Jepson & Jepson
[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 records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym Jepson & Jepson has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
MCCLELLAND DCJ:
INTRODUCTION
This matter concerns an Application in a Proceeding filed by the fifth respondent, C Pty Limited (“C Lawyers” or “the fifth respondent”), which is the firm of solicitors that previously acted for the first respondent wife in the substantive proceedings. The application seeks a partial property distribution from monies held in a controlled monies account for the satisfaction of legal costs payable by the wife to the fifth respondent.
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).
Order 27 of the Supreme Court orders relevantly provided:
Pursuant to section 5(1)(b) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), these proceedings are transferred to the Family Court of Australia, Sydney Registry to be consolidated with proceedings SYC 2100/2016 in that court, such order to take effect on 28 April 2016 and the pleadings in these proceedings be included in pleadings in Family Court of Australia 2100/2016.
On 19 April 2016, C Lawyers lodged a caveat on the title to the Suburb P property.
It is not clear what costs had been incurred by the wife for services provided by the fifth respondent as at 7 April 2016, 18 April 2016 or 19 April 2016.
The caveat lodged on 19 April 2016 was subsequently withdrawn by the fifth respondent, however, in October 2017, the fifth respondent lodged another caveat against the Suburb P property. That caveat listed the estate or interest claimed as being “mortgage of estate in fee simple dated 7 April 2016” between the fifth respondent and the wife. Details supporting the claim were particularised as being an “equitable interest as mortgagee pursuant to mortgage dated 7 April 2016.”
The fifth respondent ceased to act for the wife in or around 2017.
Pursuant to the Supreme Court orders, the trustees appointed for the sale of the Suburb P property secured a purchaser and settlement of the sale occurred on 8 April 2021. The wife and the fifth respondent were not able to reach agreement in respect to costs payable by the wife to the fifth respondent by the date of settlement.
At the time of settlement, the property was encumbered by mortgages to Y Company and to the fifth respondent.
The mortgage to Y Company was discharged at the point of settlement and, to facilitate the sale of the property, the fifth respondent agreed to withdraw its caveat on the condition that the net proceeds of sale would be held in the trust account of the solicitor for the wife, Mr W, pending court order. It appears that agreement was reflected in an irrevocable authority signed by the wife and dated 19 March 2021, which read as follows:
I, MS JEPSON of L Street, Suburb P, NSW hereby irrevocably authorise my solicitor Mr W to retain the net proceeds of sale of my property at L Street, Suburb P in the BB Lawyers Trust Account until he is served with an order of the Family Court directing the distribution of the proceeds of sale of my property.
In this case, the legal representative for C Lawyers placed considerable weight on the fact that, according to his submission, the only reason that C Lawyers was in a position where it was unable to enforce its security was the fact that it had not, as at the date of sale of the Suburb P property, reached agreement with the wife as to the quantity of costs which she was required to pay the firm in respect to work it had undertaken on her behalf. It was suggested, however, that in removing the caveat, C Lawyers acted to the benefit of not only the wife but also the husband. It was not suggested, however, that the actions of C Lawyers in removing the caveat created any entitlement over the property of the husband. The conduct of C Lawyers must also be seen in the context of where its ability to recover costs from the wife was constrained by the provisions ch 4, Pt 4.3 of the Legal Profession Uniform Law 2014 (NSW).
It is, however, unnecessary to further consider those issues in circumstances where, by deed of settlement dated 23 September 2021, the wife agreed to pay the fifth respondent the sum of $300,000. Clause 2 of the terms of settlement relevantly provided:
2.1Without admission of liability, Ms Jepson agrees to the payment of the sum of $300,000 (three hundred thousand dollars) (Settlement Amount) to C Lawyers. C Lawyers agrees that the Settlement Amount may be paid from the monies held on trust, being the net proceeds of the sale of 'Property L' at Suburb P (the trust funds) upon the happening of:
(a) The Federal Circuit and Family Court of Australia (Family Court) making an order to pay the Settlement Amount to C Lawyers from the trust funds; or
(b) The Parties to the Family Court proceedings SYC2100/2016 agreeing that the Settlement Amount may be paid to C Lawyers from the trust funds; or
(c) the conclusion of the Family Court Proceedings resulting in the distribution of funds
whichever first occurs.
2.2Ms Jepson warrants that she will consent to any Application in which C Lawyers may at its own cost seek an order contemplated by clause 2.1(a) and otherwise agrees to C Lawyers being paid the Settlement Amount from the trust funds.
2.3The Parties acknowledge and agree that the payment of the Settlement Amount to C Lawyers in accordance with this Deed shall be in full accord and satisfaction of C Lawyers's Bills. For the avoidance of doubt unless and until the Settlement Amount is paid to C Lawyers the Settlement Amount will be a debt due to C Lawyers. C Lawyers will not do or fail to do any act or thing which may damage the credit rating of Ms Jepson in connection therewith or take any debt collection action, provided that payment is made in accordance with clause 2.1(a)-(c).
(Emphasis added)
It appears that this application has been made in the context of cl 2.2 of those terms of settlement.
APPLICATION
The orders sought in the Application in a Proceeding filed 2 November 2021 are as follows:
1.Pursuant to Order 18 of the Orders made by the Supreme Court of New South Wales in proceeding number … 2016, or otherwise, the sum of$300,000.00 be paid from the net sale proceeds of the sale of the property known as "Property L", L Street Suburb P NSW (Land), currently held in the trust account of BB Lawyers, to C Lawyers Pty Limited (C Lawyers), or as it may in writing direct, in discharge of C Lawyers's claimed interest in the Land or the sale proceeds of the Land.
2.A sealed copy of this order be served on Mr W, solicitor.
3.Any respondent who opposes these orders pay the applicant's costs of this application.
The application is opposed by the husband, who is the applicant in the substantive proceedings, and also by his mother, who is the third respondent in the substantive proceedings.
JURISDICTIONAL BASIS FOR THE APPLICATION
The Federal Circuit and Family Court of Australia (Division 1) is a Superior Court of Record and, while the Court does not require formal pleadings, it is important for an applicant seeking relief to clarify the basis upon which that relief is sought, and then, to address the statutory criteria relevant to the exercise of that power. The importance of clarity was discussed by Allsop J (as his Honour then was) in White v Overland [2001] FCA 1333 at [4]:
… by way of general principle I would simply like to make perfectly plain my view that in the efficient and proper conduct of civil litigation, even civil litigation hard fought between parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are. Any practice of quietly leaving footprints in correspondence or directions hearings to be uncovered some time later in an attempt to reveal that a matter was always in issue should be discouraged firmly. Even if something has been said, where it is evident, or indeed suspected, that the other side is proceeding on the basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources (both public and private) likely to be wasted by confusion in litigation will mandate that a party through his or her representative ensure that the other is not proceeding on a misconception or that the other does appreciate something that has been said. Litigation is not a game. …In the long run, the only consequence of keeping issues hidden or not clearly identifying them is to disrupt the business of the court leading to the waste of valuable public resources and to lead to the incurring of unnecessary costs by the parties, costs which ultimately have to be borne by someone.
The obligation on judges of this Court and, indeed, on parties and practitioners litigating in this Court has been explained by the High Court of Australia in R v Watson; Ex parte Armstrong (1976) 136 CLR 248 per Barwick CJ, Gibbs, Stephen and Mason JJ, where it was stated at [560]:
Proceedings in which a wife seeks an order for maintenance or the settlement of property may involve a dispute as to property of great value and will often be bitterly contested on both sides. The order made determining such proceedings may be of the utmost importance to the future of both parties. The judge called upon to decide proceedings of that kind is not entitled to do what has been described as "palm tree justice". No doubt he is given a wide discretion, but he must exercise it in accordance with legal principles, including the principles which the Act itself lays down (in such sections as ss. 43, 72, 75 and 79, whichever may be applicable). He must also follow the procedure provided by the law. The provisions of s. 97 (3) of the Act, which require him to proceed without undue formality, do not authorize him to convert proceedings between parties into an inquiry which he conducts as he chooses. The provisions of reg. 108 (2) , which enable the court "with the consent of the parties to the proceedings" to dispense with such procedures and formalities as it thinks fit, show that without such consent the Court has no such dispensing power. A judge can neither deprive a party of the right to present a proper case nor absolve a party who bears the onus of proof from the necessity of discharging it. These remarks are not intended to fetter a judge of the Family Court in the exercise of a proper discretion or to insist upon the observance of unnecessary formality; they are designed to make it clear that a judge of the Family Court exercises judicial power and must discharge his duty judicially.
(Emphasis added)
Further, litigants before the Court and their legal advisers have an obligation to promote the “overarching purpose” as set out in ss 67 and 68 of the Federal Circuit and Family Court of Australia Act 2021 (Cth). It goes without saying that a fundamental aspect of that obligation is to ensure that any orders sought are reasonable in the circumstances of the case and that the Court has the power to make those orders.
There was an unfortunate exchange with the legal representative for C Lawyers at the commencement of these proceedings, where the Court was endeavouring to ascertain the basis upon which this application was pressed.
Ultimately, the Court was advised that the basis for this application is founded in the Court’s powers under ss 79 and 80 of the Family Law Act 1975 (Cth) (“the Act”). I will shortly set out the effect of those sections in greater detail.
Accordingly, even though the Application in a Proceeding seeks the enforcement of Order 18 of the Supreme Court orders, I am not considering the application on that basis. If I were, I would be concerned that the orders in these proceedings are not framed as orders against either Mr Haight or Mr Oakley (“the second respondents”) who were, pursuant to the Supreme Court orders, appointed as trustees for the sale of the Suburb U and Suburb P properties and were subject to the obligations set out in those orders in respect to the allocation of the proceeds of sale of the properties, including the obligations imposed by Order 18.
As a related issue, there is a significant question as to whether Order 18 of the Supreme Court orders is capable of performance insofar as neither of the second respondents are in control of the subject monies as a result of those monies having been paid into the controlled monies account operated by the wife’s current solicitors.
It would also have been necessary to consider the submission of the applicant husband that both the wife and C Lawyers have, until recently, failed to disclose to the husband and the Court the mortgage granted by the wife to C Lawyers. As a result, it is contended that C Lawyers approaches this Court for relief without clean hands. There is an absence of evidence as to whether, at least as at April 2016, either the wife or her legal advisers, who were C Lawyers at the time, had disclosed to the husband or the Supreme Court the existence of the wife’s mortgage to C Lawyers. If there was an absence of such notice, as is contended by the husband, then he was deprived of the opportunity of addressing the issue as to whether Order 18 of the Supreme Court orders was appropriately framed to include “any mortgage or encumbrance”, which necessarily included the unsecured mortgage to C Lawyers. For reasons which I set out below explaining why the application by C Lawyers lacks merit, it has not been necessary to consider the husband’s argument that C Lawyers lacks clean hands. In that respect, as noted by Cronin J in Martin & Martin and Ors (2013) 49 Fam LR 606 at [29], it is well understood “that parties seeking the relief of the court through an equitable remedy must come with clean hands”: see also Andrews & Andrews [2007] FamCA 562 at [56].
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”.
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.
The overriding consideration at all stages of the process is that the Court is satisfied that it is “just and equitable” to make the order in the circumstances before the Court: Stanford & Stanford (2012) 247 CLR 108 at [35] (“Stanford”).
In applying these considerations, the exercise of the Court’s jurisdiction should be conducted with an appreciation that “as a generality, the interests of the parties and the Court are better served by there being one final hearing of s 79 proceedings”: Strahan at 85,656, citing Harris & Harris (1993) FLC 92-378. In that context, as noted by Thackray J in Strahan at 85,656:
…it is important to note that s 80(1) [or s 90SS(1)] is couched in the permissive. Hence, although the Court must give consideration to the matters set out in s 79(4) [or s90SM] when hearing an application for an interim payment, it has no obligation to make an interim order. The Court “may” do so if it considers that it should in the exercise of its discretion.
(Emphasis added)
Application of legal principles to the current facts
As is the case in respect to any application for a court to exercise its discretion, the party seeking the benefit of court orders carries the “burden of persuasion” of satisfying the Court that its discretion should be exercised in that party’s favour: Jackamarra v Krakouer (1998) 195 CLR 516 per Kirby J at [70]. C Lawyers has failed to do that in this case.
For the purpose of this case, I will accept that C Lawyers has satisfied the first criteria identified by the Full Court in Strahan. That is, I will accept that C Lawyers has established that it is in the interests of justice for an order to be made for the partial distribution of property to enable the wife to satisfy her debt in respect to legal fees that she has incurred.
The difficulty with the application, however, is that there is a complete absence of evidence that enables the Court to give any consideration to the matters referred to in s 79(4) of the Act. As noted by the High Court in Stanford at [35]:
…s 79(2) provides that “[t]he court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order”. Section 79(4) prescribes matters that must be taken into account in considering what order (if any) should be made under the section.
(Emphasis added)
Section 79(4) is divided into two limbs. The first limb is in respect to those matters set out in s 79(4)(a)–79(4)(c), which deal with what are commonly known as the “contribution” factors. The criteria include a party's contributions (both financial and non-financial) to the acquisition, conservation or improvement of any property, and a party's contribution to the welfare of the family (including any contribution made in the capacity of homemaker or parent).
The second limb of s 79(4) is in respect to those matters set out in s 79(4)(d)–79(4)(g), which primarily relate to the future needs of each of the parties, the effect of any proposed order on the earning capacity of either party to the marriage, any child support that a party to the marriage has paid and/or is likely to pay in the future, together with the list of personal factors set out in s 75(2) of the Act as being relevant to the making of a spousal maintenance order, including matters such as the age, health, financial resources and support responsibilities of the respective parties to the marriage and also the need to protect a party “who wishes to continue that party's role as a parent''. It can also include any fact or circumstance which, in the opinion of the Court, the justice of the case requires to be taken into account.
In the absence of evidence addressing those matters, I am unable to be satisfied that it is “just and equitable to make the order” as sought by C Lawyers. The application, for that reason, must be dismissed.
Finally, in the absence of evidence regarding the assets and liabilities of the parties, C Lawyers has failed to satisfy the requirement referred to in Medlow at [86] that an order for the partial distribution of property in the terms sought “[is] capable of being reversed as part of the final hearing or at least would not defeat [the respondent]’s property claim.”
During the course of the proceedings, the legal representative for C Lawyers contended that the Court should not be concerned with that third criteria, that is, the concept of the impact of an order for partial property distribution being reversed at final hearing, submitting that C Lawyers has an equitable lien over the property held in the controlled monies account operated by the wife’s current solicitor.
The first time that issue was raised was during oral submissions by the legal representative for the fifth respondent. The basis upon which C Lawyers contends it has such an equitable lien has not been particularised however, whilst expressing great caution in making any presumption, for the purpose of this decision I have assumed that it is contended that such a lien exists on the basis of what has been described as a “fruits of litigation” or “fruits of action” lien: Twigg v Keady (1996) FLC 92-712.
Irrespective of the basis upon which it is contended that the lien exists, as was appropriately conceded by the legal representative for C Lawyers, the lien could extend only to that part of the property identified as being the property of the wife, and not the joint property of the parties. This point was clearly made by May J in Edwards & Peters and Anor [2012] FamCAFC 65 at [39]–[51], where her Honour held that, insofar as a solicitor’s lien existed, it existed only in respect to the funds of their client which funds could not be identified until the conclusion of the proceedings. Relevantly, her Honour held that such a lien is not “capable of extending over all money which was subject of proceedings pursuant to the property provisions of the Family Law Act”. Her Honour said at [47];
The Family Law Act is very clear, the proceedings are to end the financial relationship between parties - to declare their rights under s 78 as to property. That section, with s 79, causes the consideration of what property the marital pool contains and why the pool has to be identified in property proceedings and usage of the assets accounted for, see Hickey & Hickey [2003] FamCA 395 at 39, which refers to the four inter-related steps, the first of which is to identify the pool. The section does not and cannot cover the rights of third parties, other than where directed under s 79 and s 75(ha) or those sections dealing with bankrupt estates or by exercise of injunctive and declaratory powers. I was referred to the case Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 and the reference at paragraph 52, among other references, that a court exercising family law jurisdiction does not have the power, except in limited circumstances, to alter the rights of a third power. Further, the property in dispute is not available to a solicitor claiming a lien, before the decision is made, no matter what direction a client has given, when the dispute has to determine the pool.
At [49] and [50], in her typically concise manner, her Honour summarised the position as follows;
It cannot be the case, on the authorities I have referred to and the wording of the Act, that the solicitor has any claim whatsoever, any entitlement whatsoever, to that property which now belongs to the [non-client]. From what I have said, it cannot be the case that the solicitor had a claim before orders altering the interests were made, on the basis that a decision was to be made on the contents of the pool. Further, the argument at trial did not claim that the solicitor had an interest as now being defined by the solicitor.
If that were not the case, the Family Law Act and proceedings would be thrown into the utmost disorder, as solicitors would seem to take some sort of priority in the property, over the parties. It is an illogical position.
Whilst not entirely clear in this matter, it appears that C Lawyers argues that the principle adumbrated in Medlow, to which I have referred, is not a relevant consideration in these proceedings because it contends that its “equitable lien” in respect to legal fees payable to the firm has priority over the combined matrimonial property pool and all other parties’ interests in the proceedings. If I have correctly understood that submission, it is one that is, in the words of May J, illogical. Clearly, C Lawyers’s claim for monies pursuant to the “debt due” by the wife, as expressed in the September 2021 deed of settlement, can reach no higher than funds in the possession of the wife.
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.
I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Deputy Chief Justice McClelland.
Associate:
Dated: 8 February 2022
SCHEDULE OF PARTIES
SYC 2100 of 2016 Respondents
Fourth Respondent:
K PTY LTD
Fifth Respondent:
C LAWYERS
2
11
0