Papadopoulos & Papadopoulos

[2007] FamCA 689

FAMILY COURT OF AUSTRALIA

PAPADOPOULOS & PAPADOPOULOS [2007] FamCA 689

FAMILY LAW - DISCOVERY – Time limitation to be covered determined by relevance and costs but with default clause for further period of expert unequivocally justified it

FAMILY LAW - COSTS – Discretionary order - Litigation funding order made notwithstanding earlier order from which funds were used for a purpose other than that specified in the original order

Family Law Act 1975 (Cth)

Zschokke and Zschokke (1996) FLC 92-693

APPLICANT: MRS PAPADOPOULOS

RESPONDENT: MR PAPADOPOULOS

FILE NUMBER: MLF 11340 of 1995

DATE DELIVERED: 6 July 2007

PLACE DELIVERED: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 28 June 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr O’Shannessy

SOLICITOR FOR THE APPLICANT: Philippa Power

COUNSEL FOR THE RESPONDENT: Mr St John

SOLICITOR FOR THE RESPONDENT: T J Mulvany & Co

Orders

1. That within sixty (60) days of these orders, the husband do all things required to make available to the wife those documents within his possession, power or control as set out in Appendices 1 to 6 in Exhibits W1 and W2 handed to the Court on 28 June 2007 save that in respect of each of the disputed items, wherever the wife sought the relevant period of disclosure to be 1 July 2002, it shall be 1 July 2004 other than in the fringe benefits tax items which shall be from 31 March 2004.

2. Notwithstanding paragraph 1 of these orders, should Chartered Accountants, G Company examined all of the documents provided by the husband, determine that there is an unequivocal need to examine a period two years earlier than that referred to, the husband shall provide such documents within a further sixty (60) days after such written request is received.

3. In the event that there is any dispute about paragraphs 1 or 2 of these orders, the parties have liberty to apply on short notice.

4. That the husband pay to the wife one half of her legal costs only in respect of the attendances on 19 December 2006 by the wife’s legal practitioners and for the preparation of those parts of the documents used in those proceedings as they related to the “Barro” and spousal maintenance application, such quantum of costs to be by agreement and in default of agreement, as determined pursuant to the Family Law Rules 2004. For the purposes of the calculation of counsel’s fees the amount to be paid by the husband shall be 50 per cent of the marked fee of Senior Counsel.

5. That all other costs associated with the proceedings that were heard on 19 December 2006, 23 March 2007, 19 June 2007 and 28 June 2007 (noting that a separate order was made on 22 January 2007) be reserved for the trial judge.

6. That within sixty (60) days of the date of these orders that the husband pay to the solicitors for the wife, the sum of $25,000, such sum to be used by the wife in relation to these proceedings for the purposes of, but not limited to, obtaining valuations and engaging an investigative accountant, such costs to be taken into account as costs, maintenance or partial property settlement as the trial judge otherwise sees fit.

7. That all interim applications be otherwise dismissed and be removed from the list of cases awaiting a hearing.

IT IS CERTIFIED

1. That pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of counsel, including Senior Counsel.

2. That the Appendices 1 to 6 handed to the Court on 28 June 2006 be marked as Exhibit A and IT IS DIRECTED that the Exhibit remain on the Court file. 

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 11340 of 1995

MRS PAPADOPOULOS

Applicant Wife

And

MR PAPADOPOULOS

Respondent Husband

REASONS FOR JUDGMENT

1. This is the third judgment I have given in this case since 21 December 2006.  It relates to interlocutory matters.  It is frightening to think that the parties are yet to complete the discovery process.

2. To some extent, the dilemma has arisen by the complexity of the issues and the inability of the Court to provide sufficient time to deal with all of the interlocutory matters.

3. On 28 June 2007 I heard submissions and read various documents again in relation to three issues.  They were:

   a)The limitation on the time frame of years for the husband to provide documents in relation to a variety of entities;

   b)Who (if anyone) should pay the costs associated with the hearings on 19 December 2006 and 23 March 2007; and

   c)A further litigation funding order sought by the wife.

4. The discovery issue was limited to the question of whether the husband was obliged to disgorge documents back to 2002 or only until 2004.

Background

1. I will not repeat the factual background of the matter as those details are set out in my reasons for judgment delivered on 23 March 2007.

2. It is sufficient to say that some agreement appears to be reached between the parties since then but not much.

The discovery issue

1. The wife relied upon an affidavit of Mr F filed 9 February 2007.  Mr F is the Director of Litigation and Forensic Consulting Division and Managing Partner of G Company, Chartered Accountants in Brisbane.  He is the professional advisor to the wife in this matter.   Attached to that affidavit are a number of schedules setting out the documents Mr F wishes to examine and the reasons why.

2. In paragraph 59 of my reasons for judgment on 23 March 2007, I commented that many of the documents sought by the wife needed to be not only clarified but the request had to be redrawn in a proper way.  I was there referring to the fact that the wife had to seek documents rather than information.

3. Subsequent to that hearing, new schedules have been prepared by Mr F and as I understand it, the husband agrees to provide the documents listed but now the dispute revolves around the duration of the period to be covered. 

4. In those schedules, Mr F wishes to see documents including:

   ·    Copies of significant contracts (which account for more than 10 per cent of purchases or sales entered into by the entity with third parties and/or related entities);

   ·    Wage records;

   ·    Copies of all credit card and bank statements;

   ·    Copies of all fringe benefit tax returns for one of the family trusts.

5. It is not quite that simple however.  The various schedules relate to different entities but I have endeavoured to get to the nub of the problem by describing it that way.

6. Mr F apparently drafted the schedules and in respect of each of the matters to which I have just referred, he set out in the schedule why the “information” was required.   In respect of the significant contracts, he said that he needed those to:

   To give an overview and background detail in relation to any business activities which will be taken into account of our assessment of value.

7. In respect of the wage records, he said:

   To understand the nature and extent of any business activities, and examine the wages in more detail.

8. In relation to the credit card and bank statements, he said that he wanted that information to:

   Identify transactions performed by the husband.

9. In respect of fringe benefit tax returns, that ultimately appeared to have been compromised by the parties agreeing that it should be from 2004 but then the dispute was whether or not it was to be from March 2004 or July 2004.   Mr O’Shannessy of Counsel for the wife advised me during the hearing that he had received advice from Mr F that the fringe benefits tax reporting period runs from March to March and not as one would expect for a financial year.  The issue therefore does not appear to be of any great significance.

10. Accordingly, I am asked to determine in respect to those matters and for the variety of entities, what period of time the husband has to cover.

11. According to Mr O’Shannessy for the wife, the accountant needs the “longer snapshot” and the wife is very much reliant upon the competence of her professional advisors.

12. Attached to the affidavit of the wife’s solicitor filed 13 June 2007 is a series of documents obtained under subpoena.  The wife points to these documents as justifying the extensive examination of all of the entities in the relevant period.  For example, on page 53 of the affidavit of the solicitor, the bank officer who completed the “concessional pricing submission” for T Pty Ltd in June 2000 said:

    [The husband] has a share portfolio in excess of $4M and currently enjoys the equivalent of the National on line trading system with ANZ.

13. On page 51 of the same affidavit, there is a reference to P Pty Ltd as a customer and the business banking manager reporting that the customer wanted to fund a development at G to build 16 units/factories plus shops etc and:

    Estimated cost to be approx $4M of which [the husband] will contribute $3M or just over.

14. That particular document is dated November 2005. 

15. Accordingly, the wife says that in addition to any valuation by her advisors, she ought also be given an opportunity to investigate the period back to 2002 and points to those sorts of entries to which I have just referred as a justification.   Rule 13.04 as I pointed out in paragraph 40 of my judgment dated 23 March 2007 requires a party in a financial case to make full and frank disclosure of that party’s financial circumstances but there is no reference to any specific time limitation over which the discovery is to be made.   That must be so because the over arching rule is 13.01 which requires a party to make full and frank disclosure of all information that is relevant to the case. 

16. The wife points to the two banking entries to which I have just referred as an indication of some relevance and therefore says that the husband has an obligation to disclose. 

17. Mr St John SC for the husband says that there is no need to go back to 2002.  He points out that these entities are small but more importantly, the husband only has a part interest in them.  Accordingly, the wide-ranging examination not only by Mr F but also by the wife cannot be justified on the basis of the expense associated with the production of the documents and that is particularly so bearing in mind the size of the asset pool.  I shall return to that pool in a moment.  Mr St John urges economic restraint to endeavour to mitigate costs for both parties.

18. Mr St John SC made the point that should the accountant in the course of the investigation indicate a need to go beyond 2004 then he could seek those documents but that otherwise, he should be limited to as far back as 2004 only.  There is some merit in that argument but it raises two problems.   They are:

    ·That does not necessarily resolve the issue of the wife’s information investigation unrelated to the valuation; and

    ·Having regard to the dispute thus far not only about relevance but also about the husband’s reluctance to provide documents, any further request by [Mr F] appears inevitably to lead to a further application before the Court.

19. My view is that there is merit in what Mr St John SC suggests but I am inclined to make orders that provide a mechanism in the event of disagreement. 

20. Having regard to the expert nature of the enquiry by the accountants, my view is that some limitation needs to be put on this case and as such, I propose to make orders that limit the investigation back to 2004.  In relation to the wife’s own desire to pursue issues of a financial nature beyond that, I think it important for cost limitation purposes that the accounting exercise be undertaken first as it seems to me that many of the issues overlap.

21. An interesting dilemma arises from an observation by Senior Counsel for the husband.  As part of his submission about the valuation exercise, he pointed to the fact that it is standard practice for accountants to cover a period of three years to enable them to obtain an average of the profitability of an entity as well as to give a reasonable picture of the current financial viability of the entity.  Mr O’Shannessy however pointed out in reply that that would be fine save that the entities have thus far only provided financial documents up to 30 June 2005 and there is no indication of what is happening about the preparation of the 2006 documents.  At the time of delivery of this judgment we have completed the 2007 financial year.

22. I appreciate again the point that the husband wishes to have the Court accept about his control over the situation but having regard to his relationship with the other persons involved, I find it hard to believe that he could not urge them to assist in doing all things necessary to bring the financial records right up to date so that the serious issue of resolving the matter or litigating the dispute can commence.

23. I propose to resolve the issue on the basis of an order that the husband provide all documents back to 2004 but if Mr F sets out in writing in unequivocal terms that having examined the documents back to 2004, he needs to go back to 2002, the husband is to provide them.  It occurs to me that that issue is very much in the hands of the husband rather than the wife because if the husband can provide the 2006 and possibly 2007 financial year statements and documents, it may be unnecessary for Mr F to go back that far beyond 2004.  Having regard to the period of time that has elapsed since these proceedings were issued and the fact that no application has been made for the husband to complete the 2006 (let along 2007) financial documents, I would be appalled if a further application was made for that now to be done.  However, if Mr F adopted the philosophical approach suggested by Mr St John SC and with which I agree, a period of three years should be sufficient for a valuation to be done.  If the husband refuses to do all things expeditiously to complete the 2006 (and 2007) financials, I would take a different view.

24. I propose to order that the documents be provided within 60 days of the date of my orders. 

25. For completeness sake in relation to this issue, Mr St John SC commented that his client was not acknowledging necessarily that the documents all existed but having regard to the fact that six months has elapsed since I commenced hearing the matter in December 2006, I have great difficulty in understanding why that issue still lingers having regard to the nature of the original schedule attached to the affidavit of Mr F, the various correspondence floating between solicitors and the more recent schedules prepared by the accountant.

Costs

1. Mr O’Shannessy said that his client should have a costs order in her favour and totalled those costs at $25,500 being $21,500 referred to in the affidavit of Ms Power and a further $4000 arising out of recent appearances.  He made the interesting observation that if that was ordered and paid, that may have some bearing on the third issue which I will turn to in a moment. 

2. Mr O’Shannessy started from the presumption that his client was justified in an order for costs because of the fact that she had been both successful in the hearing on 21 December 2006 and as a result of my orders of 23 March 2007. Although he was criticised by counsel for the husband as not having addressed any of the principles associated with the justification with seeking an order under s 117, I have certainly inferred that that was the starting point.

3. Apart from the fact that all decisions in relation to orders for costs are discretionary, the principle has always remained as set out in s 117 of the Family Law Act 1975 (Cth). In essence, that section says that each party shall bear his or her own costs subject to the Court being of opinion that there are circumstances that justify it making an order for costs and if an order is made, it must be as the Court considers just.

4. Section 117(2A) says that the considerations that are relevant must be contemplated not only in respect of whether an order should be made but what order.

5. In this case, there is a significant dispute about the financial circumstances of the parties.  Although I shall turn to it in some detail, the wife asserts that the disparity between her financial position and that of the husband is stark.  She says that he has almost $2M more than what she has.  The husband in reply says that there is very little difference between their positions if one takes into account what the wife has had access to over the years.  It obviously also depends on what values one puts on the various assets.  Needless to say, neither party is particularly impecunious but I am not sure that I can make any finding at this stage about the extent of the financial circumstances of each of them.  Neither party has been in receipt of assistance from Legal Aid.

6. The three issues that I think are important in this case are:

   a)The conduct of the parties in respect of discovery and production of documents;

   b)Whether the proceedings have been necessitated by the failure of a party to comply with orders; and

   c)Whether a party has been wholly unsuccessful in the proceedings.

7. Dealing with the third issue first, I cannot say that the husband has been wholly unsuccessful.

8. In the proceedings in December 2006, the wife sought not only a significant litigation funding order but also a substantial weekly spousal maintenance.  At that time, I determined the spousal maintenance issue on the basis of the husband’s capacity to pay rather than on the wife’s need.  It was quite clear what the wife’s need was but that the husband was asserting, and I so found, he did not have the capacity to pay what was sought.  I did find however that he did have some capacity to pay.  Mr O’Shannessy argued that although the wife did not get what she wanted she got something in circumstances where the husband was offering nothing.  However, I cannot say that the husband was wholly unsuccessful.  One of the arguments related to the fact that the husband had the responsibility for the financial support of an adult child who was handicapped.  That issue was blurred by the fact that the adult son was the recipient of a pension and those funds had to be taken into account in the mathematical calculations as well.

9. In respect of the litigation funding matter, the wife sought $50,000 and I ordered $25,000 not based upon the husband’s capacity to fund the $50,000 but on my subjective determination at that stage that the $25,000 was sufficient to cover the needs at that time having regard particularly to the fact that the litigation was in its infancy and the extent of the investigation into forensic accounting matters was at best, vague.

10. Again, I could not find in respect of the husband that he has been wholly unsuccessful.  Whilst the husband may not have been wholly unsuccessful, he has been unsuccessful at least to the extent that in respect of both spousal maintenance and the litigation funding order, I have made an order that could have been avoided if some sensible offers had been made.  Having regard to the quantum sought by the wife, my view is that the wife should be entitled to some of her costs and I propose to fix them at 50 per cent of the scale costs for that day noting that I certified for the attendance of Senior Counsel.  I will however allow 50 per cent of Senior Counsel’s marked brief fees.

11. The two other issues that I mentioned above relating to the conduct of the proceedings and the failure to comply with Court orders relate more to the subsequent proceeding which culminated in my orders of 23 March 2007. 

12. I find in respect of that hearing that I should not make any order for costs at this time but should reserve them on behalf of both parties to the ultimate trial hearing. I say that because as I indicated in my reasons for judgment in March 2007, the issue about the extent of discovery was not simple but was one that the husband was entitled in the circumstances to argue. More importantly, if in fact the wife’s assertions about not only control but entitlement to the assets is wrong, it would not be just in the circumstances to make an order under s 117. If it is found that the husband’s position is correct, it is conceivable that his reluctance to disgorge documents and go to what he described as an extraordinary expense was warranted. In the circumstances, I propose to make an order that the costs of both parties other than those of the hearing on 19 December 2006 be reserved for the trial judge.

1. I have also contemplated the prospect of ordering the costs for 19 December 2006 be not paid until the ultimate settlement but having regarding to the fact that it will be the wife receiving money, if at all, that would be inappropriate.  In the circumstances, I propose to order that the wife’s costs as I have determined them be paid at an agreed figure failing which, they be determined according to the rules and my orders.

The further Barro application 

1. The starting point of this issue is that in December 2006, I ordered the husband to provide $25,000, such sum to be used by her in relation to these proceedings for the purposes of obtaining valuations and engaging an investigative accountant.  I did not refer in my order to the fact that the sum provided was to be used for legal expenses.  Clearly at that time however, now that I have had the opportunity to read the affidavit of Philippa Mary Power filed 13 June 2007, the bulk of the costs that have been incurred by the wife to that point in time related to legal fees.  What had been anticipated as at 19 December 2006 was the valuation exercise.  I make no criticism of the fact that the fund provided by the husband has in fact been used to pay legal fees.  Having looked at my notes at the time, I am quite satisfied that I intended the fund to be used for the valuation but having regard to the fact that the issue of the discovery delayed the commencement of the valuation exercise as well as created the situation in which the wife incurred significant further legal expenses, I see no reason now to limit the litigation funding order to just valuations and the engaging by the wife of the investigative accountant. 

2. Mr St John SC argued that my order on 21 December 2006 had allocated that sum for that purpose and that nothing now justified a further order.  He says that there has been no change of circumstances and the wife is certainly not estopped from coming back for a further sum but that she has not identified anything to justify a further order being made.

3. I disagree with that view having regard to the path with which this case has taken subsequent to 19 December 2006.

4. The Court has a broad discretion to enable an order to be made for the provision of funds by the person who has those assets to enable the other party to continue conducting the litigation.  As the Full Court said in Zschokke and Zschokke (1996) FLC 92-693 at 83,215:

   …where property settlement proceedings under s 79 are pending, the Court may pursuant to the provisions of s 80(1)(h) (and independently of the power in s 117(2) to make a costs order) require the party who controls most of the assets of the parties to provide the other party with funds to conduct his or her case, with the provision of such funds then being a matter to be taken into account in the final settlement of property between the parties.

5. As was set out in Zschokke, there were five criteria to be identified on the question of whether it was appropriate to make an order:

   1.Complexity in the respondent’s financial affairs.

   2.The need for expert investigation into those affairs.

   3.A position of financial strength on the part of the respondent.

   4.A capacity on the part of the respondent to meet his own costs; and

   5.An inability on the part of the applicant to meet her costs.

6. It is quite clear from the path of the litigation alone that the husband’s financial affairs are complex.  Apart from the fact that there are arguments about control and the very entitlements of the husband to the entities, he has consistently argued that it is an expensive exercise just to disgorge the documents.  That alone suggests to me that the matter is complex.  That also justifies the second of the criteria about the need for an expert investigation.  

7. As for the position of financial strength of the husband, the wife does have some resources and as I have earlier said, there is a significant dispute between the parties as to what their respective asset balance sheets will show.  As I have also said, I am not in a position to make any findings about that.

8. The wife asserts through her solicitor’s affidavit at paragraph 9, her total assets are $312,000 ignoring a mortgage of $150,000 whilst the husband’s assets total $2.2M.   I think Mr St John SC correctly criticises that on the basis that there are disputed figures but also the valuations that are not in evidence.

9. The husband’s version however is that if one adds back to the wife’s pool of assets, monies that she has had and which have been used by her, the balance sheets show that the wife has around $1M and the husband on his version of facts, $1.1M.

10. The solicitor for the wife asserted in paragraph 9 of her affidavit that in the event that the husband was “entirely successful” the position would be as she has set it out as I have described it above.  I do not accept that what is set out in paragraph 9 can be right because the husband clearly disputes access to and ownership of the best part of $1M worth of those assets.

11. Having said that however, the wife’s position is that she has a house which is encumbered and notwithstanding the equity in that house, her capacity is limited and her income which justified me making an order for spousal maintenance in December 2006, such that she could not fund any significant mortgage to fund her litigation.  On the other hand, whilst the husband may not have the assets that the wife asserts, he certainly has access to a debt due to him from P Pty Ltd which the balance sheets as at 30 June 2005 show it to be $533,101.  Whilst access to that debt is complicated by the intricacies of the inter company and inter entity transactions, that issue seems to me to be an enforcement issue rather than anything else.

12. When one combines the third and fourth criteria discussed by the Full Court in Zschokke, I am satisfied that the husband’s financial strength is greater than that of the wife and that he also has the capacity using the same resource to met his own costs.  I am also therefore satisfied that the wife for the reasons I have set out above, does not have the capacity at this time to meet her own costs.

13. In those circumstances, and having now examined exactly what costs have been incurred by the wife and will now incur in respect of the valuation exercise, I am satisfied that it is appropriate to make an order for a further $25,000 which will be taken into account by the trial judge.

14. Accordingly, I propose to make orders.

I certify that the preceding fifty eight (58) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate:

Date:  6 July 2007

IT IS NOTED that this judgment for all publication and reporting purposes be referred to as PAPADOPOULOS & PAPADOPOULOS