Pallas and Pallas (No. 2)

[2014] FamCA 1109

FAMILY COURT OF AUSTRALIA

PALLAS & PALLAS (NO. 2) [2014] FamCA 1109

FAMILY LAW – COSTS – Where the Independent Children’s Lawyer seeks costs against each party – Where the husband and wife each oppose an order for costs – Consideration of the financial circumstances of the parties and other matters asserted to be relevant - Order made for costs in favour of the Independent Children’s Lawyer

Family Law Act 1975 (Cth)

Bartsch & Redman (No. 2) [2014] FamCAFC 214
De Roma & De Roma (2013) FamCA 566

In the marriage of McDonald (1994) FLC 92-508

Re P (a child); Separate Representative (1993) FLC 92-376

APPLICANT: Ms Pallas

RESPONDENT: Mr Pallas

FILE NUMBER: WOC 856 of 2012

DATE DELIVERED: 5 December 2014

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 2 December 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Schonell, SC

SOLICITOR FOR THE APPLICANT: Reid Family Lawyers

COUNSEL FOR THE RESPONDENT: Mr Campton, SC

SOLICITOR FOR THE RESPONDENT: Newnhams Solicitors

COUNSEL FOR THE INDEPENDENT CHILDREN’S LAWYER: Mr Cook

SOLICITOR FOR THE INDEPENDENT CHILDREN’S LAWYER: Bailey Mullard Lawyers

Orders

1. The outstanding costs of the Independent Children's Lawyer (excluding the amount of $3,300 which has already been paid) is to be fixed in the sum of $16,530.00.

2. Within three months of the date of these orders, the applicant and the respondent shall each make payment of one half of the outstanding costs of the Independent Children's Lawyer to Legal Aid NSW.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Pallas & Pallas has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: WOC 856 of 2012

Ms Pallas

Applicant

And

Mr Pallas

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. The final stage of the hearing in this matter settled on the second day (being scheduled for seven days) in relation to parenting and property. There had been a number of interim proceedings. The Independent Children's Lawyer has made an application for costs in the following terms:

   1.    The costs of the Independent Children's Lawyer be fixed in the sum of $19,831.69.

   2.    Within three months of the date of the orders the applicant and the respondent shall each make payment for one half of the costs of the Independent Children's Lawyer.

   3.    It be noted that the husband has paid $3,300.00 of the costs sought to be fixed so that the amount remaining to be paid is in the sum of $16,531.69.

2. However, in oral submissions counsel for the Independent Children’s Lawyer amended what was sought so that the application became one for a joint and several order, leaving it up to the court as to how the outstanding amount of $16,530 should be divided between the parties.

3. Senior counsel for each of the parties argued that their client should not pay the costs sought by the Independent Children's Lawyer. 

THE LAW

1. Although s 117(1) Family Law Act 1975 (Cth) (“the Act”) provides that each party to proceedings bear his or her own costs, the Independent Children's Lawyer is not a “party to proceedings” as that expression is used in that subsection (see Re P (a child); Separate Representative (1993) FLC 92-376; In the marriage of McDonald (1994) FLC 92-508; De Roma & De Roma (2013) FamCA 566 at 10-12).

2. Section 117(1) of the Act thus does not create a starting point which applies to this application.

3. The Independent Children's Lawyer is to be treated as being unfunded (Bartsch & Redman (No. 2) [2014] FamCAFC 214 at 25; De Roma & De Roma at 54). The submission by senior counsel for the wife that “it could hardly be contended that the legal aid commission will go bankrupt if there is no contribution made by [the wife]” is not sustainable as a relevant consideration in the face of those authorities.

4. Section 117(2) of the Act provides that a costs order can be made when the court is of the opinion that there are circumstances that justify it and the court considers it just to do so (s 117(2) of the Act).

5. In considering what order (if any) should be made under s117(2), s 117(2A) sets out a number of matters to which the court should have regard. Of these, the only matters relied upon in submissions were:

   (a) The financial circumstances of each of the parties to the proceedings;

   ....

   (g) Such other matters as the court considers relevant.

6. Senior counsel for the husband, when challenged, withdrew any submissions which may have put in issue, the Independent Children's Lawyer’s conduct during the proceedings.

THE FINANCIAL CIRCUMSTANCES OF EACH OF THE PARTIES

1. As already indicated, the property settlement orders were eventually made by consent. A number of contested issues between the parties relating to financial matters were not resolved by the making of findings. The balance sheet was consequently not totally settled. Exhibit 33 contains the most recent version of the balance sheet.

2. In raw terms, the balance sheet indicates that on the husband’s view, the total assets were $3,350,000, including $265,000 in superannuation and the liabilities were $1,720,000; leading to a net value of the matrimonial asset pool of $1,895,000. On the wife’s figures, that amount reduced to $1,682,685. The wife, when making submissions prior to the making of the consent property orders, indicated she was, on her view, getting about 60 per cent of the net assets. That would be an amount of about $1,000,000.

3. The balance sheet however requires some finer analysis because the wife’s paid legal fees and disbursements were added back as an asset in the sum of $282,773, as was a liability to her parents or parents’ family trust in the sum of $333,647.

The wife

1. By way of consent orders, the first asset which the wife receives is item 7 on the balance sheet; her shareholding and interest in Y Pty Ltd, trading as Z Pty Ltd. That entity has been valued at $457,000 on the wife’s column in the balance sheet ($633,863 in the husband’s column). Taking the wife’s value, it is uncontroversial that $150,000 of the interest in that company is a loan owed by the husband. The wife has an obligation under the property settlement order to indemnify the husband in relation to that loan and consequently the value of the company is $307,000 (on her figures).

2. The wife receives the property at KK Street, Town JJ (“the KK Street property”) (item 2 on the balance sheet). The value of that property is $520,000. It is subject to two liabilities (items 26 and 27 on the balance sheet), being mortgages to the NAB respectively in the sum of $295,818 and $50,370. The wife’s equity therefore in the KK Street property is in the approximate sum of $187,500.

3. Thirdly, the wife under the orders receives upon the sale of item 1 on the balance sheet (the property at CC Street, Town DD (“the DD property”)) the sum of $600,000.

4. The wife also receives the husband’s interest in the MM Superannuation Trust in the sum of $126,515 and her own superannuation at $10,000. Overall, the wife consequently receives assets in the sum of $1,231,015 ($307,000 + $187,500 + $600,000 + $126,515 + $10,000).

5. The wife asserts that she owes her father $333,647 (being item 36 on the balance sheet).

6. In this application the wife relied upon Exhibit 34, a costs letter from her lawyers to herself dated 28 November 2014. That letter contains the statement:

   You have instructed us that the source of payments of these fees [a reference to legal fees paid] has been by way of a loan from your father facilitated through the family trust.

7. At [355] of her trial affidavit the wife sets out the significant assistance she says she received from her father, that being:

   19.1.$48,228 on 28 April 2014 (which she lent to Z Pty Ltd to meet expenses);

   19.2.$35,232 to the wife’s previous lawyers;

   19.3.$57,819 to the wife’s accountants;

   19.4.$178,995.75 to the wife’s current lawyers;

   19.5.$62,330.73 in payments to the wife’s bank accounts to assist her with the support of herself and the children;

   19.6.$52,300 in credit card expenditure (for which he does not ask to be repaid);

   19.7.$61,000 to the wife’s lawyers trust account for senior counsel’s fees for this hearing.

8. A loan agreement between the wife and her father is Exhibit 45 to the wife’s trial affidavit and records that the family trust advanced to the wife a total of SFR 34 405.63, repayable with interest on that amount of 3.25 per cent per annum once the property proceedings were finalised.

9. The wife’s father’s affidavit at [49], [51]-[52] confirms the evidence of the wife.

10. The wife also contends to have obtained a loan from her sister, Ms OO, in the amount of $46,569 which she agreed to repay when these proceedings finished. This money has been paid towards debts of Z Pty Ltd, the living expenses of the children and wife, towards accounting advice provided in these proceedings and a short holiday. Agreement was reached between the wife and her sister that the monies given to the wife were a loan and would need to be repaid. The wife’s sister’s affidavit confirms this evidence at [38] of her affidavit.

11. It is asserted by the wife that she also has outstanding legal fees. There is an inconsistency in Exhibits 33 and 34 as to what the wife owes her current lawyers (Exhibit 33 says $21,806; Exhibit 34 says $69,082).

12. The wife has currently paid into her current lawyer’s trust account a sum of $3,825. It is probable that the wife also owes her lawyers somewhere between $10,000 and $15,000 for the two days that the matter proceeded.

13. The wife also owes $77,000 to her former lawyers. That amount does not appear in Exhibit 34 (for reasons that were not explained); it does however appear as item 34 on exhibit 33 (the balance sheet).

14. Adopting the figure from Exhibit 34, the total legal fees owed by the wife thus total $146,000 ($77,000 + $69,000). Estimated fees for the wife’s current lawyers work in progress, and senior counsel’s fees also have to be added to this total and it will be likely the total will rise to about $200,000.

15. Consequently, the total amount the wife owes in legal fees, to her family trust, and to her sister is in the amount of $580,216 ($333,647 + $200,000 + $46,569).

16. As best I can calculate, the wife’s capital base is in the sum of $650,799 ($1,231,015 - $580,216) and $138,599 of that is in superannuation.

17. I have no single expert report in relation to the wife’s business. The balance sheet indicates that it is worth somewhere between $475,000 and $633,000 (subject to the $150,000 deduction in relation to the repayment of the husband’s loan account). I infer however that a business that has that value based on maintainable earnings creates a significant regular cash flow for the wife. I am unable to know what net maintainable earnings or what capitalisation rate has been used to reach that figure and more importantly, what allowance has been made in the expenses of the company for the wife’s employment in that company. Senior counsel for the wife submitted that the wife gets to keep her business (from which she earns an income). The wife’s financial statement indicates she is drawing no salary or wages from the business but that she does receive income from the company of $1,800 per week and $1,353 by way of rent and outgoings for KK Street weekly. 

The husband

1. Senior counsel for the husband submitted that as a result of the property settlement orders that were made, the husband will have available to him about $485,000 in net assets including superannuation. The husband would also retain the bus business which is not ascribed any value on the balance sheet.

2. An order was made by consent for the sale of the DD property. The wife is to receive $600,000 at the end of the sale. The husband expects he will have to raise some monies to comply with the order to pay the wife $600,000. The mortgage outstanding on that property is $90,000.

3. The net equity in the husband’s three investment properties (items 3, 4 and 5 on the balance sheet) is approximately $850,000. The three assets add to about $1.4 million. The mortgages are items 23, 24, 25, which total about $550,000.  The husband also asserts that the investment properties have unrealised capital gains attached to them.

4. The husband’s hard core bank debt is at items 30 – 32 and is about a bit over $200,000. In addition, he is said to owe his brother $125,000. Those debts total $325,000. Senior counsel for the husband said in submissions the husband’s debts were $485,000 but I am unable to reconcile that submission with the evidence. Even if that were so, the husband is left with a capital base of at least $365,000.

5. Apart from a reference made on page 11 of the husband’s summary of argument document, I do not have any evidence from the single forensic accounting expert Mr BG. Senior counsel for the husband asserted that Mr BG’s updated report indicated that on liquidation the husband’s business enterprise would result in a loss of $227,000. It is unclear as to what that submission means and I am unable, because I do not have the expert report, to comment further upon it.

6. Senior counsel for the husband said that the gravamen of his submission was that over the two and a half years of litigation, the husband had been “tapped out”.

OTHER MATTERS ASSERTED TO BE RELEVANT (s 117(2A)(g) OF THE ACT)

1. Other matters referred to in oral submissions and asserted to be relevant considerations, related to expenses that the parties had paid for the conduct of the litigation, the payment to experts in both the parenting and property case, and the payment for counselling and supervision of the husband’s time with the children over an extended period of time.

2. Senior counsel for the wife emphasised the amount the wife had already spent on the litigation. The wife has spent a considerable amount on the litigation as follows (see Exhibit 34):

   Paid to former solicitors   $ 35,232

   Paid directly to experts  57,817

   Paid to current lawyers  185,899

   Estimate work in progress - not specifically particularised but about   8,000 – 13,000

   Counsel’s fees - not specifically particularised but less than   42,500

   $329,448 - $334,448

3. The amount the wife still owes her lawyers is set out above.

4. Senior counsel for the husband also emphasised the amount that the husband had spent on the litigation being an amount of $351,000 (Exhibit 35). That amount includes a payment of $9,000 to Dr M. Senior counsel for the husband said that the husband had paid $20,000 to Dr M. There is only the amount of $9,000 recorded on Exhibit 35, although another $11,000 bill may have been paid. This was not made clear.

5. The payments were made by the husband primarily by borrowing funds. The sources of funds are set out in Exhibit 35 and include an amount of $138,798 which he owes to his brother. Item 29 on the balance sheet indicates that $124,773 is still owing to his brother. Items 30, 31 and 32 on the balance sheet are accounts from which monies have been drawn by the husband to fund the litigation. The husband has also drawn money from Y Pty Ltd to pay for Mr BG’s report and Ms U’s expert fees ($11,000 and $2,000 respectively).  

6. Senior counsel for the husband referred to a number of interim judgments in the proceedings. He pointed to the fact that the husband had opposed an order for supervision, although that order was made on 15 April 2013. He then bore the costs of paying for that supervision. On 3 December 2013 orders were made which re-arranged the provisions for supervision and again the husband met the costs of that supervision. Again senior counsel points to the fact the husband opposed those orders being made. Senior counsel for the husband said that the reasons for judgment delivered on 3 December 2013 indicated how much the cost of the supervision was going to be and submitted that the husband has since that date spent approximately $55,000 in meeting the supervision costs.

7. Senior counsel for the husband asserted that the husband from an early stage opposed the therapy that Ms F was providing the children and the husband asserted he was to some degree vindicated by Dr M’s final report in relation to the effectiveness of that therapy. He pointed to the fact that he paid half the costs of that therapy. The husband also paid for the cost of his own therapy with Ms LL.

8. Counsel for the Independent Children's Lawyer conceded that the court might find favour with the submission that the husband had made some contribution to the provision of the single expert report ($20,000 (or $9000 on the balance sheet)) and supervision costs ($55,000), although why that might be a matter of significant weight in the current application, was not made clear.

9. Initially senior counsel for the wife submitted that it was a relevant factor that the wife had not sought the order for the appointment of the Independent Children's Lawyer. It transpired however during subsequent submissions, that it was an agreed fact that the order facilitating the appointment of the Independent Children's Lawyer was not made of the court’s own motion but as a result of an application contained in a response filed by the husband. It was agreed that the wife had not filed a reply to that response and therefore had not put the appointment of the Independent Children's Lawyer in issue. In that context, the court determined that it was in the children’s interests for them to be independently represented. It is difficult to understand how the opposition of a parent to the appointment of the Independent Children's Lawyer would be a matter of any weight when considering whether or not a parent should pay an amount towards the costs of their children’s representation.

CONCLUSION AS TO WHETHER AN ORDER FOR COSTS SHOULD BE MADE

1. Both parties engaged in energetic litigation against the other over an extended period of time. Both parties employed senior counsel at the final hearing. The gravamen of both senior counsels’ submissions were that the parties had spent so much money on the litigation that they shouldn’t be expected to have to pay any further amount for the Independent Children's Lawyer’s costs.

2. I find having regard to all the submissions that have been made and the reasons as I have set them out, that it is just that both parties contribute to what I find to be a relatively modest request for the payment of costs by the Independent Children's Lawyer given the history and the nature of the litigation. I do not place any great weight on matters referred to in submissions which relied upon s 117(2A)(g) of the Act. In relation to the relative financial circumstances of the husband and wife compared to the unfunded Independent Children's Lawyer, neither of the parties are so impecunious that they are unable to attend to the payment of the relatively modest costs sought.

HOW SHOULD THE COSTS PAYABLE TO THE INDEPENDENT CHILDREN’S LAWYER BE DIVIDED BETWEEN THE PARTIES?

1. Senior counsel for the husband pointed to the fact that Exhibit 36 shows that the husband has already paid $3,300 as a contribution for costs to Legal Aid NSW. Senior counsel for the wife pointed out that those monies had come from joint matrimonial property and given that the matter settled, it was unclear as to how the money that the husband had used from joint matrimonial property to pay a contribution to Legal Aid NSW should be treated. A similar argument arises in relation to the payment by the husband of Dr M’s fees and the costs of supervision. In my view the safest way of apportioning the costs is to simply find that the outstanding costs of the Independent Children's Lawyer are $16,531 and not $19,831 and to divide the remaining liability in relation to $16,531 evenly between the parties. The effect of doing so is to credit each party with one half of the payment of $3,300 that has already been made to Legal Aid NSW.

1. Accordingly, I make the order as sought by the Independent Children's Lawyer.

I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 5 December 2014

Associate: 

Date:  5.12.2014