Jefferson and Coulston

[2014] FamCA 1083

FAMILY COURT OF AUSTRALIA

JEFFERSON & COULSTON [2014] FamCA 1083

FAMILY LAW – PROPERTY – Litigation Funding Order – Where applicant sought a lump sum litigation funding order or in the alternative a dollar for dollar costs order – Where Court noted many cases have emphasised the importance in applications of identifying the relevant source of power for the proposed order – Where Court satisfied that the respondent was in a position of financial strength as compared to the applicant – Where Court considered it was appropriate to make an order for litigation funding under either section 90SM or section 117 – Where the Court noted it was mindful that to the extent that reliance might be had upon section 90SM, there was limits to the amounts which could be justifiably ordered under that section – Where there was no evidence before the court to satisfy it that the respondent had the capacity to pay any substantial lump sum – Where the Court was satisfied it was more likely than not that the applicant’s legal practitioners would continue to act in the matter even if the outstanding sum owed to them remains unpaid – Where Court not persuaded that a lump sum litigation funding order should be made – Where Court was persuaded the respondent had the capacity to meet a dollar for dollar funding order – Where Court was not satisfied such order should be backdated – Where Court noted that dollar for dollar orders are potentially susceptible to abuse and as such placed a cap on the amount of funding ordered with liberty for the applicant to seek to increase the cap in the future – Where Court noted the characterisation of the payment as being either costs or interim property should await the determination of the trial judge in due course.

Family Law Act 1975 (Cth) s 90SM, 90SS, 117

Paris King Investments Pty Ltd v Rayhil [2006] NSWSC 578
Zschokke v Zschokke (1996) FLC 92-693
Strahan v Strahan (Interim Property Orders)(2011) FLC 93-466
Harris v Harris (1993) FLC 92-378
Norbis v Norbis (1986) FLC 91-712
Stanford v Stanford (2012) 247 CLR 108

APPLICANT: Ms Jefferson

RESPONDENT: Mr Coulston

FILE NUMBER: MLC 9907 of 2011

DATE DELIVERED: 24 September 2014

PLACE DELIVERED: Townsville

PLACE HEARD: Townsville

JUDGMENT OF: Tree J

HEARING DATE: 28 October 2013; 20 February 2014 and 11 July 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Betts

SOLICITORS FOR THE APPLICANT: Forte Family Lawyers

COUNSEL FOR THE RESPONDENT: Mr Fellows

SOLICITORS FOR THE RESPONDENT: Wilson Ryan & Grose Solicitors

Orders

1. That within seven (7) days after any payment by or on behalf of the respondent of accounts rendered by his solicitors (or counsel) in relation to expenses associated with this case (“any payment by the husband of his own account”) the respondent pay or cause to be paid the same sum of money to the solicitors for the applicant.

2. That within 24 hours after any payment by the husband of his own account, the respondent cause to be given to the applicant’s solicitors a memorandum stating the amount or amounts so paid.

3. That any payment by the husband of his own account shall be held in trust by the solicitors for the respondent and not applied in payment of their account until such time as the payment to the applicant’s solicitors as required by paragraph 1 of these orders has occurred.

4. In the event that the payment to the solicitors for the applicant referred to in paragraph 1 of these orders is not made within the seven (7) days stipulated therein, then respondent is to thereupon direct his solicitors to pay 100 per cent of any payment by the husband of his own account to the solicitors for the applicant.

5. That the amounts paid pursuant to these orders to the solicitors for the applicant:

   (a)are only to be applied by them in payment of the costs and disbursements incurred by the applicant in the conduct of these proceedings;

   (b)are not to collectively exceed a total of $50,000.00. 

6. That the applicant have liberty to apply on 14 days notice to increase the figure at paragraph 5(b) hereof.           

7. That the question of the categorisation of any payments made pursuant to these orders shall be a matter for determination by the trial judge.

8. That this order have effect from 1 July 2014, and capture only accounts rendered to the husband for work performed by his solicitors or counsel on or after 12 July 2014, and the respondent make all payments that would have been due under this order had it been then pronounced within seven (7) days of the date of this order.

9. Otherwise the wife’s Further Amended Application in a Case filed 31 October 2013 be dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Jefferson & Coulston has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT TOWNSVILLE

FILE NUMBER: MLC 9907/2011

Ms Jefferson

Applicant

And

Mr Coulston

Respondent

REASONS FOR JUDGMENT

INTRODUCTION  

1. By her Further Amended Application in a Case filed 31 October 2013, the applicant seeks a litigation funding order either in the sum of $600,000.00[1] (or such other sum the court considers appropriate) or alternatively that the respondent pay her solicitors an amount calculated as being three times the sum of money which the respondent has spent on his own solicitors since 2 October 2012, with such order continuing forward hereafter.  The respondent opposes any litigation funding order, but in the event that it be made, proposed that is should only be what is known commonly as a “dollar for dollar” order, which should be capped at a fixed figure.

   [1]This was reduced to $400,000.00 during the course of the hearing of the application before me.

2. The applicant also sought further funding from the respondent for the purposes of retaining a “shadow expert” to the single expert appointed to value the husband’s business assets.

BACKGROUND FACTS

1. The applicant was born in 1972 and is therefore presently 42 years of age.  The respondent was born in 1967 and is therefore presently 46 years of age.  There is one child of the relationship, B, who was born in 2008 and is therefore presently 5 years of age.  He lives with the mother in Victoria.  The father resides in C Town.

2. The parties never married.  They are not in agreement as to the duration of their relationship, although they are agreed (it seems) that it spanned three separate periods of cohabitation, the first of which commenced in August 2001.  In total, the applicant asserts that the parties cohabited for a combined total of four and a half years; the respondent asserts a combined total of only 29 months.

3. Whatever be the length of the relationship, it is not in contest that the parties never jointly acquired or owned any property, or had joint liability for any debts.  Although the identity of their assets may have changed during the years spanning the relationship, essentially the parties left the relationship with what they brought into it, or at least assets derived from the assets that they brought into the relationship.

HISTORY OF THE LITIGATION

1. The proceedings were commenced by the applicant in the Melbourne Registry of the then Federal Magistrates Court on 7 November 2011.  They were transferred to the Townsville Registry on 7 December 2011.  In that jurisdiction on 13 February 2012, the applicant first made a claim for an interim property settlement, apparently in part based upon her past and likely future expenditure on legal costs.  That application was dismissed by Coker FM on 23 February 2012.

2. On 2 October 2012, a further interim application was filed by the applicant seeking a litigation funding order in the sum of $420,000.00, or alternatively a dollar for dollar costs order.  That application remained undetermined when the matter was transferred to the Family Court on 21 May 2013.  On 20 September 2013, the applicant filed an Amended Application seeking a $600,000.00 litigation funding order, but not pressing any dollar for dollar order.  On 28 October 2013, that Application first came on before me for hearing, on which occasion the applicant sought an adjournment in order to be able to further amend her application, which she did on 31 October.  It is that Application which is before me now.

3. Since 2011 the broader litigation has been progressing in other respects as well.  The primary issue in dispute between the parties is not, as I understand it, what the assets in the respective pool comprise, but rather what their values are.  Particularly, controversy has attached to the value of firstly, a rural property owned by the respondent and livestock which are depastured thereon, secondly, a business conducted by the respondent known as “D Pty Ltd” and thirdly, a hospitality business owned and conducted by the respondent known as “E Pty Ltd”.  The costs of valuing those entities by a single expert have been substantial.  They have been met, pursuant to an order made by consent by Coker FM on 1 February 2013, from the sale proceeds of a boat previously owned by the respondent.

4. An equally fertile topic for controversy has been the respondent’s disclosure of relevant material.  Particularly the applicant has focused upon obtaining documents either prepared by the respondent or those retained by him, or prepared by financial institutions (arguably from information provided to them by the respondent) which provide estimates of the value of certain assets and business of the respondent from time to time.  Considerable industry has been devoted to that task by the applicant’s solicitors.  A part of their inquiry has also focused upon the likely income streams to the respondent that flow from his several business ventures.

5. The relevant single expert has valued the so-called “Coulston Group” at a net figure of $5,264,458.00.

6. As ultimately articulated, the applicant sought litigation funding by way of a lump sum of $400,000.00, or in the alternative the 3:1 “dollar for dollar” order, save that there appeared to be a late concession that any backdating of the order should be at a ratio of 1:1. The primary, but not sole, jurisdiction for such an order was said to lie in the costs power under s117 of the Family Law Act, however reliance upon s90SM and 90SS(1)(h) was not abandoned.

RELEVANT STATUTORY PROVISIONS AND LEGAL PRINCIPLES

1. Section 117 of the Family Law Act provides relevantly as follows:

   117(1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 118 each party to proceedings under this Act shall bear his or her own costs.

   117(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), (4A) 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.

   117(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. Section 90SM is the general power of the court to alter property interests of de facto couples.  It is materially indistinguishable in its terms from s79.  Section 90SS articulates the powers of the court in exercising, amongst other things, the discretion under s90SM.  Those powers include the order of a payment of a lump sum or periodic sums.

3. Many cases have now emphasised the importance in applications such as this of identifying the relevant source of power for the proposed order, as that determines the necessary preconditions and relevant considerations for making the order.[2]  However irrespective of which power is in play, there are three relevant matters common to each source of power, namely:[3]

   ·A position of relative financial strength on the part of the respondent;

   ·A capacity on the part of the respondent to meet his or her own litigation costs;

   ·An inability on the part of the applicant to meet his or her litigation costs.

   [2]Zschokke & Zschokke (1996) FLC 92-693; Paris King Investments Pty Ltd v Rayhil [2006] NSWSC 578 and Strahan & Strahan (interim property orders) (2011) FLC 93-466 at [84].

   [3]See Zschokke (supra) at 83,217, Paris King Investments (supra) at [30], and Strahan (supra) at [90]-[91].

4. However when s117 is under consideration, other matters arise, particularly:[4]

   ·An applicant should have “at least an arguable case for substantive relief which deserves to be heard”;

   ·There should be evidence of the applicant’s likely costs of the litigation;

   ·It is not an essential precondition that the applicant’s legal representatives will continue to act unless the costs are paid or secured on an ongoing basis;

   ·An order may make a provision for litigation expenses at a rate that appears reasonable in all the circumstances;

   ·An order can be made in respect of costs already incurred as well as future costs;

   ·Whether the order is to be in respect of costs already incurred or costs to be incurred, and whether the applicant’s lawyers will continue to act in the absence of provision for costs be incurred, may be relevant to the discretion to make an order, and its quantum;

   ·Any such order should be framed to protect the parties from any risk of injustice arising from the manner in which the funds are expended, and this may be done by requiring that the funds be administered solely by the applicant’s solicitors and applied only to meet the expenses referred to in the order, with detailed records being maintained to permit review by the court at the time of the exercise of its discretion in the substantive property proceedings or the final determination of the issue of costs.

   [4]Strahan (supra) at [96] quoting from  Paris King at [30] and [31], with relevant citations omitted

5. In considering an application for litigation funding by reference to s79 or s90SM, it is plain that the exercise of the discretion must be performed within the usual parameters applicable to those sections[5] and because, of necessity such an exercise is likely to be imprecise, it must be conservative and the Judge must be satisfied that the remaining property will be adequate to meet the legitimate expectations of both parties at the final hearing, or on a practical level able to be reversed.[6]  However it is no longer correct to say that the exercise of the power should be confined to cases where circumstances presented at the time are “compelling,”[7] although more is required than the mere fact that upon a final hearing the applicant would receive the amount being sought – or more – from the other party.[8]  However none of the foregoing should be confused with binding principles of law: “the nature of the issues which arise under s79 is such that there is either little or no scope for giving guidance in the form of binding rules of law.”[9]

THE APPLICATION UNDER S117

[5]Harris & Harris (1993) FLC 92-375 at 79,929-79,930 and Strahan (supra) at [100].

[6]ibid.

[7]Strahan (supra) at [132].

[8]Strahan (supra) at [139].

[9]Norbis v Norbis (1986) FLC 91-712 at 75,166.

The relative financial strengths of the parties

1. In interim applications such as this, it is not possible to make final findings of fact as to the parties’ financial circumstances.  However there seems to be little controversy in relation to the applicant’s financial position, and to the extent that there is controversy, it only appears to relate to the value of a home which she continues to own in C Town (although she now lives in Melbourne).  The applicant’s most recent financial statement was filed on 20 September 2013.  It discloses average weekly income of $2,641.00, average total personal expenditure of $2,652 per week, property owned by her at a value of $874,680.00 (in which the C Town home is said to be worth an estimated $850,000.00) superannuation in the sum of $63,705.00 and liabilities of $1,112,410.00.  Of those liabilities, a little over $670,000.00 is by way of mortgage, and $400,000.00 is said to be owed to her solicitors, albeit some unspecified part is in relation to unbilled work in progress.  The balance of the liabilities are a relatively small personal loan of $36,348.00, and a visa card debt.

2. The financial circumstances of the respondent are more opaque and perhaps volatile.  As I have already indicated, the single expert has valued the “Coulston Group” at a figure of $5,264,458.00.  However the financial circumstances of the respondent do not appear to be static.  For instance, a major issue in the hearing before me was the likely intervention of financiers to whom the respondent owes money in relation to his businesses.  Likewise, it appears as though there is a pending sale of the respondent’s hospitality business known as “E Pty Ltd”.  However that said, the respondent in his affidavit of 20 November 2013 appeared to concede a net worth of at least $1,666,000.00.

3. Some uncertainty also surrounds the actual quantum of the income which the respondent receives.  He appears to concede an income of around $250,000.00, although whether that would be treated as taxable income, or whether it is partly or wholly met by drawing down on loan accounts, is not altogether clear.  The applicant contends that the respondent received about $500,000.00 in the 2013 financial year, largely by loan account transactions involving D Pty Ltd.  However the respondent contends that those monies have been derived principally from family sources, and have been used to meet other business liabilities.  I cannot determine on this application the correctness or otherwise of those competing contentions.  However it does appear as though, even if it not be in the form of taxable income, the respondent does have access to funds of some magnitude.  That said, it is unclear the extent to which that could be regarded as available for discretionary spending.

4. However on a broad basis, it seems plain that the respondent is in a position of relative financial strength as compared to the applicant.

Respondent’s capacity to meet his own legal costs

1. According to his affidavit filed 14 February 2014, the respondent had paid his lawyers the sum of $163,992.00 to that date.  Although there had been some ambiguity as to whether in 2013 in fact he was making payments to his solicitors, it transpired that payments had thereafter been made and it appears as though he will retain the capacity to meet his legal costs going forward.  I am satisfied on the material that the respondent has the capacity to meet his own legal costs.

Inability of the applicant to meet her own litigation costs

1. As at 20 September 2013, the applicant had been billed $204,272.00 in legal fees by her solicitors.  There was further unbilled work which was said to amount to $177,732.00.  Those fees have not been billed and it appears that they will not be billed, because the solicitor’s firm in question cannot financially accommodate it because it would exceed the firm’s overdraft.  It was estimated that the wife’s future costs of the litigation would be well in excess of $200,000.00, and perhaps approaching $300,000.00.

1. I am satisfied that the applicant is unable to meet her own litigation costs.

Complexity of the litigation

1. It cannot seriously be disputed that the business structures, interrelationships between those structures, and the business dealings of the respondent, have a level of complexity.  To the extent that there was debate before me as to this issue, it was really as to the degree of complexity which prevailed, and particularly whether the complexity was, in part, because of obfuscation by the respondent, or other conduct which may have deliberately or otherwise, obscured his financial position.  I cannot determine those sorts of matters in this interim application, however that said, I am satisfied that there is a degree of complexity to this matter which differentiates it from what might be described as “normal” litigation of this kind.

Need for expert investigation

1. Again this is a matter which was the subject of some agitated debate before me.  Essentially the applicant contended that the conduct of the respondent was, to put it bluntly, of a kind that meant that his assertions could not be necessarily trusted, but rather that there needed to be independent verification of his financial position.  Plainly it was suspicions as to the reliability of his disclosure, or at least the values which he attributed to certain assets, which underpinned much of the vigorous pursuit of financial information from his bankers and other financial institutions.  However again it is simply not possible on an application such as this to make findings as to the extent to which the respondent has, by his own conduct, introduced a need for expert investigation.

2. What is plain however, is that in part arising from the complexity of the structures and interrelationships that attend the respondent’s businesses, some investigation of them is warranted.  Moreover, it cannot be doubted that the process of valuing them has been a protracted and expensive one.  Additionally, given that it appears as though the respondent intends to argue at trial that supervening financial circumstances have impacted upon the values of his assets, a degree of ongoing investigation is also warranted.

3. Therefore I am satisfied that there is a need for expert investigation of the matters in this case.

Level playing field

1. Again this was a matter of some vigorous debate before me. Counsel for the applicant contended that, by reference to several authorities, the desirability of achieving a level of litigious playing field in such matters is a factor which, if present, militates in favour of a litigation funding order. On the other hand counsel for the respondent, in essence, suggested that even if such a difficult to define concept was a relevant consideration under s117, that in the unique circumstances of this case, I could not be satisfied that a level playing field would not in fact be achievable without a litigation funding order. That was because of the lack of any assertion by the solicitors for the applicant that they would cease to act for her absent a litigation funding order of some kind being made.

2. Indeed it may fairly be said that an unusual feature of the case was the absence of any such evidence.  During the course of argument, I raised the prospect that the level of indebtedness of the applicant to her solicitors, and the fact that likely some part of that indebtedness is already presently irrecoverable because the applicant does not have sufficient equity in her assets to meet her costs, means that the firm has become increasingly hostage to continuing to act for the applicant, as being the only likely viable means by which their considerable bills can be paid.  Moreover, a simple comparison of the amounts which they have already billed the applicant, and intend in future to charge (being at least the value of the unbilled work which they have done for her) compared with the bills which the respondent has paid, demonstrates, at least on one view, a real level of enthusiasm on the applicant’s solicitors part in conducting her case.

3. Therefore even if the somewhat ambiguous concept of a “level playing field” is a matter relevant in litigation such as this, the material does not permit me to conclude that the only means of achieving a level playing field is by virtue of a litigation funding order.

Reversibility

1. During the course of argument, I raised with both parties my concerns that the frequent form of order on litigation funding, which reserves to the trial Judge the characterisation of any sum order to be paid as either costs or an interim property settlement, was problematic if only the costs power was available to found the order.  Conceptually, the difficulty is that if the costs power is explicitly the only basis upon which the order is made, the subsequent determination that what was ordered and paid as costs should be in fact treated as an interim property settlement, seems to involve some curious form of judicial alchemy.  That is a live issue here because, as shall be seen, the respondent argues that the wife might not achieve a division of the property of the parties which would exceed the value of the lump sum which she seeks, or at least that I should not be satisfied on an interim basis to the requisite standard that such “reversibility” would necessarily be possible.

2. Whilst I shall consider that in greater detail when considering the alternative basis for the litigation funding order under s90SM, suffice it to say that the doubt that I entertain whether a trial judge can, in effect, undo the juridical basis for a previous order, causes me to approach this matter with some caution.

3. That caution is only increased by the acknowledgment that ordinarily, orders for costs under s117 are based upon retrospective inquiries. One only needs to consider the terms of s117(2A) itself to recognise that sub-paragraphs (c), (e) and (f) are fundamentally retrospective in concept.

4. However the potential that a litigation funding order may not be reversible is not necessarily fatal to an application based on s117 and remains but one factor to be weighed in the balance in the exercise of the discretion. Also relevant necessarily must be the likely quantum of the costs; the prospect of irreversibility would likely loom larger in the exercise of the discretion if the sum in question were large, and may assume little prominence if the sum in question is small.

Other matters

1. By reference to the list of additional matters articulated in Paris King Investments, I note as follows:

   ·Whilst there is controversy as to whether the applicant is likely to obtain a division of property in her favour in excess of any litigation funding order, I did not understand it to be put by the respondent that the wife did not have at least an arguable case for substantive relief which deserves to be heard;

   ·There is evidence here of the likely costs of the applicant in the litigation;

   ·Whilst there is no evidence that her legal representatives will not continue to act unless outstanding costs are paid or secured, that is not an essential precondition here, although it may be relevant as to the quantum of any order I may make.

Should there be a Litigation Funding Order under s117?

1. Weighing all of the above factors in the balance, I am satisfied that there are circumstances that justify making some order for costs, and that the justice of the case favours the exercise of my discretion to make a litigation funding order in favour of the applicant against the respondent.  However I will consider the form, retrospectivity and quantum of any such order after I have considered whether or not there is also a sufficient basis under s90SM for such an order.

THE APPLICATION UNDER SECTION 90SM

Overlap with s117 considerations

1. It will be appreciated that I have already addressed the three relevant considerations that are common to the inquiry, whether it be under s117 or s90SM, in the preceding paragraphs. I do not stay to repeat that consideration here, however I nonetheless take those matters into account.

Section 90SM parameters

1. This was a matter of some contention before me, arising out of the High Court decision of Stanford v Stanford,[10] and particularly whether I could be satisfied, given the absence of final findings, that assuming that there is a first step that needs to be satisfied that it is just and equitable to alter the parties’ property interests at all, that any such alteration was just and equitable on the facts of this case.

   [10](2012) 247 CLR 108.

2. As has been noted in a number of cases post Stanford, co-ownership of property in the context of a failed relationship will frequently alone and without more be sufficient to render it just and equitable to alter the parties’ property interests.  However this is not such a case.  There is no jointly owned property.  However that does not mean that the applicant cannot thereby satisfy the just and equitable requirement.

3. The parties provided me with a helpful summary of the so-called “short relationship” cases.  Whilst, of course, each case turns upon its own unique facts, it may generally be said that where the court is dealing with periods of co-habitation between about three and five years, in circumstances where one party brought into the relationship the preponderance of assets, there has been a generally established range of outcomes in terms of a division of property, both on contribution based entitlements and by reference to s75(2) factors, of around 10 per cent in favour of the other party.  Here, the fact that the wife has had, and is likely to retain, the primary care for the only child of the parties’ relationship, is a strong factor in her favour under s90SF(3)(c).  Many of the “short relationship” cases from which counsel contended the range for such cases may be discerned, did not have that as a feature.

4. Leaving aside her considerable liability for her solicitor’s costs, which now exceed her equity in the property in C Town, it appears as though the wife has net assets of about $370,000.00.  The total valuation of the “Coulston Group” is $5,264,458.00.  On those figures, the total net pool, on current valuations, is $5,634,458.00, of which 10 per cent would be a figure of $563,458.00.  If the wife retains the equity in her C Town property, a 10per cent division in her favour would still see a payment to her by the husband of $193,458.00.  If the parties’ interests in property were not altered, such that the wife only retained her equity in her C Town property, that would be a division of only about 6.5 per cent in her favour, which, on the cases the parties referred me to, would appear to be outside the reasonable range of her entitlement, especially given her care of the child.

5. Of course the volatility of the husband’s businesses may see the value of the Coulston Group change between now and trial.  Moreover, the wife may not succeed in obtaining a division in her favour in the vicinity of 10per cent, irrespective of what the pool or its value ultimately proves to be.  However the material presently before me does support the conclusion that it is just and equitable to undertake some alteration of the parties’ property interests.

6. In making that observation I have deliberately used some general language.  In part, I have done so because I am conscious that in a Registry such as C Town, I am likely to be the trial judge should the matter proceed to a final hearing, and it would be unfortunate if another judge were required to be made available to hear the matter because any expression of a preliminary view by myself created the impression of pre-judgment.  I should therefore emphasise that the conclusions which I have drawn on the interim application would not preclude the parties from advancing contrary positions before me at trial.

7. Within the usual parameters of s90SM, I am satisfied that a conservative range of the applicant’s likely entitlements does see capacity for an order for litigation funding to be made by way of interim property settlement.  However in making any such order, I would need to be mindful of the many vagaries attending upon the calculation of that conservative range in this case, and the fact that the larger the amount that may be ordered, the less likely it is that the amount ordered will comfortably lie within that conservative range.

Claw-back or reversal?

1. This was a matter which again was the subject of much debate before me.  Particularly it was said by the respondent, given:

   ·the short and somewhat intermittent nature of the parties’ relationship;

   ·the absence of any real basis for arguing that the applicant had contributed to the assets of the respondent or vice versa; and

   ·that the applicant retains assets of some considerable value;

   I could not be satisfied, acting conservatively, if there were a litigation funding order made of the kind sought by the applicant, that there would be remaining property left which would be adequate to meet the legitimate expectations of both parties.  Further, given that the funds would have been consumed in costs, it was argued that the trial judge could not necessarily effect a reversal of any interim property division which exceeded the entitlements of the applicant as finally adjudicated. 

2. Counsel for the respondent undertook a number of mathematical exercises to demonstrate this point, and in doing so, emphasised what he described as the “reverse engineering” that the applicant had undertaken from time to time, in an effort to justify her litigation funding orders being founded upon an interim property settlement.  Particularly counsel emphasised the apparent progressive increase of the percentage entitlement that she contended that she would obtain in any final property settlement, which counsel for the respondent said was not supported by an analysis of the “short relationship” cases.

3. Upon analysis, whilst that argument may have some force in relation to, for instance, a lump sum litigation funding of $400,000.00, it has less force in relation to smaller sums, and indeed lesser force as the sum under consideration reduces.  However from the perspective simply of the enlivenment of jurisdiction, it seems to me as though s90SM is available as a source of power in this case, but may become practically unavailable if and when the sums in question go beyond either a conservative range of entitlement, or beyond any ability to achieve reversal.

Should there be an order under s90SM?

1. Upon balance, I am satisfied that on the circumstances of this case, there should be an order for litigation funding under s90SM.  However in making any such order under that head of power, I will be mindful of the possibility that a large lump sum, or an uncapped dollar for dollar order, may not be a justifiable exercise of discretion under s90SM.

WHICH HEAD OF POWER SHOULD BE RELIED UPON?

1. As has been seen, I am satisfied that it is appropriate to make some order for litigation funding under either head of power relied upon by the applicant, however I propose to be mindful that, particularly to the extent that reliance might be had upon s90SM, there are limits to the amounts which could be justifiably be ordered under that section.  Against that background, I shall consider the form of the orders which should be made, and if needs be, determine specifically which head of power is being relied upon.  In the event that it is unnecessary to differentiate between the head of power being relied upon, then I propose to, as is customarily the case, leave it to the trial judge to determine how the sum ordered should be characterised.

LUMP SUM OR DOLLAR FOR DOLLAR?

1. The lump sum figure which the applicant seeks is $400,000.00, or such other figure as the court may think appropriate.  The immediate difficulty with such an order is that the applicant produces no evidence of any cash sum, whether of $400,000.00 or any other substantial amount, that is presently held on deposit for the respondent, or that he has the capacity to borrow any such sum.  How she proposes that the respondent would find it is something of a mystery.

2. Moreover, the respondent in his material identified that his business structures were presently under some form of closer-than-usual scrutiny by his financiers, in part it may be, because they had become aware of these proceedings and more particularly the applicant’s claims within them.  The respondent, or entities associated with him, have very substantial borrowings.  Further, the respondent identifies that the aviation business – which represents a substantial part of the value of the assets under his control – is a volatile one, seemingly subject to a boom and bust cycle.  Therefore not only is there no material upon which I could be satisfied that the respondent presently has any capacity to pay any substantial lump sum by way of litigation funding, but further, requiring him to do so may imperil his capacity to maintain ownership of his current assets.  The applicant did not suggest that the respondent should be required to sell assets in order to meet any such litigation funding order.  In any event, I am unpersuaded it would presently be reasonable to require him to do so in the circumstances of this case.

3. There is another factor which I identify as relevant to the exercise of my discretion, namely that the “level playing field” argument advanced by the applicant may have favoured the ordering of a lump sum, including a component for sums already owed to her legal practitioners, if they were requiring, as a condition of them continuing to act for her, that the outstanding sums be paid.  However there is no such evidence, and in the circumstances I infer that if that had been the position, such evidence would have been forthcoming.  I therefore am prepared to conclude that it is more likely than not that her legal practitioners will continue to act for her, even if the outstanding sum owed to them remains unpaid.  To that extent, ordering a lump sum including some retrospective component does not achieve a level playing field: the gradient of that playing field is an historical fact, or to extend the analogy probably beyond breaking point, whether or not in the past the playing field was level, the simple fact is that the game is now being played elsewhere.

4. To the extent that the level playing field argument has relevance, in this case it can therefore only be in relation to the future.

5. Upon balance I am not persuaded that there should be a lump sum litigation funding order.

6. However particularly given the respondent’s capacity to fund his own legal practitioners to the extent of more than $160,000.00 since the litigation commenced, and because he does, on any view, appear to have control of significant assets and income streams associated with them, I am persuaded that he does have the capacity to meet some species of dollar for dollar litigation funding order.  However there are two matters relevant to that which required determination.  The first is whether any such order should be backdated to the date of the first iteration of the application for litigation funding before me.  The second is whether there should be some multiple, whether 3:1 or some other ratio, that applies to the dollar for dollar order.

7. Turning firstly to the backdating, necessarily any backdating of the order would produce an obligation on the part of the respondent to pay a lump sum to the applicant.  Whilst I do not know the breakup of his costs since 2 October 2012, I infer that they are likely to be a substantial part of $160,000.00 he has paid.  Therefore any backdating of the order would require a considerable lump sum payment.  I have already indicated that I am not persuaded that the evidence permits a conclusion that there is any present capacity in the respondent to so pay a lump sum.  Moreover, the observations which I made in considering whether a lump sum or dollar for dollar order should be made relating to the “level playing field” are equally apposite here: the gradient of the playing field in relation to past play is an historical curiosity which could not be cured by a retrospective order for payment of costs.

1. I decline to make any backdating of the litigation funding order, whether to 2 October 2012 or otherwise.  It will run from the last day of the hearing before me, being 11 July 2014.

2. That then leaves the question of whether there should some ratio favourable to the applicant applied to the litigation funding going forward.  Counsel for the applicant frankly conceded that no previous case appears to have made any such order.  To the extent that he justified the order on the facts of this case, it was, in substance, an argument that the applicant was obliged to do more work than the respondent, because of the complexity of the respondent’s affairs.  His argument was that the applicant needed to do the digging, and the respondent was essentially an observer.  In large part, the applicant sought to justify that conclusion by a comparison of the parties’ respective legal bills.  However there may be a great many reasons for the disparity in the parties’ legal fees, including matters presently confidential to the parties.  Even if I were persuaded that there is substantially more work involved in these proceedings for the applicant than the respondent, the material would not enable me to select any ratio, whether it be of 3:1 or some other figure.

3. I therefore decline to make any such ratio order.  The order which I am persuaded to make will therefore be a dollar for dollar costs order only.

SHOULD THERE BE A CAP?

1. I am mindful that dollar for dollar orders are potentially susceptible to abuse.   In making that observation, I am of course making no such suggestion in relation to the applicant’s legal practitioners, but merely stating an obvious fact.  Particularly, by undertaking activity which requires response by the respondent, and hence causes him to incur legal fees, the applicant can effect adverse financial consequences upon the respondent which are not necessarily proportionate or otherwise properly reflective of the value of the activity, or the progress towards resolution of the matter.  Any activity requiring response – whether warranted or otherwise – financially advantages the solicitors for the applicant, and financially disadvantages the respondent.  In my view, courts ought be vigilant when fashioning dollar for dollar orders, to try and minimise the prospect or opportunity of any such unfortunate and unwarranted outcome.  The most obvious way it can do so, is by placing a cap – albeit subject to the possibility of subsequent review – upon the amount of any such litigation funding.  Absent any certainty that the cap would rise, a sensible litigant would thereafter prudently select activity which would likely obtain for them the best value for the respondent’s money. 

2. I am of the view that such an order is appropriate here.  I am further of the view that the appropriate cap at this point in time should be $50,000.00.  I select that figure for two reasons.  The first is that it is a substantial figure and ought enable the applicant to significantly progress these proceedings.  The second is that I am satisfied that the progressive payment of that sum is unlikely to place undue financial pressure upon the respondent.

3. There will therefore be a dollar for dollar order made, but capped at $50,000.00, with liberty to apply being afforded to the applicant to seek to increase the cap in the future.

SECTION 117 OR SECTION 90SM?

1. Ultimately given the nature of the order which I have made, I am sufficiently satisfied that the figure of $50,000.00 is within the conservative range of potential entitlements of the applicant, and would see sufficient funds left for the reasonable expectations of the parties from the division of property of the parties to the marriage. Given that, I am not persuaded that it is appropriate to, at this point in time, specifically select as between s117 or s90SM, the source of the power to make the order. Rather I am of the view that this is one of the cases where the usual form of order is appropriate, namely that the characterisation of the payment as being either costs or interim property should await the determination of the trial judge in due course. Of course in the event that there were to be a further increase of that cap, the issue of power may not be so easily resolved in the future.

SHADOW EXPERT COSTS

1. The applicant also sought an order that the respondent be required to fund the costs of her retaining a second expert to “shadow” the single expert.  Such an expert would potentially be an adversarial one.

2. A primary purpose of the appointment of single experts is to try and minimise the cost to the parties associated with expert witnesses. The expert is intended to be impartial and not swayed to some partisan view. I do not understand it to be suggested by the applicant that the single expert here has acted in a partial or partisan way. Absent any such criticism, the justification for appointing a shadow expert, much less requiring the respondent to pay for him or her, is difficult to discern. Moreover, a shadow expert in the context of a single expert, may not be a cost recoverable on a party/party basis, which to my mind is a relevant consideration, at least insofar as the basis for such an order might lie under s117.

3. Again, the sum in question could be substantial.  I note that it appears as though the single expert’s costs here were in the vicinity of $220,000.00.  The likely costs of a shadow expert may be less than that, but not necessarily substantially less.  I am unsatisfied as to the capacity of the respondent to fund such amounts, which are likely to be, if not in one lump sum, then at least several substantial lump sums.  Moreover, not knowing in advance the sum which the expert would require to be paid, I am unable at this point to determine whether or not the power for making such order would lie in this case within the exercise of the discretion under s90SM.

4. I am not persuaded that there should be a litigation funding order for a shadow expert.  In my view on the material presently before me, such an expert in this case would be a luxury.

CONCLUSION

1. For these reasons there will be a litigation funding order on a dollar for dollar basis from the date of these orders forward.  The amount to be paid will be capped at $50,000.00 with liberty to the applicant to apply to increase that cap on reasonable notice to the respondent.  Otherwise the wife’s Further Amended Application will be dismissed.                  

I certify that the preceding sixty-eight (68) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Tree delivered on 24 September 2014.

Associate: 

Date: 24 September 2014