Aitken & Murphy (No 2)
[2012] FamCA 239
•13 April 2012
FAMILY COURT OF AUSTRALIA
| AITKEN & MURPHY (NO 2) | [2012] FamCA 239 |
| FAMILY LAW – PROPERTY - Interim property orders sought – De facto relationship – Priority payment of judgment debt of Victorian Supreme Court – Required discharge of Court Freezing Order – Payment of taxation debt assessed against Respondent, costs and interests payable thereon – Payment of past, present and future legal fees pending hearing – Assessment of financial circumstances of the parties as at commencement of de facto relationship and as at separation – Consideration of s 90SM and s 90SS(1)(h) – Strongly contested interim proceedings, no agreement on facts or contribution – Determination of when a Court should exercise or decline to exercise powers in interim property disputes – Preserving available property for a defended hearing including reversing the order if applicable – Justice and equity of interim property payments and the quantum thereof – Security for costs |
| Family Law Act1975 (Cth), ss 79, 90SF(3), 90SM(1), (3) and (4), 90SS(1)(a),(g), (h) and (i), 117(2A)(g) Commonwealth Evidence Act 1995 (Cth), s 128 |
| Brugman & Marley [2012] FamCA 106 Esdale & Schenk [2012] FamCA 111 Finazzi & Finazzi [2012] FamCA 102 Gabel v Yardley (2008) FLC 93-368 Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 Strahan v Strahan (2011) FLC 93-466 Wenz & Archer (2008) 40 FamLR 212 Zschokke v Zschokke (1996) FLC 92-693 |
| APPLICANT: | Mr Aitken |
| RESPONDENT: | Mr Murphy |
| FILE NUMBER: | MLC | 11907 | of | 2010 |
| DATE DELIVERED: | 13 April 2012 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Young J |
| HEARING DATE: | 13 and 28 March 2012 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Davis |
| SOLICITOR FOR THE APPLICANT: | Barbayannis Lawyers |
| COUNSEL FOR THE RESPONDENT: | Ms Smallwood |
| SOLICITOR FOR THE RESPONDENT: | T J Mulvany & Co |
ORDERS
IT IS ORDERED:
THAT the Application for interim property orders be dismissed.
THAT the question of the payment and quantum of legal costs incurred of and incidental to this hearing be reserved.
THAT the further hearing of the:
(a)reserved costs issues;
(b)obtaining valuations of real and personal property and of the Respondent’s business;
(c)production of documents pursuant to the subpoena and related issues involving the Applicant’s former solicitors, Law Firm 1;
be and are all hereby adjourned for a hearing upon the evidence filed, and further submissions from Counsel, on a date to be fixed before Young J.
IT IS CERTIFIED
THAT pursuant to Rule 19.50 of the Family Law Rules this matter reasonably required the attendance of Counsel for each of the Applicant and Respondent.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Aitken & Murphy (No 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Act.
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 11907 of 2010
| Mr Aitken |
Applicant
And
| Mr Murphy |
Respondent
REASONS FOR JUDGMENT
ISSUE
In an interim property application under s 90SM of the Family Law Act 1975 (Cth) (“the Act”) the Applicant has sought a significant lump sum pursuant to s 90SS(1)(h) to discharge totally a personal judgment liability and a large tax debt both asserted to have been incurred during the relationship, and additionally a sum of $200,000 designated for past, present and future legal expenses and disbursements. The Applicant did not rely upon either s90SE maintenance or s 117 security for costs as a source(s) of power. The hearing was on the papers and without cross-examination and necessitated a careful evaluation within a de facto relationship, and not a marriage situation, of the two-step approach identified by the judgment of the Full Court in Strahan v Strahan (2011) FLC 93-466 and to be applied in all interim property hearings.
ORDERS SOUGHT BY APPLICANT
The Initiating Application was filed on 22 December 2010 and a general adjustment of property interests was then sought without any further particularisation, pending a requested full financial disclosure by the Respondent.
By his Amended Initiating Application filed 9 November 2011 the Applicant sought the following orders:
(i)That the Respondent pay or cause to be paid to the Applicant the sum of $150,000 with such payment to be characterised by the trial Judge as to capitalised maintenance, costs or part property settlement.
(ii)That the Respondent pay or cause to be paid to the Applicant the sum of $307,249 with such payment to be characterised by the trial Judge and be paid in addition to the sum sought at paragraph 1.
By a further Amended Initiating Application filed 13 March 2012, by leave of the Court and with no objection taken by the Respondent, the Applicant then amended his interim orders sought as follows:
(i)That within 30 days of the date of the making of this order the Respondent pay or cause to be paid to [R Pty Ltd] on the Applicant’s behalf the sum of $390,000 in full and final satisfaction of the Terms of Settlement arising from Supreme Court proceedings entered into by the Applicant and [R Pty Ltd] on 9 November 2011.
(ii)That immediately after the Supreme Court Freezing Order dated 7 December 2011 has been discharged the Respondent pay or cause to be paid:
(a)to the Australian Taxation Office on the Applicant’s behalf the sum of $307,249; and
(b)to the Applicant’s lawyers, Barbayannis Lawyers, the sum of $200,000 with such payment to be characterised by the trial Judge at final hearing.
The orders sought in that further Amended Initiating Application as to obtaining updated valuations both of real property and the Respondent’s business interests were not argued in this interim hearing and these reasons for judgment do not address those orders sought. Likewise, the objection which has been taken by the Applicant and his former solicitors, Law Firm 1, to the subpoena issued by the Respondent for production of their client’s file is a matter that was initially intertwined in these proceedings but which I have directed be separated therefrom. I will hereafter separately hear and then deliver reasons for judgment on that subpoena issue.
Counsel for the Applicant, Mr Davis, advised the Court that the sum of $200,000 sought as a payment for the new firm of solicitors now engaged by the Applicant was inclusive of the bill of costs and disbursements rendered by his former lawyers, Law Firm 1, and that, when agreed, their costs and disbursements would be paid so as to obtain the release of the client’s file and to discharge his indebtedness to those former lawyers.
In presenting the submissions of his client, Mr Davis firmly identified that each of the three substantial lump sum payments now sought by his client were applied for upon the basis of an interim property payment pursuant to ss 90SM and 90SS and not as any form of maintenance or costs, including security for costs. There was therefore no requirement to request any future characterisation by the trial judge of any payments made. This concession, or at least the manner in which the Applicant’s counsel structured his client’s case, is a matter of very real significance. It dictated that the Court was not to look at the source of power provided within s 117 of the Act and therefore the discretion as is provided for in s 117(2A)(g), where the Court is permitted to have regard to such other matters as it considers relevant.
The further amended orders sought that the initial lump sum payment of $390,000 (at least) be paid within thirty days. That lump sum was intended to satisfy the orders of the Victorian Supreme Court and thereby discharge its existing Freezing Order so that the further monies could then be paid on behalf of the Applicant to the Australian Taxation Office and to his lawyers.
Mr Davis, on instructions, but without any written document by way of further amended orders, sought on the first day of hearing to outline to the Court a more specific timetable for such payment(s) and focused upon a period of sixty to ninety days, rather than thirty days for the initial payment. He identified the need for security orders to be made in default of payment and thus proposed that three of the units at D Street, Melbourne Suburb 1 (“D Street”) be sold if the Respondent defaulted in payment. There was then no evidence by way of a Certificate of Title or agreed statement of facts as to whether the eighteen units within that D Street complex were individually strata titled and capable of being sold in separate sales. At the adjourned hearing counsel for the Respondent tendered a Certificate of Title which proved the units are registered as a whole, rather than individually, and that document is Exhibit “R1” in the proceedings. Mr Davis wisely elected not to proceed with that particular security but restructured his client’s application to identify a particular and very valuable property in Sydney as security for any default of the Respondent in compliance with the orders that he ultimately sought on behalf of his client.
In any event there was evidence before the Court in the Financial Statement of the Respondent that there is a Commonwealth Bank Commercial Bill Facility encumbering D Street, with a borrowing of $4.5 million. Presumably any proceeds of sale of that property would be required to be paid in reduction of that secured facility.
In his opening, Mr Davis summarised the specific claim of the Applicant in support of each of the three lump sum payments sought, by highlighting the admissions of income and property valuations made in evidence by the Respondent, the pool of assets owned by or acquired during the relationship by one or both of the parties, or jointly, which was now valued at no less than $5 million He asserted, on the basis of the Respondent’s evidence, that in any final determination and division of property and financial assets, the Applicant should be entitled:
to a sum of no less than 25% and no more than 40% of the net asset pool.
Thus for the purposes of this interim property application the substantive argument on behalf of the Applicant was that his likely property division pursuant to s 90SM(1) and (3) of the Act was no less than approximately $1.25 million and perhaps no more than $2 million (calculated on the net pool of $5 million). It was therefore argued that the Applicant should now be paid out the sum of approximately $900,000 sought pursuant to his Further Amended Application, together with costs and interests as assessed and which were required to be paid in addition to the sums required to discharge each of the Freezing Order and taxation liabilities.
In his reply to the detailed oral submissions of the Respondent’s counsel, Mr Davis sought a dismissal of the response and orders sought by the Respondent and generally rejected the accuracy and relevance of the complaints made by the Respondent’s counsel against his client of non-compliance, dishonesty and abusing the process of the court hearing.
AFFIDAVITS RELIED UPON BY APPLICANT
The Applicant relied upon and asked the Court to read in evidence the following affidavits:
(i)his affidavit filed 22 December 2010 and its annexures;
(ii)his affidavit filed 24 June 2011;
(iii)his affidavit filed 9 November 2011;
(iv)his affidavit filed, with the leave of the Court, on 9 March 2012;
(v)his updated Financial Statement filed 9 November 2011;
(vi)the affidavit of his accountant, Ms C, filed 11 August 2011;
I have carefully read and evaluated the evidence in each of those affidavits and listened to the submission of Mr Davis made upon the basis of that evidence. The affidavit of his client’s former solicitor, Ms T, was primarily filed in support of past legal fees and disbursements and would have been more applicable if his client’s application had have been founded upon s 117 as a source of power. In any event there was no specific objection taken by the Respondent to the quantum of those past legal expenses and disbursements and no challenge to the estimate of likely future costs and charges.
APPLICANT’S OUTLINE OF CASE DOCUMENT
The solicitors for the Applicant filed a detailed Outline of Case document dated 5 March 2012 and that document has been recorded in the Court File Index as document No. 49.
That Outline of Case document and its accompanying written submissions were substantially in excess of the limited submission document (5 pages) that I had requested of the parties. The document however contained a detailed chronology of events, a pool of assets, presumably as at the present date and as assessed upon the instructions of the Applicant, and a detailed statement of contributions purportedly made by the Applicant to the acquisition, conservation and improvement of property. However, those contributions and the accompanying
s 90SM(4) considerations are not evidence in these interim proceedings and I have not accepted any of the facts and financial circumstances that are identified in pages 6 - 21 (inclusive) thereof. I stress that I have evaluated the evidence contained in the affidavits relied upon and have listened to the submissions of counsel based upon that evidence.Finally on pages 19 - 22 (inclusive) of the Applicant’s submissions are detailed the reported cases relied upon, primarily the decision of the Full Court of the Family Court in Strahan (supra).
ADDENDUM TO APPLICANT’S OUTLINE OF CASE
On 21 March 2012, and as had been foreshadowed by Mr Davis at the conclusion of the first day of proceedings on 13 March, a further and more considered document containing the final amended interim orders now sought by the Applicant was filed. That filing date was after the Applicant had concluded their submissions, and therefore their case, and at that date the Respondent had commenced to address the court on their submissions. No objection however was taken to that further amended document outlining the final interim orders sought and it was filed and is Court document no. 51 in the Court index.
The orders now sought by the Applicant and which I have therefore determined the hearing upon were:
1.That within 30 days of the date of the making of this order the respondent pay or cause to be paid to [R Pty Ltd] on the applicant’s behalf the sum of $390,000 plus any applicable interest and costs in full and final satisfaction of the Terms of Settlement entered into by the applicant and [R Pty Ltd] on 9 November 2011 so as to enable the Supreme Court Freezing Orders dated 7 December 2011 made against the applicant and [E Pty Ltd] (the Supreme Court Freezing Orders) to be discharged.
2.That by no later than 14 days after the Supreme Court Freezing Orders have been discharged the respondent pay or cause to be paid:
(a) The sum of $320,783.96 to the Australian Taxation Office on the applicant’s behalf (being comprised of an outstanding income tax debt of $219,457.63 and an outstanding GST liability of $101,326.33); and
(b)The sum of $200,000 to the applicant’s lawyers, Barbayannis Lawyers, with such payment to be characterised by the Trial Judge at the final hearing.
3.That in the event that the respondent fails to make any of the payments referred to in paragraphs 1 and 2 of this order within the stipulated time period(s) the respondent, immediately subsequent to any default in respect of any of the payments as referred to in paragraphs 1 and 2 of this order, do all such acts and things and sign all such documents necessary to place the real property known as and situate at [C Street, Sydney Suburb 1] in the state of New South Wales ([Sydney Suburb 1]) on the market for sale by public auction and the sale proceeds of same be applied upon the settlement of the sale of same as follows:
(a) Firstly, to pay all costs and expenses associated with the sale of [Sydney Suburb 1], including but not limited to the real estate agent’s fees, commission, conveyancing and transfer costs;
(b)Secondly, to discharge the mortgage secured against the title to [Sydney Suburb 1];
(c)Thirdly, to make any payments pursuant to paragraphs 1 and 2 of this order that remain outstanding; and
(d)Finally, the balance to be invested in an interest bearing controlled monies account in the joint names of the parties, by the applicant’s lawyers, Barbayannis Lawyers, pending further order of this Honourable Court or an agreement in writing between the parties.
4.That from the date of the making of this order until the date of settlement of the sale of [Sydney Suburb 1]:
(a) The respondent be entitled to receive all rental income from [Sydney Suburb 1];
(b)The respondent pay, or cause to be paid, all rates, outgoings, applicable taxes, expenses and any loan repayments in respect of [Sydney Suburb 1] as and when they fall due;
(c)The parties hold their respective interests in [Sydney Suburb 1] upon trust pursuant to this order; and
(d)The respondent be restrained by injunction from further encumbering [Sydney Suburb 1] without the applicant’s written consent, save and except for the sole purpose of arranging finance to enable the respondent to comply with paragraphs 1 and 2 of this order.
5.That the applicant and respondent forthwith do all such acts and sign all such documents as may be required to obtain sworn valuations (or sworn updating valuations as the case may be) with respect to the following:
(a)[Sydney Suburb 1], registered in the sole name of [Mr Murphy];
(b)The real property known as and situate at [D Street, Melbourne Suburb 1] in the state of Victoria, registered in the name of [B Pty Ltd];
(c)The real property known as and situate at [K Street, Melbourne Suburb 3] in the state of Victoria, registered in the name of [F Pty Ltd];
(d)[Business G]; and
(e)[H Pty Ltd].
6.That for the purposes of the valuations referred to at paragraph 5 herein:
(a)The parties jointly appoint single experts to conduct the valuations and the parties cooperate and provide to the single experts the necessary documents requested by the experts and/or access to real properties in order for the valuations to be prepared as soon as practicable; and
(b)The respondent meet the cost of all of the valuations at first instance, and be reimbursed for half of same by the applicant upon the finalisation of this matter.
7.That there be liberty to apply in respect of the terms and conditions of the sale of [Sydney Suburb 1] as referred to in paragraph 3 hereof.
8.Such further or other orders as this Honourable Court deems appropriate.
BACKGROUND FACTS
Omitting property purchases and renovations, the relevant background facts are as follows:
§the Applicant is 28 years of age;
§the Respondent is 31 years of age;
§in February 2001 the Applicant commenced employment with Business J;
§the Applicant asserted that the parties commenced a courtship in or about December 2004;
§the parties commenced a same sex cohabitation relationship in or about May - July 2005;
§in about March 2009 the parties relocated to and lived in Sydney;
§on 15 January 2010 the parties separated and their relationship was then terminated;
§on 22 December 2010 the Applicant commenced proceedings in this Court;
§in July 2011 the Applicant ceased his employment with R Pty Ltd;
§in October 2011 proceedings were commenced in the Supreme Court of Victoria by R Pty Ltd against the Applicant;
§on 9 November 2011 Terms of Settlement were entered into in those Supreme Court proceedings between R Pty Ltd and the Applicant and subsequently the Applicant defaulted on the Terms of Settlement on or about 21 November 2011;
§on 7 December 2011 an order was made in the Victorian Supreme Court, by way of a Freezing Order, on the assets of the Applicant and an associated corporate and trust entity;
§in December 2011 the Applicant’s former solicitors, Law Firm 1, ceased acting for him;
§later in December 2011 the Applicant appointed the firm of solicitors, Barbayannis Lawyers, to act on his behalf;
§in or about mid January 2012 the Applicant obtained employment with Business L in Sydney, and relocated to live and work in that city.
SECTION 128 CERTIFICATE
On 12 October 2011 the Applicant was granted a Certificate pursuant to s 128 of the Evidence Act1995 (Cth) in respect of the particular evidence given by him willingly in these proceedings and to cover any evidence so given that may have tended to prove that he had committed an offence under Division 2 of the Taxation Administration Act1953 (Cth), s 6 or the Crimes Act 1914 (Cth) and ss 11.1, 11.4 or 11.5 of the Criminal Code1995 (Cth) and only as contained in:
(a)the amended Financial Statement and affidavit fully detailing the applicant’s financial circumstances referred to in order 1 of the Orders of 12 October 2011; and
(b)any further amended Financial Statement and affidavit of the applicant in the s 90SM proceedings.
APPLICANT’S EVIDENCE
The Applicant’s Financial Statement filed 9 November 2011 was relied upon by Mr Davis as disclosing the Applicant’s projected income from his new employment and his property, superannuation and financial resources.
That updated Financial Statement was filed in the week prior to the Applicant commencing employment in his new job with Business L in Sydney. Whilst his income is described as nil there is a statement on page 3, by way of an asterisk reference to paragraph 9 of the document, stating:
My weekly salary, commencing 15 November 2011, will be between $66,000 and $88,000 as my base salary plus superannuation and a percentage of commission. I am currently negotiating my salary.
That statement was in error in referring to weekly rather than yearly salary and Mr Davis corrected the financial disclosure in that regard and there was no objection thereto.
Subsequently, Ms Smallwood highlighted that the Applicant’s evidence as to his weekly salary was most likely untruthful. The contract of employment that he had recently entered into with his employer, Business L, was subpoenaed and tendered in the proceedings as exhibit “R2”. That contract showed a base salary of $105,000 per annum plus superannuation entitlements. I record that it may be, but without cross-examination I do not know, that the final words inserted by the Applicant in that notation in paragraph 9 which said that “I am currently negotiating my salary” reflected ongoing negotiations and that he did in fact negotiate a salary increase to the yearly sum of $105,000. These matters can be determined by further evidence of the parties and cross-examination in the defended hearing.
I have otherwise evaluated the assets and superannuation disclosed by the Applicant and in particular have considered the additional information in Part O of the Financial Statement where the Applicant identified real property purchased during his relationship with the Respondent, the motor vehicle which he currently drives, the furniture and art work acquired and his current financial resources which include a property at I Street, Melbourne Suburb 1 (“I Street”) and an adjoining car park, which is owned in the name of E Pty Ltd as Trustee of the E Trust of which the Applicant is a principal beneficiary but not either a shareholder or director of that corporate entity.
In identifying his claim to an interest in real estate the Applicant referred to two properties purchased during his relationship with the Respondent, namely D Street and C Street, Sydney Suburb 1, New South Wales (“Sydney Suburb 1”). Sydney Suburb 1 is currently registered in the name of the Respondent and D Street is currently registered in the name of B Pty Ltd, a company primarily owned and controlled by the Respondent.
In his affidavit filed 22 December 2010 the Applicant identified what he said were the assets of each party at the time of the commencement of their relationship in about July 2005.
The Applicant asserted that his personal property, resources and liabilities then comprised:
§equity in a BMW motor vehicle of approximately $45,000;
§savings with the Bank of Cyprus of $190,000;
§furniture and chattels valued at approximately $35,000; and
§superannuation entitlements of $25,000.
The savings with the Bank of Cyprus are significant as it is asserted that these were cash monies bought into the relationship and which were expended during that four and a half year relationship. Again, the accuracy of this assertion can only be properly tested in cross-examination and upon the production of further documents, but I nonetheless record that these monies were identified by Mr Davis as a very significant financial contribution made by his client during the relationship.
As to the net value of the property, resources and liabilities of the Respondent at the commencement of the relationship, the Applicant asserted that they were:
§his equity in N Street, Melbourne Suburb 1 (“N Street”) of approximately $200,000;
§his equity in O Street, Melbourne Suburb 1 (“O Street”), owned by a corporate entity controlled by the Applicant, of approximately $150,000; and
§a Range Rover motor vehicle, some furniture and a share portfolio.
What was not included in the Applicant’s affidavit was that a deposit of approximately $200,000 had been paid by the Respondent for the purchase of P Street, Melbourne Suburb 3 (“P Street”).
Additionally, Mr Davis conceded that the Respondent owned and managed his business and it was asserted that it had a then value of approximately $100,000.
In total, therefore, the Applicant’s evidence was that the Respondent, at the commencement of their relationship owned or controlled net assets to a value of approximately $600,000 - $650,000.
The Applicant deposed, in paragraph 10 of that affidavit, that:
From the commencement of our relationship, [Mr Murphy] and I shared our respective incomes, assets and resources. Throughout our relationship my income was primarily applied, by [Mr Murphy] and I, towards entertaining, day to day operations of our household, interstate and overseas travel, pet care, groceries, memberships, vehicle maintenance costs, insurances and other day to day living expenses. [Mr Murphy’s] income was primarily applied towards interest repayments, capital purchases and reinvested into his business.
I have highlighted the above paragraph because it is an overview of the evidence of contribution which the Applicant has relied upon in these interim proceedings. I hereafter have considered the Respondent’s evidence and clearly there is a denial by him of the evidence of contributions alleged by the Applicant. Indeed, the affidavits of the parties are significantly in conflict and much of the evidence of contributions, both financial and non-financial, and of other considerations are all under challenge. Thus a considered evaluation of the alleged contributions of the parties and an overall assessment of what is a just and equitable interim order is required, but wholly subject to my determination of the first question posed by the Full Court in Strahan (supra), that is whether there should indeed be an interim property hearing or whether all of the property division issues of the parties should be heard and determined in one final hearing. In order however to fairly and properly determine that first question, it is necessary to understand and evaluate the evidence in the proceedings and the appropriateness and practicality of ordering each of the payments sought and the justice or otherwise of those payments being required at this preliminary stage of these very strongly contested and opposed proceedings.
What I immediately highlight is that these interim proceedings were heard upon the papers and the submissions of counsel and there was no, and should not have been, any opportunity for cross-examination of the parties or their witnesses.
In February 2005 the Respondent purchased the P Street property for a sum of approximately $2.1 million. The Respondent’s father guaranteed the loan required to purchase the property, of approximately $1.9 million and thus there is now a concession by the Applicant that the Respondent had paid an approximate deposit of $200,000 and that the property was therefore an asset held in the Respondent’s name as at the commencement of the relationship.
The Applicant deposed in paragraph [12] of his affidavit that he located and inspected that property, suggested its purchase to the Respondent and was substantially involved in its purchase, other than in its financing. The Applicant acknowledged that it was his likely intention to live with the Respondent in a relationship in that property after its settlement, and indeed the parties commenced residing in that property from about late May and were in a relationship from mid-2005 on the evidence of both parties.
During the relationship there was undertaken a substantial renovation of P Street which took approximately five months and cost some $900,000. The renovation was purportedly funded by an increase in the mortgage secured against title to that property, but it is not suggested that the Applicant made a financial contribution thereto.
The Applicant particularised in some detail in paragraphs [17] - [26] of his affidavit his purported contributions to the renovation and to the upkeep and maintenance of P Street. All of that evidence is under challenge by the Respondent.
P Street was sold for $4.65 million in March 2007 through the business with whom the Applicant then worked. The profit from its sale was said to be approximately $1.65 million and those monies were then applied to reduce the mortgage on the O Street property.
Major renovations were then undertaken on the O Street property and the Applicant asserted his involvement, duties and responsibilities in paragraphs [26] and [27] of his affidavit. Upon the completion of those renovations the parties lived together in that property and the Applicant asserted, as he had done with P Street, that he furnished O Street and made it their home.
O Street was listed for sale in about March 2009, again through Business J. It sold on 14 April 2009 for $5.5 million. It was said by the Applicant that the profit made on the sale, excluding costs of purchase and renovation, was approximately $2.3 million.
During the period of the renovation of O Street, the parties lived together in rented accommodation at Q Street, Melbourne Suburb 1 (“Q Street”). Subsequently, they returned to live in that rented property and the Applicant deposed to the contribution that he made to the renovation of the property, partly in lieu of rent, in paragraph [34] of his affidavit. His evidence was disputed.
In or about July 2007 the parties located a property at S Street, Melbourne Suburb 4 (“S Street”) which the Respondent subsequently purchased for $3.48 million, fully financed, as deposed to in paragraph [29] of his affidavit. S Street was sold in November 2009 at a small loss of several hundred thousand dollars and it was said that it was necessary to sell that property as monies were needed to increase the borrowing potential to undertake renovations of D Street.
The Applicant asserted that he had located, through a longstanding client, D Street, which comprised 18 units. Subsequently, the Applicant deposed that the parties discussed and agreed to its purchase at a price of $4.5 million. The purchase was completed and registered in the name of B Pty Ltd, of which the Respondent is the sole director.
D Street was said to have been purchased primarily as an investment property and because the parties both saw the potential for its redevelopment and improvement and it was intended to be their next major renovation project. Those renovations, costed at a price of approximately $8 million, were not undertaken during the relationship and the property remains owned by the corporate entity and is one of the two substantial real estate assets of the Respondent.
The Applicant, in paragraph [40] of his affidavit asserted that the parties purchased the Sydney Suburb 1 property, on advice from the Respondent’s accountant and for advantageous tax purposes. The property was purchased in the Respondent’s sole name in March 2009 for $6.5 million. Significantly, it was argued on behalf of the Applicant that $4 million was applied from the net proceeds of previous property developments and purchases of the parties, meaning that and a mortgage of only $1.5 million was required to be obtained and secured against its title.
The Applicant claimed that, pursuant to tax advice that the Respondent needed to live in the Sydney Suburb 1 property, each of them relocated to Sydney and continued their relationship together whilst living in that home.
The Applicant said that he made contributions to the Sydney Suburb 1 property and also to the upkeep of the Q Street rented accommodation, as set out in paragraphs [46] and [47] of his affidavit.
The Respondent operates a successful business in the construction industry which has a significant gross income and is able to provide weekly gross drawings or salary to the Respondent of $14,000, as deposed to in his Financial Statement filed 30 March 2011.
The Applicant asserted that he wholly supported the Respondent in his business growth and development and I have read and evaluated that evidence as contained in paragraphs [59] - [64] of his affidavit, but which is wholly under challenge.
The Applicant said that he made a primary contribution as homemaker during their relationship. His evidence was detailed in paragraphs [65] - [76] of his affidavit and again I have carefully considered that contested evidence but I have made no findings thereupon.
In summary, the Applicant deposed that he was primarily responsible for the domestic management and operation of their shared life together, including the preparation of meals, cleaning, support and upkeep of the home and their pets. He asserted that he attended not only to the cooking and all household chores but to the preparation of his partner’s gym bag and clothes, shopping and home provisions and also by liaising with all builders, renovators and contractors on the major property renovation projects.
At paragraph [77] of his affidavit the Respondent estimated the assets, financial resources and liabilities of the parties as at their separation and, whilst a range of valuations only is provided, the approximate net assets and resources, excluding the value of the Respondent’s business and savings, was asserted to be in excess of $8 million. For the purposes of this interim hearing there was a measured level of agreement between both counsel that the Respondent’s net assets were approximately $5 million, subject to a full valuation of his business interests. Mr Davis was content to proceed on that basis and thus very much the focus of his submissions were that the assets of each of the parties at the commencement of the relationship had increased by at least eightfold, and perhaps as much as tenfold, during their four and a half year relationship. It was against that increased net asset pool that he sought the interim property orders for his client. His submissions were that the quantum of the interim property order sought was less than 20%, or thereabouts, of a net asset pool that was yet to be properly valued and to include all assets.
On or about 15 January 2010 the Respondent requested a trial separation and he vacated Q Street. Thereafter discussions between the parties failed to mend their differences and the Applicant was informed that their relationship was at an end. It is now agreed that the relationship has broken down and there is no likelihood of any reconciliation.
Mr Davis identified the following further paragraphs of two other affidavits filed by the Applicant upon which he relied. He asked the Court to read into evidence paragraphs [4] - [17], [28] - [53] and [54] - [59] of the Applicant’s affidavit filed 9 November 2011 together with paragraphs [4] - [25] and [26] - [38] (inclusive) of the further affidavit of the Applicant filed 9 March 2012.
In his affidavit filed 9 November 2011 the Applicant updated his current financial position prior to obtaining his recent employment. He confirmed his indebtedness to the Australian Taxation Office, though interest is continuing to accrue on that liability. He identified his then indebtedness to his solicitors, accountants and his former Senior Counsel.
The Applicant’s evidence of his beneficial ownership of the I Street property and its car park and of his other bank accounts, furniture and jewellery, and his superannuation interests are disclosed in that affidavit as are his liabilities, excluding the sum owing to R Pty Ltd.
The circumstances of the Australian Taxation Office debt, which was asserted by the Applicant to be properly classified as a joint debt, and his disclosure of the surrounding financial circumstances and advice received from his accountant are detailed in paragraphs [29] - [53] of that affidavit which I have read and evaluated. I have also read the affidavit of his accountant. The specific claim on behalf of the Applicant is described by him in paragraphs [51] - [53] (inclusive) of that affidavit and reads as follows:
51.My total tax liability, excluding outstanding GST and general interest charges, is $209,725.18. As deposed to herein, my outstanding GST liability is $97,523.69. Accordingly, I am currently indebted to the ATO as at 4 November 2011 in the sum of $307,248.87 plus interest accruing on a daily basis.
52.During the years of our defacto relationship, I earned from that source of income and contributed to the relationship $501.499 in additional income. That total was expended by [Mr Murphy] and me during the course of our relationship on holidays, purchases of furniture and artwork, personal purchases for each of us, luxury items, events that we were organising, improvements to properties, the refurbishment and improving of our homes and maintenance our standard of living and lifestyle. As the $501,499 was contributed by me to our relationship during that period of time, the tax now payable on that amount should be considered a joint liability.
53.I am seeking that [Mr Murphy] pay to me or cause to be paid to me $307,248.87 in order that I can discharge the ATO debt in full. Substantial interest is accruing each day. I have virtually no assets in my personal control. All of the entitlements which I have built up in the course of our relationship are held in [Mr Murphy’s] name or under his control. As to my efforts to borrow money to pay the ATO debt and capacity, I refer to paragraph 64 to 50 hereunder.
The Respondent asserted that the entire tax liability is personal to the Applicant and was derived from income personally received by the Applicant and which monies were not expended upon the relationship or their then lifestyle. Indeed the Respondent further asserted that he was wholly unaware of this level of income of the Applicant and that must be read and understood in the context of the judgment of the Supreme Court of Victoria and the monies owing by the Applicant personally to R Pty Ltd.
For the purposes of this hearing all issues of and concerning that taxation debt, or the Respondent’s requested contribution to the payment thereof and interests, costs and penalties were wholly disputed and I very clearly do not determine any issue of and associated with those circumstances or apportioning payment or responsibility.
As to litigation funding and the order now sought in the sum of $200,000 the Applicant deposed to having no financial capacity to support himself, let alone to pay his lawyers and related third parties assisting him in the preparation of this matter for trial. His affidavit was prepared by his former solicitors, Law Firm 1, at a time when they continued to represent him and since he has engaged new solicitors his legal costs have substantially increased.
As a basis for seeking a litigation funding order within the interim property application, but as part of the s 90SM source of power, the Applicant deposed in paragraphs [59] – [61] (inclusive) of that affidavit as follows:
59.There is a significant disparity in financial circumstances of me and [Mr Murphy]. [Mr Murphy] is in a positive financial position in comparison to me, and in sole control of significant assets to which I have contributed. He is earning income of approximately $18,000 and has assets in his name with a gross value of in excess of $11,000,000 in relation to which I claim an entitlement.
60.As [Mr Murphy] receives income, he is able to meet his own legal costs and disbursements. I do not have sufficient assets, resources or income from which I can meet the costs of these proceedings and my liabilities.
61.It is in the interest of justice that I receive funding to enable me to pursue my claim. Failure to do so would leave me unable to proceed, as I would not be able to adequately represent myself, particularly given the complex nature of these proceedings.
The further affidavit relied upon by the Applicant was filed 9 March 2012 and in paragraphs [4] - [25] (inclusive) he deposed to his explanation as to his possession and driving of and the issues of ownership of the Porsche motor vehicle.
This motor vehicle is a matter that has particularly attracted the attention of the Respondent and his solicitors and has been the subject of past observations and inquiries and is raised as a challenge to the truthfulness of matters previously deposed to by the Applicant. Whereas the Applicant had previously asserted that he either did not drive and certainly did not own this motor vehicle, he has now confirmed that he ordered and paid a deposit on the Porsche motor vehicle which was purchased and registered in his name.
The Applicant has said that this motor vehicle was “essentially purchased by his friend [Mr U] and a lease was taken out in the name of his company, [V Pty Ltd]. The car was also insured in the name of that company”.
When the Applicant relocated to Sydney he drove the Porsche up and he currently has that car in his possession. His alternate motor vehicle, the BMW, remained in Melbourne.
The Applicant has now deposed in paragraphs [22] - [25] (inclusive) of his affidavit that:
22.I am having great difficulty affording to keep the Porsche. I think that the best option for me is to sell it and continue to drive the unencumbered BMW that I paid off during the relationship, at least until this family law matter resolves and I am in a better position to assess my financial circumstances.
23.There is a $50,000 lump sum payment due in respect of the Porsche lease in or about May 2012. Those funds are currently in a bank account of [V Pty Ltd], ready to pay the said amount. I made a deposit of $48,000 into the [V Pty Ltd] bank account at the end of October 2011, in anticipation of this lump sum payment due in May 2012. These funds were received by me in or about October 2011 from Comminsure by way of a payout for an insurance claim made by me.
24.The current repayments on the Porsche are about $1,693 per month.
25.As deposed to above, it is my intention to sell the car as I cannot realistically afford to keep it at this time.
The truthfulness of the Applicant’s evidence of and related to this motor vehicle will be a strongly contested issue in the final property division hearing. It is said by the Respondent that it will reflect adversely upon his credit. All of that remains to be proven and I do not make any findings on this topic in these interim proceedings.
Paragraphs [26] - [38] (inclusive) of that affidavit have been put in evidence and deposed to issues that arose in the Applicant’s employment with R Pty Ltd and the associated services and benefits that he provided “on the side” to clients in refurbishing and project managing renovations of their properties. It was those additional work activities that seemingly led to the issues that arose in July 2011, the Applicant’s various meetings with Mr W and then the Applicant being asked to take leave and his subsequent resignation from R Pty Ltd.
That affidavit also detailed the evidence of the Applicant in respect of the Supreme Court proceedings and the judgment entered by default against him in the sum of $390,000 plus indemnity costs and interest. The present quantum of those accruing costs and interest have not been calculated and was not in evidence in this hearing. Thus the total debt will likely be up to but not greater than $450,000 though I do record the submission of Mr Davis that, when accurately assessed, it will likely be $410,000 or thereabouts.
The Freezing Orders issued by the Supreme Court of Victoria on 7 December 2011 are directed both to the Applicant personally and to the company, E Pty Ltd and those Orders provided for a sum of $450,000 to be repaid to discharge that Order.
Each of the separate Freezing Orders are in the sum of $450,000 but differ in the particular assets which are then identified and frozen.
Pursuant to paragraph 4(a) of the Orders both the Applicant and E Pty Ltd are restrained, until further order of the Victorian Supreme Court, from removing from Australia or in any way disposing of or dealing with or diminishing the value of any of their assets within Australia to the unencumbered value of $450,000. Otherwise the Order then restricts any further disposal of, dealing with or diminishing of what is described as ex-Australian assets that would be required to secure the relevant amount of $450,000.
For the purposes of the Applicant his particular frozen assets are identified in paragraph 5(a)(iii) of the Freezing Order and include his various Australian and overseas bank accounts and the I Street property and other properties owned by E Pty Ltd.
E Pty Ltd is likewise restrained from dealing with or divesting any asset that it may hold on trust for the Applicant inclusive of its property holdings in the I Street property.
It is important to record that the Applicant and E Pty Ltd each gave undertakings to the Supreme Court to submit to the Freezing Orders and the undertakings are annexed to each of the Orders as Schedule A thereto and are in evidence in this hearing.
Insofar as the Respondent alleged that E Pty Ltd was created by the Applicant with a view to undertaking dishonest activity, that allegation is specifically rejected by the Applicant in paragraph [59] of his affidavit where he asserted that the trust structure was established “to enable [Mr U’s first name] and me to make investments together and share in the profit of same”.
It is not open to me and nor would I make any finding on the alleged dishonest activity of the Applicant in this interlocutory proceeding. The assets of E Pty Ltd, to a sum of $450,000, are frozen by the Order of the Victorian Supreme Court and the Applicant remains a beneficiary of its trust and an evaluation of these disputed issues remain for another day.
It is important to emphasise that, whilst I have here recorded the evidence of the Applicant in summary form, and hereafter the Respondent’s evidence, and identified what each has said to be the contributions and net property of the parties acquired within their de facto relationship the hearing has been conducted on the affidavits filed and supported by the detailed submissions of counsel. I therefore have made findings only insofar as they are necessary and proper for the interim proceedings.
ORDERS SOUGHT BY RESPONDENT
In his initial Response filed 20 June 2011 the Respondent sought interim and final orders that each party retain for their sole use and benefit all real and personal property and superannuation then held by each of them and that they be respectively liable for any loans or liabilities attaching to that property.
By his Amended Response filed 10 January 2012 the Respondent sought, in summary, the following final orders:
§the return of a BMW motor vehicle;
§that each party retain all real estate of which they are the registered proprietor and personal property in their possession and each be respectively responsible for any mortgage, debt or liability encumbering any such asset;
§that each party retain their superannuation entitlements;
§that he retain his business in the construction industry, all corporate structures established by himself and be responsible for all liabilities encumbering same;
§that the Applicant pay the Respondent’s costs on an indemnity basis or in the alternative that the former solicitors of the Respondent, Law Firm 1, pay costs on an indemnity basis or as agreed;
§that the Amended Application filed 9 November 2011 and the further orders as outlined by counsel for the Applicant, which further defined or amended the orders then sought, all be dismissed.
Significantly for this interlocutory hearing the Respondent sought, as an interim order, that the Applicant’s Amended Application seeking interim orders and filed 9 November 2011 be dismissed.
The orders sought by the Respondent have been highlighted in paragraph [2] of the legal submissions filed on his behalf by his counsel on 28 February 2012 as follows:
It is submitted the Application for interim relief should be dismissed, and it is further submitted the Application for final property orders should be dismissed, as an abuse of process.
AFFIDAVITS RELIED UPON BY RESPONDENT
The Respondent relied upon and asked the Court to read in evidence the following affidavits:
(i)his affidavit filed 30 March 2011;
(ii)his affidavit filed 26 May 2011 and its annexures;
(iii)his affidavit filed 14 December 2011 and its annexures;
(iv)the affidavit of Mr X filed 14 December 2011;
(v)his Financial Statement filed 30 March 2011;
(vi)the document marked as exhibit “1” and tendered to the Court on 15 December 2011 and which is a sealed copy of the Freezing Order directed to the Applicant as pronounced by the Honourable Associate Justice Daly in the Victorian Supreme Court on 7 December 2012;
(vii)the affidavit of Mr W sworn 11 October 2011 in the Victorian Supreme Court and which is annexure “JFM4” to the affidavit of the Respondent filed 14 December 2011, and to which no objection was taken by counsel for the Applicant.
I have carefully read and evaluated the evidence in each of those affidavits, annexures and the tendered sealed copy of that Court Order and I have considered the detailed submissions of Ms Smallwood made in support of that evidence.
RESPONDENT’S OUTLINE OF CASE DOCUMENT
The solicitors for the Respondent filed a detailed Outline of Case document dated 28 February 2012. Again, that document is not evidence in the proceedings and it is filed in explanation of the Respondent’s submissions and his orders sought.
A chronology of significant events is included in paragraph 3 of that document and that was said to highlight available evidence of the alleged non-compliance, false statements, deceptive and improper conduct and fraudulent activities of the Applicant together with his failure to properly identify and characterise the interim payments now sought by his further amended orders, though that purported defect was satisfied by the direct submission of Mr Davis that his client’s case was confined to an interim property application and therefore was not based upon the maintenance or security for costs powers of the Court.
BACKGROUND FACTS
Without restating the earlier identified background facts provided by the Applicant and concentrating upon what the Respondent has further alleged to be the inappropriate, false or fraudulent activities of the Applicant, it was said on his behalf that:
§on 22 December 2010 the Applicant filed his property and financial division orders with no proper particulars of the orders sought;
§the affidavit filed in support of that Application contained false evidence as to income;
§the Financial Statement filed by the Applicant was knowingly inaccurate;
§following upon the consent court orders made 29 March 2010 the Applicant failed to make proper and required discovery, knowingly made false statements and failed to admit ownership of the Porsche motor vehicle;
§upon questioning by his employer, R Pty Ltd, concerning alleged misappropriated monies the Applicant admitted fraudulent activities as referenced in the annexed affidavit of Mr W;
§the Applicant failed to declare any beneficial interest in the I Street property;
§R Pty Ltd filed an Originating Motion in the Victorian Supreme Court where the Applicant was named as First Respondent and E Pty Ltd was named as Second Respondent;
§terms of final settlement were executed between the Applicant and R Pty Ltd and a judgment entered requiring a lump sum payment of $390,000 to be made by the extended date of 21 November 2011. That judgment sum was not disclosed in his affidavit then sworn and filed in this Court;
§on 21 November 2011 the Applicant defaulted on the payment required to be made to R Pty Ltd;
§on 7 December 2011 Freezing Orders in a sum of $450,000 were made by the Honourable Associate Justice Daly in the Victorian Supreme Court against both the Applicant and E Pty Ltd; and
§the judgment debt of $390,000 and interest thereon and costs to be assessed remains outstanding.
RESPONDENT’S EVIDENCE
I have previously set out at some length the affidavit evidence of the Applicant and I now likewise record the affidavit evidence of the Respondent. I do so in the context of a very strongly contested interlocutory hearing, in order to generally underline the opposed evidence of the purported contributions and s 90SF(3) factors.
The Respondent’s Financial Statement filed 30 March 2011 disclosed his average weekly income to be $18,621 of which $15,613 was received from his gainful employment with company in the construction industry and the balance of $3,008 from the rental income of the Sydney Suburb 1 property.
The Respondent’s weekly personal expenditure, inclusive of what was said to be his substantial income tax payment and mortgage repayments and with an allowance of $2,000 for other expenditure, totalled $13,199. He had not completed Part N of that Financial Statement.
The surplus of weekly income available to the Respondent was thus approximately $5,500.
The Respondent admitted the value of Sydney Suburb 1 to be $6.375 million. He valued D Street at $4.650 million and his interest in a property (deposit only) in K Street, Melbourne Suburb 3 of $237,000.
The Respondent holds a personal mortgage secured over the title to Sydney Suburb 1 in the sum of $2 million and deposed to a Commonwealth Bank Commercial Bill Facility over D Street of $4.5 million. He otherwise has the facility of a Commonwealth Bank Personal Line of Credit of $245,000.
The Respondent, or his solicitors, have carefully prepared notes (but not on affidavit) to his Financial Statement pursuant to Family Law Rule 13.05 and the summary of this document was recorded in paragraph 2, Part B of his Financial Statement, as to his overall financial summary of assets, financial resources and superannuation owned and it is as follows:
Property $11,736,000
Liabilities $6,745,000
Net property $4,991,566The above net assets of the Respondent exclude $52,000 in superannuation.
The above value of property is inclusive of an assessment by the Respondent of his ownership and control of his business, H Pty Ltd (“the business”), said by him to be valued on 31 December 2010 at $338,364. I record that Mr Davis in his submissions foreshadowed a dispute in the future defended proceedings to that valuation and said that a single expert valuation would be required.
In paragraph [4] of his affidavit filed 30 March 2011 the Respondent deposed to the fact that, at all relevant times, he had operated a successful business in the construction industry and had done so for many years prior to entering the relationship with the Applicant.
As to the commencement of the relationship, in paragraph [13] of his first filed affidavit, the Respondent deposed that:
[Mr Aitken] and I moved into [P Street] in late May 2005. When he commenced to reside at that address there was no intention for us to enter a domestic relationship. We had no intention of even sharing the same bedroom. We indeed lived in separate rooms. It was only from late July 2005 [Mr Aitken] and I began to live as partners.
The Respondent asserted that, from the outset, the parties maintained separate finances and did so until a joint bank account was opened in December 2006 for the specific purpose of the payment of travel expenses.
As to P Street, the Respondent deposed that the Applicant had no involvement in the financing of the property and that it was purchased prior to the commencement of their relationship. Indeed the further evidence of the Respondent in paragraph [23] was that the Applicant had no involvement in the renovation of P Street and that he had no desire to consult with him in regard to his projects as he had only limited experience in renovating or developing properties. The Applicant’s alleged contribution to P Street is further put in issue or denied in paragraphs [25], [26], [28], [29], [30], [31] and [32] of that affidavit.
The Respondent asserted his sole contribution to the purchase of the S Street property and to the renovation and sale of O Street and I have read his evidence in that regard.
Likewise the Respondent challenged or denied the alleged knowledge, involvement or skills of the Applicant as to any contribution made by him to the acquisition and renovation of the rented premises in Q Street and in this regard I have read paragraph [39] of his affidavit.
As to D Street the Respondent asserted that the Applicant had no role in the actual purchase or the planned redevelopment of that property. I have read carefully paragraphs [40] - [44] (inclusive) of that affidavit including the statement in paragraph [40] that the Applicant was paid $50,000 for informing the Respondent of the possibility of purchasing D Street and thereby “introducing the property to me”. The issue however which is also encompassed with that paragraph was whether that payment of $50,000 was for that introduction or alternatively whether it was for the Respondent executing a Binding Financial Agreement which in any event was never prepared or signed. It is an agreed fact that the $50,000 was paid and has been retained by the Respondent. The retention of those monies featured strongly in Ms Smallwood’s submissions and were identified as a real financial benefit already paid to the Respondent.
For the purposes of this hearing I have regard to the fact that the Applicant received $50,000. I make no findings on the circumstances of or the purpose for which that payment was made and received. I do not now consider the issue of whether that money was paid and accepted as an acknowledgment of the introduction to D Street, or as a payment, or part payment for the Respondent’s signature to a future Binding Financial Agreement which would also have included 10% of the profits of the D Street investment.
As to Sydney Suburb 1 the Respondent asserted that the Applicant was not in any way involved in the decision to purchase that property, including any of the negotiations regarding the financing of the property and I have read and evaluated paragraphs [40] - [51] (inclusive) of his affidavit.
As to the business in the construction industry the Respondent asserted that the Applicant played no role whatsoever in that business, as per paragraph [59] of his affidavit.
The Respondent’s affidavit then denied various of the facts and matters alleged by the Applicant in respect of their lifestyle, domestic duties and social events and in that regard I have read paragraphs [52] - [75] (inclusive) of his affidavit.
I record that the Respondent has challenged the Applicant’s evidence as to his homemaking role, and paragraph [60] deposed to the paid help to assist with the homemaking contribution which, in any event, the Respondent alleged they shared in paragraph 60 of his affidavit.
The evidence of the Respondent as to the BMW motor vehicle and its running costs are deposed to in paragraph [76] thereof.
In paragraph [77] the Respondent, in reply to paragraph [83] of the Applicant’s affidavit, asserted what he said was the basis of the acquisition of property and investments and the manner in which they should have been retained separately by each of them upon the breakup of the relationship. These are however matters to be more particularly considered and determined in any final division of property pursuant to s 90SM of the Act and are not matters upon which findings should be made in these interlocutory proceedings.
As an overview of the financial aspects of their relationship the Respondent asserted that they maintained separate finances until he was persuaded to open a joint bank account for the limited purpose identified in paragraph [16] of his affidavit. He asserted that the Applicant’s “spending habits were nothing short of exorbitant” and particulars of that claim are detailed in paragraph [15] of his affidavit.
FINDINGS OF CREDIT
I was asked by Ms Smallwood to carefully evaluate all of the affidavit evidence and pronounce findings of credit about the parties which she asserted were open and should be found to strongly disapprove of the evidence and actions of the Applicant. Her submissions were substantially focused upon a criticism of his conduct, inappropriate financial activities and lack of candour throughout the relationship, together with his failure to disclose material facts, documents and assets in these proceedings. To the contrary, she asserted that her client was always a witness of truth and that his evidence should be accepted.
Mr Davis made no like submissions as to credit but rather requested the Court to evaluate all of the evidence and particularly the parties’ various contributions, and the current financial circumstances of each of them, upon the papers, to determine his client’s interim property application.
I find that it is not appropriate that I make findings of credit in these interlocutory proceedings. The parties were not cross-examined and there should not be any form of pre-judgment of the evidence to be given by each of them in the final hearing.
ASSETS AT COMMENCEMENT OF RELATIONSHIP
The affidavits of each of the parties, and in particular the financial admissions made by the Respondent, generally crystallise the identity and value of assets at the breakup of the relationship in early 2010, but are always subject to further and updated valuations of real and personal property and inclusion of the current market value of the business. However, the evidence is either not clear or somewhat confusing as to the identity and value of assets that each of them owned in mid-2005, when they commenced their four and a half year relationship.
I have already identified the Applicant’s evidence as to his and the Respondent’s assets at the commencement of the relationship. Most particularly, he identified cash deposits at the Bank of Cyprus in the sum of $190,000 and which he asserted were expended during the relationship but further particulars of that expenditure are yet to be detailed and it remains an opposed issue.
Of more significance, and as previously discussed, is an assessment of the property and investments then owned by the Respondent. The Applicant asserted that the Respondent’s then assets were his financial interests in the properties at:
§N Street $200,000
§P Street $200,000
§O Street $150,000
together with his then value of the business assets estimated at approximately $100,000.
In summary, the Applicant asserted that the Respondent’s net assets as at mid-2005 were approximately $600,000 - $650,000 and that they increased significantly during the four and a half year relationship so that they were of an admitted value of approximately $5 million as at the separation date in January 2010, and perhaps of an even greater value.
The evidence of the Respondent is somewhat less clear and to address questions upon this issue which arose during the submissions Ms Smallwood produced a document which was tendered as an aide memoir and thus is not evidence in the proceedings. I have therefore not relied upon the contents of that document but for completeness only I record that it asserted that the Respondent’s assets as at the commencement of the relationship should more correctly have been valued at approximately $1.5 million.
That aide memoire asserted assets at market value of $6.2 million, which have not been proved, inclusive of business assets and managed investments. Again the document asserted liabilities at market value which are not the subject of evidence but which, when subtracted from the assets left a purported net asset position pre-relationship of the Respondent, and his group, of $1.5 million. I have however accepted only the affidavit evidence before the Court, and not that which the Respondent asserted through his counsel.
For discussion only I record that the valuation disagreement, as asserted but not proved between the parties, primarily related to the Respondent’s equity in N Street and O Street. In summary, the Respondent asserted that he had a significantly greater equity in those properties at 30 June 2005, than that stated by the Applicant. These issues however are matters to await proper evidence and cross-examination at another hearing date.
That aide memoire further asserted that the taxable income for the Respondent and his investment company for the financial year ended 30 June 2005, was $155,174, and in due course that income will be contrasted to the total taxable income received in the financial years ended 30 June 2009 and 30 June 2010. That again is a matter for further evidence at the defended hearing and upon which I make no findings and to which I have had no regard in determining these interim orders.
DE FACTO JURISDICTION
Section 39B of the Act gives to this Court jurisdiction in de facto financial causes. The exercise of that jurisdiction is subject to the provisions of s 40 and, by s 40(2) a proclamation was required to be made before this Court can exercise jurisdiction. That proclamation was made on 11 February 2012.
No such proclamation was therefore in force when the Initiating Application was filed on 22 December 2010 or when the Amended Initiating Application, which first raised the issues of interim property relief, was filed on 9 November 2011.
Subsequently, the filing of the further Amended Initiating Application on 13 March 2012, on a date after the proclamation had been pronounced, afforded jurisdiction to this Court. It is that application, as otherwise amended by the Applicant’s counsel in their further addendum dated 21 March 2012, that detailed the orders that were before this Court for determination in these interim proceedings.
In any event, I find that there is a distinction between the filing of an application in respect of jurisdiction conferred and the exercise of that jurisdiction as is made clear by a comparison of s 39A and s 39B with s 40 of the Act. The outcome thereof is that both the Initiating Application and the subsequent Amended Initiating Application were validly filed and there is therefore no barrier to the Court hearing these applications and, if and when appropriate, to make appropriate orders.
Notwithstanding such a finding, the issue does not arise because of the filing post 11 February 2012 of the further Amended Initiating Application and the subsequent addendum of orders sought. These issues have been considered by the Court in Brugman & Marley [2012] FamCA 106 and thereafter in Esdale & Schenk [2012] FamCA 111 and I wholly agree with the observations of each of the Judges in those decisions.
FAMILY LAW ACT - PART VIIIAB
Section 90SM(1) of the Act provides the statutory law governing the alteration of property interests upon the breakdown of a de facto relationship and authorises the Court to make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the de facto relationship or either of them - altering the interests of the parties to the de facto relationship in the property; or
(b)….
including:
(c)an order for a settlement of property in substitution for any interest in the property; and
(d)an order requiring:
(i)either or both of the parties to the de facto relationship; or
(ii)the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the de facto relationship or a child of the de facto relationship, such settlement or transfer of property as the court determines.
Pursuant to s 90SM(3) the Court must not make an order under the above section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
Section 90SM(4) requires that the Court must take into account, in considering what orders should be made for a settlement of property, the following (as are relevant to the facts of this case):
(a)the financial contribution made directly or indirectly by or on behalf of a party to the de facto relationship, or a child of the de facto relationship:
(i)to the acquisition, conservation or improvement of any of the property of the parties to the de facto relationship or either of them; or
(ii)otherwise in relation to any of that last-mentioned property;
whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the de facto relationship or either of them; and
(b)the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the de facto relationship, or a child of the de facto relationship:
(i) to the acquisition, conservation or improvement of any of the property of the parties to the de facto relationship or either of them; or
(ii) otherwise in relation to any of that last-mentioned property;
whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the de facto relationship or either of them; and(c)the contribution made by a party to the de facto relationship to the welfare of the family constituted by the parties to the de facto relationship and any children of the de facto relationship, including any contribution made in the capacity of homemaker or parent; and
(d)the effect of any proposed order upon the earning capacity of either party to the de facto relationship; and
(e)…
(f)any other order made under this Act affecting a party to the de facto relationship or a child of the de facto relationship.
Section 90SS(1) identifies the applicable general powers of the Court relevant to the facts and circumstances of this case which include that the Court may, in exercising its powers under Part VIIIAB, Division 2, do any or all of the following:
(a)order payment of a lump sum, whether in one amount or by instalments;
… …
(g)order that payments be made direct to a party to the de facto relationship, to a trustee to be appointed or into court or to a public authority for the benefit of a party to the de facto relationship;
(h)make a permanent order, an order pending the disposal of proceedings or an order for a fixed term or for a life or during joint lives or until further order;
(i)impose terms and conditions.
I have identified each of the sub-sections of s 90SS(1) as they are or may be relevant to the particular factual circumstances before me. I have in particular highlighted sub-paragraphs (g) and (i) because of the existing Freezing Orders of the Victorian Supreme Court and the requirement thereof that no monies be paid to the Applicant until a sum of $450,000 has first been paid pursuant to that Order. Thus sub-paragraph (g) authorises a payment both to a trustee as appointed or into a court or otherwise to a public authority for the benefit of a party to the de facto relationship and I conclude that enabling power would permit an order to be made, if appropriate in the exercise of judicial discretion, for the Respondent to pay a sum of money to the Supreme Court of Victoria, on behalf of the Applicant and in discharge or partial discharge of that judgment debt liability, inclusive of interest and costs.
Sub-paragraph (h) is expressed in identical terms to the general powers of the Court identified in s 80(1)(h) and thus the Court exercises like powers pursuant to that particular subsection, and also pursuant to subsection (i) thereof. Curiously sub-section (g) of s 90SS(1) has been omitted from the general powers of Court in dealing with married couples pursuant to Part VIII but has been included within its powers within de facto relationships, and that variance must be a considered an intended outcome of the legislation.
Section 90SS(1) therefore sets out the range of powers that a court may exercise in proceedings for property settlement in de facto relationships. It is an enabling provision and is not an independent source of jurisdiction. Thus it is necessary for me to find that there is a relevant connection or relationship between the exercise of primary power as conveyed by s 90SM and the exercise of one of the above enabling powers. The authorities supporting this position are well established and conveniently summarised in paragraphs [103] and [104] of the judgment of the majority in Strahan (supra) and their further discussion of the judgment and observations of the Full Court in Gabel v Yardley (2008) FLC 93-368.
I have determined the interim property orders sought within this de facto relationship on a similar basis to that of a married couple given the similarity of the legislation and my conclusion is that there should be no difference in approach applied by the Courts in determining interim property orders between married and de facto couples.
SOURCE OF POWER – INTERIM PROPERTY ORDERS
I have proceeded by first establishing the relevant source of power because that is necessary to establish the preconditions and relevant considerations for the making of the orders sought. I find that the Court has jurisdiction on the facts of this case to make such an order(s) pursuant to s 90SS(1)(h) though in an examination of reported court decisions the previous considerations and guidelines of the Full Court apply to legislation applicable to married couples and thus s 80(1)(h) and s 79 of the Act.
The Full Court in Zschokke v Zschokke (1996) FLC 92-693, at 83-216, said that:
If the order is to be made under s 80(1)(h), it would seem that regard should be had to the requirement in s 79 that the orders be just and equitable and this would require the Court to undertake at least some brief consideration of the matters in s 79(4) including those referred to in s 75(2). If on a brief consideration of those matters, it seems likely to the Court that the party who is the applicant for the interim order for an advance of funds from the other party will be likely to receive by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made.
In Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 Brereton J observed at paragraph [33], also referring to an interim property order made under ss 79 and 80(1)(h) of the Act that:
While the requirements of s 79(2) and (4) must be observed in the same manner as for any interim property order, if it appeared that the applicant would likely receive by way of a property settlement a sum sufficient to cover the advance, then an interim order may be made.
The authority of the Full Court judgment in Strahan (supra) at paragraph [99] endorsed what had been said by the Full Court in Harris v Harris (1993) FLC 92-378 as to both the approach and matters to be taken into account in determining an interim property determination pursuant to s 79 of the Act. The court there said:
We do not doubt that the court has power in a proper case in s 79 proceedings to make what may be conveniently described as an interim order, that is an order dealing with some of the property of the parties prior to the final hearing. We do not consider that it is necessary to draw a distinction in terminology between an “interim” order and a “partial” order.
But in the exercise of that power the following matters need to be considered:
(1)The exercise of the power should be confined to cases where the circumstances presented at that time are compelling. As a generality, the interests of the parties and the Court are better served by there being one final hearing of s 79 proceedings. However, circumstances may arise before there can be a final hearing which dictate that some part of the property of the parties should be the subject of orders. A common example is where both parties agree to the disposal of some assets pending the trial. However, we do not consider that it is confined to cases where the parties consent. Urgent situation may arise where it is necessary to exercise this power if injustice is to be avoided. Examples include cases where it is necessary to do so to avoid an asset being eroded or lost in the intervening period, and cases (beyond the maintenance power) where an order in favour of one party is necessary to preserve or obtain a home for or is otherwise necessary for the welfare of the children.
….
(2)It is an exercise of the s 79 power. Consequently it must be performed within those parameters. Since it is not the final hearing the Judge is unlikely to have the final findings, but the exercise must fall within that general framework and the material available at that time.
(3)Of necessity it is likely to be a somewhat imprecise exercise. Consequently, it must be exercised conservatively and the Judge must be satisfied that the remaining property will be adequate to meet the legitimate expectations of both parties at the final hearing, or that the order which is contemplated is capable of being reversed or adjusted if it is subsequently considered necessary to do so.
In Strahan (supra) the Full Court then considered the previous judicial observations concerning the requirement to consider and find a set of “compelling circumstances”. For reasons that are well expressed in that judgment a court does not now and should not approach any consideration of the issues with the purpose of finding a compelling circumstance. Therefore that is not an exercise which I have undertaken in this case.
The majority judgment in Strahan (supra) considered in significant detail many of the earlier reported decisions of this court affecting married couples on interim property settlements, the legislative approach and the power of the court to make such an order, which may be exercised by a succession of orders until the power is exhausted and that is when no further alteration of property interests could or would be made. It is therefore only the final order, which deals on a final basis with all known property of the parties, which then completes the one single exercise of s 79 (or in this case s 90SM) power.
The majority in Strahan (supra) (Boland and O’Ryan JJ) considered the approach to the application for an interim property order in paragraphs [114] - [141] (inclusive) which I have read and carefully applied, but without exhaustively repeating the findings and conclusions of their Honours. The essence of the approach is identified by understanding that first there must be a consideration as to whether the jurisdiction to pronounce an interim property order will be entertained and, if so, secondly, then a careful consideration and evaluation of the factors which are relevant to the exercise of such power to make such an order, which of itself must be just and equitable.
Therefore in paragraph [118] the majority judges in Strahan (supra) found that:
There are two stages to the hearing of such an application where the power is to be exercised pursuant to s 80(1)(h) of the Act. This is recognised by the fact that although the power under s 79 should ordinarily be exercised on a once only basis, “circumstances may arise before there can be a final hearing” where the power is exercised. Thus the first step is to resolve whether to exercise the power before a final hearing and if it is resolved to do so then the second step involves the exercise of that power.
The majority judges then summarised in paragraph [132] the approach to the first consideration, that is as to whether or not to exercise the power and said:
when considering whether to exercise the power…to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
Once a court exercises the power in s 79 of the Act, in the case of a married couple, a court must then undertake a consideration of the s 79(4) contributions and the s 75(2) factors insofar as they are relevant. This consideration may be brief and once it is established that the Applicant would be likely to receive by way of a property settlement a sum sufficient to cover the advance, but always subject to any particular fact or issue, that would often be sufficient to enable the order to be made.
Again, whilst those identified reported cases referred to sections applicable to a married couple under Part VIII of the Act, the like identifying sections in a de facto relationship are provided for in s 90SM(3) and (4) and s 90SF(3) and as to the general powers in s 90SS, under Part VIIIAB, they being the sections relevant to the factual circumstances before me in this hearing.
In Strahan (supra) the Full Court accepted that an inability on the part of an applicant for an interim property order to defray the costs of litigation would be a relevant matter to take into account at the first stage. Indeed the majority expressed the view, in paragraph [138] that:
It may be that any issue about the bona fides of an application is relevant at the procedural phase in the context of considering if in the interests of justice it is appropriate to make an order before the final hearing.
I have recorded the observations of the Full Court so as to reaffirm that payment of legal costs is properly a matter that can be considered, and which I have to consider, within the overall justice of the case and as a basis for making an order pursuant to s 90SS(1)(h), but it is one of only a number of matters to be carefully evaluated in this case. I record these observations because I have no application pursuant to the security for costs application jurisdiction of the Court but that, of itself, is most certainly not fatal to the Applicant’s case.
In paragraph [139] - [141] (inclusive) the majority further considered what other matters were required to establish an appropriate case for an interim property settlement order and stated that it is more than the mere fact that in a final hearing the applicant would receive the property sought. The relative financial strengths of the parties, particularly the respondent’s capacity to pay the sum ordered and his or her own litigation costs and generally all relevant financial circumstances must be evaluated. That I have done.
The Full Court also highlighted the important consideration which must be given to the “clawback issue” or the “reverse ability” of the order and these are matters of very significant relevance to this case given the quantum of the payment(s) sought and the form of security sought by the Applicant in the event that the Respondent’s inability to borrow monies or otherwise comply with the orders for the payment of the significant lump sum.
A significant requirement that must be undertaken and evaluated, and which I have done, is to balance the risks of unduly limiting the final form of orders which could be made in circumstances which show it to be just and equitable to make interim orders. In this regard the Full Court cited with approval the remarks of Riethmuller FM in Wenz & Archer (2008) 40 FamLR 212 at paragraph 52. I emphasise that my assessment has been to determine whether interim orders should be made and thereafter what the quantum would be if it is just and equitable to pronounce interim orders, having balanced the somewhat unique financial circumstances surrounding each of the first and second required payments, and how they have arisen within the particular relationship, against the overall justice and the desirability that there be one final order only in s 90SM proceedings.
What is required in addressing “the first step in the evaluation” has been described in various ways (see the discussion in Strahan (supra) at paragraph [128], Wenz & Archer (supra) and the recent reported decision of Murphy J in Finazzi & Finazzi [2012] FamCA 102).
The considerations that must apply to the determination of exercising any interim property power include:
·the order must be just and equitable;
·any proposed order must fall within a preliminary view of any likely range of outcomes;
·any pronouncement of interim orders must not impact upon the powers of the Court available to the Court to make final orders that are just and equitable;
·care must be taken not to potentially defeat any parties claims or legitimate expectations in a final hearing;
·a party should not be denied the ability to liquidate assets to meet a proper demand for payment by other creditors or otherwise required to liquidate an asset reasonably sought to be retained in the final hearing;
·a party would not be forced to sell a core asset if it was essential to their final orders sought.
There are additional issues that are unique to the particular facts in this de facto relationship that directly impact upon the exercise of interim property powers and which are more carefully evaluated hereafter.
The other judge of the Full Court in Strahan (supra), Thackeray J, delivered a separate but supporting judgment and his clearly written and well defined statement of both the law and the approach is recorded in paragraphs [224] - [228] (inclusive) as follows:
[224] In every defended case one of the parties will claim they are entitled to a payment or transfer of property from the other party. In many cases the other party will acknowledge they are likely to be ordered to transfer property or make a payment. That, however, could not of itself be sufficient to make it appropriate for the Court to make an interim order. Circumstances may change radically during the course of proceedings, as has been seen with recent severe fluctuations in the market. The personal circumstances of the parties may change dramatically. Furthermore, although a party may anticipate ultimately being ordered to transfer property or make a payment, they may legitimately expect to obtain an order for costs against the other party which will be satisfied from funds or property that would otherwise have been transferred.
[225] These sorts of considerations provide a strong basis upon which the court should maintain its traditional stance that there should ordinarily be only one hearing of disputes concerning alteration of property issues. I accept the submission of senior counsel for the wife that something out of the usual course would need to be established before the court could be expected to devote its resources to resolution of disputes about interim alteration of property interests. However, once the Court has determined that it is appropriate to embark upon the hearing of an interim dispute, it has no alternative other than to exercise (or decline to exercise) the power to make an interim order by application of the relevant provisions of the legislation.
[226] In my view, the two step approach advocated by senior counsel for the Wife aptly encapsulates the way the Court should approach an application for interim property settlement. The court must first identify circumstances that make it appropriate to give consideration to exercising its power to make an interim order. It is at this stage that the Court has regard to the policy consideration that it is generally in the interest of the parties and the Court for there to be only one exercise of the s 79 power. However, once the court has determined that the interests of justice require it to exercise the power, the conditions on which the power is to be exercised are governed only by the obligation to make an order that is “appropriate” and to ensure that the proposed order is “just and equitable” by reference to the matters set out in s 79(4).
[227] I accept the submission of senior counsel for the Wife that in applications designed to secure funds for legal costs it is appropriate for the Court to give consideration to whether the claim for costs is “genuine” — i.e. that a party is not bringing an interim application on a pretext. However, once the Court is satisfied the claim is genuine, it should not “take a narrow view of the costs budget”. I also agree that “it is dangerous for the Court to put itself in the solicitor’s chair [especially in a case where] there are 182 boxes of materials to go through”.
[228] Finally, I accept the submission of senior counsel for the Wife that it is not appropriate to seek to control the extraordinary level of costs incurred in this litigation by denying only one of the parties access to funds. In this regard it is important to keep in mind that the wife is proposing to spend funds that the husband acknowledges are hers. In my view, that is her prerogative — and a matter between her and her legal advisors.
I pause to further reflect upon paragraphs [224] and [225] of the above extract of the judgment from Thackeray J. Pending the final defended hearing in these proceedings the personal circumstances of both parties may change dramatically. The income and earning capacity of both parties may vary, by either an increase or decrease in income and financial benefits, and this can be best assessed at the final hearing. Likewise the current market value of each of the significant property assets of the Respondent could appreciate, or otherwise could decline, in value. Again that is best determined at the final hearing. I conclude that these matters are of importance given the Respondent’s application is for a dismissal of all applications and his case is founded upon the basis that he should not be required to make any form of payment or transfer any property or asset to the Applicant.
If I were to find that a payment or a transfer of property was required then the argument should be preserved as to whether any order for costs could legitimately be obtained against that other party and which would most conveniently be satisfied from the funds or property that would otherwise have been transferred.
The substance of paragraph [225] of His Honour’s judgment is to highlight the necessity of determining whether there should only be one hearing concerning alteration of property interests. In that regard His Honour is identifying a hearing in the contested sense, with the hearing of oral evidence and cross-examination. Even if an interlocutory hearing had been conducted, and this hearing was of two days duration, nevertheless the Court clearly has the authority to decline to exercise the power to pronounce any interim order.
THE EXERCISE OF THE INTERIM PROPERTY POWERS
The duty of the Court is to balance all of the evidence and assess what the justice and equity of the case required at this interim stage of the proceedings. Should there be the pronouncement of an interim property order(s) pursuant to s 90SS(1)(h) or should all issues remain for the final property division hearing pursuant to s 90SM of the Act? On my evaluation of all of the affidavit evidence and balancing the guidelines established in the reported cases to which I have referred, I have decided that the proper course of action is to decline to pronounce orders for any of the lump sum payments sought by the Applicant and otherwise to refer the proceedings to a defended hearing on all property and financial issues. That hearing should be conducted as soon as is reasonably practicable, subject to the obtaining of valuations, the filing of further affidavits, the hearing of the subpoena issues and any listing issues.
The uniqueness of the facts in this case are that the Applicant is solely restrained by the order of the Victorian Supreme Court from receiving any lump sum payment(s) unless and until $450,000 is paid in satisfaction of the R Pty Ltd judgment debt and the discharge of the Freezing Orders now imposed upon him and E Pty Ltd. No monies therefore can be paid to the Applicant without first the discharge of those orders.
It may well be that, upon an assessment of the indemnity costs and interest accrued, the final sum paid may be less than $450,000. This is a matter addressed upon by Mr Davis. Nevertheless I conclude that issue is not a matter for me to now determine (if at all) and I must accept that the Applicant’s obligation pursuant to the judgment entered in default against him and the Freezing Orders of the Victorian Supreme Court is to pay and discharge that full amount of $450,000, save if a lesser sum is otherwise negotiated by the parties to those proceedings or determined by the Supreme Court.
It is a matter of real dispute between the parties as to whether that judgment debt sum of $390,000, and without the question of the interests and costs thereon, was actually incurred within the de facto relationship. Should the Respondent in any way whatsoever be responsible for the payment of that sum or any part thereof? I conclude that such a question is a matter for the final trial as it can only be properly determined upon all of the evidence and the cross-examination of the parties and their witnesses. It requires full and proper disclosure and valuations and for all of the evidence to be placed before the Court in a timely manner.
I am, of course, acutely aware of my past judgment in this matter and the granting of a certificate pursuant to s 128 of the Evidence Act 1995 (Cth). Most likely the Applicant knew of the financial issues that had then arisen between himself and his previous employer and it was these issues that led to his voluntary disclosures to his accountant and then to the filing of his application for such a certificate before this Court. That is background material to the interim property orders now sought but it is an important fabric of the case and to be considered within the overarching obligation of the Court to deliver justice and equity to both parties.
It is understood that the Applicant would assert that the monies paid to him from his “other clients” and over and above his employer’s remuneration was financially invested or spent to the advantage of the relationship. That itself is central to one of the many disputes between these parties and that issue can only be determined at a final hearing and upon all proper evidence.
I would not order the payment of any or all monies to discharge that Supreme Court liability and Freezing Order(s). That is not properly an issue to be determined in interlocutory proceedings and thus should not be part of any interim property order. Whilst I have hereafter considered both the payment of the taxation account and the independent payment of legal expenses and disbursements these nevertheless are intertwined with the discharge of the Freezing Order(s) and can only be assessed in that context and not individually without regard to the quantum of monies to be paid.
The Applicant’s next request was for the payment of a sum of $307,249, plus interest accrued to the Australian Taxation Office on his behalf. It is asserted that the assessment of this taxation liability arose during the relationship and that it should be considered as a joint liability of the parties. The Applicant carefully described this taxation debt in paragraphs [51] - [53] (inclusive) of his primary affidavit and there highlighted the primary tax payable and the significant GST component thereof. Interest is of course payable on a daily basis and that will significantly increase the liability.
Again the parties are in serious dispute as to the relevant facts and evidence and as to whether any of those monies earned, received or obtained by the Applicant were directed to the benefit of the parties jointly within their de facto relationship or was otherwise personally expended only upon the lifestyle of the Applicant, as is the allegation of the Respondent.
The payment of this taxation liability is properly a matter for determination at the final hearing. On my assessment of the evidence and on a consideration of the principles of equity and justice to both parties I would not order, on an interim basis, the payment of this taxation debt and accrued interest by the Respondent to the benefit of the Applicant. Even if there was no priority payment required to discharge the Freezing Orders of the Supreme Court I would not have ordered in interim proceedings the payment of the Applicant’s taxation debt and interests, costs and penalties thereon. I find that would not afford justice to the Respondent who is entitled to argue in the defended hearing that this liability is personal to the Applicant and should be paid by him from his property and assets. Again I record that it is an issue that is and must remain part of the s 90SM proceedings.
I am conscious that the accruing of interest on this taxation debt is a further substantial liability for the Applicant and that is a matter that I have here separately evaluated as it may have been argued to have been an appropriate interim consideration to limit the quantum of the future taxation liability. What I had initially reflected upon was the option of requiring the Respondent to pay the ongoing interest, as it accrued from time to time. That would have been a way of somewhat managing that taxation liability, but ultimately I determined that it was a matter that should not be the subject of an interim property order and the exercise of discretion in that regard. I could find no good reason to split the components of that taxation liability and thus I have determined not to treat the ongoing accrual of interest as in any way different from the assessed lump sum payment outstanding. In any event I was not asked by counsel for the Applicant to make any such order.
The primary reason why the tax liability and interest should not be paid is that, on the evidence before me, it would not do justice to both parties. It could, to some extent, be seen to pre-judge the lump sum payments to be made (if any) by the Respondent to the Applicant in any final property hearing. The Applicant could not be relieved from his taxation liability without contemporaneously being released from his Supreme Court judgment debt. That would have required an approximate payment of $760,000, or thereabouts, by the Respondent in favour of the Applicant. On the facts in this interim case I have concluded that such a substantial lump sum payment may likely prove to be unjust and inequitable to the Respondent and thus should not be ordered. The outcome however may, subject to all evidence, be different in the defended hearing.
As to the orders sought for payment of past, present and future legal costs of $200,000 they again must be seen in the context that no monies can be paid to the Applicant, or to solicitors on his behalf, without first discharging the Freezing Order of the Supreme Court of Victoria and the payment of $450,000 associated therewith. Thus to effect a scenario where the Applicant is placed in legal funds to the extent of $200,000 requires a minimum $650,000 payment, or thereabouts, to be made by the Respondent to the benefit of the Applicant.
I have carefully considered the statement of the Full Court in Zschokke (supra) at 83,217 where Strickland J identified three matters that would be relevant in considering an interim property application intended only to fund legal costs. Those matters were:
· the relative financial strength of the Respondent;
· the Respondent’s capacity to meet his own litigation costs;
· an inability on the part of the Applicant to pay his costs.
The above three matters are not referenced directly to any statutory provision and there are no binding principles of law and thus it is not a simple position that if the three above reasons could be satisfied then there should or must be an interim order for legal costs.
The Respondent has the capacity to pay his own litigation costs and he is in a position of relative financial strength. In contrast the Applicant is certain to struggle to pay his present and future legal costs, if his current solicitor’s demand payment in advance rather than awaiting the outcome of the defended trial and then obtaining full payment of their costs and disbursements on his behalf. That is not a matter upon which I further comment, though I do observe that in many cases before the courts a party does resort to obtaining financial assistance from a litigation funder. Again that is a matter that is not in evidence and I have not further evaluated and it has not in any way influenced my determination of this interim hearing.
In my assessment of a just interim order within the fabric of this four and a half year relationship and with the substantially contested factual circumstances the quantum sought by the Applicant, as a necessity of discharging that judgment debt, is simply too great and on balance I am not prepared to entertain the security for legal costs payment of $200,000 sought as part of any interim property order.
I am reinforced in that outcome by my preliminary view that there may be a degree of uncertainty concerning the outcome of the Applicant’s final property division claim. There are many factors there to be considered including his significant financial contribution to the relationship of $190,000 cash (if proved) together with his other assets. Offsetting in part that contribution is the Respondent’s payment of $50,000 (for whatever reason) to the Applicant, but more significantly the hotly contested factual issues of contribution, pre-relationship assets, support and upkeep of the homes and domestic relationship and the individual earning capacity and entitlements of both parties. All of those matters require a defended hearing and cross-examination of the parties. That would afford proper justice to the parties and preserve and protect the ultimate final orders that each of them have sought.
In arriving at this conclusion I have carefully balanced the submission of Mr Davis who asserted that his client was entitled to no less than 25% and no more than 40% of the net pool of assets. I record that there was no appropriate reply or concession by Ms Smallwood, most likely upon her instructions and the Respondent has sought only the dismissal of all applications of the Applicant, both interim and final and without any payment whatsoever. I carefully do not prejudge any issue but, on a final basis, that outcome sought by the Respondent might be proven by further evidence to be unrealistic.
I otherwise was further troubled about the level of disclosure and discovery in the interim proceedings and the very tardy way in which the Applicant introduced evidence of his financial conduct and dealings that would have been known to him at an earlier time in the proceedings. Again I carefully do not further comment on the past timetable or content of his evidence and these matters can await a proper final hearing.
The Applicant sought as security the property at Sydney Suburb 1. That substantial property is registered solely in the name of the Respondent and any requirement to sell that property would have incurred very substantial costs and expenses and removed from the Respondent his opportunity to argue for the retention of and his continuing sole ownership of that property. Again that was a matter of some importance, albeit somewhat lesser importance than the earlier matters of which I have examined. Aside from selling costs, the other potential loss to the Respondent would be any ongoing escalation in the price of Sydney Suburb 1 between now and the final hearing and given the current market value and location of that property such potential loss could conceivably be reasonably substantial. Likewise, Sydney Suburb 1 could fall substantially in value and that would lessen the available asset pool and likely have an impact upon the final division of property orders. Simply put the security, and admittedly there was likely no other choice to the Applicant, is out of kilter with the interim payment sought and therefore not reasonable or just in all the circumstances.
Of course I am alert to the considerable income now earned by the Respondent and it may have been that he would have borrowed or otherwise funded any required interim payment without recourse to the sale of Sydney Suburb 1. That is a conclusion open to me on all of the evidence and thus it is a matter which I have evaluated, but ultimately it was not necessary for that to be decided.
The Full Court in Harris (supra), and as affirmed in Strahan (supra) had emphasised that, of necessity, the interim property powers of the Court are both somewhat imprecise and, as a consequence, must be exercised conservatively. It was stressed that the judge must be satisfied that the remaining property would be adequate to meet the legitimate expectations of both parties at the final hearing, or that the order which is contemplated is capable of being reversed or adjusted if it is subsequently considered necessary to do so. It is that requirement of a careful and considered approach, for all of the reasons outlined in my evaluation of the evidence, that has led me to conclude, on the particular facts of this case, that it would be unwise and most likely unjust to now exercise any interim property order in favour of the Applicant.
Ultimately what the Applicant sought was a very significant sum, approaching $900,000, or perhaps greater. I am not satisfied that I should exercise any interim jurisdiction of the Court and impose that ongoing financial commitment upon the Respondent at this stage of the proceedings. It is the Respondent’s claim for both parties to retain all of their personal and corporate assets and possessions and thus he has at all times opposed any payment of monies to the Applicant. My decision therefore to dismiss the Applicant’s interim orders preserves for both parties the opportunity to argue at the defended hearing for the entirety of their final orders sought.
PAYMENT OF LEGAL COSTS / COSTS ORDERS
In Strahan (supra) the Full Court, at paragraph [79], acknowledged that:
The need for a party to proceedings under the Act to seek an order for the provision of funds to enable the payment of his or her legal costs of participating in the proceedings has been recognised for many years. It is a reflection of an important matter that distinguishes litigation under the Act from civil litigation between parties who are not parties to a marriage [or a de facto relationship] namely that “very often the wealth of the parties is controlled by one rather than both of them”.
That provision for the payment of funds applies equally to a de facto relationship situation and the courts have identified various remarks as to the desirability of legal representation for both parties in family law proceedings, as evidenced in paragraph 80 of the judgment in Strahan (supra).
Most likely the power to make an order for costs pursuant to s 117 of the Act does not require the two stage approach because that power may be exercised at any time during the proceedings but what has to be established are “circumstances that justify the making of such an order”.
In considering what orders should be made by way of a costs application the Court is specifically directed in s 117(2A)(g) to have regard to such other matters as the Court considers relevant. If the Applicant had based, even in the alternative, his submissions upon the costs powers of the Court I would then have been required to more closely consider both the justice of that scenario and the other matters relevant.
As the Applicant’s case was not founded upon any of the security for costs powers, counsel for the Respondent did not reply to same, though in paragraph [4] of the Respondent’s written submissions, counsel identified the available argument but urged the Court to find that the financial conduct and lack of disclosure by the Applicant rendered any order under that source of power as being unjustified and inappropriate.
That issue therefore is not a matter that now falls to me to decide in these proceedings. However, and for completeness, I re-emphasise that no security for costs order could be made in favour of the Applicant for the payment of any past, present or future legal costs, without first discharging the Victorian Supreme Court Freezing Order(s) in the sum of $450,000.
On balance therefore, and in the interests of justice and with all matters contested and awaiting a final hearing I would not have made a costs order which would have required that initial and additional $450,000 payment to have been made. I would have concluded that an all up payment of no less than $650,000 to the Applicant was not justified on the current facts and evidence in this matter now before the Court.
The other matter to be considered is that the Respondent has extant a claim for costs against Law Firm 1, the Applicant’s former solicitors and orders on an indemnity costs basis or otherwise as agreed are sought against that firm in the alternative to orders sought against the Applicant. Thus it may be, and without any knowledge of the further evidence to be presented to the Court, that there will be a contribution to or payment of part of the Applicant’s costs that is not factored within his current application for the sum of $200,000. I cannot and do not further consider those issues at this stage, but merely to record the live application before the Court.
I therefore conclude that Mr Davis took a considered and somewhat prudent approach in structuring his client’s claim upon the interim property powers of the Court and not its costs powers. Unfortunately for his client he has been and would have been wholly unsuccessful.
COSTS IN THE PROCEEDINGS
At the conclusion of the hearing I was asked by counsel for both parties to reserve costs of and incidental to the proceedings and, after reasons for judgment were delivered and orders pronounced, to fix the matter for a mention so that any costs application could be made and argued. I have so ordered.
I certify that the preceding One Hundred and Ninety Seven
(197) paragraphs are a true copy of the reasons for judgment
of the Honourable Justice Young delivered on 13 April 2012.
Associate: ……………………………………………………………
Date: …………………………………………………………………
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