Maslen & Maslen
[2021] FamCA 237
•28 April 2021
FAMILY COURT OF AUSTRALIA
Maslen & Maslen [2021] FamCA 237
File number(s): ADC 4275 of 2017 Judgment of: MEAD J Date of judgment: 28 April 2021 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE –
Application for litigation funding – consideration of order pursuant to s.79 or s.117(2) of the Family Law Act 1975 – husband more financially advantaged – husband controls parties assets – major asset is a retail business – income from the business supports wife and four children as well as husband – no identifiable source of funds to satisfy interim property settlement order or costs order including ‘dollar for dollar’ order – Court not persuaded an interim property settlement order is just and equitable – application dismissed.Legislation: Family Law Act 1975 (Cth) ss 75(2), 79, 79(4), 117, 117(1), 117(2), 117(2A) Cases cited: Atkins & Hunt and Ors [2018] FamCA 14
Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578
Strahan & Strahan (interim property orders) (2011) FLC 93-466
Zschokke & Zschokke (1996) FLC 92-693
Number of paragraphs: 104 Date of hearing: 1 December 2020 Place: Adelaide Counsel for the Applicant: Ms Lewis Solicitor for the Applicant: Jacqui Ion Lawyers Pty Ltd Counsel for the Respondent: Mr McGinn Solicitor for the Respondent: Angela Ferdinandy ORDERS
ADC 4275 of 2017 BETWEEN: MS MASLEN
Applicant
AND: MR MASLEN
Respondent
ORDER MADE BY:
MEAD J
DATE OF ORDER:
28 APRIL 2021
THE COURT ORDERS THAT:
1.That paragraphs 3 and 4 of the wife’s response to application in a case filed herein on 19 October 2020 be dismissed.
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 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Maslen & Maslen has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
On 16 October 2020 the husband filed an application in a case seeking a suite of procedural orders primarily relating to the property settlement aspect of this matter but including an application for an adjournment of the trial, which at that time was listed to commence on 16 November 2020.
On 19 October 2020 a response was filed by the wife opposing the adjournment of the trial and also seeking a suite of procedural orders primarily related to the property settlement aspects of the matter. In addition, in paragraphs 3 and 4 of her response the wife sought orders for litigation funding. It is that aspect of the interim applications with which these reasons and decision are concerned.
The application in a case and the response initially came before the Court on 21 October 2020. On that date the Court determined that the trial date of 16 November 2020 should be vacated and relisted the matter for trial to commence on 1 February 2021.
The remaining issues canvassed by the application and response were adjourned to 1 December 2020. On this date oral argument was heard on the papers with respect to the issue of litigation funding.
The orders sought by the wife were set out in paragraphs 3 and 4 of her response to the application in a case filed 19 October 2020, in the following terms:
3.In the alternative to paragraph 2 hereof and in the event that this Honourable Court vacates the trial scheduled for 16 November 2020, the husband do pay to the Jacqui Ion Lawyers Law Practice Trust Account within 30 days the sum of $120,000 on account of litigation funding.
4.In the alternative to paragraph 3 hereof, that there be a dollar for dollar order such that the husband shall pay (or cause to be paid) to the Jacqui Ion Lawyers Law Practice Trust Account such sum as equals the husband’s payments to his solicitors and counsel on account of legal fees to date and thereafter on a dollar for dollar basis.
The wife relied on her affidavits filed 19 October 2020 and 27 November 2020 as well as a financial statement filed on 18 September 2020.
The husband relied on his affidavit and financial statement both filed 23 November 2020.
Both parties’ affidavits dealt with issues unrelated to the dispute regarding litigation funding and in these reasons I will only refer to those parts of the affidavits relevant to that issue.
Background
Litigation between the parties commenced in this matter on 6 October 2017. Proceedings commenced in the Federal Circuit Court of Australia but were transferred to the Family Court of Australia by order of Judge Brown of 30 July 2019.
The parties are in dispute both as to parenting issues and property settlement.
The trial with respect to those competing applications is now listed to commence on 19 July 2021.
The wife has been represented at all times since the commencement of the proceedings by Jacqui Ion Lawyers.
The husband was initially represented by G Solicitors from Suburb H in Victoria but on 20 March 2019 that firm of solicitors filed a notice of withdrawal of lawyer. A notice of address for service was filed on behalf of the husband by Angela Ferdinandy solicitor on 28 May 2019. On 11 July 2019 the husband filed a notice of address for service as a self‑represented litigant.
At all hearings between 30 July 2019 and 21 July 2020 the husband appeared on his own behalf.
On 23 September 2020 Angela Ferdinandy solicitor filed a notice of address for service for the husband. Ms Ferdinandy remains the solicitor on file and the husband has been represented by counsel at all hearings since and including 7 October 2020.
The matter is complex.
Allegations of family violence resulted in the Court making a section 102NA(2) order with respect to cross-examination on 30 April 2020 in circumstances where the husband at that time was unrepresented.
The complexities of the dispute have been exacerbated by practical problems arising from the impact of COVID-19 on the parties and the inability of the Court to progress the matter in circumstances where the wife and the parties’ four children have resided in South Australia since the latter part of 2017 whilst the husband resides in regional Victoria.
On 18 September 2020 the wife filed a further amended initiating application specifying orders sought by way of parenting issues and settlement of property. In paragraph 8 the wife sought that by way of final property settlement she receive 65 per cent of the net non-superannuation assets and 50 per cent of the superannuation assets by way of superannuation split.
On 23 November 2020 the husband filed an amended response to the wife’s initiating application specifying orders he sought by way of parenting issues and settlement of property.
In paragraphs 1 and 2 of the response under the heading “PROPERTY” the husband proposed a transfer by the wife to him of the majority of the matrimonial assets and that contemporaneously with the transfers he pay to her the sum of $500,000 and indemnify her against any liabilities attaching to those properties and the mortgage over the former matrimonial home. In paragraph 1.3 he proposed an equalisation of the parties’ superannuation entitlements.
Wife’s evidence
In the affidavit filed by the wife on 19 October 2020 in support of her response to the husband’s application in a case filed 16 October 2020, the wife set out evidence on which she relied with respect to her application for litigation funding.
The wife deposed in paragraph 10 to:
·being opposed to the adjournment of the trial (then listed for 16 November 2020);
·the husband controlling all of the parties assets;
·the husband living in the former matrimonial home and operating the retail business from premises owned by the parties’ trust, namely Maslen Property Trust;
·the husband accessing income earned from the retail business “as he pleases”;
·often being “at the mercy” of the husband with respect to whether or not she received spousal maintenance as ordered;
·her solicitor not being in a position to hold her fees any longer if the trial did not proceed on 16 November 2020;
·owing Jacqui Ion Lawyers at that time the sum of $120,280.94;
·$32,427.73 being held in trust by her solicitor on account of counsel fees for trial;
·some $4,000 worth of work in progress plus GST yet to be billed by her solicitor;
·having no capacity to meet her legal fees at that time;
·asserting her solicitor “cannot be expected to carry me until trial” in respect of her legal fees;
·seeking a lump sum of $120,000 from the husband within thirty days on account of litigation funding to enable her to pay her outstanding legal fees if the trial should be adjourned from 16 November 2020 in accordance with the husband’s application;
·the husband having drawn on funds from the business to meet his legal fees when previously represented;
·seeking the sale of property at B Street, C Town Victoria in the event that the husband does not have easy access to funds to meet payment of litigation funding;
·not being able to remain legally represented if she is not able to receive litigation funding; and
·seeking a “dollar for dollar order” with respect to payment of her legal fees in the alternative to an order for litigation funding.
Husband’s evidence
In the affidavit of the husband filed 23 November 2020 he set out the evidence upon which he relied with respect to the wife’s litigation funding application, in particular in paragraphs 4 to 9 inclusive, 26, 30, 31, 32 and 34. The husband deposed to:
·a cost’s advice received by him from his solicitors as at 20 October 2020;
·actual costs paid to that date being $23,457.22;
·$18,350 remaining in his solicitor’s trust account;
·the total future costs of completing the case if no agreement is reached including costs of trial being estimated to be $100,000 to $150,000;
·having paid a further sum of $35,000 into his solicitor’s trust account since 20 October 2020 to cover work in progress, expert report fees and valuations;
·having acted on his own behalf to try and save legal costs;
·having paid to or on behalf of the wife the sum of $432,527.85 by way of spousal maintenance since separation;
·having paid a further $27,005 for joint costs associated with the case;
·the earlier payment of $100,000 by way of litigation funding to the wife;
·those payments having been made from drawings and dividends with tax payable at the rate of 48 cents;
·needing to live frugally as a result of the depleted cash flow occasioned by the wife’s expenses;
·having incurred a tax debt of $148,621 he is unable to repay out of capital resources which is being repaid to the Australian Taxation Office at the rate of $2,307 per week;
·having limited resources available to enable him to pay for his own legal representation;
·having spent approximately $117,500 to that date on legal costs including the $35,000 paid into his solicitor’s trust account;
·having no capacity to pay for his own anticipated costs of trial including counsel fees out of the business account;
·having been informed by his family that they will lend him approximately $50,000 for trial but not if any of those funds were to be paid to the wife;
·having to represent himself if a “dollar for dollar order” is made in circumstances where his lawyer has advised she is not prepared to act if her costs and disbursements are not secured;
·being willing to sell the van and motor vehicles and pay the net proceeds into the wife’s solicitor’s trust account;
·there being no other means to raise cash before trial;
·continuing to operate the retail business ;
·the business having generated the income for him to have paid substantial amounts of spousal maintenance, child support and expenses including legal expenses to the wife to date;
·most of that money being available when he was unrepresented and not liable to pay his own legal fees;
·having used the remaining limited resources for his own costs and to it being necessary for him to raise funds from family if he is to continue to be represented;
·opposing any further order for litigation funding;
·the business being the only source of income for he and the wife;
·wishing to retain the business and the property and farm as part of the settlement with the wife;
·believing it to be possible for him to secure finance to pay the wife any final judgment sum; and
·opposing a “dollar for dollar order” for litigation funding.
Wife’s evidence in reply
In the wife’s further affidavit filed 27 November 2020 she deposed to:
·currently owing Jacqui Ion Lawyers the sum of $121,280.94 including counsel fees;
·being informed by her solicitor that neither the solicitor nor counsel were in a position to hold payment of their outstanding fees;
·being further informed that she could not continue to accrue fees and disbursements without the current amount owing to the solicitor being paid;
·seeking a payment from the husband of $100,000 on account of litigation funding in an application in a case filed 26 July 2019;
·owing Jacqui Ion Lawyers the sum of $67,572.27 inclusive of counsel fees and disbursements at that time;
·being required to deposit into the Jacqui Ion Lawyers trust account the sum of $30,000 in order to secure counsel for trial;
·being advised by her solicitor that provided the outstanding fees of $67,572.27 were paid, and provided the matter was listed for trial and proceeded to trial in 2020, the solicitor would continue to represent her until the completion of the proceedings and hold payment of further fees until the completion of the property settlement;
·an order being made on 22 October 2019 that the husband pay to Jacqui Ion Lawyers trust account the sum of $50,000 before 17 December 2019 and a further $50,000 before 14 February 2020 by way of litigation funding;
·the husband paying both sums of money to her solicitor’s trust account by the due dates;
·the first payment of $50,000 being utilised to pay the remainder of an invoice dated 5 October 2018 and to part‑pay an invoice dated 24 September 2018;
·the second litigation funding payment of $50,000 being utilised to pay the remainder of the invoice dated 24 September 2018, with the balance amount of $32,427.73 remaining in Jacqui Ion Lawyers trust account as at 27 November 2020;
·having incurred further fees and disbursements of $121,280.94 since the application in a case for litigation funding was filed on 26 July 2019;
·there being a further amount of approximately $10,000 in work in progress unbilled;
·the solicitor being prepared to hold payment of her fees if the matter came to a conclusion in 2020 but otherwise not being in a position to hold the fees if the trial did not take place until 2021;
·the husband re-engaging lawyers from 23 September 2020;
·the husband having paid $23,457.22 to his solicitor’s office account and $18,350 into Angela Ferdinandy Trust Account, being a total of $41,807.22 for the period 23 September 2020 to 20 October 2020;
·the husband paying his solicitor a further $35,000 between 20 October 2020 and the filing of his affidavit on 23 November 2020;
·the husband having drawn funds from the business accounts to pay his legal fees;
·not having been in a position to pay any sums to her solicitor on account of fees since receiving the second amount of $50,000 by way of litigation funding on 1 February 2020;
·those funds being utilised to reduce fees incurred prior to 24 September 2019;
·her solicitor paying a total of approximately $10,000 on account of disbursements on her behalf since 12 February 2020;
·the husband deposing in his affidavit filed 23 November 2020 to having paid $117,500 in legal fees in total to that date;
·the husband having been unrepresented for a period of sixteen months during the proceedings;
·her having incurred total legal fees and disbursements of $229,852.98 of which she has paid to her solicitor the sum of $108,572.27;
·counsel currently being owed the sum of $7,108.75;
·suffering prejudice if she cannot be represented by Jacqui Ion, solicitor and Taanya Lewis, counsel in circumstances where they have been her legal representatives throughout the proceedings; and
·pressing her application for a lump sum payment of $120,000 on account of litigation funding, or in the alternative a “dollar for dollar order”.
Financial circumstances of the parties
On 18 September 2020 the wife filed a financial statement together with her trial affidavit.
She deposed therein to total average weekly income in the sum of $2,222 and total personal weekly expenditure in the sum of $2,238.
She deposed to owning property to a value of $35,607 and to having superannuation entitlements in the sum of $218,438.
She deposed to liabilities in the sum of $52,536.
The husband filed a financial statement on 23 November 2020.
He deposed to total average weekly income of $8,068 and total personal weekly expenditure in the sum of $7,740.
He deposed to owning property to a total value of $1,944,237 and to having superannuation entitlements in the sum of $220,000.
He deposed to total liabilities in the sum of $1,487,033.
The husband’s total weekly income as specified in Part D of his financial statement was derived from the retail business and based on his 2020 taxable income equating to $6,890 per week. He deposed to further benefits from the Maslen Family Trust in the sums of $387 and $698 respectively, a total of $1,085 derived from the Service Trust and Property Trust.
He deposed to $79 worth of motor vehicle expense benefits from the business and $14 per week phone internet benefits. Those amounts totalled his weekly deposed income of $8,068.
In Part G relating to his personal expenditure he deposed to paying for the benefit of the wife and the parties four children a weekly amount of $2,458 including $237.69 by way of weekly car insurance expenses and contents insurance.
His other weekly expenses consisted of:
·a taxation liability of $2,001;
·superannuation contributions to the self-managed superannuation fund in the sum of $192;
·mortgage payments for the C Town farm in the sum of $394;
·rates and taxes in the sum of $141;
·income protection premiums in the sum of $36 per week;
·farm insurance in the sum of $38 per week;
·health premiums in the sum of $23 per week;
·the payment plan with the Australian Taxation Office with respect to arrears of tax in the sum of $2,307 per week; and
·loan repayments to his father in the sum of $150 per week.
Under the heading of “property owned by you” he deposed to:
·the property at B Street being valued at $700,000 and registered in his sole name;
·to having $1,502 in his NAB personal account; and
·owning in his own name two motor vehicles, namely a motor vehicle 2 he values at $10,000 and a motor vehicle 1 he values at $4,000.
He included in the list of property a valuation for the retail business in the sum of $1,227,735 and deposed to owning household contents in the sum of $1,000.
He deposed to liabilities by way of home mortgage in the sum of $521,947, and under the heading “other mortgages” in Part K, paragraph 47, the words “just paid $75,000 on 5 November 2020” appears with no explanation.
He further deposed to total income tax assessed and unpaid in previous financial years in the sum of $148,621 and to tax in his name being due in the sum of $5,465.
He deposed to a credit card liability of $1,000, a personal loan to his parents in the sum of $110,000 and a potential capital gains tax liability of $700,000. The asserted potential capital gains tax liability of $700,000 was referred to in the husband’s affidavit filed 23 November 2020 in paragraph 30. When referring to payments already made to or on behalf of the wife with respect to litigation funding, spousal maintenance and other benefits he deposes as follows:
…This is in the context that (as per the D Company valuation of 19 November 2020) the business is only worth $1,227,735 and the net value of the other non-superannuation assets is negligible. If the business has to be sold then Capital Gains Tax of up to $700,000 is likely, bringing the value of the pool down to only $527,735.
There is no reference in that affidavit to the alleged debt to his parents.
The parties are in dispute as to the value of the business.
In the wife’s financial statement she deposed to the amount paid to her by the husband for maintenance and child support being $2,222 per week but to the further sums of $207 being paid on her behalf by the husband for car expenses each month and $20 per week likewise paid by him for her car insurance.
Accordingly, the parties are only $10 apart in terms of what the wife concedes the husband pays each month to or on her behalf for the support of herself and the children.
The wife deposes to weekly:
·rental payments of $820;
·health insurance premiums of $57;
·motor vehicle registration costs in the sum of $17;
·minimum credit card payments totalling $135; and to
·Part N expenses totalling $1,209 for herself and for the children.
Those amounts total $2,238.
As to property owned by her, the wife deposes to having $180 in a bank account, $3,000 worth of household contents and funds standing to her credit in her solicitor’s trust account on account of counsel fees in the sum of $32,427.
Her claimed liabilities of $52,536 comprise $45,000 by way of unpaid work in progress owing to her solicitors and total credit card debts of $7,536.
Wife’s application for litigation funding
In circumstances where the wife’s application for litigation funding was contained within her response to the husband’s application in a case filed on 16 October 2020, and where other procedural issues were in dispute as between the parties, counsel for the husband made submissions as to all issues, including the wife’s application for litigation funding, prior to the submissions of the wife’s counsel.
It was submitted by counsel for the husband that:
·the husband is using working capital to pay expenses for the wife;
·both parties need legal representation;
·the wife’s application does not identify the section of the Family Law Act 1975 upon which it is based;
·the capital provisioning for the wife from the income generated by the retail business is draining the business of working capital;
·such a submission is supported by the evidence contained in the affidavit of Ms F filed 23 November 2020;
·the business needs working capital of $210,000 to $290,000 per month for cash flow to be managed;[1]
[1] Affidavit of Ms F filed 23 November 2020 - paragraph 8
·the income generated from the retail business has to support the family;
·in meeting payments to the wife or on behalf of the wife in the sum of $559,528 since July 2017 the husband has not had the means to pay tax obligations of the business as they arise;
·taking into account the husband’s evidence contained in his financial statement he has $328 per week to live on;
·there is no source of capital available to the husband to meet the quantum of costs sought by the wife;
·the wife’s case for litigation funding is not made out on the material filed in support with respect to either an order for costs or any form of interim property order;
·the conduct of the proceedings has been more complicated and expensive on account of the wife breaching Rules as to expert evidence and failing to provide disclosure;
·a change in the arrangements between the wife and her legal representatives with respect to them being no longer able to hold their fees appears to be the change that precipitated the wife’s application for litigation funding;
·it is not clear why a delay in the trial date would lead to a change in the position of the wife’s legal representatives;
·there is no evidence that the wife has sought alternative legal advice from another practitioner who may be prepared to act on the basis of fees being paid at the conclusion of the matter;
·the husband now has legal representation;
·the husband needs advice and representation as well as the wife;
·the Court should not exercise its discretion to order funds be made available for litigation funding for the wife in the circumstances of this case;
·the Court does not have before it a full list of the parties assets and liabilities to be able to properly consider any interim order for property settlement pursuant to section 79 of the Family Law Act 1975, although the ambit of the dispute is now clearer;
·the wife makes no reference in her affidavit evidence in support of her application as to the issues of contribution and section 75(2) factors;
·there is a significant discrepancy between the parties views as to the value of the goodwill of the retail business ;
·the value of the asset pool is very uncertain;
·the Court should disallow any claim for litigation funding arising from the Court’s power to make interim order pursuant to section 79 of the Family Law Act 1975 in light of the failure of the wife to put detailed issues regarding section 79 and section 75(2) factors before the Court in support of her application;
·the wife’s application appears to be made pursuant to section 117 of the Family Law Act 1975;
·the wife is unable to take the Court to any asset from which $120,000 can be provided to her for litigation funding;
·overall the application only arises because of the changed circumstances between the wife and her solicitors with respect to their preparedness to continue to act for her until the conclusion of the matter without immediate payment of their fees and disbursements;
·the husband has offered to sell two motor vehicles and provide the net sale proceeds to the wife towards her litigation costs;
·with respect to the wife’s alternative application for a “dollar for dollar order”, the same problem arises for the wife, namely her lack of ability to clearly set out to the Court the assets and liabilities of the parties;
·the wife has incurred about $274,679 in legal expenses and the husband about $117,000;
·any suggestion for a “dollar for dollar order” to enable a “levelling of the playing field” suggests there should be provisioning for the husband in circumstances where the wife’s funding for trial has been largely secured noting funds in the wife’s solicitor’s trust account for counsel fees of $32,000;
It was submitted by counsel for the wife that:
·there have been various changes to trial dates in the matter such that the accommodation between the wife and her solicitor with respect to costs has changed;
·countless work had to be undertaken by the wife’s solicitors on account of the wife because of the husband’s failure to comply with orders of the Court including as to spousal maintenance;
·the wife’s income is derived from spousal maintenance payments and child support payments made to her by the husband by way of drawings from the business;
·she has no capacity to meet her legal fees from those payments;
·the husband could not be said to be prejudiced by the wife’s application in circumstances where he has drawn $75,000 from entities he controls to secure representation for one and a half months of work between September and October 2020;
·it is conceded that the wife’s legal fees are more than those of the husband but the Court must take into account that the party who is not in control of the matrimonial assets more often incurs higher fees because of having to “chase everything”;
·the first offer made by the husband since the initial order for litigation funding was an offer to sell two motor vehicles and provide the net proceeds of sale to the wife in circumstances where the offer first appeared in the husband’s affidavit filed 23 November 2020, where the wife has been requesting further litigation funding since October 2019 and where the husband has failed to comply with two previous orders regarding the filing of trial affidavits;
·the wife has no independent knowledge of the matters deposed to in the affidavit of the business bookkeeper, Ms F;
·the husband is in a position where he can deal with funds derived from the business in any manner he chooses, evidenced by paying $75,000 on account of legal fees in the month prior to the hearing;
·the husband’s income is vastly superior to that of the wife;
·if the Court is not satisfied that the wife has made out a case for an interim payment to her then it should be satisfied as to the making of a “dollar for dollar order”;
·it is clear to the Court that it has not been misled as to the basis of the wife’s application for litigation funding when written submissions[2] specify that the Court has power to order:
[2] Dot-point summary filed on behalf of the wife on 27 November 2020 – paragraph 22
·an interim property order pursuant to section 79 of the Family Law Act 1975; or
·litigation funding pursuant to section 117(2) of the Family Law Act 1975; or
·a “dollar for dollar order” pursuant to section 117(2) of the Family Law Act 1975;
·the Court should take into account that the wife would receive at least an entitlement of $220,000 as a final order, being $100,000 litigation funding already paid plus the additional $120,000 sought, in circumstances where the husband deposes to a capacity to refinance his circumstances to meet a payment to the wife in the sum of $500,000;
·the husband deposes to the capacity to obtain funds to the extent of $50,000 to assist him with the costs of the proceedings;
·in those circumstances the husband should be compelled to allocate funds to the wife;
·the Court has before it the trial affidavits of both the husband and the wife clearly setting out the asset pool from each of their perspectives; and
·the husband’s response proposes a payment of $500,000 to the wife and therefore the issue of “clawback” is addressed.
Legal principles
The Court has jurisdiction to make the order sought by the wife either by way of an interim property settlement order or pursuant to section 117(2) of the Family Law Act 1975 (‘the Act’) by way of a costs order.
There is no doubt in this case as to “the desirability of legal representation for both parties in family law proceedings.”[3] This is a complex case that has not been made any easier in circumstances of the husband not having legal representation for some sixteen months and by the impact on the parties of COVID-19 restrictions.
[3] Zschokke & Zschokke (1996) FLC 92-693 (‘Zschokke’)
There is no doubt in this matter that it is the husband who has had control of the assets of the parties and the funds derived from the major asset, namely the retail business , since the parties separated in 2017.
The wife has been represented at all times during the proceedings. She has incurred considerably more legal fees than the husband, namely approximately $230,000 at the time of the hearing of this application, compared to $117,500 in fees incurred by the husband.
There is no dispute between the parties as to the jurisdictional basis for the Court to make orders as sought by the wife, save that counsel for the husband submits to the Court that:
·the evidence relied on by the wife does not allow proper consideration of section 79 and section 75(2) factors as required if the Court is to consider making an interim property order pursuant to section 79 of the Act; and
·if it is section 117(2) that is relied on by the wife the facts do not support an interim costs order, particularly where there is no identifiable source of funds for such an order.
In Strahan & Strahan (interim property orders) (2011) FLC 93-466 (‘Strahan & Strahan’) when discussing the source of jurisdiction, Boland and O’Ryan JJ said at 85,632:
84.In Paris King Investments Brereton J, with whom on this point we agree, at [30] said that Zschokke ‘establishes that it is important, when contemplating an order for interim provision for litigation expenses, to identify the relevant source of power because it is the source of power that determines the necessary preconditions and relevant considerations for making the order’.
I am satisfied that notwithstanding that the wife does not specify the source of the Court’s power on which she relies with respect to her application for litigation funding, counsel for the wife has properly in her submissions drawn the Court’s attention to its ability to make either an interim property order pursuant to section 79 of the Act or, to make a costs order pursuant to section 117(2) of the Act.
Section 79 – Interim property orders
It is her submission that, taking into account the evidence of both of the parties as to the size of the asset pool and the final order proposed by the husband which involves him retaining the majority of the parties assets and paying to the wife the sum of $500,000, that the Court can be satisfied that the wife will be likely to receive by way of property settlement a sum sufficient to cover the sum advanced by way of litigation funding. She submits it is therefore appropriate that an interim property order be made under the provisions of section 79.
I am mindful that there is a significant discrepancy between the value of the matrimonial assets deposed to by the wife in her trial affidavit and the husband in his trial affidavit.
In paragraph 599 of the wife’s trial affidavit filed 18 September 2020 she deposes to net non‑superannuation assets having a value of $2,923,637 and superannuation entitlements of the parties totalling $648,048. In paragraph 670 of the husband’s trial affidavit filed 25 November 2020 he deposes to total net assets of $1,572,287 including superannuation with a value of $420,000.
He deposes to the value of the retail business and associated enterprises at $1,227,735 with the wife valuing the retail business and associated enterprises at $2,462,237, a significant difference. In addition, the husband includes in his list of liabilities an amount of $110,000 as being owed to his father, the taxation debt of $148,621, and he has taken into account a potential capital gains tax liability of $700,000.
Nevertheless, as I have said previously, the husband’s proposal with respect to a final order for settlement of property includes a payment to the wife of $500,000 within ninety days of the date of an order.
In Strahan & Strahan at 85,633 the Court said:
86.Once the relevant source of jurisdiction for making an order is resolved then it could be assumed that what Brereton J in Paris King Investments described as ‘the necessary preconditions and relevant considerations’ or as the Full Court in Zschokke described as the ‘matters’ to be taken into account should be easy to identify. If the source of jurisdiction is s 117(2) of the Act then the court may make such order as it considers just provided there are justifying circumstances. If the order is sought under s 79 of the Act then the court may make such an order as it considers appropriate provided it is satisfied that it is just and equitable to make the order…
It went on to refer to the Court needing to:
87.…undertake at least some brief consideration of the matters in s 79(4) including those referred to in s 75(2). If on a brief consideration of those matters, it seems likely to the Court that the party who is the applicant for the interim order for an advance of funds from the other party will be likely to receive by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made…
Even taking into account the discrepancy in the parties evidence as to the value of the assets to be divided between them, I am satisfied that only a cursory examination of the matters referred to in section 79(4) of the Act and those in section 75(2) would be required when taking into account the proposal of the husband to pay the wife $500,000 in full and final settlement of any claim she may have for property settlement. This is particularly so in circumstances where he deposes to believing that he will have the capacity to retain effectively all of the parties assets and be able to fund such a payment to the wife.
The husband has taken into account a possible capital gains tax liability of $700,000 when deposing to the value of the parties’ assets. He does not propose an outcome whereby the assets of the parties are sold and a capital gains tax event is enlivened.
I am however unable to be satisfied that there is any identifiable source of funds in the parties respective lists of assets that could satisfy the wife’s application for $120,000 by way of litigation funding.
I am mindful that since the parties separated it is the business, operated by the husband, that generates the income to provide the living expenses for both the husband and the wife.
I accept that the wife has no capacity to pay her legal expenses from the funds provided to her by the husband for living expenses for the children and herself.
Although on either case the value of the assets to be divided between the parties is considerable, there is little equity in the C Town farm, and the major asset is the retail business which is providing all of the income necessary to maintain both of the parties and their four children.
Even if the farm property at C Town was to be sold, taking into account the evidence of each of the parties as to the value of that property being between $700,000 (husband) and $800,000 (wife) and the agreed position of the mortgage being approximately $520,000, it is possible that if the property were to be sold under ‘quick sale’ conditions it may not achieve a result that overall is in the best interests of either of the parties. I do not consider that an interim order for such sale for the purpose of the provision of litigation funding to the wife would be just and equitable in all the circumstances.
I find that otherwise justice and equity could be achieved by way of an interim order for property settlement if I was able to be satisfied of an identifiable source of funds in circumstances where:
·the parties cohabited for some fourteen and a half years;
·both parties worked during the period of the marriage with the husband running the retail business and the wife primarily being engaged in home duties and care of the parties four children; and
·post-separation the wife being the primary care provider for the parties four children and the husband continuing to run the retail business and deriving income to support the family.
The parties are in dispute as to what credit should be given to the husband for his contributions at the commencement of the parties relationship, but both parties contributed significantly during the period of cohabitation to the building of their assets, and in circumstances where the husband has effectively controlled all of the assets and their associated income earning capacities post-separation, proper provision will need to be made for the wife in accordance with the provisions of section 75(2) of the Act.
There is no doubt that the husband is in a position of greater financial strength than the wife, and that to date he has met his own litigation costs. The husband’s evidence is that he is able to borrow $50,000 from his family towards the anticipated $100,000 to $150,000 costs that will be incurred if the matter proceeds to trial.
I am unable to find on the evidence that the husband has an identifiable capacity to meet those costs taking into account his income and expenses as deposed to in his financial statement. I am also mindful of the significant period of time during these proceedings that the husband has previously been unrepresented.
I am satisfied that the period during which the husband was unrepresented may well have resulted in the wife incurring higher legal fees than may otherwise have been the case and I do not consider that justice and equity would be afforded between them if such a situation was to arise prior to the finalisation of these proceedings.
I find that the wife has an inability to meet her own litigation costs but I am mindful that there was previously, as between her and her legal representatives, an accommodation that her fees would be ‘carried’ through to the conclusion of the proceedings. I find that the delay in the finalisation of this matter cannot be attributed solely to the husband as argued by the wife, in the circumstances of the disruption caused to both parties by the COVID-19 pandemic and the impact that had on the progression of the parenting matters.
Taking all of those matters into account I am not satisfied that it is just and equitable as between the parties to make an order for interim property settlement pursuant to the provisions of section 79 of the Act.
Section 117(2) – Costs order
In those circumstances I turn to the provisions of section 117(2) of the Act.
If an order for litigation funding is to be made pursuant to this source of power the Court is obliged to consider whether there are circumstances justifying the making of a costs order. If such circumstances exist there must also be a finding that it is appropriate to make an order taking into account the matters contained in section 117(2A) of the Act.
Section 117(1) of the Act provides that each party to proceedings shall bear his or her own costs subject to certain provisions, in particular subsection (2), which permits the Court, subject to the provisions of section 117(2A), to make such order as to costs and security for costs, whether by way of interlocutory order or otherwise as the Court considers just if there are circumstances that justify it in doing so.
In Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 (‘Paris King Investments’) at [30] Brereton J referred to there being at least three requirements if an interim order for litigation expenses is to be made as an interim costs order under section 117(2), namely;
(1)a position of relative financial strength on the part of the respondent;
(2)a capacity on the part of the respondent to meet his or her own litigation costs;
(3)an inability on the part of the applicant to meet his or her litigation costs.
In Zschokke, the Full Court was of the view that those same three matters were relevant whether the determination was to be made as an interim property settlement or as an interim costs order.
As previously stated, there is no doubt that the husband is in a position of relative financial strength to that of the wife. It is of course the income generated by the husband from the retail business that currently provides the sole source of financial support for the wife and the children. On the evidence adduced by both parties to date that business is the major asset of the parties’ marriage.
The income derived by the husband through the retail business is not insignificant, but taking into account his taxation liabilities both current and past, the funds required to support the wife and children as well as himself and the level of financial liquidity required to ensure that the business can meet its expenses as and when they fall due, the relative financial strength on the part of the husband may not overcome the lack of any identifiable asset to fund a costs order to provide litigation funding to the wife.
As I said in paragraph 77 of these reasons there is no doubt that the husband has met his own litigation costs to date in accordance with his evidence. He deposes however to being concerned about his ability to continue to meet his legal expenses and to enquiries for assistance from his family having elicited the response that they are prepared to advance the sum of $50,000 to him for that purpose. That is significantly less than the $100,000 to $150,000 estimated by his solicitor as costs likely to accrue if the matter proceeds to a full trial.
The husband’s costs to date have been significantly less than that of the wife, primarily because of his decision to represent himself for a significant period of the litigation.
I am not satisfied in the circumstances of this case as to the capacity on the part of the husband to meet his own litigation costs if the matter proceeds to a full trial, particularly in circumstances where it is his evidence that his ongoing legal representation, like that of the wife, is dependent on payment of fees pursuant to the requirements of their respective solicitors.
I am satisfied that there is an inability on the part of the wife to meet her own litigation costs without litigation funding or funds becoming available to her from another source pending receipt by her of settlement funds. Nevertheless, I am not satisfied that circumstances exist, as required by section 117(2) of the Act, that justify the Court in making an order for litigation funding by way of a costs order as sought by the wife.
Both parties have already incurred significant legal fees. They are both facing ongoing significant legal fees. There is no identifiable source of funds from which a costs order could be satisfied, and I take into account that not only does the wife require money to fund the litigation but likewise, so does the husband.
Section 117(2) – Dollar for dollar order
Counsel for the wife submitted that if the Court found that it was not just and equitable to make an order for litigation funding pursuant to section 79 of the Act and/or that what might be described as an “ordinary” costs order in favour of the wife pursuant to the terms of section 117(2) of the Act, the Court should consider making a “dollar for dollar order” pursuant to the terms of section 117(2) of the Act.
Counsel for both parties referred the Court to the case of Atkins & Hunt and Ors [2018] FamCA 14, a decision of Justice Watts delivered on 18 January 2018. In [30] to [47] of His Honour’s reasons under the heading “Can the Court make a dollar for dollar order?” His Honour discussed the various authorities in which consideration had been given to making an order that he describes as:
31.A dollar for dollar order provides a set of machinery provisions to ensure that for any dollar the financially advantaged party spends on legal costs and disbursements on the case, the disadvantaged party is also provided a dollar to spend on their case. The wife seeks this order on the basis that such an order would, to some extent, ‘level the playing field’.
His Honour went on to say when discussing the nature of a “dollar for dollar order”:
33.…A dollar for dollar order is fundamentally different. The financially advantaged party can choose and control what amount he or she spends on their own legal costs. It is not uncommon that, once a dollar for dollar order is made, the playing field is somewhat levelled by the financially advantaged party simply choosing to represent themselves so they don’t have to fund their spouse’s case against them.
In that same case His Honour said:
46.The making of a dollar for dollar order is a discretionary order that is usually made only as an order of last resort. Examples of circumstances which may attract the exercise of the discretion include:
46.1. Where:
46.1.1.The party who apparently controls significant financial purse strings pleads impecuniosity; and
46.1.2.The financially disadvantaged party cannot point to any particular fund or asset that might be available to help assist that party fund their litigation; but
46.1.3.The financially advantaged party seems to be able to fund their litigation through personal exertion income or structures that they directly or indirectly control…
46.2Where a financially advantaged party is a minority shareholder in a company and/or a discretionary beneficiary in a trust and directors or trustees seem more than willing to declare dividends or make distributions to fund litigation for the financially advantaged party against the disadvantaged party;
46.3Where a financially advantaged party has relatives or associates who are prepared to fund the litigation against the financially disadvantaged party in circumstances where the financially disadvantaged party does not have the same support from third parties.
(citations omitted)
I am satisfied that the husband in this case controls significant financial purse strings but pleads impecuniosity. I take into account however that a significant amount of income derived from the business controlled by the husband is provided for the financial support of the wife and the parties children to the exclusion of any other income generated by or to which the wife is entitled.
I have already referred to the lack of any particular fund or asset that might be available to help assist the wife fund her litigation and I am satisfied that the husband seems to date to have been able to fund his litigation through personal exertion income or structures that he directly or indirectly controls.
Nevertheless, for a period of some sixteen months during the course of this litigation it is the husband’s evidence that he has represented himself in order to save legal fees in circumstances where he is struggling to generate sufficient income to fund his own legal costs which have been substantially lower than that of the wife.
There is no doubt that the husband paid $75,000 to his solicitors for work done in the month or so immediately preceding the hearing of this application. Nevertheless, that is not a significant sum when compared to the amount that has been paid to or on behalf of the wife subsequent to the parties separation by way of spousal maintenance, child support and, to the extent of $100,000, litigation funding.
The husband has deposed to his relatives being prepared to lend to him the sum of $50,000 towards his litigation expenses provided however that if he should be required to pay any of those funds to the wife, they will not be forthcoming. The wife has adduced no evidence as to whether she has relatives or associates who are prepared to assist with her litigation funding.
For the Court to make a “dollar for dollar order” it must be satisfied in any event that there are circumstances to justify the Court deviating from the usual circumstances of each party bearing his or her own costs. It is only where the Court considers that such circumstances exist that the Court should have regard to the factors set out in section 117(2A) to determine what order (if any) should be made.
Although on the face of it the financial position of the husband is vastly superior to that of the wife, for these reasons I do not consider it is appropriate to make a litigation funding order in favour of the wife based on the costs power set out in section 117(2) of the Act.
For those reasons I make the orders as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Mead. Associate:
Dated: 28 April 2021
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