Kartal & Dutsanee
[2016] FamCA 1158
•16 December 2016
FAMILY COURT OF AUSTRALIA
| KARTAL & DUTSANEE | [2016] FamCA 1158 |
| FAMILY LAW – COSTS – Application by the husband for a dollar for dollar costs order – Where the costs power is a broad one – Where it is in the interests of justice that the parties each have access to legal representation in the proceedings – Where it is appropriate to make a dollar for dollar costs order in favour of the husband for future costs only. |
| Family Law Act 1975 (Cth) s 117(2), 117(2A) |
| Australian Broadcasting Corporation v O’Neill (2005) 227 CLR 57 Elias & Elias (1977) FLC 90-267 Gould and Gould [1994] FamCA 75 Medlow & Medlow (2016) FLC 93-692 Moroni & Moroni (2016) FamCA 664 Nelson v Nelson (1995) 184 CLR 538 Niu & Zhin [2015] FamCA 599 Paris King Investments Pty Ltd v Rayhill [2016] NSWSC 578 Penfold v Penfold (1980) 144 CLR 311 Poletti and Poletti (1990) 15 Fam LR 794 Strahan & Strahan (Interim property orders) (2011) FLC 93-466 Zschokke & Zschokke (1996) FLC 92-693 |
| APPLICANT: | Mr Kartal |
| RESPONDENT: | Ms Dutsanee |
| FILE NUMBER: | SYC | 1955 | of | 2014 |
| DATE DELIVERED: | 16 December 2016 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Loughnan J |
| HEARING DATE: | 16 December 2016 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Givney |
| SOLICITOR FOR THE APPLICANT: | G & D Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Campton SC |
| SOLICITOR FOR THE RESPONDENT: | Mills Oakley Lawyers |
Orders
An order be made in terms of paragraph 11 of the Amended Application in a Case filed 25 November 2016, as set out hereunder:
11. Within 7 days of any payment by or on behalf of the wife in relation to her solicitor’s fees, including all expenses in association with the preparation of her case, the wife pay or cause to be paid the same amount of money to the solicitors for the husband
That order does not apply to any account or invoice for profit costs or disbursements that relates to work or payments that have been made prior to the making of this order.
Otherwise the Amended Application in a Case filed 25 November 2016 and the wife’s Response filed 14 November 2016 are dismissed.
The question of the costs of the parties of and incidental to these proceedings are reserved.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kartal & Dutsanee has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC1955 of 2014
| Mr Kartal |
Applicant
And
| Ms Dutsanee |
Respondent
REASONS FOR JUDGMENT
These are proceedings for interim costs in the context of proceedings for settlement of property. The application of the husband, which is an Amended Application in a Case originally filed in December 2015 was filed on 25 November 2016. The only issue remaining to be determined in that Application is the order sought at paragraph 11, which is:
Within seven days of any payment by or on behalf of the wife in relation to her solicitor’s fees including all expenses in association with the preparation of her case, the wife pay or cause to be paid the same amount of money to the solicitors for the husband.
By a Response to an Application in a Case filed 14 November 2016 the wife sought that the original Application be dismissed, and that is her position in relation to the Amended Application.
The substantive proceedings were commenced by an Initiating Application filed 28 April 2014 by the husband.
I do not know that the following facts are contentious. The wife is 54 years of age and the husband is 49. They commenced residing in a property at Suburb A in 1998. They have two children: B, born in 2000. She is 16 years of age. C was born in 2003 and is 13 years of age.
In 2005 the parties moved to live in Country D. In November of 2011 they moved from Country D to Country E. It is the wife’s case that the parties separated under one roof in Country E on 15 December 2012. The husband vacated the home in Country E on 2 February 2013 and returned to Australia in March of 2014. He filed his application for a property settlement on 28 April 2014.
The wife says that she was born in Country F in 1962. She is a company director by occupation. She has lived in Country E since February 2012. She says that her sole source of income is by way of directors’ fees in the sum of approximately A$46,000 per year. She says that her husband was born in1966 in Country G, and that they met in City H in Country D in about 1996 where the wife was holidaying and the husband was working. They were married in Sydney in 1997, having started cohabitation earlier that year. She says that she had family in Australia, including her parents, and siblings. She says that the two children continue to reside with her in Country E. She says that they have been attending at a government school, but in 2017 the older child will start at the Australian International School, to undertake the Year 11 and 12 curriculum, preparing for a New South Wales, Higher School Certificate. The wife says that the total costs for B at the school over two years will be approximately A$150,000. She has paid the first term fees. It is expected that C will continue at a Country E government school for four more years.
The wife says that since separation the children have spent limited time with the husband, typically only when she and the children have travelled to Australia. He has made three brief visits to Country E in the last three years, she says. She says that until this month (that is December 2016) the husband had paid no child support in the four years since separation. She says that he has now notified her that he intends to pay $250 per month. He disclosed to her on 24 November 2016 that he had been in paid employment for about eight months. She says that since separation, she has been solely responsible for the expenses of the children’s schooling. She says that the amount he is offering is insufficient to meet reasonable expenses for the children. The wife says that in order to pay the school fees she has cashed in an investment she made in a business venture in Country F in 2015. She said the total investment was in the sum of US$100,000 and so far she has only had about US$36,000 returned to her.
There is no specific mention of that asset in her Financial Statement sworn 14 November this year but in annexure A to the Statement she discloses holding 1,199 out of about 10,000 shares in a company, I Ltd, registered in Country E. That is said to be the corporate vehicle for a real estate venture in Country F. The wife is a director of that company.
The wife says that her parents were entrepreneurial and engaged in various business ventures from time to time over the last 30 years or so. It is the wife’s evidence that her mother and her late father, who died earlier this year, spoke little English, and in her capacity as director of the entities that they established and controlled, she assisted them in the conduct of their businesses. She often acted as an interpreter for them in their dealings. She says that she was a vehicle for her parents but they had the final say in all decisions in their businesses: “And I would not act without instructions from them.”
The wife refers to the orders made when these proceedings came before the court on 24 December 2015. Just stopping there, it is a feature of these proceedings that the parties need to access the Court at around Christmas each year.
There is an entity called the J Trust, and that had an interest in a shopping centre in Sydney’s East. A company called K Pty Ltd (“K”) is the corporate trustee. In December 2015 there was evidence that the interest in the shopping centre was being sold. There is a company called L Pty Ltd (“L”).
The orders made on Christmas Eve last year included an order that pending further order, the wife was to do all things and give any necessary instructions to ensure that neither of those companies did not deal with $3 million out of the proceeds of sale of the shopping centre. The wife was restrained from transferring, assigning, encumbering or dealing with $3 million from the proceeds of sale and from causing or requesting any other person or entity to do so. $3 million is a fraction of the total sale proceeds. The injunction was in the nature of a Mareva injunction to preserve in the jurisdiction, the subject matter of the proceedings or a fund to meet the claim of the husband for property settlement in the proceedings.
Orders were made further restraining L from transferring, assigning or encumbering $3 million of the sale proceeds. Similarly in relation to K, the wife was restrained from dealing with or further encumbering a property at Suburb A that is in her name. There is an order for disclosure, and it was noted that the intent of the court in relation to the injunctions was to preserve $3 million within the Commonwealth to abide further order of the court. Those orders were noted to be made on an undertaking as to damages given by the husband.
It is the wife’s case that she holds an 11 per cent interest in the trust but that she holds that interest on behalf of others. She says that from that point of view, she did not oppose the orders made on 24 December 2015 because she would not have received any benefit from the sale of the shopping centre in any event.
In relation to this specific application, the wife deposes that she is meeting her costs and disbursements in these proceedings by loans advanced from K. She says that she was a director of K and that she resigned from both K and L in January 2016. She deposed that the salary she previously received from K, over $1,000 a month, has now ceased. She says that at the time she resigned from those companies she also resigned from a series of other family entities: M Pty Ltd: M Pty Ltd is a corporate trustee for the M Family Trust. That is a discretionary trust now controlled by her mother. The wife deposed that she is not a specified beneficiary but is a class B beneficiary.
The wife was one of three directors of N Pty Ltd (“N”) She is not a shareholder. The ultimate holding company for N is L which holds 200 of the ordinary shares. Again, that entity does not trade. The wife was one of three directors of O Pty Ltd. She is not a shareholder and it does not trade. The wife resigned from P Pty Ltd which was an old company registered by her father. She did not recall being a director until a search was made by her accountant.
Coming back to this application, the wife says that she is meeting her costs of these proceedings by way of loans from K. Those loans have been made from time to time at her request and on the issue to her of tax invoices from her solicitors. K pays “directly to my solicitors on my behalf” she says. It is the wife’s evidence that as her relationship with her family has broken down, the arrangements for those advances are made through a bookkeeper of K, namely, Ms Q, who obtains instructions from the family. The wife says that on 6 December of this year she had a conversation with Ms Q where she said:
I’m back in the Family Court next week when [Mr Kartal] is asking the judge to make an order that I pay money towards his legal fees. As you know the only way I am able to pay my lawyers is the loans from [K]. Can you please ask my brothers what the company’s position will be if that happens?
And on 8 December 2016 she received a response from Ms Q:
Hi, Sue. I’ve spoken to your family and they said no! [K] will not lend you any more money for legal bill, especially when [Mr Kartal] can get his hand on money and attack the interests of [K] or the [M] family. The loan was so far to help you and your daughters only.
The wife goes on:
As at the date of this Affidavit, I owe to my solicitors $22,135.44 pursuant to a tax invoice issued on 30 November 2016.
That includes a disbursement of fees due and payable to senior counsel for the wife in the amount of $990. She says:
Additionally, I owe to Mr Campton the amount of $6,600 for his preparation and appearance on my behalf at the interim hearing on 25 November 2016, pursuant to a tax invoice dated 28 November 2016. The matter could not proceed on 25 November 2016, and on my application was adjourned to 16 December 2016, as I was not in a position to meet the Amended Application of [Mr Kartal] which was filed and served on the evening prior to the listing.
I am informed [by] my solicitor Ms Warda and believe that if the proceedings cannot be resolved, and proceed to a final hearing, I am likely to incur further costs and disbursements including counsel’s fees in the amount of approximately $60,000. This excludes the estimated cost of the further interim proceedings on 16 December 2016, which I am informed and believe will be at the cost of not less than $10,000. ….
She gives a short history of the relationship; she says that at the commencement of cohabitation she had savings of about $100,000. They were applied to the acquisition of a property in Country G. She had accumulated superannuation but does not recall its value and some personal household effects. She says that as far as she knows, the husband had no assets of commercial value. She says that when she was pregnant with B in 1999 she travelled to Country E alone to assist her brothers setting up a venture known as Business R (“R”), and her role was to oversee the operations of the restaurant. That opened for business early in December 1999. She says that a professional director was appointed. She was employed by R between 1999 – 2003. She says that she employed a domestic helper in Sydney to help her with B after she was born and that applied up until the time the family relocated to Country D in 2005. She says Mr Kartal visited Country E; he did not work for R, other than assisting on the odd occasions with discrete tasks. They returned to Sydney and B was born. They travelled to Country E in July 2000 in relation to a business venture called Business S which was a joint venture of her brother and the husband. The wife returned to Country E. She says the husband attempted to set up a couple of businesses but none of them proved successful. From 2005 to 2007, when they were both in Country D, they tried respectively to establish businesses. Two companies, Business T, a distribution business, for her, and the husband’s Business U were located in the same premises. Husband drew income through Business U until 2012. The wife’s business terminated in 2007 and she re-joined the R business with her brother.
The wife says that at the date of this affidavit the only active entities of which she is a director and shareholder include the Business R business. She has about 8 per cent of the shares. There are four directors and she is one of them. It has operated at a loss for many years. She is also involved in I Ltd – that is the Country F entity. She has a 12 per cent interest in that business, which she values at US$1,200, reflecting the registered capital. She has loan commitments in proportion to her interest, out of a total debt of US$600,000. The entity is not able to pay her a wage, she says. The feasibility of that entity is uncertain, and she gives other evidence that I have already referred to about her trying to recover her investment.
The wife says that in March 1998 she bought a property at Suburb A with her brother. They each contributed $50,000 towards the purchase price of $380,000 and they borrowed the rest. She bought Mr V out a year later. There were renovations carried out in 1999 which cost about $200,000. The property is currently tenanted and the tenant pays $4,562 a month in rent. The balance of the mortgage is $1,050,000. She says that the equity in that property is about $300,000 or $400,000. Relevantly the wife says that she refinanced the property in 2014 and increased the borrowing by about $290,000. The property in Country G was acquired in the husband’s name but she paid all of the purchase price. The wife says it is worth about $80,000 and is unencumbered. There is a property at Suburb W where she and the husband share a one-sixth interest, a twelfth each. However, it the wife’s contention that she and the husband have no beneficial interest in that property.
It is submitted on behalf of the wife that since separation, at the end of 2012 or early 2013, the husband has not spent significant amount of time with the children. She estimates that he has spent four weeks over four years with them. The wife contends that she has been solely responsible for their financial support and for parenting.
Since returning to Australia in March 2014, the husband has not received Centrelink benefits. On that basis, it is asserted that he has not disclosed how he has met his costs of self-support. The wife suspects and it is asserted that he has had income and not disclosed it. He commenced to receive Austudy in 2015. There is reference to him undertaking some studies through a Melbourne university. It is submitted that he has received undisclosed income through PayPal. It is asserted that his current solicitors have acted for him since early 2014 and have never rendered an account to him. Therefore I am asked to imply that the firm is doing the work on the basis of a fruits of litigation payment or they will accept payment on the completion of the trial. It is said to be a non-contentious fact that the husband has made no attempt to realise his own property over the three years of the litigation to pay his lawyers.
As to a dollar for dollar order, it is submitted on behalf of the wife that it could only relate to anticipated costs. In this case, the husband seeks an order that the wife provide funds to conduct the current proceedings. It is said that the relevant principles for the making of an order come from a decision of Strahan & Strahan (Interim property orders) (2011) FLC 93-466 (“Strahan”) and a decision of Zschokke & Zschokke (1996) FLC 92-693 (“Zschokke”). It is submitted that in Zschokke the Full Court said that whether an order was determined as a matter of interim property settlement under s 80(1)(h) of the Family Law Act 1975 (Cth) (“the Act”), presumably, and also s 79 of the Act, or as interim costs or security for costs under s 117(2) of the Act, or indeed a maintenance order, there are three matters required for an order:
(a)a position of relative strength on the part of the respondent;
(b)a capacity on the part of the respondent to meet his or her own legal costs and the inability on the part of the applicant to meet his or her legal costs; and
(c)in the ordinary course, the Court should consider whether, any sum that might be payable under the order can be taken into account in the final proceedings.
I am referred to Paris King Investments Pty Ltd v Rayhill [2016] NSWSC 578, a decision of Brereton J of the New South Wales Supreme Court, who said that in addition to those three matters it would also be relevant for the purposes of litigation funding that:
·the 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 essential that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis;
·an order may make provision for litigation expenses at a rate that appears reasonable in the circumstances;
·an order can be for costs already incurred as well as future costs;
·such matters, as well as the question of whether the applicant’s lawyers will continue to act in the absence of litigation, may be relevant to the discretion made to order and the quantum thereof;
·any such order should be framed to protect the parties from the risk of injustice which could be done by requiring the funds to be administered by the applicant’s solicitors and applied only to meet the expenses referred to in the order.
It is submitted on behalf of the wife that the power to make a dollar for dollar order rests in s 117(2) of the Act. It is submitted that the order sought by the husband in this case looks to the future. It is submitted that “anticipatory costs” are not costs that sit comfortably within the design of s 117 and the matters identified in s 117(2A).
It is conceded that there a number of first instance judgments which support the making of dollar for dollar orders. I am referred to a decision of Watts J in a matter of Moroni & Moroni [2014] FamCA 664 where it is said that his Honour accepted that there was power to make an order for anticipatory costs without considering the underlying reasoning as mandated by s 117(2) before such an order could be made. It is submitted that the Full Court in Zschokke did not examine the “underlying jurisprudence” grounding the making of such an order, nor does any first instance judgment or any judgment of the Full Court to date.
It is noted in that regard that there was argument as to the legislative basis for such an order in an appeal of Niu & Zhin [2015] FamCA 599 heard on 12 November 2015, but the appeal settled prior to judgment. It is submitted on behalf of the wife that while dollar for dollar orders have been made in the past, the basis of such orders have never been “explained or reasoned”.
I am referred to the wording of s 117(2) which says:
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.
Out of that, learned senior counsel for the wife says that two threshold questions arise. One of a justifying circumstance and a finding that the order itself is just. The concern raised is that the orders proposed by the husband in this case, if made, would result in the payment of an amount or amounts of an unknown quantum, payments at times that are unknown, and payments that are made without knowledge as to the financial circumstances of the recipient of the order, the husband, at the time of payment. It is submitted, therefore, that the terms of that order could never satisfy the requirements of the order being just at the time it is activated or put into effect. It is submitted that it is impossible to undertake a proper discretionary evaluation of whether the order proposed is just. Putting it another way, if the order never stands the test to determine it is just, then the precondition of s 117(2) cannot be satisfied with the dollar for dollar order sought by the husband. It is beyond power, the argument runs.
An example to illustrate the contention would be, in this case, if a member of the wife’s family decides to pay the wife’s outstanding legal costs, satisfying a debt to the lawyers directly, then those funds would never belong to the wife. They would belong to the third party until they were received by the lawyers; then they would belong to the lawyers. At no time in that chain does the wife’s property enable her to satisfy the dollar for dollar order as sought. No part of this chain of events would enhance the wife’s capacity to satisfy any obligation to the husband in this case. Rhetorically: how could such a circumstance be considered just?
As submissions from senior counsel go on, it is accepted that an exercise of the costs power is very broad and a discretion to exercise it is all but unfettered, and there is a reference to Penfold v Penfold (1980) 144 CLR 311.
That said, any such discretion must be carefully exercised.
The Full Court in Zschokke sets out clearly that the order must be framed to protect a party from injustice, especially as to how the funds are expended. Nextly, if a litigation funding order is interlocutory in character, then the relief sought by each of the parties in the substantive proceedings yet to be determined is a highly relevant consideration. In Australian Broadcasting Corporation v O’Neill (2005) 227 CLR 57the High Court said about an interlocutory injunction: The prima facie case meant it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. For the purposes of an interim costs order, the applicant ought to carry an onus to demonstrate there is a sufficient likelihood of success.
The merits tie in to the consequences of the exercise of discretion to occasion a substantial injustice as identified in Zschokke. The clawback or reversibility of any interlocutory s 117(2) order, is submitted now to be a mandatory determinative consideration as to the making of a dollar for dollar order consequent upon the dicta of the Full Court in decisions such as Medlow & Medlow (2016) FLC 93-692. While the Full Court in Zschokke said that while this consideration may be fatal to an application under s 80(1)(h) it is not necessary for an application under s 117(2). It is just one of those matters to be balanced in the exercise of discretion under the later consideration. That is, reversibility may be a significant factor in the exercise of discretion, but not fatal to the exercise of power. It is submitted that the jurisprudence of the Full Court has moved on from that position.
The wife submits that fundamental to the order being just is the capacity to claw back any funds paid pursuant to the order of trial. If that submission is not accepted, then the lack of reversibility of this litigation funding order is sought – made by way of s 117(2) – while it will not carry the day, becomes a very significant discretionary factor against the making of an order, especially if the merits of the substantive claim are not strong.
The wife contends that the pool is modest. She has made the whole parenting contribution, financial and physical. There are questions about the husband’s undisclosed sources of support. He has had independent travel, significantly, in the last few years. He has engaged in the “luxury pursuit” of higher education. The wife has huge fees for the education of the older child at least for the next few years. The husband has not needed to realise his own property, either the Suburb W or the Country G property. It is submitted that the husband has not exercised his earning capacity. There is a nice argument that even if the husband’s solicitor said they would not act without being paid, they should be as confident of his case as he wants the Court to be. There could be an unintended consequence of the order sought by the husband, in that the wife’s source of funding could be lost. The wife says that her relationship with her family has broken down. She might be without legal representation, she says.
In summary, it is submitted that the order sought by the husband is beyond power. If not, the order should not be made because it could not be recovered. The husband has not given full financial disclosure. He has not used his own property. A potential consequence of making such an order is that the wife might be without legal representation.
There are some disclosure issues in relation to each of the parties. It seems that the wife established a facility to refinance the Suburb A property without notice to the husband. She made the application, I think, in May 2015. She told the husband about it in September 2015 and she drew on the facility later that year. In my view, she should have disclosed that she had made the application and secured the facility. The wife says that she has resigned as a director of K. Now, she says she did that in January 2016. There are bank statements for the wife which show that in April, May and in June she received payments in exactly the same sum as her K salary - $3,188 as a monthly payment and also $3,985, exactly the same sums as she was receiving from K. That suggests that she continued to receive her income as a director after she says she resigned.
The wife says that she has been borrowing money from K. I have not been taken to any documentation for such loans. It is possible that the loan advances are in exactly the same sum at exactly the same periodicity as her salary as a director. Even if that is the case, it leaves open the argument that the loans are a contrivance and that the wife has not left her position in the company.
The wife says that she does not have beneficial ownership of assets and she did not have a legal entitlement to income. When she signed her application for finance on 7 May 2014 she told the lending authority, which might have been the Macquarie Bank, among other things that she was a director of K, which owned 50 per cent of the shopping centre and paid her director’s fees of $1,000 a month and 11 per cent profit. It is an agreed fact that in past tax returns the wife has declared income from K going beyond her directors’ fees. The wife through her accountant has since made arrangements to lodge amended returns. Given the lack of confidence between the parties, those circumstances are concerning to the husband. Those circumstances are arguably consistent with wife appearing to divest herself of income and assets after separation. It could be submitted for example that the most likely reason why she declared the income in the first place was that it was hers.
There is a decision of the High Court in Nelson v Nelson (1995) 184 CLR 538 which put an end to a concept from a decision in Elias & Elias (1977) FLC 90-267 by Goldstein J many years ago. The mere fact that a person has made a formal declaration and did so for financial advantage does not relieve a Court of the obligation to make a finding about the true position. These things are concerning, but the fact alone of a false declaration does not allow an automatic finding about the issue in question. The fact is that the wife has made a false declaration. It is just a question of which declaration was false. On her case, she will argue that she misled the lending authority in 2014 about her financial capacity to service a loan and she originally made an incorrect declaration in her income tax returns.
Nextly, the husband points out that, far from an interpreter for her parents, there are documents available that show the wife as the face of a number of enterprises for the family. She is shown as the CEO or the person who is the front person for the operation. The submission will be that rather than just a functionary or an aide to her parents, the wife may have had a more important role. Whether that related to the shopping centre, whether it related to the business entities overseas, there is that case to be argued on that basis. I cannot predict the outcome of those arguments, of course, but it is important to note that those issues are alive. The resultant arguments would make a very significant difference to the makeup of the pool, for example.
There are disclosure complaints against the husband. The husband did not have any apparent means of financial support and yet he has undertaken overseas travel, I think there were four or five trips over three years, and he done other things that, on the face of his evidence, he could not afford. He has an American Express account on which he has acted over the years and he did not disclose that account in his Financial Statements. That is very concerning.
The answer in the latter regard is said to be found in the fact that the husband says he has borrowed $23,000-odd from a relative. There is in evidence a schedule in relation to payments made by the husband into that account over the period 2 July 2014 to 7 November 2014 on the card. $23,786 was credited to the account in that period.
It is important to say that the wife does not contend that there is a pot of gold somewhere. She says that when they met he was working. There is reference to him repairing washing machines or some sort of appliances. He was installing technical equipment, electrical equipment in restaurants in Country D. It is not suggested that the husband is an entrepreneur or the key figure in a major Turkish family enterprise, such as is contended in relation to the wife.
There are those concerns but I do not think it can be said that they are disqualifying factors in relation to the husband’s application.
Coming to the matters of principle raised by the parties: The first thing to say is that, as learned senior counsel for the wife has correctly identified, there is a broad discretion in relation to costs. There is discussion about that in cases to do with the Court’s responsibilities in respect of the profession. Costs is an obvious incident of judicial power in relation to litigation and that is the business of the Court.
Appeal courts have been reluctant to interfere with first instance exercises of discretion in relation to costs. The requirements in relation to reasons for costs awards seem to be somewhat relaxed in reported cases. The costs power involves a broad discretion which will not be lightly constrained. If the scope of the power is to be constrained, that should be very cautiously done and particularly so, at first instance.
Going through the matters that senior counsel for the wife has raised - I do not think the decision of Strahan (above) is very helpful. It mainly focused on the power under s 79, and that is not the power relied on here. As to the clawback position, it cannot be a necessary requirement of an exercise of power in relation to costs. As to the future aspect of the order - as learned counsel for the husband submitted, orders such as orders for security for costs deal with the situation of prospective costs. Orders about costs that will arise in the future deal with circumstances as to future costs. An order that the parties pay the costs of an expert that might not arise for some months - necessarily, involves a cost order made now, for the future. As was submitted on behalf of the wife, in those circumstances, the Court will not know everything it might otherwise know about elements of s 117(2A) that will apply on the day the payment is required. Nevertheless such orders are regularly made.
Importantly in this case there is a question about there being an arguable case for the respondent. There is an element of all or nothing about the husband’s case. Either he will be able to establish that the wife has a beneficial interest, whether it is a legal entitlement or an equitable entitlement, to assets or income that she now says are not hers or the potential pool of matrimonial assets will be greatly diminished.
It should be noted that the order sought is a conditional one. It only arises if payments are made towards the wife’s costs in the future. The matter might settle tomorrow and there may be no more payments made in respect of the wife’s costs. In that case, the order will have had no practical effect. It might be that the litigation runs for another four years and a million dollars is paid on the wife’s costs, and that triggers an obligation of a similar amount for the husband.
As counsel has identified and Brereton J said[1], it is not necessary for the making of an order for costs that the solicitors for the applicant have said they will not act. That was discussed in Poletti and Poletti (1990) 15 Fam LR 794 (“Poletti”) and some of the other cases, and such a position can be a contrivance to some extent. Lawyers sometimes carry clients. They make compromises about their fees or payment plans or whatever.
[1] See Paris King Investments Pty Ltd v Rayhill [2016] NSWSC 578 (above)
The law was that a solicitor’s contract was entire, and solicitors were only permitted to bill at the conclusion of the case, or, in a case where there were obvious significant natural stages in the proceedings, perhaps some interim billing was possible. That is not the practice any more. The rules of court require notices of costs to be provided by solicitors to clients at each significant stage of the proceedings, telling them what costs they have incurred to date, what costs they are to incur to the next stage of the proceedings and what costs they might be required to pay to the conclusion of the proceedings. The costs advice is required to set out what costs have been paid, and it is required to identify the source of funds used to pay costs. All of that is aimed at providing litigants with information on an a regular basis in order that they can weigh the cost benefit of the litigation.
It is suggested that any order that is made should require that the husband apply to moneys paid only to his costs. I do not think that is an issue.
It is true that all of the provisions of s 117(2A) do not sit comfortably with an order about future costs. The provisions include reference to current financial circumstances, whether a party has been wholly unsuccessful in proceedings, the conduct of the parties, whether proceedings were caused by a breach of orders and offers of settlement. Not all of those things sit comfortably with future costs. Of course, there is an unending list of matters that are relevant because of the catch-all at the end of s 117(2A). Sometimes legislative provisions are required to do more than one job – s 75(2) comes to mind. Just because the provisions of that subsection do not all sit comfortably with the requirements for property settlement or maintenance, it does not mean that the court does not have power to make the related orders.
Learned senior counsel for the wife argues that there is no valid basis for dollar-for-dollar orders. As he says, the orders have been made, were made at first instance and there is no authoritative statement from an appellate court on the issue. He referred to Gould and Gould [1994] FamCA 75 which involved an appeal against a dollar for dollar costs order. The appeal was upheld but not because of a finding that the Court lacked the power to make such an order nor even that the order was wrong. The appeal was upheld because there had been a significant improvement in the financial circumstances of the wife since the first instance hearing. Two of the judges constituting the Full Court (Fogarty and Kay JJ) referred to the question of the validity of the order per se but neither ventured a concluded view on the topic. Albeit obiter, one matter was addressed by Kay J in the following terms:
....There are two matters that I wish to make comment on. One is in reference to the general philosophical views expressed by her Honour about endeavouring to achieve a level playing field by providing the wife with a dollar for dollar basis of costs. Whilst I agree with her Honour's observations that that may not be an appropriate approach to these cases, I would also like to make reference to an article from the Chicago Daily Law Bulletin of 20 April, 1992 which indicates that wives in these circumstances often have to spend much more than dollar for dollar to achieve a level playing field, particularly, and I quote - this is in reference to a survey of the American Bar Association Family Law Section:
2. Most of the lawyers agree that women will face higher legal bills in a divorce. According to 91 per cent of those surveyed, women splitting from their husbands will have to pay more for discovery. Husbands traditionally have had full control over family finances and economic information. This means the wife's attorney must often engage in discovery to gain equal knowledge about assets and income. The lawyer has an obligation to undertake discovery to find out if there are assets in just the husband's name or if the wife has no knowledge of them.
I take it that Kay J was canvassing the idea of a “dollar fifty for dollar” order.
Section 117(2) calls for an order to be made where it is just. Counsel for the wife says how on earth could that be, because it is being made in advance. When the orders come into effect, the court is not to know what the financial circumstances are or what the conduct has been.
In my view that argument overlooks the interests of justice in the parties being fairly represented in proceedings. It is notoriously unfair for a litigant in person to litigate against somebody who is legally represented. It is notoriously unfair for one legal team to have access to all manner of resources and experts and counsel and the other team being left to struggle along without the wherewithal to provide those things. At stake, of course, is the quality of the outcome of the proceedings. With the best will in the world and with the fairest presentation by an advocate on behalf of a party in a stronger position, there can be a distortion of the outcome in those circumstances. It may be that the justice of a dollar-for-dollar order arises in that way. Such an order may ameliorate the risk that one party to litigation is required to operate without proper funding, while the other party, arguably using resources of the marriage, is able to properly provide for their representation. There is a level of speculation about that, of course, but that is all you can do at the stage that these orders are sought.
I do not say this critically, but senior counsel appeared today on behalf of the wife. That was not a resource available to the husband – again I do not mean to be critical.
The wife says that she has significant expenses, including the overwhelming proportion of the costs of the children. That may be unfair to the wife or it may simply reflect the fact that she is in a stronger financial position than the husband.
As to the husband’s overseas travel, it is asserted that he has not provided a statement of the costs of travel and how he funded it, and there is a reference to Country E trips in March and September of this year, Country G in September and Europe in October, and a trip again to Europe in September of 2014. I do not know any more about that. As to the luxury of distance higher education – I am not in a position to comment about that. While I am not sure, it may be that there is a HELP contribution made by the government and there will be a cost to the husband to be paid at a later point.
It is noted that the husband has elected not to access his own property. He has a property in Country G that was paid for by the wife, and he claims an interest in a property at Suburb W. The wife’s argument is disingenuous in relation to the Suburb W property. There has been correspondence between solicitors. It is her case that the parties have no equity in the Suburb W property. Her argument is that before he made an application for a dollar-for-dollar order, the husband should take proceedings in the Supreme Court, presumably proceedings against entities or members of her family under s 66G of the Conveyancing Act 1919 (NSW). Proceedings, on her case, that he will lose. That is her suggestion as to an efficient way of the husband funding his representation. That is a very odd and unhelpful, submission.
I do not know about what capacity there is to realise the property in Country G, so I do not know any more about that. In any event, there is nothing in s 117 or in the authorities that requires a party to exhaust all of their own resources before seeking an order for costs.
There is a complaint about the husband not exercising his earning capacity. The husband has put into evidence a schedule of job applications he has made. It is exhibit 10. Taking a practical approach, senior counsel for the wife accepted that, although that document is not probative on its own, it describes the evidence the husband would give about his efforts to secure employment. The schedule refers to applications made between July 2014 and February 2016. Somebody has written 204 on the bottom of the page and that might be the total number of application. The jobs sought cover a wide range. The inference the husband seeks to draw is that he has made efforts to secure more remunerative job. The husband may also anticipate that his studies will provide him with some future employment. On the face of it, the husband has sought paid employment.
It is submitted for the wife that the husband’s solicitors’ contract is entire. It is also submitted that those solicitors should show more confidence in the husband’s case. Neither of those submissions is helpful. It is no longer the case that a solicitor’s contract is entire. In any event, in all but a vanishingly small number of cases there is a costs agreement that regulates the rate and timing of payments.
It is submitted that if an order is made on the husband’s application, the funding source for the wife will evaporate. On the wife’s case that has already occurred. It is her evidence that on 8 December, she received a message from Ms Q that says, “[K] will not lend you any more money for legal bill, especially when [Mr Kartal] can get his hands on the money to attack the interests of [K] or the [M] family.” There is no subsequent or clarifying evidence. On the wife’s case, that source of funding is no longer available.
There is a costs agreement in evidence in respect of the wife’s costs which provides that in the event that her costs are not paid, the firm has the right to withdraw. It also says there is interest to be paid on overdue amounts. The failure to make a claimed payment, subject to other arrangements, would normally be a legitimate basis for a solicitor to withdraw.
Assuming that the wife’s funding had not already been withdrawn, I accept that there would be a risk that if an order is made, the wife will be without legal representation. If so that would cause quite an issue in the proceedings. Apart from anything else, she is required to have an address for service within the jurisdiction. She says she has family living here, so perhaps that is not an issue. It is expensive to travel between Country E and here, although the wife says that she comes to Australia in any event. By the same token, you would want to avoid a situation where an otherwise appropriate order was not made because of something that may have been privately influenced by the wife.
It is noted in the wife’s case that it would not be possible to claw back any payment applied to costs. We do not really know that. There is a decision of Medlow (above) which refers to an issue about clawing back funds, and the priority to be given to the legal ownership of the funds in question. Of course that was a decision made under s 79 and not under s 117. I cannot be satisfied that moneys applied to the husband’s costs under the order he seeks, could ever be recovered. However, as the wife’s counsel conceded at one point, it is not a necessary condition of a dollar-for-dollar order that the moneys paid can be clawed back.
I think that deals with the matters that have been raised. It seems to me, that the Court has power within a broad costs jurisdiction to make an order in the style of a dollar-for-dollar order. The wife has been able to meet her legal fees and the husband has not. Of the parties it is likely that the wife is in a stronger financial position than the husband. There is some complexity in the financial affairs of the wife. Although highly desirable, it is not necessary that either party has legal representation. It would be just that if the wife’s costs are met, she make similar provision for the husband’s legal fees.
Where such orders have been made previously various formats have been used. Here I am dealing with the particular wording that has been advanced on behalf of the husband.
Counsel for the wife warned against making an order that would impact on payments of the wife’s costs for work already undertaken by her solicitors. In that regard, the line of argument is: “The future is the future”, but if the wife’s solicitors have taken a step, relying on their agreement with the wife and being aware that there is a funding source, they have incurred disbursements or performed work that attracts profit costs, then it would be unfair to them to do something that might prevent them being paid. I suppose, if the facts were slightly different to those in this case and the letter from the wife’s family said, “If the court order is made, we will cease to make payments”, that might make a difference. In that scenario if the solicitors had already undertaken work assuming that they would be paid, and the source of funding dries up because of an order, then they might be damaged by such an order. In that way there would be a level of retrospective effect.
I am not sure about that argument but for abundant caution, I will not extend the terms of the order to bills rendered in relation to work done.
The other thing to say is that as to the future, if the wife knows that she is not going to be able to make a payment, then she would of course be able to prevent or not seek, immediate payments towards her costs.
I certify that the preceding seventy eight (78) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Loughnan delivered on 16 December 2016.
Associate:
Date: 7 February 2017
9
5
1