Searle Holdings Pty Ltd & Pencious & Anor (Security for Costs)
[2014] FamCAFC 58
•8 April 2014
FAMILY COURT OF AUSTRALIA
| SEARLE HOLDINGS PTY LTD & PENCIOUS AND ANOR (SECURITY FOR COSTS) | [2014] FamCAFC 58 |
| FAMILY LAW – APPEAL – Application for security of costs. FAMILY LAW – COSTS – Principles governing an application for security for costs – Where a party is unable to proceed with the appeal if indemnity costs are ordered – Where one party is impecunious – Whether an order for security for costs would stifle the appeal. |
| Gerber & Bradley (formerly Gerber) and Ors (Security for Costs) [2011] FamCAFC 206 Family Law Act 1975 (Cth) |
| APPLICANT: | Searle Holdings Pty Ltd as Trustee of the Searle Family Trust |
FIRST RESPONDENT: | Mr Pencious |
| SECOND RESPONDENT: | Ms Searle (formerly Pencious) |
| FILE NUMBER: | MLC | 11069 | of | 2008 |
| APPEAL NUMBER: | SOA | 36 | of | 2013 |
| DATE DELIVERED: | 8 April 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Thackray, Strickland & Ainslie-Wallace JJ |
| HEARING DATE: | 5 March 2014 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 28 May 2013 |
| LOWER COURT MNC: | [2013] FamCA 375 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Tsalanidis |
| SOLICITOR FOR THE APPLICANT: | Halperin & Co Pty Ltd |
| FIRST RESPONDENT: | Mr Carlisle |
| SOLICITOR FOR THE FIRST RESPONDENT: | Altona Legal |
| COUNSEL FOR THE SECOND RESPONDENT: | No appearance |
| SOLICITOR FOR THE SECOND RESPONDENT: | Adrian Abrahams Family Lawyers |
Orders
The application in an appeal filed 14 October 2013 be dismissed.
Within twenty-one (21) days of the date hereof, the first respondent file and serve submissions in support of any application for costs in relation to the application for security for costs.
Within twenty-one (21) days thereafter, the applicant file and serve submissions in response to the submissions on behalf of the first respondent.
Within fourteen (14) days of receiving the submissions of the applicant the first respondent file and serve any submissions in reply.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Searle Holdings Pty Ltd & Pencious & Anor (Security for Costs) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE |
Appeal Number: SOA 36 of 2013
File Number: MLC 11069 of 2008
| Searle Holdings Pty Ltd as Trustee of the Searle Family Trust and Mr Pencious |
First Respondent
and
| Ms Searle (formerly Pencious) |
Second Respondent
REASONS FOR JUDGMENT
Introduction
By an application in an appeal filed 14 October 2013, Searle Holdings Pty Ltd as trustee of the Seale Family Trust (“the applicant”) seeks an order that Mr Pencious (“the husband”) provide security for the costs of the applicant, in the appeal filed by the husband.
The applicant seeks an amount of $37,180 by way of security. The husband opposes that order. Ms Searle (formerly Pencious) (“the wife”) did not appear on the application.
In order to put the application in context, we will set out some history of the proceedings and of the parties.
The Appeal
The husband brings an appeal against orders made by Benjamin J on 28 May 2013 in property settlement proceedings between him, the wife and the applicant, as intervener.
The applicant was joined to the proceedings because the husband asserted that the wife has a beneficial interest in a family trust, the Searle Family Trust (“the family trust”) of which the applicant is the trustee.
The husband asserted that the wife’s equitable interest in the family trust has a present value and the interest ought to form part of the assets of the parties available for division in the proceedings. His Honour rejected that contention. It is worth noting that this dispute was but one part of the wider property dispute between the parties.
The Searle Family Trust
From his Honour’s reasons, it appears that the family trust was created in 1977 and at the same time Searle Holdings Pty Ltd was incorporated. Since that time the wife’s parents have been the sole shareholders and directors of the applicant.
His Honour said that the trust assets, which had not been formally valued, could be worth in the order of $10 million. His Honour found that, but for a disputed loan asserted by the husband to have been made by him to the family trust, all of the assets of the trust had been acquired by the wife’s parents.
From time to time the wife and her sisters have acted as directors of the applicant. The wife occupied the role of director between 1992 and 2012. The wife said, and his Honour accepted at [141], that she took that position to assist her father and, as part of that role, signed documents at his request.
His Honour found that from the time of the creation of the trust, the wife’s parents managed the affairs of the applicant and the trust.
The 1977 trust deed named the wife and her sisters as “specified beneficiaries”. The deed created a discretion as to the distribution of the corpus and contained a provision that the specified beneficiaries took the corpus in equal shares when the trust vested. The vesting day in this deed was 79 years from the date of the creation of the trust.
In September 1984 the trust deed was varied in two ways material to the controversy before his Honour. First, the vesting date was changed to the date of death of either the wife’s mother or father, whichever was the later. The second change provided for the transfer to, and vesting in, the beneficiaries of the trust property.
The material parts of the 1984 trust deed are as follows:
…
B. Pursuant to Clause 1 (f)(i) of the Deed of Settlement the Trustee is authorised with the consent of the Guardian, if there is one, to appoint an earlier Vesting Day than the day specified in the Schedule.
C. The Trustee desires to appoint the date of death of the last to die of [the wife’s father] or [the wife’s mother] as the Vesting Day.
1. THAT the Trustee HEREBY APPOINTS the date of death of the last to die of [the wife’s parents] to be the Vesting Day.
2.THAT the net income of the Trust Fund for the last Accounting Period be divided between; set aside for, and henceforth absolutely belong to the undermentioned beneficiaries in the following proportions : [naming the beneficiaries as to equal thirds] … and that as soon as practicable these amounts be paid to the beneficiaries or to their Guardian.
3. THAT the Trust Fund be distributed to the following beneficiaries absolutely : [naming the wife and her sisters as to equal thirds] … and that as soon as practicable these proportions of the Trust Fund be transferred to and vested in the aforesaid beneficiaries.
The husband relied on clause 3 to support his assertion that the wife had a present interest in the corpus of the Searle Trust fund and that her interest was able to be valued. The husband contended that the effect of the 1984 change to the trust deed was to create in the wife a present, beneficial interest in the trust that will vest on the vesting event. His Honour records the submission made on behalf of the husband that this interest is equivalent to the interest of a residuary legatee and that his Honour should treat the wife as having an irrevocable right to one third of the trust capital.
The wife and the applicant contended that the effect of the 1984 amendment did nothing to alter the essential nature of the discretionary trust established by the 1977 deed and did not create a beneficial interest in the trust property in favour of the wife and her siblings. It was further submitted for the applicant that the clear intention of the 1984 amendment is, as evinced by Recitals B and C, to change the vesting day of the trust and not otherwise to change the interests of the beneficiaries.
The primary judge determined at [140] that the wife had no beneficial interest in the family trust and concluded at [163]:
163. In considering the [Searle] Family Trust, I am satisfied that the wife does not have a fixed and irrevocable entitlement to a share of the trust. Her parents remain as appointors and guardians under the trust deed. The trustees, with the consent of the guardian, remains empowered under the trust deed to change the vesting day, include or exclude general beneficiaries including the wife, vary as to whom the corpus may or may not vest.
His Honour further found:
345. …The trust is such, that if both of the wife’s parents passed away under the current iteration of the trust, there is likely to be a vesting. However, the guardians of the trust are still in place and as such the vesting date can be changed, the general beneficiaries (including the wife) can be excluded, the corpus can be increased or diminished. There is no essential difference between this trust (as it now stands) and having parents with assets who are of full legal capacity. The wife’s interest in the trust is a mere expectancy and a proportion of the corpus of the (sic) may, or may not pass to the wife. …
His Honour determined that the respective entitlements of the parties to their own property should be reflected as to 57 per cent to the wife and 43 per cent to the husband, and he ordered the wife pay to the husband $346,720 by way of property settlement. His Honour further ordered that:
6. Order 1 of these Orders is subject to any order this Court may make to apply all or part of the $346,720 towards any outstanding costs order in favour of the wife against the husband and/or any security for costs order made against the husband.
On 14 August 2013, the primary judge made orders that of the $346,720 that the wife was to pay to the husband, $157,833.79 was to be held by the husband’s solicitor “as additional security for the costs payable but not yet finally determined…”. He also ordered that $100,000 be held in trust pending the quantification of the applicant’s costs of the hearing.
Following an earlier, unsuccessful application by the husband to restrain the wife’s solicitor from continuing to act for her in the matter, Cronin J ordered on 5 April 2012 that the husband pay the wife’s costs of that application on an indemnity basis. On 14 August 2013 the primary judge ordered that of the $346,720 payable to the wife by the husband, $157,833.79 was to be held by the husband’s solicitors as “additional security for the costs payable but not yet finally determined pursuant to [the] costs order made 5 April 2012”. The ordered amount is still held in the trust account of the husband’s solicitor in accordance with the order of 14 August 2013 pending the quantification of the costs sought.
We were informed by counsel for the husband that on the application of the applicant, his Honour, on 14 August 2013, also ordered the husband to pay the applicant’s costs of the trial on a party/party basis. The applicant sought $167,000 by way of these costs. His Honour directed that $100,000 be held in trust pending the quantification of those costs. An appeal has been filed by the husband in relation to the order that he pay the applicant’s costs of the trial.
The application in an appeal filed 14 October 2013
In support of the application the wife’s mother, said in her affidavit also filed on 14 October 2013:
9. Paragraph 355 of the Judgment refers to the property of the Appellant husband or to be retained by the Appellant husband. Other than the sum of $346,720 ordered to be paid by the Respondent wife to the Appellant husband pursuant to the 28 May 2013 orders, of which a total of $257,833.79 has been deducted and is held on trust pursuant to the 14 August 2013 orders as stated in paragraph 7 above, the only substantial asset of the Appellant husband is the sum of $295,000 which funds are in Greece and therefore outside the jurisdiction of the court. The Appellant husband has no other substantial assets in Australia which would be available to satisfy any order for costs which may be made in favour of the [Applicant].
By a further affidavit in support of the application filed on 27 February 2014, the solicitor for the applicant deposes that the husband has in the past appealed costs orders made against him, including the order in favour of the applicant made on 14 August 2013.
The husband, in response raised his impecuniosity, saying that he was in receipt of a disability pension and had no other source of income.
It seems that of the money paid to the husband by the wife pursuant to the orders of Benjamin J, $45,000 is presently held in trust by his solicitors and is subject to an agreement between his solicitors and those of the applicant that it not be disbursed pending the outcome of this application. The balance of the money paid to the husband by the wife was used to pay the husband’s legal costs incurred in the hearing before the primary judge.
Principles governing an Application for Security for Costs
The power to make an order for security for costs is found in s 117 of the Family Law Act 1975 (Cth) (“the Act”). As was explained in Gerber & Bradley (formerly Gerber) and Ors (Security for Costs) [2011] FamCAFC 206 in addition to the matters referred to in the section, it is well settled that pursuant to s 117(2A)(g) the following matters should be considered:
·the prospect of success of the litigation (relevantly the husband’s appeal);
·whether the claim for security is made bona fide;
·whether or not an order for security would stifle the litigation;
·whether or not the litigation may involve a matter of public importance;
·whether or not there has been a delay in bringing the application for security; and
·whether there would be difficulty in enforcing an order for costs.
(see also Palma & Caleffi and Anor (Security for Costs) [2011] FamCAFC 174)
These factors largely reflect the considerations referred to in r 19.05(2) Family Law Rules 2004 (Cth).
The prospect of success of the appeal
Somewhat boldly, counsel for the applicant argued in his written submissions:
13. The husband was wholly unsuccessful in the proceeding against the [Applicant] and has no realistic prospect of success.
During oral argument on the application, counsel retreated somewhat from that position, arguing that the appeal had “little” or “doubtful” merit.
It is not possible for us to undertake a detailed assessment of the likelihood of success of the appeal for the purposes of determining this issue although we do have his Honour’s reasons, the Notice of Appeal and the parties’ summaries of argument in the appeal.
During the oral argument on the application, it became apparent that the husband’s appeal raised important controversies. For example, as we have indicated, a significant part of the argument before the primary judge concerned the wife’s interest (if any) in the Searle Family Trust and particularly the effect of the 1984 amendments to the 1977 deed.
It is clear from his Honour’s reasons at [145] that the effect of clause 3 of the 1984 deed to which we have already referred was contentious. His Honour continued:
146. [The wife’s mother] said in evidence that the purpose of the 1984 deed was to ensure that upon the deaths of she and her husband, the trust would be distributed between her three daughters in equal shares.
147. The husband contends that the effect of the 1984 deed was that the wife’s purported one third interest in the trust must vest on the death of her parents and that her entitlement upon vesting is both fixed and certain. …
The applicant contended that, to the extent that the terms of the 1984 deed purported to distribute the corpus of the trust to the wife and her sisters they were inconsistent with the purport of the amendment and, were “ineffectual, invalid and misconceived” as his Honour said at [155].
His Honour accepted the submissions of the applicant and found at [159] that “[a]ny earlier vesting of income or the Trust Fund under the 1984 deed is incongruous”.
Thus, it seems to us, that the issue of the effect of the 1984 deed and, in particular, its provision that the trust fund vest in the wife and her siblings absolutely, is far from clear cut. The apparent incongruity between the purport of the amendment to bring forward the vesting date and the clause providing for distribution to the wife and her sisters, of itself does not admit of an easy answer. The argument by the applicant that where the deed made that provision it was “ineffective” is also contentious.
A further, unrelated, issue agitated in the appeal by the husband, is the primary judge’s treatment of a book entry in the applicant’s accounts in which a loan of $121,677 from the husband to the applicant is recorded.
The primary judge at [211] and [212] found that the applicant did not owe that money to the husband, accepting that the entry in the accounts recording the loan was an error. The husband argues that, in the absence of evidence from the applicant’s bookkeeper, his Honour’s findings about that loan could not be supported by the evidence.
We could not say with any certainty that the husband’s appeal is so lacking in merit that it would enjoy no prospect of success.
Whether the claim is made bona fide
While stopping short of asserting that the applicant’s claim for security for costs was not brought in good faith, the husband expressed the view that the applicant was using the application to deprive him of the funds necessary to prosecute the appeal to finality. While, practically, if the application is successful it may have that effect, we are not in the position to determine whether it is brought for that purpose.
Whether an order for security for costs would stifle the appeal
The financial circumstances of the husband are relevant here. He argued that he was impecunious. Although an affidavit of the applicant’s solicitor attempted to “answer” the husband’s affidavit in response to the application, we are content to accept, based on the primary judge’s reasons, that the husband is in receipt of a disability allowance and does not work.
Counsel for the husband submitted, and we accept for present purposes, that the husband has no funds standing to his credit in banks or at all other than the $45,000 held by his solicitors.
It was argued and did not appear to be a matter in dispute that if an order for security for costs was made against that fund, the husband would not be in a position to prosecute his appeal because he would have no funds with which to pay his solicitors.
Whether there has been a delay in bringing the application for security
In this matter, the appeal books have been filed and the parties have complied with directions to file summaries of argument and lists of authorities.
The application for security for costs was brought in August 2013 but regrettably not filed in the appropriate court. The application was subsequently filed in this court in October 2013.
It was accepted between the parties that when the application was filed in October 2013, the appeal books had not then been filed.
The preparation of the appeal had thus been conducted in the shadow of the application for security.
While the bringing of the application was not, in fact, delayed, the effect of now ordering security for costs would potentially be to put all of the cost and expense of the preparation of the appeal to naught, accepting as we do the argument that without the funds standing in his solicitor’s trust account, the husband would not be represented to prosecute the appeal.
Discussion
It seems to us that the prospect of success of the appeal and whether an order for security for costs would stifle the appeal are the most significant considerations. To repeat, we are not in a position to find that the appeal has no prospect of success, and given the husband’s financial circumstances, to order security for costs would be likely to stifle the appeal. It was not suggested otherwise, but it is worth noting that the appeal will involve complicated questions of fact and law which would not readily be grasped by a
self-represented litigant. It would clearly be to the husband’s advantage that he is represented to prosecute the appeal, and for that he needs access to funds.
Given the application for security for costs was argued before a Full Court at a time when, procedurally, the appeal itself was ready to be heard, it seems somewhat unfortunate that the parties’ energies and resources were not better employed in arguing the appeal. See Halsbury & Halsbury [2008] FamCAFC 170 at [34] to [39].
The costs sought to be secured were calculated on an indemnity basis. They must therefore have been sought not only on the assumption that the appeal would be wholly unsuccessful and an order for costs would be made, but also on an assumption that the conduct of the husband was such that it warranted a departure from the usual position of costs being awarded on a party and party basis. While the applicant enjoyed success before the primary judge in its application for indemnity costs, it should not be thought that such an order would be lightly made by a Full Court.
We do not propose to make the order sought and the application will be dismissed.
Costs
To save the parties the time, trouble and expense of a further appearance or preparing written submissions, we sought submissions from the parties on the question of costs of the application.
Counsel for the husband advised that if the application failed then an order for costs against the applicant would be sought however indicated that there was correspondence relevant to the issue which he would wish the Court to consider on any costs application but that it would not be appropriate to do that before the application was determined.
We will thus provide both parties with an opportunity to make written submissions on the question of costs of the application.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 8 April 2014.
Associate:
Date: 8 April 2014
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