PEABODY & PEABODY

[2012] FMCAfam 1224

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PEABODY & PEABODY [2012] FMCAfam 1224

FAMILY LAW – Where wife seeks interim property settlement to fund legal costs of property litigation – whether appropriate to make an order in similar terms as sought by the Wife.

Family Law Act 1975, ss.79 and 80(1)

Re NHC and RCH (2004) FLC 93-204
Gabel & Yardley (2008) 40 Fam LR 66
Osferatu & Osferatu  [2012] FamCA 408
Strahan & Strahan [2009] FamCAFC 166
Zschokke and Zschokke (1996) FLC 92‑693

Applicant: MS PEABODY

Respondent: MR PEABODY

File Number: SYC 3947 of 2011

Judgment of: Sexton FM

Hearing date: 22 October 2012

Date of Last Submission: 22 October 2012

Delivered at: Sydney

Delivered on: 13 November 2012

REPRESENTATION

Counsel for the Applicant: Mr P. Sansom

Solicitors for the Applicant: Newnhams Solicitors

Counsel for the Respondent: Ms R. Winfield

Solicitors for the Respondent: Eleanor Murphy & Co

THE COURT ORDERS THAT:

1. The Husband pay to the Wife the sum of $127,000.00 in accordance with Order (2) by way of interim property order, such sum to be retained in trust by the Wife’s solicitors and applied to the Wife’s legal expenses related to these proceedings.

2. The sum referred to in Order (1) be paid in three instalments as follows:

   (a)The sum of $50,000 within 28 days;

   (b)The sum of $50,000 by 25 January 2013; and

   (c)The sum of $27,000 by 22 February 2013.

3. Any application for costs of this Application be adjourned to the final hearing.

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

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYC 3947 of 2011

MS PEABODY

Applicant

And

MR PEABODY

Respondent

REASONS FOR JUDGMENT

1. The Wife seeks an amount of $130,000 from the Husband to meet her legal costs in relation to the property proceedings she initiated in June 2011. The matter is listed for final hearing before me for 3 days in April 2013.  The Wife relies on an Amended Application in a Case filed on 10 October 2012 in which she seeks the funds by way of partial property settlement. The Wife submits that she has no capacity to meet her legal costs, and will be unrepresented if the Husband does not make the funds sought available to her.

2. The Husband says the Wife has sufficient income to meet her own needs and seeks an order that the Wife’s application be dismissed.  

3. Each party was represented by Counsel at the interim hearing.

4. Counsel for the Wife submitted that as the funds would be used for legal costs only, the $130,000 would be added back to the net asset pool at final hearing[1]. In effect, the Wife seeks an advance on her anticipated property entitlement.

   [1] Re NHC and RCH (2004) FLC 93-204

5. The Husband’s counsel argues that the Wife has had access to ample funds since separation to pay her own legal fees, but instead has “embarked on a process of reduction and disposition of capital and income since the parties separated” to “fund a lifestyle she cannot afford.”[2] The Husband therefore seeks an order that the Wife’s application be dismissed. 

   [2] Summary of dispositions by the Wife 19 October 2012

Background facts

1. The parties were married in 1982 and separated in July 2008 when the Wife moved out of the former matrimonial home at [R]. The Husband has remained living in the former matrimonial home. The Wife moved to a property in [W] purchased by the parties in the Wife’s name at the time of separation. The Wife is 56 years of age and the Husband is 64. The Wife works part time as a [omitted]. The Husband works full time as a [omitted], but says he hopes to retire soon. There are three adult children of the marriage, two of whom are living with the Wife, and one of whom is presently overseas.  

Litigation history

1. The Wife commenced section 79 proceedings in the Family Court by application filed on 29 June 2011. The proceedings were transferred to this Court by order of the Family Court on 12 December 2011. On 23 February 2012, Orders were made by consent for the Husband to pay the mortgage arrears relating to the property at [W], and to contribute to the ongoing mortgage instalments. The matter was listed for final hearing on 9 and 10 July 2012.

2. The matter was re-listed by the Court on 28 June 2012, when the parties were advised that it was unlikely the matter would be reached on the hearing dates allocated in July. On 9 July 2012, the matter was not reached and new hearing dates were allocated in April 2013 for 3 days.

3. The Wife’s Amended Application in a Case was listed before me on 22 October 2012. Interim orders were made by consent restraining the Husband from dealing with his interest in the former matrimonial home at [R], from dealing with share portfolios registered in his name and in the name of [K] Pty Ltd, (a company owned and controlled by him), other than to reinvest funds so realised into shares or other securities purchased in the name of the Husband or [K] Pty Limited with [L] Pty Limited. Those orders also restrain the Wife from dealing with her interest in the property in [W].  

4. The outstanding issue is whether or not an order should be made for the Husband to pay the Wife the sum of $130,000 to enable her to meet her outstanding and ongoing legal costs for the substantive proceedings.   

Legal principles

1. There are a number of bases upon which an interim order for litigation costs can be made: section 117; sections 72 and 74; and pursuant to sections 79 and 80(1)(h) as sought in the present case[3].

   [3]  Strahan & Strahan [2009] FamCAFC 166 at paragraph 81

2. The Court has the power to make an interim property order pursuant to section 79 when it considers it appropriate to do so, the overarching consideration being the interests of justice[4]. Firstly, the Court must decide whether to exercise the power before the final hearing, and secondly, if it decides to do so, the Court exercises that power having regard to the factors relevant to the exercise of the jurisdiction. The Court must take a cautious view to ensure it will still be in a position to achieve a just and equitable outcome for each party at final hearing.[5]

   [4] Strahan & Strahan [2009] FamCAFC 166

   [5] Ibid

3. It is not necessary to establish compelling circumstances at either the first or second step, but the Court must find it is “appropriate to exercise the power” given it is generally accepted that the interests of parties are better served by there being one final hearing of section 79 proceedings.[6]

   [6] Ibid

4. The authorities establish that an applicant’s need of funds for legal fees to conduct the litigation can be the basis for an interim property order. An order can be made in respect of costs already incurred as well as future costs. His Honour Justice Watts said that[7]:

   …the notion of a “level playing field” is one which almost axiomatically is in the interests of justice and an important matter to consider when deciding whether it would be appropriate to make an interim property order…

   [7] Osferatu & Osferatu [2012] FamCA 408 at paragraph 35

5. The Full Court in Strahan[8] accepted that an:

   …inability on the part of an applicant for an interim property order to defray the costs of litigation to meet his or her litigation costs would be a relevant matter to take into account at the procedural or first stage.

   [8] At paragraph 138 of Strahan & Strahan [2009] FamCAFC 166

6. It is necessary to consider the relative financial strength of each party and the capacity of each party to meet his/her litigation costs[9]. It is necessary to briefly consider the likely asset pool available for distribution at final hearing, each party’s contributions to those assets and the factors relevant to a section 75(2) adjustment, in order to make an assessment as to whether the applicant is likely to receive by way of property settlement a sum sufficient to cover the advance. As Bryant CJ and Coleman J observed in Gabel v Yardley[10] the “interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal”. 

   [9] Zschokke and Zschokke (1996) FLC 92‑693 at 83,217

   [10] (2008) 40 Fam LR 66 at [69] and [72]

Should the Court exercise the power?

1. The Wife deposes to owing legal fees of $49,523, including counsel’s fees of $7,988.75. Her solicitors have estimated her total legal costs (including the arrears) for the property proceedings at $127,070.63 (inclusive of GST). The Wife says that she has been unable to pay the arrears and will be unable to meet the anticipated future costs, unless her application is successful.  The Wife says that she had anticipated being able to draw on her superannuation entitlements to pay her legal fees, but her solicitors’ efforts to obtain the Husband’s consent to this arrangement were unsuccessful. 

2. According to her Financial Statement sworn on 10 October 2012, the Wife is self-employed as a [omitted] with a gross weekly income of $1,660, [$86,320 annually] made up of $270 in share dividend income, and $1,390 in business income. After payment of tax and professional indemnity insurance, she deposes to an income of $1,242 a week, and of estimated expenses (excluding tax and professional insurance) of $2,787 a week which includes expenses of $945 a week for the two children living with her, a shortfall of $1,545 a week. In addition to the [W] home, which she values at slightly less than the purchase price of $1,750,000, the Wife deposes to holding shares with a value of $296,653, a car with an estimated value of $4,000 and furniture and jewellery with an estimated value of $15,000. She deposes to a debt to the Tax Office of $15,496, a debt to ANZ of $108,112, credit card debts of $68,920 and to guaranteeing the loan on the [W] property in the sum of $458,000. The Wife deposes to an account value in her name of $763,834 in the parties’ self managed superannuation fund.  The Wife deposes to having almost exhausted the ANZ margin loan facility and having no funds, other than from the sale of her shares or her superannuation entitlements, to pay her legal expenses.  The Wife does not choose to sell her shares, because she will incur significant capital gains tax, will lose dividend income, and will be required to discharge the ANZ margin loan which is secured by the shares. 

3. The Husband disputes the Wife’s claim that she spends $945 a week on the children. He says he is paying all significant expenses for the children and one of them is working. He also challenges the Wife’s assertions that she needs $95 a week for cleaning and gardening. These claims are disputed by the Wife and remain untested, but even if substantially accepted, would still leave the Wife with a weekly shortfall between income and expenses. The Husband did not otherwise challenge the Wife’s stated financial position, although says the Wife could increase her income by working additional days.

4. The Husband’s fundamental complaint concerns his firmly held view that at separation, the parties reached an agreement as to division of their property when he agreed to purchase the [W] property in her name and “pay down” the loan,[11] and the Wife has not honoured that agreement. He contends that the Wife agreed to leave him with the whole of the Peabody Superannuation Fund, the home in [R], and the share portfolio. He says he has provided the Wife with access to considerably more funds than was agreed, yet she has nevertheless started these property proceedings and significantly reduced capital and share income, despite having her own income throughout. The Husband alleges that the Wife has spent money recklessly and incurred legal fees “without due consideration.” [12]He says he has refused the Wife further access to the Superannuation Fund because he fears she would dissipate the funds by the time of the hearing in April 2013. 

   [11] Affidavit of Husband sworn 19 October 2012 at paragraph 6

   [12] At paragraphs R4 and R47 of Husband’s affidavit sworn 19 October 2012

5. The Husband deposes to the Wife having received substantial funds in the last 12 months, all of which she has spent.  In particular, he refers to the Wife selling shares to a value of $198,138.19; to her withdrawal of $61,620 from the Peabody Superannuation Fund; to the margin loan of $108,000 from the ANZ Bank and to credit card debts of $68,920; she has also received and spent income in excess of $100,000. The Husband, on the other hand, says he has been careful in his expenditure, has managed and made all the contributions to the Superannuation Fund, without any contribution, assistance or interest from the Wife, and spent considerable time and skill trading in shares to build the parties’ share portfolios and the value of the parties’ Superannuation Fund. The Husband expresses extreme frustration that the Wife is not conducting this litigation responsibly, is demanding more and more money, and is incurring unnecessary legal costs as a result of a lack of understanding of share trading and the use of leveraged borrowings to finance those transactions.  Whether or not the Husband’s complaints are justified, the Husband makes no practical suggestion as to how the Wife could now source her legal fees.

6. The Husband’s most recent Financial Statement was sworn on 11 June 2012. He deposes to a gross weekly income of $6,168 [$320,736 annually] made up of $3,700 in salary, $2,000 in share dividends, $104 in interest and $364 in business income. After payment of tax and professional insurance, the Husband deposes to an income of $4,921 a week and expenses (excluding tax and professional insurance) of an estimated $5,238 which includes a superannuation payment of $1,057 a week, and expenses of $575 a week for the children, a shortfall of $317 a week. It is not clear to me how the $1,057 he pays towards superannuation has been calculated. The Husband does not include superannuation as a benefit from his employer on page 3 of the Statement (despite his employer having an obligation to pay superannuation) and does not state that his income includes a component of superannuation. While I can make no finding on this issue, it seems possible that the Husband has the option of reducing that expense.  In addition to the unencumbered [R] property, with a value of $2,100,000, the Husband deposes to holding funds at bank of $21,200, shares with a value of $1,900,000, a car with a value of $3,000 and $5,800 in household contents. He deposes to an interest in his late mother’s estate of $400,000.  The Husband deposes to an entitlement to $1,785,000 in self managed superannuation funds. [In his affidavit sworn in October 2012, the Husband deposes to large contributions to his superannuation fund since separation.]  He lists his debts as $2,700 in mortgage interest, the loan on the [W] home of $458,000, $20,800 on credit cards and $1,397,500 to a margin lending firm.  In October 2012, the Husband deposes to changes in his financial position since the filing of his June 2012 Financial Statement, but has not sworn an updated Statement. He deposes to a reduction in the value of the [R] property and to the establishment of a company as trustee for a Trust for the children, to the transfer of shares to the Trust.  The Husband does not disclose the amount he has paid for legal fees, and discloses no debt for legal fees.   The Husband’s counsel took no issue with the Wife’s counsel’s submission that the Husband has been able to meet his own legal fees from his income. 

7. The Wife deposes to the Husband failing to notify her about significant financial transactions; for example, she discovered he had sold his [N] property after a property search in 2010.  The Wife deposes to the Husband’s accounts disclosing credits and withdrawals for significant amounts which remain unexplained. The Wife deposes to the Husband failing to disclose an ING Bank account of $50,823.31 in his sworn financial statement of August 2011 and to withdrawing sums in excess of $100,000 from the parties’ superannuation account without explanation. The Husband incorporated a new entity known as [K] Pty Ltd, and established a Trust which he did not disclose in his Financial Statement sworn in June 2012, and only explained after the Wife’s solicitors uncovered its existence after the matter was due to be heard on a final basis in July 2012. The Wife alleges that the Husband failed to fully disclose his shareholdings, and transferred a significant numbers of shares from his name to [K] Pty Ltd without her knowledge and without disclosure in his material filed for the July 2012 final hearing.  The Wife provides these and other examples of the Husband’s conduct which she says has resulted in considerable legal costs being incurred, which could have been avoided.

8. The Husband denies any failure to disclose, claiming the omission of his ING account was an oversight, and that he advised the Wife and her legal representatives in August 2012 that he had established [K] Pty Ltd as a trustee company for a family trust for the children.  He deposes to the value of the assets transferred to the trust being included in his June 2012 Financial Statement. However the Husband does concede[13]: 

   I was not keen for the wife to know I had established an investment trust for the children because I thought she might attack it, however the value of the investments were included in my Financial Statement.

   [13] At paragraph R15 of Husband’s affidavit sworn 19 October 2012

9. Counsel for the Wife submits that because the Husband, despite being an [occupation omitted], has not always been open about his financial dealings, and has failed to frankly disclose his financial position from the outset, considerable legal costs have been expended and may need to be expended to identify the Husband’s financial position accurately. Counsel for the Wife submits that to refuse the Wife’s application in all these circumstances would result in gross injustice to the Wife, particularly as it would leave the Wife unrepresented.

10. I have decided that in the interests of justice, this is an appropriate case for an interim property settlement. Whether or not the Court ultimately finds that the Wife has wasted funds as the Husband contends, the Husband does not point to any source of funds accessible to her that the Wife could use to meet her current and future legal expenses. The Husband does not approve the Wife selling more shares, nor does he approve the Wife drawing further on her superannuation entitlement.

11. While this does not appear to be a particularly complex financial case, neither is it straightforward. The Husband has been an active share trader and there has been substantial financial movement in the parties’ assets particularly since separation. While the Husband denies any failure on his part to disclose his true financial circumstances, on his own evidence the Husband did not inform the Wife in a timely way of his decision to incorporate an entity as trustee for a Family Trust, and to transfer a substantial shareholding to that Trust. Whether justified or not, this has affected the Wife’s trust in the Husband’s integrity in his dealings with her, and her legal representatives, and is likely to have resulted in the Wife’s solicitors engaging in further discovery. In addition, the Husband deposes to having managed the family’s finances diligently during the marriage and since, with little input or interest from the Wife, and to have built the parties’ wealth by investing his time and his considerable financial skills, again without input from the Wife. If this is the case, the Wife may be further disadvantaged without experienced representation, particularly as the Husband will be represented by an experienced legal team. I agree with his Honour Justice Watts when he says that the notion of a “level playing field” is central to the concept of justice[14].

    [14] Osferatu & Osferatu [2012] FamCA 408 at paragraph 35

What order should be made?  

1. Before making an order, the Court must have regard to the factors relevant to a section 79 order, and make some preliminary assessment of those factors to ensure any interim property order can be reversed or adjusted if considered necessary at final hearing[15].

   [15] Gabel & Yardley (2008) 40 Fam LR 66 at [69] and [72]

2. It was common ground between counsel for each party, that the asset pool of the parties has a net value in the vicinity of $7m, including superannuation, (although the parties’ respective financial statements disclose net assets of approximately $6.5m or $6.9m if the Husband’s inheritance is included), though I accept that all valuation issues have not yet been resolved.  In her Application for Final Orders, the Wife seeks orders providing for her to retain the [W] property, refinance the loan secured by mortgage on that property, and to otherwise receive 50% of the assets of the parties, including 50% of the value of the Peabody Superannuation Fund. On the available figures, this would give the Wife considerably less than the Husband overall, given the difference in net property values. According to their respective Financial Statements, the Wife is presently holding approximately $2.1m in net assets including superannuation and including the debt on the [W] property, while the Husband is holding $4.8m (excluding the debt on the [W] property but including superannuation and the inheritance [on his figures]). If the Wife were to retain only the net assets and superannuation she holds presently, including the debt on [W], on the figures presently available, she would receive approximately 30% of the net asset pool of the parties, inclusive of superannuation and inclusive of her share portfolio.

3. In his Response filed in August 2011, the Husband seeks orders providing for him to receive the whole of the assets of the Peabody Superannuation Fund, as well as the assets held in his name.  While it is not entirely clear from the Response document, it would seem the Husband is asking that the Wife accept responsibility for the debt on [W]. On the figures presently available this would give the Husband approximately 80% of the pool and the Wife 20%.   

4. The parties cohabited for almost 26 years and have been separated for 4 years. They have net assets between them of an estimated $7m, approximately $2.5m of which is held in the Peabody Superannuation Fund.  During the marriage, the Wife says she was the primary carer for the parties’ children, who are close in age, was actively engaged in their school committees, and was responsible for the majority of household tasks. She was also employed part-time. The Husband deposed to being the primary breadwinner as a full-time [omitted], and to have invested in both real estate and the share market with considerable success and without assistance or interest from the Wife. The Wife takes issue with these assertions of the Husband.

5. Each party owned real estate at the date of marriage, the Husband owning properties in [P] and [N], the Wife a property in [R], and the Husband’s assets having the considerably greater value. Two years later, the parties purchased their home at [R] in the Husband’s name, which was initially tenanted, then renovated before the parties commenced living there, and continued renovations. In 1986 the Wife received a personal damages award of $78,000 and in 1996, the Wife received an inheritance of $27,460.  All these funds were applied for the benefit of the family.  The parties purchased an investment unit in 1990 and sold it in 2008. The Wife says she assisted the Husband in managing the parties’ rental properties and was involved in renovations undertaken on the [R] home. In 2008, at around the time of separation, the parties sold the remaining properties owned by the parties at marriage, and purchased the property at [W] in the Wife’s name for $1,750,000, using loan funds of $800,000. In May 2008, the Wife signed a declaration of trust in favour of the Husband. In the second half of 2008, the Husband contends that the Wife spent $44,717 on his Mastercard which he paid.  In November 2008, the parties extended the [W] loan by $23,000 to enable the Wife to purchase furniture and later borrowed a further $48,000 for other expenses relating to that property. The loans on the [W] property were reduced substantially when the Husband contributed some of the proceeds of sale of the [N] property to the loan account. 

6. Since separation, the Wife has sold shares to a value of $198,000 which she says she has applied to living expenses, mortgage repayments, a tax debt and to expenses for the children. The Wife has also drawn approximately $60,000 from the super fund and borrowed funds from ANZ, as earlier noted.  It seems likely that the Wife’s expenditure after separation will be an issue in the Husband’s case at final hearing. In April 2011, the Husband stopped making monthly instalments on the [W] mortgage. Until early 2012, the Wife met the mortgage repayments on the [W] property from her share dividends, and from the share sale proceeds. Since February 2012, the Wife has contributed $1,000 per month to the [W] mortgage, and pursuant to Court Orders, the Husband has contributed $1,500 per month. In 2011, the Husband received an inheritance from his late Mother’s estate, though the parties are in dispute about the amount of the inheritance. In December 2011, the Husband deposes to setting up a new superannuation fund and a line of credit for the parties’ daughter. 

7. The Wife is a [occupation omitted] while the Husband is a [occupation omitted]. The Wife has been employed on a part-time basis during the marriage and since separation. The Husband has been employed full time and is experienced and skilled in share trading. The Husband therefore has a considerably higher earning capacity than the Wife.  However, the Husband is 8 years older than the Wife and says he would like to retire soon. Neither party deposes to having serious health issues, though the Wife says she suffers from a permanent weakness in her lower back and the Husband says his health has been affected by the worry of these proceedings. The Husband has an inheritance.  

8. The Husband’s counsel does not submit that the Wife’s final entitlement to property would not cover the advance. On a necessarily limited assessment of contributions and section 75(2) factors over a long marriage, I am satisfied it is likely the Wife will receive a sufficient sum to cover the advance of funds sought. However, whether or not that is the position, given the size of the pool, I am satisfied the order could be adjusted or reversed if necessary.  

9. The Husband has not demonstrated how he would be disadvantaged if the funds were advanced to the Wife, given those funds would be added back at hearing. Nor has the Husband submitted that he could not arrange his finances to meet the order sought by the Wife. The Wife has set out in detail[16] the advice she has received from her solicitors as to her costs owed and her likely future costs, and I am satisfied an order should be made in accordance with the total figure, being $127,000. The Wife will be required to use the funds for her legal expenses. To assist the Husband to make the necessary financial arrangements, he will be required to pay the funds in three separate instalments over a three month period.  I am satisfied that such an order is appropriate in all the circumstances and just and equitable[17]. 

   [16] At paragraph 73 of Wife’s affidavit affirmed on 10 October 2012

   [17] At paragraph 86 of Strahan & Strahan [2009] FamCAFC 166

10. Each party agreed that any application for costs of this application should be addressed at final hearing and I have so ordered.

I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Sexton FM

Date:                  13 November 2012