Luna & Luna (No 3)
[2022] FedCFamC1F 1011
Federal Circuit and Family Court of Australia
(DIVISION 1)
Luna & Luna (No 3) [2022] FedCFamC1F 1011
File number(s): BRC 11516 of 2019 Judgment of: HOGAN J Date of judgment: 16 December 2022 Catchwords: FAMILY LAW – SECURITY FOR COSTS – Where the applicant seeks an order for security for costs in proceedings in which the respondent applies to set aside a binding financial agreement into which the parties entered in February 2017 – Where an order for security for costs is made. Legislation: Family Law Act 1975 (Cth)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)
Cases cited: Atkins & Hunt (Security for Costs) (2015) FLC 93-646; [2015] FamCAFC 66
Beroni & Corelli (2021) FLC 94-004; [2021] FamCAFC 9
Jackamarra v Krakouer (1998) 195 CLR 516; [1998] HCA 27
Luadaka & Luadaka (1998) FLC 92-830; [1998] FamCA 1520
Malcher & Malcher (Security For Costs) (2017) FLC 93-803; [2017] FamCAFC 202
Palma & Caleffi and Anor (Security for Costs) [2011] FamCAFC 174
Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49
Division: First Instance Number of paragraphs: 31 Date of hearing: 25 November 2022 Place: Brisbane Counsel for the Applicant: Mr Hackett Solicitor for the Applicant: Feeney Family Law Counsel for the Respondent: Mr Brown Solicitor for the Respondent: Alroe Somers & O’Sullivan Solicitors ORDERS
BRC 11516 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS LUNA
Applicant
AND: MR LUNA
Respondent
order made by:
HOGAN J
DATE OF ORDER:
16 DecemBER 2022
THE COURT ORDERS THAT:
1.Pursuant to s 117(2) of the Family Law Act 1975 (Cth) and r 12.02(1) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth), the Respondent shall, by 4.00 pm on 16 January 2023, pay to the Registry Manager of the Brisbane Registry of the Federal Circuit and Family Court of Australia the sum of $70,000 to be held as security for any costs awarded to the Applicant in the substantive proceedings.
2.In the event the Respondent fails to comply with Order 1 above, the substantive proceedings (being those in which the Respondent seeks an order setting aside the Binding Financial Agreement dated 23 February 2017) shall be stayed pending payment by the Respondent of the said sum.
AND IT IS FURTHER ORDERED THAT
3.In the event that any party seeks an order that another party pay the costs of and incidental to the proceedings commenced by Application in a Proceeding filed 20 October 2022 (sealed on 31 October 2022):
(a)any such party shall, by 4.00pm on 27 January 2023, file and serve
(i)any affidavit necessary to support such application; and
(ii)written submissions in support of such application for costs; and
(b)the party against whom an order for costs is sought shall, within a further fourteen (14) days thereafter, file and serve:
(i)any affidavit necessary for the determination of any such application for costs; and
(ii)any written submissions in answer to the submissions filed and served by the party seeking an order for costs; and
(c)the party seeking an order for costs shall, within seven (7) days of being served with the submissions relied on by the party against whom an order for costs is sought, file and serve any further written submissions, strictly in reply, to the submissions served by the party against whom an order for costs is sought,
and any such application for costs shall be considered in Chambers.
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 Luna & Luna has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HOGAN J
Ms Luna sought[1] that Mr Luna be required to pay an amount by way of security for costs. Whilst the sum sought was originally $397,423.15 and later $200,000, it was accepted by Mr Hackett of counsel who appeared for her that any sum ordered to be paid by way of an order for security for costs should more properly relate to the costs it is anticipated Ms Luna will incur if the matter proceeds to final hearing. Such costs are, on the evidence before me, estimated to range between $70,000 and $150,000 and relate to the three day trial which is currently listed to commence on 13 February 2023.
[1] By Application in a Proceeding filed 20 October 2022 and sealed 31 October 2022.
Ms Luna also sought that the Court make an order that, if Mr Luna does not pay the amount ordered to be paid by way of security for her costs, the substantive proceedings by which he seeks:
(a)an order setting aside a Binding Financial Agreement dated 23 February 2017 (“the Binding Financial Agreement”); and, if successful in that respect,
(b)orders adjusting the interest of the parties in property such that he receive property valued at fifty percent of the nett value of the property of the parties (taking into account the property he has already received in accordance with the terms of the Binding Financial Agreement) (“the proceedings”),
be stayed until he makes such payment.[2]
[2] Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 12.03.
Mr Luna opposes the Court making any orders that require him to provide security for Ms Luna’s costs.
Some uncontentious matters
It is accepted that:
(a)the parties were each legally represented in prior negotiations and preparation of the Binding Financial Agreement and at the time it was signed; and
(b)prior to each of them signing the Binding Financial Agreement, each party was provided with independent legal advice by their respective solicitors about the effect of the agreement on their rights and the advantages and disadvantages (at the time the advice was provided to each of them) of making the agreement; and
(c)the parties have complied with the terms of the Binding Financial Agreement and that, accordingly, Ms Luna caused Mr Luna to be paid $200,000 and to receive superannuation in the amount of $89,000; and
(d)Mr Luna’s application to set aside the Binding Financial Agreement was filed approximately three years after the same was executed by the parties.
Discussion and application of applicable principles
It is clear that the purpose of an order for security for costs is to secure justice between the parties by ensuring that an unsuccessful party does not occasion injustice to the other.[3]
[3] Luadaka & Luadaka (1998) FLC 92-830.
It is well established that:
(a)this Court has, pursuant to s 117(2) of the Family Law Act 1975 (Cth) (“the Act”), the power to make an order for security for costs[4]; and
[4] See for example: Malcher & Malcher (Security For Costs) (2017) FLC 93-803.
(b)if satisfied that there are circumstances which justify it, the Court may, subject to s 117(2A) of the Act, make such order for security for costs as it considers just; and
(c)whilst an applicant for an order for security for costs has to establish that justifying circumstances exist, such person is not required to establish the existence of “special circumstances”; and
(d)the decision whether or not to make an order for security for costs is discretionary – both as to whether to make such an order and also as to the amount to be secured;[5] and
(e)in determining whether or not to make an order for security for costs, the Court should take into account the matters particularised in s 117(2A) of the Act and whether or not:
(i)the claim for security for cost is made bona fide; and
(ii)an order for security for costs would stifle the litigation; and
(iii)the litigation involves a matter of public importance; and
(iv)there has been a delay in bringing the application for an order for security for costs; and
(v)whether there would be difficulty in enforcing an order for costs (if one was made at the conclusion of the substantive proceedings).[6]
[5] Luadaka & Luadaka (1998) FLC 92-830 at [61]–[62].
[6]See for example: Atkins & Hunt (Security for Costs) (2015) FLC 93-646 at [12]; Palma & Caleffi and Anor (Security for Costs) [2011] FamCAFC 174; Luadaka v Luadaka (1998) FLC 92-830.
In addition to the matters particularised in subparagraph (e) above, the Court may consider any of the following matters[7]:
[7] Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 12.02(2).
(a)Mr Luna’s financial means; and
(b)the prospects of success or merits of the proceedings; and
(c)the genuineness of Ms Luna’s application for an order for security for costs; and
(d)whether Mr Luna’s lack of financial means was caused by Ms Luna’s conduct; and
(e)whether an order for security for costs would be oppressive; and
(f)whether a party has an order, in the same or another proceeding (including a proceeding in another court) against the other party for costs that remain unpaid; and
(g)whether Mr Luna ordinarily resides outside Australia; and
(h)the likely costs of the proceeding; and
(i)whether the applicant is a corporation; and whether a party is receiving legal aid; and any other relevant matter.
It is clear that Ms Luna bears the onus of establishing that there are circumstances that justify an order as to costs, pursuant to s 117(2) of the Act, by reference to the relevant matters referred to in s 117(2A) of the Act and the relevant discretionary considerations for security for costs orders noted above.
Some of the matters summarised above are not relevant in this case: for example, neither party to the proceedings is a corporation; Mr Luna ordinarily resides in Australia; neither party is in receipt of legal aid funding; there is no evidence to suggest that either party has an order for costs against the other that remains unpaid.
Whilst Mr Luna contended otherwise, I am not persuaded that there is anything in the proceedings which suggests that the substantive proceedings in which these parties are engaged involves a matter of public importance.
I accept that Ms Luna’s claim for an order for security for costs is made bona fide. I am not persuaded that there was delay in Ms Luna bringing the application for an order for security for costs in the circumstances of this case.
Ms Luna’s evidence includes that she has spent $247,423.15 on the proceedings to date and that she has been advised that her future costs may be between $70,000 and $150,000. She is employed in a job for which she is paid $250,684.74 per annum; whilst she continues to operate B Pty Ltd, she says that the business has struggled to find staff and, in essence, that it has anticipated costs, including those associated with a lease, of about $469,967.19 (exclusive of the costs associated with meeting staff leave entitlements and the costs associated with winding it up). Whilst Ms Luna’s financial situation appears superior to that of Mr Luna, I accept that the making of an order for security for costs is not confined to those cases in which an applicant for security (in this case, Ms Luna) does not have the means to meet his or her costs and that, in appropriate circumstances, an order may be made even if an applicant for security has the means to meet his or her costs.
The evidence before me establishes that Mr Luna’s financial circumstances are relatively limited. To the extent that it was submitted that his financial circumstances are the consequence of Ms Luna’s actions in relation to the parties’ entering into the Binding Financial Agreement, I note that it is accepted that he received a payment of $200,000 and the amount of $89,000 by way of superannuation as required by the terms of the Binding Financial Agreement.
I accept that Mr Luna’s relative impecuniosity is not, of itself, sufficient to justify an order for security for costs; I also accept, though, that such impecuniosity does not prevent an order being made if there are other grounds which justify the same.
Whilst any subsequent order for costs made in Ms Luna’s favour could arguably be enforced by garnishee, I think, given Mr Luna’s financial circumstances, that it is more likely than not that there may well be difficulty associated with Ms Luna enforcing any order for costs made in her favour against Mr Luna.
It was, I think quite properly, accepted by Mr Hackett on behalf of Ms Luna that an order requiring Mr Luna to pay the amount sought into the Registry by way of an order for security for costs would, because of Mr Luna’s financial circumstances, likely stifle the proceedings. Given this very appropriate recognition of the circumstances in this case, it seems to me that significant focus needs to be paid to the assessment of Mr Luna’s prospects of succeeding in his application for an order setting aside the Binding Financial Agreement.
Whilst a financial agreement which meets the requirements imposed by s 90G of the Act, as I understand it to be accepted that the Binding Financial Agreement does, is binding in a manner that allows the parties to it to have personal autonomy in relation to their financial affairs, this does not mean that their choices are insulated from vitiating conduct.[8]
[8] Beroni & Corelli (2021) FLC 94-004 at [69].
Instead, an order setting the Binding Financial Agreement aside may be made: but if – and only if – the Court is satisfied, relevantly in this case, that:
(a)the Binding Financial Agreement was obtained by fraud including non-disclosure of a material matter; and/or
(b)the Binding Financial Agreement is void, voidable or unenforceable; and/or
(c)in respect of the making of the Binding Financial Agreement, Ms Luna engaged in conduct that was, in all the circumstances, unconscionable.[9]
[9] Family Law Act 1975 (Cth) ss 90K(1)(a), (b) and (e); s 90KA.
It is relevant to note that Mr Luna bears the onus of establishing the matters asserted as providing the basis for an order setting the Binding Financial Agreement aside.
Ms Luna asserted that Mr Luna’s claim is entirely without merit; she said that the various documents produced in answer to subpoenas issued on his behalf establish that she did not fail to make proper disclosure to him before he entered into the Binding Financial Agreement and that there was no money hidden by her that had not otherwise been disclosed to him; it was submitted that the evidence does not establish that she failed to disclose a material matter to Mr Luna in the process of obtaining his agreement to the Binding Financial Agreement. It was submitted on her behalf that there was no proper basis on the evidence for Mr Luna to assert that she failed to make proper and appropriate disclosure to him during the process of negotiations in which the parties engaged prior to each of them executing the Binding Financial Agreement (and thereby committed a fraud) and that there is no evidence to support any contention that she misled Mr Luna in their discussions before each executed the Binding Financial Agreement. It was also submitted that the disclosure of Mr Luna’s previous lawyer’s file established that he was repeatedly given legal advice about the appropriate process he could have chosen to adopt before he executed the Binding Financial Agreement and that it was clear that, in deciding to sign the Binding Financial Agreement in February 2017, he made a decision based on his own goals and desired outcomes and that his decision-making was not the consequence of any alleged undue influence or unconscionable conduct by Ms Luna.
In addition, Mr Hackett submitted that, even taken at the highest, the assertions made by Mr Luna in relation to Ms Luna’s behaviours toward him in relation to the making of the Binding Financial Agreement were not such as to establish the existence of undue influence or that, at the relevant time, she engaged in conduct that was, in all the circumstances, unconscionable. He also submitted that the fact that an amount was, at whatever date, shown in the bank account/s of the business operated by Ms Luna did not establish that the business had a value other than the nominal value attributed to it in the Binding Financial Agreement.
I accept for the purpose of considering the current application that Mr Luna is genuine in prosecuting his application to set aside the Binding Financial Agreement. However, I do not accept any contention that his application is certain to succeed. The evidence relied on seems to me to consist of little more than Mr Luna’s assertions of belief (which would likely be inadmissible at the final hearing) that Ms Luna failed to provide the necessary disclosure prior to the parties entering into the Binding Financial Agreement; this remained the position despite the Court having earlier made orders, in the face of her opposition to the same, requiring Ms Luna to provide extensive disclosure to Mr Luna.
In addition, reference to the terms of the Binding Financial Agreement seems to me to establish that:
(a)it was made pursuant to s 90C of the Act after the breakdown of the parties’ marriage; and
(b)it was made in circumstances where: the parties had commenced their cohabitation in about 2004, married in 2005 and separated on about 4 September 2016 (that is, after a period of about 12 years’ cohabitation); the parties have two children – X, (who was born in 2005 and who was nearly 12 years of age when the agreement was executed) and Y (who was born in 2006 and who was 10 years of age when the agreement was executed); and
(c)the parties acknowledged by its terms that Ms Luna should receive “the lion’s share” of the assets, liabilities and financial resources of the parties given that she had made the overwhelming financial contribution at the commencement of their cohabitation and during the cohabitation such that:
(i)the value of her initial contribution was acknowledged to be $1,400,000; and
(ii)she was acknowledged to be the primary financial contributor and provider during the cohabitation and, as well as contributing funds earned by her own exertions, she had also received and contributed two separate lump sum payments totalling $600,000; and
(iii)she was acknowledged to be the party who would be responsible for paying for the majority of the children’s future medical and educational costs (including school-related expenses) – as well as having met these after separation – and that these were in increased amounts because of the children having special needs consequent on their diagnoses of autism and ADHD; and
(d)each of Ms Luna and Mr Luna asserted that they had each provided the other “relevant financial disclosure of their financial affairs including all property, liabilities and financial resources owned or believed to be owned by them and are satisfied with the financial disclosure they have received from the other party”; [10] and
[10] Clause 17.
(e)each party agreed to voluntarily waive the right to any additional disclosure relating to the financial affairs of the other and acknowledged that each had sufficient personal awareness of the other’s financial affairs and circumstances as to be confident of the extent and accuracy of the disclosure made by the other about his or her financial affairs and circumstances at the time they entered into the agreement; [11] and
[11] Clause 19
(f)each party acknowledged that they had had ample and complete opportunity to review the financial disclosure made by the other party and to request additional information from the other party; [12] and
[12] Clause 20.
(g)each party acknowledged that the valuation in some cases was a matter of opinion and not a science and that accordingly there may be differences of opinion as to the value of some property and that such differences shall not affect the enforceability of the agreement;[13] and
(h)the parties asserted that the property, financial resources and liabilities of each of them as at the date of the agreement were identified and described in Annexure A to the agreement;[14] and
(i)each party acknowledged that the values attributed to the property and financial resources contained in Annexure A had been arrived at through enquiries made by each party in relation to the current estimates of values of the relevant items and that, in arriving at the agreement, neither had relied solely upon the estimate of value of the other (as set out in Annexure A) as the basis upon which their agreement had been reached; nor had they relied upon any other representations of the other party in relation to the estimates of value attributed to any property or financial resource;[15] and
(j)each party confirmed that the assets, liabilities and financial resources owned by each of them were as set out in Annexure A to the agreement as at 22 January 2017[16] and that Annexure A “fully and adequately discloses the identity, nature and estimated value of their assets, financial resources and liabilities”;[17] and
(k)each party acknowledged that the values for the assets set out in Annexure A were derived from their estimates in relation to the value of their property[18] and that they had “not elected to undertake formal valuation processes in relation to any of the assets given the composition of the property pool and the costs associated with such a process”;[19] and
(l)each party asserted that “they have satisfied themselves independently that the values as given in Annexure A are accurate” and that, during the course of negotiations, each had had the opportunity to seek and obtain accounting and/or financial planning advice regarding the effect of the agreement on their respective financial positions;[20] and
(m)the parties contracted that, in reaching the agreement they did, they had taken into account exigencies of life insofar as the same may affect the financial and other circumstances (favourably or unfavourably) of each of them with such exigencies to include but not be limited to: the prospect of either of them having a vastly superior income or earning capacity to the other from separation; the possibility that either of them might lose any or all of the property they received or retained as a consequence of the agreement; the possibility that either of them might see a significant increase in the value of any or all of the property they received and retained as a consequence of the agreement and the prospect of a change in the parenting arrangements for the children;[21] and
(n)each party agreed and acknowledged that the agreement resulted from their discussions over a period of time and that the date upon which the agreement was executed was in no way representative of the amount of time they had devoted to discussions concerning its terms;[22] and
(o)each party acknowledged and warranted that: each had entered into the agreement after mature consideration and judgement; each had the opportunity to seek and had sought such legal and financial advice that they considered prudent and appropriate; having received that advice, each fully understood the terms, conditions and provisions of the agreement;[23] and
(p)each party acknowledged and warranted that they had entered into the agreement of their own free will and volition and that no coercion, force or undue influence had been used in the execution of it by the other party or by any other person or persons.[24]
[13] Clause 21.
[14] Clause 22.
[15] Clause 23.
[16] Clause 24.
[17] Clause 25.
[18] Clause 26.
[19] Clause 28.
[20] Clause 29.
[21] Clause 63.
[22] Clause 87.
[23] Clause 89(a).
[24] Clause 89(b).
According to Annexure A to the Binding Financial Agreement: the total nett value of the property of the parties (exclusive of entitlements to superannuation) was $734,387.43; the value of the parties entitlements to superannuation was $532,000 (with this comprising: the value of real property situated at Suburb D; shares in a number of listed companies; $167,486.18 cash at bank); and the total nett value of the property of the parties (inclusive of entitlements to superannuation) was $1,266,387.43.
As already noted, the terms of the Binding Financial Agreement provided for Mr Luna to receive $200,000 in cash and $89,000 by way of superannuation: the $289,000 which it is accepted he has received represents 23.37 per cent of the total nett value of the property of the parties (inclusive of entitlements to superannuation); 16.73 per cent[25] of the total superannuation entitlements; and 27.23 per cent of the total nett value of the property of the parties (exclusive of superannuation).
[25] Rounded up.
Whilst expressed only for the purpose of determining the application for an order for security the costs, it seems to me that such a result cannot easily be regarded as being outside the broad range of the discretionary assessment likely to be arrived at following a consideration of the relevant statutory considerations.[26]
[26] Family Law Act 1975 (Cth) ss 79 and 75(2).
This conclusion, coupled with:
(a)the absence of evidence adduced by Mr Luna to support his contention that Ms Luna committed a fraud by failing to disclose a material matter prior to the parties entering into the Binding Financial Agreement; and
(b)the paucity of Mr Luna’s evidence in relation to the allegations of undue influence and unconscionable conduct;[27] and
(c)the delay in Mr Luna bringing his application seeking an order that the Binding Financial Agreement be set aside; and
(d)the quantum of the costs which Ms Luna has already incurred and those which it is estimated she is likely to incur in the trial of the substantive proceedings; and
(e)the difficulties which I consider are likely to attend Ms Luna’s attempts to recover her costs in the event that Mr Luna’s application is ultimately successful,
have combined to persuade me that the circumstances here justify the making of an order that Mr Luna be required to provide security for Ms Luna’s costs. I arrive at this conclusion despite the fact that it is likely that such an order will result in a stifling of the substantive proceedings.
[27] See the discussion in Thorne v Kennedy (2017) 263 CLR 85.
In the exercise of the discretion accorded to judges at first instance, I consider that an order requiring Mr Luna to provide security in the amount of $70,000 is necessary to secure justice as between the parties to this proceeding. I am also persuaded that it is appropriate and necessary to secure justice as between the parties to the proceeding to make an order that such amount be paid by 4.00 pm on 16 January 2023 and that, if this is not the case, the proceedings be stayed pending payment of the same.
At this stage the substantive proceeding will retain its current trial listing of 13 February 2023.
If Mr Luna pays the amount as ordered, I am confident that there will be sufficient time for the parties to engage in whatever preparations may be necessary to ensure that the matter proceeds on the dates currently allocated to it. In order to ensure that this is the case, I intend, if Mr Luna makes the payment as ordered, to list the matter for mention in the week commencing 23 January 2023 to enable the parties to be heard about whatever directions are necessary to ensure that the trial proceeds as listed.
In the event that Mr Luna does not pay the amount ordered by the date required, the trial will be delisted. This seems to me to be the most appropriate course and is intended to limit, to the extent possible, further costs to the parties.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hogan. Associate:
Dated: 16 December 2022
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