Appleton and Appleton

[2007] FamCA 1536

FAMILY COURT OF AUSTRALIA

APPLETON & APPLETON [2007] FamCA 1536

FAMILY LAW – PROPERTY – Transaction to defeat claims – Where the Husband defalcated business trading stock to detriment of Wife – Where tracing exercise subject to government investigation – Where no such investigation forthcoming – Where actual value of defalcated assets at large – Judge concludes on basis of estimates before him – Where estimated value minus business expenses added back to property pool – Further property orders made

Family Law Act 1975 (Cth)

APPLICANT: Ms Appleton

RESPONDENT: Mr Appleton

FILE NUMBER: BRF 926 of 2003

DATE DELIVERED: 1 November 2007

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Barry J

HEARING DATE: 1 November 2007

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Applicant Wife appeared for and on her own behalf

SOLICITOR FOR THE RESPONDENT: Respondent Husband appeared for and on his own behalf

Orders

1. In addition to the Order of 17 March 2006 and by way of final property order the Husband is to pay the Wife a further $130,376.

IT IS NOTED that publication of this judgment under the pseudonym Appleton & Appleton is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRF 926 of 2003

MS APPLETON  

Applicant

And

MR APPLETON  

Respondent

REASONS FOR JUDGMENT

1. The parties to this litigation were involved in a property settlement hearing in this Court over three days in February and March last year.  On 17 March 2006, for reasons which were published at the time, I issued orders for a partial property settlement.  Those orders provided for the husband to transfer the former matrimonial home at C to the wife.  The wife was to retain her motor vehicle, furniture, contents and jewellery.  I transferred the husband's interest in his superannuation fund to the wife with the wife to be responsible for a debt to the National Australia Bank in the name of J Pty Ltd (J Pty Ltd) which was an overdraft of the company secured on the mortgage.  I also ordered the husband to pay the wife's costs of and incidental to an application filed on 11 November 2004 to be assessed on an indemnity basis.

2. There was then a further order for costs after I called for written submissions.  They were received and on 28 April I ordered that on a party and party basis for the period from February 2003 to June 2004 and on an indemnity basis from 8 June 2004 up to the date of the order.  There was also a further order that I made separately referring the papers in this matter to the Federal Attorney-General for consideration of taking action against the husband for taxation fraud, company fraud, social security fraud and perjury.

3. I have heard the husband's submissions which were made today after I had sworn the parties in, as is the current practice.  Nothing in those submissions would lead me to change the view that I formed during the course of this hearing when I delivered the reasons for judgment back in March last year.  The witnesses called by the wife included a woman who had worked in the warehouse with the husband. She was a particularly impressive woman.  Another witness was a person who had been part of the business operation with the husband. I found his evidence impressive.  I have already made my findings about those matters in such sufficiently strong terms that I had no doubt whatsoever of the widespread fraudulent behaviour of the husband.

4. The papers were referred to the Federal Attorney-General but word has now been received that no action is likely to be taken.  There may be action by the Taxation Department, I do not know.  When that intimation was received from the Federal Attorney-General's Department on 7 August this year, I issued an order directing that the matter be re-listed for today's date with the parties to have liberty to produce further evidence and make further submissions.

5. On today's date the parties appear in person.  The wife has still retained her solicitors but Mr Carr, her solicitor, is ill today.  There was word sent and, in effect, I indicated that if the wife sought an adjournment it would be granted for a brief period of time.  That message was conveyed through my legal associate.  As it transpires the wife has appeared in person and she does not seek an adjournment. She wants the matter over and done with and her attitude is understandable.

6. Through her legal representatives the wife filed written submissions and had sworn an affidavit, both of which were lodged on 2 October this year.  I raised that matter with the husband and he said he had not received same.  I indicated to him I would grant him an adjournment. After further discussion, he indicated the documents were in fairly relatively brief terms.  He did not seek an adjournment.  I stood the matter down to allow him the opportunity to read that material.

7. For the reasons that I gave on 17 March I am satisfied the husband acted dishonestly in relation to the disposal of significant assets of the companies that he operated.  There were numerous bank deposits to his account the husband was unable to satisfactorily explain, there were numerous deposits of large sums of money to his account at a time when the husband was drawing social security benefits.

8. The counsel for the wife at the trial, Mr Coulsen, submitted that I should add a further $400,000 to the assets of the parties for the missing stock.  The way the submissions are formulated, at the present time it is that the husband be ordered to pay to the wife, in addition to the orders that I have already made by way of partial property settlement, a further sum of $400,000.  That is to be found at page 1, the fourth paragraph of the written submissions.

   “The husband forthwith pay to the wife the sum of $400,000 with a further term that such sum attract 5 per cent interest until paid.”

9. It is a common view, as a result of legal precedent, that a Court should not order a party to pay more money than exists in the property pool, however, there are exceptions to that, and one of those exceptions is where there has been deliberate wasting of assets, for example, by a person saying, "I have gambled all of the money."  The Court in those circumstances is entitled to say, "An order will be made and there will be a notional add back of the amount which has been proved to have been dissipated in that fashion."

10. Similarly where there is fraudulent behaviour a Court is entitled to estimate the amount of any defalcation and to have that money added into the property pool.  The husband may still have the money.  It may be in other peoples' names.  He may have dissipated it in the meantime.  I am satisfied from the evidence that was placed before me at the hearing in February and March last year that the cost price of the stock was a little over $400,000.  The estimate that was placed before the Court was that the value of that stock on a retail basis was some $933,000.  That is to be found at paragraph 55 on page 14 of my reasons for judgment.  That was based in part on the wife's estimates but also based on the stock take document which had been prepared by Ms V, the company's employee who worked at the warehouse.

11. The husband's evidence at the trial was not that there was $80,000 worth of stock paid for by customers but simply stored in the warehouse pending delivery.  The husband's evidence before me at the trial was that M Company, an entity operated by his former partners and directors of J Pty Ltd, repossessed all of J Pty Ltd's stock and its value at the time was $100,000 to $150,000.

12. I would accept some merit when coming to the calculations that it is not simply a case of calculating the business's profit at $533,000 if there was stock with a cost price of $400,000 and a selling price of $933,000, allowance would have to be made for business overheads. 

13. I do have regard to the findings that I have made pursuant to s.79 and 75(2), and in those findings I assessed that the property should be divided 60 per cent to the wife and 40 per cent to the husband.  The wife's legal representatives had done an excellent job in adducing convincing evidence of the husband's dishonest conduct.  Unfortunately that exercise was extremely expensive and she has been faced with costs of $162,000. 

14. As I say, there has been no further investigation by any government agency, unfortunately, and so moneys are unable to be traced, but I am satisfied that it was a valuable business and the husband liquidated that business to his own advantage and to the detriment of the wife.  I have taken into account the further submissions that I have received today at paragraphs 100 and 101 of the judgment, page 27:

    "I know that submissions were made on behalf of the applicant wife that the Court should make a finding that the husband has misappropriated a minimum amount of $400,000 and this should be treated as an add-back."

    Paragraph 101:

    "I do not propose to add-back the $400,000 at this stage for two reasons:

    (1) there may be legitimate creditors of [J Pty Ltd] or other entities, including the Australian Taxation Office which are entitled to be paid out of the misappropriated moneys; and

    (2) it is not my practice to make an order which cannot be enforced where there are no tangible assets.”

15. However, although there are no tangible assets found at the present time, it is appropriate in exceptional cases to make an order and I propose to redo the calculations adding back in $400,000 as an asset of the parties.  At paragraph 7 of my reasons for judgment I set out what was the agreed pool of the parties.  Now, that was the matrimonial home at C of $350,000 which had a mortgage of $104,000; the wife's motor vehicle - the parties agreed it was worth $12,000; the motor vehicle of the husband $6000; furniture and contents in the wife's possession $8000; furniture and contents in the husband's possession $500; wife's jewellery $9870; husband's jewellery $840; husband's superannuation $22,000; wife's superannuation $1200.  There was a further liability to the National Australia Bank from J Pty Ltd’s business operations of $14,000.

16. The husband takes issue with the freezing of his account so the overdraft could not be extended but as a matter of historical record that was done, there was no challenge to that at the time. The wife has ultimately had to pay out that amount.  The total net value then of the assets was $292,410.  Of this amount the wife has received $285,070 and the husband $7340.  I propose to add-back $400,000 being a discounted amount.  I have said there was $533,000 on the evidence before me in stock but I will allow some $133,000 for costs of sale, staff, wages, storage fees and things of that nature.  That brings the revised property pool to $692,410.  The wife's entitlement at 60 per cent is $415,446.

17. As I have noted above, the wife has already received property to the value of $285,070.  The balance then owing by the husband is $130,376.

    ORDER DELIVERED

18. I raised the issue of altering the order that I made for costs on 17 March - it might have been 28 April 2006 - ordering the husband to pay party and party costs for a period of time and indemnity costs for a period of time with such costs to be assessed by way of a taxation procedure.  The wife, as I have noted, has not had the capital, the funds to be able to proceed to a taxation.  I was minded to make an estimate of the costs but I do not have details of what costs were expended by the wife, for example, of the total amount she paid in contesting contempt proceedings brought against the husband which were ultimately unsuccessful for which Warnick J ordered each party pay their own costs.  In the circumstances I will not interfere with the costs orders.

19. I do not propose to accede to the submission that that sum the wife sought that there be an order for 5 per cent interest.  The Rules provide for a default interest which is a little in excess of 10 per cent at the present time.  It would seem to me that that is an appropriate default order.  If the husband does not pay the amount, interest can accumulate in accordance with the Rules.

    RECORDED:  NOT TRANSCRIBED

I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Barry

Associate: 

Date:  1 November 2007