ARMINGTON & ARMINGTON (No.2)
[2019] FCCA 1232
•13 May 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ARMINGTON & ARMINGTON (No.2) | [2019] FCCA 1232 |
| Catchwords: FAMILY LAW – Property – interim – valuation of property – leave granted for parties to be joined pursuant to s.500(2) of Corporations Act 2001 – where wife seeks an audit of the husband’s financial interests – order made for single auditor – costs to be shared equally between husband and wife. |
| Legislation: Family Law Act 1975 (Cth), ss.79, 117 Federal Circuit Court of Australia Act 1999 (Cth), s.39 |
| Cases cited: Armington & Armington [2019] FCCA 1233 |
| Applicant: | MS ARMINGTON |
| First Respondent: | MR ARMINGTON |
| Second Respondent: | COMPANY A PTY LTD (ACN …) |
| Third Respondent: | COMPANY B PTY LTD (ACN …) |
| Fourth Respondent: | COMPANY C PTY LTD (ACN …) IN ITS OWN CAPACITY AND AS TRUSTEE FOR THE ARMINGTON FAMILY TRUST |
| Fifth Respondent: | AACN … PTY LTD (FORMERLY COMPANY D PTY LTD) (ACN …) (IN LIQUIDATION) |
| Sixth Respondent: | AACN … PTY LTD (FORMERLY COMPANY E PTY LTD) (ACN …) (IN LIQUIDATION) |
| Seventh Respondent: | AACN … PTY LTD (FORMERLY COMPANY K PTY LTD) (ACN …) |
| File Number: | MLC 1627 of 2016 |
| Judgment of: | Judge C. E. Kirton QC |
| Hearing date: | 12 April 2019 |
| Date of Last Submission: | 12 April 2019 |
| Delivered at: | Melbourne |
| Delivered on: | 13 May 2019 |
REPRESENTATION
| Counsel for the Applicant: | Ms Jenkins |
| Solicitors for the Applicant: | Taussig Cherrie Fildes |
| Solicitors for the First Respondent: | In person |
| Solicitors for the Second to Fourth Respondents: | No appearance |
| Solicitors for the proposed Fifth and Sixth Respondents: | Madgwicks |
| Counsel for the proposed Fifth and Sixth Respondents: | Mr Snyder |
| Solicitors for the proposed Seventh Respondent: | No appearance |
ORDERS
(a) Subject to Order 1(b), leave to proceed pursuant to s.500(2) of the Corporations Act 2001 (Cth) is granted to join:
(i)AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation) as Fifth Respondent; and
(ii)AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation) as Sixth Respondent.
(b)(i) The Fifth and Sixth Respondent are excused from participating in the proceeding and have the right to participate at any stage of the proceeding should they wish to do so.
(ii)The Applicant will forthwith serve a copy of all orders made in the future in this proceeding on the solicitors for the Fifth and Sixth Respondents.
Pursuant to r.11.02(2) of the Federal Circuit Court Rules 2001 (Cth) AACN … Pty Ltd (formerly Company K Pty Ltd) (ACN …) be joined to this proceeding as Seventh Respondent.
The Husband and Wife forthwith do all acts and things and sign all such documents as are required to:
(a)Appoint Accountants (Auditor) to prepare an audit (Audit) of the entities which are to be valued by the Court expert pursuant to the Husband and the Wife’s joint letter of instruction to Mr T of Accountants, dated 21 February 2019.
(b)Provide the Auditor with such documents and information as may be required to complete the Audit.
The cost of the Audit is to be shared equally between the Husband and the Wife.
Within seven (7) days of any payment (including any deposit into a trust account in advance) by or on behalf of the Husband in relation to the fees and expenses of any legal practitioner acting on his behalf (including all expenses in association with the preparation of his case), except for any fees and expenses paid by the Husband to a joint expert or the Auditor retained on behalf of both parties, the Husband pay, or cause to be paid the same amount by direct deposit into the Taussig Cherrie Fildes Trust Account.
Within twenty four hours (24) after any payment by or on behalf of the Husband as described in Order (5), the Husband cause a memorandum to be provided to the Wife’s solicitors stating the amount or amounts so paid.
The amounts paid pursuant to Orders (5) and (6) to the Wife’s solicitors be applied by them only in payment of the costs and disbursements incurred by the Wife in the conduct of these proceedings.
The Wife’s costs of and incidental to the Wife’s Application in a Case filed on 19 March 2019 and the appearance on 12 April 2019 are reserved.
Pursuant to s.39 of the Federal Circuit Court of Australia Act 1999 (Cth), these proceedings be transferred to the Melbourne Registry of the Family Court of Australia to be listed with such priority as that Court deems appropriate.
AND THE COURT NOTES THAT:
A. The proceeding is being transferred due to the number of parties that have recently been joined to the proceeding and the consequent anticipated increased length in hearing time required.
IT IS NOTED that publication of this judgment under the pseudonym Armington & Armington (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 1627 of 2016
| MS ARMINGTON |
Applicant
And
| MR ARMINGTON |
First Respondent
| COMPANY A PTY LTD (ACN …) |
Second Respondent
| COMPANY B PTY LTD (ACN …) |
Third Respondent
| COMPANY C PTY LTD (ACN …) IN ITS OWN CAPACITY AND AS TRUSTEE FOR THE ARMINGTON FAMILY TRUST |
Fourth Respondent
| AACN … PTY LTD (FORMERLY COMPANY D PTY LTD) (ACN …) (IN LIQUIDATION) |
Fifth Respondent
| AACN … PTY LTD (FORMERLY COMPANY E PTY LTD) (ACN …) (IN LIQUIDATION) |
Sixth Respondent
| AACN … PTY LTD (FORMERLY COMPANY K PTY LTD) (ACN …) |
Seventh Respondent
REASONS FOR JUDGMENT
Introduction
This is an interim decision in relation to property proceedings. These are proceedings commenced by the applicant Ms Armington (Wife) on 25 February 2016 seeking an alteration of property interests pursuant to s.79 of the Family Law Act 1975 (Cth) (Act).
The parties were married on … and commenced cohabitation on that date. Final separation took place on 1 December 2011 and a Divorce Order was made on 13 September 2016.
There are three children of the marriage: Ms Q, born … 1999, currently age 19; [X], born … 2001, currently age 17; and [Y], born … 2004, currently age 15.
This matter was listed for final hearing on 4 March 2019 with an estimate of five days. This was the third occasion that the proceeding had been listed for final hearing, the previous occasions being 13 June 2018 and 16 April 2018. At the commencement of the hearing on 4 March 2019 the Wife made an application for an adjournment of the hearing and the respondent Mr Armington (Husband) supported the application.
In November 2018 the Husband had, without the consent of the Wife, sold business interests subject to this proceeding to companies associated with his father at an apparent undervalue. The Wife sought the adjournment of the hearing whilst further discovery in relation to this transaction was undertaken and an application was made for other respondents to be joined to the proceeding. A valuation of the Husband’s business interests had also not been completed pursuant to previous Court orders.
The Wife sought a number of other interim orders pending the adjourned final hearing of this matter. This judgment is the second judgment in relation to the interim orders sought by the Wife.
Issues to be Determined
The issues in dispute are set out in the Wife’s Application in a Case filed on 19 March 2019. The Wife seeks orders that:
a)That leave be granted pursuant to s.471B of the Corporations Act 2001 (Cth) for the following to be joined as respondents to the proceedings:
i)AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation), as proposed Fifth Respondent.
ii)AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation), as proposed Sixth Respondent.
b)That AACN … Pty Ltd (formerly Company K Pty Ltd) (ACN …) be joined as a respondent to these proceedings, as proposed Seventh Respondent.
c)The Husband and Wife forthwith do all acts and things and sign all documents to appoint Accountants to prepare an audit of the entities which are to be valued by the Court expert Mr T pursuant to the joint letter of instruction dated 21 February 2019, at the joint expense of the parties.
d)For every dollar paid by the Husband to his legal representatives for professional fees or disbursements and legal advice in relation to these proceedings, the Husband pay or cause to be paid the same sum to Taussig Cherrie Fildes on behalf of the Wife.
e)The Husband pay the Wife’s costs of and incidental to this application on an indemnity basis.
Synopsis
I have determined that:
a)Leave be granted pursuant to s.500(2) of the Corporations Act 2001 (Cth) for the following to be joined as Respondents to the proceedings:
i)AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation), as Fifth Respondent.
ii)AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation), as Sixth Respondent.
b)AACN … Pty Ltd (formerly Company K Pty Ltd) (ACN …) as Seventh Respondent.
c)That the parties within seven (7) days do all acts and things and sign all documents to appoint Accountants to prepare an audit of the entities which are to be valued by the Court expert Mr T pursuant to the joint letter of instruction dated 21 February 2019, at the joint expense of the parties.
d)That a “dollar for dollar” costs order be made against the Husband in favour of the Wife.
e)The Wife’s costs of and incidental to the Application in a Case filed on 19 March 2019 be reserved.
Background
I have previously set out the history of the parties’ marriage and relationship in Armington & Armington[1].
[1] [2019] FCCA 1233, at [7]-[10].
Procedural History
The procedural history of this matter insofar as it is relevant to this dispute has been set out in Armington & Armington[2] and I shall not repeat it in this judgment.
[2] Ibid., at [11]-[34].
On 12 April 2019 this matter was listed for an interim hearing. Mr Snyder again appeared as Counsel for Mr U (Liquidator). After hearing the submissions from the parties in relation to the Wife’s application for leave to proceed against AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation) and AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation), Mr Snyder and his instructing solicitor were excused from appearing further at the hearing.
Documents Relied on by the Parties
The Wife relied on the following documents:
a)Application in a Case, filed 19 March 2019 (Application in a Case).
b)Third Further Amended Initiating Application, filed 18 March 2019.
c)Wife’s Financial Statement, filed 21 February 2019 (Wife’s Financial Statement).
d)Affidavit of Ms GG, filed 18 March 2019.
e)Affidavit of the Wife, filed 27 March 2019 (Wife’s Affidavit).
f)Affidavit of Ms Sanders, filed 8 April 2019 (Ms Sanders’ Affidavit).
The Husband relied on the following documents:
a)Affidavit of the Husband, filed 5 April 2019 (Husband’s Affidavit).
b)Amended Financial Statement, filed 5 April 2019 (Husband’s Amended Financial Statement).
The Liquidator relied on the following documents:
a)Affidavit of the Liquidator, sworn on 1 March 2019 and filed on 12 April 2019.
b)Affidavit of Ms JJ, sworn 8 April 2019 and filed on 12 April 2019.
Application to Join Companies
In the Application in a Case the Wife sought leave of the Court to join AACN … Pty Ltd (formerly Company K Pty Ltd) (ACN …) (in liquidation) and AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation) as Respondents.
Counsel appearing for the Liquidator submitted that the appropriate provision of the Corporations Act 2001 (Cth) (Corporations Act) for the Court to grant leave under was s.500(2) and not s.471B. This was because both of the companies initially went into voluntary administration. The effect of s.446A of the Corporations Act is that where a company under voluntary administration goes into liquidation it is deemed to have entered into a creditors’ voluntary liquidation. Section 471B of the Corporations Act deals with a compulsory winding up of a company where there has been a court order. Section 446A applies where, inter alia, the creditors of a company under administration resolve that the company be wound up: s.446A(1).
I accept the submission that s. 500(2) of the Corporations Act is the appropriate provision for the Court in this case to grant leave to join AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation) and AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation) as Respondents.
Counsel for the Liquidator submitted that the Liquidator did not oppose leave being granted subject to certain conditions. Counsel submitted that the Liquidator did not want to incur further costs as the companies in liquidation had limited funds. The conditions that the Liquidator requested were set out in detail a letter from the Liquidator’s solicitors, Madgwicks, to the Wife’s lawyers, dated 8 April 2019 (Madgwicks Letter)[3]. The Liquidator sought that:
a) the Companies be kept informed of the progress of the proceeding and be served with any additional materials filed within it. Likewise, if the companies call to view prior materials filed within it, the companies will be given access and copies of such materials;
b) the Companies be kept informed of all future hearing dates and the orders sought at such future hearing dates, and reserve the right to appear at such hearings (and in the event that they do not wish to appear, they would notify the parties of this in advance of the hearing);
c) at the appropriate time at trial or beforehand if the Companies wish to participate in the proceeding, the Companies be permitted an opportunity to be heard but otherwise be excused from participating in an active capacity at trial while reserving the right to do so if required[4].
[3] Affidavit of Ms JJ, filed 12.4.19, Annexure “-1”.
[4] Ibid., filed 12.4.19, Annexure “-1”, at [6(a)-(c)].
The Husband did not oppose the application to join AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation) and AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation) as Respondents[5].
[5] Transcript T9:42-10:1.
Counsel for the Wife submitted that the orders sought in paragraphs (a) and (b) of the Madgwicks Letter were unnecessary as the parties were already required to serve Court documents on all other parties to the proceeding. Counsel submitted that paragraph (c) of the Madgwicks Letter was appropriate.
Counsel for the Wife also made an application that AACN … Pty Ltd (formerly Company K Pty Ltd) (ACN …) be joined as a Respondent.
In response to this Application the Husband said[6]:
Those entities are not under my control. This is a matter for Liquidators[7].
[6] Husband’s Affidavit, at [25 (1) and (2)].
[7] Liquidator is the corporate entity that the Liquidator work with.
An ASIC Current & Historical Extract of AACN … Pty Ltd, dated 5 March 2019[8] states that the current director is the Husband. There are 100 issued shares in the company which are beneficially held by AACN … Pty Ltd (ACN …). The previous registered office was Accountants. The current registered office from 21 February 2019 is … Melbourne. The ASIC Current & Historical Extract states that there are no external administration documents held for this company.
[8] [2019] FCCA 1233, Exhibit A4.
Application to Join Companies - Consideration and Conclusion
In Armington & Armington[9] (Previous Judgment) I considered the Application to join the Armington Companies[10]. I refer to and rely on paragraphs 46 to 88 in the Previous Judgment in relation to this application to join these companies.
[9] Ibid., at [7]-[10].
[10] The definitions used in the Previous Judgment are also used in this Judgment.
AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation) and AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation) and AACN … Pty Ltd (formerly Company K Pty Ltd) (ACN …) were vendors in the Contract of Sale (Vendor Companies).
On the basis of my reasoning in the Previous Judgment, I determine that pursuant to r.11.01(1) of the Federal Circuit Court Rules 2001 (Cth), the participation of the Vendor Companies in the proceeding is necessary for the Court to completely and finally determine all matters in the proceeding. The Vendor Companies must therefore be included as parties to the proceeding.
Therefore in relation to the Vendor Companies:
a)Leave to proceed pursuant to s. 500(2) of the Corporations Act will be granted to join AACN … Pty Ltd (formerly Company D Pty Ltd) (ACN …) (in liquidation) and AACN … Pty Ltd (formerly Company E Pty Ltd) (ACN …) (in liquidation) as Fifth and Sixth Respondents.
b)Pursuant to r.11.02(2) of the Federal Circuit Court Rules 2001 (Cth) AACN … Pty Ltd (formerly Company K Pty Ltd) (ACN …) shall be joined as Seventh Respondent.
Orders will be made accordingly.
Wife’s Application for Joint Appointment of Auditor
In the Application in a Case the Wife sought the following orders:
a)The Husband and Wife do all acts and things and sign all such documents as are required to:
i)Appoint Accountants (Auditor) to prepare an audit of the entities which are to be valued by the Court expert pursuant to the joint letter of instruction dated 21 February 2019 (Audit).
ii)Provide the Auditor with such documents and information as may be required to complete the Audit.
Counsel for the Wife also sought an order that the Audit be conducted forthwith and be at the joint expense of the parties.
Council relied upon the Wife’s affidavit that all deposed to the following matters.
On 21 February 2019 Mr T was engaged to prepare an updated valuation of the Husband’s business entities as at 30 September 2018, pursuant to Orders made on 13 June 2018[11].
[11] Wife’s Affidavit, at [7].
On 26 February 2019 Mr T wrote to the Wife’s lawyers and to the Husband indicating that due to the volume of material that he needed to review and analyse he did not believe that he would be able to complete his updated valuation report in time for the scheduled final hearing on Monday 4 March 2019.
On 1 March 2019 the Wife’s solicitors wrote to Mr T and asked him:
a)For an estimate of the time he would require to complete a “non-limited valuation report”.
b)For a list of all further information he would require to complete the updated valuation.
c)Whether he would be assisted by a forensic audit in particular “of the expenses of the business in light of your preliminary review of the documents and information provided”[12].
[12] Ibid., at [9].
On 1 March 2019 Mr T responded to the Wife’s solicitors’ correspondence in a letter (Mr T Letter) copied also to the Husband which states:
1. It is difficult to provide you with a definitive estimate of the time I would require to complete my report, as I am finding that the further I enquire into various matters, the more issues arise that require further enquiry and analysis.
2. At this time, I have no specific list of further information needed. I have today made some further enquiries of Mr Armington, of which you have received a copy, and I am waiting on a response from Mr Z regarding a question I raised yesterday regarding Company G Unit Trust.
3. I believe I would be assisted by forensic audit of the financial information provided to me to date. I am concerned that the information provided does not disclose the true profitability of the trading entities for the year ended 30 June 2018 and potentially for the period since. I specifically refer to the report prepared in May 2018 by Mr Z, the Armington Group advisers and accountants, which referred to a forecast 2018 full year profit of some $900,000. The actual results reported by Mr Z, prior to provision for non-recoverability of inter-entity loans, was a loss of some $550,000 for that year. This represents a loss of some $770,000 in the June quarter. In my view, this situation lacks credibility. Mr BB, a partner at the auditors, was on the Armington advisory board at that time and ought to have had access to up to date financial information at all times. As the Mr Z report was delivered in May 2018, the results to that date ought to have been known with some greater certainty than is apparently evident from the referenced report.
Further, regarding Company G Unit Trust, I am in possession of a message from a Mr CC (sic) of Auditors, to Mr Armington and his father, dated 29 June 2018 in which, at item 1, he stated in relation to estimating income tax liabilities, that Company G is forecast to derive taxable income of approximately $800,000 for the year ended 30 June 2018. The actual taxable income reported was only $343,000. Again, this statement was made in late June 2018, when accurate results should have known (sic) with reasonable accuracy. In my view, this again demonstrates a lack of credibility over the reported results. Any forensic examination should address these matters, as well is the significant level of costs in the Armington business[13].
[13] Ibid., at [10].
On 6 March 2019 Mr T provided a preliminary valuation of the Armington Group (Preliminary Valuation).
On 25 March 2019 Mr T forwarded his invoice for the work undertaken on the preparation of the Preliminary Valuation report[14]. The fee was $23,650 inclusive of GST. Mr T also advised that he expected his fee to complete the valuation, subject to the findings of the forensic audit of the financial statements and provision of the currently outstanding requested information, would be in the order of $3,000 to $4000 plus GST. Mr T also stated:
The estimate of the Liquidators audit principal to conduct a forensic audit of the 2018 financial statements is between $7,000 to $10,000, plus GST[15].
[14] Ibid., at [28] and Annexure “-1”.
[15] Wife's Affidavit, at [28] and Annexure “-1”.
The Preliminary Valuation was the annexed to the Affidavit of Ms GG, filed on 18 March 2019[16]. Counsel for the Wife submitted in relation to the Preliminary Valuation that:
[16] Affidavit of Ms GG, filled 18 March 2018, Annexure “11”.
a)In paragraph 1.1 Mr T has noted the same concerns referred to in paragraph 30 that he expressed in paragraph 3 of the Mr T Letter.
b)In paragraph 1.2.1 the consideration of $318,000 in the Contract of Sale was:
[…] substantially less than my calculation of Enterprise Value of $1,960,000 […].
Mr T also said:
I understand from my discussions with [the Liquidator] that he intends to examine the commerciality of this transaction.
c)In paragraph 1.2.2 Mr T said:
It is apparent from the financial statements of [Company D Pty Ltd] as at 30 June 2018 and 31 December 2018 that a primary cause of the inability of the group to pay its debts to the ATO is the substantial level of drawings of $1,032,000 by [the Husband] from 1 July 2016 to 31 December 2018. These drawings were in addition to his substantial annual salary package in the order of $300,000. I make no further comment save as to state [the Liquidator] intends to pursue [the Husband] for recovery of these debts.
d)In paragraph 1.2.3 Mr T notes that the Husband has invested in a number of start-up entities in the Armington Group. These entities are listed in Appendix 2 to the Preliminary Valuation. Mr T concludes that to date none of those entities appear to have derived any substantial income, with the possible exception of Company O Pty Ltd. Mr T says:
In my view, these entities have taken valuable resources from the operating entity, [Company D Pty Ltd], in both finance and [the Husband’s] time. It seems to me that given the apparent cash flow difficulties of the group and his efforts in establishing these entities, he would not devote his attention to these entities without the expectation of establishing profitable ventures. I therefore have some concern that the financial information with which I have been provided, reflects the true trading position and hence the value of these entities.
e)In paragraph 1.2.4 Mr T expressed concern about the purchase of listed company shares by The Armington Business Trust. Mr T said:
During the year ended 30 June 2018, this trust purchase (sic) listed company shares, of which I am aware, to the value of $100,594. The Financial Statements at that date disclose an asset being shares in listed companies of $84,419 and a profit on sale of non-current assets of $22,395, which I believe would represent the sale of part of the shares purchased during the year. I am informed by Mr KK[17] that funds to purchase the shares were provided by a loan from [Company D Pty Ltd]. Again, if [Company D Pty Ltd] was experiencing cash flow problems and unable to pay its debts to the ATO, this would appear to be an action contrary to the best interests of [Company D Pty Ltd] and yet another diversion from management of that business.
[17] Mr KK held the position of Chief Financial Officer, Company D: See Affidavit of Ms GG, filed 18 March 2019, Annexure “-5”.
Counsel submitted that Mr T was appointed jointly by the parties and in many respects the Preliminary Report was “virtually meaningless”[18] as there were so many questions concerning the source documents that had been provided to Mr T. Counsel also submitted that the matter would not settle at any stage because there was such a discrepancy between the parties concerning the valuation. It was submitted that the cost of the audit was relatively inexpensive given the amount that had already been spent on legal fees[19]. The cost of the audit could potentially resolve an essential issue in the case and it could save significantly more legal costs. Counsel submitted that each of the parties should be responsible for half of the cost of the audit which was estimated to be between $7,000 to $10,000.
[18] Transcript T17:39.
[19] Transcript T18:1-2.
In response to the Husband’s claim that he could not afford to pay for his share of the audit, Counsel submitted that the Husband had been responsible for the changes in the ownership of the businesses. The circumstances of what happened before and after the recent sale of the businesses pursuant to the Contract of Sale was a serious issue in this case. Counsel noted that in the Husband’s Amended Financial Statement the Husband deposed that he owned a motorbike which he valued at $6840. The Husband also deposed that he owned a motor vehicle which he valued at $18,000. Counsel suggested that the Husband could sell the motorbike in order to pay for his share of the costs of the audit.
Husband’s Submissions – Application for Joint Appointment of Auditor
The Husband opposed the Wife’s Application for an audit for the following reasons:
a)The Orders of 13 June 2018 and previous orders have required the single expert to conduct a business valuation of the Company D and Company G businesses at the shared expense of the Husband and the Wife. The Husband deposed that he believed that:
“[…] a Forensic Audit of Company D’s accounts is unnecessary, goes beyond the Orders of the Court, and therefore beyond the remit of the single expert, who’s primary role is to provide a valuation of the companies, not conduct a Forensic Audit”[20].
b)The final hearing is not until 3 August 2020. Another updated valuation will be required closer to that date, therefore the updated valuation or any associated audit should be delayed “for at least another twelve months”[21].
c)He had no money to pay for an audit.
d)The assumptions made by Mr T were incorrect.
e)Mr T had been led astray and “gone beyond his role as an external expert in this case”[22].
[20] Husband’s Affidavit, at [13].
[21] Ibid., at [16].
[22] Transcript T21:39-40.
The Husband said that the reason Mr T had been led astray was because “he was peppered with a whole load of information which wasn’t provided by me. I simply provided actuals”[23]. The Husband gave the following example:
One in particular was a forecast done by Mr Z which was a PowerPoint presentation to the ATO to secure a loan for $1.7 million.
Now, your Honour, you can imagine that the figures used in that document were probably optimistic, because we’re trying to get a loan from the ATO for $1.7 million so were not going to be pessimistic with those numbers. The fact that they were different to actuals, no one said they were actuals. There were always forecast. So there’s a number of different reasons and explanations but I say that these are all explainable[24].
[23] Ibid. T22:1-2.
[24] Ibid. T22:11-21.
Application for Joint Appointment of Auditor – Consideration and Conclusion
In the Previous Judgment I made findings that the Husband restructured the Company D Business in 2014 without the knowledge of the Wife. It was also evident that the Husband had entered into the Contract of Sale without the knowledge of the Wife and in circumstances where the Wife’s solicitors were expressing serious concerns about the conduct of any proposed sale and opposed any contract of sale being entered into without the Wife’s agreement. By entering into the Contract of Sale the Husband has sold assets of the Vendor Companies to companies associated with his father Mr V in a transaction that has many hallmarks of a non-arm’s length transaction[25].
[25] Previous Judgement, at [103] and [104].
The Preliminary Valuation raises a number of serious questions which require further investigation. I refer to paragraph 33. I accept Counsel for the Wife’s submission that the quality of the Valuation is impaired by the source material which has been provided to Mr T thus far.
I reject each of the Husband’s submissions. Mr T is an experienced forensic accountant. In my opinion Mr T is attempting to undertake a thorough analysis of the Armington Group and is being impeded from doing so by a lack of reliable information. In relation to the expense, the Husband can raise the funds by disposing of his motorbike.
In my opinion the audit should be conducted forthwith as requested by Counsel for the Wife. I agree with Counsel for the Wife’s submission that a clearer picture of the value of the entities is the first step on the pathway to possibly settling this matter. It will certainly be required if the matter proceeds to trial. Furthermore, as requested by the parties, I propose to transfer this proceeding to the Family Court[26]. With four judges having been appointed to the Melbourne Registry of the Family Court since February this year the proceeding may obtain an earlier hearing date than 3 August 2020. Further, with the joining of the additional parties the proceeding has become more complex.
[26] Transcript T31:22-32:17.
Therefore I will make Orders as sought in the Wife’s Application in a Case.
Wife’s Application for Litigation Costs
In the Application in a Case the Wife seeks the following orders:
For every dollar paid by the Husband by himself or via the Company D businesses to his legal representatives for professional fees or disbursements legal advice in relation to these proceedings (sic), the Husband pay or cause to be paid the same sum to Taussig Cherrie Fildes on behalf of the Wife.
In submissions Counsel for the Wife agreed that the words “or via the Company D businesses” were not necessary, as the Husband was now an employee of Company B Pty Ltd. Furthermore the Company D businesses were not a single defined legal entity. The application was made on the basis of the Wife’s financial position which the Wife has deposed to in the Wife’s Financial Statement and also in paragraphs 29 to 35 of the Wife’s Affidavit.
The Wife deposed that her income is not enough to pay her legal expenses and counsel’s fees[27]. The Wife deposed that she was solely reliant upon her brother Mr DD for the payment of her legal fees. She said that she did not know how much longer he was going to be able to pay her legal fees[28].
[27] Wife’s Affidavit, at [30].
[28] Ibid., at [31].
The application was also supported by the Sanders Affidavit. Ms Sanders, a solicitor employed by Taussig Cherrie Fildes the Wife’s solicitors, has the day-to-day conduct of this proceeding on behalf of the Wife. Ms Sanders deposed that the total amount that the Wife had paid to Taussig Cherrie Fildes for the conduct of these proceedings from 28 July 2011 to 28 March 2019 was $253,080.82[29].
[29] Sanders Affidavit, at [3].
Ms Sanders estimated that the total costs and disbursements for a final hearing of an estimated five days as being between $193,325 to $213,325[30]. Ms Sanders deposed that the Wife applied for a litigation loan from RateSetter to assist in paying her legal fees, however the Wife was unsuccessful in that application[31].
[30] Ibid., at [4].
[31] Ibid., at [6].
Ms Sanders deposed that whilst the Husband asserts that he was currently self-represented, he engaged counsel to appear on his behalf at the final hearing which was scheduled to commence on 4 March 2019. On 31 March 2019 the Husband provided Taussig Cherrie Fildes with a copy of the Mills Oakley Debtor’s Ledger in relation to his matter[32]. The Debtors Ledger showed that on 28 February 2019 the Husband was billed $9,625.55 and on 28 March 2019 he was billed $7,814.40 by Mills Oakley.
[32] Ibid., Annexure “KS-1”.
Counsel for the Wife relied upon the decision of Justice Hannam in the Family Court in Judd & Treasure[33]. Counsel submitted that the Debtor’s Ledger indicated that Mills Oakley had billed the Husband approximately $130,000 in total. Counsel for the Wife submitted that as this was a complex matter both parties should have equal legal representation and that there should be a “level playing field”[34].
[33] [2018] FamCA 50.
[34] Transcript T29:3-4.
Husband’s Submissions - Application for Litigation Costs
The Husband opposed the Wife’s costs application. The Husband relied upon the Husband’s Amended Financial Statement. The Husband also deposed:
My liabilities exceed my assets, I have no savings, and my weekly income is not enough to support me and my family, as well as pay my legal expenses and my counsel’s fees and/or any further fees associated with independent experts or Auditors.
My legal counsel has refused to continue to work on my behalf because I have unpaid legal fees outstanding and have no current capacity to pay them.
I have not been able to secure litigation funding, hence I intend to represent myself in the matter to be heard on 12 April 2019[35].
[35] Husband’s Affidavit, at [17] –[18].
At the hearing the Husband’s submission in response to the Wife’s application for litigation costs order was that he did not have any money[36].
[36] Transcript T30:40-47.
Relevant Law Application for Litigation Costs
The power of the Court to order costs is set out in s. 117 of the Act. Section 117 provides:
(1)Subject to subsection (2) , subsections 45A(6) and 70FB(1) and sections117AA and 117AC each party to proceedings under this Act shall bear his or her own costs.
(2)If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may subject to subsections (2A), (4), (4A), (5) and (6) and the applicable Rules of Court make such order as to costs and security for costs whether by way of interlocutory order or otherwise as the court considers just.
(2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a)the financial circumstances of each of the parties to the proceedings;
[…]
In Judd v Treasure[37] the wife applied for a lump sum litigation order and a “dollar for dollar” costs order against the husband. Hannam J said:
Counsel for the wife submits that an order for the husband to pay a lump sum to the wife and a “dollar for dollar” costs order will “level the playing field” between the two parties given the large disparity between their current earning capacities and financial resources and the sum being sought should cover the majority of her costs[38].
[37] [2018] FamCA 50.
[38] Ibid., at [76].
Hannam J referred to the following:
In In the marriage of JU and T Poletti[39], Ellis, Strauss and Butler JJ quoted Nygh J with approval at [796]:
… It is rather, as it certainly was in Wilson and Wilson[40], a situation where one party to the marriage controls almost exclusively what might be described as the patrimony of the parties and has control of the bulk of the assets and funds of the parties, where an order may be made to ensure that the other party, who does not have the fortune of controlling those funds, at least as an equal or near equal opportunity to present his or her case…[41]
[39] [1990] FamCA 79.
[40] (1989) 13 Fam LR 205.
[41] [2018] FamCA 50, [78].
Hannam J concluded that in Judd v Treasure[42] a “dollar for dollar costs order” was appropriate where it was clear:
[…] from the evidence, given the number of properties, trusts and companies in which the husband has an interest, that this matter is complex and has the potential to require that the parties appear in court on numerous occasions in relation to both the parenting and property aspects of the matter[43].
[42] Ibid.
[43] Ibid., at [79].
Consideration and Conclusion - Application for Litigation Costs
I have reviewed the Wife’s financial position in the Previous Judgment in relation to the Wife’s application for spousal maintenance[44]. I also take into account the matters in paragraphs 44 to 48.
[44] Previous Judgment, at [110]-[197].
I have also reviewed Husband’s financial position in the Previous Judgment in relation to the Wife’s application for spousal maintenance[45].
[45] Ibid., at [122]-[197].
I take into account the fact that the Wife has no income and is presently reliant upon the Husband for spousal maintenance: s.117(2A)(a).
In my opinion the Husband will not be prejudiced by a “dollar for dollar” costs order. If he pays any money for legal representation he will have to pay the same amount to the Wife’s lawyers. If the Husband does not pay any money for legal costs, he will not have to pay any money to the Wife’s solicitors.
I therefore intend to make a “dollar for dollar” costs order as sought by the Wife and orders will be made accordingly.
Costs
The Application in a Case sought an order that the Husband pay Wife’s costs of and incidental to the application on an indemnity basis.
The parties did not address me on the issue of the Wife’s costs. I have reserved the costs of the Wife of and incidental to the Wife’s Application in Case filed on 19 March 2019 and the appearance on 12 April 2019.
I certify that the preceding sixty-seven (67) paragraphs are a true copy of the reasons for judgment of Her Honour Judge C. E. Kirton QC
Date: 13 May 2019
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