Phillips and Phillips

[2011] FamCA 50

FAMILY COURT OF AUSTRALIA

PHILLIPS & PHILLIPS [2011] FamCA 50

FAMILY LAW – COSTS – Security for costs – Where matter has a history of complication and delay – Where wife seeks the property settlement be varied or set aside under s 79A – Where wife has invested the majority of her assets overseas whilst litigation in process – Where wife has been silent as to particulars of assets held offshore – Where wife’s liabilities in Australia significantly exceed her assets – Where any future award for costs made in the husband’s favour could necessitate legal action in another country – Where to dismiss the application would risk prejudice to the husband – Wife ordered to meet security for costs – Wife’s s 79A application stayed until compliance with the order

APPLICANT:

(Respondent in the Husband’s application for security for costs filed 10 December 2010)

Ms Phillips

RESPONDENT:

(Applicant in his application for security for costs filed 10 December 2010)

Mr Phillips

FILE NUMBER: BRC 10818 of 2007

DATE DELIVERED: 4 February 2011

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Barry J

HEARING DATE: 2 February 2011

REPRESENTATION

COUNSEL FOR THE HUSBAND: Mr Kirk of Senior Counsel appearing for the Applicant Husband

SOLICITORS FOR THE HUSBAND: Hirst & Company, Solicitors

COUNSEL FOR THE WIFE: Mr Page of Senior Counsel appearing for the Respondent Wife

SOLICITORS FOR THE WIFE: Wiltshire Lawyers

Orders

IT IS ORDERED THAT:

1. Within seven (7) days of the date of this Order the Wife pay to the Collector of Public Monies in the Registry of the Family Court of Australia at Brisbane the sum of $150,000.

2. The money is to be held as special public monies in an interest bearing account in the name of the Wife subject to any further Order of the Court.

3. In the event the Wife is unable or unwilling to comply with the payment of security for costs as provided for in paragraph 1 hereof, the Wife’s application to set aside the consent orders for property settlement of the 31 January 2002 and the financial agreement of the 30 January 2002 be stayed until she does comply with the Order.

IT IS FURTHER ORDERED THAT:

1. The trial dates of 14 February 2011 to 16 February 2011 be vacated.

2. The Wife’s application for orders pursuant to s 79A of the Family Law Act is to be re-listed by a Registrar when the Wife has complied with the terms of paragraph (1) hereof.

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

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC10818/2007

MS PHILLIPS

Applicant
(Respondent in the Husband’s application for security for costs filed
10 December 2010)

And

MR PHILLIPS

Respondent
(Applicant in his application for security for costs filed 10 December 2010)

REASONS FOR JUDGMENT

HUSBAND’S APPLICATION FOR SECURITY FOR COSTS FILED
 10 DECEMBER 2010

1. I am asked to determine whether the Respondent Wife (the Applicant in the principal proceedings) should be ordered to provide security for costs prior to a three day hearing later this month.

2. I appreciate that the parties separated in 2002 and were divorced in 2003 but for the sake of convenience I propose to refer to them as the Husband and Wife respectively.  I note Senior Counsel in their respective written submissions have done likewise.

3. On the 12 July 2010 I listed this matter for a three day trial commencing on the 14 February 2011. The issue for determination at that time involves the merits of the Wife’s s 79A application – in particular, whether there was an under valuation of the Husband’s shareholding in VW Pty Ltd at the time consent orders and a binding financial agreement were entered into in early 2002.

4. In the Wife’s financial statement filed in September 2007 which was filed with her initiating application for orders pursuant to s 79A, she discloses her net assets as being $4.725 M. All bar $380,000 of this was held in real estate in this country. The $380,000 was a 50 per cent interest in a property in Sri Lanka.

5. This litigation has had a tortuous path through the Court system over the almost 3.5 years since the initiating application was filed.

6. It is something of a generalisation but I would attribute the delays and the enormous costs which the litigation has generated to the failure of the Wife and/or her legal advisors to properly particularise her case prior to the commencement of the proceedings.

7. It seems more a “shoot first ask questions later” approach which she adopted.  But one important example of this is the Wife’s solicitors wrote to the Husband in August 2006 (four and a half years after the original settlement) alleging that there had been a miscarriage of justice by reason of certain property being undervalued in the property division.  The Husband immediately engaged reputable valuers who confirmed the values relied on were accurate and in a few instances represented an overvalue. 

8. At this point in time the Wife had not engaged her own valuers to support the allegations she made.  In early 2008 I expressed my dismay that an individual would embark on litigation without having first obtained such basic evidence.

9. I will now fast forward to August 2010.  At paragraph 15 of his affidavit filed on the 10 December 2010 the Husband says he had a meeting with the Wife in that month about these proceedings and she said to him:

   “- - -

   You’ll never get any costs out of me.”

   It would appear this was the triggering event for the current costs application.

10. In her affidavit filed 27 January 2011 at paragraph 6 the Wife deposes that the context of her statement was the Husband had said to her:

    “- - -

    “You’re going to lose and then you are going to have to pay me back for all my legal fees.”  My response to the Husband’s comment was, “Why would I be paying your fees - - - I’m not going to lose - - - so you’ll never get any costs out of me.””

11. I do not find it necessary to determine which version of this conversation is correct. 

12. After the conversation the Husband conducted title searches and ascertained the Wife had sold two properties, the first in September 2009 and the second in April 2010. The U Street property had been valued at $3.3 M in her September 2007 financial statement.  It was sold for $2.52 M.  The T property valued in 2007 at $1.5 M in the Wife’s financial statement sold for $2.07 M.

13. On learning of this the Husband’s solicitors requested the Wife to file an updating financial statement.  Eventually, pursuant to a Court Order to do so, the Wife filed an amended financial statement on the 22 November 2010.

14. This document revealed the only remaining real estate the Wife held in Australia was a unit at L Street which she valued at $289,000.  It is common ground that the liability on the property is $164,000. 

15. In her second financial statement the Wife disclosed additional assets being two motor vehicles, a Range Rover valued at $70,000 and a Mercedes at $85,000.  She disclosed a liability to Capital Finance of $65,000 which I assume related to the Range Rover vehicle.

16. The Husband’s solicitors wrote, on instructions, to the Wife’s solicitors on the 25 November 2010 (refer JNP 5 to Husband’s affidavit filed 10 December 2010) asserting the Wife had failed to disclosed an additional liability relating to the Mercedes vehicle.

17. On the 27 January 2011 the Wife filed a further financial statement confirming $70,000 was owing to Enterprise Financial Solutions as an encumbrance on this vehicle.  In the meantime the Range Rover vehicle had been disposed of for $63,500.

18. Importantly, for the purpose of the current application, it now transpires that the bulk of the Wife’s assets consists of real estate in Sri Lanka with her share being valued at $3.1 M.

19. The Wife has elected to sell valuable property in Australia and invest in assets in Sri Lanka at a time when this litigation was in progress.  There is no evidence whether she informed her solicitors of her intention to take this course.

20. Rule 13.06 under the heading “Amendment of Financial Statement” is in the following terms:

    “13.06(1)This rule applies if before a conciliation conference,
    pre-trial conference or trial, or at the time of seeking a consent order, a party’s financial circumstances have changed significantly from the information set out in the financial statement or affidavit filed under Rule 13.05.

    13.06(2)a.        At least seven (7) days before the conciliation      conference, pre-trial conference or trial, or at the          time of seeking a consent order, the party must file        a new financial statement with the amendments     clearly marked; or

    b.if the amendments are able to be clearly set out in three hundred words or less, an affidavit containing details about the party’s changed financial circumstances.”

21. In keeping with the duty of full and frank disclosure, regardless of the terms of Rule 13, there was, in my view, an obligation on the Wife through her legal advisors to inform the Husband of the significant change in her financial circumstances.  Clearly, this was not done.

22. Exhibit 1 in these proceedings is a letter from the Wife’s solicitors setting out the Wife’s costs as required by Rule 19.04.  Of the Wife’s current liability of $191,707 only $25,000 had been paid.  A 25 per cent uplift fee is to be added to this liability.  The Husband’s Senior Counsel calculated the Wife’s liability to the present time to be just under $220,000.  If the matter proceeds to a three day hearing the fees will be in the range of $210,000 to $250,000 with an additional 25 per cent charge for not requiring payment in advance.  These calculations were not challenged.

23. Annexure 8 to the Husband’s affidavit is an Internet search of the value of a vehicle of the type owned by the Wife (refer carsales.com_valuations).  It reveals a valuation of her Mercedes vehicle on a private sale in the range of $42,000 to $46,900, a significant discrepancy from the $80,000 which the Wife attributes as the value.

24. In her affidavit the Wife concedes the Sri Lankan development is no longer proceeding.

    The property in Sri Lanka is said to be held, “by various entities.” – the Wife does not elaborate.

25. I am satisfied the Wife’s liabilities in Australia exceed her assets and if the matter proceeds to a three day hearing, exceed them by a significant margin.  I make this finding based on the figures put forward in the Wife’s own material.  In her affidavit paragraph 12(a) she treats $1 M owing to her by Mr WE as a financial resource.  There is no evidence Mr WE has the ability to repay this amount owing, but the Wife says she is likely to recover it when the Sri Lankan assets are sold.

26. I am satisfied in the event an award for costs is made in the Husband’s favour, it would be difficult if not near impossible for him to recover same by pursuing legal remedies in Sri Lanka.  At the very least it would a lengthy, complex and expensive exercise.

27. I accept the accuracy of paragraphs 4.1 – 4.17 of the written submissions by Senior Counsel for the Husband detailing the history of this litigation.  I do not find it necessary to detail this aspect any further other then to note that an order for costs has been made in favour of the Husband in relation to interim hearings on two dates in February and March 2008.  These costs have yet to be quantified as the Wife’s liability to pay same was postponed until the determination of the substantive application.

28. Without having heard submissions on the numerous other reserved costs applications I would have to observe, based on the manner in which the Wife’s case has been pleaded – with a constantly changing basis for her claim – there has to be a real possibility regardless of the ultimate outcome of the litigation that she would be ordered to meet further payment for costs for some of the interim hearings.

29. I accept the force of the submission that this is not a case where the Wife is impecunious but rather she has elected to invest overseas rather then Australia and to do so whilst this litigation has been in progress.

    I accept there is some evidence from which an inference could be drawn that the Wife in recent time has attempted to overvalue her few Australian assets.  The evidence of the value of her vehicle may be but one example of overvaluation.

30. At paragraph 42 of his affidavit filed on 10 December 2010 the Husband deposes:

    “42.I am aware that the Wife has other unsecured liabilities that she has not told this Court about.  I have had a conversation today with Mr [HD] who told me that [the wife] and [Mr WE] owe him $120,792 for unpaid work carried out by him for the provision of Internet based work.  He has provided me with a letter from the debt collection agency […] Pty Ltd of 21 September 2009 regarding the debt.  Annexed hereto and marked with the letter JNP12 is a true copy of that letter.  Mr [HD] has advised me in our conversation that the amount owing has not been paid but he has not commenced any legal proceedings for the recovery of the debt.”

31. The date of this conversation seemingly was the 7 December 2010.

32. In her affidavit the Wife elects not to respond to this paragraph.  As the liability is not mentioned in her financial statement, it would appear the debt has been paid but it is a concern as to the Wife’s financial viability that a liability shared with Mr WE as far back as 2009 had not been paid up until December 2010 and had to be placed in the hands of a debt collection agency as far back as 2009.  I note that in the intervening period the Wife had sold the T property in 2010 and clearly would have been placed in funds to have attended to payment of same.  I do not overlook the fact that the Wife and Mr WE may in fact dispute liability for the debt.

Wife’s Ability to Meet any Order for Security for Costs

1. Senior Counsel for the Husband noted that the Wife in her affidavit had ample opportunity to inform the Court of enquiries she had made as to her ability to obtain finance but elected not to do so.

2. Senior Counsel for the Wife informed the Court that given the trial was to start in twelve days the Wife would not be in a position to meet any order for security for costs within that time frame.  This is, to my mind, but one more example of the bona fides of the Wife being open to question.

3. This issue of security for costs was first flagged in open Court on 29 November 2010.

4. JNP5 of the Husband’s affidavit is a letter of the 25 November 2010 to the Wife’s solicitors foreshadowing the making of just such an application.  The application was in fact filed on the 10 December 2010.

5. I accept that both on the 29 November 2010 in open Court and by letter of the

   
   

   7 December 2010 to the Registrar the Husband’s legal representatives sought an early return date for this application.  Because of over listings in my Docket I was unable to accommodate this request until the 2 February 2011.

6. For the Wife to claim she will have only twelve days to meet any order for security for costs is at best disingenuous.

7. She has known for about ten weeks she may have to meet an order for security for costs. 

8. Her affidavit is silent as to any enquiries she has made on a contingency basis whether she could obtain funds from a bank, a litigation funder, family or friends.

9. It is simply not good enough at this late stage for the Wife to inform the Court she cannot meet any order for costs at such short notice without setting out in considerable detail the enquiries she has made, if any, to meet any possible order of the Court.

10. The Wife’s affidavit evidence at paragraph 10 is that the Sri Lankan property is being marketed.  She gives no indication when she might expect to receive the sale proceeds.  Whenever it be it is likely she will have about $3.1 M together with the repayment of the $1 M owed to her by Mr WE.

11. Given the delays to date, largely caused by the Wife or her lawyers in the manner they have elected to present her case, I see no prejudice to the Wife in delaying her case until she is in a financial position to meet an order for security for costs.

12. To not accede to this application is to risk serious prejudice to the Husband in the event the s 79A claim is dismissed.

13. I proceed on the basis the Husband’s evidence of the Wife saying, “You’ll never get any fees out of me”, may be true.  In the event the Husband is awarded costs, it would be a pyrrhic victory in the event the Wife elected to retain her assets overseas.

14. It is a given that the Husband is a wealthy man, but there is no presumption that the law is only there to protect the indigent.  All citizens are entitled to the protection of the law in the event of prejudice or unfairness arising.

15. In the event the Husband was to be successful in a claim for costs, he is entitled to have the order for costs met.

16. At the present time, I am not at all satisfied the Wife would be able to meet such an order, nor am I satisfied she would be prepared to cooperate with the Court process in any manner.

17. The better course is to delay the litigation until she is in such a position.  When that will be, will be a matter for her.

18. I am not prepared to conclude that the Wife’s prospects of success are so obvious an order for security for costs is unnecessary.

19. I will make an order for security for costs and concurrently will make an order staying the Wife’s application until such order is complied with.

Quantum of Costs

1. I am not prepared to conclude at this point in time that in the event the Husband is successful in the litigation he would be awarded his costs on an indemnity basis.  He has at all times foreshadowed he would seek such an order but indemnity costs are the exception rather than the rule.

2. Exhibit 2 is a letter from the Husband’s solicitor to him setting out that the costs paid by him to date total $242,923, with unpaid costs amounting to $9,488.

3. Annexed to the Husband’s affidavit is the costs agreement with his current solicitors.

4. At paragraph 14 of his December affidavit the Husband deposes that his total costs to a final hearing are estimated to be $295,700.

Orders Sought by the Husband

1. In his application in a case the Husband seeks orders:

   “1.That within seven (7) days of this order, the Wife do all such things as are necessary to pay into the Trust Account of the solicitors for the Husband Hirst & Company the amount of $295,700 to be held by that firm as security for the costs of the Husband in these proceedings.

   2.Alternately, should the Court determine that it is appropriate only to make provision for security for the costs of the Husband on party – party basis, that the Wife within seven (7) days do all things necessary to make the amount of $150,000 into the Trust Account of Hirst & Company Solicitors to be held as security for the costs of the Husband in these proceedings.

   3.Should the Wife fail to comply with these orders the case for the Wife to set aside the orders of 31 January 2002 and the financial agreement of 30 January 2002 be permanently stayed.”

2. Where the Wife’s costs to the present date are in excess of $200,000, I would be prepared to estimate that the Husband’s scale costs to the hearing date would approximate $150,000.

   This is the figure that has been put forward in the alternate orders sought by the Husband.  No challenge was made to this estimate in the submissions made on behalf of the Wife.

3. I propose to order the Wife to pay $150,000 being an estimate of the Husband’s costs on a scale basis up to and including the s 79A hearing.

4. The better course in my view is that such amount should be paid into Court to the Collector of Public Monies, although I will hear submissions before making such an order.  I am prepared to make consequential orders for the amount to be invested such that it would earn interest in the intervening period.

5. Subject to any further submissions, for the reasons given orders will issue as contained in page 3 of these reasons.

I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Barry delivered on 2 February 2011.

Associate: 

Date:  2 February 2011