Klearchos & Klearchos & Ors

[2015] FamCAFC 217

FAMILY COURT OF AUSTRALIA

KLEARCHOS & KLEARCHOS AND ORS [2015] FamCAFC 217

FAMILY LAW  – APPEAL  – LEAVE TO APPEAL – Where the husband seeks leave to appeal against interim spousal maintenance orders – Where the wife sought that certain companies under the control of the husband be joined to the proceedings – Where the husband seeks leave to appeal against an order to fund the costs of the wife’s litigation in such sum as the husband and second, third and fourth respondents collectively pay for legal fees on a “dollar by dollar” basis – Where the wife is liable for an unusually high level of legal costs – Where the trial judge found that the husband is in a position of relative financial strength compared with that of the wife – Where the wife failed to disclose the source of the funds used by her to pay her legal fees – Where the trial judge could not know the impact of the litigation funding order on the husband’s finances as there was no evidence of the legal costs likely to be incurred – Where there was insufficient evidence before the trial judge to satisfy him that the husband could pay the ordered spousal maintenance – Appeal allowed.

FAMILY LAW  – APPEAL – APPLICATION TO ADDUCE FURTHER EVIDENCE – Where the evidence sought to be adduced may have produced a different result had it been available at trial – Where the evidence relates to the wife’s non-disclosure of her financial position – Where, had his Honour had the further evidence of her failure to disclose certain income, he may have come to a different conclusion about the wife’s capacity to fund her own legal costs and her need for spousal maintenance – Application allowed.

Family Law Act 1975 (Cth) ss 117, 117 (1), 117(2A), 117(2A)(a), 117(2A)(c)
Federal Proceedings (Costs) Act 1981 (Cth)

CDJ v VAJ (1998) 197 CLR 172
Gronow & Gronow (1979) 144 CLR 513

APPELLANT: Mr Klearchos

FIRST RESPONDENT: Ms Klearchos

SECOND RESPONDENT: Q Pty Limited

THIRD RESPONDENT: E Pty Limited

FOURTH RESPONDENT: R Pty Limited

FILE NUMBER: SYC 2977 of 2013

APPEAL NUMBER: EA 155 of 2014

DATE DELIVERED: 17 November 2015

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Finn, Ainslie-Wallace & Kent JJ

HEARING DATE: 18 March 2015

LOWER COURT JURISDICTION: Family Court of Australia

LOWER COURT JUDGMENT DATE: 13 November 2014

LOWER COURT MNC: [2014] FamCA 1049

REPRESENTATION

COUNSEL FOR THE APPELLANT: Mr Lloyd SC

SOLICITOR FOR THE APPELLANT: Barkus Doolan

COUNSEL FOR THE FIRST RESPONDENT: Mr R S Bell

SOLICITOR FOR THE FIRST RESPONDENT: Neville & Hourn Legal

COUNSEL FOR THE SECOND, THIRD & FOURTH  RESPONDENTS: Mr Connor

SOLICITOR FOR THE SECOND, THIRD & FOURTH  RESPONDENTS: Argyle Legal

Orders

ORDERS made on 18 March 2015:

1. Leave is granted to the appellant husband to rely on an Amended Notice of Appeal filed on 25 February 2015.

ORDERS:

1. Leave is granted to the appellant husband to appeal against the orders of the Honourable Justice Johnston made on 13 November 2014.

2. Leave is granted to the appellant husband to adduce further evidence in the appeal in accordance with the Application in an Appeal filed on 4 March 2015.

3. The Appeal against the orders of the Honourable Justice Johnston made on

   
   

   13 November 2014 is allowed and the orders are set aside.

4. The matter is remitted for hearing by a Judge of the Family Court.

5. There is no order as to costs.

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

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY

Appeal Number:  EA 155 of 2014
File Number:  SYC 2977 of 2013

Mr Klearchos

Appellant

and

Ms Klearchos

First Respondent

and

Q Pty Limited

Second Respondent

and

E Pty Limited

Third Respondent

and

R Pty Limited

Fourth Respondent

REASONS FOR JUDGMENT

Finn J   

1. This is an application by the husband, Mr Klearchos, for leave to appeal orders made by Johnston J on 13 November 2014, which required the husband:

   ·under Order 1 to pay the wife, Ms Klearchos, the sum of AUD$ 10,000 per month by way of interim spousal maintenance; and

   ·under Order 2, and pursuant to s 117(2) of the Family Law Act 1975 (Cth) (“the Act”), such sum as the husband and three companies (being Q Pty Limited, E Pty Limited and R Pty Limited) “collectively pay for legal fees on a “dollar by dollar basis”,” with such sums to be paid under Order 3 to the trust account of the wife’s solicitors “on account of legal costs and outlays anticipated as being incurred by the wife” in property settlement proceedings pending between the husband and the wife, and “to be used solely for such purposes”.

2. Order 4 of his Honour’s orders provided that “the above payments be taken into account by the Court in the substantive proceedings in such manner as the Court considers appropriate”. It can be assumed, in my view, that the “payments” which are referred to in Order 4, are the payments which are to be made for litigation funding purposes under Orders 2 and 3.

3. The factual background to this application for leave to appeal is explained in the reasons for judgment of Ainslie-Wallace J, as also are Johnston J’s reasons for the orders which he made. I will therefore say no more about those matters save as may be necessary when I discuss the proposed grounds of appeal.

Leave to appeal

1. It is important to explain at the outset that the husband in his amended notice of appeal (on which we permitted him to rely at the hearing before us) sought leave to appeal Johnston J’s orders (as indeed it was necessary for him to do), and that he did so on the basis of the important principles which the appeal would raise and the substantial injustice that he would suffer by virtue of the orders sought to be appealed. However, no written or oral submissions were advanced to us by counsel for either party in relation to the issue of leave to appeal. Rather such submissions were directed only to the proposed grounds of appeal.

2. Given the not insignificant amount of the interim spousal maintenance order and the potentially very significant amounts payable under the litigation funding order, and given also the lack of opposition to the grant of leave to appeal, I would grant such leave.

The application to adduce further evidence

1. There was also at the hearing before us an application by the husband to be permitted to adduce further evidence in support of his appeal. We reserved our decision in relation to this application.

2. The evidence sought to be adduced was constituted by an affidavit from the husband (sworn on 2 March 2015) in which he stated that since the making of the orders appealed, he had become aware from an affidavit by the wife (which was sworn on 20 February 2015 and filed in subsequent interim proceedings) that she had in the course of 2013 leased a residential property and a rural property, and that from December 2013 to the date of her affidavit she had received net rent amounting to $47,603.38, which had been paid to an account in the name of the wife’s mother.

3. Before us counsel for the wife was prepared to concede that it was a fact that the wife was leasing the properties in question although he disputed the precise figure for rent received. However, counsel for the wife opposed the admission of the evidence on the basis that it was a de minimus matter, which could have made no difference to the outcome of the proceedings before the primary judge.

4. Because the requirement of full disclosure is such an essential requirement in financial proceedings in this jurisdiction, I would certainly admit the further, and apparently largely uncontroversial, evidence in support of this appeal, particularly in circumstances where one of the grounds of appeal (Ground 2) is directed to non-disclosure by the wife.  It is not to the point, in my opinion, that the wife may have claimed, and may continue to claim, that there was non-disclosure on the husband’s part.

The issues raised on the appeal

1. Given the manner in which the appeal was argued before us, I do not consider it necessary to discuss all eight grounds of appeal, which are contained in the husband’s amended notice of appeal and which are, in any event, set out, or at least summarised, in the reasons for judgment of Ainslie-Wallace J.

2. I propose only to discuss the two issues raised by the grounds, which I consider have sufficient merit to necessitate the appeal being allowed.

Non-disclosure by the wife 

1. By the second ground of appeal it was asserted that the primary judge had failed to have regard to the wife’s “failure to make full and frank disclosure as to the source of funds utilised by her to fund her litigation to the point at which she had consistent with the material brought to his Honour’s attention”.  As argued, this ground was also directed to the interim spousal maintenance order.

2. In support of this ground senior counsel for the husband referred us to a passage in the transcript of the hearing before his Honour where he had submitted to his Honour that there had not been “full and frank disclosure on the part of the wife in relation to her true financial position” (Transcript 1 September 2014, p 53, lines 30-31).

3. This submission had been made to his Honour on the basis of a comparison between the contents of an affidavit from the wife’s solicitor sworn/affirmed on 27 August 2014) where details were provided of the wife’s legal fees paid and unpaid and totalling in the order of, at least, $800,000, and the contents of the statements in the relevant period from the wife’s only declared bank account which were annexed to her affidavit (sworn 25 August 2014) (Transcript 1 September 2014, p 53, line 45 to p 55, line 2).

4. It appears from a later passage of the transcript of the proceedings before

   
   

   his Honour (Transcript 2 September 2014, p 102), to which we were taken by counsel for the wife, that some endeavour was made by him to respond to the husband’s claim that the wife had not disclosed all the sources of the funds for her legal fees, by referring his Honour to the wife’s disclosure in an affidavit (sworn on 30 April 2014) of two loans of $90,000 and $70,000 which she had obtained from a Ms KK and a company, NN Pty Limited.

5. In his reasons for judgment the primary judge, when recording the submissions made to him on behalf of the husband, stated in [28] that “[t]he wife has not given a full account of how she has funded amounts paid to date to her solicitors”. This statement by his Honour was clearly not a finding, but only a recording of a submission made on behalf of the husband.

6. Later in his reasons when considering specifically the wife’s application for the litigation funding order, his Honour said:

   49.… in my view it has been established clearly that the wife has no capacity to fund her outstanding or further legal costs and disbursements.  I shall refer to this below and it is the case that she has gone into significant debt to pay part of her legal costs and disbursements. She is without a source from which the balance can be paid, let alone any future costs. 

7. It can be assumed that his Honour’s reference to what was to follow “below” was to the following paragraph of his reasons which occurs in the course of  his discussion of the wife’s claim for interim spousal maintenance:

   71.To fund legal costs in these proceedings the wife sold the [prestige] motor vehicle she had in [Country J].  She has also applied the following borrowed funds towards her legal costs:

   •$90 000 from [Ms KK]

   •$70 000 from [NN] Pty Limited

   •60 000 Euros from a friend.

8. In relation to these findings by his Honour, senior counsel for the husband submitted that his Honour should have addressed more fully the submissions that had been made to him on behalf of the husband in relation to the wife’s alleged non-disclosure, and that this failure on his Honour’s part rendered unsafe both his litigation funding and spousal maintenance orders.

9. Once regard is had to the further evidence regarding the wife’s undeclared rental income, on which senior counsel for the husband also relied in support of Ground 2, it becomes an inescapable conclusion, in my view, that Ground 2 must succeed.

10. I take this view because while his Honour’s very limited exploration of the wife’s funding of her legal expenses might have been sufficient to address the claims of non-disclosure on her part in the difficult interlocutory context in which his Honour had to make his determinations, the availability of the further evidence of her non-disclosure of her rental income, must now render unsafe any assessment of the wife’s financial circumstances, and thus both the litigation funding and interim spousal maintenance orders which must, of course, be based on such an assessment.

The companies allegedly related to the husband

1. It will be recalled that the amount of the payments to be made to the wife under his Honour’s litigation funding order were to be calculated on a “dollar by dollar” basis not only against the legal fees of the husband but also of three companies, being Q Pty Limited, E Pty Limited and R Pty Limited. Those companies had been joined by the wife as respondents to her property settlement application against the husband.

2. In the context of his consideration of the husband’s financial circumstances,

   
   

   his Honour made the following findings, which I do not understand to be challenged, regarding what can be described as the strict legal relationship between the husband and the three companies in question:

   80.The husband’s financial circumstances are complex.  He has been in control of property in Australia and overseas.  He is a beneficiary of the [Klearchos] Family Trust the other beneficiaries being his brother [Mr ZK] … and their children.  [Mr ZK] is the appointor of the Trust.

   81.The Trustee of this Trust is a company [Q] Pty Limited (“[Q]”).  The current directors of this company are the husband’s brother [Mr ZK] and the husband’s accountant Mr [HH].  They are also its shareholders.  The husband had been a director and shareholder previously.

   82.[Q] wholly owns [E Pty Ltd].  [E Pty Ltd]’s directors are [Mr ZK] and [Mr HH].  The husband had been a director and the former company secretary until 31 October 2010 when he resigned.  These companies are parties in the substantive proceedings. 

   83.[E Pty Ltd] owns subsidiary companies [GF] Pty Limited and [R] Pty Limited.  It also has an interest in [PP] Pty Limited. 

3. His Honour then went on to note in [84] of his reasons, that E Pty Limited was now in administration.

4. It was argued by senior counsel for the husband in the context of the first ground of appeal, that it was an error on his Honour’s part to have linked the amounts of the litigation funding payments to the wife to the legal fees paid by the three companies in circumstances where the husband would have no control over the expenditure on legal fees by those companies, which have separate legal representation from the husband.

5. There must clearly be force in this argument against the background of the findings made by his Honour in [81] to [83] of his reasons concerning the ownership and directorships of the three companies in question.

6. However, in relation to E Pty Limited, his Honour did elsewhere in his reasons find a capacity on the part of the husband to influence decisions taken by E Pty Limited and also that the husband had signing rights on the company’s accounts; those findings being in the following paragraphs of his reasons:

   53.In relation to the submission on behalf of the husband that it would be unfair to attribute to him any part of the costs in the litigation between [E Pty Ltd] and the wife, I note that the husband had been a director of [E Pty Ltd] during the marriage and until he resigned from this position after the parties separated.  The parties had enjoyed the use of various properties owned by [E Pty Ltd] during their marriage.  Even after separation, the husband’s influence concerning [E Pty Ltd] has been such that the wife and children have been able to live in the [G] property provided to them for this purpose by [E Pty Ltd].  I shall refer to [E Pty Ltd] again below.

   …

   96.The husband also has signatory rights in respect of accounts for his company [RR Partners] and [E] Pty Limited although the latter company is now in administration.

   97.It is impossible for the wife to test the husband’s assertions about his financial circumstances at this still early stage of the proceedings. But a number of matters are clear.  The husband has conducted business apparently successfully over the entirety of the parties’ marriage.  The husband was able to fund an apparently very affluent lifestyle for himself, the wife and their children during their marriage.  The husband appears still to be able to enjoy some of the hallmarks of such a lifestyle, such as first class international travel. He is able to influence the directors of [E Pty Ltd] to continue to provide benefits for the wife and the children. On his own account he has been able to persuade various corporations as well as personal friends to extend him credit. As indicated, he has been able to pay his own legal costs.

7. These findings were made despite the fact that earlier in his reasons when setting out the husband’s submissions in opposition to the orders sought by the wife, his Honour had recorded at [33] that it was the husband’s submission that he did “not have any interest in the company [E Pty Ltd]”. Given that the husband’s “interest” in E Pty Limited was an issue in the proceedings and that no finding was made (or probably could have been made) about the precise relationship between the husband and that company, his Honour’s reliance on the availability of the resources of E Pty Limited to the husband to enable him to comply with the litigation funding order (or to control the expenditure of legal fees by that company for purposes of the calculation of the amounts payable to the wife under that order), or to enable him to comply with the interim spousal maintenance order, would seem to lack a substantial foundation.

8. In any event, however, the fact that E Pty Limited is now in administration, as was recognised by his Honour, would be likely to mean that the husband could not control its expenditures on legal fees, nor would its resources be available to the husband to assist him in meeting the obligations imposed on him by the orders which are the subject of this appeal, and thus there is a further reason why those orders should not be permitted to stand.

Conclusion

1. I thus agree with Ainslie-Wallace J that the appeal must succeed, and the orders made on 13 November 2014 should be set aside with the wife’s application for litigation funding and interim spousal maintenance orders being remitted for re-hearing.

2. I agree that there is no obstacle to Johnston J conducting the re-hearing although there is also no necessity for him to do so if case-management considerations require another judge to do so.

3. Notwithstanding the submissions made at the conclusion of the hearing before us in relation to the costs of the appeal, I am not persuaded that there are any circumstances which would justify a departure from the general rule in s 117(1) that each party should pay their own costs of the appeal. I am also not persuaded that this is an appropriate case for the grant of costs certificates under the Federal Proceedings (Costs) Act 1981 (Cth).

Ainslie-Wallace J

1. Mr Klearchos (“the husband”) seeks leave to appeal against interim orders made by Johnston J on 13 November 2014 in property settlement proceedings between him and Ms Klearchos (“the wife”).  Certain companies associated with the husband, namely Q Pty Limited (Second Respondent), E Pty Limited (Third Respondent) and R Pty Limited (Fourth Respondent) are parties to the litigation.

1. The parties married in April 2000 and separated in August 2010.  There are two children of the marriage, B who was born in 2000 and C who was born in 2003.  The husband is a dual citizen of Country D and Australia and the wife is an Australian citizen.  During their marriage the parties lived in City M and later Country J.

2. After separation, the wife and children moved to live in Australia.  The husband remains living in Country J.

3. On 13 June 2013 the wife filed an Initiating Application to which the husband and E Pty Limited, Q Pty Limited and R Pty Limited were named as parties.  By that application, the wife sought both parenting and property settlement orders.  The husband responded on 19 June 2013.  That application has not been heard.

4. On 12 February 2014, the wife filed an application seeking interim orders that the husband pay her €10,000 per month by way of spousal maintenance and that he pay her $1 million to assist her to meet her legal costs of the property settlement proceedings.  In the alternative, the wife sought that the husband and the other respondents pay her legal costs on a “dollar by dollar” basis.  The order sought that the characterisation of the payment be a matter resolved at the final hearing.  I understand that term means that for every dollar spent by one party on legal fees, an equivalent amount is paid to the other party to be used in payment of legal fees.

5. On 13 November 2014 his Honour ordered on an interim basis that the husband pay spousal maintenance to the wife of $10,000 per month commencing from

   
   

   1 January 2014. Further, pursuant to s 117(2) of the Family Law Act 1975 (Cth) (“the Act”) his Honour ordered that:

   … the husband pay to the wife such sum as the husband and second, third and fourth respondents (in the substantive proceedings) collectively pay for legal fees on a “dollar by dollar” basis, with payments made monthly.

6. His Honour further ordered that the sums be paid into the wife’s solicitors’ trust account on account of legal costs and outlays anticipated and that such sums were to be used only for those purposes.  His Honour reserved the characterisation of those payments and the determination of how they are to be taken into account to the substantive proceedings.

7. The husband seeks leave to appeal those orders.  There being no opposition to leave being granted and given the issues to be argued on the appeal I would grant leave.

Application to file Amended Notice of Appeal

1. By Application in an Appeal filed on 25 February 2015 the husband sought leave to file an Amended Notice of Appeal.  Leave to file the Amended Notice of Appeal was granted during the hearing on 18 March 2015.

Application to adduce further evidence

1. By Application in an Appeal filed on 4 March 2015 the husband sought to adduce further evidence on the appeal. 

2. The further evidence sought to be adduced is set out in an affidavit of the husband which is attached as part of “Annexure A” to an affidavit of the husband’s solicitor, sworn on 2 March 2015.

3. In that affidavit, the husband says, after referring to the receipt of the wife’s affidavit of 20 February 2015 in support of her application for interim orders before the trial judge:

   8. Having read the Wife’s Affidavit, I became aware, for the very first time in the course of these proceedings, of the following matters:

   8.1In 2013, on a date yet to be ascertained, the Wife entered into an agreement with [CV Rental Agency] to lease [F Street, Suburb G] in the State of New South Wales – this is the property in which the Wife lives with the children of the marriage.

   8.2In 2013, on a date yet to be ascertained, the Wife entered into a contract with [CV Rental Agency] to lease the property situated at and known as [FF Street, I Town] in the State of New South Wales – this is the property referred to as the [I Town] farm;

   8.3      In the period from 2 December 2013 to date, the Wife    received from [CV Rental Agency], by way of rental     income, the total sum of $62,600. This is the gross           amount. The net amount paid to the Wife was $47,603.38;

   8.4      All of the payments made by [CV Rental Agency] to the Wife were, at the Wife’s direction, deposited to an account   in the name of the Wife’s mother, [Ms KK].

4. The husband contended that the receipt of this income was not revealed by the wife in her affidavits filed in support of the application for interim orders, the subject of the appeal.

5. Counsel appearing for the wife conceded that the wife had received the funds referred to and further conceded that she had not revealed her receipt of those funds. 

6. For reasons that I will later develop, I would admit that evidence on the appeal.

Litigation funding order

1. His Honour considered the wife’s application for an order to fund her litigation costs and concluded that the power to make the order sought by the wife reposed in the provisions of s 117(2) of the Act. There is no challenge to

   
   

   his Honour’s conclusion in this regard. 

2. The judge found that the wife is liable for a very high level of legal costs [16]. He noted that the costs incurred by her to that time were in the order of $636,717 with a further $299,454 still outstanding to be paid to her solicitors, and some $18,718 yet to be billed as well as a liability for counsel’s fees. She had at that time been involved in eight interlocutory applications, several of them relating to E Pty Limited (“E”).

3. The wife’s solicitor estimated the costs of a two week hearing of the substantive proceedings would be in the order of $748,000 to $847,000 [19].

4. As to the financial circumstances of the parties, his Honour noted a significant disparity in the party’s estimates of the husband’s financial worth; the wife asserting that the husband had informed her that his worth was, at one time, $200 million and on another occasion $99 million.  On the other hand, the husband asserted that his financial circumstances were as set out in his financial affidavit which showed that his assets were exceeded by his liabilities.

5. As to the husband’s financial circumstances, his Honour found:

   ·That the husband’s financial circumstances are complex and he has in the past “been in control of property in Australia and overseas” [80];

   ·He is a beneficiary of the Klearchos Family Trust. His brother, who is also a beneficiary, is the appointor of the trust [80];

   ·The trustee of the Klearchos Family Trust is Q Pty Limited, the directors of which are the husband’s brother and the husband’s accountant [81];

   ·The husband had, in the past, been a director and shareholder of Q Pty Limited [81];

   ·Q Pty Limited owns E, the directors of which are the husband’s brother and the husband’s accountant [82]. E owns subsidiary companies [83];

   ·E’s financial position has changed significantly since separation, in that it is now in administration and E has assets of $30,492,611 and liabilities of $28,077,704 [85];

   ·The husband has liabilities in excess of his assets so that his net position is $ - 911,847 [87];

   ·The husband had a loan account in E of a value of $2.5 million which he assigned to S Company for an initial payment of $500,000 with a further $2 million to be paid [89];

   ·The husband’s income is deficient to his expenses as to $12,155 per week [95].

6. His Honour found that the husband controls the bulk of the parties’ assets and funds and is in a position of relative strength compared with that of the wife. His Honour found:

   48. … a capacity on the part of the [husband] to meet his own litigation costs and an inability on the part of the [wife] to meet her litigation costs.

   49. Taking the last matter first, in my view it has been established clearly that the wife has no capacity to fund her outstanding or further legal costs and disbursements.  … it is the case that she has gone into significant debt to pay part of her legal costs and disbursements. She is without a source from which the balance can be paid, let alone any future costs.

7. His Honour said:

   97. It is impossible for the wife to test the husband’s assertions as to his financial circumstances at this still early stage of the proceedings. But a number of matters are clear. The husband has conducted business apparently successfully over the entirety of the parties’ marriage. The husband was able to fund an apparently very affluent lifestyle for himself, the wife and their children during their marriage. The husband appears still to be able to enjoy some of the hallmarks of such a lifestyle, such as first class international travel. He is able to influence the directors of [E] to continue to provide benefits for the wife and the children. On his own account he has been able to persuade various corporations as well as personal friends to extend him credit. …

8. Thus his Honour concluded that it was more probable than not that the husband would be able to arrange his financial circumstances to pay an amount to the wife towards her litigation expenses and to pay an order providing for the wife’s interim spousal maintenance and that, even if the husband needed to borrow to meet the ordered expenses and spousal maintenance payments, it would nonetheless be just.

9. The judge determined that the wife was entitled to an order for litigation funding.

Interim spousal maintenance

1. After referring to earlier orders by which the husband had been directed to use his best endeavours to cause E to provide and pay the expenses of accommodation for the wife and children, which had occurred, his Honour noted that at the time the earlier orders were made, the husband was paying the wife €10,000 per month, which was later reduced to $8,000 per month in October 2013 and reduced again to $6,000 per month from April 2014.  While previously E had been meeting the wife’s household utilities and car expenses, it had ceased making those payments in April 2014.

2. His Honour found at [61] that the wife had no present capacity to support herself and further at [73] found that she had no other source of funds.

3. As to the wife’s reasonable needs, his Honour commented that the estimates provided by her were “extraordinarily high and of no assistance in determining a proper level of maintenance” at [75]. Thus his Honour took a broad approach to that determination taking into account the lifestyle enjoyed by the parties during the marriage and he concluded that a proper amount of maintenance to be paid to the wife would be $10,000 per month [78].

4. His Honour then considered the husband’s finances (to which we have already referred) and concluded:

   98. In all the circumstances, I find it more probable than not that the husband would be able to arrange his admittedly complex financial circumstances in such a manner as to enable him to pay the wife interim costs and interim spousal maintenance in an appropriate amount. His assertions about his relatively impoverished state stand in marked contrast against the affluent lifestyle he continues to enjoy.  And in all the circumstances as I have expressed them to be above, in my view it would be just for him to be required to do so, even if this meant that he borrowed funds to do so. There would be nothing new about the husband borrowing money because on his own evidence he has a demonstrated capacity to borrow considerable amounts for business purposes.

The Appeal

1. Grounds 1 and 2 challenge his Honour’s order for litigation funding. Ground 1 contends that, having determined to consider the wife’s application pursuant to section 117(2), his Honour erred in that he failed first to assess the past or future costs likely to be incurred both by the husband and the other respondents to the proceedings. Ground 2 argues that in determining to make the litigation funding order, his Honour failed to have regard to the wife’s failure to disclose the source of funds used to pay her legal fees to date.

2. Counsel for the husband argued Ground 2 first and I too will consider it first.

Ground 2

1. Ground 2 contends:

   That His Honour failed to have regard to the first respondent’s failure to make full and frank disclosure as to the source of funds utilised by her to fund her litigation to the point at which she had consistent with the material brought to His Honour’s attention.

2. Before his Honour, the husband submitted that the wife had failed to disclose the source of the funds used by her to pay her legal fees.  Support for this submission was had by reference to the evidence of the wife’s solicitor as to the payments received by him on account of legal fees, the wife’s financial affidavit in which she disclosed only having one bank account (a matter conceded by her counsel at trial before his Honour) and supported by her bank statements exhibited to her affidavit before his Honour.  It was submitted to

   
   

   his Honour that there was no correspondence between the payments made into the wife’s solicitor’s trust account and withdrawals from her bank account and it was submitted that the wife had failed to disclose either the existence of another source of funds or that she was being financially supported.

3. His Honour referred to the husband’s submission:

   28. There has been no analysis of what would appear to be outstanding costs to [NP] Lawyers. The wife has not given a full account of how she has funded amounts paid to date to her solicitors.

4. Although he adverted to the issue, his Honour did not resolve it or make a further finding about it in his determination of the issues.

5. It was argued on the appeal that, notwithstanding the matter being dealt with as an interim matter, his Honour ought to have made a finding that the wife had not disclosed the source of funds by which she paid her solicitor.  This was all the more necessary, it was argued, where the factual basis of the submission was not disputed by the wife’s counsel before his Honour. 

6. Further, it was contended that his Honour’s failure to make a finding or take account of the unchallenged submission that the wife’s own documents did not support the source of her payment of legal fees, rendered the basis on which

   
   

   his Honour determined to make the order unsafe.  That is, the premise of

   
   

   his Honour’s determination to make the costs order on his finding at [48] and [49] that the wife had no ability to meet her costs, was flawed.

7. Although expressed in the most elliptical of terms, it appears from the transcript before his Honour that counsel for the wife did in fact dispute the contention that the wife’s documents did not support a source of funds from which the payments to her solicitor in respect of her legal fees could be paid.  Counsel for the wife submitted to his Honour that the documents on which the husband relied in support of the submission were not exhaustive of the issue. Counsel referred to the wife’s affidavit where she said she had borrowed funds as indicating in part the source of the funds paid to her solicitor.  As I have said, this submission was cryptically made and counsel for the husband could be forgiven for thinking that the assertion made by him in submissions to

   
   

   his Honour was unchallenged.

8. I thus do not accept that the assertion that the wife had failed to disclose was accepted or at least undisputed by counsel appearing for the wife.  That  it was put in issue does not of course necessarily preclude a finding that she had failed to make full disclosure.  However, in this case, when the transcript of the proceedings before his Honour is read as a whole, it is clear that many relevant issues remained unclarified as between the parties and it is further apparent that his Honour was making Herculean efforts to bring order to the procedural chaos that was presented to him.  In all of the circumstances, it is entirely understandable that his Honour did not resolve that issue or accord it particular significance in coming to his determination of the financial issues.  

9. It is to this point, namely the wife’s asserted failure to make full financial disclosure, that the husband’s application to adduce further evidence in the appeal is directed.  It was argued that the further evidence sought to be adduced, taken together with the evidence already before his Honour as to the wife’s apparent ability to fund her legal costs from a source of funds not identified in her evidence, would likely have caused his Honour to conclude that the wife had a source or sources of funds not disclosed and thus not make an order that required the payment of her legal costs.  This evidence was further called in aid in relation to the challenge to his Honour’s order for interim spousal maintenance.

10. The ability of the Full Court to receive further evidence on appeal is constrained.  In CDJ v VAJ (1998) 197 CLR 172, McHugh, Gummow and Callinan JJ said:

    109. One consideration in construing s 93A(2) is its remedial nature. Its principal purpose is to give to the Full Court a discretionary power to admit further evidence where that evidence, if accepted, would demonstrate that the order under appeal is erroneous. The power exists to facilitate the avoidance of errors which cannot be otherwise remedied by the application of the conventional appellate procedures. …

11. After considering the nature of the jurisdiction of the Full Court to hear appeals, their Honours said:

    111. … Nor can the availability of further evidence relevant to the issues in the appeal be treated as equivalent to a ground of appeal, proof of which prima facie entitles the appellant to a new trial. The power to admit the further evidence exists to serve the demands of justice.  Ordinarily, where it is alleged that the admission of new evidence requires a new trial, justice will not be served unless the Full Court is satisfied that the further evidence would have produced a different result if it had been available at the trial. Without that condition being satisfied, it could seldom, if ever, be in the interests of justice to deprive the respondent of the benefit of the orders made by the trial judge and put that person to the expense, inconvenience and worry of a new trial.

12. Further, at [140] the plurality said:

    140. The Full Court said…that the evidence of CB, “if accepted, could well lead to the opposite conclusion being reached about the wife’s appreciation of the need for counselling.” Accepting that is so, nevertheless, none of the evidence of these witnesses is such that it is likely to have resulted in the primary judge reaching a different conclusion. …

13. In this case, the facts asserted in the further evidence are not disputed, that is, it was accepted that the wife had put in place an arrangement to rent both the house in Suburb G and the farm in I Town and had received rental income from both and had not disclosed that she had received those funds. 

14. It was argued by the husband that this evidence would be relevant to the issues to be advanced on appeal and contended that its receipt by his Honour would have produced a different result.

15. Counsel for the wife argued that the Full Court should not have regard to the propounded further evidence, first because in this case, given the size of the asserted property of the parties, the amount of rent received is miniscule and would have had no impact on his Honour’s orders ultimately made.  Secondly it was asserted that the husband too had failed to disclose financial matters and thus it is not relevant or proper to merely consider the wife’s conduct.

16. While it is apparent that the amount of money received by the wife as rent is, in the financial scheme of this case, relatively minor, it is the fact of her failure to disclose rather than the amount received which is relevant to the issue sought to be supported by the adducing of this further evidence.

17. The second point is hardly persuasive.  Although counsel for the husband agreed that the wife had, from time to time, asserted that the husband had not made full financial disclosure, no particulars had ever been advanced, whereas in the case of the wife, the husband had attempted to demonstrate in particular aspects where the wife had failed to make proper disclosure. 

1. It was argued by the husband that the further evidence added forensic weight to the matters to which his Honour was taken in argument and which suggested that the wife had failed to disclose a source of funds by which her legal fees were paid, such that his Honour would not have come to the conclusion that the wife was unable to fund her own legal costs and would either not have made an order for interim spousal maintenance or would have made an order for a lesser sum. 

2. It is difficult to resist the argument that had his Honour had, in addition to the evidence of the wife about the source of the funds with which she paid her legal advisers, the further evidence of her actual failure to disclose the rent received on the properties, it is very likely that his Honour would have come to a different conclusion about the wife’s capacity to fund her own legal costs and her need for interim spousal maintenance.  The further evidence should be admitted on the appeal as a whole, concerning as it does the financial capacity of the wife to support herself and fund the litigation.

3. I find substance in this ground of appeal.

Ground 1

1. Ground 1 contends:

   1.Having determined to adopt the source of power pursuant to Section 117(2) to determine the first respondent’s application, and finding as he did that there was a controversy as to the applicant’s financial position absent a joint expert’s report (contemplated), His Honour erred in making orders as he did by:

   a.Failing to carry out any assessments of the past or future costs of the proceedings, particularly in circumstances where:

   i.There was justifiable criticism (and acceptance of same) of the expenditure of costs by the wife to-date;

   ii.The likelihood of the wife continuing to engage in conduct contrary to the rules of Court, thereby incurring further unnecessary costs at the expense of the husband;

   iii.His Honour failed to carry out an assessment of the necessity for the 2^nd, 3^rd and 4^th respondents to be joined in proceedings at this time;

   iv.His Honour failed to identify what orders were finally sought by the first respondent against the 2^nd, 3^rd and 4^th respondents in the suit, and whether the first respondent had an arguable case against them collectively.

   b.Making a finding of fact that the application is able to comply with the order as made (with an implied capacity as to the payment of the first respondent’s costs assessed between $680,000 and $770,000) together with his own costs assessed “at least” $300,000 plus the unknown costs of the 2^nd, 3^rd and 4^th respondents.

   c.Making a finding of fact that the applicant is able to influence the 2^nd respondent, [E] Pty Ltd, and “various corporations”.

2. It is uncontroversial that the respondent companies are represented separately to the husband in the proceedings, as they were on the appeal.  It was also uncontroversial and that as between the wife and E, there have been several interlocutory proceedings.

3. It was contended that his Honour, in proceeding to make the order for litigation funding under the rubric of s 117 of the Act, was obliged to give consideration to the matters contained within s 117(2A), and in this case, it was submitted that his Honour failed to give sufficient weight to the financial circumstances of the parties (s 117(2A)(a)) and to the conduct of the parties to the proceedings (s 117(2A)(c)).

4. As to the financial circumstances of the parties; it was submitted that

   
   

   his Honour failed to give sufficient weight to the assertion that the wife failed to make full financial disclosure.  This issue has already been considered when dealing with Ground 2.  Given the state of the evidence before him, it was open to his Honour to decline to make a finding that the wife had failed to make proper financial disclosure.

5. As to the conduct of the parties; it was further contended for the husband that the wife’s costs incurred to the date of the application were, as his Honour noted, “a very high level”. Indeed, despite having already expended about $800,000 on legal costs, at the time of the hearing before his Honour, no joint expert had been retained to analyse and report on the parties’ financial affairs, no balance sheet had been prepared and the matter was not ready for a financial conciliation conference.  Further, it was argued that the wife’s conduct had, of itself, been productive of significant and unnecessary legal costs. For example, the wife’s applications against E involved the commissioning of a financial report from an expert in Country KN, which had been sought to be admitted for use in the proceedings and rejected by the trial judge.  It was argued that

   
   

   his Honour could not repose much confidence in the wife’s assessment of future costs when considering of the impact on the husband of the proposed order.  Thus, it was argued that the potential impact on the husband of the costs order was likely to be far in excess of that anticipated in the wife’s assessment of future costs.

6. His Honour addressed this issue at [41] to [45] and, by reference to the transcript of the proceedings before his Honour, it could not possibly be suggested that he was unaware of the likelihood of further vast sums of money being expended on this matter before it was ready for trial. 

7. In respect of the first two aspects of this ground, the challenge devolves to the weight or importance placed by his Honour on the evidence before him.  The bar to appellate intervention in the assessment of the weight to be attributed to evidence is set high indeed.  In my view, the husband has not established that his Honour’s approach was “plainly wrong” (see Gronow & Gronow (1979) 144 CLR 513).

8. Finally, it was argued that although his Honour had been provided with an estimation of the wife’s anticipated costs and those of the husband, his Honour had no evidence of the anticipated costs of the company respondents to the proceedings nor did his Honour have any evidence of the wife’s proposed course against the company respondents. Thus it was argued that his Honour, not having that evidence, could not anticipate the effect of his order on the husband of requiring him to pay to the wife the amount equivalent to the other respondents’ legal fees and thus his finding that the husband was able to meet that costs order was made in error. 

9. There is considerable force in this argument.  In casting the order that the husband pay the wife’s cost by reference to the costs incurred by the independently represented company respondents, in the absence of evidence from the companies as to their estimated costs, his Honour could not have taken proper account of what impost that order would make on the husband.  Although his Honour found that the husband had managed to meet his legal fees and had been able to secure loans in the past, absent even a broad indication as to what costs might likely be spent by the three company respondents, his Honour’s assessment that the husband had the capacity to meet the proposed order miscarried.  Thus, in my view, this ground of appeal has been made out.

Ground 3

1. Ground 3 asserts:

   3. That His Honour erred in the formulation of the assets, liabilities and resources available to the [husband].

2. The thrust of the ground goes to his Honour’s findings in relation to E.

   
   

   His Honour said:

   82. [Q Pty Ltd] wholly owns [E Pty Ltd]. [E Pty Ltd]’s directors are [Mr ZK] and [Mr HH]. The husband had been a director and the former company secretary until 31 October 2010 when he resigned. These companies are parties in the substantive proceedings.

   83.[E Pty Ltd] owns subsidiary companies [GF] Pty Limited and [R] Pty Limited. It also has an interest in [PP] Pty Limited.

   84. The financial position of [E Pty Ltd] has changed significantly since separation. Whereas the financial report for the company for the financial year ending 30 June 2012 indicated that the company would be able to pay its debts when due and payable, the company is now in administration. As indicated above, the company owns shares and property in Australia.

   …

   96. The husband also has signatory rights in respect of accounts for his company [RR Partners] and [E] Pty Limited although the latter company is now in administration.

   97. It is impossible for the wife to test the husband’s assertions about his financial circumstances at this still early stage of the proceedings. But a number of matters are clear. The husband has conducted business apparently successfully over the entirety of the parties’ marriage. The husband was able to fund an apparently very affluent lifestyle for himself, the wife and their children during their marriage. The husband appears still to be able to enjoy some of the hallmarks of such a lifestyle, such as first class international travel. He is able to influence the directors of [E Pty Ltd] to continue to provide benefits for the wife and the children. On his own account he has been able to persuade various corporations as well as personal friends to extend his credit. As indicated, he has been able to pay his own legal costs.

3. It was argued that in making these findings, his Honour erred in considering that E could, in some way, financially assist the husband to meet the order for the wife’s litigation funding and for interim spousal maintenance.

4. In the husband’s financial statement, filed on 28 April 2014, at Note 56 to that affidavit it was said that E was in voluntary administration and that the National Australia Bank had given notice of default and was applying penalty interest rates.  In a later financial affidavit filed by the husband on

   
   

   22 August 2014, again at Note 56 to that affidavit, it is said that “[E] Pty Ltd is presently subject to a Deed of Company Arrangement (Administrator – [Mr GG])”. His Honour’s reasons at [84] accept that E was then in administration.   Further, there was no evidence before his Honour about the effect of the Deed of Arrangement on the company and its assets. 

5. It was therefore argued that his Honour ought to have found, as a result of the Deed of Arrangement, and there being no evidence before him about the effect of the Deed, that the financial position of E was unknown. 

6. Given that the affairs of the company were in the hands of an administrator,

   
   

   his Honour could not have concluded that the husband would be able to obtain financial assistance from E, whatever may have been the position in the past. In this regard, his Honour was in error to find that the husband could exercise some influence on E to provide funds to assist him in meeting either an order for litigation funding for the wife or for interim spouse maintenance and I find this challenge to his Honour’s orders made out.

7. Next, it was argued that his Honour was wrong in his assessment of the value of the husband’s loan account with E at [89].

8. His Honour said:

   89. The husband had a loan account in [E] Pty Limited with a value of approximately $2 500 000. The husband assigned his loan account to [S Company] and received an initial payment of $500 000. The husband had borrowed $75 000 from a business associate Mr [JJ] and this was repaid from the $500 000. There is a further
   $2 000 000 still to be paid to the husband subject to him repaying certain debt obligations. It was submitted that this represents a financial resource available to the husband.

9. It was contended that in fact, when this paragraph is considered together with [87], it demonstrates that his Honour “double counted” the financial resources available to the husband.

10. At [87] his Honour set out the husband’s property which included:

    3.Various investments            3,200,423

11. It was argued that the sum of $3,200,423 under the heading “various investments” included the husband’s loan account in E. Thus, when his Honour referred at [89] to the husband having assigned his loan account in E and having received $500,000 in part payment for the assignment, it was contended that his Honour was in fact double counting the loan account.  Further, it was said that if in [89] his Honour’s reference to a “further $2 million” to be paid to the husband was a reference to a separate payment which could be attached by an order, then his Honour is incorrect.  If his Honour did not regard the balance of the loan account, $2 million, as being additional to the investments to which he referred at [87], his Honour had to take into account that the husband’s net financial position was one of being in deficit of liabilities over assets of $900,000.

12. Thus it was argued that his Honour’s findings at [89] lead to the conclusion that he believed a further $2 million would be paid to the husband and that this is not correct. 

13. I do not accept that a reading of his Honour’s findings leads to the conclusion that his Honour mistook the sum total of the investments to which he referred in [87].

14. Given my conclusion that his Honour erred in concluding that the husband could influence the directors of E to secure financial support, I consider this ground made out.

Grounds 4 - 8

1. These grounds concern his Honour’s orders for interim spouse maintenance.

2. Ground 4 asserts that the primary judge failed to identify the source of funds from which the husband could pay the sum assessed; Ground 5 argues that while it was conceded that it was appropriate for his Honour to take a broad approach to the wife’s financial needs, his finding that an appropriate sum sufficient to meet those needs was $10,000 per month was erroneous; Ground 6 argues that his Honour erred in finding that the husband had the capacity to pay the amount ordered, given the evidence about the husband’s income as compared with his expenses; Ground 7 contends that his Honour failed to give reasons sufficient to understand the basis on which he found that the husband had the capacity to meet the orders; and Ground 8 contends that his Honour failed to give reasons for making a retrospective order for spousal maintenance.

3. The written submissions in support of these grounds are brief, the grounds themselves being sufficient to understand the point being argued.  In oral argument, counsel for the husband contended that if the Full Court admitted the further evidence on the appeal, it would demonstrate that his Honour’s finding that the wife was incapable of maintaining herself was unsafe.  Further it was argued that had the primary judge had that evidence he may not have made any order for spousal maintenance or may have made an order for a lesser amount.

4. It was further argued that because his Honour could not know the likely impact of the litigation funding order on the husband’s finances because there was no evidence of the likely legal costs to be incurred by the company respondents, it would per force be difficult for his Honour to confidently conclude that the husband could pay the ordered spousal maintenance in addition to the litigation funding order.

5. As to the impact of the wife’s receipt of the rental income on her claimed needs, the wife’s counsel conceded that it was a factor which could have been, but was not necessarily, material to his Honour’s consideration.

6. Because his Honour was not in possession of this clearly relevant information, his assessment of the wife’s capacity to provide for her own needs was rendered unsafe.  It was the wife who bore the onus of proof on the application and she patently failed to put before his Honour all of the information relevant to his consideration. In those circumstances it was likely that his Honour would have come to a different conclusion had he been in possession of this information.  This evidence, together with the matters to which his Honour was taken during argument about the source of the funds to meet wife’s legal fees, would indeed have caused him to make a different order.

7. In my view, this challenge to his Honour’s order for interim spousal maintenance has been made out.

Conclusion

1. The appeal against the litigation funding orders and as to the spousal maintenance orders has been made out.

2. The order sought by the husband in the event that the appeal was successful was that the orders made by his Honour be set aside.  The Full Court was not asked to re-exercise the discretion thus the matter must be remitted for rehearing.  As to whether the matter ought to return to his Honour, we were informed that consequent to his Honour’s findings at [97] that the husband “… is able to influence the directors of [E Pty Ltd] to continue to provide benefits for the wife and children”, his Honour was asked to recuse himself from further hearing the matter.  He refused.  No appeal has been brought against

   
   

   his Honour’s refusal and I see no reason why the matter should not return to him for rehearing if it is convenient to his Honour.

Costs

1. As is customary, we sought submissions from the parties on the issue of the costs of the appeal.  Counsel for the husband submitted that if the appeal succeeded on a point of law and it would not otherwise be appropriate to make an order for costs as between the parties, he sought a costs certificate.  If the appeal succeeded on a point other than a point of law, then costs against the wife were sought.

2. The wife opposed any order for costs but joined in the application for a costs certificate in the event that the appeal succeeded and the relevant criteria for the issue of a costs certificate were met.

3. In this case, the appeal has succeeded on two bases, the first being in relation to the unknown impost on the husband of the order requiring him to pay to the wife a sum equivalent to the costs spent by the other respondents, and secondly because of the wife’s failure to disclose the receipt of income by her. 

4. Although in the first respect the appeal has succeeded on a question of law, it is not a case in which an order for a costs certificate is appropriate.  Nor is it a case in which there should be a departure from the principle that each party should bear his or her own costs and I would thus make no order as to costs.

Kent J

1. For the reasons given by Finn J with which I respectfully agree, I agree with the orders proposed by each of Finn J and Ainslie-Wallace J.

I certify that the preceding one hundred and nineteen (119) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Finn, Ainslie-Wallace & Kent JJ) delivered on 17 November 2015.

Associate: 

Date:  17 November 2015