MASON & MASON
[2014] FCCA 477
•17 March 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MASON & MASON | [2014] FCCA 477 |
| Catchwords: FAMILY LAW – Interim property proceedings – applications for orders for litigation funding and partial property settlement – principles – orders made. |
| Marchant v Marchant (2012) 49 Fam LR 1 AJO & GRO (2005) FLC 93-218 Bevan & Bevan (2013) FLC 93-545 Watson & Ling (2013) FLC 93-527 |
| Applicant: | MS MASON |
| Respondent: | MR MASON |
| File Number: | MLC 2834 of 2013 |
| Judgment of: | Judge Jones |
| Hearing date: | 4 March 2014 |
| Date of Last Submission: | 4 March 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 17 March 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Moisidis of Counsel |
| Solicitors for the Applicant: | Hayden Legro Lawyers |
| Counsel for the Respondent: | Mr Werner of Counsel |
| Solicitors for the Respondent: | Baker Jones Lawyers |
ORDERS
That within 7 days of these Orders, Hayden Legro Lawyers pay, from the net proceeds of sale of the property situate at Property P, Victoria:
(a)the husband, $25,000.00; and
(b)the wife, $120,000.00.
IT IS NOTED that publication of this judgment under the pseudonym Mason & Mason is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 2834 of 2013
| MS MASON |
Applicant
And
| MR MASON |
Respondent
REASONS FOR JUDGMENT
Introduction
This decision concerns applications by both the husband, Mr Mason born (omitted) 1969, and the wife, Ms Mason born (omitted) 1967, for interim property orders. The husband seeks a “barro” order for litigation funding in the sum of $30,000.00. The wife seeks an order for partial property settlement in the sum of $228,000.00. Both these amounts would, in accordance with the orders proposed, be distributed from the net proceeds of sale of the former matrimonial home situate at Property P. The net proceeds of the sale of the former matrimonial home held on trust for both parties by the wife’s solicitors is $253,745.00.
There is no dispute that the property pool is small. The husband says that the non-superannuation net asset pool is $266,445.00 and the wife says the non-superannuation net asset pool is $426,037.00. It appears that the total superannuation pool is $131,200.00.
The main asset of the property pool is the net proceeds from the sale of the former matrimonial home. The wife claims the business conducted by the husband under (omitted business) (“the business”) forms part of the asset pool and based on a valuation conducted by an expert on her behalf, is at least to be valued at $89,000.00, although she asserts that the business is in fact properly valued at $122,000.00. The husband says that the business does not fall within the meaning of “property” under section 4 of the Family Law Act 1975 (“the Act”). Alternatively, if it is to be characterised as property then its value is nominal.
The wife seeks, by way of final property orders, a distribution of the non-superannuation matrimonial assets in the proportion of seventy per cent to her and thirty per cent to the husband, with the parties retaining their own superannuation. The husband seeks, by way of final property orders, that all assets connected with his self-employment as a (occupation omitted) be retained by him, that he retain all personal property currently in his possession and that the proceeds of the sale of the former matrimonial home be distributed so as to ensure the husbands receives forty per cent of the parties’ net assets.
Background
The mother was born on (omitted) 1967 and is presently 46 years of age. She is employed as a (occupation omitted) and now works full time. The father was born on (omitted) 1969 and is 44 years of age. He is self employed as a (occupation omitted) presently working less than full time. The parties commenced living together on (omitted) 1998, they were married on (omitted) 2007 and finally separated on 1 June 2011. There is one child of the relationship, X born on (omitted) 2000.
The mother’s Initiating Application filed on 2 May 2013 sought parenting and property orders. On 5 February 2014 final parenting Orders were made by consent providing that the husband and wife have equal shared parental responsibility for X, that X live with the wife, that X spend time with the husband on each alternate weekend and one night in the alternate week and half of school holidays.
Up and until 5 February 2014 the husband failed to fully participate in the proceedings and to provide full and frank disclosure. The husband says that until he obtained legal representation in or about February 2014 he had, “buried my head in the sand so to speak.”[1] The husband submits that he has now provided full and frank disclosure subject to providing a valuation of the business. The wife quibbles with whether indeed the husband has still complied with his obligation to provide full and frank disclosure. I note that, nevertheless, the wife has provided an expert valuation of the business by Mr M, Chartered Accountant, whose valuation has been derived from financial documents provided by the husband.
[1] Husband’s Affidavit filed 13 February 2014 at [21].
By Orders made on 23 September 2013, the proceedings were listed for final hearing on 5 February 2014. The Orders noted that should the respondent fail to appear on 5 February 2013, the applicant may seek leave to proceed undefended. By 5 February 2014 the husband still had not filed his response, affidavit material or indeed disclosed any financial documents to the wife as he was obliged to do so. On that date the husband was legally represented and Mr Werner of Counsel for the husband sought that the hearing be adjourned and that a Barro order be made to secure legal representation for the husband. As noted, final parenting Orders were made by consent on that day. The proceedings were adjourned for mention on 4 March 2014 and for final hearing on 28 July 2014. The husband has now filed his response and affidavit in reply. On 28 February 2014 the wife filed an amended application in a case seeking an order that from the proceeds of sale of the former matrimonial home, the wife be paid as interim property settlement in the sum of $228,000.00.
As a main issue in dispute between he parties is the legal characterisation and valuation of the husbands business, it is appropriate to set out, having regard to the material presently before the Court, the nature of the husband’s business.
It seems that sometime in 2002 the husband established himself as a self-employed contractor, predominantly for the purpose of engaging in contracts for service with the (employer omitted) and (employer omitted) pursuant to which the husband services the (employer omitted) clients’ (omitted) equipment. The husband says that he also directly provides services to “minor private customers” but that all of his income is disclosed to the Australian Taxation Office and contained in his Business Activity Statements (“BAS”). The husband says that the (employer omitted) provides him with a list of customers whom he services, at the direction of the (employer omitted), but he invoices the (employer omitted) for the work that he does, and that the (employer omitted) pays him on the 14th day of each month.
There seems no dispute that the business relationship between the husband’s business and the (employer omitted) is based on three yearly service contracts. The wife states that in 2004 she became a partner in the business for the purposes of minimising tax. She has attached to her affidavit, filed 15 January 2014, a contract between the husband’s business and the (employer omitted) dated 1 October 2006 with an expiry date of 30 September 2009. The husband has attached to his affidavit filed on 13 February 2014 a copy of his business’ current contract with the (employer omitted) (“M-3”).
The contract is called the (omitted) ((employer omitted)) Contractor’s Agreement (“the Agreement”) and is dated 1 August 2012 with an expiry date of 30 July 2015. In the Agreement the husband is described as the (employer omitted) Contractor. Clause 1of the Agreement defines, “service” as meaning, “the service of fulfilling the Obligations to certain of the (omitted)’s customers under the term and conditions of this Agreement.”
Under Clause 2,“Provision of Services and Conditions Precedent”, the Agreement provides that the (omitted) contractor will only provide the services to the customers listed in schedule 2 to the Agreement or as directed by the Board (2.2); and that the (omitted) contractor will perform the services described in schedule 1(2.4).
The services to be provided by the (omitted) contractor as set out in Schedule 1, include the provision of maintenance and testing of (omitted) equipment for the (employer omitted) and providing and supplying all necessary and required parts, and maintaining accurate and confidential records.
Clause 7.3 of the Agreement provides that the (omitted) contractor, must provide, at his or her own cost, a motor vehicle and any tools and other working equipment required for providing the services safely and efficiently including a mobile phone and email address. Any motor vehicles, tools and equipment must, under clause 7.4, be maintained and compliant with instructions issued by the (omitted) and the (omitted) retains the right to inspect these. Clause 7.1 provides that all stock, parts and equipment required to provide the services are to be obtained by the (omitted) contractor by the (omitted). Clause 8.6 of the Agreement provides that the (omitted) contractor must obtain all necessary licences, permits and so on to perform the obligations under the agreement and provide the manager with a (omitted) ((omitted) of (omitted)) certificate of accreditation. Clause 14 provides that the Agreement may be terminated immediately by written consent, with six months written notice by either party and may be terminated immediately by the (omitted) upon the occurrence of specified events, including the failure of the (omitted) contractor to perform and comply in accordance with the Agreement, subject to a notice of writing of non-compliance and the failure of the (omitted) contractor to rectify the non-compliance. Likewise, the (omitted) contractor may terminate the Agreement upon the (omitted) failing to comply with its obligations under the Agreement. Clause 15 provides that a (omitted) contractor may assign his or her rights but must not do so without the prior written consent of the board which will not be unreasonably withheld.
There is no dispute that the wife ceased being a nominated partner in the business on 3 August 2011 at which date all income derived by the husband from services performed for the (omitted) has been deposited into the husband’s account.
The wife has annexed to her affidavit filed on 16 January 2014, copies of advertisements for the sale of (omitted) contracts with the (omitted) on ‘(omitted).com.au’ on 21 June 2013 (“M– 7”).
The husband says that his, “job involves (omitted).”[2]
[2] Husbands affidavit filed 13 February 2014 at [17].
APLICABLE LAW AND PRINCIPLES
Section 80 of the Act relevantly provides:
(1)The court, in exercising its powers under this Part, may do any or all of the following:
………………………………………..
(c)order that payment of any sum ordered to be paid be wholly or partly secured in such manner as the court directs;
(d)order that any necessary deed or instrument be executed and that such documents of title be produced or such other things be done as are necessary to enable an order to be carried out effectively or to provide security for the due performance of an order;
………………………………………
(f)order that payments be made direct to a party to the marriage, to a trustee to be appointed or into court or to a public authority for the benefit of a party to the marriage;
(h)make a permanent order, an order pending the disposal of proceedings or an order for a fixed term or for a life or during joint lives or until further order;
(i)impose terms and conditions;
(j)make an order by consent;
(k)make any other order (whether or not of the same nature as those mentioned in the preceding paragraphs of this section), which it thinks it is necessary to make to do justice; and
(l)subject to this Act and the applicable Rules of Court, make an order under this Part at any time before or after the making of a decree under another Part.
Section 79 of the Act relevantly provides:
(1)In property settlement proceedings, the court may make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them--altering the interests of the parties to the marriage in the property; or
(b)in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage--altering the interests of the bankruptcy trustee in the vested bankruptcy property; including:
(c)an order for a settlement of property in substitution for any interest in the property; and
(d)an order requiring:
(i)either or both of the parties to the marriage; or
(ii)the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
…………………………………………………..
(2)The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
(4)In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a)the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b)the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c)the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d)the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e)the matters referred to in subsection 75(2) so far as they are relevant; and
(f)any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
………………………………………………………..
(17)For the purposes of subsections (11) and (14), an application for an order under this section is taken to be finally determined when:
(a)the application is withdrawn or dismissed; or
(b)an order (other than an interim order) is made as a result of the application.”
Section 75(2) of the Act provides:
“(2)The matters to be so taken into account are:
(a)the age and state of health of each of the parties; and
(b)the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment; and
(c)whether either party has the care or control of a child of the marriage who has not attained the age of 18 years; and
(d)commitments of each of the parties that are necessary to enable the party to support:
(i)himself or herself; and
(ii)a child or another person that the party has a duty to maintain; and
(e)the responsibilities of either party to support any other person; and
(f)subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
(i)any law of the Commonwealth, of a State or Territory or of another country; or
(ii)any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia; and the rate of any such pension, allowance or benefit being paid to either party; and
(g)where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable; and
(h)the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income; and
(ha)the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant; and
(j)the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party; and
(k)the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration; and
(l)the need to protect a party who wishes to continue that party's role as a parent; and
(m)if either party is cohabiting with another person--the financial circumstances relating to the cohabitation; and
(n)the terms of any order made or proposed to be made under section 79 in relation to:
(i)the property of the parties; or
(ii)vested bankruptcy property in relation to a bankrupt party; and
(naa)the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:
(i)a party to the marriage; or
(ii)a person who is a party to a de facto relationship with a party to the marriage; or
(iii)the property of a person covered by subparagraph (i) and of a person covered by subparagraph (ii), or of either of them; or
(iv)vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and
(na)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and
(o)any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and
(p)the terms of any financial agreement that is binding on the parties to the marriage; and
(q)the terms of any Part VIIIAB financial agreement that is binding on a party to the marriage.”
The approach and relevant principles to be applied in relation to interim property proceedings such as these were set out in the Full Court’s decision in Strahan & Strahan (Interim Property Orders) [2009] FamCAFC 166 (“Strahan”). The Full Court in Strahan relevantly stated at paragraphs [132] to [133], [135] to [137], [139] to [141]:
(132)In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
(133)In Harris at 79,930 the Full Court gave some examples of circumstances where it may be appropriate to exercise the power being “where both parties agree to the disposal of some assets pending the trial” and “[u]rgent situations” to avoid injustice. Another example is where, as in this case, one party requires funds to assist in defraying the costs of litigation without which funds an injustice may be caused.
…………………………………………………………..
(135)In relation to the second matter, as the jurisdiction under s 79 of the Act is being exercised the provisions of that section must be considered and applied but with limitations given that it is not the final hearing. There is also no requirement of compelling circumstances in relation to the substantive step.
(136)As to the third matter identified at 79,930 by the Full Court in Harris, in discussion before us it was described as the “adjustment issue” or “claw-back issue”. It was submitted by senior counsel for the Wife that it is relevant to consider whether an order would give the applicant “more than they would be indubitably entitled to on a final hearing” or alternatively “would it give them so much that it could not be adjusted on a final hearing?” As we have observed the Full Court in Zschokke at 83,220-221 stressed the importance of consideration of the “adjustment issue” if the power in s 80(1)(h) of the Act is being exercised. We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. As Finn J said at [126] the interim order must be “capable of alteration at any time prior to, or as part of, the final exercise of the s 79 power”.
(137)Once a court proceeds to exercise the power in s 79 of the Act, being in the substantive phase, a court is required to undertake consideration of the matters in s 79(4) including by reference to s 79(4)(e) the matters in s 75(2) so far as they are relevant. However consideration of such matters may be brief and if it is established that “it seems likely to the Court that … the applicant … will be likely 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”: Zschokke; Polletti and Polletti per Nygh J and Wenz v Archer. As senior counsel for the Wife submitted, “provided scope can be found within the assets of the parties for an order of the size sought … then that should be the end of the matter”. In other words, in such circumstances the applicant would only be receiving what he or she was entitled to receive when the power was exhausted.
………………………………………………………………
(139)We also emphasise that in order to establish an appropriate case for an interim property settlement order more is required than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.
(140)As to the other matters being a position of relative financial strength on the part of the respondent to an application and the capacity of the respondent to meet his or her own litigation costs, there is no doubt that the financial circumstances of both parties are relevant at the substantive stage and may also be relevant at the procedural stage. Senior counsel for the Wife submitted that all of the matters discussed by the Full Court in Zschokke are self-evident and we accept that this is so in relation to at least two of the matters being the need for funds and the financial circumstances of both parties.
(141)As to the various matters discussed by Brereton J in Paris King Investments which we have discussed above, we do not propose to deal with all of what his Honour said, however we make the following observations about some of the matters. Obviously the applicant should have “at least an arguable case for substantive relief which deserves to be heard”. Further, in determining at the procedural stage whether to exercise the jurisdiction there may need to be evidence of the applicant’s “likely costs of the litigation” given that the need for funds to defray litigation costs and expenses is the circumstance propounded as to why it is appropriate that an order be made. We also accept that “it is not an essential precondition” that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis.
In Marchant v Marchant (2012) 49 Fam LR 1, the Full Court stated at [24] to [27]:
(24)“In Strahan v Strahan (Interim Property Orders) (2009) 42 Fam LR 203 ; (2011) FLC 93-466 ; [2009] FamCAFC 166 (Strahan), the Full Court (Boland, Thackray and O’Ryan JJ) undertook a comprehensive review of the authorities and identified relevant principles and guidelines to be followed in respect of interim property orders pursuant to ss 79 and 80(1)(h) of the Act.
(25)It follows from the joint judgment of Boland and O’Ryan JJ in Strahan that there are two stages to the hearing of such an application and that the first question on an application for such an order is whether the court should exercise its discretion to entertain the application. While it is not necessary for an applicant to establish compelling circumstances for that question to receive an affirmative answer, it is necessary to establish that it would be appropriate for the court to exercise the power and the, “overarching consideration” as to appropriateness is the interests of justice. Recognising that in the context of s 79 proceedings, the interests of justice will usually be best served by one single and final determination of property orders, it will not be appropriate to exercise the power merely because, on such a final determination, the applicant would receive the interim property sought or in excess of that sought.
(26)We think it is important to highlight that while the discussion of the first question in the joint judgment in Strahan includes examples, including by reference to other cases, where the appropriateness criteria would be met, there was no attempt to define or exhaustively identify those circumstances or categories of cases meeting that criteria. That is understandable, given the discretionary nature of the adjudication involved and the wide range and variety of circumstances presented from case to case, so that any such attempt would likely prove to be futile. Nevertheless, the joint judgment in Strahan emphasised both the importance of the interests of justice normally being served by a single and final determination of s 79 orders and that establishing only that the applicant’s ultimate entitlement would cover or exceed the interim claim was not sufficient, on its own, to establish that the application ought be entertained.
(27)It also follows from Strahan that if the first question is answered affirmatively, and the second or substantive stage is reached, because the jurisdiction under s 79 of the Act is being exercised, the provisions of that section must be considered and applied, but with limitations given that it is not the final hearing: at [135]. As their Honours Boland and O’Ryan JJ noted at [136], because the discretion conferred by the power in s 79 is to make such order as the court considers appropriate, provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order, the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal, and must be capable of alteration at any time prior to, or as part of, a final exercise of the s 79 power.”
It is to be noted that the Full Court stated at [98]:
(28)“In relation to an order for costs already paid we observe that there is no definition of costs in s 4 of the Act, however a definition of “costs” in family law proceedings is found in the dictionary of the Rules. The Rules define “costs” to mean: “an amount paid or to be paid for work done by a lawyer, and includes expenses” (emphasis added). We note that in Kendling the Full Court, at [49] – [54] discussed the issue of costs already paid. The Full Court concluded that an order to reimburse a party for costs already paid by borrowings could be made.”
Whether the power under section 79 should be exercised.
The husband submits that he has no capacity to pay legal fees and that if he cannot obtain a litigation funding order he will be unrepresented. He notes that the wife has secure legal representation. The husband points to the fact that a principle issue between the parties in these proceedings is both the legal characterisation and the value of the husband’s business. It is stated that the case is likely to involve legal debate of some “nicety, and an assessment of forensic accounting evidence.”[3]The husband notes that the wife alleges that the value of the business which is subject to dispute is at least $89,000.00 and more likely to be up to $122,000.00 which is a substantial proportion of the property pool. The husband submits that having regards to the nature of the issues in these proceedings, “it is plainly necessary that the husband have legal representation if there is to be any degree of equality between the parties and/or if he is to have any chance of having his case fairly put before the Court.”[4]
[3] Outline of submission for the husband at [3].
[4] Ibid
Mr Dean Eastwood Jones, Principal of the law firm Baker Jones, filed an affidavit on 13 February 2014 stating that Baker Jones has accepted instructions to act for the respondent husband. The affidavit is made in support of his client’s application for a litigation funding order. Mr Jones deposes that presently the firm practises principally in commercial litigation and has no practitioners who have any meaningful experience practising in family law. He deposes at [5] to [6]:
(5)“Subject to litigation funding, John Werner of Counsel, has told me that he is willing to assist me on an ongoing basis in the conduct of the proceeding on behalf of the Husband.
(6)Subject to litigation funding, I intend that Baker Jones will continue to act for the Husband until the conclusion of the proceeding. I intend that my employee, John Ostermeyer, will have the care and conduct of the husband’s file under my supervision.”
Mr Jones notes that today Baker Jones has not rendered any accounts to the husband. He then sets out an estimate of the husband’s legal costs to progress the case to trial. These costs include costs said to have been incurred up to the date of the present hearing, trial preparation and appearance at trial (assuming a two day trial). The total amount is $30,000.00. Mr Jones deposes that, in his professional experience, the husband’s level of sophistication as a client is very much at the lower end of the spectrum and that his prospects of providing the Court with any meaningful assistance to resolve the issues in dispute as a litigant in person are “hopeless.”
The mother submits that the husband’s application for litigation funding should be dismissed, or at least, the amount sought be reduced by costs already incurred (in the amount of $11,000.00) and that a discount be applied to the fees which Baker Jones has estimated it will charge on the basis of its concession that it is not experienced in family law and will rely substantially on Counsel for the husband, Mr Werner. The wife’s submits that the Order sought for litigation funding should be dismissed on the basis that the property settlement that the husband is likely to receive is not sufficient to cover the advance. Consequently, it is said that the wife’s likely entitlement arising out of the exhaustion of the property funds will be prejudiced by the making of an advance of $30,000.00. I deal with this aspect later on. The wife also argues that the husband has failed to disclose any attempts to obtain other legal representation which may have avoided the need to pay legal costs until after settlement or trial.
In Zschokke & Zschokke the Full Court stated at [83,220]:
“The desirability of legal representation for both parties in family law proceedings (other than in simple proceedings such as an application for dissolution of marriage) is, in our view, self evident, and it might well be said that a recognition of this desirability provides the underlying rationale for the decisions of Hogan, Wilson, Poletti and Breen. But legal representation is not, unfortunately, without cost, and in a case such as the present, it is a matter of balancing the desirability of representation for one or both parties against the availability of money to fund such representation and the manner in which the necessary funds could justly be made available. We will now turn to consider that balance.”
As observed in Strahan it is not an essential precondition to an order for litigation funding that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis.
The husband submits that his income is presently $774.00 per week, and this is income derived from the services he provides to the (omitted) and to other clients.[5] The husband deposes that he pays a weekly rent of $277.00, $26.00 a week child support payments to the wife in relation to the child X and $65.00 a week to (omitted) College, as part of his half share of X’s school fees which are in addition to his assessed child support. He deposes that he has $500.00 his (omitted) bank account and a balance owing on his credit card of $4,000.00. He also deposes two liabilities from (omitted) and to a Ms W totalling $9,000.00, however, these liabilities are not explained.
[5] Financial Statement filed by the husband 13 February 2014.
The mother deposes that her income is now $846.00 per week.[6]
[6] Affidavit of wife filed 16 January 2014.
I am satisfied that in the circumstances of this case, where an issue in dispute is the legal characterisation and valuation of the husband’s business and where the husband’s financial circumstances on the material filed are meagre, it would be in the interests of justice and appropriate that an order for litigation funding be made.
The wife seeks a partial property settlement from the proceeds of the former matrimonial home of $228,000.00. An order of this amount would leave in trust an amount of $25,745.00. It is not clear the basis on which the wife seeks this partial property settlement. Her Counsel, Mr Moisidis, asserted that it was unnecessary for her to provide a reason. I disagree. The Full Court in Strahan stated that more was required then the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.[7] Neither, however, are compelling reasons required. I have taken into account the fact that the wife has been disadvantaged by the failure of the husband to provide his response and affidavit and full and frank disclosure up until February 2014, the stress and anxiety she deposes she now suffers as a consequence of the unnecessary delay in the proceedings and the fact that for her, as well, her financial position is meagre. I am satisfied that the Court should Order a partial property settlement to the wife from the net proceeds of the former matrimonial home.
[7] Strahan at [139].
SECTION 79 FACTORS
I now turn to consider briefly the matter specified under section 79, including section 75(2), consistent with the approach set out in Strahan.
Property Pool
The wife claims that the matrimonial property pool is:
NON SUPERANNUATION ASSETS
(a)
Proceeds of (omitted) Investment Portfolio closed 1/9/11
(J)
$25,000.00
(b)
Toyota (omitted)
(H)
$26,700.00
(c)
Mr Mason (omitted) business (as valued by Expert)
(H)
$89,000.00
(d)
Net proceeds of sale of Property P, former matrimonial home including interest
(J)
$253,745.00
(e)
Harley Davidson motorcycle
(H)
$18,000.00
(f)
Mitsubishi (omitted) vehicle
(W)
$15,000.00
(g)
Gym equipment
(H)
$5,000.00
(h)
Bank Account
(W)
Nominal
(i)
Bank Accounts
(H)
Unknown
(j)
Redraw on (omitted) Bank home loan for the Property P property
(H)
$5,850.00
Sub total non superannuation assets
$438,295.00
Debts
(a)
ATO of partnership pre June 2011
(H)
$7,758.00
(b)
Shortfall on Property L
(H)
$4,500.00
Sub total debts
$12,258.00
TOTAL NET ASSETS – NON SUPER
$426,037.00
The husband claims that the property pool is:
Item
Ownership
Value ($)
Assets
Liquid funds held on trust by Ms Mason’s lawyer
Joint
253,745
Liquid funds ((omitted) Bank)
Wife
1,600
Liquid funds ((omitted) Bank)
Husband
500
Motor vehicle (Mitsubishi)
Wife
15,000
Motor vehicle (Toyota)
Husband
20,000
Total assets
291,345
Liabilities
Ownership
Value ($)
ATO
Husband
11,900
(omitted)
Husband
4,000
(omitted) Visa Card
Husband
4,000
Ms W
Husband
5,000
Total
24,900
Superannuation
Ownership
Value ($)
(omitted)
Wife
55,000
(omitted) (accumulation interest)
Wife
40,000
(omitted) Super Fund
Husband
36,200
Total
13,200
Contributions
The parties commenced cohabitation in 1998. At the time the husband owned a property at Property A which the wife deposes was worth $110,000.00 to $120,000.00 with a mortgage of $97,000.00. The wife owned a two bedroom unit in (omitted) which she sold in 1999. The net proceeds of $90,000.00 were applied to reduce the mortgage of the house at Property A. The wife deposes that she also had at the time of commencement of cohabitation a motor vehicle worth $5,000.00, some furniture and some superannuation worth approximately $10,000.00.
At the commencement of the relationship the wife had a four year old daughter who lived with both parties throughout the relationship. At the time of the commencement of the relationship the husband worked as an employee of his parents who had a (omitted) service contract. As noted earlier, the husband established the business in 2002, the wife worked part time in (omitted) and earned around $22,000.00 $25,000.00 per annum. The wife deposes that she performed the book work, the BAS paper work and tax return work for the husband’s business. The husband denies the wife worked for the business undertaking financial matters. He deposes that the BAS were prepared by a book keeper who was paid for her services and that the tax returns were prepared by his accountant. He deposes that the wife spent one day each quarter collating material to be provided to the book keeper.
In 2004 the wife became a partner in the husbands business and it appears undisputed that the business increased and was grossing $100,000.00 to $110,000.00 in the last years of the relationship. The income was split between the wife and the husband so as to minimise the taxation liability.
In 2002 the parties sold the property at Property A and purchased the former matrimonial home for $160,000.00. Over the period of the relationship the mortgage on the home increased to $280,000.00 to complete what was said to be very extensive renovations. The house was sold for $550,000.00 in 2012 with a mortgage of $241,000.00. The renovation work was done primarily by a builder, however, both parties participated in renovation work.
In 2009 the parties purchased an investment property in Property L, however it appears that the property sold at a small loss in late 2011.
The wife contends that the husband did not contribute to the welfare of the family in terms of domestic work, shopping and cooking, although he did undertake maintenance work outside but that she mowed the lawns. The husband deposes that the housework was shared equally between the parties.
Following the ending of the relationship, the husband remained in the former matrimonial home. The husband deposes that between separation and settlement of the sale of the former matrimonial home, he paid monthly mortgage repayments of about $450.00 per week. The wife deposes that the husband failed to make mortgage repayments on the former matrimonial home for around 13 weeks after physical separation in August 2011 and the consequential amount redrawn by him was $5,850.00. At separation the business bank account had approximately $10,000.00 balance.
The wife deposes that there was a $20,000.00 redraw facility on the home mortgage which she drew on, in August 2011, to establish herself after she left the former matrimonial home. She states that she used this money to purchase furniture in the amount of $10,000.00, pay for a bond of $1,200.00 and rent for three months as well as removalist costs and other setting up expenses. In September 2011 an (omitted) Investment Portfolio in the name in the wife and husband was closed and the amount, $25,000.00 was distributed equally to both parties.
The husband alleges that the wife withdrew approximately $10,000.00 from the business account and the rental account for the Property L property without his consent from separation through to August 2012.
The husband contributes child support pursuant to the Child Support (Assessment) Act 1989 in the amount of $26.00 per week. It appears that his contributions have decreased since separation reflecting decreases in his declared income. There is no other order affecting the parties to the marriage or the child. Neither party made any submissions regarding the effect of any proposed order on their earning capacity.
Section 75(2) Factors.
The husband is 44 years of age and the wife 46 years of age. The husband is in good health, the wife deposes that she is presently suffering from anxiety and depression as a consequence of the litigation between the parties.
The wife deposes that she does not have any formal qualifications and her earning capacity into the future would be limited to the (omitted) related areas in the vicinity of $40,000.00 to $45,000.00 gross per annum.
In his affidavit filled 13 February 2014, the husband has attached various individual tax and business taxation returns (Annexure “M-1”). In the Individual Taxation return for the year ending 2012, the husband discloses a gross income of $51,773.00 of which $50,544.00 is derived from the partnership.
The Partnership Taxation Return for the year ending 2012 discloses a gross income of $98,207.00, with a net income of $50,544.00. The wife maintains that this does not reflect appropriately the husband’s income as he earns around $5,000.00 to $10,000.00 per year servicing private clients such as (employer omitted), (omitted), and so on, and these amounts are deposited into his bank account (Annexure “M-13” to wife’s affidavit filed 16 January 2014).
The husband’s Individual Taxation Return for the year ending 2013 discloses a gross income of $37,371.00 of which $30,698.00 is derived from the net income of the business. The gross business income is listed as $70,014.00. The Partnership Taxation Return for the year ending 2013 specifies a business income of $10,746.00 and a net income of $6,056.00.
The wife maintains that these returns do not reflect the husband’s true financial position. She alleges that he has deliberately set about on a course of wastage of the business income by reducing his hours of work and hiring subcontractors to perform the work under the contract. Further, she states that the husband’s business includes expenses that benefit him individually. She deposes that on a true reflection of their income and financial resources, the income disparity between herself and her husband in is the vicinity of $40,000.00 to $50,000.00 per year.
Their son X resides with the wife and spends time with the husband on alternate weekends and one night in the alternate week. The wife’s daughter is 20 years of age. The wife states that she is undertaking study, receives a new start job allowance but does not pay board. The wife maintains she is responsible for her daughter’s living expenses.
The wife has re-partnered and she has been in this relationship for around twelve months, however, they do not live together and she deposes that they have not pooled resources and are maintaining separate finances.
The husband has re-partnered and lives with his new partner, and has done so since August 2013. They live with her son who is aged 7 years.
Both parties are in rental accommodation. Their property comprises their interest in the former matrimonial home and, depending on the Court’s legal characterisation of the business, the business. They have limited savings and limited chattels. There is a dispute between the parties as to whether the husband’s business is to be treated as property or financial resource as well as the valuation of that business. As noted earlier the husband pays child support in the amount of $26.00 per week as assessed by the Child Support Agency.
Will the husband’s entitlement exceed the order sought.
The wife submits that the non-superannuation net asset pool is $426,037.00. She says that the husband’s entitlement to this is thirty per cent or $127,811.10. She maintains that the husband has had the benefit of the following: the business valued at $89,000.00, the distribution of the (omitted) Bank investment in the amount of $12,500.00, the sale of the motorbike at $18,000.00, a drawdown of the mortgage of $5,850.00, gym equipment valued at $5,000.00 (of which $1,500.00 has been sold) and the Toyota (omitted) valued at $26,700.00. She maintains that the husband has therefore received more than his entitlement to the net matrimonial pool.
As the wife values conservatively the husbands business at $89,000.00 it would clearly be a major asset of the parties’ matrimonial pool. However, the husband disputes the inclusion of the business as an asset in the matrimonial pool. He says that at trial it will be argued that the business cannot be characterised as “property” within the meaning of the Act. Clearly, the Court is yet to consider the legal characterisation of the husbands business. I note that the husband submits that the valuation of the property is in any event nominal and, for this argument, relies on the most recent partnership taxation returns.
Given the circumstances where the legal characterisation of the husbands business as “property” is a major dispute between the parties, I am not prepared to include the wife’s valuation of the husband’s business in the parties’ property pool for the purpose of this interim decision. I observe that, in any event, on the wife’s affidavit filled 16 January 2014 (“Annexure M-7”), it is apparent that the (omitted) contract with the (omitted) can be sold as a business. On the basis of two advertisements for the sale of similar (omitted) contracts with the (omitted) the wife deposes that a market value of the husband’s business of $150,000.00 including the husband’s Toyota (omitted) is reasonable. I note that the husband states that he is the owner of the Toyota (omitted) and not the business. Taking this into account, it is to be presumed that the wife would submit that a market value of around $123,000.00 can be attached to the business which can be sold on the open market. No cogent reason was put to me why an order of this Court, which exhausted the funds of the parties following final hearing, could not include an order that the husband sell his (omitted) service contract with the (omitted) on the open market to adjust for any short fall.
If the wife’ valuation of the business is deducted from the wife’s estimate of the non-superannuation net assets, there results an amount of $337,037.00. Assuming the Court accepts the wife’s claim that the husband is entitled to thirty per cent of the non-superannuation net assets, then an amount of $101,111.00 is available to the husband. Excluding the business, the amount the wife maintains the husband has had the benefit of since separation is $68,050.00. An amount of $33,061.00, would be available to the husband.
Another dispute between the parties is the characterisation of post-separation expenditure. It is apparent that in the pool of assets included by the wife is property that no longer exists (because it has been dissipated) but which are presumably included as notional or add-backs. As observed in Milankov and Milankov (2002) FLC 93-095, this exercise is undertaken in order to do justice and equity to the parties and involves a notional consideration of assets which have been in the position of one of the parties at some time after separation which have been dispersed for the parties own use. Although the circumstances are not fixed, the full Court in AJO & GRO (2005) FLC 93-218 identified three types of add-backs that are commonly encountered. These are the expenditure by the parties on legal fees, where there has been a premature distribution of the matrimonial assets or where a party has embarked on a course of conduct designed to reduce or has acted recklessly negligently or wantonly which has had the effect of reducing the value or worth of matrimonial asset.
The practise of including notional property in the pool of asset is now uncertain following the decision of the High Court in Stanford. In Bevan & Bevan (2013) FLC 93-545 the Full Court considered Stanford and in relation to practice of add-backs, the majority stated at [79]:
“We observe that “notional property”, which is sometimes “added back” to a list of assets to account for the unilateral disposal of assets, is unlikely to constitute “property of the parties to the marriage or either of them”, and thus is not amenable to alteration under s 79. It is important to deal with such disposals carefully, recognising the assets no longer exist, but that the disposal of them forms part of the history of the marriage — and potentially an important part. As the question does not arise here, we need say nothing more on this topic, save to note that s 79(4) and in particular s 75(2)(o) gives ample scope to ensure a just and equitable outcome when dealing with the unilateral disposal of property.”
In Watson & Ling (2013) FLC 93-527, His Honour Murphy J considered the effect of Stanford on the practice of add-back and stated at [30], [32] to [34]:
(30)In many other cases, for example those which come within the convenient rubrics of “waste” (see Kowaliw & Kowaliw (1981) FLC ¶91-092) or “premature distribution” (see, for example, Townsend), legal and equitable title to the money or property will have passed. It could not be said that the money or property is part of the “existing legal or equitable interests” of a party or the parties. The notion that such money or property should be treated as a “notional asset” or “notional property” appears to run contrary to the thrust of the decision in Stanford: at issue is the consideration of two separate questions, the first of which is whether existing legal or equitable interests should be altered.
(32)Where the Court has determined that it is just and equitable to make an order pursuant to s 79(2) or s 90SM(3) and there is clear evidence that one party has engaged in conduct and, but for that conduct, the legal and equitable interests of a party or the parties (or the value of those interests) would have be significantly greater, justice and equity may require recognition of the unfairness inherent in those circumstances in the terms of the orders to be made.
(33)How might that be recognised? First, consistent with existing authority, it can be recognised pursuant to s 75(2)(o) (cf s 90SF(3)(r)) (see, for example, AJO & GRO & AJO & GRO (2005) FLC ¶93-218, Browne & Green (1999) FLC ¶92-873 and Cerini). Secondly, it might be contended that it might be recognised within the assessment of contributions. This Court has long eschewed the notion of “negative contributions” (see, for example, Antmann & Antmann (1980) FLC ¶90-908). Nevertheless, it might be argued that the “non-dissipating party” can be seen to have made a disproportionally greater indirect contribution to the existing legal and equitable interests (for example to their preservation) if it is established that, but for the other party’s unilateral dissipation, those existing legal and equitable interests would have been greater or had a greater value.
(34)The assessment of the circumstance under discussion is, ultimately, a matter of discretion (see, for example, Cerini at [46] and Townsend at 81,654). Equally, however, authority dictates that it will be “the exception rather than the rule” (Cerini at [46]) that a direct dollar adjustment equivalent to the amount of the alleged dissipation of the pool is made to the otherwise entitlement of a party. It may be that aspects of the erstwhile treatment of legal fees pre-Stanford (see, for example, Chorn & Hopkins (2004) FLC ¶93-204) will require further consideration in an appropriate case.
The value of the assets included in the mother estimate’s of the matrimonial pool, which have been dispersed is $48,850.00. Given the weight of authority and presuming (without having so decided) the Court should follow this authority and consider these amounts pursuant to section 75(2)(o) or s.79(4), the non-superannuation net asset pool (excluding the business) would reduce from $337,037.00 to $288,187.00. Thirty per cent of this amount is $86,456.00. Consequentially, the property the husband has had the benefit of would total $31,700.00 (the Toyota (omitted) and gym equipment), leaving $54,756.00 would, therefore, be available to the husband.
It will be apparent that I am satisfied that an order that the husband be paid from the proceeds of the sale of the former matrimonial home an amount of $30,000.00 for litigation funding would, in the circumstances, be adequately covered by the husband’s entitlement. I consider below whether it is indeed just and equitable to make the order sought.
Will the wife’s entitlement exceed the Orders sought.
The wife’s estimate of non-superannuation net assets (excluding the business) are $337,037.00. Seventy per cent of this amount is $235,925.90. The wife seeks a partial property settlement of $228,000.00 and submits that this amount falls within her entitlement to the matrimonial pool. However, as pointed out in Strahan, more is required then the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) for the other party. Moreover, if the value of the assets which have already been disposed ($48,850.00) are treated as a financial resource, the non-superannuation net assets are $288,187.00 seventy per cent of this is $201,731.00.
Whether it is Just and Equitable to make the Orders sought.
The wife submits that if the Court is satisfied that an order for litigation funding should be made, then the $30,000.00 sum sought by the husband should be reduced by the amount of litigation costs already incurred and, in addition, a discount be applied to the fees which Mr Jones deposes will be charged by the husband’s instructing solicitor, given their inexperience in family law matters. I do not agree with Mr Moisidis’ submission that a litigation funding order by the Court should be confined to costs estimated to be incurred from that date. For this I rely on the observations of the Full Court in Strahan at [98]. Nor do I agree that the Court should scrutinise in minute detail the estimates of costs provided by the applicant’s instructing solicitors. However, I accept in the circumstances of this case, including the matters in dispute, that the Court in framing an order that will be just and equitable ought take a conservative and cautious approach in determining the amount of litigation funding to be ordered.
I am satisfied that an order that the wife’s solicitors transfer to the husband from the trust fund $25,000.00 is appropriate and just. Accordingly, I so Order.
Having regard to the circumstances in which the wife now finds herself; namely, that litigation has been drawn out because of the husband’s failure to fully participate and to engage in full and frank disclosure up until at least February this year and no doubt the stress and anxiety this has caused her, I am satisfied that an order that the wife be paid from her solicitors’ trust fund a sum of $120,000.00 as partial property settlement is appropriate and just. Accordingly, I so Order.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Judge Jones
Associate:
Date: 17 March 2014
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
Legal Concepts
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Remedies
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Injunction
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