Widmann & Widmann - [2016] FamCA 1164

FAMILY COURT OF AUSTRALIA

WIDMANN & WIDMANN

[2016] FamCA 1164

FAMILY LAW – PROPERTY – INTERIM – Partial property settlement – Application by the wife for interim relief in the amount of $80,000 to be applied towards her legal costs – Classification of payment as costs or partial property settlement – Where the husband opposes the wife’s application but would prefer such a payment be made pursuant to s 79 rather than s 117 of the Family Law Act 1975 (Cth) – Where the wife has previously received an interim costs order – Where the net assets are held by the husband – Order made that the husband cause payment of $80,000 to the wife by way of partial property settlement to be applied towards the wife’s legal costs.

Family Law Act 1975 (Cth)

Harris and Harris (1993) FLC 92‑378
Medlow & Medlow (2016) FLC 93-692
Stanford v Stanford (2012) 247 CLR 108
Strahan & Strahan (Interim property orders) (2011) FLC 93-466

APPLICANT:

Ms Widmann

RESPONDENT:

Mr Widmann

FILE NUMBER:

SYC

2334

2012

DATE DELIVERED:

16 December 2016

PLACE DELIVERED:

Sydney

PLACE HEARD:

Sydney

JUDGMENT OF:

Loughnan J

HEARING DATE:

16 December 2016

REPRESENTATION

SOLICITOR FOR THE APPLICANT:

Ms Balafas
Rockliffs Solicitors & IP Lawyers

COUNSEL FOR THE RESPONDENT:

Mr Knox

SOLICITOR FOR THE RESPONDENT:

Pearson Emerson Meyer

Orders

Not later than the close of business on 16 January 2017, unless the parties otherwise agree in writing, the husband do all acts and things and sign all documents necessary to cause a payment by way of partial property settlement s 79 Family Law Act 1975 (Cth) in the sum of $80,000 to the trust account of the solicitors for the wife, Rockliffs Solicitors, Westpac Bank BSB …Account No …57 to be applied towards the wife’s legal costs associated with these proceedings.
The question of the costs of the parties of and incidental to the proceedings today is reserved.

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 Widmann & Widmann 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).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC2334 of 2012

Ms Widmann

Applicant

And

Mr Widmann

Respondent

REASONS FOR JUDGMENT

These are proceedings in the context of proceedings for settlement of property. I think the property settlement proceedings might have started in 2013. An application was filed by the wife, probably in the Federal Circuit Court, in August of 2013. In the context of those proceedings there is an application in a case filed 6 December 2016, first returnable today, which seeks orders for payment of $80,000, either under s 117 of the Family Law Act 1975 (Cth) or an ambiguous payment, the nature of which would be categorised by the trial judge dealing with the property proceedings, or, in the alternate, an order under s 79, which expresses the Court’s power to change interests in property.
There had been an earlier hearing before me in similar terms in April 2016 and this is a further application. In fact, I think, when the application was filed, it was listed for mention today. That was not endorsed on the service copies of the application and the husband has come along, he has responded and was in a position to argue the case today. It came as something of a surprise to me but not to the parties, that the matter was going to be heard today. In any event, that is what happened. The matter was dealt with on the papers. Submissions were made and I indicated to the parties that I would give reasons today.
The husband opposes the orders in any guise but, if there is to be an order, would prefer that it be made under the powers of the Court under s 79 of the Family Law Act 1975 (Cth). As his counsel indicated, if there is to be a payment applied to the wife’s legal expenses, the husband wants it to be from the funds of the wife. I do not suppose that will stop his counsel arguing that I did not have any power under s 79 to make the order in the first place, but that is the nature of the beast.
It is not necessary for me to decide the extent of the power available under s 117 to deal with these matters. The various authorities over the years have canvassed potential sources of power for making orders in the nature of interim costs and s 117 has been mentioned, as has the power of spousal maintenance and the power under s 79. The difficulty with making an order and not identifying a power, not categorising the nature of the payment, is that in a statutory jurisdiction it is impossible to explain the reason for making orders without reference to a particular statutory provision.
The device “with the payment to be characterised by the trial judge” is a practical arrangement that has grown into practice so that parties could flag for the final hearing the issue of how the payment should be attributed. In addition to the problem of explaining the reasons for the order, there is a danger in that course in that the payment can be lost in the wash to some extent. I accept that the Court should not be making an order and saying there are a number of powers and one of them will give me the power, so I will make the order. Suffice it to say that there is power in s 117 to make such an order. Costs is a very broad power and appeal courts have generally not sought to constrain the jurisdiction in relation to costs.
The Court has a role in terms of its supervision of the profession and costs is an incidental issue in litigation. Attempts to limit the costs power in some way have been resisted over the years and I will not purport to limit it now. There are an infinite number of matters taken into account in relation to costs orders. That is because there is a catchall provision – “anything else that would be relevant” – but the specific criteria in s 117(2A) are mainly focused at things that would be relevant to the end of a case. They do not assist greatly with prospective orders – except for perhaps the financial circumstance of the parties.
I do not think there is any doubt that the Court can make an order in relation to future costs. An example would be an order for security for costs. In addition, courts regularly make orders about how costs to be incurred will be met. The recent authorities – Strahan & Strahan (Interim property orders) (2011) FLC 93-466 (“Strahan”) is probably the most significant authority – have favoured s 79 as a basis for consideration of interim costs.
The practice has arisen in property proceedings whereby costs obligations in the subject proceedings are omitted from the balance sheet making up the pool of assets. Generally speaking, costs already paid, provided they were not borrowed, are added back to the pool of assets in the first step of s 79 proceedings. In that scenario, what do you do with costs that have been paid by one party for the other in advance? There may be a way of them being added back against the person for whose benefit they were paid. It is not necessary for me to take that approach. This was the first of the options sought by the wife but I do not suppose she will be terribly aggrieved, provided a payment is made, as to the basis for the payment. As I have said, it is the strong view on behalf of the husband that, if there is to be a payment, it should be a payment made under s 79 rather than a payment made under s 117.
At paragraph 132 p. 85,645, the Full Court in Strahan, was dealing with the stages of decision-making in relation to s 79 proceedings. That was a reference to cases in the line of Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143 and other cases where it has been accepted that there is a three or four-stage process of decision-making in relation to property settlement. In Strahan the Full Court said:
In relation to the first stage, in our view, when considering whether to exercise the power under section 79 and section 80(1)(h) –
Just stopping there, that is a power from the miscellaneous provision for orders to be made until further order, –
to make an interim property order, the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
In paragraph 133 the Full Court went on:
In Harris at 79,930 the Full Court gave some examples of circumstances where it may be appropriate to exercise the power being “where both parties agree to the disposal of some assets pending the trial” and “urgent situations” to avoid injustice. Another example is where, as in this case, one party requires funds to assist in defraying the costs of litigation without which funds an injustice may be caused.
This is a case where I have already made an order in this style. Suffice it to say that there is a power to make the order. The problem in this case comes in relation to something that arises from Harris[1], and that is the idea that you would not do something on an interim basis that could not be undone on a final basis. In simple terms, an example would be, if somebody’s property entitlement overall is for $100 and, on an interim basis, they are given $110, then if the purpose of the advance is that they are going to spend $110 on their legal fees, it may be difficult to claw back the additional $10. There is a complication that arises from a decision of Medlow & Medlow (2016) FLC 93-692, which is a Full Court decision in relation to a decision of mine whereby the Court placed particular emphasis on the issue about the first stage of the proceedings, a stage that has come to light following a case of Stanford v Stanford (2012) 247 CLR 108 (“Stanford”) and some cases since. There it was found that in advance of the three or four step process, there is an earlier step which is: should there be any property settlement at all. In Stanford it was decided that the legal and equitable interests in property should be identified and an assessment made as to whether any adjustment is warranted. In Stanford it was decided that the way in which the parties held property was appropriate and there was no basis for any change of property interests.
[1] Harris and Harris (1993) FLC 92‑378
In the proceedings before me the parties agree that all of the net assets are held by the husband. The wife has an estimate of $30,000 in assets and $30,000 in debts. The greatest asset in the marriage has come to the husband through inheritance. The concern in Medlow was not just about whether a clawback was possible but the question arose as to whether a party’s claims could be satisfied from assets in their own name, if the interim order was made.
The exercise of discretion in relation to s 79 on an interim basis must be performed in a conservative way. Many things can happen between the date of an interim order and final trial. The pool could change. There is usually a legitimate or permissible range of outcomes in findings about contributions and adjustments and in terms of the way in which the settlement is ultimately expressed.
When exercising caution about interim orders, one takes into account what might happen in an ultimate property decision if all of the arguments by a party were accepted on contributions, adjustments or in relation to the overarching just and equitable format of the orders, or whatever. In my earlier judgment in there proceedings I said something about being comfortably satisfied that there would not be less than a certain amount awarded to the wife. She has already received $65,000 under an interim costs order. She is seeking a further $80,000. That is, $145,000. The question for me is whether I am comfortably satisfied that the wife’s claim is no less than that amount?
On behalf of the wife, it is said that the parties started living together on marriage in 1987 and their final physical separation was in 2009. There was a very significant period of cohabitation. There are three children, now all adults. There were contributions made by way of income, by way of parent and homemaker contributions. The wife can point to substantial contributions by her.
The financial and non-financial contributions are made to assets. They are made to acquisition, conservation and maintenance of assets. They can be direct or indirect. In this case, the argument is made that something like $1.5 million was inherited by the husband with practical effect from 2015. That was significantly after the parties separated. The wife will argue that the inheritance came in two tranches. There was an inheritance from the husband’s mother, which was an inheritance as to one third of the title of a property at C Town. That was, in effect, subject to a life estate or a right to live in the property for the husband’s father. The argument would run that some part of the inheritance had vested and the husband, for example, could have borrowed against that or done something with that.
The submission made on behalf of the husband is that there cannot be any practical direct or indirect contribution by the wife to the acquisition, conservation or improvement of the inherited property. The wife will contend that she did some things for her father-in-law. She does not have to file all her evidence about that at this stage. She foreshadows evidence that she visited and took the children with her. She will say that she did some tidying up afterwards. That is a case that will be fleshed out but on any view that does not suggest that she made significant contributions. That said, it may be that a court would find that there has been no direct or indirect contribution by her. Even if there was a gift to both the parties from the family of one of them, unless there is evidence from a donor that it was intended to benefit the other party, that contribution would be seen as a contribution on behalf of the relative.
None of those considerations apply to the contributions to the family - contributions made by a party to the marriage, to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including contributions in the capacity of homemaker or parent. Here there was a long marriage. Contributions were made. I do not think it is the husband’s case that he was the only wage earner and the only parent and homemaker over those years. The court is likely to find that the wife has made a significant contribution.
I accept that the finding about the balance of contribution is going to significantly favour the husband. Then, the court is to take account of paragraphs (d), (e), (f) and (g) of s 79(4), and they deal with:
·the effect of a proposed order on the earning capacity of ether party;
·subparagraph (e) incorporates s 75(2) and that is a menu of items from age, health, financial circumstances, and a whole lot of other provisions that relate to somebody’s current financial circumstances, and matters – factors relevant to their future.
The factors in 75(2) that might be relevant include that, the parties are of an age. They are both, I think, 60 years of age. The husband says that he left his work in 2008, that he was on Centrelink benefits from then until 2015. The husband says that he has some health issues, which presumably were the reason for his retirement early, and he does not anticipate that he will return to the paid work force. The wife has a business which she thinks is worth a modest amount. She also works part time in an administrative role.
The wife says that her business is failing and she is trying to get out of it. As to the parties’ income, the husband has returns from his diminishing invested assets. He says in his Financial Statement today that his income is $543 a week. The wife’s income is about the same. She earns $521 in wages and $77 through her business a week. The business pays $10 per week for her mobile phone. Her total income is $608 per week. She spends $790 a week, including $200 to a landlord. That does not sound like a commercial rent. She runs at a weekly deficit.
The husband spends $1,559 a week. He pays tax – although there is a story about tax – rates, levies, insurance at $20 each. He has four motor vehicles, three of which are projects. He spends, he estimates, $1,000 a week on other living expenses which he does not itemise and that brings his outgoings to $1,559 per week. The parties are going backwards fast. There is the husband’s residential property at Suburb A, on the Central Coast. He started with $1 million in cash and that is now $567,000 in investment shares.
As to the other s 75(2) matters: Neither party cares for infant children or supports anyone else. The wife says she is spending $35 for Mr E’s health insurance. Mr E is the youngest adult child. Neither of the parties is receiving a pension or benefit. As to an appropriate standard of living. That is too hard to assess. I do not have any evidence about the living arrangements during the marriage. As to the ability of a creditor to recover a debt – the most significant debt seems to be that to the Australian Tax Office. Although it is not recorded in the husband’s Financial Statement, the debt is under negotiation. The husband’s $155,000 debt may be compromised to something less than that. That may account for the fact that the debt has been outstanding for years and has not been paid. The effect of the marriage on the parties’ earning capacity is not relevant.
Therefore, there was a greater contribution by the husband and a lesser contribution by the wife. As to adjustments, one might anticipate, if anything, they would favour the wife. It might depend on how the arguments went in terms of contributions. At the extreme case, if for example, the Court dealt with the matter in two pools with the other assets being the subject of equal contribution but the inheritance being 100 per cent contributed by the husband, one would expect, a significant adjustment to the wife.
The point of adjustments is not to even up the imbalance caused by a differential in contributions but in some cases very significant adjustments have been made. There have been cases where a very substantial adjustment has taken the party who made the lesser contribution to a property settlement n outcome in excess of 50 per cent.
There are no limits to the Court’s discretion. It is a matter of the Court identifying an outcome and justifying it against certain. The question here is whether by a conservative exercise of power under s 79, the wife could receive a further –$81,600 – (or $80,000 out of which $1,600 is going to be paid to Mr F for a mediation)? In my view that is a conservative estimate.
I invited the parties to give some thought to a lesser amount but that did not elicit any satisfactory compromise in the matter. It is allowed on behalf of the wife that she would be able to use whatever she receives but she did not resile from the estimates that were provided.
It was also submitted by Mr Knox on behalf of the husband that the wife’s estimated legal fees were too high. That is not obvious. It is not as though there is an upper limit as to what can be spent on family litigation. Here, in total, $145,000 will have been applied to legal costs. That sounds like a significant sum in a case where the wife’s entitlement will not be huge but that depends on what arguments are required, how hard it is to put the case together and what help you get from the other side and so on. I could not say that the estimate is excessive.

Of the estimate of $80,000, $26,000 odd relates to preparation and the cost of counsel. Almost every family law client is signatory to a costs agreement, so the scale of costs is not terribly helpful. The husband gives evidence that he has spent $36,000 - nearly $40,000 on his own costs. Even he, who has access to all of the relevant information, who does not need to issue subpoenas or make any enquiries to learn about his own affairs, has spent a significant sum of money already.
Next there is a question as to whether the estimated costs are a good use of the wife’s money. That is probably a less useful argument under s 79 than under s 117.
The issue about interim costs includes an argument about the exercise of judicial power. It is inherently unfair for there to be litigation between two people with one person not able to be adequately represented. The fact is, if parties cannot reach an agreement, they need to undertake legal work. They need to prepare affidavits, they need to get legal advice, they need to have somebody appear. If that is unevenly done – if that involves, the wife on her own against, in this instance, senior counsel for the husband, there is a risk, with the best will in the world, that the exercise of judicial power can miscarry. One party may not be able to adequately present their case.
It is in the Court’s interest and everyones’ interest that the wife be able to have legal representation. There is a risk that she will have spent an unconscionable proportion of her property settlement on lawyers. That is a risk. The parties are planning to enter into mediation with Mr F. He is a wise practitioner and has been doing this work for a long time. The parties should listen very carefully to him and see whether they can reach an agreement. The wife might be able to avoid incurring $26,000 of fees for counsel and preparation by not having a trial. That would be $26,000 that she can do something else with. The worry is that she might have gone through this exercise and achieve a property settlement with no meaningful award to herself. That would be a disaster from everybody’s point of view.
The irony of property proceedings is that the parties consume the subject matter of the proceedings in deciding how to divide it. This is not commercial litigation where the taxpayer will pay some of the costs. All of the costs are met by the parties. Perhaps that is why 15 per cent or less or parties to family litigation, require a judicial determination. Most people reach agreement and that is what the parties should aim for.

I certify that the preceding twenty seven paragraphs are a true copy of the reasons for judgment of the Honourable Justice Loughnan delivered on 16 December 2016.

Associate:

Date: 3 March 2017