ADAMI & ADAMI

[2018] FamCA 927

FAMILY COURT OF AUSTRALIA

ADAMI & ADAMI [2018] FamCA 927

FAMILY LAW – PROPERTY – Interim – Litigation funding – Litigation funding or dollar for dollar order sought – Family Law Act 1975 (Cth) s 117.

FAMILY LAW – PROPERTY – Interim – Injunctions – Where the husband’s expenditure is in dispute and will likely be an issue at trial – Where the existing properties should be maintained – Where the husband has access to a resource that is not available to the wife.

Family Law Act 1975 (Cth) ss 79, 114, 114(1)(e), 117

Medlow & Medlow (2016) FLC 93-692
Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466

APPLICANT: Ms Adami

RESPONDENT: Mr Adami

FILE NUMBER: DNC 521 of 2017

DATE DELIVERED: 16 November 2018

PLACE DELIVERED: Adelaide

PLACE HEARD: Adelaide

JUDGMENT OF: Berman J

HEARING DATE: 9 November 2018

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Farmer

SOLICITOR FOR THE APPLICANT: Withnalls Lawyers

COUNSEL FOR THE RESPONDENT: Mr Barry

SOLICITOR FOR THE RESPONDENT: Darwin Family Law

Orders

1. That the net proceeds of sale for the property situate at B Street, Darwin be paid in the following order and priority:-

   (a)         Discharge Commonwealth Bank loan account #04;

   (b)Payment of any and all sales agents, rates and conveyancing expenses; and

   (c)The balance, if any, is to remain in the trust account of the conveyancer pending further order or upon the written consent of both the husband and the wife.

2. The husband be restrained and an injunction granted restraining him from withdrawing any further funds or expending money from the Adami Business Trust including its interest in:-

   (a)       A Pty Ltd;

   (b)       C Pty Ltd;

   (c)       D Pty Ltd;

   (d)       E Pty Ltd; and

   (e)       F Ltd as trustee for the Adami Business Trust

   except in the ordinary course of business unless otherwise agreed between the parties in writing NOTING that the injunction does not apply to the husband’s obligation in respect of 1(d)(iv) of orders made 12 February 2018.

3. That paragraph 21 of the wife’s application be dismissed.

4. That within seven (7) days after the payment by or on behalf of the husband of any money paid to the husband’s solicitors they shall cause a memorandum to be given to the wife’s solicitors the amount or amounts so paid.

5. Save and except as to any money borrowed by the husband from a third party credit provider that is not the subject of security over the property of the parties or any entity in which the parties have an interest, all monies paid to the husband’s solicitors shall be held in trust by them and not applied in payment of the husband’s legal costs until such time as the same amount has been paid by or on behalf of the husband to the wife’s solicitors and in the event that such payment to the wife’s solicitors has not been made within seven (7) days after the payment by or on behalf the husband of any amount paid, the husband shall direct his solicitors to pay 50 percent of the amount or amounts so held by them in trust to the wife’s solicitors.

6. The amounts paid by or at the direction of the husband to the wife’s solicitors under these orders shall be applied by them in payment of the wife’s legal costs incurred and to be incurred by the wife in the conduct of these proceedings including but not limited to the reasonable costs:-

   (a)       rendered by the wife’s solicitors in respect of these proceedings;

   (b)rendered by any accountant, valuer or other expert including any other disbursement as may be incurred or engaged by the wife in respect of these proceedings.

7. That the wife forthwith disclose and provide all documents detailing any job application and response to same made by her in 2018.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: DNC 521 of 2017

Ms Adami

Applicant

And

Mr Adami

Respondent

REASONS FOR JUDGMENT

INTRODUCTION 

1. By Initiating Application filed 2 November 2017 Ms Adami (“the wife”) seeks orders by way of property settlement that she receive 65 percent of the property of the parties and that their superannuation interests be adjusted to equality.

2. By his Response filed 7 February 2018 Mr Adami (“the husband”) concedes that the property of the parties and their superannuation be adjusted as to 60 percent in favour of the wife.

3. The proceedings have been listed for final hearing in January 2019.

4. The gravamen of the dispute is to determine the pool of property available for division.

5. The wife considers that the total net pool may be $2.5 million. The husband considers that the wife is unrealistic and that the pool of property may well be as low as $450,000. The wife argues that since separation the husband has not made full and frank disclosure of his financial status and that of the various companies controlled by him and in particular the wife says that there are a number of financial transactions, some of which involve the husband’s business partner that have been cloaked in secrecy. The wife is not able to reconcile her view that at separation the parties were possessed of substantial property which now may have been substantially dissipated by the husband.

6. The date of final separation is February 2017.

7. The wife seeks interim relief in terms of paragraphs 19(c), 20, 21 and 22 to 27 inclusive of her Application in a Case filed 15 August 2018. The balance of the orders sought are either not now pressed or are the subject of consent orders made 24 October 2018.

8. The husband opposes the orders sought by the wife and seeks an order in terms of paragraph 3 of his Reply filed 22 October 2018 that the wife disclose details of any job applications she has made in 2018 and that she shall keep the husband informed of her efforts to secure employment.

9. There is no opposition by the wife to disclosing details of any job applications she has made in 2018 and while I recognise that parties have an ongoing obligation to make disclosure of relevant documents, I do not consider that it is appropriate to make an order that the wife be obliged to “keep the husband informed” of her employment prospects and efforts.

BACKGROUND

1. The parties commenced cohabitation in Victoria in 1999, were married in 2003 and finally separated in February 2017.

2. There are two children of the marriage namely X born in 2005 and Y born in 2008 (“the children”). Parenting arrangements for the children were resolved by final orders made by consent on 9 January 2018.

3. During the course of the marriage the husband worked as a qualified tradesman and was engaged in a business in and around Darwin.

4. The wife assisted the husband in his business ventures by providing administration, bookkeeping and clerical services.

5. The relevant entities are as follows:-

   (1)F Pty Ltd trading as Adami Business Trust

   This is the principal trading entity of the parties. The husband is the sole director of F Ltd. The wife holds two shares and the husband holds eight shares.

   (2)The Adami Business Trust holds the shares in the following entities:-

   (a)A Pty Ltd;

   (b)D Pty Ltd;

   (c)E Pty Ltd;

   (d)C Pty Ltd.

   (3)D Pty Ltd is a company conducted by the husband via 60 shares held by F Ltd and Mr G via 60 shares held by G Pty Ltd.

6. D and its interest in H Pty Ltd operate a business in Suburb J, Victoria. E Pty Ltd operates a business at Suburb K, Northern Territory.

7. The interests of the husband and wife in F Ltd and Adami Business Trust, including their interests in D Pty Ltd and E Pty Ltd have been the subject of single expert valuation.

8. The executive summary as contained in the report considers that the value of the parties interests in F and the Adami Business Trust including its interest in:-

   (a)A Pty Ltd  (“APL”); and

   (b)C Pty Ltd  (“CPL”)

   is a deficiency of $125,458.

9. Relevant to the orders sought by the wife is a determination by the single expert at [1.32] of his report that as at 30 June 2018 F Ltd recorded amounts advanced to its shareholders and their associates totalling $673,884 comprised of the following loans:-

   (a)Adami Business Trust  $345,287

   (b)Mr & Ms Adami (the parties)  $328,597.

10. A convenient summary is contained at paragraph 7.17 of the report:-

    17.7.1.the net assets of [F Ltd] amounted to $656,916, but that its assets included amounts receivable from [the husband and wife] totalling $328,597, hence, on a net basis, their interest in that company has a value to them of $328,319; and

    17.7.2.the net assets of the [Adami] Business Trust amounted to a deficiency of $540,245, but that (after adjustments) the trust was owed $89,665 by [the husband] and indebted to [the wife] for $176,133 respectively, resulting in a net combined sum payable to them of $86,468 which reduced the overall deficiency;

11. The business and its various subsidiaries do not have any commercial goodwill and accordingly the valuation has been based on an asset backing methodology.

12. The single expert also considers that the financial position of the business is precarious and whilst significant income appeared to be generated up to 30 June 2018, a significant downturn was reported for the following three months to 30 September 2018.

WIFE’S APPLICATION

B Street, Darwin

1. Pursuant to paragraph 19(c) of her application, the wife seeks that the balance (if any) of the net proceeds of sale for the property situate at B Street, Darwin (“the B Street property”) be paid to the wife’s solicitors’ trust account. The B Street property forms property of the Adami Business Trust. By orders made 12 February 2018 the husband pays the outgoings in respect of the property. The parties have agreed that the property is to be sold. A single expert valuation as at 16 February 2018 placed a value on the property of $510,000. There is some disagreement between the parties as to the extent of any remaining net proceeds of sale. The wife accepts that the proceeds may be limited or even possibly a loss depending upon the extent of the outstanding mortgage. The husband contends that there will only be a few thousand dollars of net proceeds, if any. The property has not yet sold and has been on the market since January 2018. It is generally conceded by counsel that the Darwin real estate market is depressed and there exists the possibility that the parties may need to consider reducing the proposed sale price of the property in order to effect a sale.

2. Given the trial date in January 2019 I do not propose to make orders as sought by the wife but rather, if the property should sell and settle before trial I will order that any net proceeds of sale be retained in the conveyancer’s trust account pending further order.

Adami Business Trust

1. The wife seeks that the husband be restrained from withdrawing any further funds or expending any further money from the Adami Business Trust and the other related entities, except in the ordinary course of business, unless the subject of agreement between the parties.

2. The wife is deeply mistrustful of the husband. She alleges that he has not been frank in his disclosure of his financial affairs. She contends that he held an undisclosed account with the ANZ Bank.

3. Moreover, she seeks a raft of documents that she considers is necessary for her to understand the husband’s financial dealings, in particular various commercial transactions with Mr G and his company G Pty Ltd. She alleges that the husband has forgiven $600,000 of debt owed by Mr G and his company.

4. The wife highlights the husband’s income as set out in his Financial Statement filed 7 February 2018. By reference to the husband’s CBA account from 19 December 2017, she alleges that he has received payments totalling $205,977.39 plus further advances from his CBA credit card totalling $55,387.

5. The wife has considered the nature of the expenditure as appears on the husband’s credit card and she records significant travel with one trip involving the husband and his partner attending a seminar at a cost of $19,312.84.

6. The wife does not have the same financial resource as the husband and is concerned that the husband’s personal drawings, even if properly recorded, will have the inevitable consequence of reducing money that may be available to assist in giving effect to any final order for property settlement.

7. It is assumed, by reference to the single expert report, that each of the parties are notionally indebted to F pursuant to div 7A of vol 2 part III of the Income Tax Assessment Act 1936 (Cth).

8. A more immediate benefit that can be identified is the husband’s ability to draw funds from F and pay his solicitors.

9. The husband opposes the orders sought by the wife. He refers to the orders of 12 February 2017 and confirms that he pays spousal maintenance to the wife as follows:-

   (a)He provides the wife with a motor vehicle and meets all fuel, registration, insurance, servicing and maintenance expenses;

   (b)Pays the wife her mobile telephone expenses together with the mortgage, insurance, rates and maintenance on her property at L Street, M Town, Victoria with mortgage payments of about $1,300 per month;

   (c)$500 per week by way of cash payment.

10. The husband accepts that his expenditure has been high, however, he attributes it to his expenses and those of the wife, the children and the various properties held by the parties or their various entities.

11. By way of summary, of the approximate total expenditure over the last 12 months of $352,142, only $59,213 is attributable to the husband’s personal expenses with the balance attributable to the wife, the children and the outgoings in respect of properties at N Street, O Street and B Street.

12. The issue of the husband’s expenditure and in particular his personal drawings is likely to remain an issue in dispute and will need to be determined at trial.

13. The parties are a long way apart in terms of their assessment of the extent of the current net property pool. If it is as asserted by the wife then in all probability the orders she seeks are unnecessary. If it is as asserted by the husband then effort needs to be made to preserve what little remains.

14. There is no suggestion that the husband is required to do more than is required pursuant to the order of 12 February 2018. That order does not contemplate that the provision for periodic spousal maintenance in paragraph 1(a) to (d) inclusive is to be paid from the property of the parties. It could technically be paid from the personal drawings of the husband in addition to his salary, but that becomes problematic in circumstances where there exists the potential for a deficiency of value in respect of the various entities.

15. The application of the wife for an injunction falls within the definition of “matrimonial cause” pursuant to s 4(1)(e) of the Family Law Act 1975 (Cth) (“the Act”).

16. Whilst not specifically stated, I assume that the application for injunction is made by reference to s 114(1)(e). The test is whether “the court may make such order or grant such injunction as it considers proper with respect to the matter to which the proceedings relate”.

17. I consider that there is merit in the order sought by the wife. There is no reason why the husband should be permitted to access a resource available to him but not to the wife in circumstances where he considers that the property pool may be modest at best.

18. It is in the wife’s interests to see that over and above the orders for spousal maintenance, the remaining properties are appropriately maintained and if the outgoings exceed the rental income, then an appropriate accommodation will need to be made.

19. The order sought by the wife will be amended to exclude the expenses on the B Street property.

D Pty Ltd and E Pty Ltd

1. As discussed, D Pty Ltd was incorporated on 24 October 2016.  The husband and Mr G are the directors and via their separate entities each hold an equal shareholding. D Pty Ltd operates a business in Suburb J, Victoria. The wife believes that the husband may be intending to sell the franchise and if so she seeks that any net proceeds of sale be held pending further order. The husband confirms at [24] of his Affidavit filed 22 October 2018 that the Suburb J franchise and the Suburb K franchise held by E Pty Ltd are being sold for $225,001 and that the amount will likely be reduced by employee entitlements of $90,000 and some smaller items of expenditure totalling $30,000. There is an outstanding loan to the P Bank (“of between $300,000 and $490,000. The husband asserts that he is a personal guarantor for a loan between E Pty Ltd and P Bank, although he has not apparently discovered the guarantee documents.

2. I am not able to make the order as sought by the wife in circumstances where the interests of P Bank may be adversely affected by any order made. They were not given notice of the wife’s application and to make the order may only serve to exacerbate the proceedings between the parties and potentially involve an unnecessary third party.

LEGAL FEES

1. As at 3 July 2018 the husband concedes that he has paid his solicitors the sum of $41,824. Part of that may well be monies payable to the single expert accountant, but also for the disbursement costs of the valuation of other properties pursuant to the order of 12 February 2018.

2. The wife remains indebted to her solicitors in the sum of $42,001.99. She has no financial ability to pay her legal fees. She seeks an order that either the husband pay her $41,824 being an amount equal to which he has paid his solicitors, or that there be a dollar for dollar order in respect of any future payments made.

3. The husband resists the wife’s application and argues that if a lump sum order is made as promoted by the wife, there is no fund or resource available for it to be paid. The wife counters that argument that if an injunction is made that restricts the extent to which the husband is able to make personal drawings on the business then given the previous history, there should be excess funds available.

4. I do not know whether that contention is likely to eventuate. I am mindful however of the remarks of the single expert that there has been a significant drop in the company receipts for the first quarter of the 2018/2019 financial year. I do not know whether that downturn has continued to the present time.

5. The husband submits that he has no intention of paying his solicitors from any business or company related source or from the parties’ personal assets but rather, intends to borrow money from an arms-length credit provider to pay his legal fees. At [36] of his affidavit he refers to an advice from his accountant that:-

   the business is at a very vulnerable position. If a larger scale job were to lose money or the debtor default the business would need to consider placing itself into voluntary administration in order for you to fulfil your directors duties to ASIC.

6. There is some similarity between the remarks of the husband’s accountant and those of the single expert.

7. Whilst not obliged to do so, the wife’s solicitors have indicated that they intend to continue to represent her through to the conclusion of the proceedings.

8. The power to make an order for litigation funding may be considered either pursuant to s 79 of the Act by way of interim property distribution, or s 117 of the Act by way of utilising the costs power.

9. The decision of Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 is a well-known authority of the Full Court that deals with orders providing for the interim distribution of property pending a final hearing.

1. There are essentially two stages to the consideration of an application for an interim property order:-

   (1)The first stage is a “procedural step” which requires an analysis of whether the circumstances of the case trigger the Court’s power to invoke section (80)(1)(h) to make an order for interim property settlement before a final hearing. At this stage, “the overarching consideration” is the interests of justice.[1]

   (2)The second stage is the “substantive step” where the provisions of s 79 must be considered and applied but with limitations, given that it is not the final hearing.[2]

   [1] Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 at 85,645 [132].

   [2] Ibid at 85,645-46 [135].

2. In Medlow & Medlow (2016) FLC 93-692 at 81,089 the court said:

   The onus was clearly upon [the applicant] to establish that there were sufficient assets available for the interim distribution and that the effect of any interim order was capable of being reversed as part of the final hearing, or at least would not defeat [the respondent’s] property claims. The onus was not on [the respondent] to adduce such evidence.

3. The applicant is required to show more “than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.”[3]

   [3] Ibid at 85,646 [139].

4. The overriding consideration at all stages of the process is that the Court is satisfied that it is “just and equitable” to make the order in the circumstances of the case.

5. If the order is to be made pursuant to s 117 of the Act then the provisions of that section need to be considered and if relevant applied.

6. Whilst I consider that there is merit in the wife’s application for funds to enable her to be represented to a level equal to that of the husband, I am at this stage not satisfied that she has discharged her obligation to provide some evidence as to the source of the funds that she seeks and that if an order is made the husband will be able to comply.

7. The parties will both have representation at the trial. I am satisfied that the wife will not be prejudiced given the current indication of her solicitors. If that situation changes however, then further consideration may need to be given to the sale of remaining assets if necessary to ensure that the parties are appropriately represented.

8. I do not propose to make the lump sum order as sought by the wife but will make the dollar for dollar order save and except that it will not apply to monies borrowed by the husband providing there is no security required by the credit provider over any of the assets of the parties or any entity in which the husband, the wife or any entity controlled by them, holds an interest.

9. I make orders as appear at the commencement of these reasons.

I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 16 November 2018.

Associate:

Date:  16 November 2018