Balansky & Nerrata
[2020] FamCA 996
•27 November 2020
FAMILY COURT OF AUSTRALIA
Balansky & Nerrata [2020] FamCA 996
File number(s): CAC 601 of 2020 Judgment of: GILL J Date of judgment: 27 November 2020 Catchwords: FAMILY LAW – Interim proceedings – Application for partial property adjustment to pay for legal fees and costs associated with property proceedings – orders in relation to disclosure – where Husband’s approach sits poorly with his obligations as to disclosure – where property pool is as yet unable to be identified due to failures in disclosure – no significant disparity established in capacity to fund litigation – orders assigning responsibility for payment of outstanding rates on former matrimonial home Legislation: Family Law Act 1975 (Cth) ss 79, 79(2), 79(4), 80(1)(h), 90SM
Family Law Rules 2004 (Cth) rr 13.01, 13.04, 13.15, 15.47
Cases cited: Gabel v Yardley (2008) 221 FLR 270
Iphostrou & Iphostrou and Ors [2011] FamCA 20
Jones v Dunkel (1959) 101 CLR 298
Shelbourne & Shelbourne [2019] FamCAFC 196
Strahan & Strahan [2009] FamCAFC 166
Wenz v Archer (2008) 40 Fam LR 212
Zadenev & Zadenev [2013] FamCA 838
Zschokke & Zschokke (1996) FLC 92-693
Number of paragraphs: 53 Date of hearing: 17 November 2020 Place: Canberra Counsel for the Applicant: Mr Othen Solicitor for the Applicant: Farrar Gesini Dunn Counsel for the Respondent: Ms Dart Solicitor for the Respondent: Douros Jackson ORDERS
CAC 601 of 2020 BETWEEN: MS BALANSKY
Applicant
AND: MR NERRATA
Respondent
ORDER MADE BY:
GILL J
DATE OF ORDER:
27 NOVEMBER 2020
THE COURT ORDERS THAT:
1.The parties are each to file a written notice pursuant to Rule 13.15 within a period of 28 days and, in the event that a party does not do so, that party is to file an affidavit, within a further 7 days, setting out the circumstances that meant that the party was unable to file the undertaking.
2.The proceedings are adjourned to 2pm on 4 February 2021 for a compliance check, for the giving of further directions, and to hear any applications in relation to disclosure.
3.The listing on 2pm on 4 February 2021 is a costs notice event for the purposes of Rule 19.04.
4.Ms A of B Valuers be jointly appointed to value:
(a)2 C Street, D Town;
(b)4 C Street, D Town; and
(c)E Street, F Town.
5.Mr G of H Valuers be appointed to value J Street, Suburb K.
6.Mr L of M Valuers be jointly appointed to value the parties’ interest in the following:
(a)Nerrata Family Investment Trust (Nerrata Family Discretionary Trust);
(b)N Pty Ltd;
(c)O Pty Ltd;
(d)P Pty Ltd;
(e)Q Pty Ltd;
(f)Q Unit Trust;
(g)R Pty Ltd;
(h)Nerrata Family Trust 2;
(i)S Pty Ltd;
(j)Nerrata Trust;
(k)Nerrata Family Investment Trust 2;
(l)Nerrata Family Trust (Nerrata Family Discretionary Trust 2);
(m)T Pty Ltd;
(n)T Unit Trust;
(o)T2 Pty Ltd;
(p)U Pty Ltd;
(q)T3 Pty Ltd;
(r)V Pty Ltd;
(s)W Pty Ltd;
(t)AA Pty Ltd;
(u)BB Pty Ltd;
(v)CC Pty Ltd;
(w)DD Pty Ltd; and
(x)Joint Super Fund.
7.The costs of the valuations are to be met equally by the parties.
8.Unless such documents have already been provided by the husband to the wife, with such fact to be asserted in a schedule in accordance with the order immediately following provided to the wife on otherwise providing the documents in accordance with this order, the husband shall provide to the wife within 7 days:
(a)Statements for all bank accounts, including credit cards and loans, in his name, including together with any other person, or for which he is a signatory, for the period 1 January 2019 to date;
(b)Statements for all bank accounts, including credit cards and loans, in the name of any of the entities listed in Order 6 above;
(c)A list of any other proprietary company, unit trust, trust, or partnership in which he has an interest or in which any of the entities listed in Order 6 above have an interest; and
(d)Financial statements, dividend statements, distribution statements and copies of all minutes of meetings and resolutions in relation to each of the entities in Order 6 above and any further entity referred to in Order 8(c) above for the financial years 2016 to now.
9.In the event that the husband asserts that he has already provided documents complying with the immediately preceding order, then such assertion is to be provided to the wife by means of a schedule identifying what documents have been provided, their manner of provision and the date of their provision to the wife.
10.The parties’ applications in respect of the payment of rates arrears for the J Street property stemming for their pre separation occupation of the property are dismissed.
11.The husband is to pay all rates and outgoings on the J Street property relating to his period of occupation of the property.
12.The parties’ applications and responses in respect of interim relief are otherwise dismissed.
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 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Balansky & Nerrata has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
GILL J
These interim proceedings concern a contested application by the wife for a partial property adjustment in a sum of up to $200 000, to aid her in litigation of the property claim before the Court, along with orders in relation to disclosure by the husband, and orders assigning responsibility for the payment of outstanding rates on the former matrimonial home.
The proceedings occur in the context of the parties together, and the husband with others, holding corporate and trust interests and obligations to a degree that is as yet unascertained. Those interests are widespread, concerning the operation of various businesses and the acquisition of various items of real property. To aid in ascertaining the scope and value of those interests, the parties have agreed to the appointment of various experts, as set out at the husband’s orders sought in his outline of case document at 4.2, 4.3 and 4.5, which provide for the valuation of the real estate, and the various entities. The parties are not agreed as to the funding of such.
The Applicant wife relies upon:
(a)Amended Initiating Application filed 14 August 2020;
(b)Affidavit of the wife filed 14 August 2020;
(c)Financial Statement of the wife filed 29 March 2020;
(d)Tender Bundle; and
(e)Case Outline filed 16 November 2020.
The Respondent husband relies upon:
(a)Case Outline filed 13 November 2020;
(b)Response to Amended Initiating Application filed 18 September 2020;
(c)Affidavit of the husband filed 6 October 2020;
(d)Financial Statement filed 18 September 2020; and
(e)Costs Notice.
Disclosure
The wife seeks specific orders for disclosure, to cause the husband to provide within 48 hours statements for bank accounts, loans and credit cards in his name, or for which he is a signatory, for the period 1 July 2019 to date; statements for bank accounts, loans and credit cards in the name of the entities listed below, in which the husband has an interest; a list of any interest outside of the list below in proprietary companies, unit trusts, trusts and partnerships, held by the husband or by any of the entities listed below; financial statements, dividend statements, distribution statements, copies of minutes of meetings and resolutions in relation to the entities below, and any further identified entities, from the 2016 financial year until now.
The Respondent husband deposes in his financial statement to have an interest in the following entities and trusts:
(a)Nerrata Family Investment Trust
(b)N Pty Ltd
(c)O Pty Ltd;
(d)P Pty Ltd
(e)Q Unit Trust
(f)R Pty Ltd
(g)Nerrata Family Trust 2
(h)S Pty Ltd
(i)Nerrata Trust
(j)Nerrata Family Investment Trust 2
(k)Nerrata Family Trust
(l)T Pty Ltd
(m)T3 NSW Unit Trust
(n)T2 Pty Ltd
(o)U Pty Ltd
(p)T3 Pty Ltd
(q)V Pty Ltd
(r)W Pty Ltd
(s)AA Pty Ltd
(t)BB Pty Ltd
(u)CC Pty Ltd
(v)DD Pty Ltd
(w)Joint Super Fund
(x)Q Pty Ltd
At [36] of the husband’s Affidavit, he states:
To the extent it may be required following the completion of joint valuations, I will depose in detail to the history, nature, assets and liabilities of each of the aforementioned entities in any trial affidavit, together with the interrelationship between my business interests and those of my family members.
In addition to this the husband outlines the real property holdings of a number of the entities, in a manner directed, it appears, to demonstrating that, in relation to that sliver of his holdings, there is no readily accessible equity that may be gleaned from a sale of the underlying real property interests.
The husband’s involvement with corporate and trust entities is extensive and complex. The functioning and inter relationships between these entities is within his knowledge, but his position is that it is not a matter that he will (fully) explain until valuation takes place. The approach of the husband at [36] sits poorly with his obligations as to disclosure at Rules 13.01 and 13.04. The assets, liabilities and interrelationship of the entities are essential components of the husband’s financial circumstances. The duty to disclose includes a duty to disclose in a timely manner. It is a duty reflected in the undertaking as to disclosure required to be filed by Rule 13.15, which it appears neither party has as yet filed. The parties will be directed to file the undertaking within a period of four weeks.
The wife has pursued disclosure from the husband.
The husband has, in response, produced extensive material to the wife, as identified in the wife’s schedule as to the husband’s disclosure contained at p.121 and following of her tender bundle. That schedule was accompanied by correspondence seeking that the husband identify any inaccuracies in the schedule as at 9 November 2020. The wife complains that at least part of the husband’s disclosure has been misleading, for example where he produced documents that did not identify that the husband had become an appointor of particular trusts, that position only being corrected on the production of documents from the husband’s brother under subpoena.
The wife’s schedule (in relation to the material that she specifically seeks in her application) records that although the husband has produced some of his bank statements, they are not current; the bank statements for the entities have not been provided; by definition the schedule does not record any entities that are not disclosed (nor however is it apparent that there are such); although the schedule shows that a large amount of financial documents pertaining to the entities have been produced, it falls short of what is legitimately pursued by the wife. For example, the last minutes regarding distributions for the Nerrata Family Trust are from 2018; there appear to have been no dividend statements produced, nor minutes of meetings and the like. These underlying documents are necessary to understanding the husband’s financial circumstances.
These circumstances justify the making of the orders sought by the wife in relation to disclosure, save that provision should be made such that where documents have been provided, they should not be caught a second time by the orders so as to oblige the husband to produce them again.
Partial property settlement
The wife seeks a payment of $200 000 as a partial property settlement, in order to “amongst other things” pay her costs and legal fees associated with the proceedings. In her written outline, she identified a fall-back position of the husband paying for the valuation of the entities. In oral submissions, the wife advanced further fall back positions of lesser sums being allocated to her.
The power under s 79 or s 90SM of the Family Law Act 1975 (Cth) (‘the Act’) to make an order to alter interests in property can be exercised on an interim basis (Gabel v Yardley (2008) 221 FLR 270; Strahan & Strahan [2009] FamCAFC 166 (“Strahan”).
In Gabel & Yardley (2008) 221 FLR 270 [57], Bryant CJ and Coleman J observed in relation to the interim exercise of the power contained in s 79 to adjust the property of the parties that:
The legislative framework, and the authorities to which we have been referred, suggest that the court’s power to make orders with respect to settlement of property is not necessarily exercisable at only one time, and can properly be exercised by a succession of orders until the power to make orders with respect to property is exhausted. Logic suggests that the power to make orders for settlement of property will be exhausted or “spent” when there remains no property of the parties to the marriage or either of them with respect to which orders by way of alteration of interests of property could be or have been made.
The approach to the making of an interim property distribution was set out in the Full Court case of Strahan.
In Strahan at [84], it was held that it is necessary to identify the relevant source of power to found the application before the Court, in order to identify the conditions that are placed upon the powers exercised. This step is of critical importance where the relief sought by a party may be pursued under a number of heads of power, such as a litigation funding order that may be effected under the property, maintenance or costs powers. Here, the wife seeks that order are made pursuant to s 79.
As Watts J stated in Zadenev & Zadenev [2013] FamCA 838, there are two steps involved in making a determination regarding an interim property distribution. The first step, set out at [88] of Strahan, is to identify whether it is appropriate to exercise the power, where the power confers a wide discretion, where the overarching consideration is the interests of justice, but where the usual order is a once and for all order made at the conclusion of a final hearing. There is no requirement for compelling circumstances.
For a more in depth discussion of the first step, regard may be had to what was said by Reithmuller FM in Wenz v Archer (2008) 40 Fam LR 212 as approved by Boland and O’Ryan JJ in Strahan.
Here, the wife’s case in relation to the first step is that it is a proper exercise of the discretion in order to assist her to undertake litigation of the property case, where otherwise she is, by implication, reliant on her income to meet her legal fees. She does not suggest an inability to fund the litigation from her income.
The Full Court in Strahan recognised the impetus for making a litigation funding order as coming from the desirability of both parties having access to legal representation, even where it is one party who has the control over the property of the marriage to the exclusion of the other. That is, it is driven by the interests of justice (Strahan).
In Shelbourne & Shelbourne [2019] FamCAFC 196, Ainslie-Wallace, Ryan and Tree JJ stated that ‘[n]otwithstanding the head of power engaged, often the disparity of resources available to the parties to fund the litigation will be identified as demonstrating a desirability to establish a “level playing field”’ (Iphostrou & Iphostrou and Ors [2011] FamCA 20).
Whatever the head of power, the Full Court held in In the Marriage of Zschokke (1996) FLC 92-693 that there are at least three relevant matters to consider before making such an order. Firstly, a position of relative financial strength by the respondent, secondly, a capacity on the part of the respondent to meet his or her own litigation expenses, and thirdly, an inability by the applicant to meet her or his litigation expense from his or her own income assets or financial resources. While typically important, these factors do not substitute for the consideration that the requirements of justice remain a basic underlying condition to the exercise of the power.
The capacity of the husband is, as yet, unidentified. In this case, there are highly complex, but currently opaque, business arrangements in the hands of the husband. He has a net income disclosed of $2 000 per week, plus the payment of various expenses. His evidence in relation to his income is suggestive of his ability to direct and control what he will receive from his business interests, as illustrated by his explanation that he was simply able to draw further funds out of the business (net of tax) when he needed more funds to pay a mortgage. The husband has not yet been required to pay his lawyers.
The uncertainty as to the scope of the pool arises from the failure of the husband to adequately disclose his interests, as indicated by his [36] as set out above. This is not to suggest that he has given no disclosure. However, even on his own description, and taking into account what has not been provided as identified above, he is the holder of the information necessary to identify the pool, and it has been inadequately supplied to the wife.
Authorities indicate that where a party has been deficient in meeting his or her disclosure obligations, depending on the circumstances and the circumstances of the case, the court may be less cautious in the drawing of adverse inferences against the defaulter (it seems in a manner analogous to Jones v Dunkel (1959) 101 CLR 298).
In this case the, it seems deliberate choice, to not disclose, points to a conclusion that disclosure would not support the husband’s assertions as to a lack of access to further funds.
However, even taking into account the potential for the drawing of such inferences, the position remains that it is not demonstrated that the husband is in a significantly superior financial position in relation to the funding of the litigation.
The wife, who has an income that varies, receiving approximately $300 000 in 2015-2016, approximately $250 000 in 2016-2017, approximately $300 000 in 2017-2018 and approximately $385 000 in 2018-2019 has met her legal fees from that income. If the husband’s income is as represented by him, and he lacks the capacity to access further funds via the various trusts and corporate entities that he is involved in, then the wife’s capacity to fund the litigation from income is superior to the husband’s.
These matters point away, at this stage, from a conclusion that the s 79 discretion should be partly exercised at this stage in the pursuit of the interests of justice.
That is not to say that this is a matter that could not be revisited as further material comes to light. In a case of such complexity, if the position is demonstrated as other than as represented by the husband here, there may be strong justification, in the interests of justice, to supplement the wife’s resources in the pursuit of her case.
It is appropriate that the next court event be a costs notice event pursuant to the Rules.
The second step, also supported by Strahan, is to have regard to the usual matters in a s 79 order (ss 79(2) and 79(4)).
As to these usual matters, the High Court in Stanford has set out the approach to be taken to the powers granted by s 79, identifying that it is necessary to identify the legal and equitable interests of the parties, and to determine whether it is just and equitable to make any adjustment at all.
Although Stanford was determined in the context of a final determination pursuant to s 79, it necessarily informs the application of the power to interim proceedings where those proceedings rely upon s 79.
In interim proceedings, it may not be possible, given the limitations of such proceedings, to identify definitively, or even approximately, the interests of the parties or the values to be attributed to such interests.
The approach in Strahan to this issue, which, although it predated Stanford has been followed post Stanford, is that:
A detailed inquiry is not required, but there must be some assessment of s 79 factors. Given it is an imprecise exercise, the interim property order has to be “conservative” so that the final outcome of property settlement will not be compromised by the interim property order.
Further, Strahan picked up what was earlier said in Zschokke & Zschokke (1996) FLC 92-693 regarding the relationship between an interim s 79 order and a final order, being:
it must … be an integral part of any order under s 80(1)(h) for an advance of funds from the party in possession of the bulk of the party’s assets [sic] to the other party, that such advance can then be taken into account in the property settlement, that is, it must be capable of satisfying part of the other party’s entitlement.
What is then required is that the legal and equitable interests on an interim application, are sufficiently identified to both answer the question of whether it is just and equitable to make any adjustment, and just and equitable to make the particular adjustment. At times, this will be answered by the concession made by a party that the other party will ultimately be entitled to such an adjustment. At other times, although parts of the pool are unidentified, the pool is sufficiently identified such that it is plainly apparent that such an adjustment will not prejudice the ultimate exercise, whether that be by virtue of reversibility, or otherwise.
The husband accepts that the ultimate disposition to the wife will exceed what she pursues by way of partial property settlement. He, however, resists the current claim, asserting that there is no ready source of such funds that is identified. He also asserts that the wife is in the superior position at present in relation to the parties’ capacity to engage in litigation as she is in receipt of a significant income that exceeds that disclosed by the husband.
Here, as accepted by the wife in her written submissions, the pool of property is, as yet, unable to be identified. This fact is emphasised by [36] of the husband’s affidavit which, although extracted above, bears repeating:
To the extent it may be required following the completion of joint valuations, I will depose in detail to the history, nature, assets and liabilities of each of the aforementioned entities in any trial affidavit, together with the interrelationship between my business interests and those of my family members.
Although the pool is not, as yet known in full, some description is available. By the husband’s financial statement, there is in excess of $800 000 equity in the property at J Street that he seeks to retain. His Response is that the wife receive a cash payment of 30 per cent of the net matrimonial assets excluding superannuation. The matrimonial assets, insofar as they incorporate diverse business interests held by the husband, which in turn hold many and varied property holdings, far outstrip the $800 000 equity in the J Street property.
If the wife’s ultimate entitlement is the 30 per cent suggested by the husband, the $200 000 sought by the wife equates to a little less than 30 per cent of the J Street equity. However, the wife accepts that in her currently poor state of knowledge of the pool, she is unable to identify a source from which the $200 000 might be drawn, although the sale of the J Street property appears to be sufficient to meet the claim of the wife.
Bearing in mind the conservatism to be attached to interim exercises of the s 79 power, so as not to prematurely defeat ultimate claims (including the husband’s apparent intention to retain J Street), the narrow margins surrounding the payment to the wife and the identified assets of the relationship also point away from an interim adjustment.
Payment of valuation fees for single experts
As noted above the parties have agreed to the appointment of various experts to value various properties and entities. The appointments are implicitly appointments in accordance with the single expert provisions of the Rules.
The default provision at Rule 15.47 is for the parties to equally share the costs of such experts. The matters identified above in relation to the wife’s s 79 application do not establish a sufficient basis to depart from the default position.
Outstanding rates
The parties jointly own the property occupied by the husband at J Street. That property was in arrears in respect of rates at the date of separation, in the sum, it appears of $39 059.77, (calculated as at 1 September 2020). The husband seeks that the parties each be liable for one half of that sum. The wife seeks that the husband pay the arrears.
It is asserted that the husband, who meets the outgoings on the property, but enjoys its sole occupancy, and seeks to retain the property, does not have the capacity to solely meet the arrears. The husband’s non-disclosure points to the husband not being completely bereft of access to further funds.
At this interim stage of the proceedings, the arrangements between the parties during the relationship are the subject of cautious assessment, on the basis that evidence is unable to be tested, or even seen in a full context. The various financial arrangements and capacities remain unclear, particularly in the context of incomplete disclosure. The parties’ capacities are also unclear. Although the wife was unable to establish a capacity on the part of the husband greater than asserted by him in his financial statement, similarly the husband has not established that to be the limit of his capacity, such as to result in an incapacity to pay arrears. Under such uncertainties, apportionment of responsibility for that particular debt should not be the subject of the interim orders sought by either the husband or the wife pending final resolution.
The wife also sought orders in relation to future rates and outgoings being met by the husband. As the occupant of the property, and on the basis that he asserts that he will do so, an order in relation to those should be made as sought by the wife.
Costs in relation to the subpoena to Douros Jackson
This issue was reserved to the trial.
Mediation
The husband sought mediation orders based on the release of the valuations. The parties are, of course, at liberty to, and encouraged to engage in mediation. However, where there have been such difficulties with disclosure, orders should not be made.
I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gill. Associate:
Dated: 27 November 2020
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