Family Law Property Settlement: Litigation funding prospects unrealistic where no fund of money is available

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It is a common occurrence for a party to property settlement proceedings, to seek , in terms of section 117  of the Family Law Act 1975, that the other party provide funds to meet the costs of litigation/ representation.  In the case of Strahan & Strahan (2011 FLC 93-466 at 85,635) the full court of the Family Court of Australia, confirmed the criteria in relation to an application for litigation funding:

  • An applicant should have ‘at least an arguable case for substantive relief which deserves to be heard’ (Chester vs. Chester 1995 FLC 92-612 per Moss, J)
  • There should be evidence of the applicant’s ‘likely costs of the litigation’
  • It is not an ‘essential pre-condition’ that the applicant’s legal representative will not continue to act unless the costs are paid or secured on an ongoing basis.
  • An order may make provision for litigation expenses at a rate that appears reasonable in all the circumstances.
  • An order can be made in respect of costs already incurred as well as in respect of future costs.
  • Whether the order is to be in respect of costs already incurred or costs to be incurred and whether the applicant’s lawyers will continue to act in the absence of provision for costs to be incurred, may be relevant to the discretion to be exercised in making the order and identifying its quantum.
  • Any such order should be framed to protect the parties from any risk of injustice arising from the manner in which the funds are expended and this may be done by requiring that the funds be administered solely by the applicant’s solicitors and applied only to meet the expenses referred to in the order, and that detailed records be maintained to permit review by the court at the time of the exercise of its discretion in the substantive property proceedings or on the final determination of the issue of costs.

These issues were given some consideration in the decision of Chatterjee & Woodby-Chatterjee [2015] Fam CA 947(4 November 2015).

Before the court, was an application by the wife, Ms Woodby-Chatterjee against Mr Chatterjee for the payment of the sum of $50,000 towards her legal costs.  The application was opposed by Mr Chatterjee.  The wife relied on section 117 of the Family Law Act 1975 (Cth) (‘The Act’) as the source of power for the making of the order.

The parties had entered into a Binding Financial Agreement (‘BFA’) in 2003.  The agreement was on foot at the time the proceedings commenced.  It provided that on the breakdown of the marriage any joint property is to be divided equally ‘in terms of net value’ between the parties.

In November 2004 the wife and the husband had purchased a property which they used as their matrimonial residence (Former Matrimonial Home). The former matrimonial home was regarded as joint property in the BFA.  The property itself was purchased with mortgage finance from the Westpac Banking Corporation and a mortgage dated 1 December 2004 in the parties’ joint names to Westpac was registered on the title of the property.  An amount of $1,200,000 was provided by the husband’s father Mr Lee  Chatterjee, in order to fund the purchase of the matrimonial home.  The parties executed a mortgage in registrable form to the husband’s father in respect of this advance, which included the provision for payment of interest on the principal sum if so demanded.  Stamp duty was paid on the mortgage.  There was no dispute that the funds were advanced by the husband’s father. However the wife disputed that the money was lent, and she relied on a statutory declaration that was signed by the husband’s father on 10 November 2004 stating that the advance of $1,200,000 was a gift and not repayable at any time.

The parties separated in August 2012.  The husband commenced parenting proceedings in July 2013.  In October 2013 he filed an amended application wherein he sought orders for the enforcement of the BFA and consequential orders that the wife execute a contract for the sale of the former matrimonial home.  In January 2015 the husband’s father instituted proceedings in the Supreme Court of New South Wales seeking to enforce his rights pursuant to the mortgage.  These proceedings were also defended by the wife.  The wife also filed a response to the husband’s application for  enforcement of the BFA, and sought  that the BFA be set aside.

In her response the wife also sought interim litigation funding orders and in particular that the husband pay her the sum of $50,000 to meet the costs of her litigation.

The wife owed her current solicitors the sum of $32,000 and there were unbilled fees in the sum of $22,000 (work in progress).  A further sum of $24,000 was owed to counsel.  The wife deposed that she had been advised that her likely future costs would be in the vicinity of $60,000 to $75,000.  No evidence was given by the wife’s solicitor about how that sum was calculated.  The court viewed that in any event the payment of $50,000 sought by the wife would be insufficient to pay her current debt let alone cover expected future costs.  The court accepted there was evidence of the likely cost of litigation.  The court also observed that if there were a fund of the parties’ money from which the amount sought by the wife could readily be paid, the order sought by the wife would be reasonable. However, there was no such fund.  It had been conceded earlier in the proceedings by both parties that there was no fund of money available to pay the amount sought by the wife in her application for interim costs.  Rather the wife relied on the fact that there was an existing loan facility with Westpac in the parties’ joint names with an available amount in excess of $300,000.  She asked the court to make an order that the husband be permitted to drawdown on the loan facility to pay her legal fees or a portion of them.  The Westpac loan facility was secured against the former matrimonial home.  Any funds paid from this account would accordingly increase the parties’ joint liability pursuant to the mortgage to Westpac.

The court also took the view that there was no evidence that the wife would be left without representation if she did not succeed in her application for litigation funding.  Since the application was for an amount which was less than the current amount outstanding for legal fees and would not address the estimated future costs, it was assumed that the solicitors for the wife would continue to act for her on the basis that there would be sufficient money received by her at the conclusion of the proceedings to cover her outstanding costs.  The court observed that while this factor was not, as outlined by the full court in ‘Strahan’, determinative of the proceedings, it was a relevant factor going towards the exercise of the courts discretion.

Unlike in the exceedingly large asset pool in Strahan, where it was uncontested that the wife in that case would receive the amount sought  by way of interim costs in the property settlement, in this instance the only joint asset of the parties was the former matrimonial home which had a market value of $3,300,000 but was encumbered by a mortgage to Westpac in the sum of $761,000.  In an amended statement of claim filed in the Supreme Court of New South Wales the husband’s father had sought orders that the parties give him possession of the former matrimonial home or alternatively that trustees be appointed for the sale of the property and that the net proceeds from the sale be held in trust pending further order.  In the event the husband’s father was successful in the proceedings in the New South Wales Supreme Court, then the interest on his advance of $1,200,000 since 2004 would be substantial and costs would follow the event.  In these circumstances the court questioned as to how much equity the parties would ultimately have in former matrimonial home and commented that this sum was uncertain if not minimal.  As to the quantum of the wife’s interest in the former matrimonial home, the legal title to the property was held by the parties in unequal shares as tenants in common as to 87.5% to the husband and 12.5% to the wife.  The mortgage to the husband’s father provided that the wife had no personal liability under the security, but  the wife was listed as a borrower on the mortgage and her interest in the former matrimonial home was expressed to be subject to the right of the husband’s father as the lender to exercise the power of sale in respect of that property.

It was contended on behalf of the wife that the husband was able to borrow money from his parents to pay his legal fees and that this was a relevant consideration.  It was her case that, because the husband was able to borrow from his parents, it would be just and equitable that the wife be permitted to borrow from Westpac, increasing the joint indebtedness of the parties.

The husband deposed that he owed a substantial sum of money to his father in relation to money lent to pay legal fees already.  The husband had no capacity to pay his legal fees from his own income.  His borrowings from his father, if accepted, did not increase the joint indebtedness of the parties and remained a liability of the husband alone.  In the circumstances of this case the court did not accept that the husband’s ability to borrow from his parents was an advantage for which the wife could be compensated by permitting her to diminish the available joint assets.

It was also submitted that the husband had recently commenced to pay his rent of $750 a week by drawing from a credit card facility and that the wife should also be permitted to draw from credit.  There was no application by the wife to restrain the husband from drawing $750 per week against a credit facility secured by the former matrimonial home.  How the husband was going to pay all of the outgoings he paid in relation to the wife’s occupation of the former matrimonial home and the costs of the children in addition to his own necessary expenses without drawing from a line of credit was not explained by the wife.  The court did not accept that,  the husband drawing on the credit facility without seeking the wife’s permission, either conferred on the court the  power to authorise the wife to do the same thing or made it just  and equitable that she should do so.  Consequently the wife’s application for litigation funding was denied.

The prospect of success in an application for litigation funding is obviously greater when there is a fund of money available from which to draw. The Court would not permit the use of a credit facility as a source of litigation funding, particularly in circumstances where the matrimonial estate would be further encumbered as in this case.

If you have any questions in relation to litigation funding or any other matters relating to property settlement

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