Property Division – Paid legal fees – Adding back approximately $437,000 in legal fees

Trevi [2018] FamCAFC 173

Notional add-backs do not offend Stanford. Court’s approach to paid legal fees. Trial judge erred by declining to add back $437,000 paid by wife for her legal fees.

In this case the Full Court heard the husband’s appeal against trial judge’s property order made after a 13-day trial spanning almost 12 months. The case concerned a $9.5 million pool after a 27-year marriage between the husband (a partner in a law firm who earned $30,000 per week) and the wife who was the primary homemaker and parent to their three children (two of whom were adults, the youngest child being 17).

The trial judge rejected the husband’s argument that the wife’s legal fees of $437,000 (funded by an interim distribution from the proceeds of sale of the former home pursuant to a previous consent order) should notionally be added back to the pool, whereupon the husband appealed.

As to the husband’s appeal the Court said:

“Two fundamental premises emerge from Omacini [AJO & GRO [2005] FamCA 195 (FC)] and the authorities preceding it. First, ‘adding back’ is a discretionary exercise. When the discretion is exercised in favour of adding back, it reflects a decision that, exceptionally, in the particular circumstances of a case, justice and equity requires it. The second premise is its corollary: in cases that are not ‘exceptional’ justice and equity can be achieved, not by adding back, but by the exercise of a different discretion – usually by taking up the same as a relevant s 75(2) factor. Indeed, it has been said that the latter is ‘a course which is, perhaps, technically more correct’ than adding back to the list of existing interests in property. …

The Court referred to the propositions emerging from authority that paid legal fees as a category of add-back are instilled with considerations specific to that expenditure saying:

“Paid legal fees occupy a particular position in the consideration of add-backs by reason of s 117(1) of the Act; a matter not relevant to any other form of expenditure or dissipation of property the subject of an add-back claim.”
The Court stating that an order failing to add back legal costs is a pre-emptive decision about one party paying the other’s legal costs. The statutorily prescribed default position is that neither party pays all or some of the other party’s costs.
The Court went on to say that legitimate guidelines ‘guide the exercise of a discretion’; they do not replace it. Guidelines, must ‘[preserve], so far as it is possible to do so, the capacity … to do justice according to the needs of the individual case’ … The decision to add back or not add back paid legal fees remains a matter of discretion. But, a finding that it is just and equitable to not add back an amount of legal fees so paid is a finding that it is just and equitable for the other party to contribute to the costs of the first party in that proportion as part of an overall assessment of the justice and equity governing their property division.
Court stating that if the add-back sought by the husband was made the husband would receive about $175,000 more than his existing entitlement.

In Stanford [2012] HCA 52 the High Court emphasised as fundamental that a consideration of whether it is just and equitable to make a property settlement order begins by ‘identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property’.
The essence of a claim for add-backs is that the asserted sum/s should be added to the value of the existing property interests of the parties and, subsequent to the assessment of contributions, credited to the spending party as part of the value of their assessed entitlements.

Court said that doing so does not offend what was emphasised by the High Court. Adding back does not seek to create property interests that do not exist. Rather, doing so emphasises that satisfying the respective requirements of ss 79(2) and (4) of the Act to do justice and equity can require an ‘accounting’ or ‘balance sheet’ exercise for the purposes of s 79(2) and (4), so as to include the value of the dissipated property or expended sums within the total value of the parties’ existing interests in property, and to credit the value of same against the assessed entitlement of the dissipating or spending party.

The Court concluded:

“Queen’s Counsel for the wife accepted, properly as it respectfully seems to me, that the ‘sole matter’ which her Honour took into account in refusing to add back was the ‘unusual’ fact that the husband’s legal fees were (as her Honour found) absorbed in-house and his costs were effectively restricted to outlays, predominantly it seems, counsel’s fees. … The written submissions filed on behalf of the wife before this Court refer to the likelihood that the husband would not, on her Honour’s finding, need to pay any further legal fees and reiterates the finding as to ‘unusual circumstances’.

I am unable to see how those matters impact upon the discretion in not following an established guideline or, more broadly, how they are relevant to the justice and equity of not adding back approximately $437,000 in legal fees.

Equally, I am unable to see where or how her Honour has considered the fact that not adding back has the effect of having the husband meeting 60 per cent of the wife’s (indemnity) costs in arriving at a decision that is just and equitable. The consideration is, in my view, highly relevant to that ultimate decision. Nor, in my view, has her Honour considered the dollar impact of failing to add back that sum and the consequential impact on the dollar value of the parties’ contributions assessed in percentage terms.

The Court ultimately concluded that trial judge’s discretion has miscarried. So, too, those same matters lead it to conclude that trial judge’s reasons were inadequate in that respect.

The husband’s appeal was allowed and the cash sum payable to the wife ordered to be adjusted accordingly.

Leave a Reply

Your email address will not be published. Required fields are marked *