Bergman & Bergman

[2007] FamCA 1122

FAMILY COURT OF AUSTRALIA

BERGMAN & BERGMAN [2007] FamCA 1122

FAMILY LAW - SPOUSAL MAINENANCE – application for discharge – dismissed.

FAMILY LAW - SECURITY FOR COSTS – application for Barro order – allowed.

Family Law Act 1975 (Cth) s 83

Zschokke and Zschokke (1996) FLC 92-693
P & P (Unreported, Family Court of Australia, Kay J, 9 March 1994)

APPLICANT: Ms Bergman

RESPONDENT: Mr Bergman (by his Case Guardian Miss Bergman)

FILE NUMBER: MLF 5245 Of 2003

DATE DELIVERED: 21 September 2007

PLACE DELIVERED: Melbourne

JUDGMENT OF: Mushin J

HEARING DATE: 22 September 2006

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Geddes

SOLICITOR FOR THE APPLICANT: Marshalls & Dent

COUNSEL FOR THE RESPONDENT: Mr St. John

SOLICITOR FOR THE RESPONDENT: Caroline Counsel Family Lawyers

Orders

IT IS ORDERED THAT

1. The husband’s Form 2 Application in a Case filed on 20 July 2006 seeking a discharge of paragraph one of the orders made on 22 December 2005 be dismissed.

2. The husband pay to the wife the sum of $100,000 by way of security for her costs of this litigation.

3. Liberty be reserved to both parties to make submissions at the trial of the applications for final orders in these proceedings with respect to all matters in paragraphs one and two herein.

4. General liberty be reserved to both parties to apply.

IT IS CERTIFIED

1. Pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of counsel, including senior counsel.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 5245 of 2003

MS BERGMAN

Applicant

And

MR BERGMAN (BY HIS CASE GUARDIAN MISS BERGMAN)

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. On 22 December 2005 an order was made by Young J requiring the husband to “pay or cause to be paid to the wife for her maintenance the sum of $1,600 per week (clear of deduction or expense), commencing 26 December 2005”. The husband has sought the discharge of that order.

2. By way of response, the wife seeks dismissal of that application together with an order that the sum of $100,000 be released to her solicitors “by way of a Barro Order”.  The wife's original application sought the sum of only $50,000 but during the hearing of these applications, senior Counsel for the wife sought leave to make an oral application to amend that figure to $100,000 which oral application I now grant.

3. Those competing applications are the subjects of these reasons for judgment.

BACKGROUND FACTS

1. The husband is aged 73 years and the wife is aged 62 years. The parties commenced cohabitation in 1988 and married in August 1995. They separated in August 2003 and have lived separately and apart since that time.

2. The parties commenced litigation in this Court within a few days of their separation.  Litigation between them has involved numerous applications for interim orders, both procedural and substantive. The primary applications for final orders concern the issue of alteration of property interests. It appears to be common ground that the net asset pool available for distribution between the parties on those final applications ranges between approximately $5 million dollars on the assertion of the husband and $8.5 million dollars on the assertion of the wife.

3. The husband’s case is being conducted by a Case Guardian who is his daughter by his previous marriage. Both the wife and the Case Guardian have filed extensive material in support of these and other applications and there has been further extensive material filed on behalf of each party by various other lay and expert witnesses.

THE CONDUCT OF THESE APPLICATIONS

1. Both parties were represented by Senior Counsel before me. As well as the interim applications, there was extensive affidavit material together with written summaries of argument filed pursuant to a previous order. Because the matter took longer than the available time in the Judicial Duty List, at the conclusion of the hearing I ordered the filing of further written submissions. Those final written submissions were necessitated by my prior decision to permit Senior Counsel for the Case Guardian to cross-examine the wife on financial issues relevant to the applications. Following that extensive cross-examination I required further detailed submissions of the competing evidence, both affidavit and viva voce.

2. Having heard the viva voce evidence and subsequently read the transcript, I am confirmed in the view that the cross-examination which I permitted was of questionable value.  While that cross-examination raised issues which require determination, such determination is virtually impossible in interim proceedings, not only because the entirety of the wife’s financial circumstances are not subjected to scrutiny but also because the Court does not have the opportunity to compare the wife’s financial circumstances with those of the husband. Because of the limited time available for the conduct of this matter in the Interim List and the needs of Senior Counsel to make submissions, I restricted the time for cross-examination to one hour. At the conclusion of that cross-examination, Senior Counsel for the wife was given the opportunity to re-examine which he did briefly.

THE CASE GUARDIAN’S APPLICATION FOR DISCHARGE OF THE MAINTENANCE ORDERS  

1. I have already noted that an order was made in the sum of $1,600 per week in favour of the wife. That order was made by Young J. At paragraph 43 of his judgment his Honour found that there was:

   no issue that the wife was unable to engage in gainful employment. She is 61 years of age and does not have a recent history of employment and would largely be unemployable. The husband is 71 years of age, has recently been involved in property and development and has been an active investor and property developer throughout his lifetime.

2. Before me, there was also no challenge to the proposition that the wife is unable to earn income from employment.

3. At paragraph 44 Young J held:

   [I]t is difficult without the aid of a crystal ball to actually understand the specific income that the husband might hereafter receive. The current evidence affords an income of approximately $10,000 per week subject to significant financial caveats. I understand that income for the husband is not paid in the usual sense but is otherwise received by way of capital sums from various developments.

   45. At the husband’s age and in his current poor state of health, there must be a very real issue as to whether that income will continue in the next financial year and thereafter at that level. The husband has significant assets. They are invested. There are luxury resort developments in Fiji. There are other investments. The husband no doubt expects to maintain a very good income therefrom, but the reality of that will only be seen in time….

   46. Ultimately what I’m satisfied is that, by weekly income through pension, superannuation entitlements or dividends on shares or capital project sums, the husband has always derived a substantial income and enjoyed a substantial lifestyle.

4. On the evidence before me, Young J’s findings with respect to the husband’s financial position appear, in general terms, to have been maintained. The husband would appear to have received a sum approaching $4.5 million since the separation although a detailed analysis of that is not possible in the present circumstances.  In particular, the husband has investment interests in Fiji and the reliability and potential return from those interests would need to be explored in the circumstances which a full trial of these applications will afford in due course. On any view, the husband’s business interests resulted in turnovers of very large amounts of money.

5. The Case Guardian’s Financial Statement shows a total average weekly income for the husband of $3,291 and personal expenditure of $9,854 per week. However, without making any negative finding against the husband, the affidavit of Mr F, the wife’s consulting forensic accountant in these proceedings, sworn on 13 September 2006, refers to paragraph 45 of the Case Guardian’s Financial Statement showing the husband’s Superannuation Fund as having a gross value of $ 1,602,0632.  Mr F deposes that based on that balance, the minimum draw down on the pension would be “approximately $127,193 per annum and the maximum approximately $276,316 per annum (or $5,314 per week). Mr F deposes that:

   [I]f the husband were to draw a maximum pension from the fund, this would continue to support [the husband] based on the life tables for approximately 5.8 years.

6. Senior Counsel for the husband submitted that not only had the husband’s circumstances changed but the wife’s had also.  In support of that proposition, senior Counsel submitted that “the financial assets and resources available to the Wife consist primarily of her entitlements in the [wife’s] Superannuation Fund, a self-managed fund controlled by the Wife and her ownership of the “YE” premises.” It was submitted that the premises were owned in equal shares by the wife personally and in the name of the fund. It was submitted that the wife could, and should, draw on those funds, thereby at least reducing any claim which she might otherwise have on the husband.

7. Exhibit B is a letter from the wife’s accountant to the wife, dated 16 June 2006, which states the view of the accountant that it is was not wise for the wife to draw on that fund at this stage because of the tax implications of such drawing. This was a matter of some criticism of the wife by Young J in his judgment. His Honour held:

   49. “However, I take this opportunity to record in these ex tempore reasons for judgment that it will likely be a matter of real significance ongoing in this case that the wife has structured her superannuation in such a way as to ensure that immediate payments are not made to provide for herself. I think there is much in the argument that she is looking to secure and benefit her family, certainly in relation to the C Boutique business, and these are matters which at a subsequent and final hearing are likely to attract far more interest from the Court.

   50.I am not going to direct the wife to liquidate those investments, but the wife must understand and those advising her must understand that although those assets will be brought to account on property proceedings, the intent of superannuation is to provide income to meet living and lifestyle expenses and not simply preserve all of the assets for another day.”

8. I respectfully adopt Young J’s comments above.  It may well be unreasonable for the wife not to be required to draw on the fund to provide for her own maintenance.  However, in order to make that finding, it is necessary to consider more than the limited evidence which has been put before me in these applications.  It would appear that there are competing expert views with respect to the consequences on the wife of drawing on that fund. Certainly, the wife’s own consulting accountant advises against it, at least at this stage. I do not regard the state of the evidence to be sufficient to enable me to make the findings sought by senior Counsel for the Case Guardian.

9. Section 83 of the Family Law Act 1975 ("the Act") empowers me to vary or discharge the order in specified circumstances.  For the purposes of these applications, senior Counsel for the husband seeks a total discharge of the order made by Young J, first, on the basis that the husband's financial circumstances have deteriorated and secondly, on the basis that the wife's circumstances have improved, such as would warrant such discharge.  Despite several invitations from both myself and senior Counsel for the wife, senior Counsel for the husband declined to specify a lesser amount to which the order might be varied if I were to find that it was appropriate to vary but not totally discharge the present order.  Senior Counsel submitted that were I to find that a ground had been established for the variation or discharge of the order, I would then be "at large" in determining the appropriate amount.  While I do not accept the submission of senior Counsel for the wife that the only options open to me are either the dismissal of the husband's application, thereby continuing the present order, or the total discharge of the order, the absence of a submission on behalf of the husband as to an alternative amount has not been of assistance to me.

10. On the limited evidence before me, as well as the lack of options in terms of alternate figures to which I may decrease the sum, I find that I am unable to disturb the current spousal maintenance order.  The husband has not persuaded me that a total discharge of the order is warranted on the basis of a change to either the husband’s or the wife’s circumstances.  The husband continues to have very significant assets and investments from which he derives income and there is no evidence that the income derived from these assets and investments has altered since the making of the spousal maintenance order.  Clearly the husband’s age and health affect his ongoing capacity for employment, however, the primary basis for his income is his current assets and investments.  Indeed on the evidence of Mr F the husband’s superannuation alone could support a comfortable lifestyle for himself for the rest of his days. 

11. In contrast, the wife has no capacity to earn income and while she does have superannuation assets I am unable, on the evidence before me, to find that this superannuation negates the wife’s need for spousal maintenance.

12. There is insufficient evidence before me which could support my varying the order by increasing or decreasing the payment sum.  It is not appropriate in these circumstances for me to simply pick a figure out of the air.  The trial judge hearing the substantive proceedings in this matter will be best placed to assess the question of spousal maintenance and will take spousal maintenance payments into account in making a final determination as to the alteration of the parties’ property interests.  I will reserve the right of both parties to argue accordingly.

13. The husband’s application under s 83 is therefore dismissed.

THE WIFE'S "BARRO" APPLICATION

1. I have already referred to the wife's amended application for interim costs in the sum of $100,000 to enable her to conduct these proceedings.  The bases for that application are:

   ·the disparity in the financial circumstances of the parties;

   ·the husband has income, assets and resources with which to meet his ongoing legal costs which the wife does not have;

   ·there is evidence to establish the costs incurred by the wife to date and the need to incur further costs in prosecuting her application;

   ·the evidence of the Case Guardian as the significant amount expended by the husband in relation to these proceedings to date.  In an affidavit filed on 9 August 2006, the husband's solicitor swore that her client had paid her firm the sum of $503,191 in respect of his costs to that time; and

   ·the applications are complex, the husband controls the majority of the relevant assets, is in possession of the relevant documents and independent expert valuations are required.

2. These bases address the relevant matters to be taken into account in considering an application for a Barro order as propounded by Kay J in P & P (Unreported, Family Court of Australia, Kay J, 9 March 1994) and the Full Court in Zschokke &  Zschokke (1996) FLC 92-693.

3. It is submitted on behalf of the husband that no order should be made on the wife's application.  Part of the basis for that submission is that the wife should seek to recover loan monies owed to her by her sister.  The husband sued both the wife and her sister in the Supreme Court of Victoria.  He obtained judgement in his favour in a sum of a little over $90,000.  Both the wife and her sister sought a stay of execution of the judgment.  The wife was successful in her application but the sister was unsuccessful.  The husband appears to have threatened to serve a Bankruptcy Notice on the sister, as a result of which the wife regarded herself as having at least a moral obligation to assist her sister by paying her share of the debt.

4. As a result of previous orders made by Young J, the wife was, at the time of the events described in the last paragraph, in the course of borrowing a sum of $200,000 from her bank.  She had been authorised by order of the Court to borrow that money to assist in funding her litigation in these proceedings.  The wife used the sum of approximately $46,000 from that borrowed money to pay her sister's share of the judgment debt which was owing to the husband.

5. During the wife's cross-examination, senior Counsel for the husband was extremely critical of the wife for using the borrowings for that purpose.  In addition, there was considerable criticism of the wife over representations which she had made to the bank in support of the borrowings and her evidence which she had given by affidavit in the Supreme Court of Victoria in support of the stay application. 

6. With regard to the wife's credibility, despite the fact that I permitted cross-examination of the wife as part of these applications, it is nevertheless difficult to make clear findings with regard to credit.  For example, the wife swore that at the time that she made the application to the bank to borrow the money referred to above, she genuinely believed that what she put to the bank in support of that application was the truth.  At this stage, the evidence is inconclusive on the issue of the wife's credibility.  My experience suggests that a determination of the wife's credibility requires a consideration of the entirety of her evidence.  Such a determination is extremely difficult when sought to be made in the isolation of a discrete fact situation.  Accordingly, in my view such a determination is more appropriately made by the trial judge on the hearing of the applications for final orders.

7. With regard to the criticism of the wife resulting from her payment of the sum of approximately $46,000 to the husband in discharge of her sister's judgment debt to him, in my view the husband's conduct does him no credit.  At a time when the husband has proceedings in this Court against the wife for alteration of property interests, he brought proceedings against the wife and her sister in another Court.  With regard to any alleged debt for which the wife might be liable to the husband, the question as to why that could not be part of the proceedings in this Court has not been addressed by or on behalf of the husband.  The wife's actions in paying her sister's debt to the husband, particularly in circumstances in which the sister's financial situation was apparently very poor, does the wife credit rather than opens her to criticism.  It was not a matter for the wife's bank to determine whether the wife could use any of those monies to repay the sister or whether they were restricted to what has been referred to as "litigation expenses".  The wife had ready money at that time and in the circumstances, and particularly in the context of these interim applications, the criticism of her for using part of that money for this purpose smacks of hypocrisy. 

8. The wife, having obtained an order permitting her to use part of the borrowings for the expenses of this litigation, paid virtually the entirety of that sum to her sister for the benefit of the husband in the circumstances described above.  The wife's actions have placed her in a financially disadvantageous position compared with the husband and it is appropriate that the husband should remedy that disadvantage.  Accordingly, an order should be made in favour of the wife in the sum of at least $50,000 for the costs of this litigation.

1. However, there remains the question of the wife's application for a further sum of $50,000 for ongoing costs of this litigation.  In that regard, admissions on behalf of the wife as to the merits of her application lead me to the conclusion that the wife's application should be granted.  This litigation is complex, costly expert evidence is required, the husband has control of the bulk of the relevant assets as well as documentation which will enable the Court to decide the final applications.  The husband has already advanced a very large sum for his own legal costs and it would be most unjust if the wife did not have at least some proportion of the same opportunity.

2. While there is an issue with regard to the wife's ability to draw on the superannuation fund referred to above, the evidence does not persuade me that such an order should be made in this application.  It may well be appropriate in the final applications.

3. Finally, as with my consideration of the interim application for spousal maintenance, the opportunity will be reserved to both parties to argue the ultimate disposition of these monies.  As a result their respective rights will be sufficiently protected.

4. Accordingly, there will be an order for the husband to pay the wife the sum of $100,000 by way of litigation costs.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Mushin.

Associate

Date:  21 September 2007