Barilis & Barilis
[2023] FedCFamC1F 526
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Barilis & Barilis [2023] FedCFamC1F 526
File number(s): MLC 9662 of 2021 Judgment of: BAUMANN J Date of judgment: 30 June 2023 Catchwords: FAMILY LAW – PROPERTY – Discrete issue – Where the Second Respondent provided a personal guarantee for a combined debt of $6.8 million and security over two real properties owned by her to enable the husband and wife to purchase property – Where the property was subsequently sold – Remaining proceeds of sale held in trust – Where the Second Respondent seeks the release of the funds to her to discharge debts secured over her property – Where the wife contends the financial assistance provided to the husband by the Second Respondent was an “early inheritance” – Where the Court does not find the funds provided was by way of an “early inheritance” – Trust account monies to be applied to the loan in the name of the Second Respondent Legislation: Family Law Act 1975 (Cth) Division: Division 1 First Instance Number of paragraphs: 47 Date of last submission/s: 10 February 2023 Date of hearing: 2 & 3 February 2023 Place: Heard in Melbourne, delivered in Brisbane Counsel for the Applicant: Mr J Williams Solicitor for the Applicant: Papasavas & Polglase Lawyers Solicitor for the First Respondent: Litigant in person Counsel for the Second Respondent: Ms J Wald Solicitor for the Second Respondent: Stenta Legal ORDERS
MLC 9662 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR BARILIS
Applicant
AND: MS BARILIS
First Respondent
MS C BARILIS
Second Respondent
order made by:
BAUMANN J
DATE OF ORDER:
30 JUNE 2023
THE COURT ORDERS:
1.That the funds of $1,344,421.04 held in trust in the account of D Lawyers be paid to E Finance (loan number …03
…03) in the name of Ms C Barilis, and all parties shall sign such authorities as may be necessary to facilitate this payment.2.That upon the payment of the said monies held in trust and there being a shortfall owed in the amount outstanding to E Finance in respect to the Second Respondent loan, then:
(a)the husband be responsible for the shortfall;
(b)the husband shall indemnify the wife for such shortfall in any future property proceedings; and
(c)the husband shall indemnify the Second Respondent in respect of all remaining liabilities to E Finance.
3.That within fourteen (14) days of the date of this Order, the husband provide to the wife a list of the issues still to be decided in the proceedings.
4.That fourteen (14) days after receiving the husband’s list pursuant to Order 3 hereof, the wife shall advise the husband in writing whether she agrees with the list of issues and/or shall expand on the list of issues.
5.That should the parties be unable to reach an agreed list of issues, each party shall email to chambers (…@...) by 4.00pm on 14 August 2023, their respective list of remaining issues to be determined.
6.That these proceedings be adjourned for Case Management Hearing at 9.30am on 17 August 2023 in the Federal Circuit and Family Court of Australia (Division 1) at Brisbane.
7.That the parties and their legal representatives have leave to appear by telephone on 17 August 2023 by using the Microsoft Teams conferencing system as follows:
(a)They shall click the below link (if accessing this Order electronically) to join the Microsoft Teams conferencing system, by 9.25am on 17 August 2023; or
(b)They shall each telephone … by 9.25am on 17 August 2023;
(c)They shall each then enter the pass code …; and
(d)Hold the line until the Court is ready to connect and proceed with the matter.
IT IS NOTED:
A.That these Orders have been amended pursuant to r 10.13 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
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 Barilis & Barilis has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BAUMANN J:
INTRODUCTION
Mr Barilis (“the husband”) and Ms Barilis (“the wife”) were married in 2014 after a short period of cohabitation. They finally separated in July 2020, with the husband commencing proceedings on 1 September 2021 seeking both financial and parenting orders.
The parenting proceedings relate to the parties’ three children, X (aged eight years); Y (aged seven years) and Z (aged four years).
The husband’s Initiating Application sought a specific order that the nett proceeds of the sale of a home be paid off a loan owed by the husband’s mother, Ms C Barilis, which the husband had consistently asserted was a loan secured over property owned by his mother, which was used by the husband and the wife.
It is not necessary for the purposes of these Reasons in respect of the discrete and separate issue which was the focus of the hearing in February 2023, to outline the process by which the matter came to be listed, save to note that:
(a)all matters in dispute were listed for trial, via a Compliance and Readiness Hearing, before me for four days in Melbourne however the dates allocated had already been allocated to another matter, necessitating a Case Management Hearing before me conducted on 22 July 2022;
(b)on 22 July 2022, the husband and the Second Respondent (who for these Reasons I will describe as “Ms C Barilis”) were legally represented. Ms C Barilis had been joined as a party by Order of a Judicial Registrar made on 6 October 2021;
(c)with the wife now being unrepresented and displaying little understanding of the complex issue relating to the alleged debt owed to Ms C Barilis, I ordered Ms C Barilis to file and serve an affidavit attaching the source documents establishing the alleged loan and security, and the use of funds so far as Ms C Barilis was concerned;
(d)the intention of requiring discovery of documents in this way was to hopefully facilitate the wife obtaining independent legal advice on the transaction. Orders were also made, as is apparently the practice in Victoria, which it was hoped would lead to the wife obtaining advice through the Victorian Bar Pro Bono Assistance Scheme;
(e)unfortunately, despite the wife initially having some telephone contact with the Bar Assistance Scheme, she did not have the benefit of independent advice and, in its absence and still without a complete understanding of the legal issues involved, she was forced to prepare her trial material and represent herself at the discrete hearing; and
(f)at the commencement of the discrete hearing on 2 February 2023, the wife applied for an adjournment of the trial. Counsel for the husband Mr Williams and Counsel for Ms C Barilis Ms Wald, both opposed an adjournment, and for reasons delivered orally the application to adjourn was dismissed.
MATERIAL RELIED UPON BY THE PARTIES
Husband
The husband sought to rely upon the affidavits set out in his case outline filed 16 January 2023, although disappointingly many of those affidavits were not relevant to the discrete issue. The most relevant affidavit was filed 19 December 2022, which was ultimately the only affidavit relied upon by the husband.
Wife
The wife relied upon two affidavits, sworn and filed on 6 November 2022. The larger affidavit, comprising some 345 pages, contained many assertions about the financial affairs of the parties, and objection was taken by Counsel for the husband to many paragraphs on the basis of relevance to the discrete issue – a submission properly made. I ruled that from the “larger” affidavit, the wife could rely upon paragraphs 58 – 66; 87 – 93 and 107 – 109.
The wife relied upon the entirety of the short affidavit filed 6 November 2022.
Ms C Barilis
This party relied upon:
(a)her affidavit filed 4 October 2021;
(b)the affidavits by her solicitor Gina Faba filed 15 August 2022; 15 September 2022 and 14 November 2022 essentially attaching the source documents; and
(c)affidavit by the person who assisted the parties to obtain finance, Mr F.
In addition to this material, during the course of the two day hearing, eight exhibits were tendered.
CREDIT
Although no specific submissions were made about credit of the witnesses the subject of cross-examination, I regard it as helpful to make these observations.
The wife at times during her cross-examination was quite emotional. Her core and entrenched belief was that although she acknowledged the assistance that her mother-in-law had provided, she thought it was assistance received by the husband as a form of “early inheritance”. I find that in some respects the husband, a finance professional by profession, in his discussions with the wife, did not fully explain the possible negative outcomes of the various borrowings and property transactions the parties undertook. As a result, it was a great shock to the wife when, bit by bit, the previously comfortable lifestyle enjoyed, which included expensive cars and luxurious homes in well regarded suburbs, came crashing down – and quickly. I found, despite these areas of disappointment and despair, the wife was a reliable witness and reasonably accurate historian who simply trusted many of the business strategies designed by the husband.
The husband was briefly cross-examined by the wife – who frankly struggled to articulate any questions. She was somewhat overwhelmed by this stage of the proceedings. My impression is that the husband carries a level of guilt and responsibility for how badly this has all eventuated – both to his mother and his wife and family. He was clearly the person relied upon by the wife for many of the financial decisions, whilst she bore the major responsibility for care of the three young children. It was no doubt difficult to see the pain caused to his wife by their decisions. I regarded him as a reliable witness.
Ms C Barilis
Ms C Barilis is now 82 years of age and she was the subject of cross-examination by the wife with the benefit of an interpreter. She was a pragmatic witness who demonstrated a fairly clear understanding of her predicament. I accept her understanding was she was asked to provide security for a temporary loan. She trusted her son and needs to clear the mortgage on her property. When, as was perfectly proper and required, the wife questioned Ms C Barilis about the support she gave, being an “early inheritance” for the husband – she emphatically denied such a suggestion, pointing to the fact that she has two children and she needs to be fair to both. I regarded her as an honest witness.
Mr F
Mr F denied the suggestion put to him by the wife that in effect he had, on the husband’s instructions, misrepresented the financial position of the husband and the wife to potential lenders. My assessment is that when the parties were unable to sell the property security for the bridging finance, he assisted them with options for “Lo-doc” loans where, at that time, the equity the parties can offer as security was more relevant than their capacity to pay. His role in the transactions was limited, and at times his memory was vague (for example the wife’s assertion that she told those present when she was asked to sign the documents that she had not read them and was in a “high risk” pregnancy), but overall I regard Mr F as a creditable witness.
THE ISSUE
At the commencement of the hearing, the husband and his mother tendered (as Exhibit 1) a minute of order they both contend the Court should make, in these terms:
1.Upon the Court ordering the payment of the monies held in trust by [D Lawyers] in the sum of $1,344,421.04 and there being a shortfall owed in the amount outstanding to [E Finance] in respect to the Second Respondent loan then:
(a)The Husband be responsible for the shortfall;
(b)The Husband shall indemnify the Wife for such shortfall in any future property proceedings;
(c)The Husband shall indemnify the Second named Respondent in respect of all remaining liabilities to [E Finance].
2.That the second named Respondent consents to Order 1 thereof and will thereafter discontinue her involvement in these proceedings.
The wife in her written submissions at paragraph 44, in respect of the discrete issue, seeks an order that she receive 50% of the funds held in trust and that the balance of 50% be paid to E Finance. The wife seeks further relief which I deal with later in these Reasons.
At the conclusion of the evidence, Counsel for the husband Mr Williams made concise oral submissions, which were broadly adopted by Counsel for Ms C Barilis. I caused a copy of the oral submissions to be transcribed (at the cost of the Court) so as to allow the wife to formulate her written submissions.
I have considered those written submissions filed 10 February 2023. To the extent, in those submissions, the wife sought to rely upon an earlier affidavit sworn 4 October 2022, as she did not raise that matter before the hearing began it would be procedurally unfair to allow her to do so now. I have therefore not read that affidavit.
THE FACTUAL HISTORY OF BORROWINGS ESTABLISHED BY THE EVIDENCE
Counsel for Ms C Barilis contended in final submissions that this case is established by the documents before the Court, and to a large extent, I agree. The statements of fact which follow should be construed as findings of fact.
In late 2016, the husband and wife contracted to purchase the property at G Street, Suburb H (“the Suburb H property”) for over $2,900,000. Although not relevant to the discrete issue under consideration, the husband and wife were assisted with gifts from their parents to enable them to purchase the home. Mortgage funds were secured from the ANZ Bank, with a loan approval of approximately $2,326,000 although the wife says only $2,162,505 was advanced. At best, it seems the parties’ initial equity in the Suburb H property was around $750,000.
After some difficulties with the Suburb H property were experienced relating to damage, but before they had sold the Suburb H property, the parties ultimately contracted through their corporate entity J Pty Ltd to purchase the property at K Street, Suburb L (“the Suburb L property”) for over $4,000,000. I say “ultimately” because the initial contract named the parties personally as the purchasers in the contract tended as Exhibit 3, dated mid-2018. That contract required settlement to be effected in late 2018. The evidence is that the Suburb L property was in an upmarket location in the suburbs of Melbourne.
It appears that the parties were hopeful of selling their Suburb H property before late 2018, so as to allow them to take their equity into the Suburb L purchase. Sadly, this is where things went terribly wrong.
Although the husband says he anticipated that they would sell the Suburb H property for around $4,000,000, not only did it not sell as quickly as they hoped, but the settlement of the sale of the Suburb H property in mid-2019 at a gross sale price of over $3,000,000 only allowed them to discharge some of their debt, whilst they did receive funds of $300,000. The wife disputes this remaining available balance of funds, but I do not need to determine that issue for the purposes of this discrete hearing.
Having committed to purchase the Suburb L property, and seemingly discounting the option of not completing the purchase and face an action potentially for damages for breach of contract, I am satisfied that the husband and wife had to consider a high interest “Lo-doc” loans to complete the purchase.
I accept these were stressful times. The wife says, and I accept, she was in a high risk pregnancy (happily culminating in the safe arrival of the parties’ daughter Z in 2019). The wife was anxious to obtain the home, and the husband was under pressure to find a financing solution.
On the evidence and the documents, this is what then occurred:
(a)The husband, supported by his wife, approached the wife’s parents, Mr M and Ms N, about assisting them. Whilst originally it seems they were contemplating doing so, after taking legal advice and, I find, when it became apparent to them that their own home could be a risk, they decided not to assist. As to how that assistance may have operated is a little uncertain. The wife says her parents were approached to provide her with an “early inheritance”. However, Exhibit 2, a handwritten document signed by the wife’s parents, suggests that they were in fact to be the purchasers of the Suburb L property through their family trust;
The letter to P Finance tendered is dated late 2018, but includes the comment that the borrowings “will not impact any of us and we will not need to sell our principle [sic] place of residence”.
(b)When P Finance rejected the loan application, the husband engaged Mr F to find a private lender. The pressure was on because settlement of the Suburb L contract had been extended for about a month and, I infer, the vendors wanted settlement before Christmas;
(c)I am satisfied this is when, really at the last moment, Ms C Barilis was encouraged to get involved in the transaction;
(d)I cannot be entirely sure about all of the discussions between the husband and his mother, and whether all of them were in the presence of the wife. Certainly the wife admitted her medical advice was to avoid stressful situations at the time, and I am certain the husband was well aware of the wife’s delicate medical condition;
(e)Mr F identified a private funder called Q Pty Ltd who were prepared to offer finance for two months at a rate of approximately 48% per annum;
(f)I am satisfied that the husband represented to his mother, and the mother absolutely trusting her son accepted, that the loan was only for a short period. Such representation confirmed by the wife to her mother-in-law Ms C Barilis, was overly optimistic;
(g)Q Pty Ltd required additional security to the properties owned or controlled by the husband and the wife, and Ms C Barilis not only provided a personal guarantee for the combined debt of $6.8 million (refinancing the mortgage over the Suburb H property as well), but she provided two real properties owned by her at Suburb R as security;
(h)I am satisfied all parties had the benefit of legal advice for this finance arrangement perfected only a day or so before settlement. As Ms Wald of Counsel contended, no party has ever suggested that they were not bound by the loan agreements, guarantees and the like that they entered into;
(i)However, whilst the last minute high interest option might have secured the ownership of the Suburb L family home, the impact of the high interest was about to bite;
(j)When the parties were unable to discharge the Q Pty Ltd loan by the due date in early 2018, the husband and wife had to negotiate a fresh loan to pay at least the penalty interest of $315,000. With the assistance again of Mr F, a private lender known as S Finance was prepared to lend the parties $315,000, taking security by way of equitable mortgage supported by a consent caveat over the Suburb H property but also the home of Ms C Barilis at Suburb T. This again was a high interest loan;
(k)Under increasing pressure to discharge the Q Pty Ltd loan, Mr F found another lender called U Finance who, on similar security from the husband, the wife and Ms C Barilis, advanced $4,600,000 to enable discharge of the loans in part. With the sale of Suburb H finally in mid-2019 for over $3,000,000, after payment of secured loans, the balance only seemed to assist in making interest payments on the Suburb L property;
(l)How the husband’s income was sufficient to enable them to maintain interest payments is somewhat of a mystery – one likely to be examined in the s 79 property proceedings between the husband and wife still to be the subject of a trial – however with the Suburb H property sold, it was possible to refinance the remaining debt of $4,600,000 around late 2019;
(m)It is this final finance transaction with E Finance that has in many ways crystallised the debt separately and discretely owed by Ms C Barilis;
(n)E Finance offered loans that do not appear to be cross-collateralised. The husband and wife through their entity J Pty Ltd (the legal owner of Suburb L) secured a loan of approximately $2,887,500;
(o)Importantly, E Finance offered a separate loan to Ms C Barilis of $1,568,000 secured by a first registered mortgage over her two Suburb R properties, together with equitable charges over all her other property including the home in which she lives; and
(p)It is not disputed that whilst the loan to Ms C Barilis has remained unpaid, the husband has met the interest on a monthly basis. Of course, when the Suburb L property was sold for over $4,500,000 and settled in mid-2021, the parties received the benefit of a discharge of their mortgage then outstanding, but the balance available has now remained in the trust account of the solicitors who conducted the conveyance pending resolution of the current dispute.
It is abundantly clear that the loans made by E Finance are not cross collateralised, because if they had been the mortgagee would have been entitled to receive the balance of the proceeds of sale of the Suburb L property, rather than for the funds remaining in trust.
Although Ms C Barilis had no registered security over the Suburb L property, she claimed sufficient interest in that property to support the lodgement of a caveat over the property shortly before settlement. That at least, through negotiations, enabled her to secure the balance of funds, in trust.
WHY THE WIFE SAYS MS C BARILIS SHOULD NOT GET THE FUNDS IN TRUST
Whilst the wife conceded in cross-examination that it would not be fair for Ms C Barilis to have to sell property to meet the debt secured, she firmly believes repayment of the debt is her husband’s problem, not her problem.
The final written submissions of the wife dealt with issues not the subject of the discrete hearing about who should get the funds in trust, including:
(a)at paragraphs 2 to 5 – parenting issues;
(b)at paragraphs 6 to 9 – allegations of family violence and alcohol use;
(c)at paragraphs 10 to 15 – s 75(2) factors and spouse maintenance;
(d)at paragraphs 16 to 26 – about lack of legal representation; and
(e)paragraphs 37 to 38 – financial outcome.
The wife asserts she was not informed that her parents could testify. I am prepared to accept that discussions took place with her parents, but where they ultimately decided not to assist, I fail to see how their evidence could have any relevance to the arrangements made by Ms C Barilis. Whilst the wife’s parents might have assisted the parties with gifts previously (for example to buy the Suburb H property), they are matters that may be relevant in the context of contributions made for assessment of s 79 orders. Sadly, as the wife herself acknowledges, if the funds in trust are disbursed to Ms C Barilis, there is limited property to distribute as between the husband and wife.
To the extent in her submissions the wife refers to a “re opening” to permit her parents to give evidence, no real application was made and the evidence they could give about why they chose not to assist, is not relevant to the claim by Ms C Barilis.
The wife’s submissions at paragraphs 32 to 35 deal with her argument that in taking out a loan secured over her property which she does not have the capacity to service, that the actions of Ms C Barilis amount to giving the husband an “early inheritance”. The full submission is:
32.His Honour asked me what discussions I had with the husband, at this critical moment I could not respond, I froze, blanked out due to the interrogation before. Now as I write this submission, I am calm and I can think, I can recall on a number of occasions having discussions and altercations with [Mr Barilis] and with my parents/sister. From [late] 2018 until 2021, the husband and I would constantly argue at home over this early inheritance and giving us the properties as security. Again I rely on my submissions in response to [Mr F’s] Affidavit to support my claim of inheritance. This strained my relationship with my family who I hardly spoke to from November 2018 until February 2019 as I supported and sided with my husband.
33.In our culture it is not unheard of to give your children an early inheritance to financially assist them. Mr. William’s and Ms. Wald objected to this inheritance characterization in my submission.
34.[Mr Barilis] and I approached my parents for an early inheritance in [late] 2018. [Ms C Barilis’] contributions were our early inheritance. Mr. William’s points out I agreed this loan was short term. [In late] 2018, I supported my husband by repeating what I was told to say. We had deceived [Ms C Barilis] when we repeated [Mr F’s] words that it was short term. In my heart I knew her contributions were long term.
35.[Ms C Barilis’] testimony is accurate in so far as that she trusted her son to meet her loan repayments on our mortgage. She denied an inheritance, which contradicts what [Mr Barilis] proposed on the night he spoke to my parents about the inheritance. It also contradicts my understanding of our parents assisting us by way on an early inheritance so as to not lose the [Suburb L] property as I was instructed by [Mr Barilis].
I reject this submission. Whatever hopes the husband (and/or his wife) might have carried – culturally or otherwise – the direct evidence of Ms C Barilis clearly establishes that whilst she was happy to assist the husband and wife (who it must be remembered were an intact couple at the time), she was not giving any funds to her son by way of an “early inheritance” or otherwise. I accept the direct evidence of Ms C Barilis.
Whilst the final paragraph of the wife’s written submissions (paragraph 65) is heartfelt and completely understandable from the wife’s perspective in her dire financial position now, it calls upon the Court to deviate from its obligations to apply the law.
CONCLUSION
I find the husband and the wife are indebted to Ms C Barilis for the funds she borrowed to assist them as set out in these Reasons.
Adult children of even wealthy parents are not entitled to rely upon parents to pay their debts – especially those which arise, as this debt did, from imprudent and somewhat uncommercial conduct.
Whilst in any further proceedings between these parties relating to the financial affairs, the wife’s constant claims that the husband has other assets or interests and a much higher income than he has disclosed to date will be a very relevant enquiry – that does not mean he must take full responsibility of this debt at this time. However, the husband is prepared to do so as Exhibit 1 makes clear.
If the wife is ultimately able to satisfy this Court that other interests exist, then of course the Court has power to adjust those interests in a just and equitable way.
Furthermore, the wife (as she asserts at paragraph 47 of her submissions) might have a compelling claim for spouse maintenance, but such a claim has not yet been considered and was not the subject of evidence or cross-examination at the discrete hearing. That also is a matter for another day – as are any unresolved parenting issues.
ORDERS
I am satisfied I should make the orders which the husband and his mother propose, save for removing Ms C Barilis from the proceedings at this stage. Properly, they also propose for the husband to provide indemnities to the wife and his mother.
At paragraph 46 of the wife’s submissions, she says:
I seek that [Ms C Barilis] remain joined to our proceedings but be excused from further hearings until a trial date [o]rdered as she will need to be cross examined on the nature of her companies and her business involvement with her son…
Ms C Barilis sought leave to intervene and was made a party because of the relief she sought in relation to the funds in trust.
It is not clear whether the wife asserts that Ms C Barilis holds interests in property or other entities on trust for her son, however without more evidence it is hard to understand why it is necessary for Ms C Barilis to remain a party. The wife has articulated no proposed orders against the personal legal interests of Ms C Barilis.
I have determined that the best way forward is to allow the parties to have time to consider this Judgment and the orders made today, and then by the next Case Management Hearing date which I will set for 17 August 2023 at 9.30am by telephone, the parties are invited to distil by discussion the remaining issues that the Court has to decide in these proceedings.
I will direct the husband to provide to the wife within 14 days a list of the issues still to be decided and permit the wife 14 days thereafter to either agree with those issues and/or expand on them.
In the absence of an agreed list of issues, I will direct each party to send to my chambers their asserted list of issues, by 4.00pm on 14 August 2023, being three business days before the next Case Management Hearing.
I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Baumann. Associate:
Dated: 30 June 2023
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