Adamson & Korac
[2022] FedCFamC1F 528
•22 July 2022
Federal Circuit and Family Court of Australia
(DIVISION 1)
Adamson & Korac [2022] FedCFamC1F 528
File number(s): SYC 4996 of 2019 Judgment of: CAMPTON J Date of judgment: 22 July 2022 Catchwords: FAMILY LAW – PROPERTY – Application in a proceeding to join the husband’s partner (or former partner) and a company as parties to the proceedings, and to have that company valued by the single expert forensic accountant – Where the wife contends that the husband’s partner (or former partner) operates the relevant company for the benefit of the husband – Where the wife does not presently seek final relief against the husband’s partner (or former partner) or the company – Where the wife’s claim as presently articulated is broad and unspecific – Where the wife ought to amend her relief with sufficient particularity so as to afford the proposed additional respondents the opportunity to understand and respond to her case – Application to amend relief granted – Trial dates vacated. Legislation: Family Law Act 1975 (Cth) s 79
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rr 3.01, 2.50
Cases cited: Ebner & Pappas (2014) FLC 93-619; [2014] FamCAFC 229 Division: Division 1 First Instance Number of paragraphs: 52 Date of hearing: 21 July 2022 Place: Sydney Solicitor for the Applicant: Farrar Gesini Dunn Solicitor for the Respondent: Family Law Practice Australia Pty Ltd Solicitor for the proposed additional respondents: Lander & Rogers ORDERS
SYC 4996 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS ADAMSON
Applicant
AND: MR KORAC
Respondent
order made by:
CAMPTON J
DATE OF ORDER:
22 July 2022
THE COURT ORDERS THAT:
1.By 29 July 2022 the wife shall file and serve:
(a)any Amended Application in a Proceeding as she elects, annexing any proposed Amended Initiating Application that she will seek leave to file pursuant to Pt 2.8 of the Federal Circuit and Family Court (Family Law) Rules 2021 (Cth), specifying with precision the relief she seeks as against the husband and any proposed additional respondent and pleading by way of Points of Claim with the particulars of the relief sought;
(b)An Outline document identifying with precision the paragraphs of her trial affidavit and her affidavit filed on 13 July 2022 relevant to her Amended Application in a Proceeding; and
(c)if required, a single further affidavit restricted to only updating evidence subsequent to 23 July 2022.
2.By 9 August 2022:
(a)the husband shall file and serve:
(i)any Response to an Amended Application in a Proceedings as may be filed by the wife pursuant to these orders; and
(ii)an outline document identifying with precision the paragraphs of his trial affidavit and his affidavit filed on 19 July 2022, relevant to the wife’s Amended Application in a Proceeding; and
(iii)if required, a single further affidavit relating only to updating evidence subsequent to 23 July 2022.
(b)Any additional proposed respondent identified in the wife’s Amended Application in a Proceeding filed pursuant to these orders shall file and serve:
(i)any Response to an Amended Application in a Proceedings as may be filed by the wife; and
(ii)an outline document identifying the material upon which they may seek to rely for the purpose of the hearing of the wife’s Application in a Proceedings; and
(iii)any such affidavit as they consider necessary, noting that no restriction is placed on the material to be relied upon by the said additional proposed respondent.
3.The trial dates listed on 10 and 11 August 2022 are vacated.
4.The wife’s Application in a Proceeding filed 13 July 2022 or any amendment thereto is listed for hearing before me, in person, at 10.00 am on 10 August 2022.
5.Each party’s and any proposed additional parties’ costs of and incidental to the hearing before me on 21 July 2022 are reserved.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Adamson & Korac has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
CAMPTON J:
These are substantive proceedings for property adjustment arising from the breakdown of a marriage between Ms Adamson (“the wife”) and Mr Korac (“the husband”) pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”). That relationship commenced in 1998 and concluded in December 2017 or January 2018.
The proceedings were commenced by way of an Initiating Application filed by the wife on 31 July 2019. They are listed for final hearing before me on 10 and 11 August 2022.
By way of an Application in a Proceeding filed on 14 July 2022, the wife sought to join Ms B and a company, C Pty Ltd (“C Company”), as parties to these proceedings. She also sought an order for C Company to be valued, and for a raft of injunctive and ancillary orders. By way of the husband’s Response to an Application in a Proceeding filed on 19 July 2022 and a Response to an Application in a Proceeding filed on 21 July 2022 by Ms B and C Company, they each seek that the wife’s Application in a Proceeding be dismissed.
The parties identified the material that they relied upon for the purposes of the determination of the wife’s Application in a Proceeding. The wife additionally sought to rely upon written submissions provided to my chambers on 21 July 2022. Ms B filed a Case Outline document and an affidavit together with her Response on 21 July 2022.
At the hearing before me, Ms B withdrew her objections to the subpoenas issued at the request of the wife. The objections were dismissed. Hence, part of the wife’s relief in her Application in a Proceeding fell away.
Background
The parties were married in 1999. They have not yet divorced. They have two children together, Ms X who is now 20 years of age, and Y who is now 17 years of age. The children have lived with the wife since separation.
Between 2009 and July 2020, the husband operated a franchise business, D Company through his company E Pty Ltd (“E Company”). The ASIC search of E Company exhibited to the wife’s affidavit records the husband is the sole owner of the issued shares in E Company.
The wife asserts that she assisted in the operation of D Company during the parties’ marriage. The extent of her involvement is put into issue by the husband.
D Company operated from a leased office premise at F Street, Suburb G. That lease was to expire on 30 June 2022, with an option to renew until 30 June 2025.
In early 2018 the husband renegotiated the lease for F Street, amending it to terminate in June 2020. As part of the negotiation, he was offered a two-year rent-free period in exchange for the shortened lease term. It is the wife’s case that the husband “negotiated the reduced lease knowing that it would give him the option to surrender the franchise”. That is disputed by the husband.
Ms B was employed at D Company from 2011 until mid-2020. She completed a business diploma in 2014. Ms B became the office manager of D Company in 2016 and remained in that position until 2020.
On the husband’s evidence, he and Ms B were engaged in a “personal relationship” between late 2018 and early 2020. In his affidavit filed for the final hearing before me, he records that he moved into Ms B’s property in Suburb H in early 2018. He described Ms B as a “work colleague and friend” at that time. They subsequently lived in a hotel together for one month, before obtaining rental accommodation in late 2018.
The wife puts the termination of the husband’s personal relationship with Ms B into issue. She contends the relationship commenced prior to, and was the cause of, the parties’ separation in December 2017 or January 2018, and that it had continued since that time. She adduced evidence from a private investigator going to this issue of fact. Ms B deposes to her relationship with the husband commencing “in or around May 2018”. This will be a matter for determination at trial.
Between early 2020 and mid-2020 Ms B undertook a process to obtain the D Company franchise. This included lodging an application with K Company, completing various “tests” in March 2020, and incorporating a company. She registered C Company on 2 April 2020 for this purpose. Ms B is the sole director and shareholder of C Company.
On 16 April 2020 Ms B was notified by way of an email from the husband that her employment with E Company would cease on 30 June 2020. On that same date, the husband provided written notice to K Company of his intention to terminate the franchise agreement from 30 June 2020.
Notwithstanding the termination of her employment on 30 June 2020, Ms B continued to work for E Company until September 2020 by “helping [the husband] to wrap up his role as operator of the [Suburb G] franchise” (on her evidence). During this period, Ms B and the husband continued to conduct the D Company business on the F Street premises.
Ms B received a severance package from E Company around the time of the termination of her employment. The payments totalled approximately $153,098.47 (on Ms B’s evidence, including four months’ pay received for the period July to October 2020) or $138,113 on the wife’s evidence. The wife puts into issue Ms B’s entitlement to these payments. Again this will be a matter for trial.
On 22 June 2020, Ms B received approval of her application to become the franchisee of D Company.
One week later, on 30 June 2020, the lease for D Company’s office at F Street concluded.
Three days later, on 3 July 2020, Ms B executed a lease agreement for a property at 2 F Street, Suburb G, on the same road as the existing office leased by D Company. Ms B’s lease commenced on 7 July 2020 for a period of five years.
On 6 July 2020 the husband terminated his franchise agreement for D Company by way of a Deed of Surrender and Release. He relied on a clause in that agreement that provided an option to surrender the franchise if the leased office premises did not extend for the total period of the franchise agreement.
The wife’s Case Outline records her contention that:
23.2Within a day or two of [E Company] ceasing to operate the business, [C Company]… seamlessly commenced the same business.
Less than one month after the husband terminated his franchise agreement, on 4 August 2020, Ms B executed a franchise agreement with K1 Pty Ltd and K2 Pty Ltd for D Company for a period of five years.
Ms B gives evidence of incurring costs for the setting up of her business operations, being:
(a)$7,058 bond payment on the leased office;
(b)$87,100 quoted by a builder for the fit-out of the new office;
(c)$210 to apply for and receive the relevant council approvals;
(d)$27,445 franchise fee to K Company.
The total of these expenses said to be incurred and “solely paid” by Ms B was $121,813. At the hearing before me yesterday, counsel on behalf of the wife sought to draw my attention to the similarity in value of the establishment costs incurred by Ms B and the value of the severance monies paid to her by E Company, and to the husband’s estimated costs of obtaining and fitting out a new office premise given in his affidavit. Any inference drawn or finding of fact made on this issue must be reserved for trial.
It is Ms B’s evidence that the husband was not involved in the establishment of C Company, nor the process she undertook to take over the D Company franchise. It is also her evidence that the husband has no interests in either C Company or D Company, and that no funds have transferred between she and the husband since July 2020, save for her residual salary and entitlements left to be paid after the termination of her employment with E Company.
The wife puts that contention squarely into issue. Her case is that the husband continued to operate D Company, that he continued to attend the office premises to work and that he either earned or should have earned an income from that activity after mid-2020.
The husband for his part accepts that he has some limited ongoing involvement with D Company in a “mentor” role and in that he refers clients to the business. Again, this is a matter for determination at trial.
The parties appointed Mr J as the single forensic accounting expert to value their corporate and trust entities, being the Korac Family Trust, E Pty Ltd, L Pty Ltd and M Pty Ltd, (collectively referred to by Mr J as the “[N Group]”). The valuation was pursuant to a consent order made on 9 December 2020. Mr J produced a valuation report of the parties’ interests in those entities on 20 August 2021, annexed to his affidavit filed on 6 July 2022.
Mr J’s single expert opinion records that E Pty Ltd no longer trades as D Company but “will continue to receive trail commissions from loans written while trading”. He opined a value of the parties’ interests in the N Group as at 30 June 2020 as being a negative value of $284,813, by reason of the “total adjusted book values… being less than the total net loans from the Group to the husband”.
His report further recorded:
37 The value assessed for [E Pty Ltd] includes:
a Amounts owing to the ATO of $400,280 at 30 June 2020 and $522,997 at 31 December 2020;
bSuperannuation payable relating to the Husband and the Wife of $121,320 at 30 June 2020 and $126,148 at 31December 2020. I have not been provided with a breakdown of these amounts between the Husband and the Wife; and
cSuperannuation payable relating to the company’s previous employees of $47,049 at 30 June 2020 and $51,397 at 31 December 2020.
It was not controversial that the N Group was valued on the assumption that the husband had ceased to trade as D Company and hence had “no ongoing interest in the business beyond the trailing commissions payable to him”.
The wife’s application
The wife contends that the husband’s termination of his franchise agreement was not a “legitimate transaction”. The gravamen of her complaint was that at the time that the husband exercised an option to terminate the franchise agreement on 30 June 2020, the business was a profitable trading entity, and that he relinquishing the business in favour of Ms B was in reality an attempt to defeat her s 79 claim. Her case is that Ms B now operates D Company through C Company “for the benefit of the husband”.
At the hearing before me yesterday, the wife submitted that the property available for adjustment was principally the proceeds of sale of a Suburb O property in the sum of $94,071 held in trust by her solicitors, while the husband contended that there was no property for adjustment and that the parties’ net liabilities were greater than the value of their assets in the range of about $300,000. Notwithstanding the wife’s concession as to the modest value of the parties’ property, she currently seeks final relief pursuant to s 79 of the Act for the husband to pay to her $850,000 and that she additionally retain the proceeds of sale held in her solicitor’s trust account. She also seeks periodic spouse maintenance.
The wife conceded in the hearing before me yesterday that her s 79 relief could not be in reality enforced as against the husband unless Ms B and C Company were joined to the proceedings.
Application for leave to amend the wife’s final relief sought
The wife by way her Amended Initiating Application does not seek any orders against either Ms B or C Company. Counsel for the wife accepted that Ms B could not be joined as a party to the proceedings merely for:
(a)the purpose of enforcement of any s 79 relief as presently cast and sought as against the husband alone; nor
(b)ought she be joined merely for the purpose of obtaining disclosure of documents or information.
Both the husband and the proposed additional respondents submit with some force that the case to be prosecuted by the wife is little more than broad speculation, and that her prospects of successfully prosecuting that case are slim.
It was properly conceded by the wife that the case she made against Ms B as articulated in the hearing before me was broad. The contention she makes as to a “sham” is serious and ought to be plainly identified. The consequences of a finding as to sham are well known and need not be recorded at this time in these reasons.
As a matter of fairness Ms B ought to have adequate notice of the case she will be required to meet in the event she is joined to the proceedings, especially in circumstances where the relief sought by the wife seeks may directly affect her rights and interests. Should that be the case, she must have an opportunity to understand and respond to the case presented by way of joinder and have an adequate capacity to adduce relevant evidence on that subject matter.
It is uncontroversial that when seeking to join a third party to s 79 proceedings, there ought to be a formal pleading by way of Points of Claim setting out with particularity the relief sought against that third party and the factual findings underscoring it.
Rule 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) provides that:
A person whose rights may be directly affected by an issue in a proceeding, and whose participation as a party is necessary for the court to determine all issues in dispute in the proceeding, must be included as a party to the proceeding.
The wife’s evidence satisfies the second limb of the Rule, but the current terms of her final relief as currently constructed do not satisfy the first. That is, on the wife’s case as it is articulated, I cannot identify in what way Ms B’s rights will be directly affected by an issue in the proceedings.
In submissions, counsel on behalf of the wife confirmed that he was, in reality, seeking leave to amend his client’s relief so as to seek orders directly affecting Ms B’s interests in a capacity as a party to the proceedings.
Rule 2.50 of the Rules mandates the process to amend substantive relief. It prescribes that a party may amend an Initiating Application after the proceedings have been allocated trial dates only with the consent of the other parties or with leave of the Court. The clear and obvious intention of that Rules is to ensure that, consistent with principles of natural justice, parties have appropriate notice of the case they are required to meet.
The wife has not provided, on my reading of the evidence before me so far, an explanation as to why she agitates the issues as to Ms B and her company now and not at an earlier opportunity in the litigation pathway.
Counsel for the wife conceded prejudice may be occasioned to the husband or the other proposed parties to be joined having regard to the lateness of the application. The wife has had the opportunity to raise these issues for some time and did not do so until about one month prior to the final hearing dates. She did not raise the issue when the proceedings were listed before me for trial management on 23 March 2022. On that date the parties each confirmed that there was no requirement to update the expert forensic accounting evidence as to the value of the parties’ interests in the relevant corporate and trust entities. It was on that basis that the proceedings were listed for final hearing for only two days. The construction of the wife’s case on that date was very different to the case articulated before me yesterday.
That said I am not minded at the present time to, in reality, summarily determine the wife’s case as to Ms B beneficially holding her interests in C Company for the husband. I could not find that such case would have no reasonable likelihood of success as that phrase is understood in the Full Court decision of Ebner & Pappas (2014) FLC 93-619.
In exercising a discretion pursuant to s 79 of the Act the overriding consideration must be to achieve justice and equity between the parties. I am satisfied on the evidence that D Company was a significant income generator of the husband and wife prior to separation, and at separation, formed a significant piece of their property for adjustment. I accept that the disposal of that interest and current legal and beneficial ownership may form a significant issue in the final hearing that would directly engage with the s 79(2) mandate being applied.
Despite the fact that this Court does not operate on the basis of formal pleadings, in the absence of established urgency, any litigant before this Court is entitled to receive fair and appropriate notice of the matters to be agitated before it. In the context of this case, I consider that there ought to be a formal pleading made available by way of Points of Claim setting out with particularity the relief sought by the wife as against the husband and Ms B and the factual findings the wife would ask the Court to make supporting that relief being particularised. That process would include a requirement for the wife to set out with precision the purpose of the joinder proposed.
The currently listed trial dates
Having regard to the matters raised in submissions by the wife yesterday, and the number of witnesses now relied upon by the parties, notwithstanding the optimism of counsel for the husband, I am not satisfied the matter will now be able to be heard and contained in two days. In those circumstances, on my own motion I vacate the trial dates listed before me on 10 and 11 August 2022.
So as to ensure these proceedings are not further delayed, I propose to retain the 10 August 2022 date to hear the wife’s Application in a Proceeding and any amendment thereto in respect of her joinder application.
Counsel on behalf of the wife submitted that she would require 14 days to file her Amended Application in a Case and any supplementary affidavit in support. To ensure that the husband and Ms B have adequate opportunity to respond to such application within a tight timeframe, I will require the wife to file her material by no later than 29 July 2022. The husband and Ms B will thereafter be required to file their additional material, if any, by no later than 9 August 2022.
I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the ex tempore Reasons for Judgment of the Honourable Justice Campton. Associate:
Dated: 25 July 2022
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