Jess & Jess

[2009] FamCA 104

FAMILY COURT OF AUSTRALIA

JESS & JESS [2009] FamCA 104

FAMILY LAW  -  PROPERTY  -  interim orders  -  husband seeks to borrow to meet court imposed and other obligations  -  litigation funding  -  case management

FamilyLaw Act 1975 (Cth)

HUSBAND: Mr Jess

WIFE: Ms Jess

FILE NUMBER: MLF 3444 of 2006

DATE DELIVERED: 15 January 2009

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Brown J

HEARING DATE: 15 January, 2009

REPRESENTATION

COUNSEL FOR THE WIFE: Mr N.J. Ackman QC, with Ms K. MacMillan

SOLICITOR FOR THE WIFE: Kenna Teasdale Lawyers

COUNSEL FOR THE HUSBAND: Mr B.R. Geddes QC, with Mr P.N. Crofts 

SOLICITOR FOR THE HUSBAND: Carew Counsel Pty. Ltd.

Orders

1. That the restraint imposed upon the husband pursuant to paragraph (5) of the orders of 21 December, 2006 (as varied by paragraphs (4) and (5) of the orders of 17 April, 2007 and 16 December, 2008) be varied so as to permit the husband to borrow in the period from this date until 15 September, 2009, sums not exceeding, in total, $750,000, and, if necessary, provide security for such borrowings, over any asset standing in his name or the name of the entities referred to in the orders of 21 December, 2006 (but excluding the properties in Western Australia referred to in paragraph (5) of the Minute attached to the orders made herein on 16 December, 2008)  PROVIDED THAT  any sum so borrowed shall be applied only to meet the following :

   (a)the husband’s obligation to pay to the wife the sum of $28,000 per month, pursuant to orders made herein on 7 February, 2007 and 20 April, 2007;

   (b)the husband’s obligation to pay mortgage, utilities and other bills relating to the property occupied by the wife pursuant to orders made herein on 21 December, 2006, which amount to approximately $9,000 per month;

   (c)the husband’s obligation to pay the costs of the single expert real property valuer pursuant to orders made herein on 30 January, 2008,  PROVIDED THAT  no more than $130,000 may be borrowed for this purpose;

   (d)the fees of the single expert valuer (Mr. I) from whom the husband was given leave to adduce evidence,  PROVIDED THAT  no more than $100,000 may be borrowed for this purpose;

   (e)a sum of up to $10,000 per month for the husband’s living expenses; 

   (f)a sum of no more than $100,000 to be applied to the husband’s legal costs and disbursements in these proceedings;  and

   (g)a sum of $100,000 to be paid to the wife pursuant to paragraph (2) hereof;

   and all such borrowings shall be categorised in these proceedings as personal borrowings of the husband and, until further order, the husband shall make all payments in respect of all such borrowings, whether of interest or capital, as and when they fall due and indemnify the wife absolutely in respect of all such borrowings. 

2. That on or before 27 February, 2009 the husband pay to the wife the sum of $100,000 and such payment be categorised in her hands as part-property settlement and be paid forthwith upon receipt to reduce the debt owed by her to the litigation funder, ASK Funding.

3. That within 48 hours of the receipt of any sum borrowed pursuant to paragraph (1) hereof and howsoever such sum is received or applied on the husband’s behalf, the husband advise the solicitors for the wife, in writing, of :

   (a)the sum borrowed;

   (b)the name of the lender;

   (c)the terms of the loan, including (but not limited to) interest payable and the duration of the loan;

   (d)the nature and extent of any security provided for the loan;  and

   (e)how such moneys have been applied. 

4. That the response filed by the husband on 11 December, 2008 and the application filed by the wife on 12 January, 2009 be otherwise dismissed.

5. That the applications for final orders be adjourned to 10:00 am. on 26 May, 2009 before the Honourable Justice Brown.

6. That the costs of both parties be reserved.

7. That the reasons for judgment this day be transcribed and copies made available to the parties.

8. That pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of counsel, including senior counsel.

IT IS NOTED that publication of this judgment under the pseudonym Jess & Jess is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 3444 of 2006

MR JESS

Husband

And

MS JESS

Wife

REASONS FOR JUDGMENT 

1. The application argued this morning relates to paragraph 4 of the response filed by the husband on 11 December, 2008, responsive to an earlier application made by the wife, which was returnable on or about 16 December 2008.

2. Paragraph 4 of the husband’s response was adjourned for hearing today and directions were given to allow the filing of responsive material by the wife, to which I will refer in a moment.  In paragraph 4 the husband sought the following order :

   That the restraint imposed upon the husband and wife pursuant to paragraph 5 of the orders of the court of 21 December 2006, as varied by paragraphs 4 and 5 of the orders made on 17 April 2007, be varied so as to permit the husband to borrow sufficient moneys to meet his ongoing legal expenses and valuation expenses and, if necessary, provide security for such borrowings over any assets standing in the name or names of the parties or the entities referred to in the orders of 21 December 2006 on condition that the husband keep the wife informed of any application for or advance of moneys attained by reason of such borrowings.

3. As is evident, the orders referred to would otherwise restrain the husband from encumbering assets in the way sought.  The response was supported by an affidavit sworn by the husband on 11 December and filed the same day.  Subsequently, and in support of the application contained in paragraph 4, he swore another affidavit on 23 December, 2008 and today he was given leave to file a third affidavit, sworn on 15 January, 2009.

4. I also allowed the husband to rely on a financial statement, sworn by him on 1 February, 2007 and filed on 2 February, 2007, and to the report of Mr. O, which was prepared in August 2007, and which was adduced into evidence, over objection, in a hearing before me in August 2007.  Again, reliance today was allowed over an objection.

5. In the affidavit of 23 December, 2008 the husband spelled out in more detail the order he sought and he described the use proposed for the borrowed funds.  The money would be used to cover monthly payments to the wife, ordered by consent on 7 February 2007, of $28,000 a month.  When that order was first made, a note to the order noted that the husband would be asserting in the proceedings that those payments were made by way of part-property settlement to the wife and she would be asserting they were payments by way of spousal maintenance.  That question has been reserved to the trial.

6. The husband also wants to use borrowed money to fund obligations pursuant to orders made 21 December 2006 which require him to pay certain mortgage, utilities and other bills relating to the property currently occupied by the wife, which total some $9,000 a month.  He then sought to be able to borrow to meet his own living expenses, which he estimated as some $15,000 per month, to pay legal fees in these proceedings, and to pay the costs of the single expert real property valuer, which he is required to pay pursuant to an order made on 30 January, 2008, estimated at $130,000.

7. The husband also sought to borrow to pay the proposed fees of what is referred to as his "single expert valuer" but which is actually an adversarial valuer, being Mr I.  In earlier proceedings, the husband was granted leave to adduce evidence from an adversarial expert, he having made it clear, since August 2007, that he took issue with the evidence of Mr O.

8. Senior counsel for the husband traversed the various obligations to which his client adverted. In relation to the husband’s legal fees, which are not quantified, even by way of estimate, in the husband’s application or in his affidavits, he was unable to provide any figure as to what was sought.  Effectively, he sought an open cheque.

9. It was the husband's position that the wife had sworn that she still has available $180,000 of litigation funding obtained by her.  I will refer to that further, in due course. 

10. In response, the wife filed a document, called an application, on 12 January, 2009 in which she sought that paragraph 4 of the husband’s response of 11 December, 2008 be dismissed or, in the alternative, an order that if the husband is given leave to borrow funds as sought, any such funds be equally disbursed between the husband and the wife to assist them in the funding of their ongoing costs in relation to these proceedings, the wife's criminal proceedings and the Supreme Court proceedings in file number 1… of 2007.  The Supreme Court proceedings referred to are listed for trial, I understand, in April this year;  this court has had an opportunity to read one judgment already delivered in those proceedings.  The County Court proceedings, which relate to a criminal matter, are listed for trial next week.

11. The husband's position is that he has been reliant on funds to fund the parties’ living prior to, and after, separation which were channelled through Y Corporation and which came to him through his loan account with that company.  In essence, money received from all sources was channelled into Y Corporation by way of loan, and disbursed back to him from his loan account.

12. At the time of Mr O’s report, the evidence was of the husband having an entitlement to draw down $840,000 per annum from the loan account.  At that time, the evidence was that the husband’s loan account stood at some $3,551,000 in February 2007.  The husband's evidence is that on 30 June 2008 Y Corporation purported (that is the word he uses) to pay out the then balance in his loan account, which was $456,989.  That sum was credited to his NAB account.  His evidence is that that sum is now largely expended. 

13. There is no need for me to spell out again the dispute which is central to this case and which relates to the question of who is the beneficial owner of the assets of the Y group.  Today, it is put that the potential value of those assets is some $100 million.  That is really an estimate of convenience;  it would not be possible to be more precise at this time.

14. At the heart of the wife's complaint is her conviction that the husband is the beneficial owner of those assets, which he asserts are held in trust by him for his son.  The proceedings in the Supreme Court will determine that issue. 

15. The wife's evidence is that she first learnt of Y Corporation paying out of the balance of the loan account on 11 December, 2008 when she read the husband's affidavit.  She had not been advised of it earlier and she had not received any detailed journal accounts in respect of that loan account.  Annexed to her affidavit, as annexure LMJ6, is a statement of the loan account which gives bare figures for total misallocated expenditure for the years from 2002 to 2007.  All up, the figure is a bit over $2,500,000.  The sum for 2007 is only $26,213.  The bulk of the misallocated expenditure fell in the 2006 financial year.

16. It is put that that document (a one-page document, in small font) reveals that in that period (2002 to 2007) some $1.3 million was paid out to the husband's son.  These figures, and a number of contradictions or inconsistencies in the evidence, are referred to by Mr O in his report.  The dispute about them is one of the reasons, and a significant one, for the court granting the husband’s application to call Mr I as an adversarial expert.

17. While it is true that there is no additional evidence about this before the court today, it is also true that one of the purposes for which the husband seeks funding is to pay for Mr I’s report.  That expense is, of course, part of his legal expenses, as he seeks to call Mr. I as one of his witnesses.  In saying that I do not ignore the potential for a costs application in due course but that is a separate matter.

18. It is common ground that, pursuant to orders made, Mr. I’s report is to be released in mid-2008.  Whether it is common ground or not, the reality is that until two things happen this court will not be in a position to grapple with the significant issue in dispute, which is the extent of the relevant asset pool.  There may be arguments about the parties’ respective contributions.  There may be arguments about the weight to be given to s.75(2) factors.  But before those arguments can be determined the court has to determine the asset pool.  To do that, the determination of the Supreme Court, in relation to the alleged trust, is essential.  So is Mr. I’s report.

19. In terms of income, the husband's evidence is that he receives a little less than $10,000 a month as rental from a real property in M.  He deposed to an equity of about $2 million in that property.  He also deposed to inquiries he has made with potential lenders.  It must be said that his evidence about those inquiries is very general.  He has made inquiries from NAB and Westpac.  If borrowings of any substance were made from those sources, one can envisage a requirement for security.  He refers to that potential, and the need for leave to provide security. 

20. The husband also deposed to having made inquiries of the directors of Y Corporation who may be in a position to provide borrowings at commercial rates, without security.  As noted, the question of beneficial ownership of Y Corporation’s assets is in dispute.  There is no evidence of proposed loan terms, or of specific amounts which might be borrowed from either of the banks, or from Y Corporation if its directors saw fit to do so.  There is no evidence as to a source of funds available to the husband to meet any commercial interest rates on borrowings, save the income to which the husband deposes, of some $10,000 per month.

21. The husband also deposed to the potential to sell the M property to fund these expenses;  it was in that context his counsel spoke of an equity of some $2 million. 

22. The husband's evidence is that he has valiantly tried to maintain payment of court ordered obligations since separation but no longer has a capacity to do so.  His evidence is that since separation, payments made by him to or for the benefit of the wife total $2,128,060.  The vast bulk of those payments have been made since the March quarter of 2007, when the Y Corporation loan account stood at just over $3.5 million

23. A schedule of those payments is annexed to the husband’s affidavit filed on 23 December, 2008.  Monthly payments to the wife were kept up until December 2008.  It is not disputed that in January 2008, payment in full was not made on the due date.   $5,000 was then paid and another $5,000 has since been paid.  The wife's complaint about that in the affidavit sworn on 15 January, 2009 is a legitimate complaint;  she has an entitlement to those funds, however they may be characterised, and they are in arrears.

24. The wife has also complained about a number of other payments which, it is put, are outstanding.  One relates to registration of a Toyota Prada, a vehicle not in her possession.  That car is in the husband's possession and is a farm car.  It is not of moment whether it is registered or it is not.  As long as its value is not being deliberately diminished, it can always be re-registered.  The lack of current registration causes no prejudice to the wife. 

25. There is an ongoing dispute between the parties about outstanding school fees.  No orders provide for their payment.  The wife complains that the husband has not paid all outstanding school fees for their daughter, E. 

26. The evidence is that the husband was advised that the wife told the school, in February 2008, that E would not be returning to the school.  It seems that formal notification by the wife to the school, was not received until 17 April, 2008, after the second term had begun.  This gave rise to a not unusual dispute between the school and the parents about fees claimed for a term which a child did not attend, but for which insufficient notice was given.  That involves a bit under $3,500.  It is not a matter of relevance to the case before me. 

27. The last allegedly outstanding payment is registration on the Mercedes vehicle driven by the wife.  That is not due until 25 February, 2009 so could not be said to be in default.  Nevertheless, if I take the husband's case at face value, if the court does not grant his application he will be forced to default.  That may be why the wife referred to this pending account.

28. The wife is not only sceptical about the assets owned by the husband but also the income he has available.  She deposed to their younger daughter telling her of seeing the husband taking cash from a drawer which was full of hundred dollar notes.  The cash was provided to pay the bond and first month's rent on a property to be rented by another daughter.  The husband's evidence is that he keeps small amounts of cash at home.  He had to provide cash to pay the bond and rent (that is confirmed by an email from the agent, requiring $3,120 in cash) and it is this to which his younger daughter is referring.

29. It is unfortunate that the parties’ daughter is implicated and apparently carrying stories between parents.  It may be inevitable but it should give neither parent any joy.   

30. The wife's scepticism about the husband's assets, and funds available to him, is exacerbated by her evidence of the husband’s failure to disclose the receipt of money from Alinta EA Ltd. 

31. The husband deposed that he received $225,000 from Alinta prior to Y Corporation paying out the balance in the loan account, which took place on 30 June, 2008.  Senior counsel for the husband cannot say whether that sum went to Y Corporation.  If so, it will be reflected in due course in the audit of the loan account.  If it did not, the husband will need to provide a cogent account of its disbursement.    

32. Counsel for the wife raised a number of other concerns.  There is the issue of the categorisation of any money borrowed by the husband.  What is sought is a capacity to borrow to acquire funds, which will then be disbursed.  If funds were paid to the wife from borrowed money, the funds in her hands could be characterised as partial property settlement or spousal maintenance, or left to the trial judge.

33. If the husband is successful, it would be important to make it clear that these are personal borrowings. 

34. The husband has been criticised for not filing a financial statement since 2 February, 2007.  I recall mention of this in earlier proceedings.  It would have been of assistance to have such a document before the court rather than having to trawl through assertions in and annexures to a number of documents. 

35. Senior counsel for the wife referred at some length to an earlier judgment, delivered on 7 August, 2007, when Mr O’s report was first before the court.  In paragraph 35, the court found that the evidence then before it, and the husband's then analysis of his financial position, made one wonder what source provided his living expenses.  He might well say now that that observation was correct in that the source that provided his living expenses has run dry.  I take note of senior counsel’s response to that.  

36. It is put, correctly, that the court cannot now estimate the asset pool.  That is dependent on the outcome of the Supreme Court proceedings and on a number of other factors.  When the husband filed the only financial statement he has filed, on 2 February, 2007, he revealed under $3.5 million gross assets and numerous debts.

37. When considering a course of action which will give rise to a liability, whether a personal liability or one that in due course is treated as joint, the court must consider the impact on, in this case, the wife's reasonably anticipated claim.  I can articulate her claim in very broad terms but cannot quantify it with any precision.  The exigencies of this case make it particularly difficult to make an assessment.

1. The only safe option is to proceed on the least optimistic view from her perspective.  If $100 million is available, the court might be a little less cautious about the orders sought.  If less than $3.5 million is available, the court needs to be much more cautious.  The wife is entitled to have the court act on the husband’s assertions about the relevant pool. 

2. The wife complains that the husband is paying some $24,000 a year on - she infers from a handwritten reference on his document - a Mercedes Benz vehicle in the possession of his daughter-in-law.  The handwritten reference is to a Mercedes Benz; the rest is inference and supposition.  Her concerns may be well grounded and no other explanation has been given for the monthly payment of $2,100 in respect of a commitment marked "Benz".

3. The wife relied on statements provided by the husband which show money coming into his account.  For example, some $20,000 was credited in early September.  However, as senior counsel for the husband said that sum came out of the NAB account on 1 September and into the Westpac account the same day.  The reasonable inference is of a transfer between accounts.

Borrowings to meet obligations other than legal expenses

1. I propose to make orders which will allow some borrowings but not at the level sought by the husband, having regard to a number of unknown factors.  I do not propose a dollar-and-cent calculation.   However, orders like this should not be seen to be open ended.  I cannot say when a trial of the competing applications in this court will take place. 

2. The sums which are borrowed will be capped.  I am looking at orders to operate for the next seven months.  There is a trial in the Supreme Court in April, but judgment may be reserved for some time.  By August the parties should have Mr. I’s report.  Armed with a judgment and that report, the parties may organise a mediation or round-table conference with an independent mediator of skill and commonsense.  I commend that course.

3. It should not be assumed by the husband or his advisers that this is a tap which is turned on for seven months, and can be turned on again.  By September the court should have available to it hard evidence of matters now in dispute. 

4. I make the bulk of these orders to ensure the wife is maintained at the level required by earlier orders, a number of which were made by consent. 

5. The restraints will be varied to permit the husband to borrow a sum of no more than $550,000 in the period to 15 September, 2009 and to provide security over any asset standing in his name or the name of one of the entities referred to in the orders of 21 December, 2006, save the Western Australian properties.  Borrowings cannot be secured over other assets, including any assets in the wife’s name.  Borrowed funds can be applied to meet :

   (a)the husband’s obligation to pay to the wife the sum of $28,000 per month, pursuant to orders made herein on 7 February, 2007 and 20 April, 2007;

   (b)the husband’s obligation to pay mortgage, utilities and other bills relating to the property occupied by the wife pursuant to orders made herein on 21 December, 2006, which amount to approximately $9,000 per month;

   (c)the husband’s obligation to pay the costs of the single expert real property valuer pursuant to orders made herein on 30 January, 2008,  PROVIDED THAT  no more than $130,000 may be borrowed for this purpose;

   (d)the fees of the single expert valuer (Mr. I) from whom the husband was given leave to adduce evidence,  PROVIDED THAT  no more than $100,000 may be borrowed for this purpose;

   (e)a sum of up to $10,000 per month for the husband’s living expenses; 

Legal expenses

1. The evidence in respect of legal expenses is a little more contentious.  The court has an obligation to manage cases to reduce interlocutory litigation but must act on evidence before it.  The wife has had to borrow funds from litigation funders, at interest rates which might be called usurious, particularly in the present financial crisis and having regard to current commercial interest rates.

2. Her evidence is that she borrowed $200,000 from what was then Impact Funding and is now Ask Funding.  The interest rate is 18.25 per cent.  That sum has been expended.  She has another $180,000 in borrowed litigation funding available to her.  Whilst she could be said to be “in funds”, as asserted by the husband, the $180,000 is borrowed, and carries a very high interest rate. 

3. The husband, whatever his asset-backing position, has the capacity to borrow at commercial rates;  that is clearly stated in his affidavit.  He believes he has the capacity to borrow at commercial rates from one of two banks, or possibly both of them, and he has reason to believe he may have the capacity to borrow at commercial rates from Y Corporation.  He has the capacity to borrow against the M property, owned by him.  It is put by the husband, accurately, that orders made on 16 December, 2008 give the parties the capacity to sell properties in Western Australia.  However, there is yet another debate, in a case with many, about the equity in the Western Australian properties. 

4. The potential valuations of all real properties may be affected by the global financial crisis.  There are a number of unknowns about the Western Australian properties;  a reasonable range of prices;  the quantum of debt to NAB and pursuant to guarantees provided by the husband;  and the extent of outstanding interest payments.  

5. The wife has the capacity to sell the Western Australian properties.  If that is done, funds realised will have to be characterised, as will other funds. 

6. In my judgment, the court needs to take a pragmatic view about litigation funding, if this case is to be heard.  Whilst it is now in my docket, as matters stand it may not have been heard when I retire. 

7. I propose to order that, within 28 days, the husband may borrow the sum of $100,000 and pay that sum to the wife, to be characterised as a part-property settlement, and to be paid by her towards the sums due by her to Ask Funding.

8. I also propose to allow the husband to borrow the same amount to be used on his legal expenses.  That will be characterised as a personal liability.  I am satisfied that justice and equity require the applications to be determined in this way. 

9. Those orders will bring the sum which can be borrowed to $750,000.  The same provision will apply to the security which may be offered for such borrowings.  These orders will include, as advanced by senior counsel for the husband, requirements for the provision of information about borrowings to the wife. 

10. As requested by the parties, I will adjourn the applications for final orders for mention at 10:00 am. on 26 May, 2009.  If nothing useful can be done at that time, the parties should advise the court and the date will be vacated and a later date fixed. 

11. I will reserve both parties’ costs. 

I certify that the preceding
56  paragraphs
are a true copy of the reasons for
judgment herein of the
Honourable Justice Brown AM.

Dated the           day of            2009.

…………………………………………
Associate.