Lao & Zeng
[2021] FedCFamC1A 17
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Lao & Zeng [2021] FedCFamC1A 17
Appeal from: Zeng & Jing and Anor [2020] FamCA 507 Appeal number(s): SOA 60 of 2020 File number(s): MLC 5795 of 2018 Judgment of: AINSLIE-WALLACE, RYAN & AUSTIN JJ Date of judgment: 23 September 2021 Catchwords: FAMILY LAW – APPEAL – LEAVE TO APPEAL – LITIGATION FUNDING – Appeal against a litigation funding order made against third party pursuant to s 117(2) of the Act – Litigation funding order made in relation to the first respondent’s application for property settlement and to set aside transactions – Third party involved in impugned transactions – Causal connection between the appellant’s actions and the costs the first respondent would incur – Assessment of case for final relief – Irreversibility – Leave to appeal granted – Appeal dismissed. Legislation: Family Law Act 1975 (Cth) Pt VIII, ss 78, 79, 80, 85A, 106B, 117 Cases cited: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39
Australian Coal and Shale Employees' Federation v The Commonwealth (1953) 94 CLR 621; [1953] HCA 25
Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353; [1956] HCA 28
Chester v Chester (1995) FLC 92-612; [1995] FamCA 26
Gronow v Gronow (1979) 144 CLR 513; [1979] HCA 63
Hall v Hall (2016) 257 CLR 490; [2016] HCA 23
House v The King (1936) 55 CLR 499; [1936] HCA 40
Kendling v Kendling (2008) 39 Fam LR 404; [2008] FamCAFC 70
Kennon v Spry (2008) 238 CLR 366; [2008] HCA 56
Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28
Kyriakos & Kyriakos (2013) FLC 93-528; [2013] FamCAFC 22
McAlpin and McAlpin (1993) FLC 92-411; [1993] FamCA 71
Medlow & Medlow (2016) FLC 93-692; [2016] FamCAFC 34
Mullins and Ors & Mullins and Ors [2017] FamCA 786
Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25
Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
Re JJT; Ex Parte Victoria Legal Aid (1998) 195 CLR 184; [1998] HCA 44
Salvage & Fosse (2020) FLC 93-966; [2020] FamCAFC 144
S v S (1997) FLC 92-762; [1997] FamCA 19
Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466; [2009] FamCAFC 166
Zeng & Jing and Anor [2018] FamCA 423
Zschokke and Zschokke (1996) FLC 92-693; [1996] FamCA 79
Number of paragraphs: 128 Date of hearing: 25 November 2020 Place: Heard in Melbourne, delivered in Sydney Counsel for the Appellant: Mr Strum SC with Dr Matta Solicitor for the Appellant: Sayer Jones Counsel for the First Respondent: Ms Stoikovska SC with Dr Parker Solicitor for the First Respondent: Kennedy Partners The Second Respondent: Did not participate in the appeal Solicitor for the Second Respondent: Carew Counsel Pty Ltd ORDERS
SOA 60 of 2020
MLC 5795 of 2018FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS LAO
Appellant
AND: MR ZENG
First Respondent
MS JING
Second Respondent
ORDER MADE BY:
AINSLIE-WALLACE, RYAN & AUSTIN JJ
ORDERS DATED 25 NOVEMBER 2020
BY CONSENT, THE COURT ORDERS THAT:1.Orders 1(b), 1(c), 2 and 3 of the orders made by a judge of the Family Court on 25 June 2020 are stayed until the determination of this appeal.
2.Judgment is reserved.
ORDERS DATED 23 SEPTEMBER 2021
THE COURT ORDERS THAT:1.The appellant’s application for leave to appeal be granted.
2.The appeal be dismissed.
3.The appellant pays the first respondent’s costs of the appeal in the amount of $26,557.65 within 28 days.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Lao & Zeng has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
AINSLIE-WALLACE J
Having had the advantage of reading the reasons of Ryan J, I agree generally with the reasons her Honour has given and I agree that leave to appeal should be granted but that the appeal should be dismissed.
RYAN J
Introduction
By Amended Notice of Appeal filed on 4 November 2020, Ms Lao (“the appellant”) seeks leave to appeal against a litigation funding order made pursuant to s 117(2) of the Family Law Act 1975 (Cth) (“the Act”) in favour of Mr Zeng (“the husband”) on 25 June 2020. The husband is married to Ms Jing (“the wife”). The appellant is the wife’s mother. Between them, the parties conducted commercial ventures, including property and retail business development in Australia. Each of the spouse parties was heavily involved in the Australian ventures and it is noteworthy that the husband played a substantial role in the acquisition and development of the first property (“J Street”) which may prove to be the springboard for the wealth that followed. The wife, who is an accountant, owned or controlled most of the entities through which the ventures were conducted. According to the appellant she invested in the vicinity of $5.5 million in the ventures. These advances were recorded in company and trust records as loans and not capital contributions and reflect profit from the Australian ventures and funds borrowed from Australian banks (Appellant’s affidavit filed 22 July 2019, paragraphs 13, 17, 58, 59, 62, 64 and 72).
As the spouse parties’ relationship fractured and, coincidentally with their separation in May– June 2018, without informing the husband, the appellant and the wife undertook a series of transactions which had the effect of the wife relinquishing control and ownership of most of the parties’ private corporate entities in favour of the appellant and her and hence the husband being removed as beneficiaries of the family trusts. The wife also withdrew in excess of $1 million from various mortgage and bank accounts. These transactions had a significant effect on the wife’s and spouse parties’ property interests.
For example, from establishment until when the impugned transactions took place, the wife was the sole director and shareholder in E Pty Ltd. As corporate trustee of the E Family Trust, E Pty Ltd owns a property at L Street, Suburb M (“Suburb M”) (acquired in 2013 for $2.5 million and funded by a loan from GG Bank). By reason of the impugned transactions, the appellant became the sole director and shareholder of E Pty Ltd.
Thus, the husband commenced proceedings against the wife under Pt VIII of the Act for a property settlement and asset preservation orders (now made). As part of his claim for a property settlement, in accordance with s 106B of the Act, the husband seeks to set aside what I will call the “impugned transactions”. His application is opposed by the other parties.
At the outset it is important to understand that in the substantive proceedings the appellant also seeks orders and declarations under the Act. By her Amended Response filed on 28 May 2018, she seeks declarations pursuant to s 78 of the Act that the wife holds a property at R Street, Suburb S and her 20 per cent interest in a property at G Street, Suburb B (“G Street”), on trust for the appellant. The appellant also seeks that the husband pay her $250,000 he received by way of partial property settlement pursuant to consent orders made on 31 July 2018 (from property in the wife’s name) and reimburse the appellant for $34,650 which the appellant said he removed from her accounts after the spouse parties’ separated. As will be discussed under Ground 1, the appellant now seeks $730,000 from the husband (plus costs).
More will be said about the impugned transactions, but the point should be made now that the appellant’s contention that she is a disinterested third party was properly rejected. The submission that her position should be distinguished from that of the parent in Kyriakos & Kyriakos (2013) FLC 93-528 (“Kyriakos”) who warehoused his son’s property and against whom a litigation funding order was made pursuant to s 117(2) should also be rejected.
With the wife and the appellant mounting a case that the husband should receive no more than 30 per cent of the spouse parties’ interest in a residential property in City E property in China (“the City E property”), the property proceedings became even more complex and expensive. Thus, by his Amended Application in a Case filed on 8 July 2019, the husband sought various interlocutory orders, including against the wife and/or the appellant, requiring them to pay him $350,000 to enable him to fund his legal expenses. The wife and the appellant opposed the application and the wife sought orders for the sale of the City E property and that $600,000 of the sale proceeds be distributed evenly to the spouse parties to meet their respective legal expenses. Irrespective of the outcome of the application, the wife had arrangements in place with the appellant for the appellant to pay her legal expenses, albeit by way of a loan.
The primary judge was not satisfied that the sale of the City E property or it being used as security for borrowings was a viable option. The wife does not appeal from the decision. Indeed the wife did not participate in this hearing and it is inferred that she is content to abide the outcome.
On the other hand, the primary judge was satisfied that the appellant and the wife are able to meet their costs of litigation and that a preliminary assessment of the evidence was “not consistent with the [spouse parties] having little or no beneficial interest in the portfolio of [Australian] assets developed over 9 years or more that is now controlled by [the appellant]” [202]. Furthermore, the fact that the appellant lived abroad, had no knowledge of Australian trust and company structures and does not read or speak English, indicated that the appellant had not played a significant part “in the acquisition and development of the relevant assets, other than by way of providing finance” [205]. Having determined that the husband had at least an arguable case for substantive relief which deserves to be heard (a reference to Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 (“Strahan”) at [141]), the primary judge continued and said:
212.The far more practicable course, in all the circumstances, and the fairer one, would be for the [appellant] to be ordered to make funds available to the husband, on a gradual and staged basis, from the pool comprising the disputed assets of the parties’ Australian business. If, in the final analysis, the position is reached that the husband and the wife had a beneficial interest in none of the assets which have effectively been transferred by the wife to the [appellant], then a costs order can be made on the basis of the husband’s interests in the City E property and any other assets of the marriage which are proved to exist which would require repayment by the husband to the [appellant] of the amount of the funding order from his share of the City E property and any other assets of the marriage.
The order was made against the appellant in the amount sought which is to be paid in three tranches. The first tranche of $100,000 has been paid. Probably as a reflection of the complexity of the issues raised before us, the parties agreed that payment of the balance would be stayed pending our determination.
It is common ground that because the order sought to be appealed is interlocutory, leave to appeal is required. The test for a grant of leave is conjunctive and an appellant must establish that the decision is attended by sufficient doubt to warrant it being reconsidered by the Full Court and that substantial injustice would result if leave were refused, supposing the decision to be wrong (Medlow & Medlow (2016) FLC 93-692). The husband contends that neither element is satisfied and the application for leave to appeal should be refused. In accordance with this Court’s usual approach, the application for leave to appeal was heard with the related appeal. The parties agree if leave is given and the appeal is allowed, we should re-exercise having regard to the material contained in the appeal book.
Notwithstanding that it will be my ultimate conclusion that the appeal should be dismissed, given the important issues raised in the proposed appeal, it is appropriate to grant leave to appeal so that they can be addressed.
Background facts
The husband and the wife were both born in China. They commenced a relationship in 2006 and by 2009 the husband had joined the wife in Australia. The wife is an Australian citizen and the husband is an Australian permanent resident. The spouse parties have two children, a daughter who lives with the husband’s parents in China and a son who lives with the wife. The appellant generally lives in China and in 2012 became an Australian permanent resident.
The spouse parties married in late 2010 and separated in May–June 2018.
According to the wife, at about when the spouse parties married, there was a family meeting with her parents to discuss investment opportunities in Australia. The gist of this meeting is said to be that it was agreed that the wife’s father would fund investments in Australia, the appellant would control the family fund and own the investments and the spouse parties would be responsible for day to day operations. The husband disputes that there was an agreement in these terms and as the impugned transactions reveal, the structures established for the Australian ventures gave the wife ownership or control of most of the Australian property and are more consistent with what the husband said the parties agreed than the case advanced by the other parties. Even though the appellant now seeks to challenge the accounting treatment of advances made by her, the accounting approach taken is more consistent with what the husband said the parties agreed than the case made by the appellant and the wife.
According to the appellant and the wife (but not the husband), on 25 November 2015, the parties and the appellant’s husband entered into a further agreement in relation to the Australian investments. Consistent with the earlier agreement, the appellant was to manage the fund and the spouse parties were to manage the Australian investments.
The primary judge said of this agreement:
50.Now is not the occasion for an analysis of the terms of this purported agreement, however it is noteworthy that it appears to be implicit in the agreement that:
a)the husband and the wife have “run” the Australian business of the parties to the agreement for 5 years;
b)the “business” (a term which appears not to be defined) “is now in reasonably good shape”;
c)the husband and the wife have some sort of liability to pay the [appellant] and her husband “AUD$3 million after tax”;
d)once this has been done the husband and the wife on the one hand, and the [appellant] and her husband on the other, “shall split the net income all Australian operations and rents with 50% to each party[,] income from the [O Town retail business to be] agreed separately”; and
e)if the development of the O Town retail business proceeds, the income from it shall not be distributed and only be invested in fixed assets, with the net proceeds being distributed with 50 per cent to each party.
(As per the original)
As will become apparent, the parties have been involved in the acquisition of a number of properties of significant value. All Australian properties were acquired after the parties married and after the husband moved to Australia to join the wife. As well as the properties identified, other property was acquired and sold, for example, J Street, Suburb K which was acquired in April 2011 for $2.5 million, developed with the husband’s significant involvement [40] and sold through a series of transactions in 2015–2016 for $4.5 million. It is not necessary to set out every aspect of the Australian operations and what follows is sufficient to explain the key components.
On 30 September 2010, the Jing Family Trust was established with the wife being its appointor and trustee. As part of the impugned transactions the wife appointed the appellant as appointor. At establishment, the appellant, the wife and Mr Jing (who is the wife’s father) were corpus beneficiaries. Discretionary beneficiaries include corpus beneficiaries and related beneficiaries as defined under the trust deed. It is tolerably clear that for so long as the wife was a corpus beneficiary, the husband came within the class of related beneficiaries. As such, at least in 2016 he received distributions from this trust. Part of the impugned transactions included an amendment to the trust which removed the wife as a corpus beneficiary. Notwithstanding explanations from the appellant and the wife that the transactions were not designed to adversely affect the husband’s property interests there is an obvious pattern to this effect. The same observations are made in relation to changes to the other trusts discussed below.
In 2011, the wife appointed D Pty Ltd to replace her as trustee of the Jing Family Trust. D Pty Ltd was registered on 19 May 2011 and but for a period of five months in mid- 2012, from establishment until 28 May 2018, the wife was its sole director. Throughout that entire period the wife was its sole shareholder. By reason of the impugned transactions, the appellant became the sole director and shareholder of D Pty Ltd. D Ltd as trustee of the Jing Family Trust is the registered proprietor of DD Street, Suburb B (the spouse parties’ home), owns 80 per cent of the shares in F2 Pty Ltd and 68 of the 100 issued shares in BB Pty Ltd.
BB Pty Ltd was registered in February 2018. The wife is its sole director. This company owns AA Street, BB Town.
E Pty Ltd was registered on 11 July 2013 and from establishment until the impugned transactions, the wife was its sole director and shareholder. As has already been mentioned, E Pty Ltd owns a property at L Street, Suburb M. One of the effects of the impugned transactions is that the appellant now receives the rental income from L Street, Suburb M circa $330,000 per annum.
The E Family Trust was established on 12 July 2013 with E Pty Ltd its appointor. The spouse parties, the appellant and the appellant’s husband were corpus beneficiaries. The class of discretionary beneficiaries includes the corpus beneficiaries and “the related beneficiaries”. Part of the impugned transactions included an amendment to the trust which removed the husband from the class of corpus beneficiaries.
F2 Pty Ltd was registered on 19 May 2011 with the wife (including through D Pty Ltd) holding 85 of the 165 issued shares. As part of the impugned transactions, the appellant became its sole director and by reason of the changes made to D Pty Ltd, the sole shareholder. F2 Pty Ltd owns the leasehold at P Street, Suburb Q.
T Pty Ltd was registered on 25 May 2010. The wife relinquished her directorship long before the parties separated. The appellant is the sole director and the wife is the sole shareholder. T Pty Ltd is the corporate trustee of the S Family Trust and the registered proprietor of R Street, Suburb S. S Family Trust was established on 22 December 2017 with the wife its appointor and these parties and the spouse parties’ children its corpus beneficiaries. T Pty Ltd is its sole specified beneficiary.
F Pty Ltd was registered on 11 July 2013 with the wife as its sole director and shareholder. F Pty Ltd owns a retail business at N Street, O Town, various luxury cars and a not yet completed contract to acquire U Street, Suburb V. By reason of the impugned transactions, the appellant was made its sole director and shareholder.
The retail business at N Street, O Town, was acquired in late 2015 for $330,000 together with a 30 year lease for the use of the freehold. Substantial improvements were made and the business was sold in November 2017 for $330,000 with the new owner taking a 15 year sub-lease from F2 Pty Ltd at an annual rent of $250,000 (plus GST) [23(d)]. A further sub-lease produces an annual rent of $70,000 per annum. It is uncontentious that the spouse parties developed this property, which included improvements that cost some $1.3 million. Although the source of those funds is not entirely clear, it would appear to be by arrangements made with the Jing Family Trust [43]. Again, the effect of the impugned transactions is that the rental income is no longer received by the wife and now goes to appellant.
In 2016 or 2017, F Pty Ltd exchanged contracts to purchase U Street, Suburb V for a purchase price of $5.8 million which the parties intended to subdivide. Settlement of the sale was to take place after certain road works were complete. The husband’s evidence was that shortly before the spouse parties separated, he received an offer to purchase this property at $7.7 million. According to the appellant, at the time of hearing, she was looking for a third party to take over settlement. Even if it is established that the appellant advanced the $250,000 deposit (by a loan to F Pty Ltd) it is uncontentious that the husband played a significant role in this transaction.
Two other properties should be mentioned. The first is G Street which was purchased in 2016 for $3.9 million. The appellant and the wife are its registered proprietors as tenants in common in relation to which the wife has a 20 per cent interest. It is uncontroversial that the appellant and the wife raised $2.4 million by a bank loan secured against the property and the balance of the purchase price was made up of funds advanced by D Pty Ltd. According to the husband, the appellant’s interest in this property reflects the parties’ agreement that this would offset the appellant having agreed to discharge a loan of $1.8 million which the spouse parties (through D Pty Ltd) borrowed from a friend for the first of the Australian ventures (J Street, Suburb K) [23(i)]. There is no dispute that $1.8 million had been borrowed from a third party which the appellant, in some guise or another, repaid. The appellant contends that the original loan was made by a friend of hers. The appellant and the wife contend that the wife holds her interest in this property on trust for the appellant for reasons unrelated to the $1.8 million, namely that the incoming mortgagee required it. Email exchanges between the wife and the incoming mortgagee show that the bank required that title to the property was registered in the name of the trust or that the wife was registered along with the appellant. The bank would not make the loan if the appellant was the sole registered proprietor (Wife’s affidavit filed 21 June 2019, Annexure BJ-1). It is inferred that the wife was liable to the mortgagee in some fashion. The two positions are not mutually exclusive and at this stage the controversy cannot be resolved.
The appellant and the wife signed an agreement on 10 February 2017 to the effect that when G Street was sold the wife would deposit her after tax share of the proceeds of sale into the Jing Family Trust. How this gave the appellant a beneficial interest in the wife’s 20 per cent share was not explained.
On 8 October 2017, the appellant and the wife entered into a contract for the sale of G Street for $5.65 million with settlement to take place in November 2018. The purchaser released the $565,500 deposit which the spouse parties used to exchange contracts to purchase property at Suburb FF and Suburb Z. According to the appellant she knew nothing of these transactions which caused disharmony between her and her husband on the one hand and the spouse parties on the other. That there was disharmony can be accepted. However, when the G Street purchaser was unable to complete the purchase this meant that the Suburb FF and Suburb Z transactions could not be completed and the deposit for Suburb FF was forfeited. A third party took over the Suburb Z contract and the deposit of $106,000 was returned and retained by the husband. In the meantime, the parties agreed that from the wife’s share of the delayed G Street sale the husband was to be paid $144,000 (Order 2 made on 31 July 2018) which he intended to put towards his legal expenses. However, with settlement delayed he had not received the amount due and he applied to be appointed trustee for sale so as to ensure completion. His application was refused.
According to the appellant and the wife, notwithstanding the 10 February 2017 agreement, they now agreed that because of the failed Suburb FF transaction, the appellant would receive the wife’s share of the G Street proceeds of sale.
The other property is the spouse parties’ home which was purchased by D Pty Ltd in 2012 as trustee of the Jing Family Trust. The home was demolished and rebuilt and it is common ground that by agreement between the parties, the spouse parties used the redraw facility on the mortgage (raised by D Pty Ltd) for their personal expenditure. Furthermore, the spouse parties did not pay rent and, it would appear, mortgage repayments were paid by D Pty Ltd. At separation, the amount outstanding on the mortgage was $446,819. Post- separation, the wife drew down on the mortgage so that at the date of hearing, approximately $1 million was outstanding [64(a)].
On 24 April 2018, the appellant instructed her Australian accountant, who had advised her for about 10 years and managed her business investments, to ensure that the Australian trust and company structures accorded with the purported 2015 agreement. They did not and thus, with the wife’s assistance, over the next few months the impugned transactions and, it would appear, changes to the company and trust financial records were undertaken ostensibly on the advice of the accountant.
In the weeks that followed and in addition to the drawdowns made against the mortgage on the spouse parties’ home, the wife withdrew $627,000 from F Pty Ltd’s accounts.
The husband left the family home on 2 June 2018. By then he had commenced proceedings for property settlement and his applications came before the Court on 6 June 2018 and 31 July 2018. On the first date, Cronin J considered an application by the husband to set aside the impugned transactions. His Honour considered the application to be premature and that he was not in a position “to make a finding that the dispositions were made to defeat an existing or anticipated order or indeed irrespective of that intention were likely to defeat any such order. I do not know the extent of the parties’ wealth nor indeed the foundation for the [appellant’s] claim” (Zeng & Jing and Anor [2018] FamCA 423 at [35]). It was understood that a further application could be made when a clearer picture of the parties’ complex financial arrangements was available.
The husband’s evidence as to the assets of the marriage when the spouse parties separated is set out in detail at [24] and [25] of the primary judge’s reasons. The result of the impugned transactions in relation to the spouse parties’ property is set out at [32] and [35]. In the interests of not making these reasons longer than they need to be it is sufficient to record that on the husband’s case, prior to the impugned transactions the spouse parties’ property for the purposes of s 79 of the Act was worth much more than as presently stands.
Section 117 of the Act
Section 117 relevantly provides:
(1)Subject to subsection (2), subsections 45A(6) and 70NFB(1) and sections 117AA and 117AC, each party to proceedings under this Act shall bear his or her own costs.
(2) 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), (5) and (6) 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.
(2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a) the financial circumstances of each of the parties to the proceedings;
(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g)such other matters as the court considers relevant.
…
The Grounds of Appeal
Before the challenges raised against the orders are discussed it is useful to recall that orders made to enable a party to meet anticipated legal expenses in family law financial proceedings are reasonably common and may be made under various heads of power; including pursuant to the property settlement, spouse maintenance and costs powers. Different considerations apply to each and when analysing the authorities it is important that the principles that apply in one setting are not misapplied to a different setting (Zschokke and Zschokke (1996) FLC 92-693 (“Zschokke”)). The primary judge understood this and although the principles which apply in other settings were discussed, the decision was made by reference to s 117 and it is to that issue that these reasons pertain.
It is accepted by the appellant, as it must be, that s 117 of the Act empowers the Court to make orders “as to costs” and is of sufficient breadth to empower the making of the order sought against the appellant (Re JJT; Ex Parte Victoria Legal Aid (1998) 195 CLR 184). It is also uncontroversial that more than one order may be made to fund the litigation expenses of a party and such orders may be made under different heads of power (Kendlingv Kendling (2008) 39 Fam LR 404; Strahan at [85]).
The primary judge understood that the general rule enunciated by s 117(1) that each party should bear his or her own costs is not paramount to s 117(2) and that the former will yield to the later where there are circumstances that justify an order as to costs (Penfold v Penfold (1980) 144 CLR 311 at 315). As the primary judge said, the question to be answered is whether in all the circumstances the costs order is just [197] (Salvage & Fosse (2020) FLC 93-966 at [14] (“Salvage & Fosse”)). When considering whether it is just to make an order pursuant to s 117(2) the matters contained in s 117(2A) must be addressed to the extent they are relevant and to which the attribution of weight to individual matters is quintessentially discretionary.
As the grounds of appeal demonstrate, the appellant seeks to appeal against the exercise of discretion which falls to be determined in accordance with the principles set out in House v The King (1936) 55 CLR 499. A different view by an appellate court only on matters of weight by no means justifies a reversal of a decision of the primary judge (Gronow v Gronow (1979) 144 CLR 513 at 519).
The appellant presents four grounds of appeal which assert that the primary judge erred:
·by finding that a litigation funding order made pursuant to s 117 of the Act could be readjusted by way of a further order for costs (Ground 1);
·by finding that there were “justifying circumstances” to depart from s 117(1) of the Act given that the husband owned a property jointly with the wife which he could either liquidate or borrow against in order to pay his own legal fees (Ground 2);
·by misunderstanding the substantive claim sought by the husband and failing to undertake an evaluation of the quality and nature of the husband’s claim (Ground 3); and
·in the exercise of his discretion through ordering a third party to provide litigation funding where such relief would not have been available in other jurisdictions (Ground 4).
Reversibility – Ground 1
The appellant submits that it is well settled that any sum payable under an interim litigation funding order must be able to be reversed or taken into account at the final hearing. By Ground 1, the appellant contends that an interim litigation funding order made under s 117(2) against a third party cannot be reversed at the final hearing and thus cannot properly be made (Appellant’s Summary of Argument filed 4 November 2020, paragraph 5). Allied to this is the contention that if the husband’s s 106B application fails, he “may be bereft” of funds and an order that he repays the appellant would be futile (Appellant’s Summary of Argument filed 4 November 2020, paragraph 5). Furthermore, that the finding that the husband could, if required, repay the appellant the amount paid pursuant to the order from his share of the City E property and any other assets of the marriage [212] was unavailable.
Turning now to the question of reversibility, the primary judge summarised the principle as follows:
189.In Strahan & Strahan the majority also noted the question of whether, if an order is made under s 117(2) of the Act, it is also necessary for the Court to consider whether in the circumstances it will be possible to take into account in the final property proceedings any sum that might be payable under the order. Their Honours referred to the observation of the Full Court in Zschokke at 83,217 that, given that it had accepted that an order or direction be made:
… the sums to be paid pursuant to the interim costs order should be taken into account (or at least had regard to) in the final determination of the property proceedings between the parties, it may well be necessary for the Court in deciding whether to make the interim order or an order for security under s 117(2) to consider whether in the circumstances of the case, it will be possible to take into account in the final property proceedings any sum that might be payable under the interim order (or the order for security).
190.Relevantly for present purposes, the Full Court in Zschokke at 83,221 went on to say:
[h]owever, while the conclusion in relation to the uncertainty of the amount of the [applicant’s] eventual property settlement award may be fatal to an application under s 80(1)(h), it is not necessarily so to an application under s 117(2). It is just one of the matters to be balanced in the exercise of the discretion under the latter sub-section.
(Footnote omitted)
The appellant contends that this misstates the principle and that Zschokke stands as authority for the proposition that an amount advanced pursuant to an interim litigation funding order, including under s 117(2) must be capable of being taken into account in the final property settlement proceeding and, if this cannot be done, the order cannot be made. According to the appellant, the following paragraphs of Zschokke establish the point:
it may well be necessary for the Court in deciding whether to make the interim order or an order for security under s.117(2) to consider whether in the circumstances of the case, it will be possible to take into account in the final property proceedings any sum that might be payable under the interim order (or the order for security). We agree that, as was submitted by Counsel for the wife, the requirement of justice (which was expressly drawn to attention by the Full Court in Hogan and also implied by Brennan J in Breen) must remain a “basic” condition in the making of an order of the type in question under s.117(2).
…
There is also the further question of whether, when an order is made under s.117(2) (the costs power) for the provision of funds by one party to the other to enable the other to prosecute his or her case, an order can, or should, also be made for the funds provided to be taken into account in the final property settlement proceedings. This was the course adopted by the trial Judge, Bulley J, in Hogan, and this aspect of his Honour's decision was apparently not interfered with, or in way disapproved of, by the Full Court when the matter came before it. The question does not seem to have been subsequently considered. But it seems to us that where the Court makes an order of the type in question pursuant to the provisions of s.117(2), that provided such an order was either one by way of security or an interlocutory (i.e. interim) order, it must be open to the Court to make an order or direction, as Bulley J did in Hogan, to the effect that the sums paid pursuant to the order could be taken into account, or at least had regard to, in the determination of the property proceedings between the parties. Indeed such an order would seem desirable in most cases in the interests of according justice to each party.
(Emphasis added) (Appellant’s Summary of Argument filed 4 November 2020, paragraph 6, citing Zschokke at83,215)
It should be noticed that a few lines earlier in the first passage upon which the appellant relies, their Honours spoke not just of reversibility but the ability in the final property proceedings to “at least have regard to” the amount paid pursuant to the interim costs order. The next point is that it is the requirement of justice that is the basic principle to which Zschokke speaks and not as the appellant suggests, reversibility. Reversibility and the ability to take the payment into account in the final hearing are considerations of fluctuating relevance having regard to the source of power under which the payment is sought. So much is clear from Zscokke itself as it is only in relation to the application of s 79 and s 80(1)(h) of the Act that this issue “must … be an integral part” (at 83,220) of such an order. Thus, although in Zschokke the Full Court was not satisfied that the wife would receive a property settlement greater than the sums already advanced by the husband, that was not the end of the matter and their Honours continued (at 83,221):
However, while the conclusion in relation to the uncertainty of the amount of the wife's eventual property settlement award may be fatal to an application under s.80(1)(h), it is not necessarily so to an application under s.117(2). It is just one of the matters to be balanced in the exercise of the discretion under the latter sub-section.
It is also significant that in Zschokke the Full Court said that there must be a question about whether it is possible to make a litigation funding order under s 117(2) even though the order could not be taken into account in a final hearing. For example in parenting proceedings or where no right of action exists under s 79. If their Honours considered that reversibility and the ability to take the amount into account in a final property hearing was an essential element to the exercise of power under s 117(2) it follows that in the examples given such an order could not be made. Their Honours’ conclusion that in relation to those examples the “position is less clear” demonstrates that they were not satisfied that an order of the type under discussion here must be able to be reversed or taken into account at the final hearing.
As to the highlighted words, the words “seem desirable” and “most cases” contemplate that there will be cases where even though the amount paid may not be able to be made subject to an order as discussed or be taken into account in the final hearing, the interests of justice may nevertheless justify an order under s 117(2) for interim funding or security for costs. The passage extracted by the primary judge from Zschokke cited at [190] reinforces this point. See also Strahan at [95] where, having referred to this passage from Zschokke, the Full Court agreed that whether it will be possible to take the amount payable under the order into account in a final hearing is but one consideration.
As to the second of the passages in Zschokke upon which the appellant relies, the additional point made by their Honours is that by its nature an interlocutory litigation funding order can be taken into account, or at least had regard to, in the final hearing. Nevertheless and as they went on to explain, it is generally desirable that an order be made for the funds provided to be taken into account in this manner. Nothing in the language indicates that reversibility is a requirement and failure to be satisfied of it is fatal to an order being made under s 117(2).
However, even if Zschokke offered some support for the appellant’s contentions as to reversibility, subsequent decisions where the order under consideration engaged s 117 say otherwise.
For example, in Salvage & Fosse the Full Court said:
12.Importantly, in property settlement proceedings it may be sufficient for an applicant to establish that he or she would be likely to receive a property settlement that would be “sufficient to cover the advance” (Zschokke and Zschokke (1996) FLC 92-693 (“Zschokke”) at 83,216). There, the Full Court of the Family Court of Australia went on to adopt the following passage from Harris and Harris (1993) FLC 92-378 at 79,930:
…[T]he Judge must be satisfied that the remaining property will be adequate to meet the legitimate expectations of both parties at the final hearing, or that the order which is contemplated is capable of being reversed or adjusted if it is subsequently necessary to do so…
13.The power to make orders in the exercise of the property power may be exercised by a series of orders, with the crucial issue being whether or not the power to make orders for the settlement of property has been exhausted or spent. Unless it has, further orders may be made with respect to property the subject of earlier orders (Gabel & Yardley (2008) FLC 93-386 at [69] and [126]). In other words, that earlier order may be taken into account or, indeed reversed, prior to or as part of the final exercise of the s 79 (or s 90SM) power without resort to s 79A of the Act and its equivalents or, an appeal. However, the notion of orders being “reversed or adjusted” does not easily apply to costs orders made in the exercise of the costs power, especially if the applicant fails. The very nature of a litigation funding order is that the funds will be spent on the costs of the proceedings, which may or may not be successful. There is a real risk that the funds can never be recovered or otherwise taken into account.
14.The critical question therefore is whether the applicant has “any real prospects of obtaining justice unless the order sought is made” (Parker v Parker (1992) 16 Fam LR 458 at 461), or in terms of s 117(2) of the Act, whether in all the circumstances the costs order is just. That question raises, at least, consideration of the strength of the applicant’s case and the effect of the order upon the respondent.
…
30.We also wish to address the submissions on what was said to be the “irreversibility” of the costs order which occupied much of the Court’s time.
31.First, as we have tried to explain, that concept is more apt to an order for the transfer of an asset or payment of money during the course of the property settlement proceedings, although in our opinion, it is an unfortunate and not entirely accurate shorthand expression of the applicable principle. Rather, the Court must take into account whether, and if so how, such an order could be taken into account, adjusted or possibly reversed at the final hearing.
…
33.As Kent J has persuasively reasoned, the fact that an interim costs order may never be repaid is not a bar to one being made. As the history of such orders demonstrates, it is not a determinative matter (Rakete v Rakete (2012) 48 Fam LR 325 at [55]).
It follows, that I do not accept the appellant’s submission that there is irreconcilable tension between Zschokke and Salvage & Fosse concerning the approach to reversibility and the question of whether and if so how such an order should be taken into account in a final hearing.
Turning then to the second aspect of Ground 1, the question to be answered is whether it was open to the primary judge to proceed on the basis of his stated intention that the interim litigation funding order be taken into account at the final hearing was achievable. The point being that assuming that the husband’s s 106B application failed, even if he received the entire City E property, given that the appellant claimed $730,000 from him, the husband would be unable to reimburse the $350,000 payment. The argument can be easily rejected. This is because the $730,000 includes the $410,000 lost on the Suburb FF venture. As this transaction is the subject of the agreement between the appellant and the wife made in 2017 for repayment, there is no reason to proceed on the basis that the husband would be ordered to repay the amount from his interest in this property. With that amount excised the primary judge’s conclusion to the effect that the husband had sufficient equity in the City E property which would enable an adjustment in favour of the appellant was available.
Section 79 of the Act empowers the Court to make such an order altering the interests in property of the party to the marriage as it considers appropriate. The range of available orders and in whose favour they may be made is broad (s 80(1)(k) of the Act). Whilst such an order includes an order made “for the benefit of either or both of the parties to the marriage or a child of the marriage”, the section does not limit in whose favour such an order can be made to those persons (s 79(1) and s 80(1)(k) of the Act). There can be no doubt that in the final hearing an order can be made for payment to the appellant and thus for the interim litigation funding order to be taken into account. Indeed, given that the appellant is a party to the proceedings and having regard to the nature of the relief sought by her, she clearly acknowledges that at the final hearing the Court has both jurisdiction and power to order that the husband pays her the amounts sought and such additional sum as may be required by reason of the litigation funding order.
Ground 1 has not been established.
Justifying circumstances – Ground 2
The gravamen of Ground 2 is that the primary judge could not permissibly conclude that there were justifying circumstances for departure from the general rule in s 117(1). Furthermore, that no weight, or no adequate weight, was given to the husband’s interest in the City E property which could be used to pay his own legal fees. The primary judge gave close attention to the wife’s (and the appellant’s) submissions that the City E property be sold and its proceeds of sale divided between the spouse parties. His Honour’s determination in relation to the City E property is at [211]–[212] of the trial reasons. Paragraph 212 has already been set out, and at [211] the primary judge said:
211.Although both the wife and the [appellant] contend that it would be appropriate for the City E property to be sold or mortgaged for the purposes of litigation funding prior to any order being made that the wife and/or the [appellant] make such funding available, in the particular circumstances of this case this would not be the preferable course. Regardless of whether the older child of the marriage could cope with whatever upheaval might be caused by the sale of the property or the raising of funds on its security, it is not clear whether either of these things could easily be done, and whether, if either of them could be done, the funds could be easily repatriated to Australia. The evidence in relation to these matters is somewhat inconclusive.
The analysis of the City E property proceeded on the basis that it could be valued at as much as $1.1 million [210]. There appears to be no dispute that the husband’s parents contributed to its acquisition, gave it to the husband and they have lived in it for many years. The husband asserts and the wife disputes that there is an agreement with his parents that they are permitted to live in the property for the rest of their lives. Nevertheless, even on the husband’s case it does not seem to be disputed that he could eventually borrow against his equity in this property.
Relevantly, the spouse parties’ daughter lives with the husband’s parents. The wife described the child’s circumstances as follows:
Y is 4 years of age and has autism. She currently lives in China. The Husband and I took Y to China in late 2014 when she was 6 months old. We were extremely busy at work trying to establish ourselves in Australia. She stayed with the Husband's parents for a couple of months and I was intending to bring her home when I fell pregnant again with X. After X was born the Husband's parents discovered that Y had some developmental issues. The Husband's parents brought Y to Australia· I sought specialist medical advice and treatment for Y. Y had treatment for about six months with limited improvement. The specialist recommended that it was in Y’s best interests to stay in China for treatment. The Husband and I both agreed that Y should have treatment in China as recommended especially since she has limited language ability and might only manage to understand Chinese.
(Wife’s Affidavit filed 21 June 2019, paragraph 106)
Neither spouse party proposed that their daughter should return to Australia and the primary judge could safely proceed on the basis that the child would continue to live with the husband’s parents in the property.
The primary judge was not satisfied that the sale of the property or its use as security could easily be done. No doubt this is reference to the husband’s evidence as to his parent’s right to live there. The primary judge was also concerned about the ease with which any proceeds of sale could be remitted to Australia about which it was common ground there are restrictions on the movement of money between Australia and China. The husband said there is an annual limit for remitting money out of China, of $30,000, whereas the appellant said it was $50,000. The appellant also said that permission might be given to remit larger amounts. According to the appellant it was incumbent on the husband to prove the restrictions and quell the controversy. However these were interlocutory proceedings and the husband was able to give evidence based on his knowledge of remitting money between Australia and China, which he did. In my view it does not matter that the primary judge was unable to determine precisely how much money was able to be remitted. This is because there was no dispute that there are restrictions in place and no evidence from which his Honour could safely conclude that approval was likely to be given for the husband to remit $350,000 to Australia in sufficient time to meet his legal expenses. No serious question can be raised against the conclusion that a sale of the City E property was not the preferable course.
Turning then to the finding as to justifying circumstances. It is apparent that this determination was made after consideration of the appellant and the wife’s conduct vis-à-vis the impugned transactions (s 117(2A)(d)), that the wife and the appellant were in a position of significantly greater financial strength than the husband (s 117(2A)(a)) and that the husband established an arguable case for substantive relief that deserves to be heard (s 117(2A)(g)).
Although in the primary judge’s reasons the discussion of the conduct of the appellant and the wife is more extensive than is set out below, what follows is sufficient to demonstrate that the primary judge was satisfied there is a causal connection between the appellant’s role in the impugned transactions and thus the costs which the husband would now incur in order to present his case [196] (citing McAlpin and McAlpin (1993) FLC 92-411).
The primary judge said:
200.Although it may be accepted that there have been some deficiencies in the husband’s disclosure of his assets, income and resources in his application for litigation funding, it is undeniable on the state of the evidence that the wife, whose legal costs are being funded by the [appellant] and the [appellant] herself, are in a position of significantly greater financial strength than the husband.
201.It is also sufficiently clear that the wife, through the [appellant], and the [appellant] herself, have a capacity to meet their own litigation costs, and that the husband’s ability to do so is presently compromised. The significant rent being received on the L Street, Suburb M property and the P Street, Suburb Q property, to say nothing of the other assets now available to the [appellant], are more than sufficient to support the conclusion that the [appellant] and the wife are able to meet the costs of the litigation.
202. It is clear enough that this state of affairs has come about because of the unilateral actions of the wife in or about May 2018 in altering the control and ownership of several of the parties’ principal corporate entities and family trusts in a way which has had the effect of transferring control of the relevant entities and trusts to the [appellant]. As the husband has submitted, the fact that this occurred at about the time of separation must be regarded as significant. Although this is not the occasion for any assessment of the propriety of the wife’s actions and for the resolution of the underlying and untested question of whether the wife transferred to the [appellant] control of assets that were in fact assets in which the wife and the husband had a beneficial interest, and what the extent of that interest might be, if any; the evidence before the Court on this application is not consistent with the husband and the wife having little or no beneficial interest in the portfolio of assets developed over 9 years or more that is now controlled by the [appellant].
203.Several things tend towards this conclusion. The first is that it is plain, and not substantially contradicted by the wife or the [appellant], that the husband was closely involved in developing the portfolio of assets which are the subject of the underlying dispute. Even the alleged 25 November 2015 “agreement”, on which the wife and the [appellant] rely, appears to acknowledge that the husband and the wife had “run” the Australian business. The agreement accepts, as is apparent by reference to the assets in question, that the “business” is “now in reasonably good shape”. The agreement also appears to contemplate that after certain payments to the [appellant] and her husband by the husband and the wife, the net income of the Australian operations (O Town aside) will be split 50 per cent between the husband and the wife on the one hand, and her parents on the other. A similar arrangement seems to be in contemplation in relation to the O Town property.
The conclusions reached were available, indeed they were compelled by the evidence and were properly weighed in favour of the husband’s application.
To the extent that the appellant contends that the husband had sufficient income and assets under his control to meet his legal expenses, this submission sits uncomfortably with her submission that his financial circumstances were so parlous that any amount she advanced might be irrecoverable as was her support for the wife’s position that the City E property be sold to fund the spouse parties’ legal expenses and for the payment of the earlier sums pursuant to the orders dated 31 July 2019. There is no principle of general application that a person must be destitute before a litigation funding order may be made in their favour. The interests of justice are wider than that singular proposition.
As to the husband’s financial circumstances, he was a salaried employee earning $120,000 annually before tax. He lived in rented accommodation and was involved in commercial ventures with others which had not increased his income or assets. The husband had already received $106,000 (W Street, Suburb Z refund) and monies into his QQ bank accounts shortly after separation which he failed to disclose. These matters were taken into account but plainly they would not have enabled a finding that the husband had sufficient income to meet his anticipated legal expenses. The determination that the husband did not have sufficient income and assets to meet his legal expenses was amply justified.
Error as alleged by Ground 2 has not been made out.
The husband’s substantive claim – Ground 3
Ground 3 concerns the husband’s substantive claim for relief which the appellant asserts the primary judge misunderstood. Furthermore, it was said that the primary judge was obliged but failed to evaluate its prospects of success.
It is common ground that when deciding whether a s 117(2) litigation funding order is in all of the circumstances just, the court must consider the strengths of the applicant’s case and the effect of the order on the respondent. The point being that it would not be just to require someone to pay another person’s anticipated legal expenses “where the case to be taken was weak, fanciful or misguided” (Salvage & Fosse at [15]), or where the effect of such an order on the payer would work an injustice.
In Strahan the Full Court discussed the approach to litigation funding orders made under various heads of power and explained that an applicant “should have at least an arguable case for substantive relief” (at [141]). However, the discussion in Strahan at [141] is under the heading “[t]he approach to an application for an interim property order” and that passage concerns s 79 and not s 117(2). The better formulation is found in Salvage & Fosse at [15] where the majority said “[t]he consideration should be whether the case to be raised by the applicant is sufficient, in all of the circumstances, as to its nature and prospects, to justify an interim order for costs”. That said, the primary judge’s determination that the husband had at least an arguable case for substantive relief which deserves to be heard, sits comfortably with both formulations.
It follows that the husband needed to establish that his s 106B application was of sufficient merit to justify the litigation funding order sought and that his application for a property settlement order was of sufficient merit and value to justify that course. However, the husband did not identify the property settlement order he would seek and by his Initiating Application filed 25 May 2018 (as subsequently amended), sought “there be such alteration of property interests as this Honourable Court deems appropriate”. As counsel for the appellant said, the proposed order is meaningless. However, the husband’s failure to articulate the relief he will ultimately seek, was not treated as fatal and the primary judge took into account the husband’s case as it emerged from the evidence and submissions. Unlike cases such as Chester v Chester (1995) FLC 92-612 and Salvage & Fosse, where the property owned by the parties was known and there was no real dispute about its value, in this case those issues are contentious. It is also common ground that much more evidence will need to be gathered before the Court will be in a position to make clear findings about these matters. The primary judge’s approach is consistent with Salvage & Fosse at [21], where a similar evidentiary gap was not considered fatal to the application and as the Full Court explained, the Court could form its own view as to the likely outcome.
The primary judge said:
207.In all the circumstances therefore it may be accepted that the husband has at least an arguable case for substantive relief which deserves to be heard. In this respect the wife’s submissions that the husband conflates discrete causes of action between himself and the wife and himself and the [appellant] and fails to particularise the discrete issues between them are unconvincing. The nature of the case the husband seeks to bring is sufficiently clear for present purposes. That it may require further particularisation before trial is no bar to the granting of his application for litigation funding; indeed, in some senses it supports his application.
208.Nor can it readily be accepted, as the wife contends, that the claim is weak and that coherent and convincing evidence has been advanced against it by the wife and the [appellant]. It is plain that each of the parties will need to lead substantially more evidence in support of their respective positions, but the state of the evidence on this interlocutory application easily surmounts the threshold of an arguable case for substantive relief which deserves to be heard. Evidence from the husband’s solicitor confirming that this is so, which the wife contends is missing, would not take matters appreciably further. That the husband may have failed to provide certain documents by way of disclosure, and may not have initially given the level of detail in relation to his own circumstances that the wife and the [appellant] would have wished he had given, and perhaps he ought to have given, does not alter the conclusion that he is in need of litigation funding and that he has a case to pursue. Further, the wife’s submission that the husband’s affairs are “opaque, uncertain, and contradictory”, that his application is “unmeritorious and made demonstratively in bad faith”, and that his non-disclosure and alleged false evidence disqualify him from the relief that he seeks, cannot be accepted. It can be accepted that there is sufficient visibility of the husband’s affairs to make it appropriate, in all the circumstances, to grant the relief that he seeks.
The primary judge detailed the husband’s evidence concerning the assets of the marriage and his contributions to the Australian ventures (for example [24], [25], [28] and [32]). It is clear that the primary judge understood the husband sought a property settlement that is far greater than 30 per cent of the City E property and considerably greater than the substantial legal expenses that would be incurred in order to establish an accurate picture of the Australian ventures and to take the case to a final hearing.
Counsel for the appellant seemed to suggest that unless the husband could establish that he was a corpus beneficiary of the trusts and perhaps, a legal owner of the other properties, his s 106B application was doomed to fail. This should be rejected.
In many respects the circumstances of this case are reminiscent of what occurred in Kennon v Spry (2008) 238 CLR 366 (“Kennon v Spry”); where for example a spouse held legal title to the trust fund, held the power of appointment and the property held by the trust had been acquired through the efforts of that party or their spouse before they separated. Furthermore, the trust arrangements were varied to exclude the spouse parties from receiving any part of the capital of the trust. Without recourse to s 106B, the High Court determined by majority that for so long as the spouse appointer retained legal title to the trust fund and because the spouse appointer could have appointed the whole of that fund to one of the spouses, the whole of the trust fund was property of the parties to the marriage for the purposes of s 79 (French CJ at [66] and Gummow and Hayne JJ at [137]; see also Keifel J and the application of s 85A). On the husband’s case, the changes made to the wife’s position as appointer would be set aside and she would again have legal title to the trust funds and, directly or indirectly, the spouse parties would each be reinstated as beneficiaries.
But even if the differences between this case and Kennon v Spry eventually lead to a different final outcome vis-à-vis the treatment of the trusts’ funds as property of the marriage, there seems to be no reasonable argument against the proposition that by the impugned transactions the wife disposed of matrimonial property, or, that the husband may be able to establish that these transactions had the effect of defeating a significant settlement under s 79 in his favour. It follows that the argument that the husband failed to establish an arguable case for relief in relation to his s 106B and s 79 applications should be rejected.
Error as alleged by Ground 3 has not been demonstrated.
The requirement for exceptional circumstances – Ground 4
According to the appellant, the primary judge should have recognised that the husband was required to demonstrate exceptional circumstances before an order pursuant to s 117(2) for litigation funding could be made against a third party. The appellant then analysed cases where such orders have been made but none of these imposes a test of exceptional circumstances nor say anything which would cast doubt over his Honour’s decision (S v S (1997) FLC 92-762; Mullins and Ors & Mullins and Ors [2017] FamCA 786; Kyriakos).
I can see no reason to require exceptional circumstances as a precondition for this type of order and repeat my earlier observation that the question to be answered is as set out in Salvage & Fosse at [15].
Ground 4 has not been established.
Conclusion and costs
Although the appellant should be given leave to appeal, the appellant has failed to established error and the appeal should be dismissed.
The appellant has been unsuccessful and thus the husband has incurred costs unnecessarily. It is appropriate that the appellant pays his party/party costs in the amount sought. The husband’s costs are considerably less than the appellant’s party/party costs which persuades me that the lesser amount is reasonable and appropriate. In the event that we determined such an order should be made, the appellant proposed that the order be stayed until judgment (or settlement) at first instance so that there might be a set off between the costs order and any amount that the husband is to pay the appellant. The appellant’s position of relative financial strength qua the husband persuades me that the husband should have his costs now.
AUSTIN J
I agree with Ainslie-Wallace and Ryan JJ that, if leave to appeal is granted, the appeal should be dismissed, though in my view such leave should not be granted for the following reasons.
The respondent spouses are engaged in property settlement litigation under Pt VIII of the Family Law Act 1975 (Cth) (“the Act”). The applicant for leave in this proposed appeal is the wife’s mother, she being a party to the first-instance proceedings, having been joined by the husband.
At or about the time of the spouses’ separation in mid-2018, the wife set about transferring her shareholdings in three private corporations to the applicant, resigning her offices in those corporations, and foregoing her status as a beneficiary in two family trusts. The husband contends the wife’s divestiture of such property, by design or effect, is liable to defeat the property settlement order which should justly and equitably be made between the spouses and so the transactions should be set aside pursuant to s 106B of the Act. The joinder of the applicant as a party to the proceedings was necessary because she was the recipient of the corporate shareholdings transferred by the wife and is entitled to be heard in opposition to the husband’s claim.
On 25 June 2020, the primary judge granted the husband’s interim application for litigation funding by ordering the applicant’s staged payment of $350,000 to the husband’s solicitors, with such sum to be dedicated to the payment of his legal costs in the proceedings. The order was expressly made pursuant to the power which reposes in s 117(2) of the Act.
Recognising that the subject order is interlocutory in nature, the applicant seeks leave to appeal from the order. Leave to appeal should be refused since the decision entailed neither legal nor discretionary error of the type alleged by the applicant. The tests promulgated by the High Court of Australia (Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177) and this Court (Medlow & Medlow (2016) FLC 93-692 at [44]–[57]) for the grant of leave to appeal almost invariably require the establishment of good reason to suspect an error was made at first instance. In this instance, the presumptive correctness of the primary judge’s decision remains intact (Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621 at 627), though another judge could conceivably have come to a different conclusion on the same material.
Section 117(2) of the Act expressly envisages the prospect of one party being ordered to pay the costs of another party in proceedings under the Act. The power is broad; indeed so broad that, in exceptional circumstances, it even authorises costs orders against persons who are not parties to the proceedings (Re JJT; Ex parte Victoria Legal Aid (1998) 195 CLR 184 (“Re JJT”) at 189, 202, 220 and 226–228). Presently, it is unnecessary to consider the exercise of the power in such exceptionally wide terms since the applicant is a party to the proceedings. In fact, she is a willing party because she presses her own claim against the husband, seeking an order that he pay her $284,650. Given her status as a party and her proclaimed interest in the assets which are the subject of tripartite contest between her and the spouses, there can be no doubt that power existed to make the appealed costs order against the applicant.
As is often the case, the real question confronting the primary judge was not whether jurisdiction or power existed, but rather whether the discretionary power to make the subject costs order should be wielded (Re JJT at 202; Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 186). The primary judge appreciated the distinction (at [191] and [197]).
Several of the applicant’s foreshadowed grounds of appeal allege the primary judge erred at law in one way or another but, in my view, that is not truly so. Save for one ground (Ground 3), the proposed grounds of appeal really comprise complaints about discretionary error under s 117(2) of the Act in making the costs order (Grounds 1, 2 and 4).
Proposed Ground 3
This ground contends the primary judge erred in fact or at law in two ways: first, by misdirecting himself as to the nature of the husband’s substantive claim in the proceedings; and secondly, by failing to undertake “an evaluation of the quality and nature of the husband’s claim”.
The substantive claim made by the husband in the underlying proceedings is not in doubt. He seeks orders under s 106B of the Act to set aside certain transactions so as to enlarge the pool of property available for division between the spouses, followed by the just and equitable settlement of such property as is found to be owned by the spouses between them under s 79 of the Act. The primary judge correctly summarised the husband’s case at an early point in the reasons for judgment (at [9] and [29]).
The applicant’s submission that the primary judge misunderstood the nature of the husband’s claim springs from one small part of a solitary paragraph in the very lengthy reasons for judgment, expressed in these terms:
202.It is clear enough that this state of affairs has come about because of the unilateral actions of the wife in or about May 2018 in altering the control and ownership of several of the parties’ principal corporate entities and family trusts in a way which has had the effect of transferring control of the relevant entities and trusts to the [applicant]. As the husband has submitted, the fact that this occurred at about the time of separation must be regarded as significant. Although this is not the occasion for any assessment of the propriety of the wife’s actions and for the resolution of the underlying and untested question of whether the wife transferred to the [applicant] control of assets that were in fact assets in which the wife and the husband had a beneficial interest, and what the extent of that interest might be, if any; the evidence before the Court on this application is not consistent with the husband and the wife having little or no beneficial interest in the portfolio of assets developed over 9 years or more that is now controlled by the [applicant].
(Emphasis added)
The applicant inferred the highlighted phrases meant the primary judge wrongly assumed the husband was pressing an alternative claim in equity upon the basis of an alleged constructive or resulting trust – namely, that the applicant holds upon trust for the spouses, either jointly or individually, the beneficial interest in various assets. The applicant submitted in her Summary of Argument as follows:
38. With respect to his Honour, that was (and is) not the Husband’s case before the Court. By his Further Amended Initiating Application (Family Law) filed 3 May 2019 (being the third such iteration of the Husband’s initiating application), the Husband seeks that the instruments by which the Wife transferred her shareholdings and resigned as officeholder and appointor be set aside pursuant to section 106B and thereafter there be an alteration pursuant to section 79 of the Act. There is no alternative claim for a constructive or resulting trust on the basis that the Husband and/or Wife have acquired some equitable interest in the portfolio of assets now controlled by the Appellant.
(Emphasis added) (Footnote omitted)
The husband did not plead any claim in equity and, in my view, the applicant wrongly imputes an assumption the primary judge did not make. The phrases upon which the applicant opportunistically seized are entirely consistent with the husband’s case that the wife formerly held legal and beneficial title in the assets she transferred to the applicant, which assertion is the foundation for his claim to set aside those transactions under s 106B of the Act.
The ancillary contention, of the primary judge failing to evaluate the quality and nature of the husband’s claim as an integral step in the process of determining the application under s 117 of the Act, is equally weak.
The strength of the husband’s claim under s 106B of the Act is vigorously contested by both the wife and the applicant, which contest was not overlooked by the primary judge, who said this:
202. It is clear enough that this state of affairs has come about because of the unilateral actions of the wife in or about May 2018 in altering the control and ownership of several of the parties’ principal corporate entities and family trusts in a way which has had the effect of transferring control of the relevant entities and trusts to the [applicant]. As the husband has submitted, the fact that this occurred at about the time of separation must be regarded as significant. Although this is not the occasion for any assessment of the propriety of the wife’s actions and for the resolution of the underlying and untested question of whether the wife transferred to the [applicant] control of assets that were in fact assets in which the wife and the husband had a beneficial interest, and what the extent of that interest might be, if any; the evidence before the Court on this application is not consistent with the husband and the wife having little or no beneficial interest in the portfolio of assets developed over 9 years or more that is now controlled by the [applicant].
203.Several things tend towards this conclusion. The first is that it is plain, and not substantially contradicted by the wife or the [applicant], that the husband was closely involved in developing the portfolio of assets which are the subject of the underlying dispute. Even the alleged 25 November 2015 “agreement”, on which the wife and the [applicant] rely, appears to acknowledge that the husband and the wife had “run” the Australian business. The agreement accepts, as is apparent by reference to the assets in question, that the “business” is “now in reasonably good shape”. The agreement also appears to contemplate that after certain payments to the [applicant] and her husband by the husband and the wife, the net income of the Australian operations (O Town aside) will be split 50 per cent between the husband and the wife on the one hand, and her parents on the other. A similar arrangement seems to be in contemplation in relation to the O Town property.
204.Similarly, the wife does not deny the substance of the husband’s evidence that he played a substantial role in developing the business and property portfolio worth millions of dollars, albeit that she tries to minimise his involvement in the development of some businesses and she is at pains to show that his compensation for whatever work he did lay in living in the DD Street, Suburb B property rent free and “enjoying a very generous lifestyle” courtesy of her parents. On the subject of the husband’s involvement, the [applicant] admits that the husband was involved in the acquisition and development of the J Street, Suburb K property, that the wife was also involved in the financial administration of the business, and that the husband worked in and managed the business. Although the [applicant] says that the husband was paid for his work, she does not elaborate on this and proffers no documentary support for the claim.
205.It is also significant that the [applicant] freely admits that she lacks knowledge of the Australian trust and company structures which own and manage the business investments, and that she does not read or speak English. It could hardly be contended in the face of these disabilities that the [applicant] herself played a significant role in the acquisition and development of the relevant assets, other than by way of providing finance.
206.Also of some significance on the question of any beneficial interest held by the husband and the wife in the portfolio of assets is the fact that it would seem that in FY2016 the husband received a distribution of $30,684 from Jing’s Family Trust. The fact of this distribution sits uncomfortably with the claim advanced by the wife and the [applicant] that at all times the [applicant] was the beneficial owner of everything in the Australian business that was being run by the husband and the wife.
207.In all the circumstances therefore it may be accepted that the husband has at least an arguable case for substantive relief which deserves to be heard. In this respect the wife’s submissions that the husband conflates discrete causes of action between himself and the wife and himself and the [applicant] and fails to particularise the discrete issues between them are unconvincing. The nature of the case the husband seeks to bring is sufficiently clear for present purposes. That it may require further particularisation before trial is no bar to the granting of his application for litigation funding; indeed, in some senses it supports his application.
208.Nor can it readily be accepted, as the wife contends, that the claim is weak and that coherent and convincing evidence has been advanced against it by the wife and the [applicant]. It is plain that each of the parties will need to lead substantially more evidence in support of their respective positions, but the state of the evidence on this interlocutory application easily surmounts the threshold of an arguable case for substantive relief which deserves to be heard. Evidence from the husband’s solicitor confirming that this is so, which the wife contends is missing, would not take matters appreciably further. That the husband may have failed to provide certain documents by way of disclosure, and may not have initially given the level of detail in relation to his own circumstances that the wife and the [applicant] would have wished he had given, and perhaps he ought to have given, does not alter the conclusion that he is in need of litigation funding and that he has a case to pursue. Further, the wife’s submission that the husband’s affairs are “opaque, uncertain, and contradictory”, that his application is “unmeritorious and made demonstratively in bad faith”, and that his non-disclosure and alleged false evidence disqualify him from the relief that he seeks, cannot be accepted. It can be accepted that there is sufficient visibility of the husband’s affairs to make it appropriate, in all the circumstances, to grant the relief that he seeks.
(Emphasis added)
As can be seen, his Honour addressed the prima facie merit of the husband’s application and found it to be “an arguable case for substantive relief”. In my view, those reasons amount to quite sufficient explication of the primary judge’s inquiry and conclusion, despite the applicant’s submissions to the contrary.
The applicant’s point was that the primary judge needed to be satisfied the husband had an arguable case for relief under s 106B of the Act, not merely an arguable case to demonstrate the spouses (or either of them) enjoyed some proprietary interest in assets now legally held by the applicant. The fussy distinction is appreciable but unconvincing in the context of the current application. It was uncontroversial that, around the time of the parties’ separation, the wife transferred assets she legally owned to the applicant, for which she received no consideration at all. It is alleged by the husband, but disputed by the others, that the wife also held the corresponding beneficial interest in the property. If that is so then, axiomatically, her divestiture of such property would tend to defeat any just and equitable property settlement between the spouses. That alone would not validate the s 106B claim, but would go a long way towards it.
The applicant contends she is, and always was, the beneficial owner of such property and so the transfer to her of the legal title in it merely ensured restoration of the property to her as its rightful owner, but she bears the evidentiary burden of establishing her pre-existing beneficial ownership as an integral part of her defence of the husband’s s 106B claim at trial. Until the applicant demonstrates otherwise, there would be no reason to think the wife was anything other than both the legal and beneficial owner of the assets she held in her sole name before gratuitously transferring them to the applicant.
Even if the wife’s shareholdings in the three corporations were originally given to her by the applicant in 2011 and 2013, her legal and beneficial ownership of the shares would follow from the presumption of advancement in respect of the gift. The wife’s voluntary transfer of the shares to the applicant in 2018, for no consideration, then raises the presumption of a resulting trust in the wife’s favour, in which case the beneficial interest in the shares results back to the wife (Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 363–364).
As is usual, this being only an interlocutory dispute before the primary judge, the evidence was not tested and the parties acknowledged his Honour was unable to make concluded findings of fact. His Honour was only obliged to be satisfied that the husband’s case was arguable, as but one discretionary consideration influencing the determination of whether or not the applicant should be ordered to fund his legal costs to pursue it (Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 at [96] and [141]; Salvage v Fosse (2020) FLC 93-966 at [21] and [64]–[65]).
When an applicant seeks an order for the payment of his or her costs in advance, the primary judge is not required to identify that party’s case as being “strong” or “persuasive” so as to justify the order, as that would invite a descent into semantics. Rather, it is only necessary for the primary judge to be satisfied the substantive case raised by the applicant, as to its nature and prospects, is such as to justify the interim order for costs being sought (Salvage v Fosse at [15]). The very reason an application for litigation funding is ordinarily brought is the applicant’s need for funds to cover the cost of garnering evidence to later vindicate at trial what is, at that interlocutory stage, still only a formative claim.
In Salvage v Fosse, the majority found the primary judge failed to undertake an essential evaluation of the prospects of the applicant’s case (at [24]–[29]), but that was a case in which the applicant’s substantive application to set aside a financial agreement might well fail altogether, thereby depriving the Court of jurisdiction. Here, however, the Court certainly has jurisdiction, will certainly need to determine the parties’ competing applications, and will almost certainly make orders leaving the husband with some valuable property. The remarks of the majority in Salvage v Fosse, which were expressed to be confined to cases like it (at [24]), ought not be taken to mean it is obligatory in every case for a primary judge to do more than formulate a preliminary view of an applicant’s case being sufficiently arguable to warrant an order compelling the respondent to pay the applicant’s costs of the magnitude being sought.
The evidence here readily answers this rhetorical question: what difference would the husband’s successful claim under s 106B of the Act make to the property settlement between the spouses so as to warrant the applicant’s interim payment of $350,000 towards his costs of the proceedings?
In respect of one corporation, which was described as a “trading corporation”, the wife was the sole shareholder until she divested the shares to the applicant. The corporation buys, develops, and sells freehold land and retail businesses. In 2017, it sold real property for $1.85 million (at [23(c)]), but it still conducts the retail business from the said property (at [24(c)(i)]). The corporation also contracted to purchase another freehold property and retail business for $5.8 million (at [23(f)]), but the purchase has not yet been and may not ever be completed (at [24(c)(ii)], [45] and [75]). Irrespective, the corporation is a valuable entity if it buys and sells properties and businesses for multi-million dollars, which is to say nothing of the cash it holds and the motor vehicles it owns (at [24(c)]).
The wife transferred the whole of her shares in that corporation to the applicant for nil consideration on 28 May 2018 – only five days before she separated from the husband on 2 June 2018. If ownership of the shareholding is restored to the wife then, given its underlying value, the overall value of the property available for distribution between the spouses will likely swell by millions of dollars. Regardless of whether the wife (even if only indirectly via her family) made the overwhelming contributions to the acquisition of such property, at the very least, the husband’s entitlement to an adjustment of property interests by reference to factors prescribed by s 75(2) of the Act looms large. There is a real prospect the property which the husband stands to gain in the property settlement will well exceed the funds paid to him by the applicant.
That is enough to dispose of Ground 3 without needing to additionally discuss the wife’s transfer to the applicant of her shares in two other corporations or the relinquishment of her status as an eligible beneficiary in the two valuable family trusts, of which those corporations are the trustees (at [24(a)] and [24(b)]). The instruments to effect those transactions were, similarly, executed or registered in April and May 2018, just before the spouses’ separation. The wife’s former interests in the family trusts were no more than the right to the due administration of them (Kennon v Spry (2008) 238 CLR 366 at 390–395, 408 and 411) but such interests may still be relevant to the property settlement proceedings as financial resources of the wife (Hall v Hall (2016) 257 CLR 490 at [53]–[55]).
Proposed Ground 1
The applicant contends the primary judge’s exercise of discretion miscarried because his Honour wrongly found the costs order “was able to be readjusted by way of a further order for costs”.
The applicant contended before the primary judge that, if she were compelled to pay the husband’s costs and his substantive application for relief under s 106B ultimately fails, then he will be left with insufficient assets from which she could recoup either the money she pays to him under the appealed order or her own costs of the proceedings. She submitted that was a powerful reason militating against the costs order being made. His Honour expressly acknowledged the argument as being the applicant’s strongest, but did not regard it as being dispositive because the husband will undoubtedly be left with some proprietary interest in a parcel of real property in China (“the City E property”) to apply towards any costs order which may later be made against him (at [210] and [212]).
The City E property is valued by the husband at $900,000 and by the wife at $1.1 million. The wife’s pending application is for the husband’s interest in the City E property to be adjusted downwards from 50 per cent to 30 per cent but, even if she is entirely successful and the husband is entirely unsuccessful, he will still be left with a proprietary interest worth at least several hundred thousand dollars, being a valuable asset against which any successful claim for costs made by the applicant could be levied. Of course, the greater the degree of success enjoyed by the husband in the proceedings, the more property he is likely to acquire and the less chance there will be for the applicant to make a successful application against him for her own costs.
Even so, the applicant claimed in the appeal that any funds she pays to the husband under the appealed order can never be recovered because the order will then have been executed and could not be reversed, but that submission should be rejected. Once the order is executed by the applicant’s payment of the full measure of $350,000 to the husband’s solicitors, the order is spent and any attempt to discharge it would be nugatory. However, there would be no impediment to another order later being made (in the event of the husband’s failure in the substantive proceedings for example) requiring the husband to repay the sum of $350,000 to the applicant. That would still be an order “as to costs” within the very broad meaning of s 117 of the Act (Re JJT at 188–189 and 219–220), because it would be an order requiring the reimbursement of funds originally paid to him in the guise of costs. That an order made in those terms might be uncommon – perhaps even rare – does not detract from the breadth of the statutory power. Once those realities are accepted, the complaint under this proposed ground of appeal dissolves.
If the husband’s claims under s 106B and s 79 of the Act fail entirely, thereby retrospectively suggesting that he ought never have been given funds to pursue such speculative claims, then the property he retains may not be sufficient to indemnify the applicant for both the funds she advances to him and her own costs of the proceedings, but the implication of her inability to recover any money at all from the husband should be rejected. The extent of her recovery of money from the husband might be uncertain; but is far from impossible.
The corollary of acceptance of the applicant’s argument would be that no third party to a marriage (even if a party to the matrimonial litigation) could ever be ordered to advance litigation funding to a spouse, since such an order may only ever assume the guise of a costs order under s 117(2) of the Act and, once paid, the payment can never be reversed in totality. Such an absolute proposition must be rejected as it offends established authority. It is now well settled that, although litigation funding paid by one party to another in satisfaction of a costs order may never be repaid, it is no bar to the costs order being made. It is merely a consideration – but often a compelling one – which must be taken into account (Salvage v Fosse at [30]–[37] and [67]–[71]). His Honour expressly did so, in which event it was not an overlooked material consideration and the decision was open.
Proposed Ground 2
The applicant contends the primary judge’s exercise of discretion miscarried because his Honour wrongly found there were justifying circumstances to depart from the usual rule under s 117(1) of the Act, when the husband was indisputably the part owner of the City E property, to which he could resort to pay his own legal costs. The applicant contended the husband could voluntarily extract his equity in the City E property, either by selling or encumbering it, and then use the cash to fund his own legal costs. The wife owns the other one-half share of the property and, while she did not stand in the way of it being sold or encumbered by the husband to raise cash, given her existing claim to an eventual share of 70 per cent of the property, her consent to the husband’s use of it must only have extended to the residual 30 per cent share (at [60]).
The primary judge was cognisant of that option, but gave these reasons for not being persuaded by it: first, the applicant was in a position of significantly greater financial strength than the husband (at [200]–[201] and [208]), which could hardly be doubted given the array of her proclaimed property interests and the millions of dollars she has allegedly invested in Australia (at [66]); and secondly, it was unclear from the evidence whether any more than $30,000 could be brought by either spouse to Australia from China if the City C property was sold or mortgaged (at [211]), since the parties adduced irreconcilable evidence about that issue (at [65], [69] and [81]).
The submission about the husband’s viable financial independence was therefore taken into account as a material consideration, but did not foreclose the discretionary decision.
Proposed Ground 4
The applicant contends the primary judge’s exercise of discretion miscarried because his Honour wrongly found it was appropriate to make the costs order when “such relief would not have been available to the husband in other jurisdictions”.
As noted already, the exercise of the far-reaching power reposing in s 117(2) of the Act enabling costs orders to be made against third parties who are not even joined to the litigation might well be exceptional, but that issue is not at stake here. The Act expressly empowers costs orders to be made against any party joined to proceedings under the Act, even if that party is not a spouse in the original matrimonial cause, about which there is nothing exceptional at all, though it may be uncommon.
The applicant submitted that it was only in:
…exceptional circumstances where an order for interim litigation funding pursuant to section 117 may legitimately arise against a third party.
(Emphasis added)
There are two flaws in the argument.
First, it conflates two different things: a third party to the marriage and a third party to the proceedings under the Act. It was not exceptional for the primary judge to make the costs order in favour of the husband against the applicant merely because she is a stranger to the spouses’ marriage because she is no stranger to the litigation. She is a party to the proceedings, vigorously defending claims made by the husband and actively pressing her own claims against each spouse, so the situation fell plainly within the ambit of s 117(2).
Secondly, the argument impermissibly purports to fetter the wide discretion prescribed by the statutory terms of s 117(2) of the Act. The applicant’s assertion that “some higher degree of caution” should have attended the primary judge’s decision to order her payment of the husband’s costs is without merit. The submission derived no support from the decision in Kyriakos & Kyriakos (2013) FLC 93-528, as was contended. There, the Full Court simply observed that when litigation funding orders are sought by a spouse against a third party to the marriage, it is important to identify the source of power being relied upon to make the order (at [38]–[39]). The proposition is straightforward because, in that particular situation, s 117(2) is the solitary source of power for the order, whereas there are multiple sources of statutory power when litigation funding is disputed exclusively between spouses (Salvage v Fosse at [57]). Here, the primary judge was in no doubt the husband’s claim for litigation funding against the applicant was reliant upon only s 117(2) of the Act. Nor can there be any doubt that, as a party to the proceedings, the applicant was exposed to such an order being made under s 117(2) of the Act.
The Full Court may permissibly formulate principles to guide the exercise of discretion under the Act, including the discretion proscribed by s 117(2) of the Act as to costs, as guidelines help avoid arbitrariness and serve the need for consistency, but the width of the statutory discretion cannot be narrowed by legal rules devised to control its exercise (Northern Territory v Sangare (2019) 265 CLR 164 at [24]). Contrary to the applicant’s implied exhortation to develop a guideline here, the breadth of discretion under s 117(2) of the Act should not be constrained by any requirement for proof of “exceptional circumstances” or for the Court to exercise “some higher degree of caution” when an applicant spouse seeks litigation funding from another party joined to the proceedings who is not the applicant’s spouse.
Whether or not the appealed costs order made against the applicant in favour of the husband could or would have been made in “other jurisdictions” is not to the point. The Act delineates the boundaries of jurisdiction and power, beyond which the primary judge did not stray.
I agree the applicant should pay the husband’s costs.
I certify that the preceding one hundred and twenty-eight (128) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Ainslie- Wallace, Ryan & Austin. Associate:
Dated: 23 September 2021
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