Mitty and Mitty and Ors (No. 3)

[2008] FamCA 1043

FAMILY COURT OF AUSTRALIA

MITTY & MITTY AND ORS (NO. 3) [2008] FamCA 1043

FAMILY LAW – PRACTICE AND PROCEDURE – compliance with orders for interim costs – s 106B applicable to interim costs

Family Law Act 1975 (Cth)

Chorn and Hopkins (2004) FLC 93-204

APPLICANT: Ms Mitty

1^st RESPONDENT: Mr Mitty

3^rd RESPONDENT: Mitty Pty Ltd

4^th RESPONDENT: Ms N

5^th RESPONDENT: Ms S

6^th RESPONDENT: Mr M & Co.

FILE NUMBER: SYC 8326 of 2007

DATE DELIVERED: 18 November 2008

PLACE DELIVERED: Newcastle

PLACE HEARD: Sydney

JUDGMENT OF: Justice Fowler

HEARING DATE: 17 September 2008 and also dealt with in chambers by written submissions

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Campton

FOR THE FIRST RESPONDENT: In person

COUNSEL FOR THE 3^RD, 4^TH AND 5^TH RESPONDENTS:
Mr Brzostowski SC

COUNSEL FOR THE 6^TH RESPONDENT: Mr Berry

Orders

1. The payment of the sum of $25,000 made by the husband to the solicitors for the husband in payment of his fees (being part of the total sum paid for such fees) is set aside.

2. The 6^th respondent pay within 14 days the sum of $12,500 to the credit of their trust account to be held upon trust pending further order of the Court

   PROVIDED however that if the Court makes no further order as to its disposition within 28 days from today’s date they are ordered to pay the same to the solicitors for the wife.

3. Leave is granted to the 3^rd, 4^th and 5^th Respondents to apply on short notice within 28 days of the date of this order for such further orders in relation to this order as they may be advised.

IT IS NOTED that publication of this judgment under the pseudonym Mitty & Mitty and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 8326  of 2007

MS MITTY

Applicant

And

MR MITTY

1^st Respondent

And

MITTY PTY LTD

3^rd Respondent

And

MS N

4^th Respondent

And

MS S

5^th Respondent

And

MR M & CO.

6^th Respondent

REASONS FOR JUDGMENT

Introduction

1. The proceedings before the Court follow the making of a “dollar for dollar” interim costs order and the subsequent payment of the husband’s former solicitor’s costs with funds which originated from sources other than the husband.  Questions arise as to whether the payment of the costs attracted the requirement for compliance with the dollar for dollar order made and, if so, whether the solicitor who was paid, and who was aware of the order, should be required to reinstate some or all of the funds so paid by way of payment to the wife who had the benefit of the interim costs order.

Background Facts

1. By order made on 12 March 2008, Judicial Registrar Loughnan ordered as follows:

   “That the husband pay or cause to be paid as and when payment is made by him or on his behalf to his lawyers any amount for legal costs incurred in these proceedings an equivalent amount to the wife or the wife’s lawyers.”

2. Proceedings on the order have not been stayed.

3. The wife’s application made by Further Amended Initiating Application filed in the proceedings on 18 June 2008 seeks the following interim orders namely:

   “25.    The following transactions be set aside:

   25.1the transfer of the amount of $440 on or about 7 February 2008 from funds held on behalf of the husband in the trust account of the Sixth Respondent to the office account of the Sixth Respondent;

   25.2the transfer of the amount of $29,050.72 on or about
   28 March 2008 from funds held on behalf of the husband in the trust account of the Sixth Respondent to the office account of the Sixth Respondent; and

   25.3the transfer of the amount of $3,300 on or about 15 May 2008 from funds held on behalf of the husband in the trust account of the Sixth Respondent to the office account of the Sixth Respondent.

   26.The Sixth Respondent pay to the wife or as she may direct the total of all amounts referred to in Order 25 and any further amounts received on behalf of the husband in these proceedings and/or in relation to the AVO/Local Court proceedings presently before [T] Local Court.

   27.In the alternative to Order 26 the husband do all acts and things and sign all documents necessary to instruct the Sixth Respondent to pay to the wife the total of all amounts referred to in Order 25 and or 26.

   28.The nature of the payment referred to in Orders 25 and or 26 as are made to the wife be any of the following:

   28.1.   interim lump sum property settlement;

   28.2.   interim lump sum spouse maintenance;

   28.3.   interim costs;

   28.4.security for payment of interim periodic spouse maintenance;

   or otherwise as is determined by the Trial Judge.

   29.The husband and the Sixth Respondent be jointly and severally liable of the costs of and incidental to Orders 25, 26 and 27 of these Interim Orders.

   30.That except as provided by these Orders the Husband pay the wife’s costs of and incidental [to] these interim proceedings.”

4. The 6^th respondent filed a response which sought the dismissal of orders 25 to 30 (inclusive), as set out above and an order for costs of the application against the wife.

5. The 3^rd, 4^th and 5^th respondents filed a response seeking against the
   6^th respondent an order:

   “3.That in the event that the Court makes Order 25 of the interim Orders sought by the wife in her application the 6^th Respondent pay the sum of $12,500 to the 5^th respondent and $12,500 to the Thornleigh & Co partnership.”

6. Ms V filed an affidavit on behalf of the 6^th respondent, the firm M Services Pty Limited trading as Mr M & Co., which deposed as, inter alia, to the following matters:

   a)That she was a director of the 6th Respondent.

   b)That on 20 December 2007 she invoiced the husband for advice in relation to the matter in the sum of $440 including GST.

   c)On 31 January 2008 she received a cheque from H Capital Pty Limited in the sum of $5,000 in response to a request made by her firm for funds on account of the costs of a conference to be held with Mr Levy of Counsel in relation to the matter.

   d)On 7 February 2008 the sum of $440 was transferred to the firm’s office account from the trust account, where the monies it held on behalf of
   the husband were held.  That transfer was in payment of the invoice rendered in December 2007.

   e)That in early February 2008 the husband’s mother informed her in the following terms:

   “I know [the husband] doesn’t have any money.  Don’t worry about your fees.  The family will take care of those.”

7. The interim hearing before the Judicial Registrar was listed for 12 March 2008.

8. Prior to that hearing the deponent informed the husband that the firm needed him to deposit the sum of $25,000 into their trust account on account of costs and disbursements. The husband, she says, replied: “I’ll be making arrangements with my sisters to borrow the money.”  A notification of costs prepared by the solicitors for the purpose of the hearing confirmed that the source of funds was borrowings by the husband from his sisters.

9. On 12 March 2008 the Judicial Registrar made the “dollar for dollar” order referred to above.

10. On 18 March 2008 a cheque in the sum of $25,000 was deposited to the credit of the trust account of the 6^th respondent and credited to the husband’s account within that trust account.

11. On 27 March 2008 a tax invoice was rendered to the husband for work done by the solicitors.

12. On 28 March 2008 an amount of $29,050.72 was transferred from the solicitor’s trust account to its office account in payment of costs and disbursements.

13. The solicitor deposes of three conferences with the husband which are of significance namely on 26 March 2008 when the husband was advised by his solicitors of:

    “… problems that may arise if we continued to act for him in these proceedings in view of the Orders that had been made by the Judicial Registrar.”

14. On 14 April 2008 the husband was advised it is asserted “… that unless a number of conditions were satisfied that we could no longer act for him in the family law proceedings.”

15. On 15 April 2008 the husband was advised that he could continue to instruct the firm in certain Apprehended Domestic Violence proceedings.

16. Correspondence from the solicitor for the wife as to payments made to the firm of the husband’s solicitor, on the instructions by the husband, not answered.

17. The costs of the Apprehended Domestic Violence proceedings were assessed at $3,300 by the husband’s solicitors.  On 15 May 2008 fees in the sum of $3,300 were rendered in respect of that account.

18. It is submitted by Counsel for the 6^th respondent that no order that I make, if I make an order at all, could relate to the monies transferred from the solicitor’s trust account to the solicitor’s office account in payment of the fees incurred by him in relation to the Apprehended Domestic Violence proceedings.  I agree with this submission.  Whatever view I take of the transactions, I believe I can only set aside transactions which have a direct relevance to the breach of the order made by the Judicial Registrar or which are intended to defeat an existing or anticipated order in these proceedings.

19. It is submitted by the Counsel for the 6^th respondent that the operation of the order of the Judicial Registrar cannot be triggered by the payment of costs incurred prior to the order (and paid subsequent to the order).  I do not agree with this submission.  In ordinary terms the order is triggered by payment by or on behalf of the husband of an amount for costs in these proceedings.  It matters not when the costs were incurred.  It does matter when the costs were paid and that they relate to the proceedings before this Court.  That flows simply from the order which has been made.  I agree however with the submission made that the sum of $5,000 paid prior to the making of the order is not caught by the order.

20. There appears at this time no issue of fact that the monies which were provided to fund the payment of $25,000, the only payment to which the order’s operation is attracted therefore, if at all, came from the payment which was made to the trust account of the husband’s solicitors and on the husband’s evidence was the product of a loan from his sisters.  Counsel for the
    6^th respondent puts it as:

    “… the husband’s sisters, personally and through a trading partnership, lent the husband funds with which to pay his legal costs, those funds being lent in a commercial transaction and evidence of that fact was given by them in their respective affidavits.”

21. Whatever the nature of the transaction between the husband and his sisters the fact is that they lent the money referred to to the husband and, when so lent, it was credited to an account in the husband’s name in the solicitor’s trust account and the solicitors thereby indicated that they held that money on trust for the husband and that it was beneficially his.

22. It could only have been removed from the solicitor’s trust account and paid to the solicitors in circumstances where the husband had authorised the transfer.  In those circumstances, the payment became a payment by the husband.  If it was not, then certainly it was a payment on behalf of the husband.

23. The direction for the payment by the husband to the solicitor was made in the knowledge of the husband in circumstances where he knew he did not have any other source of funds to comply with the operation of the order of the Judicial Registrar and so it was a payment made either with the intention of, if not with the effect of, defeating the operation of the Judicial Registrar’s order.

24. That the source of the funds was not from the matrimonial assets is of no weight in the argument as contended by Counsel for the 6^th respondent.  The effect of the decision in Chorn and Hopkins (2004) FLC 93-204, is of no relevance to the order of the Judicial Registrar. The husband could have paid the amount with funds borrowed on his credit card or from his bank, yet if there was not a like amount paid to the wife the existing order is breached. That the sum was borrowed from his sisters, who had no desire to benefit the wife, does not alter the situation that once the funds were credited to him they were at his disposition and were in fact disposed of by him. If his sisters have issue with that they may take up that issue with him. If his sisters have issue with the way in which the solicitors for the husband applied the money they may also take that issue up with them. It cannot be argued that the disposition of the money did not come from the husband once the sum was held for him. That it was the product of a loan does not make the payment any less a disposition within the meaning of section 106B of the Family Law Act 1975.

25. For these reasons I find that the husband, contrary to the requirements of the order made by the Judicial Registrar and in an attempt to defeat it, paid or caused to be paid to his solicitors a sum of money which was his property without having available and paying the like amount to the solicitors for the wife.

26. I find on the balance of probabilities that the husband’s solicitors knew that there was likely to be a breach of the order of the Judicial Registrar as following the payment of the money to them.

Submissions of the 3^rd, 4^th and 5 Respondents

1. Mr Brzostowski, Senior Counsel for the 3^rd, 4^th and 5^th respondents, also made submissions in this matter which I have considered.  I am prepared to consider those submissions in determining this matter.  I have done so.

2. I have dealt with above and agree with some of the submissions made by Counsel on behalf of the 3^rd, 4^th and 5^th respondents since they are in line with the like submissions agreed to by me and made by Counsel for the
   6^th Respondent.

3. Mr Brzostowski however asserts:

   a)That the Judicial Registrar’s order must fail to operate on the monies paid by the sisters to assist their brother by reason of the fact that section 117 can only operate on monies inter alia to funds owned, legally or equitably, or controlled, by a party to the proceedings and that money lent by the sisters does not fall into this category.

4. I reject this submission in any event in this case for two reasons, namely:  once the money was lent it was the husband’s money;  and it was held to his credit and disposed of from the trust account at his direction, to the office account.

5. It is asserted that there was never any injunction stopping the sisters paying money to the solicitors.  That is so but what in fact happened was that they lent money to their brother and it was paid to his credit in the solicitor’s trust account.

6. Mr Brzostowski argues that there is no disposition of the funds within the meaning of the relevant section.  I do not accept this submission as correct for the reasons indicated above.  The money once lent was at the husband’s disposition and was so held by his solicitors.

7. Mr Brzostowski argues that even if there had been a breach of a dollar for dollar order then in that event section 106B does not apply to it. I do not agree. A disposition intended to defeat the operation of an order can be a disposition intended to defeat the operation of an interim order and if not intended may, if it has the effect that it does in fact defeat the operation of that interim order, be set aside.

8. Mr Brzostowski argues that the disposition was not made by the husband. I disagree with this submission. A transfer from a trust to an office account can only occur with the authority and at the direction of the person for whom the sum is held, in this case, the husband. It is argued that the acts of the sisters cannot fit this description. It is not that they do. What is attacked is the act of the husband in authorising and directing the loan funds to be paid as they were. It is not a requirement for the operation of section 106B that the disposition made reduces the available funds to the parties. Such an interpretation is not warranted on the clear words of the statute. It may, and in many cases, does have that effect, but it is not required to.

9. It is argued by Mr Brzostowski that the use of the words “on behalf of” involved a notion of agency of the party.  Once again I do not think that that inference can be drawn from the plain words of the statute.  It is more likely to be, in my view, interpreted as “to the benefit of” but, in any event, I do not think that one has to go beyond the concept that once the funds were the husband’s, albeit on loan, then they were at his disposition and disposed of by him.

10. The money was not, as Mr Brzostowski suggests, paid to the credit of the solicitors for costs;  it was paid to the husband and credited to his account.  It was the husband who paid the amount to the solicitors for their costs from that amount once credited to him.

11. I will not further comment on the inapplicability of the reasoning in the case of Chorn and Hopkins (supra).

12. As to the submission of Mr Brzostowski suggesting that an unpaid service provider (in this case the solicitor) cannot have an obligation to refuse payment from an independent third party, I note that whatever the merits or lack of them of that submission I have already found that the service provider was paid by the husband.

13. As to the submission that the order of the Judicial Registrar has to be read down so as to not prevent it affecting the rights of the solicitors to receive fees then of course the position is that it does not limit that right, it only directs the husband to match what is paid to them within the meaning of the order with a like payment to the wife’s solicitors.

14. As to the submission that the property in the payment passed directly from the sisters to the solicitors and was not passed through the husband, I reject that argument.  The amount is referred to by the husband as a loan and is treated by the solicitors as being held to his credit in his account.

15. It is suggested that the trail of the money into the account makes a difference.  I do not agree.  It was an advance and it was credited to the husband and was disposed of by him.

16. It is argued that the whole of the sum should not be paid to the wife’s solicitors as sought and with this submission I agree. In my view, the operation of the remedy under section 106B should be only taken so far as is necessary to remedy the obligation sought to be avoided. I reject the submission that the money presently proposed by me to be ordered to be repaid is owned by the lenders. It is an amount they have lent but, on lending it, becomes the property of the borrower. There was therefore a moment in time when it ceased to become the property of the lender and became the property of the borrower. That is the nature of the transaction. Even if the lender had paid directly to the solicitor an advance made to the husband as borrower it would nevertheless have been properly regarded by the solicitors as a payment (albeit made at direction) made by the borrower. We do not, however, have to deal with that problem in this case.

17. The nature of the payment to the wife under the dollar for dollar order can be reassessed on the hearing and the nature of the debt to the sisters can also be taken into account.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Fowler.

Associate: 

Date:  18 November 2008