Lao & Zeng

Case [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 2018

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTION
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Lao & Zeng [2021] FedCFamC1A 17
Case
[2021] FedCFamC1A 17
Decision Date

CaseChat Overview and Summary

The case of Lao & Zeng involves a property settlement dispute under the Family Law Act 1975 (Cth) between the husband and wife, with the wife's mother, the applicant, also a party to the proceedings. The husband sought an order for litigation funding from the primary judge, which was granted, leading to the applicant's appeal against the interlocutory order for litigation funding. The legal issues that arose were whether the primary judge erred in granting the husband's application for litigation funding and if the applicant had established good reason to suspect an error was made at first instance. The applicant argued that the husband's claim for setting aside the wife's transfer of assets to her was weak and that there was sufficient evidence against it, while the husband contended that he had an arguable case for substantive relief that deserved to be heard. The court found that the primary judge did not err in granting the litigation funding and that the applicant had not established good reason to suspect an error was made. The strength of the husband's claim was considered arguable, and the evidence on the interlocutory application easily surmounts the threshold of an arguable case for substantive relief that deserved to be heard. The appeal was dismissed, and the husband was awarded party/party costs from the applicant.

Orders

Orders of the court

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Background

Background to the litigation

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”; ande)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)

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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)