Monday, 15 March 2010

Family Court case: extraordinary costs

A recent Family Court case, Stephens and Stephens  is an illustration of the enormous costs that can be incurred when matters wend their way through the system, backwards and forwards. The court commented:

Litigation has now been on foot for almost eight years and has cost hundreds of thousands of dollars in legal costs. No quantification of the public cost is possible, but it must be assumed that it has also been extraordinary.

The case started in 2002 when the wife filed proceedings for property settlement.

The trial was held in 2005 and orders were made for payment to the wife. By this stage, the wife's legal costs were estimated to be about $300,000.

The husband did not like the outcome of the trial and appealed. The matter was appealed to the Full Court then to the High Court. By the time of the High Court judgment in late 2008, the wife's costs were almost $700,000.

In early 2009, the wife engaged in self-help. She entered the husband's home and took $4.42 million in cash. Ex parte orders were made to preserve the money. The money was then banked to the wife's solicitors' trust account.

The wife then made application for enforcement. On the first day of that trial in February, 2009, the husband assigned about $1 million of the frozen monies to the wife. He was allowed to keep $50,000. $100,000 of the monies that the wife received was paid to her lawyers in costs.

That judge, Justice Coleman, ordered that the husband pay about another $1 million to the wife and a further $500,000 for interest. The wife then received that $1.5 million.

The husband was not happy with this outcome, and again appealed. He sought and obtained a further stay. The wife repaid the $1.5 million back to her solicitors.

The Full Court then delivered its judgment on Christmas Eve. The wife must have thought her Christmases had come at last, because the Full Court ordered not only that she receive the $1.5 million, but a further $250,000 as further interest.

The latest manifestation of the case, Stephens and Stephens (Stay Application) was an application by the husband in February for a stay of orders made by the Full Court on Christmas Eve, pending an application to the High Court for special leave to proceed.

The starting point with a stay or freeze application, is to apply to the court immediately when the orders are made, or as soon as possible after that, because otherwise money can be paid out that can't be put back. The husband put the wife on notice on the morning of Christmas Eve that a stay application would be made after judgment was delivered later that morning, but then did nothing until February.

In the meantime, the wife's solicitors paid her the $1.5 million, the balance interest remaining to be paid by the husband. Not surprisingly, this time around the wife bought a home, and invested the balance.

By the time the matter came before the Full Court, the wife undertook to preserve these funds, pending the outcome of the High Court proceedings. The husband sought that the monies paid to the wife be repaid into her solicitors' trust account, an approach opposed by her and, not surprisingly, not adopted by the Full Court:

In summary, in our view, the evidence clearly demonstrates that the Wife currently has more than adequate assets to support the undertaking. In our view, the evidence does not establish that the two matters that were identified in the submissions in support of the application could be described as reckless, wanton or negligent. We are not persuaded that there is evidence that the Wife is a spendthrift or that she would dissipate her assets such that we could infer that she would take steps to put at risk her financial position by incurring significant unsecured liabilities.

The Wife as the successful party is entitled to the benefit of our judgment of 24 December 2009 and a relevant matter is any loss that she may be caused in the event that a stay was granted. In her affidavit the Wife set out in some detail her financial circumstances and what has happened since proceedings were commenced in 2002. Ultimately, in 2009 the Wife acquired a home for her personal accommodation and to enable her to pay the cost she obtained a loan for $1,096,500.00. If the Wife paid interest at the rate of 6.76 per cent then she would be required to pay around $5,500.00 per month. However, in December 2009 the Wife obtained the amount of $1,516,525.80 and used a significant portion of the funds to repay the debt and thus significantly reduced her outgoings. The Wife is in receipt of a salary of $16,000.00 per annum and dividend/interest income.

If the Wife had not received the amount of $1,516,525.80 in late December 2009 she would still have a debt of $1,096,500.00 owed to Westpac Banking Corporation and not have the full benefit of the orders she obtained over four years ago in November 2005.

If the Wife had to repay the amount of $1,516,525.80 she would have to borrow a significant portion of this amount and probably also realise a large portion of her share/cash at bank portfolio. The Wife would have borrowing costs, periodic repayments and reduced dividend/interest income. We observe that no suggestion was made by the Husband that, either in his personal capacity or as trustee of the Stephens Trust, he would pay to the Wife any shortfall between the loan repayments and interest on any funds invested by the stakeholders, borrowing costs and the amount of reduced income of the Wife. However, on one view, this is understandable because the Husband and the Stephens Trust do not have the ability to make any payments. In our reasons of 24 December 2009 we explained what the Husband contended he did with the amount of $1,345,219.84 that he received in April 2009 from the funds held by the stakeholders.

In summary, the order sought by the Husband as trustee of the Stephens Trust would cause significant loss to the Wife which could not be compensated for in the event that the special leave application was refused, or if allowed, the appeal was dismissed.

The Full Court dealt with the principles of a stay application:

The mere filing of an application for special leave to appeal to the High Court does not operate as a stay of execution of the orders in respect of which leave to appeal is sought. Further, there are no provisions in the Act or the Rules that directly address the question of a stay of orders of the Full Court pending the determination of an application for special leave. Nevertheless, it is well established that when an application for special leave to appeal is made to the High Court, the jurisdiction to grant a stay may be exercised by the court below and it is to that court (that is, the court in which the matter is pending and which is familiar with the matter) that an application to stay should be made: Fauna Holdings Pty Ltd and McGillivray v Mitchell [2000] FamCA 548; (2000) FLC 93-024; Tate and Tate (No 4) (2003) FLC 93-139. As such, it is not controversial that this Court has the power to grant such a stay.

However, the jurisdiction to grant a stay pending an application for special leave to appeal to the High Court is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted....

In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this Court's discretion. In each case when the Court is satisfied a stay is required to preserve the subject matter of the litigation, it is relevant to consider —first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies.

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