Jepson & Jepson

Case [2022] FedCFamC1F 45

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 1)

Jepson & Jepson [2022] FedCFamC1F 45

File number(s):

SYC 2100 of 2016

Judgment of:

MCCLELLAND DCJ

Date of judgment:

8 February 2022

Catchwords:

FAMILY LAW – PROPERTY – Where the applicant is the wife’s previous solicitors – Where the applicant seeks a partial interim property distribution for the satisfaction of legal fees owed – Where the applicant lodged multiple caveats on the wife’s property – The application seeks the Court’s exercise of power under s 79 and 80 of the Family Law Act 1975 (Cth) – equitable lien contended – absence of evidence for the Court to consider s 79(4) matters – Application dismissed with written costs submissions ordered.

Legislation:

Family Law Act 1975 (Cth) ss 75(2), 79, 80, 117

Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 67, 68

Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) s 5(1)(b)

Legal Profession Uniform Law 2014 (NSW) Pt 4.3, s 206

Cases cited:

Andrews & Andrews [2007] FamCA 562

Davidson & Davidson (No. 2) (1994) FLC 92-469

Edwards and Peters and Anor [2012] FamCAFC 65

Gabel & Yardley (2008) FLC 93-386

Harris & Harris (1993) FLC 92-378

In the marriage of Farnell (1996) FLC 92-681

Jackamarra v Krakouer (1998) 195 CLR 516

Malouf v Constantinou [2017] NSWSC 923

Martin & Martin and Ors (2013) 49 Fam LR 606

Medlow & Medlow (2016) FLC 93-692

R v Watson; Ex parte Armstrong (1976) 136 CLR 248

Stanford & Stanford (2012) 247 CLR 108

Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466

Twigg v Keady (1996) FLC 92-712

White v Overland [2001] FCA 1333

Yunghanns & Yunghanns (1999) FLC 92-836

Division:

Division 1 First Instance

Number of paragraphs:

52

Date of hearing:

20 December 2021

Place:

Sydney (via videolink)

Solicitor for the Applicant:

Allsop Glover Lawyers

Solicitor for the First Respondent:

Levitt Robinson Solicitors & Attorneys

Solicitor for the Second Respondent:

Gillis Delaney Lawyers

Solicitor for the Third Respondent:

Allsop Glover Lawyers

Fourth Respondent:

In person

Solicitor for the Fifth Respondent:

Hunt & Hunt Lawyers

ORDERS

SYC 2100 of 2016

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN:

MR JEPSON

Applicant
AND:

MS JEPSON

First Respondent

MR OAKLEY & MR HAIGHT

Second Respondent

MS B JEPSON (and others named in the Schedule)

Third Respondent

ORDER MADE BY:

MCCLELLAND DCJ

DATE OF ORDER:

8 FEBRUARY 2022

THE COURT ORDERS THAT:

1.The Application in a Proceeding filed on 2 November 2021 by the fifth respondent is dismissed.

2.In the event that a party other than the fifth respondent seeks an order for costs, they are to file and serve written submissions of no more than three (3) pages within 14 days of the date of these orders.

3.The fifth respondent may file and serve any submissions in reply to an application for costs within 14 days of receipt of the written submissions referred to in Order (2) above.

Note:    The form of the order is subject to the entry in the Court’s…

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Jepson & Jepson [2022] FedCFamC1F 45
Case
[2022] FedCFamC1F 45
Decision Date

CaseChat Overview and Summary

In the case of Jepson & Jepson, the Supreme Court of New South Wales was tasked with determining whether it was just and equitable to grant an interim distribution of funds from jointly owned matrimonial property. The wife had previously mortgaged her property to secure anticipated legal costs, but the court was now considering an application by her creditor, C Lawyers, for an interim distribution of funds. The central issue was whether the court should exercise its discretionary power under sections 79 and 80 of the Family Law Act 1975 to make an interim distribution order.

The court carefully weighed the evidence presented, focusing on the nature of the debt and the potential impact on the final property settlement. It noted that typically, debts incurred by one party, such as legal fees, are not considered joint liabilities. However, the court also considered the alternative view that C Lawyers, standing in the shoes of the wife, was seeking a partial property distribution to satisfy the wife's debt. The court concluded that, based on the evidence, it could not ascertain whether the wife's potential property settlement would be sufficient to cover her debt to C Lawyers. Consequently, the court found that it was not just and equitable to grant the application for an interim distribution of funds.

The court's reasoning was rooted in the principles of fairness and the need to protect the interests of both parties. It emphasised the importance of considering the impact of costs at the appropriate stage in the proceedings, as per the decision in In the marriage of Farnell. The court also highlighted the need for the applicant to demonstrate that there were sufficient assets available for the interim distribution and that the effect of any interim order could be reversed as part of the final hearing.

Ultimately, the court dismissed the application, noting that the applicant had not discharged the necessary burden to establish the justness and equity of an interim distribution. The court left open the possibility for the parties to apply for costs, allowing them to file written submissions on the matter.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

I have dismissed the application for reasons which include the failure by C Lawyers to provide sufficient evidence to persuade the court that it is just and equitable to make the order and, further, to satisfy the Court that at final hearing there will be sufficient funds to reverse the effect of the order in the event that it is found that such reversal is necessary to do justice to the parties in the proceedings.RELEVANT FACTS The wife mortgaged her property at L Street, Suburb P NSW (“the Suburb P property”) to the fifth respondent for the purpose of securing anticipated legal costs in respect to proceedings in the Supreme Court of New South Wales and the Family Court of Australia, as it then was. The mortgage was dated 7 April 2016 and did not identify any amount in respect to anticipated legal costs, but rather, was specified as being for the purpose of securing all monies due by the wife to the fifth respondent in respect to and “without limitation”;(a)all Bills of Costs issued by the Mortgagee to the Mortgagor, or any related party for work done to that date;(b)all Bills of Costs rendered by the Mortgagee in the future to the Mortgagor or any related party;(c)all accounts incurred with third parties (including contractor's, experts, consultants and counsel) for or on behalf of the Mortgagor or any related party; and(d)Interest at the maximum rate prescribed in Regulation 11OA of the Legal Profession Regulation 2005 (being the Cash Rate Target set by the Reserve Bank of Australia plus 2%), or such other rate as may be prescribed as applying to legal costs in New South Wales from time to time. No issue has been raised in these proceedings as to whether the uncapped security, as expressed in those terms, was reasonable in terms of the requirements set out in s 206 of the Legal Profession Uniform Law 2014 (NSW). Nor has any issue been raised as to whether the arrangement that C Lawyers required the wife to enter into was consistent with “other equitable doctrines such as fiduciary conflict and undue influence”: see Malouf v Constantinou [2017] NSWSC 923 at [172]. In April 2016, the Supreme Court of New South Wales, relevantly, made orders providing for the wife to live in the Suburb P property until completion of its sale and for the husband to live in a property identified as V Street, Suburb U NSW (“the Suburb U property”) until completion of its sale (“the Supreme Court orders”). The Supreme Court orders appointed trustees for the sale of both the Suburb P and Suburb U properties and made detailed orders empowering the trustees to effect those sales. Relevantly, Order 18 provided:Upon sale of either, or both, Suburb U or Suburb P, the Trustee shall pay the proceeds of sale in the following manner and priority:(a) To discharge any mortgage or encumbrance; and then(b) Payment of agent's commission and advertising or other expenses, if any, payable on the sale of the Properties including the various costs fees and commissions provided for in Order 14 hereof; and then(c) Payment of the legal costs and outlays relating to the sale; and then(d) the Trustee's costs and disbursements; and then(e) the balance shall be paid to the Trustee into an Interest-Bearing Account with the Solicitors for the Plaintiff and the First Defendant respectively being signatories (the joint account).

Evidence

Evidence Before The Court

Finally, in respect to the Supreme Court orders, it would have been necessary for the Court to consider whether the agreement entered into between the wife and C Lawyers in March 2021 for the net proceeds of sale of the Suburb P property to be paid into the wife’s solicitor’s trust account constituted a waiver of any rights that may have existed pursuant to Order 18 of the Supreme Court orders.EVIDENCE The fifth respondent, C Lawyers, relied upon an affidavit of Ms AA, filed on 2 November 2021. On 26 November 2021 the applicant and the third respondent in the substantive proceedings filed a response to the Application in a Proceeding and supporting affidavit of Mr DD. The remaining respondents did not file any material in respect to this application.CONSIDERATION This application must be dismissed because it is an application by a creditor of the wife for orders for an interim distribution of funds from joint matrimonial property, in circumstances where the debt is a debt due and payable by only the wife and not by the parties jointly. In that respect, it is not usually the case that a debt in respect to legal fees incurred by one party will be included on the balance sheet as a liability to be satisfied by both parties: In the marriage of Farnell (1996) FLC 92-681 (“Farnell”) at 83,066. At 83,080 of that case, Kay J agreed with Fogarty J that including costs incurred by one party on the joint balance sheet of the parties’ assets and liabilities “necessarily requires a breach of s 117(1) [of the Act]” and that “the proper time to considering the impact of costs is when considering applications under s 117 after the proceedings have concluded”. I will however, for completeness, consider the alternative formulation of this application by characterising it as an application pursuant to ss 79 and 80 of the Act. That is, whereby C Lawyers effectively stands in the shoes of the wife in seeking a partial property distribution for the purpose of the proposed released funds being applied by the wife directly to C Lawyers in satisfaction of her debt in respect to legal fees she has incurred with that firm. Relevant legal principles Sections 79 and 80(1)(h) of the Act confer power on the Court to make orders for a partial distribution of property prior to the final hearing. By way of summary, the relevant legal principles that I apply in this matter are as follows;·Section 79 confers a discreet power to make orders for property settlement and the Court may exercise that power through “a succession of orders until the power ... is exhausted” or until a final order dealing with all the known property of the parties is made: Gabel & Yardley (2008) FLC 93-386 as cited in Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 (“Strahan”) at 85,640.·Section 80 is not, in itself, a source of jurisdiction for such an order to be made. Rather, the section is an “enabling provision” that provides various ways in which the general power in s 79 may be exercised in individual cases: Davidson &Davidson (No. 2) (1994) FLC 92-469 and Yunghanns & Yunghanns (1999) FLC 92-836. This includes, by s 80(1)(h), the making of “a permanent order, an order pending the disposal of proceedings or an order for a fixed term or for a life or during joint lives or until further order”.

Decision

Reasons for decision

On the evidence presented in these proceedings, it is simply not possible to determine whether, at the conclusion of the property proceedings before this Court, the potential property settlement received by the wife will be equivalent to or exceed that debt due to C Lawyers, for which she is solely responsible. If the parties continue upon the litigious pathway that they are currently on there is, at the very least, doubt whether that will be the case. CONCLUSION For the reasons which I have set out above, I respectfully agree with the submission of counsel for the second and fourth respondents that the Application in a Proceeding filed by C Lawyers is misconceived and must be dismissed. In the circumstances of this matter, I will afford the parties the opportunity of making an application for costs by filing written submissions.

Ratio Decidendi

Legal Principle Established

On 26 November 2021 the applicant and the third respondent in the substantive proceedings filed a response to the Application in a Proceeding and supporting affidavit of Mr DD. The remaining respondents did not file any material in respect to this application.CONSIDERATION This application must be dismissed because it is an application by a creditor of the wife for orders for an interim distribution of funds from joint matrimonial property, in circumstances where the debt is a debt due and payable by only the wife and not by the parties jointly. In that respect, it is not usually the case that a debt in respect to legal fees incurred by one party will be included on the balance sheet as a liability to be satisfied by both parties: In the marriage of Farnell (1996) FLC 92-681 (“Farnell”) at 83,066. At 83,080 of that case, Kay J agreed with Fogarty J that including costs incurred by one party on the joint balance sheet of the parties’ assets and liabilities “necessarily requires a breach of s 117(1) [of the Act]” and that “the proper time to considering the impact of costs is when considering applications under s 117 after the proceedings have concluded”. I will however, for completeness, consider the alternative formulation of this application by characterising it as an application pursuant to ss 79 and 80 of the Act. That is, whereby C Lawyers effectively stands in the shoes of the wife in seeking a partial property distribution for the purpose of the proposed released funds being applied by the wife directly to C Lawyers in satisfaction of her debt in respect to legal fees she has incurred with that firm. Relevant legal principles Sections 79 and 80(1)(h) of the Act confer power on the Court to make orders for a partial distribution of property prior to the final hearing. By way of summary, the relevant legal principles that I apply in this matter are as follows;·Section 79 confers a discreet power to make orders for property settlement and the Court may exercise that power through “a succession of orders until the power ... is exhausted” or until a final order dealing with all the known property of the parties is made: Gabel & Yardley (2008) FLC 93-386 as cited in Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 (“Strahan”) at 85,640.·Section 80 is not, in itself, a source of jurisdiction for such an order to be made. Rather, the section is an “enabling provision” that provides various ways in which the general power in s 79 may be exercised in individual cases: Davidson &Davidson (No. 2) (1994) FLC 92-469 and Yunghanns & Yunghanns (1999) FLC 92-836. This includes, by s 80(1)(h), the making of “a permanent order, an order pending the disposal of proceedings or an order for a fixed term or for a life or during joint lives or until further order”. There are three stages to the hearing of an application for interim property adjustment orders:·The first two stages were described in Strahan at 85,645–85,646, with the first being a “procedural step” which requires an analysis of whether the circumstances of the case triggers the Court’s power to invoke s 80(1)(h) to make an order for partial property adjustment. At this stage, the “overarching consideration” is the interests of justice.·The second stage is the “substantive step”, where the provisions of s 79 must be considered and applied, but with limitations, given that it is not the final hearing.·The third stage, although not necessarily to be considered in this order, is to assess whether the applicant for relief has discharged the persuasive burden referred to in Medlow & Medlow (2016) FLC 93-692 (“Medlow”) at [86], where the Full Court said:The onus was clearly upon [the applicant for relief] to establish that there were sufficient assets available for the interim distribution and that the effect of any interim order was capable of being reversed as part of the final hearing or at least would not defeat [the respondent]’s property claim. The onus was not on the [respondent] to adduce such evidence.