BHANOT & BHANOT

[2020] FCCA 2015

FEDERAL CIRCUIT COURT OF AUSTRALIA

BHANOT & BHANOT [2020] FCCA 2015

Catchwords:
FAMILY LAW – Ex tempore ruling – whether brother of respondent should be joined as party – sale of husband’s business to the brother attacked as a sham by the wife – clear necessity for addition of brother as a party – spousal maintenance claim unsustainable in view of husbands sworn evidence of impecuniosity – determination of which property to sell on an interim basis.

Legislation:

Family Law Act 1975 (Cth), ss.75(3), 81D, 106B.

Federal Circuit Court Rules 2001 (Cth) rr.11.01(2), 11.02

Applicant: MS BHANOT

Respondent: MR BHANOT

File Number: DGC 3692 of 2019

Judgment of: Judge Burchardt

Hearing date: 14 July 2020

Date of Last Submission: 14 July 2020

Delivered at: Dandenong

Delivered on: 15 July 2020

REPRESENTATION

Counsel for the Applicant: Ms Borger

Solicitors for the Applicant: Belleli King and Associates

Counsel for the Respondent: Mr Testart

Solicitors for the Respondent: Testart Family Lawyers

ORDERS

1. The matter be adjourned to this Court for final hearing before Judge Burchardt on 14 April 2021 at 10.00 am, with an estimated hearing time of 2 days.

2. The party responsible for the payment of any fee including a setting down or hearing fee pay or cause to be paid such of the Fees as shall be payable by that party in accordance with, and within the time specified in, the Federal and Federal Circuit Court Regulations 2012.

3. Order 1 of the Minute of Orders made on 17 December 2019 be discharged.

4. The Respondent’s brother Mr C be joined as a party to this proceeding

5. On or before 5 August 2020, Mr C file a Response and Affidavit.

6. Within 14 days, the husband and wife do all acts and things to sell wholly out of Court the real property situated at and known as D Street, Suburb E (“D Street, Suburb E”) and for that purpose:

   (a)The sale agent be as agreed between the husband and wife in writing and failing agreement within 7 days of this order, as chosen by the wife from the husband’s preferred list of three;

   (b)The method of sale be as agreed between the husband and wife and failing agreement as directed by the sale agent

   (c)The sale price be as agreed between the husband and wife and failing agreement as nominated by the selling agent.

7. Upon the completion of the sale of D Street, Suburb E, the proceeds be applied as follows:

   (a)To pay all costs and commissions of sale;

   (b)To discharge any registered encumbrance;

   (c)To pay each of the husband and wife the sum of $50,000 with such funds to be characterised at the trial of this matter;

   (d)The balance to be held on trust for the husband and wife in an interest-bearing account of the solicitors acting for the applicant (being Belleli King & Associates) pending the final determination of the proceedings or further order of this Honourable Court.

8. Pending the sale of D Street, Suburb E:

   (a)The husband do all acts and things to facilitate the sale agent to enter the property and/or inspect the property in the presence of any potential purchasers or interested parties;

   (b)The husband maintain the property in a fit and proper manner for sale; and

   (c)The husband and wife be restrained by injunction from further encumbering the property

9. Each of the husband and wife have liberty to apply with respect to the terms of sale of D Street, Suburb E.

10. Costs be reserved. 

11. It be certified that it was appropriate for the parties to have counsel appearing on their behalf at the hearing on 14 July 2020.

THE COURT NOTES THAT:

A.If in any proceedings there are allegations of family violence and the provisions of section 102NA of the Family Law Act 1975 apply (see attached Family Violence  Information Sheet), any unrepresented party will not be permitted to personally cross-examine the other party/parties.

B.Affected unrepresented parties may apply to the Commonwealth Family Violence and Cross-Examination of Parties Scheme (“the Scheme” for representation but any such application must be made at least 12 weeks prior to the Final Hearing.

C.Further information about the legislation and the Scheme can be found at Part 4 of the attached Family Violence Information Sheet.

D.If section 102NA applies and a party becomes unrepresented after trial directions have been made, that party is required to promptly advise the Court.

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT DANDENONG

DGC 3692 of 2019

MS BHANOT

Applicant

And

MR BHANOT

Respondent

REASONS FOR JUDGMENT

(Revised from Transcript)

1. Two things by way of introduction.  First of all, self-evidently, these reasons for judgment are being prepared under some pressure of time.  Probably that will be reflected in some infelicities as I go through.  Secondly, of course, any findings I express are self-evidently only interim findings and not final conclusions.

2. It is appropriate to commence with the relevant history of the matter.  In the wife’s first affidavit, she deposed that the husband owns all 10 shares in an entity known as F Group Pty Ltd, of which the husband is the sole director and company secretary.  She deposed that F Group Pty Ltd owns three properties, including one at D Street, Suburb E.  It is uncontroversial, for present purposes, that that property is ascribed a value of $500,000 with a mortgage of about $320,000. 

3. In the husband’s first affidavit filed on 18 March 2020, he deposed to the sale – I emphasise that – of G Pty Ltd, in August 2019, which was, on any view of the matter, after the parties had separated.  He deposed that G Pty Ltd had a debt of $457,000 and that the trucks that that company owned were its only asset.  No other details for the sale were really provided in the affidavit. 

4. In paragraph 24 of his affidavit, the husband deposed that the F Pty Ltd Group acts as trustee for the Bhanot Family Trust.  The terms of the trust are not revealed, and there is no indication, for example, who the beneficiaries are.

5. In paragraph 25 of the affidavit, the husband deposed that D Street, Suburb E is not making income.  I understand from the materials as a whole that it is vacant land.  He deposed to a loan of $20,000 per month from H Pty Ltd.  No details of the loan and its terms, or indeed as to what H Pty Ltd were revealed.

6. At paragraph 31 of his affidavit, the husband expressed that, as a rough guess, he was expecting to receive approximately $300,000 from the liquidation of a previous business in which he had been involved called J Company.  He also asserted large numbers of individual in smaller amounts.

7. In his financial statement, filed 18 March 2020, the husband deposed to income of $5273 per week and expenses of $4721.  The sale agreement, in fact, is exhibit B001 to the wife’s affidavit filed on 4 April 2020.  It is immediately apparent that it was not drafted by lawyers or, in the alternative, if it was drafted by lawyers, they made a mess of it.  I propose to go through this document in some detail.

8. On the first page, under the heading Agreement, the buyer is defined as Mr C, who is a brother of the husband, and the seller is defined as the husband.  The document then goes on to say:

   Whereas party of the second part, Mr Bhanot, is running as owner of a company under the name of G Pty Ltd, and said company owns 17 vehicles at present.

   Whereas party of the second part, Mr Bhanot, during the course of his business had purchased the following properties out of the income derived from the above said business, namely F Pty Ltd Group–

   I pause there.  That is not the case. 

9. The business was not F Group Pty Ltd, but was self-evidently the J Company.  The document then goes on to detail the four and – three properties, I beg your pardon – owned by F Pty Ltd Group, which include D Street, Suburb E.  It goes on to say: 

   Whereas the company of the second part –

   which means J Company of the husband –

   has gone in red and came under the debt of Aus $457,850.72 after evaluating all the outstanding loans as well as vehicles acquired by the company as per the valuation given by the authorised valuer agent –

   there is no valuation referred to in the husband’s affidavit material –

   whereas in order to get rid of the indebtedness, the party of the second part namely Mr Bhanot has agreed to sell/transfer the above said company to the party of the first part namely Mr C alongwith all appurtenant right therein as well as its all assets and liabilities in the loss sum of Aus $457,850.72 as a result of the party of the second part owing Aus $457,850.72 towards the party of the first part as per the following terms and conditions set between the parties:-

   okay.  Then it is provided -

   1. Whereas in order to secure the balance loss of $457,850.72 owed to the party of the first part, the party of the first part will have full fledged rights of lien/charge/pledge/mortgage/caveat on the above said three properties mentioned above…

10. It is immediately obvious from that clause, I would point out, that the debt is not in fact extinguished but rather purports to be secured against the three properties which are not, in fact, the properties of J Company, but are, of course, part of the property of the F Pty Ltd Group.  The second paragraph goes on:

    2. Whereas till the clearance of outstanding amount owed by the party of the second part to party of the first part, the party of the first part will hold his complete and full fledged rights charge/lien/pledge/mortgage/caveat over the above said properties mentioned at Sr.No.1,2 and 3 above and the party of the second part will have no right to alienate, transfer or lease out or transfer in any manner to any third person except the consent or arrangement of the first party.

11. How and over what period of time this repayment is said to be likely to take place is left wholly unclear, but what is apparent is that the debt is in no ways extinguished.  The third numbered paragraph goes on to say:

    3. Whereas the above said agreement between the parties has been entered in between the parties to come out of the financial debt/burden on the party of the second part and the party of the first part has come to the rescue of the party of the second part from any undesired action/penalty to be levied by any government/ financial authority of Australia, in any manner on account of failure of payment of heavy financial debt.

12. The trouble with that drafting is that it is wrong, because the debt is not only still there and is contemplated to be repaid, but it is a secured debt, purportedly, according to this agreement.  Finally, at paragraph 7, the document asserts:

    7. Whereas by way of this agreement, the party of the first part has acquired all rights, title and interest over the business of the company of the second part as well as over the properties mentioned at Sr.No. 1,2 and 2 above and the party of the second part can be left with no right, title and interest therein.

13. That, in fact, is not what the document says.  At most, the properties are charged, as it were, as a guarantee of the compliance by the second party with their obligations to repay under the agreement.  So I have to say that, prima facie, this document appears to me to make little sense.  The purchaser gets the whole of the business, ultimately free of debt, for nothing, albeit presumably that the second party – the husband, as it were – is given an unlimited period of time in which to repay.

14. When you come to the husband’s second affidavit, filed on 23 April 2020.  At paragraph 8, the deposed:

    …The loan agreement from H Pty Ltd for $20,000 per month has been rescinded owing to the uncertainties that have arisen as a result of the COVID-19 pandemic.  As a result of H Pty Ltd rescinding the loan agreement I have not got ongoing access to any money.  Annexed hereto and marked with the letters “-1” is a true copy of the letter I received confirming this to be the decision of H Pty Ltd.

15. I will read that letter out.  Leaving aside irrelevant matters, it says:

    We would like to inform you that due to the impact of the covid-19 pandemic outbreak, our business is not in a position to continue financial lending support F Pty Ltd Group.  Through this writing we are informing about our incapacity to F Pty Ltd Group, two weeks prior to the due date of every month’s lending, so that “F Group” can make their arrangements to it’s commitments from now onwards.

16. It is important to remember the first affidavit of the husband at paragraph 25, which relevant said:

    …To pay all mortgages, rates and State Revenue Office fees, I am receiving ongoing loan assistance of $20,000 per month from H Pty Ltd...

17. Pausing there, one is left to wonder why – if these were loans – why was H Pty Ltd not asking for repayment?  The H Pty Ltd letter merely says we will not advance you any more money, but says nothing at all, as one might have inferred would have been likely, as to repayment of the sums already advanced.  It would seem that the worst result one might obtain as a result of H Pty Ltd ceasing to provide further funds to service the debt on these properties might be a mortgagee sale.

18. So, with that background, I come to the particular issues that are before me.  The first is the wife’s application to join the brother as a party.  The husband opposes this and says, rather, the brother should be left to decide if he wishes to participate and to take his risks should be fail to do so.

19. It is clear the Court has power to join the brother, either pursuant to rule 11.01(2) or rule 11.02.  The wife’s case is that the sale of the business in August 2019 of J Company was a device, in effect, to alienate a marital asset.  The husband said it was bona fide.  I note in passing, of course, that there are also additional issues as to what the true worth of the company at the time was in any event.

20. Given the flaws in the sale agreement and the fact that the brother is said to own J Company, in my view, the answer to the issue is shortly stated.  It is clearly imperative to enjoin him to the proceedings.  He is plainly part of the overarching single dispute.  So I will make an order to do so.

21. The next issue is that the wife seeks a separate half-day hearing on the section 106B application to set that sale aside. The husband opposes – and once again I can express my view shortly – I agree with the husband. Splitting trials is a road to dusty ruin. The authorities are replete with cautions about the difficulties of split trials of this sort.

22. The issues that are going to plainly arise in this subset of the dispute are plainly, in part, credit issues.  If I were to dispose of the matter as to that issue only, the matter would then have to go to a separate judge for a final trial.  The lack of desirability of this is immediately apparent.

23. The issues are not, in my view, discrete.  The wife’s case is, in part, that the husband is seeking to defeat her claim in various ways, and in my view this matter cannot be subdivided.  That issue would be determined at trial. 

24. That leaves aside the fact that half days are simply not available in the immediate future or, indeed, the quite distant future, given the pressure in my list in any event.  The next question is the matter of spousal maintenance.  The wife lives in the matrimonial home.  There must be a query, of course, given the husband’s most recent material as to whether he will be able and/or willing to continue paying the mortgage.

25. The wife is in receipt of the $300 per week spousal maintenance previously ordered and statutory benefits, but I accept that pursuant to section 75(3) I am required to disregard those benefits. One might wonder whether that is entirely realistic, but the terms of the Act are a matter for Parliament.

26. It is clear that the wife has a financial need.  The husband has deposed that she is no longer working, and that the sole source of funds on which he relied from H Pty Ltd have stopped.  In summary, he says, he has no money.

27. The evidence is not entirely satisfactory, as I think I have already made plain, but that is what he said on his oath.  In my view, pending trial I cannot order him to pay money he says he does not have.

28. The next question is the sale of property to provide interim funds. Both parties agree that this should occur, but the issue is which property should be sold.  The husband says that the matrimonial home should be sold, not least because the mother will not be able to retain it in any event.  He says he is unable to pay the mortgage.  From the materials, it is appears that the matrimonial home has a value of approximately $600,000 with a mortgage of approximately $404,000.

29. Nonetheless, the final outcome in this proceeding is, at this stage, wholly unclear.  The husband may obtain about $300,000 from the liquidation of the prior entity.  There is likely to be a surplus if the D Street, Suburb E property is sold of about $180,000.

30. The husband says that his brother has a caveatable interest as a result of the sale agreement, but as I understand it no caveat has yet been lodged.  In my view, it is extremely debatable as to whether or not on its proper construction the August 2019 agreement does give rise to a caveatable interest.

31. There is no evidence to support the evidence of the submission made by counsel for the husband that H Pty Ltd has any caveatable interest. As I pointed out, money debts do not of themselves, per se, give rise to interests in land. It is quite clear that the Court, in any event, has power to order sale and the removal of caveats, if only from section 81D of the Act.

32. Further, there is likely to be a sufficient equity overall to readjust to the brother if the funds have to be repaid, because the matrimonial home has a $200,000 equity, substantially in excess of the amounts that the wife is seeking to liberate at this stage.

33. I am going to order that the sale of the D Street, Suburb E property and if any caveats are placed, subject only to natural justice issues, I would be highly likely to order their removal.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Associate: 

Date: 23 July 2020