Artinos & Artinos (No 5)
[2023] FedCFamC1F 651
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Artinos & Artinos (No 5) [2023] FedCFamC1F 651
File number(s): MLC 4132 of 2020 Judgment of: STRUM J Date of judgment: 26 July 2023 Catchwords: FAMILY LAW – PROPERTY – Where the applicant wife seeks that an offset account in relation to the mortgage secured over the former matrimonial home be established with funds standing to the credit of a unit trust in an account with the same bank – Where there are previous orders that the husband make all mortgage repayments – Where the husband has rarely made the mortgage repayments on time – Where arrears have accrued in the past – Where the property is in the wife’s sole name and the bank has pursued the wife, rather than the husband, when the mortgage repayments have been late or arrears have accrued – Where no interest accrues on the funds standing to the credit of the unit trust – Where the parties will save approximately $12,000 per month by way of interest payable to the bank if the mortgage offset account is established with funds from unit trust – Where no immediate adverse taxation consequences – Where trial will be heard and determined before any taxation consequences crystallise – Orders made in terms sought by wife by way of injunction pursuant to s 114. Legislation: Family Law Act 1975 (Cth) ss 79, 114 Division: Division 1 First Instance Number of paragraphs: 35 Date of hearing: 26 July 2023 Place: Melbourne Counsel for the Applicant: Mr Puckey KC with Mr Newland Solicitor for the Applicant: Blackwood Family Lawyers Counsel for the First Respondent: Mr Fary KC with Ms Borger Solicitor for the First Respondent: Belleli King and Associates The Second to Fourth Respondents: The Second to Fourth Respondents did not appear ORDERS
MLC 4132 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS ARTINOS
Applicant
AND: MR ARTINOS
First Respondent
C GROUP PTY LTD
Second Respondent
B PTY LTD (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
STRUM J
DATE OF ORDER:
26 JULY 2023
THE COURT ORDERS THAT:
1.Within 7 days of the date of these orders, the Applicant and the First Respondent open a new bank account with Westpac, such account being an offset account linked to the home loan account with the account number …86 (New Offset Account).
2.Within 2 days of the New Offset Account being opened, the First Respondent is to:
(a)Transfer, or cause to be transferred, to the New Offset Account the sum of $2.6 million (or such amount as is outstanding on the mortgage as at the date of the transfer) from the existing account in the name of E Trust account number ending …82.
(b)Pay the mortgage arrears as directed by Westpac Bank as at the date of the transfer.
3.Except as required by order of the Court, or as required by Westpac in respect of payments required to be made towards the loan secured by J Street, Suburb Q, and commencing from the date the First Respondent complies with paragraph 2 above, the Applicant and/or the First Respondent are hereby restrained by themselves, or by their servants or agents, from withdrawing or transferring from (whether by internet transfer or otherwise), drawing down or otherwise dealing with the New Offset Account.
4.The Applicant’s Application in a Proceeding filed 21 April 2023 and the First Respondent’s Response thereto otherwise be dismissed.
5.Judgment in relation to paragraph 3 of the First Respondent’s Application in a Proceeding filed 19 December 2022 be reserved.
6.Costs of this day be reserved.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Artinos & Artinos has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
DELIVERED EX TEMPORESTRUM J:
By Application in a Proceeding filed on 18 April 2023, the applicant wife seeks orders, in summary, that the husband and she open a mortgage offset account (“offset account”) with Westpac Bank, and then transfer the sum of $2.6 million into that account from funds standing to the credit of E Pty Ltd as trustee for the E Trust, being entities controlled solely by them, and that such funds remain in the offset account until further order.
The mortgage (“mortgage”) relating to the proposed offset account is secured over the former matrimonial home, in which the wife and the children of the marriage live. That property is registered in the wife’s name, and she seeks to retain it as part of her final property settlement.
By his Response to Application in a Proceeding filed on 1 May 2023, the first respondent husband seeks the dismissal of the wife’s application.
The wife relies on her affidavit filed contemporaneously with, and in support of, her application.
The husband relies on two affidavits; one by him, filed on 5 May 2023, and one by his accountant, and the accountant for the C Group, filed on 2 June 2023. The E Unit Trust and its trustee, E Proprietary Limited, form part of the C Group. However, his affidavit was not referred to in submissions made by his Senior Counsel at the hearing.
It is conceded by the husband that the E Trust and its trustee are solely controlled by him, or the wife and him (it matters not for present purposes). Whilst Senior Counsel for the husband briefly suggested that if I were to make the orders sought by the wife, I might need to consider the provisions of s 90AE or s 90AF of the Family Law Act 1975 (Cth) (“Act”), I do not find that to be the case in circumstances where the unit trust and its corporate trustee are solely controlled by the husband and/or the wife.
The wife’s evidence is that when the husband and she separated, in June 2019, the mortgage balance was in the order of $1.7 million and that, at that time, there was over $1 million available by way of redraw facility. On 30 March 2020, the husband caused a payment in excess of $600,000, from that redraw facility to be paid to the Australian Taxation Office, leaving some $778,000 available for redraw. The husband used those funds to pay his own personal income taxation liability, without the wife’s knowledge or consent, and at a time when funds in the order of, or in excess of, $14 million stood to the credit of various entities in the C Group.
When the wife discovered the husband’s unilateral withdrawal from the redraw facility, she too unilaterally withdrew $170,000 therefrom, she says, to protect the remaining funds. After the respective withdrawals, the balance of the mortgage increased to approximately $2.7 million.
On 15 May 2020, an order was made by consent for the husband to pay the interest-only component of the mortgage. On 28 September 2020, the husband and the wife were informed by Westpac Bank that the mortgage payments would be converting to interest and principal from the following month, namely, October 2020.
Further orders were made by consent on 17 December 2020 for application to be made for the conversion of the mortgage to an interest-only facility and, failing approval by the bank thereof, for the husband to make payments in respect of the mortgage in accordance with the terms and conditions directed by the bank.
Nearly a year later, on 24 November 2021, the wife successfully made a hardship assistance application to the Westpac Bank to reduce the monthly payment amount. At that time, there were arrears owing in respect of the mortgage in the order of $68,000. The terms of the hardship assistance provided for the mortgage payments to reduce from in excess of $12,000 to in the order of $6,000 per month.
In March 2022, the wife made an application to extend the hardship assistance but her application was declined by the Westpac Bank because mortgage payments had not been regularly made. The following month, on 7 April 2022, I delivered reasons for judgment and made orders which, amongst other things, required the husband to cause the mortgage to be paid as might be directed by the Westpac Bank.
The wife re-applied for hardship assistance and it was granted again in July 2022. It was then renewed again on 20 January 2023 and was due to expire on 20 May 2023. The monthly mortgage payments, due on the 20th day of each month, were $6,080, which was less than what would be paid even as an interest-only payment in the order of some $12,000 per month. The wife deposes in her affidavit filed 18 April 2023 that, when the hardship assistance expired in May, the mortgage repayments would be in the order of $17,000 per month, including about $12,000 by way of interest payment and the balance by way of principal repayment.
The wife further deposes that, at that stage, she had been told by the Westpac Bank that the hardship assistance was unlikely to be extended beyond 20 May 2023, because there were arrears owing in respect of the mortgage in the order of $108,000 and because payments had not been made regularly, on the 20th day of each month, which was a strict condition of the grant. I am told by counsel for the wife, and counsel for the husband did not dispute, that those mortgage arrears have since been substantially reduced and are essentially negligible.
However, the arrears to which the wife referred appear to have arisen primarily because the monthly payment of $6,080 was less than the interest-only component of the mortgage. The wife deposes, and includes at paragraph 21 her affidavit a table demonstrating that, the husband has paid the mortgage on the due date on only three occasions.
The table entries span the period from 20 May 2020 until 20 March 2023. It is evident therefrom that, between those dates, on one occasion the husband paid the mortgage early (by some three days); in two months, he paid the mortgage on time; and, on all other occasions, the mortgage was paid late. On some of those occasions, it was only by a few days; however, there were months in which the husband paid the mortgage late by some three to four weeks.
The wife refers to orders in place which enable the husband to use funds held in the C Group entity bank accounts to pay the mortgage. Accordingly, it is difficult to understand why he opposes the application of those funds to reduce the interest payments in respect of the mortgage. She deposes that, at the time she swore her affidavit, there was over $4 million available in the E Pty Ltd bank accounts which, I was told from the Bar table, has decreased to about $3 million. However, that decrease is not material to my determination of the wife’s present application.
The wife points to the fact that, despite the funds standing to the credit of E Pty Ltd, which were available to service the mortgage, the monthly payments were, as I have observed, almost never made on time. She also deposes to the Westpac Bank having pursued her, rather than the husband, when payments were late. This is in circumstances where the property, over which the mortgage is secured, is registered in her sole name. The wife also deposes to having incurred legal costs when payments were made late, as her solicitors were then required to correspond with the husband’s solicitors to pursue payment.
The wife deposes that the amount secured by the mortgage, as at the date of swearing her affidavit, was $2.671 million, which included the arrears of $108,460 which have since been substantially repaid. It is quite clear from her evidence that between early March and late May 2023, when the wife filed her Application in a Proceeding, she sought to engage with the husband, through their respective lawyers, in order to resolve the issue upon the basis which she now seeks it to be resolved by the Court. Her proposal, sensible as it ought to have seemed to him and as it seems to the Court, fell on deaf ears.
In her affidavit, the wife sets out how it is that the funds could be made available to the parties from the E Trust for the purposes of the proposed offset account. She refers to there being an unpaid present entitlement the order of some $2.346 million owing by the E Trust to the Artinos Family Investment Trust and, in turn, an unpaid present entitlement owing by the Artinos Family Investment Trust to the husband and the wife. It appears that the unpaid present entitlement has since been repaid in part and that only slightly more than $1 million remains unpaid.
However, insofar as there is a shortfall between any unpaid present entitlement and the sum of $2.6 million that she seeks to have deposits into the proposed offset account, the evidence is that it could be lent to the husband and her, either by the E Trust lending the funds to the husband and the wife directly, or the Trust lending the funds to the Artinos Family Investment Trust and the Investment Trust on-lending the funds to the husband and the wife. She further deposes that:
As either option is a loan, it is not considered assessable income and therefore is not subject to tax.
This is not disputed by Mr U, of LL Financial Services, the accountant for the husband and for the C Group.
The wife deposes to receipt by her lawyer of a letter from the husband’s lawyer which enclosed an email from Mr U providing what was said to be a breakdown of the parties and their entities taxation liabilities.
The wife then sets out a table of the various amounts payable by way of taxation, both the figures contained in the information provided by the husband’s accountant and the calculations undertaken by her accountant, Mr MM of NN Company. Insofar as the husband’s accountant initially estimated that the 2022 income taxation payable by the husband would be in the order of $1.488 million, Mr MM estimated it to be in the order of $693,000.
In response, Mr U concedes that, in fact, the 2022 income taxation payable by the husband is now substantially less than that which he estimated and, in fact, is in the sum of $807,471. Mr U also raises one further BAS debt, in the wife’s table, but that is only in the order $12,500.
The wife’s case, as noted above, is that about $1 million, of the $2.6 million that she seeks to be deposited into the proposed offset account, can be transferred out of the E Trust without taxation consequences, and that the balance of about $1.6 million can be made available to the husband and the wife directly from the E Trust, or via the Artinos Family Investment Trust, by way of loan, without any immediate taxation consequences. Mr U agrees but observes that the transaction would need to be considered in respect the 2024 financial year, which has just begun. He also makes it clear that, insofar as there may be tax consequences relating to the 2023 financial year, they will not be paid until around May of 2024. If there are taxation consequences by reason of a financial transaction in the current financial year, I infer, from the evidence of Mr U, that they are not likely to come to fruition before about May 2025. These proceedings are listed for trial in mid-October 2023 and such matters that can be dealt with at trial.
The wife’s accountant has calculated that $1.366 million will be required from the E Pty Ltd bank account to pay for present and future taxation liabilities. There are estimated taxation liabilities in the order of $460,000 in relation to the 2023 financial year which will likely not be due until May of 2024. Mr U agrees, save he calculates the taxation liabilities to be in the order of $1.64 million. He also agrees that, at least insofar as some capital gains taxation is required to be paid, it will not fall due until around May 2024.
Whilst Mr U notes that the current tax estimates do not take into account any private withdrawals between “now”, being 2 June 2023, and the end of the financial year on 30 June 2023, that is a period of less than one month, and is no evidence of anything private withdrawals that have occurred after 2 June 2023.
The wife identified two bases for seeking the order that she does: an injunction, pursuant to s 114, or a partial property settlement, pursuant to s 79 of the Act. Those two bases are not disputed by the husband. Insofar as injunctive relief is concerned, if such relief is to be granted, it should be made under s 114(3), which provides that:
A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.
This Court is exercising jurisdiction under the Act, in particular, under Pt VIII thereof, in circumstances where there are competing applications by the parties for property settlement.
I then need to turn my mind to whether there is a serious issue to be tried and the balance of convenience between the parties. It cannot be (and was not) gainsaid that there is serious issue to be tried, in circumstances where there are competing applications by the parties for property settlement. There is a substantial difference between the pools contended by the husband and the wife. He contends that it is much less than that contended by her. In large part, this will turn on whether or not C2 Pty Ltd is included in the pool of assets available for division between the parties. The wife’s case is that it should be included in the pool. The husband’s case is that his interest therein is much less than that contended by the wife. Her case, in summary, is that C2 Pty Ltd is a phoenix company in which, or by which, the husband has decreased the parties’ 100 per cent interest in the business formerly conducted by C Pty Ltd to 30 per cent of the business currently conducted by C2 Pty Ltd. That is a matter upon which I cannot make any findings at present.
Turning to the balance of convenience, the husband can point to nothing more than that the trial is in three months’ time and that things should be left in situ for the short remaining time until then. The husband has been on notice of the wife’s proposal for several months. There is no suggestion of immediate or irreversible adverse consequences, on the evidence of Mr U. Any consequences will not crystallise until 1 July 2024 and, on Mr U’s evidence, are unlikely to be paid before May of 2025 – in either case, well after the trial will be concluded and judgment delivered.
Westpac Bank presently holds $3 million of the parties’ funds, in the E Trust, in respect of it pays no interest at all. However, it charges the parties interest in the order of $12,000 per calendar month on a debt owing to it of some $2.6 million.
The husband contends that there is no need to make any asset preservation order because the asset, namely, the former matrimonial home, is being preserved; payments are being made, albeit regularly late, and the arrears are now negligible. However, one cannot look to the future without having regard to the past, and I am acutely aware of his history of late payments and/or the accrual of arrears. That is an unduly narrow view. In my view, the broader wealth of the parties generally should be preserved, especially in circumstance where the husband contends the asset pool to be smaller and less valuable than the wife does. By creating the proposed offset account, the parties will save approximately $12,000 per month and maybe more, given rising interest rates. With a trial in three months’ time and judgment within three to six months thereafter, on an estimated time line of up to nine months at $12,000 per month, the parties are likely, unless the proposed offset account is established, to pay the bank in excess of $100,000, and yet derive not any interest whatsoever on funds presently in the E Pty Ltd account. It is incomprehensible why the husband proposes to pay interest to the bank on a debt owing to it and yet earn no interest on the funds on deposit with it. In my view, the balance of convenience clearly favours the wife and I shall grant the relief sought by her (albeit with some uncontentious amendments to the terms thereof) by way of a mandatory injunction pursuant to s 114(3) of the Act.
In the circumstances, there is no need therefore to consider the wife’s application on the alternative basis of a partial property settlement.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the ex tempore Reasons for Judgment of the Honourable Justice Strum. Associate:
Dated: 8 August 2023
SCHEDULE OF PARTIES
MLC 4132 of 2020 Respondents
Fourth Respondent:
D PTY LTD
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