Honours referred to the requirement to show the likely costs of litigation. I have that here. It is clearly put by the wife that she needs an order to defray the likely costs.
The fundamental thing that is missing is the very first step in the process under s 79 of the Act namely evidence of property which the Court is being asked to divide. It cannot be ignored that the wife recognises some degree of difficulty in the case because she has sought orders under s 106B of the Act to set aside various transactions. If those transactions were set aside, significant assets would be added to the pool if they are indeed worth anything. There are therefore problems associated with getting the assets into the pool but then also having regard to some of the matters set out by the husband, what worth they have.
Until the determination of those issues, I could not treat the assets of the corporate entities as those of the husband for the purposes of making a litigation funding order based on s 80(1)(h) of the Act.
I turn then to the question of whether or not the wife can establish that there is a power to make an order by virtue of s 117 of the Act. Section 117 of the Act says:
(1)Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AB, 117AC and 118, each party to proceedings under this Act shall bear his or her own costs.
(2)If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
(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.
As I pointed out earlier, the husband denies having not only an interest in the substantive assets but more importantly, does not have a capital entitlement owed to him by the company in some form of loan account notwithstanding the wife would assert otherwise by virtue of the document that she obtained surreptitiously. One would wonder therefore why a company that owed the husband nothing might be significantly generous towards him. That situation came to light when the wife obtained the records of the solicitors for the husband over the 2010 year concerning monies paid for legal fees.
According to the subpoenaed material printout dated 6 December 2010, the husband has had costs paid to Belleli King and Associates the following:
18 February 2000 $4,500
25 February 18,527
7 April 11,000
7 April 25,000
7 April 28,977
21 June 234.85
2 July 47,935
22 July 2,965
3 August 29,026
25 August 31,753
17 September 24,465
7 October 23,700
11 October 10,500
15 October 33,175
22 October 20,200
22 November 29,026
24 November 13,200
No explanation has been given as to what these sums were for and I am left to draw inferences from the subpoenaed material. Presumably, a company employee whether as a consultant or otherwise, would not require legal expenses that significant to have his employer pay unless he was involved in litigation. The litigation to which I have earlier referred may be that explanation but it was not proffered by the husband. Even if it was, the husband was using the lawyers in that case to avoid his own bankruptcy. No other litigation was brought to my attention. If these payments were as a result of the largesse of the husband’s employer or any trustee of a trust, there is every preliminary reason for me to consider them a financial resource of the husband. The precise details of the husband’s financial position are very unclear. Why would the corporate entities pay those sorts of legal fees to the lawyers acting for the husband when there are clearly in-house lawyers acting for the corporate entities?
In McD and McD (unreported) 8 October 2001, O’Ryan J found there was a power in s 117 to make an order for costs in favour of one party to assist him or her to defray the costs of pending litigation. His Honour said that the prospects of success may be relevant or at least the prospects of achieving a final outcome greater than the amount of costs sought was a consideration. That is, one needs to consider the merits of the claim.
In this case, the success or otherwise of the wife’s claim is dependent entirely upon two things. First, are there any assets that belong to the husband and the wife and secondly, even if there are and they are of value, has the period subsequent to the separation extinguished any right of the wife such that a court could ignore her contribution over the years of the marriage? There are many things unexplained notwithstanding the husband’s simple denial of the accuracy of the wife’s assertions. A variety of ASIC documents would tend to suggest that the husband was operating under the names of his children. Senior counsel for the husband said that it may have been simply a “stuff up”. Counsel confirmed the husband relied on his financial statement and affidavits as being sworn and as being the truth.
The husband does acknowledge owning shares in the entities albeit in a vague way. I do not have any precise evidence of value.
There is at least a prima facie case that the wife may have an entitlement under s 79 and that justifies an order for costs because of the complexity of the problem and the different capacities of the parties to fund that litigation. For a person who has no control and limited assets, the payments by or on behalf of the husband of these legal fees is extraordinary if they are concerned, even in part, with these family law proceedings.
Section 117(2) requires the court to find that there are justifiable circumstances before it may depart from the provision that requires that each party pay their own costs. For the reasons I have just set out, I find there are justifying circumstances.
In G and T (2004) FLC 93-176, O’Reilly J referred to a decision made by her Honour in McL and McL (unreported) 30 January 2003 in which her Honour said:
110.Section 117(2) provides that if the Court is of opinion that there are circumstances that justify it in doing so the Court may subject to subsection (2A) and the applicable Rules of Court make such order as to costs including by way of interlocutory order as the Court considers just. In my view, that provision provides sufficient power to make the “dollar for dollar” order subject to consideration of the matters in subsection (2A). That provision requires the Court to have regard to the financial circumstances of each of the parties to the proceedings, and certain other matters which are not relevant in this case.
111.In my view the financial circumstances of each of the parties to the proceedings makes appropriate the dollar for dollar order sought. In short, the husband’s case is that his only identified asset, namely his 50 per cent interest in the [McL] & Co partnership is a negative asset in that his capital account is overdrawn some $1.4 million. However, it is plain that if the husband is to engage lawyers, including senior counsel and expert accountants in the case he will have to pay them from some source of funds or other. The husband says that since about 1990 he has used his capital account in the [McL] & Co Partnership as his “sole source of income”. It is from that source that he has paid the wife’s and his own maintenance and other expenses. He says that his ability to draw against that account is “subject only to the availability of cash funds in the accounts of [McL] & Co”. (Affidavit husband filed 23 October 2002). In my view, the husband’s ability to draw on his capital account “subject only to the availability of cash funds” is a financial resource I am able to take into account in having regard to the financial circumstances of the parties. As the capital account is, on his own evidence, his “sole source of income”, I infer that any further payments he may make to his solicitors for their professional costs and disbursements, or to his accountants and valuers, may be likely to be paid from his capital account. If he does make such payments, he should be required, in the circumstances of this case, to pay an equal amount to the wife’s solicitors, to maintain the “level playing field”. I am satisfied that the matters I have referred to amount to circumstances that justify the Court making the order sought in this case.
I agree with the views of O’Reilly J. Here, the evidence of the husband shows that there is a balance sheet in which he owes the company money. The husband has expended large sums of money and if the wife’s assertions as to the anticipated costs from now until the conclusion of the trial are correct, the husband will have a similar obligation and presumably have to rely on the same source as he has to date. His ability to have the company pay his costs is a financial resource that I am entitled to take into account under s 117(2A).
As has been said before, cases involving complex commercial family disputes are often not a level playing field. It is important that if possible, an attempt is made to level that field. The best way to do that in this case is to ensure that wherever a payment is made to the husband’s lawyers for the preparation of material, an equal amount is paid to the wife’s practitioners.
I am satisfied that the wife has no other source of funds other than family and friends and without this sort of assistance, there will not be a level playing field. I propose to make orders according.
I certify that the preceding Sixty One (61) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 18 January 2011.
Associate:
Date: 18 January 2011
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