Orders

That the application for security for costs of the appeal no. NA 3 of 2012 filed on 24 February 2012 be dismissed.

That the costs of and incidental to the application for security in relation to the costs of the appeal be reserved as costs in the appeal.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Fenton & Marvel has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

REASONS FOR JUDGMENT

Introduction

The matter for determination is an application by Ms Marvel, the respondent to a pending appeal, that Mr Fenton, who is the appellant, provide security in the sum of $30,000 for the respondent’s costs in the appeal.

The application is opposed by the appellant.

The proceedings giving rise to the appeal were brought by the appellant in the Federal Magistrates Court seeking a declaration that he and the respondent were in a de facto relationship as defined by s 4AA of the Family Law Act 1975 (Cth) (“the Act”).

Consequent upon a positive finding in his favour, as sought, that he and the respondent had lived in a de facto relationship as defined by the Act, the appellant sought orders for an equal division of property owned by the respondent.

The jurisdiction of the Federal Magistrates Court conferred by section 90SM of the Act to make orders altering the interests of parties in property proceedings who are not married is only enlivened when the court makes a declaration that a de facto relationship exists (s 90RD of the Act).

Section 4AA(2) of the Act sets out a number of factors which the court is entitled to take into account in determining the existence of a de facto relationship and to which such weight as is appropriate can be attached. These are:

the duration of the relationship;

the nature and extent of their common residence;

whether a sexual relationship exists;

(d)the degree of financial dependence or interdependence, and any arrangements for financial support, between them;

the ownership, use and acquisition of their property;

the degree of mutual commitment to a shared life;

(g)whether the relationship is or was registered under a prescribed law of a State or Territory as a prescribed kind of relationship;

the care and support of children;

the reputation and public aspects of the relationship.

Other jurisdictional requirements have to be met. Pertinent to this case is the commencement date of the relevant sections of the Act, namely 1 March 2009. Thus to enliven the jurisdiction of the Federal Magistrates Court to make orders altering interests in property, there must be a de facto relationship which was in existence on or after 1 March 2009.

Section 90SB of the Act enables an aggregation of periods so that the qualifying period of two years can be met, notwithstanding that one or more of the periods occurred before the commencement of the legislation, and some after (Dahl & Hamblin (2011) FLC 93-480).

The respondent denied the existence of a de facto relationship as defined, and the hearing in the Federal Magistrates Court took the form of a preliminary hearing on the issue of whether the court could make a declaration pursuant to s 90RD of the Act.

The Federal Magistrate made various findings of fact and ultimately concluded that the appellant had not established the existence of a de facto relationship as defined and particularly one which was in existence on or after 1 March 2009.

The Federal Magistrate made an order pursuant to s 90RD(1) of the Act declaring that a de facto relationship never existed between the appellant and the respondent for the purpose of the Act and dismissed the application.

The appellant appealed those orders and the respondent now seeks an order that the appellant provide security in relation to the respondent’s costs of the appeal in the sum of $30,000 and that the appeal be stayed until the security for costs is provided.

Each of the parties filed affidavit evidence in relation to the application as well as written submissions, filed both before and after the hearing before us.

The relevant principles in relation to an application for security for costs have been stressed in a number of cases, but are conveniently summarised in Gerber & Bradley & Ors (Security for Costs) [2011] FamCAFC 206, where at [2] and [3] the Full Court (Finn, May and Strickland JJ) said:

2.In the recent decision of the Full Court (Coleman, Thackray and Strickland JJ) in Palma & Caleffi and Anor (Security for costs) [2011] FamCAFC 174 the following principles, which govern an application for security for the costs of an appeal, were set out (adopting what was said by an earlier Full Court (Finn, May and Thackray JJ) in Sawer & Sawer [2007] FamCA 140):

19. The power in this Court to make an order for security for costs is to be found in s 117(2) of the [Family Law Act 1975 (Cth) (“the Act”)], which is in the following terms:

If, in proceedings under this Act, the court is of [the] opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.

20. The provisions of s 117(2A) are as follows (- s 117(4) and (5) are not presently relevant):

In considering what order (if any) should be made under subsection (2), the court shall have regard to:

(a)the financial circumstances of each of the parties to the proceedings;

(b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;

(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

(g)such other matters as the court considers relevant.

21. The authorities establish that in exercising the discretion to order security for costs, it may also be relevant for the Court to consider in addition to the financial circumstances of the parties and the other five specific matters mentioned in s 117(2A), the following matters:

a) the prospect of success of the litigation;

b) whether the claim for security is made bona fide;

c)whether or not an order for security would stifle the litigation;

d)whether or not the litigation may involve a matter of public importance;

e) whether or not there has been a delay in bringing the application for security;

f) whether there would be difficulty in enforcing an order for costs

(Luadaka v Luadaka (1998) FLC 92-830; Jones and Jones (2001) FLC 93-080; Adult Guardian and Mother’s Parents and B and Child’s Representative (2002) FLC 93-116.)

3.Also in Palma & Caleffi (supra) the Full Court set out the following observations made by the Full Court (Finn, Boland and Murphy JJ) in Halsbury & Halsbury [2008] FamCAFC 170; these observations have relevance in the present case:

…

34. Before concluding we take the opportunity to make the following observations regarding applications for security in relation to the costs of an appeal. Such applications appear increasingly to be taking up the time and resources of the litigants and of the Court. The proper place of such applications and the competing rights that lie at the heart of such applications need to be borne in mind by those seeking them.

35. Appeals are a part of our system of law. They operate as part of the proper checks and balances on the actions and decisions of trial judges. Litigants have a right to appeal in circumstances where they, properly and bona fide, allege error on the part of the trial judge (subject of course to the requirements in certain circumstances of leave to appeal being granted). That right to appeal is an important part of our system of law. It should not be fettered except for good reason.

36. The remedy for those who have a basic right to enjoy the fruits of their judgment and who have that right disturbed by an appeal which is ultimately held to be unmeritorious, is to receive confirmation of the right by the dismissal of the appeal, and, frequently, to have their costs met by the unsuccessful appellant. Although it needs to be recognised in this jurisdiction that s 117 of the Act has the potential to impact on the latter part of that remedy.

37. As we earlier indicated, in the present case both parties put before us relatively detailed arguments in support of, and in opposition to, each ground of appeal. Furthermore, in the present case the wife had already demonstrated her bona fides, by having prepared and filed the appeal books on 7 November 2007. Thus the appeal could well have been heard in the Full Court sittings in which the application for security was heard.

38. Indeed, in our view, and with great respect to the husband and those advising him, the hearing before us of the security application at which it should be noted the husband was able to be legally represented, would have been better devoted to the hearing of the appeal itself.

39. It is also important to stress (but without in any way reflecting on the conduct or intentions of those involved in the present case) that applications for security for costs should not be regarded as a method of funding a respondent’s costs of legal representation in an appeal. This consideration should particularly be borne in mind in this jurisdiction where the fundamental rule regarding costs is that contained in s 117(1) of the Act, being that each party pays his or her own costs.

…

In addition to those matters, in the marriage of Luadaka & Luadaka (1998) FLC 92-830, the Full Court referred to section 117(2A) of the Act as to what is required for an application for security for costs to succeed and said at [61]:

It is not necessary to establish that there are special circumstances. However, it is necessary to establish that there are justifying circumstances. The decision to order security for costs is discretionary, both as to whether to order security, and as to the amount to be secured.

Background

As some of the background was relied upon by the respondent in her submissions, it is useful to set out what appear to be relevant and salient background facts.

The Federal Magistrate found that the respondent agreed that she had been in a de facto relationship with the appellant between March 1999 and December 2001, (Reasons for Judgment, [39]) and that she listed amounts totalling $30,000 that had been spent by the appellant on a property owned by the respondent, which she said was a loan.

In mid-2005 the appellant placed caveats on two of the respondent’s properties, property A and property B, and then filed a statement of claim in the Supreme Court of Queensland against the respondent seeking a declaration that he had an interest in the properties. The respondent reached a settlement with the appellant and executed a Deed of Release on 9 February 2006. She made no admission as to the merits of the claim but agreed, in the Deed, to hold on trust a half interest in property B for the appellant.

The Federal Magistrate found that, on the balance of probabilities, the respondent held the belief that there had been a de facto relationship in existence prior to that time and that is why she executed the Deed of Release, even without any admission of facts. His Honour found that there could be no other rational explanation of her act and her case was not that she acted irrationally. His Honour noted that the Deed contained a clause whereby a consent order would be filed in the Supreme Court validating the agreement, which was required so that stamp duty would not need to be paid on the transfer. No consent order was ever filed and no transfer was effected.

Following the dismissal of his application by the Federal Magistrate, the appellant brought proceedings in the District Court of Queensland for realisation of his interest in property B pursuant to Part 19 of the Property Law Act 1974 (Qld), seeking the sale of the property and a division of the proceeds. Given that the appellant had by then filed a notice of appeal in this Court, appealing against the order of the Federal Magistrate, the respondent sought to stay the proceedings in the District Court. The appellant opposed that application. The respondent was successful in that application and a costs order of approximately $9000 was made in her favour.

The appellant has now appealed against the order to stay the proceedings and that appeal is now pending in the Supreme Court of Queensland.

To complete the suite of pending applications, the appellant filed proceedings in the Federal Magistrates Court alleging contempt by the respondent for breach of an undertaking not to increase the mortgage on property B and the issue of costs arising from the Federal Magistrate’s decision is also pending in the Federal Magistrates Court and yet to be determined.

Application for Security for Costs

We turn now to the matters relied on by the respondent in support of the present application for security.

The respondent relied on the financial circumstances of each of the parties to justify her application, submitting that she had no resources available to her, other than her interest in real property, from which to continue to meet legal expenses for this and other litigation which we will detail later. She further contended that the appellant had no apparent source of available funds with which to meet any order for costs if the appeal was dismissed, as she contended was the likely outcome.

She also submitted that the question of costs of the proceedings before the Federal Magistrate was yet to be determined and that in other proceedings in the District Court of Queensland, an order had been made for payment of her costs by the appellant in the sum of approximately $9000 and that those costs remained unpaid. In this respect she contended that the conduct of the appellant in relation to the proceedings was a relevant matter.

The respondent contended that the appellant had been wholly unsuccessful before the Federal Magistrate and that, as a result more, weight could be placed on the impecuniosity of an appellant in applications for security for costs made in the appeal context (see Jones & Jones (2001) FLC 93-080).

The respondent also relied upon offers in writing to settle the proceedings. She contended that she had made a number of reasonable offers to settle the proceedings in the Federal Magistrates Court and although the appellant had made offers, she contended the appellant’s offers were completely unrealistic.

The respondent contended, under the rubric of other relevant matters, that the actions of the appellant in litigating on various fronts, at times in respect of the same subject matter in different courts, and requiring her to defend them, was a relevant matter. This she submitted was particularly so, bearing in mind that, as she contended, she was unlikely to be fully compensated even if she obtained a costs order against the appellant in all jurisdictions.

As to the prospects of success of the appeal, the respondent’s written submissions dealt in considerable detail with what she contended was the lack of merit in this appeal. We need not identify in detail all the arguments for reasons which will become apparent. Suffice it to say that the gravamen of her submissions was that the failure of the appellant’s application for a declaration was as a result of findings of fact by the Federal Magistrate and that an appeal court would give considerable weight to findings of fact and particularly to findings of credit made by the Federal Magistrate.

She further contended that the matters raised on appeal by the appellant were, when considered overall, relatively minor matters in a detailed consideration by the Federal Magistrate of the various facts and circumstances around the relationship between the appellant and the respondent.

Finally, as far as the respondent’s contentions are concerned, she asserted that the effect of an order for security in the sum of $30,000 would not stifle the appeal because, notwithstanding what appeared to be the appellant’s impecuniosity, the appellant had managed to pursue litigation in other courts and it could be inferred that he had the capacity to do so in relation to these proceedings.

The appellant opposed the application for security on a number of grounds. He argued in opposition to the submissions of the respondent that there was merit in the appeal; that the appeal and the original application were bona fide with reference to offers made by him; that the provision of security for costs would stifle the litigation; that he has no capacity to meet that sum; and that he has an interest pursuant to the Deed of Release from which a costs order, if made against him, could ultimately be met.

Conclusion

It seemed to us that the interest of the appellant, pursuant to the Deed of Release, was a significant impediment to the argument by the respondent that she would not be able to recover her costs, if ultimately successful. The effect of the Deed was acknowledged by her at various times, but relevantly in an affidavit sworn in relation to these proceedings on 17 July 2012. At [40] she said:

In 2005 the appellant initiated proceedings against me in the Supreme Court of Queensland claiming a property settlement. I thought these proceedings ended in 2006 when a Deed of Release was signed by Mr [F] and myself.

The Deed provided relevantly:

K.In furtherance of this agreement, it has been agreed between the Releaser and First Defendant that the First Defendant shall hold in trust for the benefit of the Releaser one half of the residential property…[property B] in satisfaction of all claims and costs incurred by the Releaser…

The appellant contended that the proceedings in the District Court, which are at present stayed (the stay being the subject of an appeal), would lead to the realisation of his interest and provide him with funds. In our view this is the most relevant aspect of the proceedings because we agree, as the appellant contends, that if he has an interest under the Deed of Release, then the respondent is not at risk if any order for costs were ultimately made in her favour.

In our view, as there was no obvious, immediate source of funds from which the appellant could pay a lump sum, an order for security could have the effect of stifling the proceedings. The respondent contended that funds were available to the appellant from other family members, but there was no direct evidence of that and she relied on the court drawing inferences from the fact of current litigation. In any event, even if other family members were in some way funding proceedings, the provision of a lump sum for security for costs would require a sum to be paid immediately.

When we raised the issue of the appellant’s interest under the Deed of Release with Counsel for the respondent, Counsel asserted that although the respondent had acknowledged the Deed of Release, it was now her position that she may seek to have it set aside and, if successful, the appellant would not have any capacity to pay her costs.

In support of this submission, Counsel for the respondent drew our attention to the fact that she had foreshadowed this in the District Court proceedings and in the appeal pending in the Supreme Court of Queensland. She had also foreshadowed the possibility of an application to set aside the Deed on the basis that it had been entered into as a result of duress. She took us to her outline of argument filed in the Court of Appeal in Queensland and in particular to [12] of the outline where she said:

The respondent filed an affidavit which took issue with the appellant’s evidence. She swears that the de facto relationship ended in 2001. She challenged the validity of the Deed and swears that it was vitiated by blackmail and coercion.

Thus the argument raised by the respondent is that although she has acknowledged that there is a Deed of Release which was entered into in 2006 giving the appellant, on its face, a half interest in property B – that she intends to bring proceedings to have it set aside on the basis of duress, and if that application is brought and is determined in her favour, then the appellant would have no interest in the land and no capacity to pay costs.

We are of the view that the existence of the Deed and the acknowledged interest of the appellant is a relevant matter in this case. Notwithstanding the submissions of the respondent as to what she might do, and what might happen, both are speculative. The Deed remains in force and no proceeding has been brought to set it aside since it was executed in 2006.

That is how the matter stood at the conclusion of the hearing of the application for security. Subsequent to the hearing, the appellant and respondent agreed between themselves that the Court would be asked to consider brief supplementary submissions together with a correction of a submission put by Counsel for the respondent. We have agreed to accept the supplementary submissions in respect of each of the appellant and respondent, which go to the question of the Deed of Release and consequently the issue we have just addressed, namely an interest held by the appellant that would enable him to meet any order for costs if an order were ultimately made.

The appellant observes in his supplementary outline of argument that notwithstanding the respondent’s stated intention to challenge the validity of the Deed of Release, she must be taken by her actions to have elected to affirm the Deed. This, it is submitted, is because if it is, as asserted, a result of duress it must be voidable at her election and that as she has approbated the contract contained in the Deed of Release since 2006, she “cannot now, some six and a half years later, purport to reprobate it.” The appellant relies upon Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 in this regard.

The respondent asserts that she raised the issue in an affidavit and in an outline of submissions dated 18 March 2012 in a hearing in the District Court of Queensland when opposing enforcement of the Deed by the appellant. It appears from that submission that, if pursued, the respondent would raise a number of matters going to the validity of the Deed, including but not limited to duress. She points to the fact that it was raised in the proceedings in the Federal Magistrates Court and in the outline of argument before the Court of Appeal of Queensland in July 2012. She asserts that if the appeal before this Court is dismissed, a trial would be necessary in which to determine the issues between the appellant and the respondent in the District Court of Queensland, including the validity of the Deed or Settlement Agreement and any relief under Part 19 of the Property Law Act 1974 (Qld). She asserts that it is not for this Court to pre-empt the decision of the District Court or to draw any conclusions on the merit of that proceeding. She asserts that the doctrine of election is not as simple as the appellant contends and that she has at all times acted under a misapprehension that the appellant acquired an interest in her property “by virtue of the Deed” and that she did not know that she could have taken steps to sever the agreement or to have it declared as being null.

It is not our intention to comment on the merits of what is only a prospective action, which we again note might be taken by the respondent because, whatever her intention, it seems accepted that there is not yet any proceeding commenced to set aside the Deed.

The existence, however, of a dispute about the enforceability or validity of the Deed is not crucial to our determination. That is because this litigation still remains speculative, as we have indicated. But in any event, as the respondent herself indicates in her supplementary outline, even if the Deed were set aside, the appellant may still claim relief under Part 19 of the Property Law Act 1974 (Qld). The appellant had brought proceedings which were compromised by the Deed of Release. It was admitted by the respondent that there was a de facto relationship between March 1999 and December 2001. At [39] of the Reasons for Judgment the Federal Magistrate found:

In her evidence-in-chief the respondent agreed that she had been in a de facto relationship with the applicant between March 1999 to December 2001 and she listed amounts of money that the applicant had spent on [property A], somewhere I gather in the vicinity of $30,000.

The respondent asserted that this sum was a loan but the very nature of the admission of the relationship and of some contributions only serves to highlight what we have said, which is that effectively there were proceedings in 2006 brought by the appellant; there was an acknowledgement of a de facto relationship and a financial contribution and the proceedings were resolved by the entering into of a Deed of Release. We remain of the view that the appellant has an interest in land until set aside and for present purposes, in our view, that is sufficient to persuade us that there should not be an order in favour of the respondent for security for her costs of this appeal.

It is notorious that parties settle litigation for many reasons and that occurs whether or not it is accepted that there is merit in the claim. In our view, there is a very long way to go before it could be said with any degree of confidence that the respondent will have the Deed set aside, and a complete dismissal of any claim by the appellant thus removing the appellant’s rights in relation to the property.

In our view, the existence of the Deed means that, at this stage, the appellant does have an interest in land owned by the respondent and the capacity to meet any order for costs that might be made if the appeal is unsuccessful. This, in itself, in our view is a sufficient factor to dismiss the application for security for costs.

That being so, we do not need to deal in any detail with the other arguments advanced by the respondent, particularly those which would require us to consider in any detail the merits of the appeal. We do note however that the arguments as set out in the Notice of Appeal and sought to be explained to us by Counsel for the appellant do not appear to be strong. Further, the particular advantage that the Federal Magistrate has in making findings of fact will no doubt be a significant hurdle to be overcome by the appellant. Nevertheless, if required, we could not have said that his appeal was unarguable.

We also comment briefly on the question of bona fides. The respondent provided copies of offers of settlement made by her that she asserted were reasonable and offers made by the respondent that she asserted were unreasonable. We do not consider them to be as contended. The appellant’s offers were admittedly premised on the basis that he has a half interest in property B, and he acknowledged that the first mortgage would need to be discharged. Although he did not acknowledge some other payments which the respondent asserted would have to be allowed to her, we observe that she did not make any counter-offer setting out what she now asserts to us would have been a reasonable position.

It is clear, in our view, that when making offers the parties had an entirely different view of what should be the outcome of the proceedings but, given the existence of the Deed of Release, it is not open in our view to contend that the position taken by the appellant was unreasonable.

For those reasons the application by the respondent for security for costs should fail. We propose to dismiss the application and order that costs be in the appeal.

Finally, we repeat the comments of the Full Court in Gerber v Bradley & Ors (Security for Costs) (supra) by once again emphasising the general lack of utility and overall burden on court resources, and ultimately on litigants’ resources, of applications for security for costs in a jurisdiction where the primary rule is that each party bears their own costs.

This is particularly so when the time taken to hear and determine the security application would be better spent hearing and determining the appeal; see also the observations in Halsbury & Halsbury [2008] FamCAFC 170 and Palmer & Caleffi & Anor (Security for Costs) [2011] FamCAFC 174.

I certify that the preceding fifty-three (53) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 12 September 2012

Associate:

Date: 12 September 2012