Pilot and Pilot (No. 2)

FAMILY COURT OF AUSTRALIA

PILOT & PILOT (NO. 2)

[2007] FamCA 1323

FAMILY LAW – COSTS – Security for costs – Application allowed – Husband ordered to pay lump sum to wife for future legal and accounting costs in order to prosecute her case

Family Law Act 1975 (Cth)

Zschokke & Zschokke (1996) FLC 92-693
Breen & Breen (1990) 65 ALJR 195
Paris King Investments & Rahill and Ors (2006) NSW SC 578
Pilot & Pilot [2004] FamCA 648
C & C (unreported, Family Court of Australia, Fogarty J, 27 November 1987)

APPLICANT:

Mrs Pilot

RESPONDENT:

Mr Pilot

FILE NUMBER:

HBF

1990

1999

DATE DELIVERED:

12 November 2007

PLACE DELIVERED:

Hobart

PLACE HEARD:

Hobart

JUDGMENT OF:

Benjamin J

HEARING DATE:

1 November 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Dixon S.C.

SOLICITOR FOR THE APPLICANT:

Murdoch Clarke

COUNSEL FOR THE RESPONDENT:

Mr Trezise

SOLICITOR FOR THE RESPONDENT:

Dobson Mitchell & Allport

Orders

The husband pay to the wife the sum of $100,000.00 as security for costs within sixty days of the making of these orders, such sum to be paid into the trust account of the wife’s solicitor and applied towards accounting and legal costs of and incidental to these proceedings.
The costs of both parties in respect of the application in a case filed 15 October 2007 are reserved.
IT IS CERTIFIED
Pursuant to Rule 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend

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

FAMILY COURT OF AUSTRALIA AT HOBART

FILE NUMBER: HBF 1990 of 1999

MRS PILOT

Applicant

And

MR PILOT

Respondent

REASONS FOR JUDGMENT

Mrs Pilot (“the wife”) and Mr Pilot (“the husband”) are involved in property proceedings. Those proceedings were instituted by the wife on 11 June 2004. These are proceedings in respect of multi-million dollar assets and involve complex issues of valuation and high conflict between the parties.
On 15 October 2007 the wife filed an application in a case seeking orders that:-
1. That the husband pay to the wife the sum of $100,000.00 for security for costs within fourteen days of the making of these Orders for the wife to use towards accounting and legal costs of and incidental to these proceedings.
2. That the husband pay the wife’s costs of and incidental to this application.
At the end of argument in respect of the substantive issue, I raised this with both counsel the question of the costs of the application in a case. In particular, whether I should reserve such costs. Counsel both agreed that such approach was appropriate and as such, by consent those costs will be reserved with liberty for either party to apply at some stage in the future or at the conclusion of the trial, whichever is the earlier.
This application is expressed to be an application under s117 of the Family Law Act. It is not an application for interim or partial property order.
The wife relies upon the following:-
(a) The application in a case filed 15 October 2007;
(b) The wife’s affidavit filed 15 October 2007 and sworn 12 October 2007 (“the wife’s affidavit”).
The wife also relies upon annexures “Q”, “R” and “V” to her affidavit filed 29 June 2007. There was no objection to that course by counsel for the husband provided the Court read annexures “S”, “T”, “U” and “W” of the wife’s said affidavit.
The wife also asked the court to take into account the procedural history of this matter, in particular the orders made by me in relation to having the matter made ready for hearing. I adopted that course.
On the 29 October 2007 the husband filed a response to the application in a case seeking orders that the wife’s application in a case be dismissed and that the wife pay the husband’s costs of that application. In support of that response the husband relied upon:-
(a) his affidavit filed 30 October 2007 and sworn 29 October 2007 (“the husband’s affidavit”);
(b) an affidavit of Mr S filed 30 October 2007 and sworn 29 October 2007 (“[S]’s affidavit”);
In addition the husband tendered a letter dated 6 February 2007. This letter is evidence that the wife had agreed at that time not to require valuation of certain properties, as they were to be sold.
The application in a case initially came before me in a Judicial Duty List on 29 October 2007 and was later argued on 1 November 2007.
This case was run on the papers without oral evidence and with no cross-examination. Neither party sought that it proceed otherwise.
The wife is aged fifty and is a company director by occupation. The husband is aged fifty six years. He is self-employed as a director and employer of a number of corporate entities. The wife asserts that she and the husband commenced cohabitation in about 1979. The parties married in October 1983 and separated in April 2002. That marriage was dissolved by order made in May 2004. There are two children of the marriage, who are both over the age of eighteen years.
The husband carries out business activities through numerous corporate entities and in his own name. The husband’s relationship with the children is said, by him, to be under considerable strain.
There are a large number of properties owned by the parties together with some businesses. The wife submits that the pool of assets of the parties has a value of about twenty two million dollars. Counsel for the husband, on 29 October 2007, submitted that the value of the assets was about fourteen to fifteen million dollars. It is the value of the properties and businesses which are some of the major issues that exist between the parties.
Pursuant to an order made by this court on 23 July 2004 after a defended interim hearing at about that time, the husband is required to pay to the wife spousal maintenance of $4,333.00 per month. In addition he was required to pay to the wife $25,000.00 by way of security for costs. On reading the judgment of Hannon J, which was before me, it is clear that that sum was made under either s 117(2) or under s 74 of the Family Law Act 1975 (Cth) (“the Act”) (the specification of the particular section not being required[1]). This is the jurisdictional basis of this present application.
[1] See Breen & Breen (1990) 65 ALJR 195; Zschokke & Zschokke (1996) FLC 92-693.
The evidence of the wife is that of the $25,000.00 paid to her in July 2004 she has expended $16,809.00 in legal costs and $8,352.00 in accountant’s fees. The whole of the sum of $25,000.00 has been extinguished in the costs and disbursements in regard to the family law litigation.
The wife says she has incurred legal fees to date in excess of $70,000.00 not including GST. It was not seriously challenged that such fees had been incurred. There was an issue as to whether there ought to have been an affidavit by the wife’s legal representatives as to how that sum was incurred, the costs likely to be incurred in future and the annexure of costs agreements etc.
Having had significant involvement in making directions to ensure this matter is ready for hearing I have had the opportunity to see details of the valuations said to be needed and the conflict between the parties. I have also had regard to the numerous occasions this matter has been before the Court, particularly in respect of obtaining valuations and meeting the costs of valuations. I accept the husband’s evidence that the costs of the single expert have been paid by him to date.
However, I am not so far from private practice that I am not able to discern from the material made available to me by the parties, that the amount of costs in a proceeding such as this, including some allowance for an accountant to be employed on behalf of the wife, would amount to and probably exceed $125,000.00.
In any event each of the parties will be required to make disclosure as to the costs paid and to the source of those costs and it is open for the husband, if appropriate, to seek an add-back in relation to the sum proposed in this application and, similarly, with regard to the sum ordered by Hannon J in July 2004.
The husband did not disclose in his material the quantum of his costs to date.
The parties have attended court on numerous occasions and at times, in circumstances where the husband has not complied with orders, including orders to file primary affidavits.
I do not make a finding with regard to the husband purposefully ignoring orders of the Court, however, it is clear from the Court records that from time to time timetables have not been kept and issues have arisen in regard to valuations. Whether such issues have arisen by virtue of miscommunication or otherwise I am not able to determine at this time or in the nature of these proceedings.
The wife asserts that the husband has full control of the joint assets. There appears to be no issue in this regard. In his primary affidavit filed 19 October 2007 the husband himself acknowledges that he is self-employed as sole director and proprietor of a number of corporate entities.
There is a concern whether the husband is bona fide in providing full details of the financial circumstances of the various businesses and assets in that in a letter from his accountant, Mr S, dated 1 May 2006 to Ruddicks, Chartered Accountants [2], Mr S said:-
Please also note that [the husband] has advised us he does not wish any of the information forwarded to you to be released to [the wife], or her solicitor without his authority. [The husband] has requested that you deal directly with our office on any matters relating to audit.
[2] Annexure 8 to affidavit of S’s affidavit
The husband asserts that he has paid a total of $378,868.00 to or on behalf of the wife between July 2002 and August 2007, which is about $6,200.00 per month. This includes expenses paid on behalf of the parties’ children from time to time and the $25,000.00 paid pursuant to the orders made in July 2004.
The interim maintenance order is some $4,333.00 per month and there has been no application to vary that order. The husband met that payment and that such payment met the reasonable living expenses of the wife at the time the application was made. It is reasonable for the wife to obtain accounting assistance in the preparation of this trial. It is not reasonable to expect her to use the joint expert for the purpose of understanding or investigating the material provided. The wife is entitled to understand the complex business structures and accounts and her solicitors cannot be presumed to have such wide skills, particularly bearing in mind the nature of the husband’s business structures. In that regard it is of value to note that Mr S set out the following, in his letter of 24 October 2004 to the husband’s solicitors[3]:
The summary prepared by Mr Dixon’s client is a convenient and very limited analysis of the Group’s transaction and fails to recognise the hundreds of thousands of dollars introduced into the Group structure by [the husband].
[3] Annexure ‘B’ to the affidavit of the husband.
During argument there seemed to be an issue as to whether the money paid to the wife by way of spousal maintenance and otherwise was in loan accounts or paid by the husband. I make no finding in that respect, but again this is a matter where the wife could reasonably anticipate the need to employ an accountant to assist her and those who advise her in relation to the preparation of this matter for trial.
The wife deposes in her affidavit that properties were sold some years ago and there was a surplus of funds of some three million dollars. In submissions her counsel claimed that this sum was in some two million dollars, either way it was a significant source of funds. The wife says she has not received proper accounting in respect of the dispersal of those funds. The husband, in response to that assertion by the wife, makes no comment as to the disbursal of those funds.
The wife claims at paragraph 16 of her affidavit that the husband has recently returned from a four month round the world trip and that he has recently purchased himself either a new or second-hand aircraft. She said this is in addition to the aircraft which he retains in Tasmania for which he paid some $90,000.00 and which he incurred additional costs of about $167,000.00 through refurbishment of that aircraft.
In reply to that assertion the husband says [4]:-
I refer to paragraph 16 of [the wife]’s affidavit. To the extent that it is admissible, I reject the implication that I have been wasteful in my expenditure. The evidence will demonstrate that, since my separation from [the wife], I have considerably improved our net asset position. The evidence will also demonstrate that I have been able to achieve this in the face of [the wife]’s criticism, opposition and efforts to frustrate.
[4] Paragraph 14 of husband’s affidavit
From this evidence I am able to find that the parties’ financial position has considerably improved since separation. In addition, the husband does not deny is an overseas trip for four months, the recent purchase and refurbishment of the second aircraft and the ownership of another aircraft. The wife asserts that the husband has expended considerable costs and legal fees but the husband chooses not to respond to that assertion.
In his material in reply the husband rejects the suggestion that there have been delays in non-compliance. He places the delays at the feet of the wife and suggests that her conduct has placed the business at risk. As I have said earlier, I cannot make a finding in regard to this, except as to the matters I have set out above.
The husband says that the wife has the sole use of the former matrimonial home which has a value of 1.8 million dollars. The wife pays no outgoings on the home and incurs no expenses for her motor vehicle, except for petrol. The husband says he pays the rates and insurance on the home.
The husband says that the wife is not in paid employment and should be receiving board from the parties’ two adult children.
The husband claims that he has not put aside any surplus monies for payment of legal fees and says that the wife has refused consent to the sale of some of their properties. He notes that he has paid all of the fees of the joint expert, Mr E. The husband concedes that on any likely outcome of these proceedings, the wife will receive a substantial, multi-million dollar settlement. He says she has access to borrowed funds. He says that he would be consent to transfer his interest in the former matrimonial home to the wife, by way of partial property settlement and she could use that asset as a means of raising capital for legal costs.
He further submits that the wife could approach a litigation financer to fund her litigation. There is no evidence that the wife has an earning capacity sufficient to pay interest on any such loans. The money the wife receives for maintenance is based on her evidence as to her expenses (excluding any interest) some three years ago.
Mr S, in his affidavit, deposes that he is a Principal of a large financial service firm and employs in excess of two hundred and thirty staff. Mr S has known the parties for fifteen years and undertakes the financial duties as an external accountant for the Group. He says that the structure is a complex group consisting of some thirteen entities. He goes on to say that the husband requires significant cash and capital flow to fund the ongoing operations of the businesses.
In that context it is significant to note that the husband asserts, in his affidavit, that he has[5]:
[5] Husband’s affidavit at paragraph 4(d)
…continued to build and enhance our assets and business interests to our mutual benefit.
Mr S deposes that the Group does not have liquid funds from which to make a payment of $100,000.00 for legal fees. Neither he nor the husband address the issue of how the overseas travel and the aircraft purchase and renovation were funded. The evidence of Mr S is based upon material supplied to him by or on behalf of the husband. I am entitled to infer from that unchallenged evidence of the wife that the husband is able to find relatively large sums of money for his own purposes from the substantial asset based controlled by him to the exclusion of the wife.
Whilst the husband has put the quantum sought by the mother in issue, for the reasons set out above, I am satisfied that the amount sought by the wife is reasonable in the circumstances of this case. As Brereton J held in Paris King Investments & Rahill and Ors (2006) NSW SC 578 (a family law matter transferred to the Supreme Court):-
It appears probable that the parties in these proceedings will require a determination of the courts following a lengthy, complex and expensive hearing to resolve their disputes. They are entitled to no less and in order for each of them to achieve justice and for the court best afford their net, it is highly desirable that they have the benefits of competent legal representation. That necessarily comes at a cost but it is a cost that has to be incurred if justice is to be done.
The husband, to some extent at least, has made this case somewhat more complex and difficult, particularly in relation to issues of valuations and in the circumstances of his failure from time to time to comply with directions. The parties will need a determination and the wife is entitled to have available sufficient costs to enable that to occur in circumstances where she is able to properly put forward her case.
It was argued by the husband that there is no evidence that the wife has shown that her legal advisors will withdraw those services unless costs are paid on an ongoing basis. It is apposite to note the comment made by Hannon J at paragraph 22 of the earlier costs judgment in this matter where His Honour referred to the decision of Fogarty J in C & C[6]:-
There is no necessity for an applicant for litigation expenses to demonstrate that his or her legal advisors would withdraw their services unless their costs are paid on an ongoing basis.
[6] unreported 27 November 1987.
In terms of the law with regard to an application such as this, counsel for the wife referred me to paragraphs 15, 16 and 17 of the earlier decision of Hannon J in which he says:-
15.I will deal firstly with the wife’s application for funds to prosecute her application under s.79 of the Family Law Act. It is quite clear that the Court has jurisdiction to make such an order in appropriate cases. In Breen & Breen (1990) 65ALJR 195, the husband sought leave to appeal to the High Court from a decision of this Court that a substantial sum be paid to the solicitors for the wife to be applied in the preparation of her case. In brief reasons for refusing leave, Brennan J said;
“The order made in this case may be unusual but it cannot be said to be beyond the jurisdiction of the Family Court under either s.117(2) or under s.74 of the Family Law Act 1975.
It is unnecessary to determine whether the power to make the order falls under s.117(2) rather than under s.74 (as the decision in Wilson & Wilson (1989) FLC 92-033 suggests). Nor is it necessary to determine whether the order in the present case is to be characterised as an order as to costs or an order as to security for costs.
The order seeks to ensure that, in the circumstances of the present case, the wife should be able to prosecute the pending matrimonial proceedings and should have the funds required to do so. Such an order made for such a purpose, although it falls within one or other of the powers conferred on the Family Court, should be so framed as to protect the parties from any risk of injustice arising from the manner in which the funds are expended.”
16.In Zschokke & Zschokke (1996) FLC 92-693 in determining the appeal of a wife against the trial judge’s refusal of an application that the husband pay the sum of $40,000.00 by way of an unallocated lump sum advance to enable her to pursue an application for parenting orders, the Full Court considered in significant detail all the relevant cases and stated the position in light of the authorities in the following terms, at page 83,215:
“Accordingly, while the present state of the law remains somewhat unclear, it can be asserted with some confidence in light of Brennan J’s comments in Breen that there is at least power under s.117(2) (the costs power) for the Court to make an order which seeks to ensure that one party should be able to prosecute pending matrimonial proceedings and that the other party should provide the first mentioned party with the funds required to do so. The question as to whether such an order can be supported under s.74 (the maintenance power) must be considered in the light of the High Court’s comments in Breen (and notwithstanding Wilson) to remain open. However, we do not have to consider that question further in this case because we did not understand counsel for the wife to rely on s.74. Similarly, we need not consider further as a source of power s.114 (the injunction power) which, although referred to by counsel for the wife, was not relied on by him. Again in light of Poletti, the question of s.114 must also remain open.
We consider however, that the circumstances of this case and also the submissions which were made on behalf of the appellant wife require us to address the issue of the making of such orders by way of interim or partial property settlement. Although this issue was not adverted to by the High Court in Breen, the decisions of the Full Court in Wilson and in Poletti are authority, in our view, for the proposition that 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.
17. This statement of the Full Court now authoritatively states the principle upon which one party to the litigation may be required to advance funds to the other party to enable the latter party to pursue the litigation on equal terms.

The principals set out in Zschokke & Zschokke (1996) FLC 92-693 and Breen & Breen (1990) 65 ALJR 195, as expressed by Hannon J remains good law. There seems to be three relevant matters for the court to address:-
1.      The husband being in a position of relative financial strength. This has been demonstrated in this case. The husband has control of the vast bulk of the property pool. He says that he does not have the funds to meet such an order however this must be seen in the light of the matters set out above, in particular the issue of travel and acquisition and refurbishment of other property. The husband provided no evidence of any debts he has in relation to legal costs, and he has an obligation to do so. As such I am able to infer that he has paid his legal costs in these proceedings as they arose. He has also met the fees of the valuers and single expert accountant.
2.      The capacity on the part of the husband to meet his own litigation costs. The husband makes no complaints about litigation costs. As I have said earlier, he does not set out how much he has spent so far and with control of assets of that size I am able to infer that the husband has met his legal costs to date.
3.      The inability on the part of the wife to meet her costs. This is the crux of the question before me in this case.
From the facts provided to me I am satisfied that it would be unreasonable to expect the wife to endeavour to borrow the funds for these costs. The wife’s only income is by way of spousal maintenance, and whilst that is a large sum it was structured to meet her expenses some years ago. The husband has said that he is prepared to transfer property to the wife by way of partial security. This does not, however, overcome the wife’s difficulties in persuading lending authorities to make advances to her in the absence of an income. In respect of litigation lenders I am able to take judicial; notice that such funds are lent to parties based upon reasonable expectations of success, in this case the wife would fall within that criteria. However, I am also able to take judicial notice that such funding is likely to be at a relatively high rate of interest and that such interest will compound during the course of proceedings. If the hearing is delayed and/or reasons need time to be prepared prior to publication and/or there are appeals then such sums may grow at a considerable rate. In some cases that may be the only option of a party, however, on the material before me this is not such a case and the husband is able to find money to meet the order.
There are other criteria to which the Full Court in Zschokke referred.[7] These are:
1. A complexity of financial affairs. This is clearly a case where the financial affairs of the parties are complex.
2. A need for expert investigations. There is a single expert and it seems to me reasonable for the wife to have access to accounting assistance in the preparation of her case. This is a case where expert evidence will be determinative of the size of the pool, whether it is twenty two million dollars or fifteen million dollars the amount in issue is considerable.
[7] At 83,208.
In the Paris King Investments case (supra) Brereton J recognised (paragraph 29) that:
It is important when contemplating an order for litigation expenses to identify the relevant source of power – because it is the source of power that determines the necessary pre-conditions and relevant considerations for making the order.
After dealing with the requirements referred to in Zschokke (and dealt with earlier in these reasons) Brereton J went on to hold (paragraph 33) that:
Many of the foregoing considerations are less important, though not necessarily irrelevant, where what is relied upon as source of power is not s117 or s74 but an interim property under s79 and s80(1)(x). In that respect the Full Family Court said in Zschokke (780-781) that while the requirements of s79(2) and 79(4) must be observed in the same manner as for any interim property order; if it appears the applicant would likely receive by way of property settlement a sum sufficient to cover the advance then the interim order may be made.
Of course in this case the application is not for interim property under s79 and s80, the source of power is that under s117 or s74.
Such as are available to me, I have had regard to the financial circumstances of each of the parties to the proceedings.
Neither of the parties is in receipt of legal aid.
As I have indicated above, I have some concerns about the husband’s compliance with directions and a number of attendances at court before affidavits were filed. It is of note that as recently as the 29 October 2007, further directions where put in place, at the request of the wife, for valuations to proceed.
The husband concedes that the property claimed by the wife is bona fides and that she will achieve a multi-million dollar property settlement.
To deprive the wife of a costs order may be oppressive or may stifle litigation. I am satisfied, on the material before me, that the husband has the capacity to meet such an order. I am unable to identify the precise area where that may be achieved bearing in mind the state of the evidence as it presently exists. However, I am satisfied that there are available funds for those costs to be met. For the wife to not have proper legal and accounting advice in the preparation for trial would be oppressive to her.
The wife made an application earlier in the proceedings and those costs have been expended. There appears to be no challenge in that regard. She has now brought a further application after expending significant amounts of costs and with the need to prepare the matter for final hearing once the final report is produced.
I will adopt the reason of Justice Hannon where he set out at paragraph 20 of the earlier decision:-
20.In C & C (supra) Fogarty J dealt with a similar application. His Honour stated:
“The major issue before me related to future expenses. Evidence was given by Mr Taussig as to probable future expenditure by the wife for legal and accountancy expenses, the latter portion of his evidence being objected to on the ground that it was beyond Mr Taussig’s expertise or competence to depose to.
In a sense it doesn’t matter either way whether the money is paid on account or it is not. The husband can afford to pay it, the wife’s case will proceed without it. But if the figures were clearer I would order a further amount. I think it is proper for the wife to have the assurance that she can expend the reasonably significant sums of money which are required on matters of this nature without having to look over her shoulder or to be concerned about the actual time of the trial.
However I thought the evidence as to future amounts was too obscure for me to place reliance upon it at this point. Were I satisfied as to a legitimate future figure I would have ordered that amount; however there are a number of uncertainties relating to what accountancy and valuation expenses will be incurred, and ‘guestimates’ of what that will quantify out at.”
Having regard to all of the material before me, I determine that the wife ought to have available to her costs necessary to fund the litigation. As the sum involved is significant I will allow the husband sixty days to find and provide those funds to the wife’s solicitors.

I certify that the preceding 58 paragraphs are a true copy of the reasons for judgment of the Honourable Justice Benjamin

Associate

Date: 12 November 2007

[2007] FamCA 1323

12 November 2007

Key Legal Topics

Areas of Law

Family Law

Civil Procedure

Legal Concepts

Costs

Jurisdiction