Another Layer in Interim Costs Application/Litigation Funding Issues


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Another Layer in Interim Costs Application/Litigation Funding Issues

Does the decision in Seitzinger & Seitzinger [2014] Fam CAFC 244 add a layer of complexity for lawyers and parties in relation to litigation funding?

Litigants in family law, have, as a result of earlier decisions, the ability to ask a Court to Order that a spouse in a superior financial position allocate them some resources (whether from the asset pool or from the income and assets of the superior financial party) so as to fund their legal costs – in order that they can achieve a level playing field in terms of retaining their choice of family lawyer.

Usually and historically, the Court and lawyers primarily have focussed on having a Judge to think about identifying liquid assets or an income stream (eg salary/rents/business income) as possible sources from which provision can be made for the legal costs.

However, in the case of Seitzinger, each of the Federal Circuit Court Judge (who made the initial interlocutory ruling) and the Court of Appeal (who considered an Appeal by the wife on the subject), took the view that it was a reasonable and appropriate step to consider the husband’s proposal of raising a mortgage against the family home so as the Wife could have access to resources which would become available from the loan – for the purposes of retaining lawyers.

The Wife was strongly opposed to mortgaging the home – many people do not like debt once they have paid a home off and perhaps she was thinking ahead about being left with the debt in the settlement – and she wanted to target the Husband’s higher income (a package of about $200,000 per year). But the Husband was already meeting his own needs and servicing negatively geared investments, which he would keep doing until the finalisation of the case.

Both the lower Court and the Appeal Court placed significant weight on the likelihood that the mortgage arrangement proposed by the Husband would be able to be obtained to meet the amount the Wife was asking for, for the funding of her legal costs ($50,000).

On a practical level, the lawyer for the Husband may well have thought that taking this course, would make the Wife practically think and act frugally so as to minimise drawdowns and might encourage early settlement – we certainly would think this given the Wife was physically seeing and making the loan arrangements so as it was “real” as opposed to someone else paying the debts, which removes some of the psychology of going into debt.

For parties and cases in the future, lawyers and parties can expect that an “extra line” of opposition to litigation funding might well be the suggestion that loans should be organised in lieu of placing strain on someone’s income or disposing of or liquidating assets to meet the funding.

It may well be the case that in the “consideration phase” of determining whether to bring a litigation funding application and in the preparation of Court material if you decide to proceed, that you will need to consider making a loan application, asking a spouse to participate in doing so, simply so as to “head off” and “answer” the likelihood of this strategy being adopted against you in Court.

Parties may well need to consider (as is right and proper) whether in lieu of spending money in Court (as the cost of interlocutory applications can be horrendous), a less costly option may be in taking a loan or mortgage.

Food for thought.

Our suggestion is to consider all options in relation to obtaining the funding before asking the Court to Order the funding to be provided. If you consider all of the options and still need funding, then the Court will know you have tried all alternative sources and the ability of an opponent to oppose the Order by offering a seemingly very sensible option of loans, as occurred in Seitzinger, will be removed.

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