SHELBOURNE & SHELBOURNE
[2019] FamCAFC 196
•4 November 2019
FAMILY COURT OF AUSTRALIA
| SHELBOURNE & SHELBOURNE | [2019] FamCAFC 196 |
| FAMILY LAW – APPEAL – PROPERTY – Where an order pursuant to s 117 of the Family Law Act 1975 (Cth) for a dollar-for-dollar order is made in favour of the wife – Where the primary judge made an order not to discharge the dollar-for-dollar order at the final hearing – Where the husband incurred but did not pay his own legal expenses – Where the final order creates an additional liability for the husband and a corresponding asset for the wife – Where the primary judge erred by failing to consider the impact of the order in the just and equitable division of property – Appeal allowed – Order as to the continued dollar-for-dollar order set aside. FAMILY LAW – APPEAL – COSTS – Where the appeal succeeds on a question of law – No order as to costs – Costs certificate granted. |
| Family Law Act 1975 (Cth) ss 74, 79, 80 and 117 Federal Proceedings (Costs) Act 1981 (Cth) s 6 and s 9 |
| Bennett & Bennett (1991) FLC 92-191; [1990] FamCA 148 Klearchos & Klearchos [2015] FamCAFC 217 Shelbourne & Shelbourne [2018] FamCA 1135 Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466; [2011] FamCAFC 126 Zschokke & Zschokke (1996) FLC 92-693; [1996] FamCA 79 |
| APPELLANT: | Mr Shelbourne |
| RESPONDENT: | Ms Shelbourne |
| FILE NUMBER: | SYC | 4897 | of | 2017 |
| APPEAL NUMBER: | EA | 34 | of | 2019 |
| DATE DELIVERED: | 4 November 2019 |
| PLACE DELIVERED: | Cairns |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Ainslie-Wallace, Ryan & Tree JJ |
| HEARING DATE: | 24 September 2019 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 8 March 2019 |
| LOWER COURT MNC: | [2019] FamCA 122 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Sansom SC |
| SOLICITOR FOR THE APPELLANT: | Fortis Law Group |
| COUNSEL FOR THE RESPONDENT: | Ms Dart |
| SOLICITOR FOR THE RESPONDENT: | Clinch Long Woodbridge Lawyers |
Orders
The appeal EA 34 of 2019 be allowed.
Order 18 of the Orders made 8 March 2019 be set aside.
That there be no order as to costs.
The Court grants to the appellant a costs certificate pursuant to s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant in respect of the costs incurred by the appellant in relation to the appeal.
The Court grants to the respondent a costs certificate pursuant to s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent in respect of the costs incurred by the respondent in relation to the appeal.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Shelbourne & Shelbourne has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 34 of 2019
File Number: SYC 4897 of 2017
| Mr Shelbourne |
Appellant
And
| Ms Shelbourne |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
On 5 December 2018, Loughnan J made an order pursuant to s 117 of the Family Law Act 1975 (Cth) (“the Act”) requiring Mr Shelbourne (“the husband”) to pay the solicitors for Ms Shelbourne (“the wife”) towards her legal expenses in the proceedings, the same sum of money as he may thereafter pay his own solicitors or barristers in respect of any accounts rendered by them (“the dollar-for-dollar order”).
On 8 March 2019 the primary judge made final property settlement orders between the parties, effecting a division of the net pool of property in the proportions of 15 per cent to the wife and 85 per cent to the husband. In addition, at the behest of the wife, his Honour made an order (“order 18”) as follows:
(18)These final orders do not discharge the Orders made pursuant to s 117 of the Family Law Act 1975 by the Honourable Justice Loughnan on 5 December 2018.
The husband appeals the 8 March 2019 orders. Ultimately, he restricted his argument to an assertion that either order 18 was made contrary to principle, or if not, that the consequences of order 18 were not taken into account by the primary judge when assessing the just and equitable division of the parties’ property.
BACKGROUND
The husband is presently 41 years of age; the wife, 37. They commenced a relationship in July 2012, when the wife was then living in the United States of America. In February 2013 the wife and her two sons to a previous relationship moved to Australia, and commenced cohabiting with the husband. In due course the parties married, and their relationship bore another two children. The parties separated in April 2017, since which time all four children have continued to live with the husband.
At trial, the primary judge determined that the net pool of assets of the parties was in the sum of $2,408,700.00.
THE APPEAL
Although by Amended Notice of Appeal of 15 April 2019, the appellant advanced 19 grounds of appeal, many fell away during the course of the argument. Ultimately those which were pressed were as follows:
4.His Honour made order (18) contrary to law, in that he failed to take into consideration, the matters mandated by section 117(2A) of the Act.
5.In the event that His Honour did take into consideration the matters mandatorily required by section 117(2A) then he provided no reasons or insufficient reasons to demonstrate how he did consider the matters set out in that section of the Act.
In the Alternate:
6.His Honour erred in law in failing to determine that the order made by the Honourable Justice Loughnan on 5 December 2018, pursuant to section 117 of the Act, was an interlocutory order which expired upon the making of the final property orders on 8 March 2019.
Alternatively:
7.His Honour erred in law by making a declaration/determination (in order (18) that the “final orders” made by him do not, as a matter of law, discharge an interlocutory order of the nature made by the Honourable Justice Loughnan on 5 December 2018.
8.His Honour erred in law by failing to provide any or adequate reasons for his declaration/determination that his final orders do not discharge the order made by the Honourable Justice Loughnan J on 5 December 2018.
9.His Honour erred in failing to invite submissions from the parties as to the legal basis upon which His Honour could make the declaration/determination which he made in order (18).
In Addition to or In the Alternative
10.His Honour erred in making order (18) and failing to take into account that he was creating an asset for the wife and a liability for the husband which as matter of law and or, the requirement to make a just and equitable order, he was required to do.
11.His Honour erred in law in making order 18 which although ostensibly has the appearance of a section 117 order, was in fact an adjustment of property which is only permitted pursuant to section 79 of the Act.
12.His Honour erred by excluding from his consideration of the parties liabilities the husband's outstanding legal fees of $264,000 (in paragraph 101 to 103) and then by order (18) created a circumstances where the wife would have no outstanding legal fees and the husband would have paid $416,000, none of which was considered by His Honour in making the property orders he made in the same set of orders. Such error created an injustice to the husband which was unintended by His Honour.
…
19.lf despite grounds 1 - 3 the Full Court declines to set aside His Honour's decision not to discharge the dollar for dollar order, His Honour's conclusion that the outcome remained just and equitable (15% property adjustment plus payment of the wife's costs pursuant to the dollar for dollar order) was:
d. Not adequately reasoned by His Honour;
e.Not open to His Honour as a consequence of a failure to consider adequately or at all the impact on the section 79(4) assessment of further adjustment of property from the Appellant to the Respondent pursuant to the dollar for dollar order;
f.Not open to his Honour as a consequence of a failure to consider adequately or at all the fact legal fees owed were already included by His Honour in the calculation of net property, such that making the dollar for dollar order final was to compound error upon error; and
g.Otherwise, plainly wrong and outside a reasonable range in the exercise of His Honour's discretion.
(As per original) (Emphasis removed)
GROUNDS 4 TO 9
Background
These grounds assert that order 18 was either made contrary to established principle, unsupported by the exposure of adequate reasoning, or made without affording the parties procedural fairness.
The precise terms of the dollar-for-dollar order is as follows:
1.That pursuant to s 117 of the Family Law Act 1975:
1.1Within 7 days after any and all future payment(s) by or on behalf of the husband of any money in payment of accounts rendered by the husband’s solicitors and/or rendered by the husband’s barrister(s) and/or of any money in payment of a request made by the husband’s solicitors to hold funds in trust on behalf of the husband (but excluding for the payment by the husband of any single expert fees for which the husband is liable to pay), the husband shall pay or cause to be paid the same sum of money to the trust account of the solicitors of the wife, Clinch Long Woodbridge, on behalf of the wife on account of the wife’s legal costs and disbursements in these proceedings whilst ever the wife remains legally represented;
1.2Within 24 hours after the payment by or on behalf of the husband or any money referred to at Order 1.1, the husband shall cause to be given to the wife’s solicitors a memorandum stating the amount or amounts so paid to the wife’s solicitors;
1.3In the event that the payment referred to at 1.1 is not made within 7 days, the husband shall do all acts and things to direct and instruct his solicitors to forthwith pay 50% of whatever sum is received by the solicitors for the husband from time to time, together with 50% of all funds held on behalf of the husband’s solicitors in their trust account on behalf of the husband from time to time, to the solicitors for the wife on account of the wife’s legal costs and disbursements in these proceedings;
1.4The wife is at liberty to instruct her solicitors to apply all amounts paid by or on behalf of the husband to the trust account of her solicitors pursuant to this Order for the meeting of the wife’s legal costs and disbursements incurred in these proceedings; and
1.5Any and all money paid to the solicitors for the husband by or on behalf of the husband after the making of these Orders, together with all money held by the solicitors for the husband at the time of the making of these Orders, shall not be applied in payment of the husband’s legal costs and disbursements until such time as the same amount has been paid by or on behalf of the husband to the solicitors for the wife pursuant to these Orders.
In his ex tempore reasons delivered contemporaneously,[1] Loughnan J at [15]-[19] discussed the principles relevant to the wife’s application for the dollar-for-dollar order, and at [20], continued:
20.I am going to make the order that is sought. There is no downside to it, because the husband is on notice about the obligation created by the order. If a payment could cause prejudice to anybody, he can ensure that there will be no such payment of his costs. In that event not a dollar needs to be paid under such an order. That is perhaps why these orders have been found to be useful. The result might be that such an order simply stops the flow of funds to the lawyers for one party but it does prevent that appearance of one party having a war chest and the other not having any funds. I will make the orders sought by the wife in relation to the dollar for dollar order.
[1]Shelbourne & Shelbourne [2018] FamCA 1135.
It is not in dispute that since 5 December 2018, the husband has not paid any sum in legal fees, whether to his solicitors or barrister, although they continued to act for him at trial. The primary judge in his findings as to the parties’ assets and liabilities, determined that as at the time of trial, the husband’s unpaid legal fees were in the sum of $152,000.00, and the wife’s were in the sum of approximately $264,000.00.
In her proposed minutes of order tendered at trial on 21 February 2019, the wife sought an order in the following terms:
20. That the dollar-for-dollar order made by the Honourable Justice Loughnan on 5 December 2018 remain in full force and effect until the delivery of judgment in this matter with such order applicable to all fees and disbursements incurred from the date of the order until delivery of judgment, irrespective of when such invoice(s) are rendered and/or paid.
Later in submissions to the primary judge, counsel for the wife confirmed that the wife sought that his Honour “make an order confirming that [the dollar-for-dollar] that order remains in full force and effect, but clarify that it be applicable to all fees incurred from the date of the order till judgment”.[2]
[2] Transcript 22 February 2019, p 243 lines 14 – 16.
In response, counsel for the husband said that “although it’s not in our application, perhaps I should put everyone on clear notice that we’re seeking a discharge of the [dollar-for-dollar] order, and what we suggest, your Honour, it does not go as far as what my friend is urging and it would be most inequitable if that were to occur”.[3]
[3] Transcript 22 February 2019, p 245 lines 16 – 19.
At paragraphs [144]-[149] of the reasons of the primary judge, his Honour said:
144.The [dollar-for-dollar] Order was made in contemplation of the rapidly approaching final hearing of the matter which was then a little over two months away. The Order was directed to “any and all future payment(s)…whilst ever the Wife remains legally represented.” The Order was specifically made pursuant to s 117, as a costs Order. Since the making of the Order both parties have incurred legal fees. The Husband has paid no money into trust or in satisfaction of his outstanding fees since the orders were made, meaning that he has also not made any payment to the Wife in respect of her costs.
145.Following the Husband accruing further liability for legal fees, but not discharging that liability, and prior to discharging that liability, the Husband seeks the discharge of the interlocutory order on the making of final orders.
146.The Order was not the subject of appeal.
147.A basis for its discharge is not made out.
148.The Order has the effect of equalising the position of the parties for a limited period of time. Discharge now would defeat the operation of the Order under the circumstances where the Husband has, as a matter of practical reality, continued to expend money on his legal representation after the making of the Order, even if he has not as yet parted with the money that he owes.
149.One of the effects of this outcome, although I was not addressed in relation to it, is that the future indebtedness of the Wife to her lawyers is reduced, and the Husband’s effective indebtedness is increased. Given that this effect is produced by a costs order, caution should be exercised before undermining that costs order by ameliorating its effect by adjustment of the property. Under those circumstances, and in the context that I was not asked to do so, I decline to make any allowance in the adjustment because of the effects of the costs order. The 15 per cent adjustment continues to reflect a just and equitable disposition of the property.
It can therefore be seen that:
(a)Loughnan J plainly contemplated that the husband might structure his affairs so that he would make no payment of costs prior to the dollar-for-dollar order being discharged;
(b)The wife sought to extend the operation of the dollar-for-dollar order so that it would capture payments of invoices in respect of all fees and disbursements incurred from 5 December 2018 until the delivery of judgment, even if they were invoiced and paid after the delivery of judgment;
(c)The husband sought the discharge of the dollar-for-dollar order; and
(d)The primary judge substantially acceded to the wife’s application, albeit pronounced an order in terms couched differently to those proposed by her.
Grounds 4 and 5
Grounds 4 and 5 assert that in making order 18, either the primary judge failed to consider the matters in s 117(2A) of the Act, or if he did, failed to adequately expose his reasoning referable to them.
A dollar-for-dollar order is but one example of interim orders which oblige a party to fund the legal costs of their opponent, commonly referred to as a litigation funding order. From the authorities, the following principles relevant to such orders can be distilled:
(a)The source of power to make a litigation funding order includes s 74 of the Act (by way of interim spouse maintenance), s 79 and s 80 of the Act(1) (by way of interim property division) and s 117 of the Act (by way of interim costs order);[4]
(b)Different considerations will apply depending upon which head of power is sought to be engaged;[5]
(c)If s 117 of the Act is engaged, then the matters articulated in s 117(2A) are required to be considered,[6] and the Court may make such an order as it considers appropriate, provided there are justifying circumstances.[7] That said, at an interim hearing, findings in relation to all s 117(2A) factors may not be possible; and
(d)Notwithstanding the head of power engaged, often the disparity of resources available to the parties to fund the litigation will be identified as demonstrating a desirability to establish a “level playing field”.[8]
[4] Zschokke & Zschokke (1996) FLC 92-693 (“Zschokke”) at 83,217; Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 (“Strahan”) at 85,633.
[5]Strahan at 85,633.
[6]Zschokke at 83,217; Strahan at 85,633; Klearchos & Klearchos [2015] FamCAFC 217.
[7]Strahan at 85,633.
[8]Iphostrou & Iphostrou and Ors [2011] FamCA 20.
Although superficially, order 18 only extended the operation of the dollar-for-dollar order beyond the period of time which Loughnan J had contemplated it would operate, that belies two fundamental differences between the two orders. The first is that the dollar-for-dollar order operated such that, if the husband’s solicitors were prepared to await payment until the matter was finalised before billing the husband, it may never result in any payment by the husband to the wife’s solicitors, whereas under order 18, non-payment to the wife would only occur if the husband’s solicitors were prepared to wholly forego their fees, a most unlikely situation.
The second is that the dollar-for-dollar order was designed to “level the playing field”[9] in the preparation for, and conduct of, the looming trial, whereas order 18 sought to do so retrospectively, after the trial had completed and the judgment was delivered. Indeed it is difficult to construe order 18 as a litigation funding order at all, as it is properly categorised as a final order for costs, albeit quantified in the sum of the husband’s costs.
[9]Iphostrou & Iphostrou and Ors [2011] FamCA 20.
Given those two significant differences, it is necessary that the justification for order 18 ought to have been fundamentally different from that of the dollar-for-dollar order, including which particular relevant discretionary considerations were engaged, and the weight they deserved.
Plainly in making order 18, the primary judge was exercising discretion under s 117 of the Act. That discretion must be exercised by reference to the considerations in s 117(2A) of the Act. There is no advertence to those considerations in the primary judge’s reasons, and indeed the path of reasoning by which his Honour proceeded cannot be adequately discerned,[10] save that his Honour was of the stated view that not extending the operation of the dollar-for-dollar order “would defeat” it, which given Loughnan J’s reasons for judgment at [20], makes it difficult to see as relevant. It therefore follows that either his Honour did not have regard to the matters in s 117(2A) of the Act, or alternatively, to the extent that he did so, did not sufficiently expose his reasoning as to how he assessed and weighed the matters referred to in the provision.
[10]Bennett & Bennett (1991) FLC 92-191.
These challenges have been made out.
Grounds 6 to 9
These grounds were expressly advanced in the alternative to grounds 4 to 5, and it is therefore unnecessary to determine them.
GROUNDS 10, 11, 12 AND 19
These grounds were advanced in addition or alternatively to grounds 4 and 5. Given that the appeal challenging order 18 will succeed, in which event both parties accept that order 18 should be set aside, and they will then be left to return to the primary judge to seek orders for costs, strictly speaking it is unnecessary for us to go on to consider these additional grounds, however we shall do so briefly.
The gravamen of the complaint raised by them is that, in adjusting the parties’ property interests, the primary judge did not consider how order 18 would impact upon the just and equitable division of the parties’ property. The appellant correctly identifies that the effect of order 18 was to create an additional liability of the husband in the sum of $152,000.00, together with a corresponding asset in that sum for the wife. That asset and liability were not extant at the time of trial, but only arose in consequence of order 18. The authorities are clear that any litigation funding order needs to be taken into account in determining the final property adjustment.[11] The impact of order 18 ought therefore to have been taken into account and recognised in the division of the parties’ property.
[11]Zschokke at 83,214-83,215.
One only needs to compare the final sum which the husband was required to have paid to the wife by way of final property division – $191,305.00 – with the quantum of the husband’s outstanding legal fees, to recognise the materiality of the impact of order 18 on the ultimate financial outcome of the primary judge’s orders. Although the primary judge was cognisant of the relationship between the two, when saying at [149] that “caution should be exercised before undermining that costs order by ameliorating its effect by adjustment of the property” his Honour appeared to be under the misapprehension that the costs liability was extant, whereas it was only being created by his Honour in consequence of the extension of the dollar-for-dollar order by order 18.
In failing to take into account the impact of order 18 when considering the just and equitable division of property, the primary judge also erred.
COSTS
In the event that the appeal succeeded, the appellant did not seek an order for costs against the respondent, but rather both parties sought a costs certificate under the Federal Proceedings (Costs) Act 1981 (Cth). The appeal has succeeded on a question of law. We are satisfied that a certificate should issue to both parties pursuant to s 6 and s 9 of that Act respectively.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Ainslie-Wallace, Ryan & Tree JJ) delivered on 4 November 2019.
Associate:
Date: 4 November 2019
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