Kouvades and Kouvades & Anor

[2016] FamCA 133

FAMILY COURT OF AUSTRALIA

KOUVADES & KOUVADES AND ANOR [2016] FamCA 133

FAMILY LAW – Litigation funding. Whether the court should order that the payment be made and characterised at trial or designate the power being exercised now. Order made that the litigation funding occur using the s 117 power.

Family Law Act 1975 (Cth)

Strahan and Strahan (interim property orders) (2011) FLC 93-466

APPLICANT: Ms Kouvades

RESPONDENT: Mr Kouvades

INTERVENOR: Mr B Kouvades

FILE NUMBER: MLC 10329 of 2015

DATE DELIVERED: 3 March 2016

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 1 March 2016

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms McCreadie

SOLICITOR FOR THE APPLICANT: Lander & Rogers

COUNSEL FOR THE RESPONDENT: Mr Mellas

SOLICITOR FOR THE RESPONDENT: Kenna Teasdale Lawyers

COUNSEL FOR THE INTERVENOR: Ms Colla

SOLICITOR FOR THE INTERVENOR: Septimus Jones & Lee

Orders

1. That the net proceeds after the payments referred to in the orders of 1 March 2016 be provided to the wife to be paid out, at her designation, to her lawyers as litigation funding.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 10329  of 2015

Ms Kouvades

Applicant

And

Mr Kouvades

Respondent

Mr B Kouvades
Intervenor

REASONS FOR JUDGMENT

1. These are the reasons for the order set out at the commencement.

2. All parties agree that the payment be made to the wife.  In my view it should be treated as litigation funding. The issue for determination is not whether the payment should be made but what it is to be called; that brings into question the power of the court to make orders.

3. The husband and wife are litigating over both property and parenting issues. Because some of the legal property interests of the husband (known as the investment properties) are held mostly in a joint arrangement with his brother, that person was joined as a party by the wife. The brother has not sought to be removed from the proceedings.

4. The extant proceedings relating to parenting are apparently contentious and interim orders are in place made by the Senior Registrar. I have made an order that those proceedings be listed for trial as soon as practicable.

5. The parties have limited property interests, the value of which is yet to be clarified. On any view however, there are disputes about what is to be divided, who owns what legal interests and what entitlement the wife might have.

6. As an example (drawn from the parties’ respective documents), the wife has not pleaded with precision the orders that she is seeking. That said, her counsel said that she had estimated there was about $1.7 million in equity for division. Of that, the parties’ home in which the wife lives is expected to be worth around $600,000. Against that home, there is a mortgage and the debt thereon is over $300,000. Such is the current state of financial affairs that the mortgagee is owed arrears of mortgage of around $7,000. The orders I made by consent of the parties on 1 March 2016 will have the effect of discharging those arrears but that will have little impact on the ongoing liability to the mortgagee. The nub of the problem is that the wife is apparently proposing to seek the home unencumbered.

7. The husband’s response pleaded that the home should be sold and the wife have 35 per cent of the net proceeds. Mathematically therefore, the wife’s underlying entitlement to cash would be about $100,000 (on the husband’s scenario). There would be no prospect of the wife obtaining the unencumbered home.

8. To compound things, the husband’s brother is now embroiled in the dispute and (it would seem) may have to assist the husband to borrow money (if the husband’s position is not right) and/or participate in the sale of real property to meet whatever entitlement the wife might ultimately have.

9. The application in a case filed by the wife on 26 February 2016 was before the Court as were a number of paragraphs from the interim orders sought within the wife’s initiating application. Those latter orders were not pursued. The application in a case sought a variety of orders which included a payment to the wife of $200,000. Sensibly, based on the fixed positions of the parties as just described, that did not proceed. That is not to say it will not be brought again if the wife has more evidence than at present. The evidentiary problem associated with the partial property application was also curious because disclosure orders were made in December 2015 and (it would seem based on a concession of the husband’s counsel) they have not been complied with.

10. When pressed, the wife’s counsel indicated that the wife did not know why compliance had not occurred. When pressed, counsel for the husband said that his client had some difficulty getting the documents (apparently from his bank) and agreement had been reached that he would now solve that. Why that was necessary remains a mystery. The disclosure obligation on all parties is absolute. To cure her problem, the wife sought an order that if the husband did not meet the obligation, she should have the right to issue subpoenae and claim the costs (on a self-executing and indemnity basis) against the husband. That cost controversy has been covered by a simple adjournment giving the parties leave to discontinue if obligations are met. If they are not, formal orders for the issue of subpoenae can be considered including issue of costs. As I indicated it would be hard to see a situation where costs would not follow that event but it may be that in the unusual circumstances of this case, the husband has trouble with his bank. If that is the case, presumably, the wife will have trouble with the same bank in respect of seeking the same information under subpoena.

11. When the matter came before me on 1 March, the parties had all agreed that a parcel of shares would be sold and the expected sum was about $40,000. They had decided to pay the costs of the sale, undertake real property valuations, set aside a sum for a member of senior counsel to undertake a mediation and that left a modest sum which (after discussion) had been agreed would go to the wife. The mediation concept has fallen by the wayside not for any other reason than that, there is such a small amount involved here, the parties cannot currently meet their mortgage commitments, they have a pending dispute over parenting and are paying modest private school fees. These parties are financially haemorrhaging.

12. Eventually, agreement was reached that the wife would receive the balance after the costs of sale were paid and an amount was set aside for valuation expenses. That sum may be somewhere between $14,000 and $20,000.

13. Counsel for the wife submitted that the payment should be characterised at trial. Just what power enables that order to be made was not stated. Counsel for the husband wanted it deemed a partial property settlement and it would seem that counsel for the brother joined with the husband.

14. In a case such as this, it is not appropriate to leave the issue hanging when the power of the court is in question. Nor is it appropriate, as one counsel submitted, the matter should be decided on a pragmatic basis. That can be done between the parties on a consensual basis but that did not occur despite the minimal amount involved. At one stage, there was a suggestion that the spousal maintenance power could be used because the wife could not make ends meet. There were evidentiary problems here for that to occur.

15. In respect of legal costs, the court had the benefit of the affidavit of the wife’s lawyer indicating that her costs were currently in excess of $55,000. Whilst there was a guarantee in place provided by the wife’s mother, the account was not being paid. The husband has borrowed from his extended family and although no specific mention was made of legal fees, his counsel pointed to the current family debt of $44,000 which was said to represent that.

16. I turn then to the only issue that requires determination.

17. In Strahan and Strahan (interim property orders) (2011) FLC 93-466, Boland and O’Ryan JJ recognised that the need for a party to seek funds to enable the payment of legal costs to enable participation in proceedings had been recognised for many years. That was particularly so in situations where one party controlled almost exclusively, the bulk of the assets as well as funds. In that situation, orders of the Court often enabled the disadvantaged party to present their case. That is how the wife put her position here. She relied upon her solicitor’s affidavit and her inability to meet her existing daily obligations. Whilst initially, the wife said she would seek spousal maintenance to justify the release of the funds, the expenses she claimed included the children. Here, she alleged that the children’s expenses could be included because no child support was paid. That appears to result from the husband’s taxable income. Against that, the husband (whilst earning a modest wage) has the benefit of the rents from the investment properties against which there are mortgage obligations. Ironically, the retention of properties which have been in the hands of the husband and his brother for some years take priority over the payment of child support. In my view, it is not necessary to contemplate the spousal maintenance power here for the reasons that follow.

18. There is clearly a distinction between the Court making an order for the participation in the proceedings and one which provides them with money which is effectively theirs.  In Strahan, Boland and O’Ryan JJ went on to say that another source of jurisdiction was s 117(2) of the Act where the Court could make such order as it considered just, provided there were justifying circumstances.  It might be preferable here to contemplate (as the husband sought) that the money be paid as a part property settlement so that it could be factored in at final trial. The wife disagreed. I agree with the wife that it would be difficult here to ask the Court to exercise the property power because of the paucity of evidence, the difficulty in deciphering the parameters of the dispute for future “clawing back” possibilities as well as deciding whether it would be just and equitable to make any order at all.

19. The issue here is that the wife cannot meet her legal fees currently yet the husband has been able to do so. That is a telling factor.

20. If an application is founded on s 117, the Court has to be satisfied that it is likely that there will be relief provided in the long run. Even on the husband’s case, I am satisfied here that the wife will receive a property settlement albeit it may not be what she desires.

21. To exercise the s 117 power, the Court has to be satisfied that the circumstances justify a departure from the principle that each party pays their own costs. The wife is unable to do so here. The fact that there is a guarantee in place does not mean any more than ultimately, the wife may have to fall back on her mother. The husband is in a stronger position financially than the wife. On his argument, if successful, he will walk away with something in the vicinity of at least double that of the wife. The husband has the benefit of the rents. He also has the benefit of a generous family who (although they are apparently to be repaid) have lent him $44,000. The wife has no such equivalent benefit and she has the obligations of supporting the children.

22. The affidavit material indicates that the wife cannot pay her legal fees. The orders I propose to make do not solve that problem. The order provides only for a modest payment from the sale of the shares towards those costs. In my view, when one considers the issues in s 117(2A) of the act, the wife is not as financially strong as the husband. Section 117(2A) permits the Court to take into account any other relevant consideration. Here, it is relevant that the balance of the shares need to be disposed of. The husband had no application before the Court for that to happen. The wife’s specific application was for the funds to be applied in such a way as would enable her to continue to be represented in circumstances where both the husband and his brother have that advantage. This is a case also where there are technical issues of ownership as well as questions of the assessment of ss 79 and 75 of the Act.  The wife should be on the same or at least similar footing with respect to legal representation.

23. The order should be made that the balance of the proceeds of the shares be applied by the wife as litigation funding towards her outstanding legal fees.

I certify that the preceding Twenty Three (23) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 3 March 2016.

Associate: 

Date:  3 March 2016