Riley and Riley and Ors
[2009] FMCAfam 49
•23 January 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| RUSSO & RUSSO and ORS | [2009] FMCAfam 49 |
| FAMILY LAW – Property settlement – security for costs – where the wife joined third parties to her application for property settlement – where the wife sought equitable relief against the third parties, asserting a common intention constructive trust or, alternatively, that a constructive trust had arisen as a result of unconscionable conduct and unjust enrichment on the part of the third parties – where the third party sought that the wife pay the sum of $40,000 as security for their costs in the substantive proceedings – where the wife failed to comply (or fully comply) with interlocutory procedural orders – matters relevant to the making of an order for security for costs considered – where the wife had the capacity to meet any order for costs that the court might be minded to make at trial – where the third parties were well able to meet their own costs at trial without an order for security for costs – application for security for costs dismissed. |
| Family Law Act 1975 (Cth) |
| Halsbury (2008) FamCAFC 170 Jones and Adult Guardian and Mother's Parents and B and Child Representative (2002) FLC 93-116; Luadaka (1998) FLC 92-830 Prentice v Cummins (No 5) [2002] FCA 1503 Simpson and McGuren (2005) FLC 93-223 West v Mead [2003] NSWSC 161 |
| Applicant: | MS S RUSSO |
| First Respondent: | MR F RUSSO |
| Second Respondent: | MR A RUSSO |
| Third Respondent: | MR L RUSSO |
| Fourth Respondent: | A & L RUSSO PTY LTD |
| File Number: | MLC 5504 of 2008 |
| Judgment of: | Walters FM |
| Hearing date: | 13 November 2008 |
| Date of Last Submission: | 13 January 2009 |
| Delivered at: | Melbourne (In Chambers) |
| Delivered on: | 23 January 2009 |
REPRESENTATION
| Solicitors for the Applicant: | Brian V. O’Haire |
| Solicitors for the Respondent: | Kliger Partners |
| Solicitors for the Second, Third and Fourth Respondents: | Glezer Lanteri & Associates |
ORDERS
IT IS ORDERED THAT:
The second, third and fourth respondents’ application for security for costs (pursuant to paragraph 2 of their Response filed 31 October 2008) be dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Russo & Russo and Ors is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT melbourne |
MLC 5504 of 2008
| MS S RUSSO |
Applicant
And
| MR F RUSSO |
First Respondent
| MR A RUSSO |
Second Respondent
| MR L RUSSO |
Third Respondent
| A & L RUSSO PTY LTD |
Fourth Respondent
REASONS FOR JUDGMENT
Introduction and background
The husband was born in April 1967. The wife was born in March 1973. They married in July 1993 and separated in June 2007. There are two children of the marriage – [X] (who was born in May 1996), and [Y] (who was born in July 1998). The boys live with the parties on a "week about and half school holidays" basis.
The wife filed an initiating application on 18 June 2008. She named the husband as the first respondent. She also named the husband's brother, Mr A Russo, as the second respondent, his other brother,
Mr L Russo, as the third respondent and A & L Russo Pty Ltd ("the company") as the fourth respondent. The company is the trustee of the Russo Family Trust ("the trust"). The directors and shareholders of the company are Mr A Russo and Mr L Russo. The husband, the wife,
Mr A Russo, Mr L Russo and others are (discretionary) beneficiaries of the trust, which was established in May 1991. The original appointor of the trust was Mr G Russo (the father of the husband, Mr A Russo and Mr L Russo), who is now deceased.
Both Mr A Russo and Mr L Russo are married, and both have children.
The company (as trustee for the trust) owns farming properties in Victoria and Queensland. According to the wife's previous solicitor, the trust has "total assets in excess of $25 million".[1] Of most relevance, however, is the farming property at Property T, near Robinvale in north-western Victoria, upon which stands the former matrimonial home ("the Property T property").
[1] See paragraph 5 of the affidavit of K. E. Martin sworn 13 June 2008
In her affidavit sworn 4 June 2008, the wife deposed as follows:
10. I left school at 14 years of age. I have no skills and cannot read and write without great difficulty. During the marriage I did not work and in fact I was encouraged not to work. None of the other wives of the family were permitted to work. My role was to look after the children and I was responsible for all of the care of the children and all of the house work.
11. When we were married, we moved into a house on the husband's family's property. I always believed that we owned this property and was never told otherwise.
12. Throughout the marriage I was told by the husband and his brothers that the company was a family business and that all three brothers were included in it. I was aware that the husband was not included on all of the paperwork, and was told this was because it would be too costly to change over, but that the husband was a silent partner in everything. I was told this more than one occasion by the husband's oldest brother (Mr A Russo). The husband is not a director of the … company but is a beneficiary of the … trust.
…
14. The husband was very comfortable with the family arrangement. I often asked the husband if we could have a separate farm and have our own business, but he said no, it must be with the family. He said he would never leave the family business. I was less comfortable with the arrangement as I always felt I had to ask the husband's brother if I was allowed to buy things such as a new washing machine.
In or about 2004, the house on the Property T property in which the husband and wife were living was renovated and extended. According to the wife[2] –
a)she "… did not request or expect the renovation, but it was offered to us by the husband's brothers";
b)the construction contracts relating to the renovation were in the joint names of the husband and herself;
c)she did a significant amount of work in relation to the renovation, including choosing designs, obtaining quotes, organising construction work and supervising builders and other workmen; and
d)she "… did not realise until after separation that the title to the house was not in our names or at least the husband's name".
[2] See paragraphs 16 and 17 of the wife's affidavit sworn 4 June 2008
During the course of the marriage, significant (and, at times, very significant) amounts of money were distributed to the wife (and to the husband) from the trust. The distributions in favour of the wife appear to have been treated as income to her. The relevant figures appear in paragraph 18 of the wife's affidavit sworn 4 June 2008. According to the wife, she knew very little or nothing about these distributions until after separation. She simply signed documents that were presented to her, including tax returns.
When the wife's solicitors requested particulars of the amounts owing to the parties in their loan accounts with the trust, they were provided with a document (prepared by the trust's accountants) revealing that the balance of the wife's beneficiary loan account as at 30 June 2007 was $171,847.71. The balance of the husband's beneficiary loan account as at the same date was $248,557.01.[3]
[3] See annexure SR4 to the wife's affidavit sworn 4 June 2008
The wife sought both interim and final orders in her initiating application. The final orders sought are to the following effect:
a)
Mr A Russo, Mr L Russo and the company must cause the
Property T property to be transferred to the husband;
b)the company must "account to the husband and the wife for the loan accounts and pay distributions from the trust in the same amounts as those paid to the remaining beneficiaries in 2007 and 2008";
c)there be "a division of matrimonial property" (including the Property T property) between the husband and wife "in such proportions as the court deems appropriate"; and
d)the company pay to the wife (from the capital of the trust) "such sum as the court deems appropriate".
The interim orders sought are as follows:
1. The husband pay to the wife by way of urgent spousal maintenance the sum of $600 per week.
2. The company pay to the wife the sum of $171,847 being the amount acknowledged to be standing to the credit of the wife.
3. By way of "Barro Order", the husband pay to the wife the sum of $70,000 in order to enable the wife to meet her legal and accounting costs and disbursements.
The amount referred to in paragraph 2 of the interim orders sought obviously relates to the balance of the wife's beneficiary loan account with the trust as at 30 June 2007.
On 24 June 2008, the husband filed a notice of address for service.
On 2 July 2008, a notice of address for service was filed on behalf of the company, Mr A Russo and Mr L Russo. I shall refer to the company, Mr A Russo and Mr L Russo (collectively) as "the additional respondents".
The proceedings came before me on 21 July 2008. Various procedural orders were made, and the matter was listed for an interim hearing on 18 September 2008. I note that the additional respondents were represented on 21 July 2008, and raised no issue at that time regarding the court’s jurisdiction (or power) to deal with the wife's claims involving them.
The interim hearing listed for 18 September 2008 was later adjourned to 13 November 2008.
The husband filed a response to the wife's initiating application on
25 July 2008. In it, he sought (by way of final order) that the wife's claim for property settlement be satisfied in the following manner:
The credit balance of the husband and the wife's loan accounts with the company as trustee for the trust be divided equally between them.
By way of interim orders, he sought that:
a)the wife's application for a "Barro Order" be dismissed;
b)he pay to her "for her spousal support" such sum as the Court deems appropriate; and
c)the wife discover all documents relating to her financial position.
In his financial statement sworn 18 July 2008, the husband stated that his current occupation was "farm supervisor", but that he was unemployed. His only source of income appeared to be the sum of $923 per week paid to him by the company as trustee of the trust "by way of debit against accumulated beneficiary loan account balance". He asserted that the company also pays "10% private component of use of motor vehicle". The only significant property that the husband said that he owned comprised "credit balance of beneficiary loan account as at 30 June 2008", amounting to $122,736. He also said that he "lent" $20,516 to the company in its capacity as trustee of the trust.
It is apparent that the husband's case is that, except for his loan account balance held with the trust, "he has no interest in nor does he claim to have an interest in the trust or any of its assets".[4]
[4] See paragraph 5 of the affidavit of the husband's solicitor, A Z Schmideg, sworn 25 July 2008
In his affidavit sworn 18 July 2008, the husband deposed as follows:
3. … I provide farm management services to (the company).
…
5. … I agree that (the wife's) literary skills are poor. The wife is a skilled housekeeper and a skilled farm produce picker and packer. Within our traditional family structure childcare and housekeeping has always been regarded as the wife's role and contribution to the family unit.
6. … On or about the time of our marriage I told the wife that my brothers had offered the farm house on (the Property T property) owned by their company as a residence for us and in the future our children. I reject the suggestion that the time of the marriage or indeed at any time since the date of our marriage the wife was left in any doubt as to the ownership of the residence (on the Property T property).
7. … I deny ever telling the wife that "the company was a family business and that all three brothers were included in it". On the contrary, I recall telling the wife that "the company was owned by my brothers but I am not included" or words to that effect. I am unable to comment on what the wife says was said to her by my brother (Mr A Russo). As to the structure of (the company) I say that I am not and never was a shareholder or an office holder of the company. I am one of the discretionary beneficiaries of (the trust) …
…
9. … I agree the wife had from time to time expressed a wish that our family have a livelihood which was not dependent on my brothers’ business. My response was always "No, because I am happy in what I am doing, working as a fund manager for my brothers" or words to that effect. As to the comment "I would never leave the family business", I say that the wife always knew that this comment was not meant to suggest that I was part of the family business but rather that I was happy working for my brothers’ business …
…
12. … (In) the course of discussions between the wife and I concerning our family’s future accommodation needs, I said to the wife "because the house is not mine and is owned by my brothers’ company I have to talk to (Mr A Russo) about the house extensions" or words to that effect. I did discuss the matter with (Mr A Russo) and he agreed. (Mr A Russo) did not say to me that we, meaning the wife and I, would be owner builders. What did happen was that (Mr A Russo) told me that the company would agree to spend $300,000 on the house renovations or extensions and because it was my family that would be living in the house he was happy to leave all the arrangements to do with the project up to me and the wife. …
According to the husband, the renovations were "entirely funded by the property owner (the company)":
The approved project funding was paid progressively by the company into my cheque account from which I periodically drew cheques in payment of various project accounts.
The husband also asserted that, of the approximate amount of $406,000 transferred from the company's account to his account (to pay for the renovations), some $300,000 had been borrowed by the company specifically for that purpose.
In response to the wife's suggestion that she did not fully understand the allocation of income to her, the husband deposed as follows:
15. … (Each) year the wife and I together attended at (the company’s office) where we were asked by (the company's accountants) to sign the tax returns prepared on our behalf by the company's accountants. My recollection is that on each occasion we were perfectly aware of what we were signing and that a short explanation of the nature of the documents to be signed by us was provided by the company's accountant or its internal management accountant.
Attached to the husband's affidavit is a copy of the building permit relating to the renovations/extensions. The permit refers to building work taking place between September 2004 and September 2005. The company is recorded as both the owner and builder.
On 18 August 2008, the company in its capacity as trustee of the trust paid the wife the sum of $171,847 – which was expressed to represent the wife's loan account entitlement in full. The letter (from the additional respondents’ solicitors to the wife's solicitors) enclosing the relevant cheque includes the following:[5]
By way of information, we advise that (the company) in its capacity as trustee of (the trust) has also paid to the husband … the sum of $111,625.32 thereby extinguishing his loan account in (the trust).
[5] See annexure F. to Mr A Russo’s affidavit sworn 30 October 2008
On 4 September 2008, the wife's previous solicitors filed a notice of ceasing to act. Her current solicitors filed a notice of address for service on 18 September 2008.
On 12 September 2008, the husband filed an amended response. The only significant change was that the husband sought an order that the wife pay his costs (with effect from 8 September 2008) on an indemnity basis.
On 15 September 2008, the husband filed a second financial statement (sworn 12 September 2008). In it, he recorded his current occupation as "field supervisor", and stated that he was employed by the company. He also recorded that his total salary or wages before tax amounted to $1296 per week. The only significant property that the husband said that he owned comprised the sum of $108,509 held in a bank account. The reference to "credit balance of beneficiary loan account as at
30 June 2008" (amounting to $122,736) appearing in his previous financial statement was removed. Similarly, his assertion that he "lent" $20,516 to the company in its capacity as trustee of the trust was qualified with the following comment:
This sum has been repaid concurrently with the payment of the credit loan account balance in August 2008.
On 31 October 2008, the additional respondents filed a response. They sought final orders to the effect that the wife's claims against them be dismissed, and that she pay their costs on an indemnity basis. They also sought the following orders on an interim basis:
1. The interim orders sought against the additional respondents be refused.
2. On or before 14 November 2008, the wife pay to the solicitors for the additional respondents the sum of $40,000 by way of security for costs of the additional respondents participating in these proceedings, such sum to be invested by the solicitors for the additional respondents in an interest bearing account pending further order of the court.
3. Within seven days, the wife file an affidavit setting out with particularity the nature and extent of the claims alleged by her against the additional respondents and providing details of the evidence (including documentary evidence) relied upon by her to establish the alleged claims.
4. The wife pay the costs of the additional respondents of and/or associated with the interim application, on an indemnity basis.
Mr A Russo swore an affidavit on 30 October 2008, essentially corroborating the husband’s description of his (the husband’s) lack of involvement in and general financial relationship with the trust and the company. Mr A Russo also deposed as follows:
14. … (This) court proceeding was initiated prior to any verbal or written request for repayment of (the wife's beneficiary loan account) was made by the wife.
15. On 18 August 2008 the company in its capacity as trustee of the trust repaid to the wife the sum of $171,847 …
16. On 18 August 2008, the company also paid to the husband the sum of $111,625.32 being the balance of the loan account owing to him.
The parties’ competing interim applications came on for hearing before me on 13 November 2008. The following orders (among others) were made by consent:
1. All interim applications between the husband and the wife be consolidated and heard together with the final applications at trial.
2. Within 14 days the additional respondents make available to the wife's solicitors all documents in their possession, power and control relating to the husband’s and the wife's loan accounts and remuneration through the trust (including the 2007 returns for the trust).
…
4. Within 21 days of delivery of the documents referred to in paragraph 2 above, the wife file and serve heads of claim identifying the basis of any claims against the additional respondents together with an outline of proposed evidence to be called in support thereof.
5. Within seven days of the delivery of the heads of claim, each party file and serve an outline of submissions in relation to (the additional respondents’ application for an order for $40,000 by way of security for costs).
6. (The additional respondents’ application for an order for $40,000 by way of security for costs) be otherwise adjourned to Walters FM for delivery of reasons for judgment in Chambers on a date to be fixed.
It is not in dispute that, on 26 November 2008, the solicitors for the additional respondents provided to the wife's solicitors the documents required to be delivered pursuant to paragraph 2 of the orders made on 13 November 2008 ("the November orders"). As a result, the wife was required (by paragraph 4 of the November orders) to file and serve both the heads of claim and the outline of proposed evidence by not later than 17 December 2008.
The wife did not file and serve the heads of claim and outline of proposed evidence by 17 December 2008. On 19 January 2009, the wife's solicitors faxed to my Chambers a document dated 24 December 2008 and headed "Heads of Wife's Claims in these Proceedings". The document includes a short paragraph headed "Outline of Proposed Evidence to be called on behalf of the Wife".
I shall refer to the document faxed to my Chambers on 19 January 2009 as the wife's summary of claim (which accords with the description of the document appearing in its preamble).
According to the solicitors for the additional respondents, the wife's summary of claim was served on them on 12 January 2009. By that time, they had forwarded to the court a submission (dated 23 December 2008) pointing out the wife's failure to comply with paragraph 4 of the November orders and urging the court to make the order for security for costs on an undefended basis. I shall refer to this submission as the first submission
Following the receipt of the wife's summary of claim, the solicitors for the additional respondents filed a further submission, entitled "Submission in Reply". The submission in reply is dated 13 January 2009.
It follows that the court has received three written submissions:
a)the first submission;
b)the wife's summary of claim; and
c)the submission in reply.
Unfortunately, the wife's summary of claim makes no reference to the first submission. Nor does the wife's summary of claim provide any explanation whatsoever for its failure to comply with paragraph 4 of the November orders. The subject is simply not addressed.
The wife appears to have ignored or overlooked the requirements of paragraph 5 of the November orders. As for the additional respondents, it is clear that the first submission was not filed in accordance with paragraph 5 of the November orders (because the wife's heads of claim had not been filed and served at the time that it was prepared).
I understand, however, that the additional respondents wished to bring the wife's failure to comply with paragraph 4 of the November orders to the Court’s attention.
The submission in reply was filed in accordance with paragraph 5 of the November orders.
Issue for determination
The only issue for determination at this time is the question of whether the court should make the order for security for costs sought by the additional respondents.
The law in relation to security for costs
According to Cairns, Australian Civil Procedure, the circumstances in which the court has jurisdiction to order a plaintiff to give security for a defendant’s costs of defending the plaintiff's claim are "well-defined". Thus, the court may order the plaintiff to give security for costs where:[6]
a)the plaintiff is ordinarily resident outside Australia;
b)the plaintiff is suing for the benefit of another person and there is reason to believe that the plaintiff would be unable to pay the defendant’s costs if ordered to do so;
c)the plaintiff's address is intentionally omitted from, or is misstated in, the originating process so as to evade the consequence of the proceeding; or
d)the plaintiff changes address after the commencement of the proceeding to evade an order for costs.
[6] Seventh edition (Lawbook Co 2007), at page 516
Other grounds exist for the making of an order for security for costs in civil proceedings but, generally speaking, they focus on an asserted or perceived inability on the part of the plaintiff to meet the defendant’s costs if ordered to do so.
In relation to the power to order security for costs generally, Cairns writes:[7]
Jurisdiction to order security for costs is discretionary, both as to whether to order it and as to the amount required to be secured. (It has been considered) relevant for the court to take account of the nature of the claim, whether it is brought in good faith or whether it is a sham and the plaintiff's prospects of success. The court may consider admissions, either in the pleadings or elsewhere. … A defendant cannot use an application for security for costs oppressively. Except in the case of a company, the parlous nature of the plaintiff's finances does not of itself justify an order for security for costs.
If a plaintiff has a strong case, the court is reluctant to order security for costs … Hardship might be imposed on the plaintiff if the court orders security for costs where it is clear that there is a good cause of action. …
A party to litigation who is defending rights is not ordered to give security for costs…. (In this regard) a party's position on the record is not decisive in deciding whether the party is a defendant or a plaintiff. Where a plaintiff is forced into suing to protect a right, the plaintiff is not necessarily regarded as a plaintiff.
[7] At page 516, footnotes omitted
Applications for security for costs in family law proceedings are more commonly made in relation to appeals. There appears to be no difference, however, between the court's approach to such applications in proceedings at first instance and in appeals.[8] The leading case is Luadaka (1998) FLC 92-830, in which the Full Court said:[9]
[8] See Jones (2001) FLC 93-080 and Simpson and McGuren (2005) FLC 93-223
[9] Citations omitted
39. An order that an applicant provide security for costs may be made in appropriate circumstances. However, it must be established that there are circumstances justifying the making of such an order. In considering whether to make such an order regard must be had to the provisions of s 117(2A). The Family Law Act does not separately list factors which should be taken into account when dealing with an application for security for costs of a pending application for relief pursuant to provisions of the Act.
…
61. In our opinion, when dealing with an application for security for costs the general rule provided for in s 117(1) applies, namely that subject to s 117(2) each party to proceedings shall bear his or her own costs. However, if the court is satisfied that there are circumstances that would justify an order then the court may, subject to s 117(2A), make such order for security for costs as the court considers just. It is not necessary to establish that there are special circumstances. However, it is necessary to establish that there are justifying circumstances. The decision to order security for costs is discretionary, both as to whether to order security, and as to the amount to be secured.
62. The purpose of an order for security is to secure justice between the parties by ensuring that an unsuccessful party does not occasion injustice to the other. In considering whether or not to make an order, apart from those referred to in s.117(2A), matters which may be relevant include the following:
62.1 It may be relevant to take into account the means of an applicant to satisfy an order for costs if he or she is unsuccessful. Ordinarily the means of the applicant is not alone sufficient to justify an order for costs because of the rule that poverty should be no bar to justice. This is reinforced by s.117 (1). However, the financial circumstances of the applicant do not prevent an order being made if there are other grounds which justify an order. … (We) do not accept that it will only be in cases where the applicant for security does not have the means to meet his or her costs that an order would be made. In appropriate circumstances an order may be made even if the applicant for security has the means to pay his or her costs.
62.2 The prospects of success is a relevant matter to take into consideration … However, ordinarily the court will not undertake a detailed assessment of the likelihood of the applicant's success unless it can be demonstrated that there is a high probability of success or failure …
62.3 It is a relevant consideration whether the applicant's claim is made bona fide, whether it is genuine and not trivial, vexatious or a sham …
62.4 It may be relevant to consider whether or not an order for costs would be oppressive or stifle the litigation. …
62.5 It may be relevant to consider whether or not the litigation may involve a matter of public importance …
62.6 It may be relevant to consider whether or not there has been delay in bringing the application. An application may be refused if there is delay in making the application and prejudice is caused to the respondent to the application …
62.7 Other relevant matters may include any difficulties of enforcing an order for costs and the amount of costs to be incurred.
63. We do not suggest that the above matters are exhaustive of what may be taken into account. However, such matters may be relevant to the exercise of discretion. (Emphasis added)
In Halsbury (2008) FamCAFC 170, the Full Court said:[10]
The authorities establish that in exercising the discretion to order security for costs, it may also be relevant for the court to consider in addition to the financial circumstances of the parties and the other five specific matters mentioned in section 117(2A), the following matters:
(a) the prospect of success of the litigation;
(b) whether the claim for security is made bona fide;
(c) whether or not an order for security would stifle the litigation;
(d) whether or not the litigation may involve a matter of public importance;
(e) whether or not there has been a delay in bringing the application for security;
(f) whether there would be difficulty in enforcing an order for costs.
[10] At paragraph 21, citing Luadaka, Jones and Adult Guardian and Mother's Parents and B and Child Representative (2002) FLC 93-116; see also Limousin and Limousin (Security for Costs) (2007) FamCA 1179
The first submission
As already recorded, the additional respondents argue that, in view of the wife's failure to comply with paragraph 4 of the November orders, the order for security for costs should be made on an undefended basis.
The additional respondents emphasise certain of the factual matters dealt with earlier in these Reasons, including the fact that the husband and the wife are "not officeholders in the trust" and are "merely discretionary beneficiaries". They also refer to the fact that the funds used to pay for the renovation/extension to the former matrimonial home on the Property T property were primarily sourced from moneys borrowed by the company from a bank.
The additional respondents submit that the wife, having been paid close to $172,000 in respect of her loan account balance, has the financial capacity to meet the order for security for costs.
They also submit that the wife's failure to comply with paragraph 4 of the November orders can (or should) lead the court to infer that:
a)the wife has little prospect of success (on the basis of her claim as it was then formulated);
b)the wife's claim may not be made bona fide; and/or
c)“there is continuing delay, which is causing undue prejudice, expense and inconvenience” to the additional respondents.
The Court has now received the wife's summary of claim. That being the case, there is no need for inferences to be drawn from the wife's failure to comply with paragraph 4 of the November orders. Relevantly, I am not prepared to ignore the wife's summary of claim when considering her prospects of success, or the question of whether her claim is made on something other than a bona fide basis.
As for the assertion that the wife's delay in filing her summary of claim has caused undue prejudice, expense and inconvenience to the additional respondents, I note that no particulars of such prejudice, expense and/or inconvenience have been provided. I accept that the wife could have and should have filed her summary of claim in accordance with the timeframe set out in paragraph 4 of the November orders, but to effectively "punish" her for such non compliance by imposing an order for security for costs seems inappropriate. I would add that the authorities seem to direct the court's attention to any relevant delay in the bringing of an application for security for costs; a delay in responding to such an application does not appear to be an obviously relevant consideration (although, clearly, a delay in responding to an application for security for costs might, in appropriate circumstances and where relevant evidence exists, allow the court to draw inferences similar to those currently urged upon me by the additional respondents).
The additional respondents argue that they have "acted responsibly and paid to the wife the moneys demanded by her in her court application". They also argue that they have "not attempted to withhold funds from the wife's loan account as security and have appropriately sought relief pursuant to a court order based on proper legal principles".
I accept that the additional respondents acted responsibly in paying to the wife the amount standing to her credit in her loan account with the trust as at 30 June 2007. The fact of the matter is, however, that the wife sought such payment on an interim basis. Although she could have and probably should have made demand for the payment of such moneys prior to commencing proceedings and including the additional respondents as parties, there is no suggestion on the part of the additional respondents that the wife was not entitled to the moneys. Of more significance, it seems to me, are the final orders sought by the wife in her initiating application, which orders (although poorly drafted) are clearly directed to the additional respondents (as much as to the husband). Those final orders require the additional respondents to transfer to the husband what I assume is the whole of their interest in the Property T property (so as to – presumably – “free up” the property and make it subject to the wife’s claims for property settlement pursuant to section 79 of the Family Law Act). They also require the additional respondents to pay to the wife "such sum as the court deems appropriate" from "the capital of the trust".
In such circumstances, it is difficult to see the relevance of the additional respondents having "acted responsibly and paid to the wife moneys demanded by her" to the wholly separate question of whether or not the wife should be ordered to pay an amount of $40,000 (or any other amount) by way of security for the additional respondents’ costs. Similarly, it is difficult to see the relevance of the additional respondents having made a formal application for security for costs (as opposed to simply deducting the amount claimed by way of such security from the moneys that they concede were otherwise payable to the wife). After all, if they had indeed exercised self-help, and withheld some $40,000 from the moneys which they concede were payable to the wife, then, in my opinion, it is clear beyond argument that their own bona fides would have been questioned. It is for the court to determine whether an order for security for costs is appropriate; it is not for the additional respondents to pre-empt the (discretionary) powers of the court in that regard.
The additional respondents also submit that the quantum of the claim for security for costs is appropriate. Given that the wife has raised no objection to the quantum, I accept that it is indeed appropriate.
The wife’s summary of claim, and the submission in reply
The wife's summary of claim sets out a fairly standard equitable claim against the Property T property. In the broadest of broad terms she asserts that a common intention constructive trust has arisen. Alternatively, she asserts that a constructive trust has arisen as a result of unconscionable conduct and unjust enrichment on the part of the additional respondents.
The principles in relation to equitable relief of this nature have been discussed in a great many cases. For current purposes, however, it is sufficient if I refer to the summary of the law contained in Shepherd v Doolan[2005] NSWSC 42:[11]
[11] References and footnotes omitted
30. The ultimate basis for the imposition of a constructive trust is that it would be unconscionable for the holder of the legal title to the property to assert that he holds it free of any beneficial interest in the claimant. However, although “unconscionability” is the underlying basis upon which equity will intervene, it is not itself a sufficient description of the principles upon which equity does so. Equitable rights do not arise merely because the Court considers it fair in all the proven circumstances that the legal owner of property should hold it, or a portion of it, for the benefit of another. …
31. One class of case where equity will intervene to prevent the unconscientious denial by the legal owner of another party’s rights, is where the parties agreed, or it was their common intention, that the claimant should have an interest in the property owned by the other, and the claimant acted to his or her detriment on the basis of that agreement or common intention. …
32. Another class of case where equity will intervene is to “...[restore] to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.” … The characteristics of a constructive trust which arises on this basis were explained by Campbell J in West v Mead [2003] NSWSC 161 at [52] – [64]. His Honour said (at [59]):
“... a plaintiff needs to establish there is indeed a joint endeavour between the parties, in which expenditure is shared for the common benefit. It is also necessary to identify what the scope of that joint endeavour is. ...”
33. The imposition of such a trust does not depend on the actual or presumed intention on the part of the prospective trustee to hold property on trust….
34. Where a constructive trust is imposed, based upon the parties’ common intention as to the ownership of property upon which the claimant has acted to his or her detriment, the inquiry is as to the actual intention of the parties. The law does not impute a presumed intention to the parties based upon what the Court considers fair and reasonable persons in the position of the parties would have intended had they turned their minds to the issue. …
35. It is unnecessary to enter the debate as to whether a trust based on the parties’ common intention is properly characterised as a constructive trust, or whether it should be characterised as an express trust which is enforceable notwithstanding the want of writing as it would be an equitable fraud for the legal owner to rely on the absence of writing to deny the beneficiary’s interest. … In later cases, … this class of trust has been classified as a constructive trust, even though it is based on the parties’ actual intentions, rather than imposed despite their intentions.
36. The intention to be established need not be that the parties have a specific share of the property. It is sufficient that they intend that the claimant should have a beneficial interest or “some form of proprietary interest”. …
37. The intention may be established in various ways. There may be an agreement between the parties as to how the property should be held. There may be express statements as to their intention. Their intention may be inferred from their conduct. The question of what acts demonstrate an agreement or common intention referable to the beneficial enjoyment of the property is one of evidence, not law. …
38. The intention may be inferred from financial contributions, direct or indirect, to the acquisition of property, including the paying off of mortgages, or the payment of expenses which free up funds for that purpose. … This is a wider enquiry than whether a contribution was made to the purchase money such as to give rise to a presumption of a resulting trust. …
39. Other evidence from which conclusions may be drawn about the intentions of the parties include declarations of the parties before or at the time of the transaction or so close in time after the transaction as to constitute a part of it. Subsequent declarations of intention are only admissible against interest. …
40. The plaintiff must also show that she acted to her detriment in a way referable to the agreement or intention that she have an interest in the property. … Conduct which is insufficient to establish a common intention as to the ownership of the property may be sufficient to constitute relevant actions to the plaintiff’s detriment to establish a trust if the common intention is established otherwise. Conduct may be both the evidence from which an intention that the plaintiff have a beneficial interest can be inferred and the act of detrimental reliance. … (It has been held that) to qualify as acting on the common intention, the conduct must be such that the plaintiff could not reasonably have been expected to embark upon it unless she were to have an interest in the property. …
After pointing out (correctly) that the wife's summary of claim was provided to them well outside the timeframe of the November orders, the additional respondents submit that –
… the document is hopelessly inadequate and does not attempt to comply with the court order. It does not identify the basis of any claim and does not outline any proposed evidence to be relied on. The court is entitled to conclude that such evidence does not exist and that the wife should accordingly provide adequate security. The (additional respondents) reserve the right to seek the striking out of the wife's application in the event that particulars are not forthcoming or in the event that once provided they do not disclose a cause of action in any event.[12]
[12] See paragraph 4 of the submission in reply
I do not agree that the wife's summary of claim is hopelessly inadequate. In my opinion, it sufficiently identifies the basis of the wife's claims against the additional respondents. I accept that those claims are not particularised, but the November orders did not compel the wife to particularise her claims. To identify the basis of a claim is not to fully plead it.
There is certainly merit in the additional respondents’ submission to the effect that the wife has not adequately outlined "the proposed evidence to be called in support" of her claim. In paragraph 15 of her summary of claim, the wife states that she (herself) proposes to give evidence regarding such matters as the history of the marriage, contributions (in all their various guises, I assume) to the relevant property, the alleged agreement and/or common intention, the detriment that she has allegedly suffered if equity does not intervene to assist her and other matters under the general headings of contributions or the section 75(2) factors. She also states that she proposes to call:
a)a forensic accountant "to give evidence about the loan accounts of the husband and wife and other accounting evidence relating to the history of contributions" to the relevant property; and
b)"corroborative witnesses who will support the wife's case as to the matters in her evidence".
I am prepared to accept that the description of the evidence that the wife herself proposes to give, when combined with the other matters contained in her summary of claim and the contents of her affidavit sworn 4 June 2008, is sufficient to meet the requirements of paragraph 4 of the November orders. But the reference to the evidence of the forensic accountant and other, unspecified "corroborative witnesses" clearly falls short of the requirements of the order. It is simply impossible to glean from the wife's summary of claim –
a)which witnesses the wife proposes to call; and
b)what (even in the most general of terms) those witnesses are likely to say.
Although I am not prepared to infer that the wife's failure to provide an adequate outline of the evidence that she proposes to call in support of her case (beyond the evidence that she will be giving in her personal capacity) leads inexorably to the conclusion that no such evidence exists, I am prepared to treat that failure as indirectly relevant to the wife's prospects of success in her claim against the additional respondents. To that extent, the wife's incomplete compliance with paragraph 4 of the November orders harms her defence to the application for security for costs. In my opinion, however, it is not fatal to her defence to the application.
The additional respondents are (perhaps) on stronger ground when they refer to their intention to reserve the right to seek to strike out the wife's application (for final orders) as it relates to them. It seems to me that the additional respondents may have confused their current application for security for costs with a broader application to either strike out the whole of the wife's claim against them (on the basis that the claim discloses no reasonable cause of action) or to , in effect, “no case” her. Put shortly, the tests that the court must apply in each scenario are not the same. I have already dealt with the considerations that are relevant to an application for security for costs. An application to strike out the wife's claim against the additional respondents on the basis that it discloses no reasonable cause of action raises different issues.
Ordinarily, the court will not strike out or dismiss a claim on a summary basis if it is apparent that there is a real dispute on the facts or if credit is an issue. Thus, an action is unlikely to be brought to an end summarily if the court can see a substantial case, even if it is badly pleaded.[13] A "no case submission" in civil proceedings is different again. In Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187, at 238-239, it was held that a no case submission might rest on the proposition that there is no evidence at all in support of the applicant's case (in other words, even accepting all of the applicant's evidence at face value, no case has been established at law). Alternatively, the submission might be that although there is some evidence in support of an applicant's case, the court should not act upon that evidence because it is so inherently unreliable or equivocal that a finding should be made to the effect that the applicant has not discharged the burden of proof resting on him or her.[14]
[13] See Cairns, Australian Civil Procedure, at page 388
[14] See, for example, Prentice v Cummins (No 5) [2002] FCA 1503 at paragraphs 109 to 115
Suffice it to say that I am not presently dealing with an application to strike out or dismiss the wife's substantive claim against the additional respondents. Nor am I dealing with an application to "no case" her.
At the end of the day, the primary thrust of the submissions in reply seems to be that, because the wife "has not made any real attempt to comply with (the November orders)", there should be an order for security for costs. For the reasons set out above, that approach should not be adopted.
I turn now to consider the factors relevant to the application for security for costs.
Should security for costs be ordered?
I have already dealt with the financial circumstances of the husband and the wife to some extent. For current purposes, it is sufficient to record that the wife has relatively recently received an amount of close to $172,000 (in payment of her beneficiary loan account under the trust). It follows that, prima facie, the additional respondents would have little or no difficulty in enforcing an order for costs against her if such an order were to be made (and even if such an order were to be in the amount of $40,000 or thereabouts).
The additional respondents appear to have very significant assets indeed. There is no suggestion that they would not be able to meet their own costs if they were to be successful in the proceedings and the wife were not.
None of the parties appears to be in receipt of assistance by way of legal aid.
The additional respondents cannot be criticised for the manner in which they have conducted the proceedings. They have filed a response and supporting material, and have complied with procedural orders. They have also supplied the wife with the material described in paragraph 2 of the November orders.
As indicated above, the wife's conduct – as a litigant – has been much less satisfactory. Relevantly, she was late in complying with paragraph 4 of the November orders, her summary of claim was inadequate and incomplete (to the extent that it purported to be an outline of the proposed evidence to be called in support of her claim against the additional respondents), and she does not appear to have complied with paragraph 5 of the November orders at all.
The current application (for security for costs) was not necessitated by the failure of any party to comply with previous orders of the court.
None of the other matters referred to in section 117(2A) of the Family Law Act appears to be relevant to the current application.
The wife is not ordinarily resident outside Australia and there is no reason to believe (on the basis of the evidence currently before me) that she would be unable to pay to the additional respondents’ costs if ordered to do so. Further, the wife's address is known and there is no evidence that she has made any attempt to evade either the consequences of the current proceedings (whatever they may amount to) or any possible order for costs.
Although I have not embarked upon a detailed assessment of the likelihood of the wife succeeding in her claim against the additional respondents, I am of the view that they have not demonstrated that there is a high probability that the wife’s claim will be wholly (or even substantially) unsuccessful. I accept, however, that the wife, for her part, has not demonstrated that there is a high probability that her claim will succeed. Suffice it to say that, on the basis of the evidence currently before me and the law to which I have referred, and bearing in mind that credibility is likely to be a significant issue, I am satisfied that the wife has an arguable case for equitable relief against the additional respondents.
In forming the view expressed in the previous paragraph, and as suggested in paragraph 9 of the submission in reply, I have noted that the wife appears to have abandoned any claim:
a)which arises from her position as a beneficiary of the trust;
b)for distribution of the capital of the trust to her (in her capacity as a discretionary beneficiary); and
c)for transfer to her of any trust assets apart from the Property T property.
It follows from the above that I am not prepared to conclude that the wife's claim is other than genuine. Similarly, I am not persuaded that the wife's claim is trivial or vexatious, or that it can be described as a sham.
Given the wife's financial position, an order for security for costs would be unlikely to "stifle the litigation".
In my opinion, the current litigation does not involve any matters of public importance. I accept, of course, that it does involve matters of considerable importance to the parties.
There has been no delay associated with the additional respondents’ application for an order for security for costs. I have already referred, however, to the wife's tardiness in complying with the November orders.
I do not regard the additional respondents as "using the application for security for costs oppressively". Further, the wife has provided no evidence that could lead me to conclude that hardship might be imposed upon her if I were to order security for costs. Still, and although it is not necessary for the additional respondents to establish that there exist “special circumstances” such as to justify the making of an order for security for costs, it is necessary for them to establish that there are "justifying circumstances" for the making of such an order. The purpose of an order for security for costs is "to secure justice between the parties by ensuring that an unsuccessful party does not occasion injustice to the other", and the decision whether or not to make such an order is discretionary.
In all the circumstances, and on balance, I am not persuaded that the making of an order for security for costs is justified. In my opinion, such an order is not necessary to secure justice between the parties, and there is no evidence that my decision to refuse it will cause injustice to the additional respondents. Clearly, some factors favour the additional respondents’ claim, but other factors do not.
Although they are clearly not the only considerations, and although they are not sufficient in themselves to warrant the dismissal of the additional respondents’ application for security for costs, it seems to me that the most significant of the various competing considerations are the following:
a)the wife appears to have more than sufficient funds to enable her to meet any order for costs that the court might be minded to make at trial; and
b)there is no suggestion that the additional respondents might not be able to meet their own costs if they were to be successful in the proceedings and the wife were not.
At the risk of stating the obvious, I would add that my conclusion in relation to this matter says nothing about my likely approach to the substantive proceedings. The wife’s claims against the additional respondents for equitable relief, and her claim for property settlement generally, will be dealt with on their merits – as will any further interim or interlocutory applications by the parties.
Conclusion
The additional respondents’ application for security for costs will be dismissed.
I certify that the preceding eighty-six (86) paragraphs are a true copy of the reasons for judgment of Walters FM
Associate: Luciana Ramos
Date: 23 January 2009
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