Callas and Callas and Ors
[2018] FCCA 4
•22 February 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CALLAS & CALLAS & ORS | [2018] FCCA 4 |
| Catchwords: FAMILY LAW – Alteration of property interests – dispute between Applicant Wife and Trustee of her Husbands’ bankrupt estate – treatment of trustees statutory expenses and payments in the context of claims of add back in family law. |
| Legislation: Bankruptcy Act1966, s.178 Family Law Act 1975, ss.75, 78, 79, 114 |
| Cases cited: Bevan & Bevan [2013] FamCAFC 116 Kehagiadis v Constantinidis [2014] FCCA 364 Prentice v Constantinidis (No.2) [2015] FCCA 904 Prentice v Constantinidis (No.3) [2015] FCCA 1438 Stanford & Stanford [2012] HCA 52 Vass & Vass [2015] FamCAFC 51 |
| Applicant: | MS CALLAS |
| First Respondent: | MR CALLAS |
| Second Respondent: | MR POOLE IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF MR CALLAS |
| Third Respondent: | COMPANY A |
| File Number: | SYC 5579 of 2015 |
| Judgment of: | Judge Altobelli |
| Hearing dates: | 14-16 March 2017; 14-15 August 2017 |
| Date of Last Submission: | 28 September 2017 |
| Delivered at: | Wollongong |
| Delivered on: | 22 February 2018 |
REPRESENTATION
| The Applicant was self-represented. |
| The First Respondent was self-represented. |
| Counsel for the Second Respondent: | Mr Golledge |
| Solicitors for the Second Respondent: | Polczynski Lawyers |
| The Third Respondent was self-represented |
DECLARATION:
The real property known as Property A, NSW (the COMPANY A Property), being property comprised in folio identifier and owned by COMPANY A and (COMPANY A) be treated and considered an asset of the Applicant Wife and COMPANY A do all things reasonably necessary to cause the said property to be transferred into the name of the Applicant should she so Request.
ORDERS
The Applicant Wife (the Wife) forthwith sign any transfer submitted to her on behalf of the Second Respondent which has the effect of transferring her interest in the real property known as The Property C property comprised in folio identifier (the Property C Property) to the Trustee; and
The parties otherwise retain their existing interests in the property of the marriage, including any vested bankruptcy property.
In the event that either party refuses or neglects to execute any deed or instrument within seven (7) days of request, the Registrar of the Court be appointed pursuant to s.106A of the Family Law Act 1975, to execute such deed or instrument in the name of such party and to do all acts and things necessary to give validity to the operation to the deed or instrument..
Liberty is granted to the parties to re-list the matter on 7 days’ notice by application to the Court in Chambers regarding the interpretation, implementation or enforcement of the Orders.
Any application for costs proceed by way of written submissions. The applicant for costs file and serve within 21 days written submissions not exceeding 1000 words, together with such further evidence as the said applicant considers appropriate. The respondent to the said application must within 21 days of receipt of the above file and serve written submissions in response, again not exceeding 1000 words together with such further affidavit evidence as the respondent to costs considers appropriate.
IT IS NOTED that publication of this judgment under the pseudonym Callas & Callas & Ors is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYC 5579 of 2015
| MS CALLAS |
Applicant
And
| MR CALLAS |
First Respondent
| MR POOLE IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF MR CALLAS |
Second Respondent
| COMPANY A |
Third Respondent
REASONS FOR JUDGMENT
Introduction and Background
These Reasons for Judgment explain the orders that the Court has made in a dispute that involves four parties. The Applicant is Ms Callas. The First Respondent is her husband Mr Callas. The Second Respondent is Mr Poole in his capacity as Trustee of the bankrupt estate of Mr Callas. The Third Respondent is an organisation known as COMPANY A. The Applicant, who will be described as the Wife in these reasons, is 53 years old. Her husband, who will be described as the Bankrupt Husband or just the Husband in these reasons, is 51 years old. They commenced cohabitation in 1997, married in 2003 and separated in 2011. There is no evidence before the Court of the Applicant Wife and the Bankrupt Husband being divorced.
Mr Poole is the Trustee of the Bankrupt Husband’s bankrupt estate. He was appointed on 4 March 2014.
COMPANY A is an incorporated association which, the Court has found for reasons given below, to be for all practical purposes the alter ego of the Applicant and the Bankrupt Husband. It was incorporated on 7 July 2000.
In October 2011 the Applicant and the Bankrupt commenced proceedings in the Supreme Court of New South Wales against their former solicitor, Vasso Tsolakis. In 2012 and 2013 the Statements of Claim that the Applicants had filed (representing themselves) were struck out, and costs orders made against both of them.
On 20 February 2014 Judge Manousaridis, in this Court, made a sequestration order of the estate of the Bankrupt Husband. Mr Poole was appointed as Trustee of his estate. There was quite extensive litigation relating to the administration of the bankrupt estate, even before the present proceedings under the Family Law Act 1975 (Cth) (the Act). The Trustee commenced proceedings for possession of the former matrimonial home at Property B and, eventually, the sheriff took possession and the property was sold by the Trustee. There are two other judgments of this Court relating to the bankruptcy proceedings, Prentice & Constantinidis (No.2) [2015] FCCA 904, and Prentice & Constantinidis (No.3) [2015] FCCA 1438.
In many ways, the present proceeding considered the Family Law Act consequences of the Bankrupt Husband’s bankruptcy.
The Wife’s application under the Act is best represented in her Amended Application filed 23 September 2016 in which she seeks a number of orders under s.79 of the Act. She seeks an order that she be declared the sole legal and beneficial owner of the properties known as Property C, New South Wales. She further seeks an order that the Trustee transfer to her the whole of the Bankrupt Husband’s right, title and interest in those properties (her husband’s share having vested in the Trustee as a result of his bankruptcy).
She seeks an order the effect of which would be that on transfer of the said properties to her she would indemnify both the Trustee and her husband from all liabilities in relation to the same. Further, the Applicant Wife seeks an order that the Trustee pay to her the whole of the remaining sale proceeds of the former matrimonial home at Property B which was sold at auction on 7 November 2015. Whilst the Applicant Wife was legally represented at the time of this Amended Application and, indeed, was legally represented at certain other times since then, by the time of the final hearing she was representing herself. In these circumstances, the Court is prepared to infer that she also seeks an order the effect of which would be that any property held by COMPANY A is held by the said organisation beneficially, and that she has no interest in the same.
The First Respondent, the Bankrupt Husband, had no standing in these proceedings pursuant to section 79(12) of the Act. As it turns out, there is no non-vested property – in other words, all property of the Husband vested in the Trustee of bankruptcy. One of the issues in this case is whether, and if so to what extent, a Court should pursuant to s79(13) of the Act permit the Bankrupt to lead evidence and, indeed, to participate in the proceedings, notwithstanding his lack of standing. The Court adopted a generous view towards the Bankrupt in this regard. It finds that (i) as the Bankrupt Husband was integrally involved in the operation of COMPANY A, the Third Respondent (found by the Court to be the alter ego of the Wife and the Bankrupt), and (ii) as the Applicant was at times representing herself in the proceedings and might reasonably be assisted by the Bankrupt in the conduct of the proceedings, leave is granted under s79(12) of the Act as there are exceptional circumstances.
The Trustee sought orders to the following effect. Firstly, that the property at Property A, New South Wales, owned by COMPANY A, be considered an asset of the matrimonial pool. Secondly, that the Wife transfer to the Trustee her interest in the Property C property. Thereafter, the Trustee proposed that the parties retain their existing interest in the property of the marriage, including any vested bankruptcy property. Thus, the Trustee contended that the evidence would demonstrate that, in effect, COMPANY A is the alter ego of the Applicant wife and the Bankrupt Husband, and thus should be treated as a matrimonial asset. This is one of the major issues for the Court to determine.
Issues
The Applicant Wife contends that she has made a substantial contribution to the assets of the Bankrupt Husband and herself. In her earlier applications to the Court, she sought that her contribution be assessed at 50 per cent, but as the proceedings progressed it became clear to the Court that she was in fact asserting a much higher percentage. It is also implicit in her case that she seeks an adjustment in her favour under s.75(2) of the Act. The Trustee contends the contribution should be assessed as equal, and that there should be no s.75(2) adjustment in the Wife’s favour
A major issue for the Court is the constitution of the asset pool. The Trustee contents that should the Court declare that the COMPANY A property at Property A is in fact the property of the Bankrupt Husband and his wife, and that this property has a value of $350,000. The Trustee contends that the Property C has a value of $325,000. In each case, the Court accepts that the best evidence before the Court suggests that the values attributed by the Trustee are, in fact, correct. The Trustee contends that all that is left from the sale proceeds of the Property A property is the $25,000 that was paid to the Wife pursuant to an order of this Court on account of her legal costs. The Trustee contends that the remaining sale proceeds were used entirely to pay the debts of the Bankrupt Husband, or the Husband and wife to Bank 1, which debt Bank 1 required to be paid on settlement of the sale of the Property A property, thus resulting in that no mortgage encumbering the Property C property. The Wife contends, however, that all of the sale proceeds of the Property A property ought to be added back to the notional property pool on the basis, in effect, that the dissipation of these funds was a premature distribution of matrimonial assets. There is a major issue for the Court to determine as a substantial part of the sale proceeds (after paying out the mortgage debt of the Husband and the Wife) relates to the costs and expenses of the administration of the bankrupt estate.
Credit issue are at large in this case. The Trustee contends, and the Court will ultimately find for reasons set out below, that the evidence of the Applicant Wife and the Respondent Bankrupt Husband is wanting in many respects. Accordingly, credit findings will need to be made.
The evidence
The Applicant relied upon the following material:
a)Amended Initiating Application, filed 23 September 2016;
b)Affidavit of the Applicant, filed 10 August 2017;
c)Affidavit of the Applicant, filed 23 December 2016;
d)Affidavit of the Applicant, filed 13 March 2017;
e)Affidavit of the Applicant, filed 8 February 2017;
f)Affidavit of the Applicant, filed 10 February 2017;
g)Affidavit of Ms D, filed 13 March 2017; and
h)Financial Statement of the Applicant, sworn and filed 20 July 2016.
The First Respondent relied upon his Affidavit, filed 10 February 2017.
The Second Respondent relied upon the following material:
a)Affidavit of Mr D sworn 10 December 2015;
b)Affidavit of Ms N sworn 15 March 2016;
c)Affidavit of Ms N sworn 10 May 2016;
d)Affidavit of Mr D sworn 19 October 2016;
e)Affidavit of Mr D sworn 17 November 2016; and
f)Affidavit of Mr D sworn 3 March 2017,
The Third Respondent relied upon the following material:
a)Application in a Case, filed 23 December 2016; and
b)Affidavit of Ms Callas, filed 31 January 2017.
The applicable law
This is an application under s.79 of the Act which relevantly provides:
Alteration of property interests
(1) In property settlement proceedings, the court may make such order as it considers appropriate:
(a) in the case of proceedings with respect to the property of the parties to the marriage or either of them--altering the interests of the parties to the marriage in the property; or
(b) in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage--altering the interests of the bankruptcy trustee in the vested bankruptcy property;
including:
(c) an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i) either or both of the parties to the marriage; or
(ii) the relevant bankruptcy trustee (if any);
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
(2) The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
Section 79(4) incorporates the provisions contained in s.75(2) of the Act, which states:
(2) The matters to be so taken into account are:
(a) the age and state of health of each of the parties; and
(b) the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment; and
(c) whether either party has the care or control of a child of the marriage who has not attained the age of 18 years; and
(d) commitments of each of the parties that are necessary to enable the party to support:
(i) himself or herself; and
(ii) a child or another person that the party has a duty to maintain; and
(e) the responsibilities of either party to support any other person; and
(f) subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
(i) any law of the Commonwealth, of a State or Territory or of another country; or
(ii) any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia;
and the rate of any such pension, allowance or benefit being paid to either party; and
(g) where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable; and
(h) the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income; and
(ha) the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant; and
(j) the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party; and
(k) the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration; and
(l) the need to protect a party who wishes to continue that party's role as a parent; and
(m) if either party is cohabiting with another person--the financial circumstances relating to the cohabitation; and
(n) the terms of any order made or proposed to be made under section 79 in relation to:
(i) the property of the parties; or
(ii) vested bankruptcy property in relation to a bankrupt party; and
(naa) the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:
(i) a party to the marriage; or
(ii) a person who is a party to a de facto relationship with a party to the marriage; or
(iii) the property of a person covered by subparagraph (i) and of a person covered by subparagraph (ii), or of either of them; or
(iv) vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and
(na) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and
(o) any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and
(p) the terms of any financial agreement that is binding on the parties to the marriage; and
(q) the terms of any Part VIIIAB financial agreement that is binding on a party to the marriage.
Section 79(12) and s79(13) provides:
(12) If a bankruptcy trustee is a party to property settlement proceedings, then, except with the leave of the court, the bankrupt party to the marriage is not entitled to make a submission to the court in connection with any vested bankruptcy property in relation to the bankrupt party.
(13) The court must not grant leave under subsection (12) unless the court is satisfied that there are exceptional circumstances.
The Court has power to make declarations under s78 of the Act:
(1) In proceedings between the parties to a marriage with respect to existing title or rights in respect of property, the court may declare the title or rights, if any, that a party has in respect of the property.
(2) Where a court makes a declaration under subsection (1), it may make consequential orders to give effect to the declaration, including orders as to sale or partition and interim or permanent orders as to possession.
In Bevan & Bevan [2013] FamCAFC 116, the Full Court of the Family Court of Australia considered the High Court’s decision in Stanford & Stanford [2012] HCA 52, which provided guidance on how s.79 was to be interpreted and implemented. Bevan endorsed the continuing application of the four-step approach articulated by the Full Court in Hickey & Hickey & Attorney General for the Commonwealth of Australia [2003] FamCA395, but on the basis that it is a shorthand distillation of the words of s.79, as opposed to being a statutory edict. The four steps articulated in Hickey at paragraph 39 are:
a)Identify and value the property, liabilities and financial resources of the parties; and
b)Identify and assess the contributions of the parties and express them as a percentage of the net value of the property; and
c)Identify and assess the other facts relevant under s.79(4)(d)-(g) including s.75(2) and determine the adjustment (if any) to be made to the contribution entitlements at step two; and
d)Consider the effect of the above and resolve what order is just and equitable in all the circumstances.
The decisions in Stanford and Bevan also emphasise the importance of making findings that any order is just and equitable for the purposes of s.79(2), independent of the s.79(4) process. In most cases, such as the present one, it makes no difference to the outcome of the alteration of property interests exercise. Even if the just and equitable consideration were treated as a threshold issue in this case the parties have, by their actions (separation, and re-ordering of their financial lives since then), and claims (divergent claims about their property under s.79 of the Act), indicated that they themselves consider it just and equitable that some order be made under s.79 adjusting their property interests as presently held. It is clearly just and equitable in this case to make an order.
Both decisions also emphasise the importance of identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property. This is not inconsistent with step one in Hickey.
A problem that commonly arises, and indeed does arise in this case, relates to property that once existed but no longer does. This disposed of property may still be significant, however. As the Full Court said in Bevan, such disposals must be dealt with carefully. In practical terms this means carefully assessing the evidence about the disposal, attempting to quantify it if this is at all possible, and then assessing its weight whilst neither placing too much, or too little, weight on it. It would seem that notionally adding back such property may still be appropriate in some cases. In Vass & Vass [2015] FamCAFC 51, the Full Court said at [138]:
There is no error committed per se in adjusting the parties’ actual property interests by a calculation involving notionally adding back into the pool sums which have been dissipated by the parties. We reject any suggestion that the decision of Bevan & Bevan [2013] FamCAFC 116; (2013) FLC 93-545 – or, more particularly, the decision of the High Court in Stanford & Stanford [2012] HCA 52; (2012) 247 CLR 108 – is authority for any necessary contrary solution.
Attempting to deal with non-disclosure often puts the other party to considerable difficulty with regards to investigating their financial affairs. The Full Court in Weir (1993) FLC 92-338 at 79,593–4 made the following statement regarding the duty to disclose and the Court’s powers where non-disclosure has been found:
This Court has pointed out in a line of cases leading up to the recent decision of the Full Court in Black & Kellner (1992) FLC 92-287, that it is the duty of a party involved in property proceedings in this jurisdiction to make a full disclosure of their financial affairs. See also Giunti & Giunti (1986) FLC 91-759, and Mezzacappa & Mezzacappa (1987) 11 Fam LR 957; (1987) FLC 91-853. It is clear enough from his Honour's findings in the present case that the husband had not done so and had in fact pocketed the proceeds of a substantial number of cash sales. It is obvious that in most cases of this nature it is difficult enough for the other party to establish that fact let alone establish the quantum of what has been taken.
It seems to us that once it has been established that there has been a deliberate non-disclosure, which follows from his Honour's findings in this case, then the Court should not be unduly cautious about making findings in favour of the innocent party. To do otherwise might be thought to provide a charter for fraud in proceedings of this nature…
We appreciate that this is something of a broad brush approach, but, as we have said, where there is clear evidence of non-disclosure as there was here, the Court should not be unduly cautious about making findings in favour of the other party. It has been said by one commentator (O'Ryan and Broadfoot, 5th National Family Law Conference Handbook, p 249) the failure to disclose undermines the whole process of adjudication of proceedings for a settlement of property in that the court is unable to identify the property of the parties, to properly assess contribution, or to properly assess s 75(2) factors.
A succinct statement of the law in this regard is the statement by Baker J in Kowaliw & Kowaliw (1981) FLC 91-092 at 76 644:
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
The Hearing
The matter was heard for three days between 14-16 March, and two days over 14-15 August 2017. There was no appearance by either the Applicant or the Bankrupt Husband on 15 August 2017. The Trustee applied, and the Court ordered, that the hearing continue on an undefended basis. The circumstances of this will be discussed below.
On 14 March 2017, the Applicant gave evidence and was cross-examined. On 15 March 2017, the Bankrupt Husband gave evidence and was cross-examined. On 16 March 2017 both the Applicant Wife and the Bankrupt Husband gave further evidence and were cross-examined. On Monday, 14 August 2017, the Court considered the Applicant Wife’s Application in a Case, filed 10 August 2017. This is discussed below. On this day, however, the Applicant indicated to the Court that another reason for her adjournment was because of her ill health. There was, however, no evidence about the Applicant’s ill health other than her own word. There was nothing in the Applicant’s demeanour on the day that suggested to the Court any obvious inability to carry on with the case. She mentioned a referral to a psychologist, or psychiatrist, but was unable to produce the same. The adjournment application was strenuously opposed on behalf of the Trustee. Mr Golledge, Counsel for the Trustee, pointed out that the Wife’s own evidence from the Bar table indicated that whatever medical condition she was suffering, she had been receiving treatment for some considerable time. He pointed out that the Application in a Case filed by the Wife, and her argument in support of it on the day, was quite inconsistent with any incapacity to carry on with the case. Mr Golledge emphasised that there was no independent evidence before the Court, not even the alleged referral to another doctor. He further emphasised that an adjournment could be futile, quite apart from the issue of public and private interests. He submitted that there was nothing to suggest that whatever the Applicant’s alleged medical condition was, that it would change as a result of the granting of an adjournment.
The Court notes that at page 418 of the transcript, lines 7-12, the Applicant indicated that she was ‘quite happy to provide to the Court as evidence’ with regard to her medical condition. To date, no such evidence has been filed. The adjournment application having been declined, the matter was stood down to 2 o’clock to allow the Applicant further time to consider her cross-examination of the Trustee’s witnesses.
Shortly after 2 pm there was no appearance by the Applicant Wife, but the Bankrupt Husband was present. He indicated that: ‘I believe an ambulance has been called for her. She has had a massive panic attack. She’s upstairs on level 5. They’re trying to calm her down.’ The matter was stood down so that my Associate might make inquiries in relation to the Applicant. The matter was then called again at 2.35pm. There was no appearance by either the Applicant Wife or the Bankrupt Husband. Out of abundant caution, the matter was stood over until the following day, 15 August 2017. A direction was made for the Trustee’s solicitors to notify the Applicant and the Bankrupt Husband by way of email and telephone number that the matter had been adjourned to Tuesday, 15 August.
The matter was called at 10.18am on Tuesday, 15 August. There was no appearance by the Applicant, or the Bankrupt Husband. The Trustee sought that the matter proceed on an undefended basis, and the Court so ruled. There was no evidence then, or is there now, to suggest that the Applicant Wife was unable to continue with the hearing as a result of a medical condition. In any event, for the reason that will be explained below, the Court has grave reservations about the credit of both the Applicant Wife and the Respondent Bankrupt Husband.
Credit issues
The Applicant Wife impressed the Court as being an intelligent, articulate and confident woman. She rarely took a backward step in the exchanges between Bench and Bar table. She demonstrated to the Court an impressive grasp of both substantive family law, and procedure. It is possible that she was obtaining legal advice, even whilst representing herself. She was a very capable advocate in her own cause but, of course, that was her own downfall; she lacked the objectivity that proper legal representation would have brought to the matter. She was suspicious, indeed somewhat paranoid at times, about anything to do with the Trustee and his administration of her Bankrupt Husband’s bankrupt estate. She was prone to histrionics at times and had a tendency to externalise responsibility for any matter that might be adverse to the interests of both herself and her husband. Nothing appeared to ever be her fault. If it was not the Trustee’s fault, it was some grievous harm that was perpetrated on her by those who have, at one time or another, represented her. She clearly has some alignment with her Bankrupt Husband, though it was clear that her interests were not identical to those of her husband. The precise nature of the relationship between the Applicant Wife and her husband is not clear. They are, in all likelihood, separated but there was a certain affinity of interests manifested at the Bar table which suggested the closeness of their relationship on an ongoing basis.
The Applicant was, however, pervasively unresponsive and evasive during cross-examination and, for detailed reasons that will be set out below, is found by the Court to be unlikely to be telling the truth in any financial matter that was the subject of examination during these proceedings.
The Respondent Bankrupt Husband struggled at times to understand the issues before the Court, was histrionic at times, was just as pervasively unresponsive and evasive in cross-examination as the Applicant Wife, and is likewise unlikely to be telling the truth about any of the financial matters that were subject to scrutiny in these proceedings.
Both the Applicant Wife, and the First Respondent Bankrupt Husband, demonstrated a superlative capacity to reinterpret past events in a manner that bore little resemblance to the objective facts as presented before the Court.
It is not possible, in these Reasons for Judgment, nor is it even necessary, to catalogue each and every example of the evidence given by either the Applicant Wife or the Respondent Bankrupt Husband, which leads the Court to reject their evidence almost in its entirety. The Court will focus on a number of examples only.
Counsel for the Trustee was characteristically diplomatic and understated when addressing the Court in submissions about credit issues of the Applicant and the Bankrupt. He described their evidence as ‘given, in the main, with a keen eye to the forensic advantage hoped to be gained from their answers.’ He goes on to describe how sometimes this lapsed into a willingness to give untruthful evidence, but concedes that at other times it may have simply been a product of poor recollection of history, coupled with a preparedness to fill in the gaps of their actual memory with evidence which they may well have believed to be true, but which was primarily formulated with a view to advancing their interests. The Court will not be so generous in its assessment of credit of the Applicant, or of the Respondent Bankrupt Husband. However, it does accept Counsel’s submission that the Court should not accept any evidence given orally or in writing by either witness, unless corroborated by unchallenged documents, or is otherwise not in dispute, or is inherently plausible so as to not require any consideration of the actual reliability of the witness account.
Counsel correctly describes their oral evidence as ‘at times shambolic – given in part from the witness box and, at other times, from Mr Callas by way of coaching or instruction from the bar table.’ A review of the transcript confirms this.
When the Applicant Wife was confronted with the stark differences between her evidence and independent financial records, she became manifestly uncooperative and evasive. Unsurprisingly, the Applicant was cross-examined about her Financial Statement. She denied knowing that there was any obligation on her to provide a complete and accurate statement of her financial position. She explained that she was ‘under mind – altering medication’ at the time (transcript, page 104, line 10). The evidence of that was not forthcoming, nor could she explain why she did not set out this proposition in her Financial Statement or in her affidavits. Whilst she agreed that the documents shown to her bore her handwriting and were signed by her, she would not accept that it was her document. She denied that the contents of the documents had been produced and provided by her. She accepted that the document was prepared with the assistance of a solicitor. She accepted that he knew of her medical condition. When the lack of plausibility of some of the information in her Financial Statement was drawn to her attention, she blamed her solicitor who, according to her, advised her to put in ‘nil’ in certain items. Throughout this cross-examination, the Applicant Wife sought to delay, obfuscate, evade and externalise responsibility for what she had clearly said in her own document.
Perhaps the nadir of the Applicant Wife’s case was in relation to the evidence she gave about a scheme that the Court (after considering all the evidence) is comfortably satisfied that she and the Bankrupt had entered into with a view to avoiding the consequences of bankruptcy. The scheme involved a gentleman by the name of Mr I. The Wife had resolutely denied at any stage discussing with Mr I arrangements that could be put in place to deflect any attack by the Trustee. The scheme was described by Counsel for the Trustee at page 118, at lines 29-36:
Right. Now – and what I want to suggest to you is that you came up with a plan to thwart any action by the trustee that might be directed to Property B property. And the object of that plan or the – the – the strategy that was adopted by you was to concur in the creation of a mortgage over various properties, concur in deliberate default under those mortgages so that a mortgagee in possession would take action, take possession of those properties, sell them from under the trustee to interests associated with you. Now, does any of that ring a bell?‑‑‑None of this is relevant to these proceedings.
The Wife’s answer was evasive, but the evasiveness merely continued: (transcript page 118 line 38 - page 119 line 14):
Well, his Honour will rule on that. But until he does, will you answer my question? Was that the plan that you hit upon in late 2014?‑‑‑Where is your evidence of such a plan?
Madam, don’t worry about the evidence. Was that the plan?‑‑‑I’m not responding to something that’s hearsay right now.
HIS HONOUR: If you don’t respond, Ms Callas, what will happen at the end of the case is that Mr Golledge will say that I should infer that the answer to the question was yes, because you wouldn’t answer it. So just pause for a moment. Just think about it?‑‑‑Your Honour, this is untrue. I will not answer yes or no to something that is totally – I have been – Mr Golledge has made a statement that I have orchestrated a criminal act. That’s what he’s base-lining it on. I will not respond to that accusation. I will not respond to it, because it is prejudice. He – he is making a statement, just like you said to me when I used the word “collusive action”, well, now I use the same upon this. It is inferring a criminal act.
So the question was: it was put to you that this was your plan, and I want the transcript to record that you have not said no?‑‑‑I’m going to say no.
You’re going to say no now, are you?‑‑‑Of course I’m going to say no.
Okay. Okay?‑‑‑And – and furthermore, that it’s – it’s total hearsay. And – and unless he can prove this fictitious plan, then, you know ‑ ‑ ‑
Counsel for the Trustee then put to the Wife that the scheme involving Mr I, also involved COMPANY A. The following exchange took place at page 119, line 20 – line 44:
Now – and I want to put to you that part of this plan that you now deny involved you, on behalf of COMPANY A., making contact with Mr I and his company, COMPANY B. Do you agree with that?‑‑‑I only agree to COMPANY A in – in relationship to Mr I. But I – you know, your Honour, now, I – I need to stop here. Mr Golledge is utilising, on the one hand, COMPANY A.; on the other, the matrimonial home. I’m sorry, it doesn’t work like this. COMPANY A. must be kept separate to anything to do with me personally and my matrimonial home.
HIS HONOUR: Okay?‑‑‑I cannot have two issues being used concurrently, and that’s what he’s doing.
Ms Callas, let me be very, very clear. Your job in the witness box is not to dictate what questions are asked, what topics are covered. Your job is to answer the question. All right? So, please, just do that. If, for example, I had thought that this was irrelevant, I would be the one to say something. Right? But an issue in this case is whether COMPANY A and you and Mr Callas are separate things or, in fact, the same thing. So, you see ‑ ‑ ‑?‑‑‑They aren’t the same. That’s what I’m saying.
Well, I – I know that’s what you say. I know that’s what you say, but that’s what I’ve got to decide. So, you see, the question is perfectly legitimate. Right? So, please, just listen to the question and answer the question. Right?
MR GOLLEDGE: So – so you agreed, I think, before that exchange, madam, that you caused COMPANY A to make contact with Mr I and his company COMPANY B. Do you agree with that?‑‑‑Yes.
The Court accepts the Wife’s evidence that she caused COMPANY A to make contact with Mr I. The Wife accepted that COMPANY A was operating as a registered charity since 2001. She explained that the purpose of putting COMPANY A into contact with Mr I was because the organisation required funds for its operations. She explained that COMPANY A was seeking a loan of $200,000 to fund various projects it was undertaking. She explained that the committee had approved the decision to obtain the loan, but that she could not remember who were the members of the committee who approved the loan transaction in 2014. When pressed about the nature of the projects that were sought to be funded, she could not identify these projects, or provide an explanation, even though she was the public officer for COMPANY A.
The Wife initially denied that the loan was to be secured by way of a mortgage over the Property A, property owned by COMPANY A. She insisted, however, that there was a loan agreement not a mortgage. At page 122, lines 12 - 24, the following exchange is noted:
Didn’t you cause COMPANY A to enter into a mortgage, a loan for – a mortgage with COMPANY B?‑‑‑Not a mortgage. A loan.
Well, do you ever remember signing a document in which you acknowledge causing COMPANY A to enter into a mortgage with COMPANY B?‑‑‑A loan agreement.
Okay?‑‑‑Not a mortgage.
So you have no recollection of signing a document acknowledging that you caused COMPANY A to enter into a mortgage?‑‑‑I do not and have not ever entered into a mortgage.
Now ‑ ‑ ‑?‑‑‑I know the difference between a loan document and a mortgage.
At page 124 of the transcript, lines 36 through to page 125, line 19, the following evidence is given:
Right. Now, what I want to suggest to you is that what in truth was discussed and agreed in late 2014 through to 2015 is that COMPANY A would – sorry, is the COMPANY B would take a mortgage over the Property A property, the Property B property and the Property C property to secure the repayment of this $200,000 loan. Was that part of the arrangement?‑‑‑No.
And then what I want to suggest to you is that you would cause there to be an event of default by virtue of non-payment of amounts due under those loan agreements. Was that something you had discussed?‑‑‑No.
And ‑ ‑ ‑?‑‑‑I took out a loan agreement on behalf of the organisation for the purposes of funds that were needed at the time.
And – and then what – and then what you envisaged happening is that this mortgage – friendly mortgagee would enforce over those three properties and sell those three properties to persons nominated by you. Was that the plan?‑‑‑No.
No. Now ‑ ‑ ‑?‑‑‑I’m not aware of that at all.
Now, can I show you a couple of documents first, if I may?‑‑‑I mean we’re talking – you know, we’re talking about a ‑ ‑ ‑
HIS HONOUR: It might be best just to wait, Ms Callas.
THE WITNESS: ‑ ‑ ‑ fraudulent loan. It never occurred.
HIS HONOUR: Yes. Just wait.
THE WITNESS: I was deceived.
The Wife was then shown a number of documents in the witness box. Firstly she was shown a document entitled “Acknowledgement of Surrender of Possession”. She agreed that it was her signature but said she had not written the document. She agreed that the document bore the letterhead of COMPANY A. She described it as fraudulent paperwork. She was then taken to other pages of the same document indicating that she signed before her lawyer. She insisted that the documents were ‘absolutely fraudulent paperwork’ (transcript page 127 line 1). She said that this was a fraud perpetrated by Mr I. She mentioned something about a police investigation about him. She then sought to contend that the money had been borrowed, the mortgage entered into, but the money was fraudulently obtained by Mr I. The Wife continued her firm insistence that she had not signed a mortgage until presented with a copy of the mortgage that bore a signature that appeared to be hers. Nonetheless, she maintained her insistence that she had not mortgaged the COMPANY A property. Ultimately, she agreed that it was her signature. She agreed that the document purported to record the grant of a mortgage, but she then insisted that it was without her knowledge. Indeed, she later described it as ‘a reproduction of my signature’ (page 113, line 41). In the next breath she acknowledged that it may be a similar signature to hers, but insisted it was not placed on the document by her. The mortgage document was tendered, and appears to have been signed by the Applicant. She maintained, however, that it was not her signature.
She was then shown a copy of the mortgage with her signature witnessed by the solicitor for COMPANY A, Mr James Jordan. The Applicant Wife insisted, however, that if Mr Jordan had indeed witnessed her signature, as appears to be the case, then he did it without her knowledge or consent.
She was then also shown an acknowledgement of legal advice by proposed guarantor which appeared to bear her signature. It referred to a loan agreement, and security over the Property A property, which included a mortgage. She agreed that her signature appeared on the document, as did her initials. She was then taken to another document that she had signed which this time refers to a loan of $400,000, this time witnessed by her solicitor, Mr Anagnostellis.
The documents in question all came into evidence. The Court is comfortably satisfied that the documents in fact establish the very scheme that Counsel put to the Wife in cross-examination, that which she denied, ie, that the Husband’s Trustee would be thwarted by the creation of mortgage over various properties, including the Property A, property owned by COMPANY A, the Property B matrimonial home and the old Property C properties, and thereafter there would be concurrence in a deliberate default under those mortgages so that a mortgagee in possession would take action, take possession of those properties, sell them from under the Trustee to interests associated with you. The Wife’s signature is, with respect to her, all over the relevant documents and they are witnessed by either her solicitor, or the solicitor for COMPANY A, on at least two occasions.
The evidence of the Bankrupt Husband was just as bad. He was just as evasive, argumentative and non-responsive as was the Applicant Wife, in relation to the loan and mortgage documentation pertaining to COMPANY A, and generally.
Mr D gave evidence in the Trustee’s case. He was not cross-examined as the Wife and the Bankrupt had absented themselves from the hearing at this stage. The Court accepts his evidence. He provided very useful evidence in chief to help the Court understand many of the complex transactions that occur in this case. He was also questioned by the Court about costs incurred in the administration of the estate. His responses were considered and professional.
Applications in a Case
One of the concerns repeatedly expressed by the Applicant before she ceased her involvement in the proceedings related to what she considered to be unresolved Applications in a Case that she had filed. Doing the best the Court can, it seems that the Applicant’s view was that her Applications in a Case were not dealt with, and that this was to her prejudice.
The first Application in a Case was filed 6 November 2015 and initially listed before the Court on 16 November 2015. The matter came before Her Honour, Judge Henderson who listed it before her on 11 December 2015. The Application in a Case sought a number or orders, perhaps the most important of which was that the Court consider the interim orders contained in the Applicant’s substantive Application filed 25 August 2015. The interim order sought in that application was, in effect, that the Trustee of the bankrupt estate of the Second Respondent, the Applicant’s husband, be restrained from dealing with what was described as the ‘matrimonial property at Property B, pursuant to s.114 of the Family Law Act 1975 (‘the Act’), pending the determination of the substantive application before the Court. It is common ground, however, that the property in question sold by auction on 7 November 2015.
The Applicant Wife amended her application (twice it would seem, on 3 December 2015 and then on 24 December 2015, though the orders sought are the same). The interim relief she sought was that the Trustee be restrained from dealing with the sale proceeds of the Property B property. In any event, the Application in a Case filed 6 November 2015 came before Her Honour, Judge Henderson again on 11 December 2015, at which point Her Honour adjourned the matter to 18 December 2015, noting in her order that the matter might possibly be transferred into my docket.
The matter came back before Her Honour on 18 December 2015. On that day, Her Honour made the following orders:
1. The matter is transferred to the docket of Judge Altobelli and is listed for mention on 16 March 2016 at 9:30am.
2.The wife to file and serve an amended application to include an order to set aside the husband’s bankruptcy and affidavit by 5 February 2016.
3.The 1st and 2nd respondents to each file and serve a response and affidavit by 4 March 2016.
4.Any costs of sale associated with the sale of the former matrimonial home at Property B are to be paid from the net proceeds of sale of the property.
5.Pending further order, I injunct and restrain the parties from applying the net proceeds of sale to pay the 2nd respondent’s legal and professional costs.
The matter came before me on 16 May 2016. By this time, it should be noted that the Court was considering the interim orders sought in the Applicant’s substantive application together with the alternative relief that was framed in the Application in a Case filed 6 November 2015. Given that the matrimonial home had been sold, the real issue for the Court was whether and if so, how to permit distribution of the sale proceeds. To the extent that the orders sought in the Application in a Case filed 6 November 2015 sought to restrain the sale, or to somehow set aside the Trustee’s decision to sell the matrimonial home, those issues had clearly been subsumed to the broader issue of dealing with the sale proceeds. In particular, order 4 of the said Application in a Case, expressed as a further alternative to the other orders, sought relief pursuant to s.178 of the Bankruptcy Act1966 (‘the Bankruptcy Act’) to review the Trustee’s decision to list the property for sale by auction on 7 November 2015. Specifically, the order sought was that the said decision “be reviewed and cancelled on just and equitable grounds.” In circumstances where the sale had already settled by time the matter came before the Court, the futility of considering the application is self-evident.
In any event, the interim orders sought in the substantive application, together with the interim relief sought in the Application in a Case filed 6 November 2015, were dealt with in my reasons for judgment delivered on 19 May 2016, and published as [2016] FCCA 1247. The orders that I made on that day are as follows:
1.With the exception of $25,000, the Second Respondent be granted leave to apply the net proceeds of sale of the property known as Property B, NSW (presently subject to the Orders of Judge Henderson dated 18 December 2015 in this proceeding) to the Second Respondent’s legal costs, professional costs, and/or in any other way for the benefit of the creditors of the bankrupt estate of the First Respondent.
2.The Applicant has leave to file an Application in a Case, supported by an Affidavit, seeking an order that she have access to the remaining $25,000 for the purposes of legal costs of continuing the present proceedings, provided she files such Application in a Case within 42 days.
3.If the Applicant has not filed her Application in a Case in accordance with Order 2 above, then within 14 days thereafter, the Second Respondent file and serve a proposed Minute of Order sought and any further evidence in support.
4.The Applicant’s Application in a Case be made returnable before Judge Altobelli on 21 July 2016 at 10:00am (Court 3D, Lionel Bowen Building, 97-99 Goulburn Street, Sydney).
5.The parties costs be reserved.
THE COURT NOTES THAT:
A.In the event the Applicant has not complied with Order 2 above, the matter will remain listed on 21 July 2016 for Mention to consider any further application by the Second Respondent.
Thus, for all practical purposes, the Applicant Wife’s Application in a Case filed 6 November 2015 was dealt with and finalised.
By way of an Application in a Case filed 30 June 2016, the Applicant sought an order that she be entitled to access the sum of $25,000 remaining from the net proceeds of sale of the Property B property for the purposes of legal costs of continuing the present proceedings. The Wife’s application was clearly contemplated by the orders that I made on 19 May 2016. The matter came before me on 21 July 2016. The Applicant Wife was represented by Counsel, the First Respondent Bankrupt Husband appeared in person, and Mr Golledge of Counsel appeared for the Trustee. An order was made by consent, that the Applicant have leave to access the sum of $25,000 from the proceeds of sale of the Property B property for the sole purpose of applying such of this sum as may be required to the payment of the Applicant’s legal costs in the proceedings. The Court formally noted that the Trustee’s consent to this order was made on a specific basis. The notation records:
A. The Second Respondent consents to Order 1 on the following basis:
a)Without admission that the Applicant is entitled to any part of the net proceeds of sale of property known as Property B, NSW;
b)For the sole purpose of mitigating and minimising the expenditure of legal costs in this proceeding; and
c)Without relinquishing his rights to assert a priority interest over the sum of $25,000 at a later stage in this proceeding.
The Applicant Wife’s Application in a Case filed 30 June 2016 was thus dealt with by the Court.
It is important to record that my Reasons for Judgment explain why there was no basis at law, based on the evidence before the Court, to deny to the Trustee the remaining sale proceeds of the Property B property so that he could administer the estate as he is bound to do under the Bankruptcy Act 1966. Indeed, as reflected in my Reasons for Judgment, there was no discernible prejudice to the Applicant Wife in the circumstances.
The next Application in a Case was filed on 8 February 2017 - a few days before the matter was listed for the hearing to commence. It sought 19 orders.
The first order was directed against the Trustee and required him to return all the surplus funds from the sale of the matrimonial home ‘to the trust account of this Court.’ The second order was to compel the Trustee to return ‘all costs’ paid from the sale of the home. The third order was for the Trustee ‘to replenish the matrimonial pool by $25,000 from his personal indemnity insurance’ to the trust account of the Court. The fourth order was for the Trustee to disclose ‘the total costs of running mediation with the full knowledge that there were no funds left in the matrimonial pool.’ The fifth order was that the Trustee replenish the matrimonial pool by ‘$250,000 from his personal indemnity insurance’ because he failed to provide adequate building insurance on the home, resulting it being storm damaged and sold under true market value. Order 6 was, in effect, an application to draw down a further $25,000 for legal fees.
Order 7 was for the hearing to be vacated ‘to a date that will allow the Applicant’s legal team fair time to prepare the case for the Applicant.’ Order 8 was an urgent order to compel the Trustee to pay to the Wife $25,000 ‘from his personal indemnity insurance for the Applicant’s loss of furniture, white goods, electrical appliances and kitchen equipment.’ Order 9 was for the Trustee to remove the caveat on the property at Property C. Order 10 was an order compelling the Trustee to provide disclosure in relation to a trust account held by Real Estate Agent D regarding the deposit held on the sale of the property. Order 11 was a further order of disclosure in relation to Real Estate Agent D.
Order 12 was an order for disclosure by the Trustee in relation to the lawyers acting on the sale of the matrimonial home. Order 13 was an order for the Trustee to provide disclosure of all trust account dealings held by his firm, relating to the sale of the property. Order 14 extended this to include disclosure of the trust account relating to the entire bankrupt estate. Order 15 supplemented this. Order 16 extended to disclosure of the Trustee’s fees and costs. Order 17 further covered legal costs accrued to date. Order 18 sought to prevent the Trustee from further diminishing the matrimonial pool by way of costs ‘until such time that the Court has viewed the male fide actions’ of the Trustee. Order 19 was any other orders as the Court sees fit.
Two days later, on 10 February 2017, the Applicant Wife filed a further Application in a Case, this time seeking 25 orders. Orders 1 to 9 were orders in relation to the Trustee personally obtaining a medical report in relation to his physical and mental health, the provision of medical records etc. The orders were misconceived and, ultimately, the Applicant Wife did not pursue them. Nothing more will be said about this.
Order 10 sought production and disclosure of any powers of attorney that the Trustee had given to other parties in relation to the administration of the bankrupt estate.
Order 11 sought the removal of the Trustee from these proceeding. Order 12 sought that the Trustee return any payment received in relation to these proceedings and return same to a trust fund to form part of the matrimonial pool. Order 13 sought that trustee’s firm to return any payment received in relation to the proceedings and same be placed in a trust account to form part of the matrimonial pool. Order 14 was for the Trustee’s lawyers to be removed. Order 15 was for the Trustee’s lawyers to return any payment received ‘to the trust account of this Court’. Order 16 was as follows:-
An order for the real estate agents known as Real Estate Agent D acting for the second respondent, through their professional indemnity insurance, make arrangements to have the matrimonial home returned to the applicant.
Order 17 required the said real estate agent to return ‘to the trust account of this Court’ any payment it received in relation to the sale of the home. Order 18 extended to any payments made to third parties by the said real estate agent. Order 19 extended to any third parties who had received payments from the Trustee in relation to the sale of the Property B property. Order 20 extended this to the Trustee’s firm. Order 21 stated:
An order for the real estate agents known as Real Estate Agent E acting for the second respondent, through their professional indemnity insurance, make arrangements to have the matrimonial home returned to the applicant.
Orders 22 and 23 are clearly ancillary to order 21, and order 25 was for any other orders the Court sees fit.
The Applications in a Case were dealt with at the commencement of the hearing. The Court did the best it could to understand what the Applicant was concerned about. The transcript speaks for itself in this regard. The Court sought to reassure the Applicant that in an application under the Act, such as the one that she had filed, the Court had power, subject to the evidence, to add back into the notional property pool any funds which should have formed part of the matrimonial pool but had been dispersed.
Indeed, the question of add backs in this case has been one of the more interesting and difficult issues for the Court to determine. What is abundantly clear, however, is that this issue could only be determined after all the evidence had been heard and tested. Thus, any order sought in either Application in a Case that went to the issue of whether the Trustee, and persons or entity retained by it, had used matrimonial funds, including the sale proceeds of the Property B property, would be dealt with as a substantive issue in the proceedings.
The Wife had made some serious allegations against the Trustee and associated third parties in this regard. Those allegations had to be subjected to the forensic scrutiny of cross-examination before the Court could decide on the issue. It was not an issue that could be dealt with as a discrete issue pursuant to an Application in a Case.
One of the issues raised by the Applicant was, in effect, a further application for interim costs to cover legal costs. This, of course, would have resulted in an adjournment of the case, something that the Court considered quite inappropriate given the very long litigation history between the parties, both in this Court (before several judges: Judge Manousaridis, Judge Henderson and myself) and in the New South Wales Supreme Court. The adjournment was stridently opposed by the Trustee who was duty-bound to seek to administer the bankrupt estate as quickly, efficiently and effectively as possible. In any event, the application for further interim costs, even if it would not have resulted in an adjournment of the hearing, could not succeed in circumstances where there was no explanation as to why the application was brought so late.
There was no reasonable basis established by the Applicant for the applications compelling a trustee and other third parties to pay moneys into Court. There was no basis to order the Trustee to remove a caveat on the property at Property C, a caveat that he was well entitled to place on the title as Trustee in Bankruptcy. Again, it seemed to the Court that the Applicant’s concern was that she had not been given information to her satisfaction about the administration of the bankrupt estate, including how the sale proceeds were disposed of. This was, in effect, seeking to revisit an earlier ruling of the Court. The Court made the decision in question on 19 May 2016. No appeal was lodged in relation to that decision, or any other decision made to date in this matter.
In any event, the Court does not accept that the Applicant’s evidence established that she had not already been provided with adequate information about the administration of the bankrupt estate that would assuage her concerns. Indeed, it became rapidly apparent to the Court, and indeed is reflected in some of the unusual orders sought by the Applicant in these two applications in a Case, that it was highly unlikely that anything would assuage her concerns about historical events, including the administration of her husband’s bankrupt estate.
Moreover, the Court adopted a pragmatic view that the hearing itself was likely to lead (and in fact did lead) to the presentation to the Court (and thus to the Applicant and her husband) all relevant information in relation to the administration of the bankrupt estate. The ultimate irony in this Court is that the Applicant chose not to test this evidence when the opportunity was available to her.
Another matter to be noted is that the Applicant had caused to be issued a number of subpoena to the Trustee and to various third parties. Documents were presented to the Court by some, and in respect of others, there were obvious problems with the form of the subpoena and the payment of conduct money, but these were matters for the Applicant to manage, not the Court.
One of the orders sought related to any powers of attorney given by the Trustee. An issue for the Court was whether, and, if so, to what extent, the Trustee could delegate some of his powers as trustee. As it turns out, there was no power of attorney but there is an established basis for the Trustee delegating his functions to properly qualified people. However, there was no power of attorney to produce.
The orders sought by the Applicant for the removal of the Trustee and his lawyers are plainly incompetent. Many orders are sought against third parties, but those parties were not joined to the proceedings.
The Court accepts that it did not, on the day, go systematically through the 19 orders sought by the Applicant in her Application in a Case, filed 8 February, and the 25 orders sought by the Applicant in her Application in a Case of 10 February 2017. The Court prioritised commencing the evidence in circumstances where so many of the Applicant’s concerns were, in effect, best addressed by the evidence being presented before the Court in a fulsome manner. As far as the Court is concerned, the Applications in a Case filed 8 February and 10 February 2017 were dealt with on the first day of the hearing in a manner that was proportional to the issues before the Court.
The last Application in a case was filed on 10 August 2017, a few days before the resumption of the part-heard hearing on 14 August 2017. By way of background, the hearing commenced on 14 March 2017, and continued 15 and 16 March, and was then adjourned part-heard to 14 and 15 August. The Applicant’s case had been completed as at the end of day 3. The remaining time was allocated for the Applicant to test the evidence adduced in the Second Respondent’s case.
The Application in a case, filed 10 August 2017 sought, firstly, to vacate the hearing set down for 14 and 15 August 2017. Order 2 was for the Court to consider ‘outstanding orders that have never been heard, dated on or about 6 November 2015.’ Order 3 related to hearing outstanding orders never heard on or about 8 February 2017. Order 4 was an urgent order to hear outstanding orders that have never been heard, dated on or about 10 February 2017. Order 5 was an urgent order to have the Third Respondent (COMPANY A removed from the proceedings.
Order 6 was for the hearing held on or about 2 December 2016 to be struck out as the Third Respondent (COMPANY A) was not given adequate time to seek Counsel. Order 7 was for a stay of proceedings so that ‘adequate funds have been set aside to cover costs for the Applicant.’ Order 8 was an order for the Court to permit the hearing to continue for a further three-four days ‘to take place subsequent to the information on record of 13-15 March 2017 being struck out.’ Order 9 was an urgent order to have all costs to date to be the responsibility of the Second Respondent who ‘has wastefully diminished the matrimonial pool by wilfully and knowingly sabotaging the mediation process set down by this Court in October 2016.’
The application was dismissed. The Court required the Second Respondent to commence its case. As it turns out, both the Applicant, and the Bankrupt Husband, chose no longer to participate in the proceedings. In short, the Applicant advanced no good reason for vacating the hearing dates. Indeed, the Court considered that it was neither in the public interest, nor in fact in the Applicant’s interest, for the hearing to be postponed. Insofar as the Applicant once again sought an order for interim costs to fund her legal representation, which would have had the inevitable outcome of postponing the hearing, the Applicant led no evidence as to why the application was made on the eve of the resumption of the part-heard hearing.
The application also sought to agitate the correctness of previous orders, as if the Court could hear an appeal against itself. The Applicant sought to revisit earlier Applications in a case which she considered had not been dealt with but, in reality, had not been dealt with to her satisfaction. Order 5, sought to remove COMPANY A from the proceedings. Quite apart from the fact that the Applicant adduced no cogent evidence to cause the Court to reconsider the appropriateness of its decision made 2 December 2016, there was no appeal from that decision and, in any event, the Court had heard extensive evidence from the Applicant, and the Bankrupt Husband, which completely vindicated the Court’s decision to join COMPANY A. The Application in a case filed 10 August 2017 was plainly misconceived.
The Wife’s Case
This Court has a duty to make a just and equitable order under section 79 of the Family Law Act 1975. It is a duty that must be fulfilled even in circumstances where the Applicant, seeking a just and equitable order, is representing herself at times, ceased to participate in the hearing and also at times seemed to demonstrate a willingness and capacity to do almost anything to prevent the Court from completing the process which she herself had started. The Court has adopted a pragmatic approach to understanding the Applicant Wife’s case and assessing the evidence in support of it.
As the Applicant is representing herself, and importantly even though the matter proceeded ultimately on an undefended basis, the Court believes that its role is not just to identify what the Applicant articulated her case to be, but also to try to identify what she may have meant. In this section, therefore, the Court will review all of the evidence filed by the Applicant Wife in her case, whether she read the documents at the final hearing or not.
The Wife’s Initiating Application was filed 25 August 2015. She was represented by a solicitor at the time. She gave her address for service as being Property B, the former matrimonial home. She provided as her email address. By way of final orders she sought “at least a 50 per cent interest in the matrimonial pool of assets.” By way of interim orders, she sought that the Trustee be restrained from dealing with the matrimonial property at Property B. In her Application she described herself as a (occupation omitted). She asserts that she separated from her Husband on 4 August 2011.
The Initiating Application was supported by an affidavit sworn 25 August 2015 and filed that date. Counsel for the Trustee cross-examined the Applicant on this affidavit, even though it was not read in her case. In the affidavit, she asserts that her Husband’s bankruptcy had nothing to do with her, and that she was a completely innocent party who was being evicted from the matrimonial home due to her Husband’s activity. She referred to her mental health problems which had escalated dramatically as a result of the Trustee’s involvement.
She annexed a medical report from Dr B, a General Practitioner from Suburb K. He recorded that the Applicant had attended his practice with severe panic and anxiety attacks, reports of insomnia, nightmares and self-social isolation and occasional suicidal thoughts. His report dated 14 August 2015, which is addressed to the Trustee’s lawyer, in effect seeks an extension of the eviction date “in order for her to recover from her present fragile mental state.”
The Initiating Application was supported by a Financial Statement sworn and filed on 25 August 2015. Again, this document was not read in the Applicant’s case, but she was subjected to extensive cross-examination by Counsel for the Trustee on this document. She deposed to having nil income and nil expenses. She deposed that her living expenses of $200 per week were paid by a third party and that her estranged Husband was paying her Bank 1 Credit Card. She listed as properties in respect of which she had an interest, the former matrimonial home at Property B and the properties at Property C. She disclosed a 50 per cent share of a liability owed by the Husband, describing it as an equity access loan owed to Bank 1. She quantified this liability as being $415,000, of which her share was $215,000.
The Wife swore an affidavit on 4 November 2015, filed 6 November 2015. The purpose of this seems to be to support her application for an injunction against the Trustee, referred to in her Initiating Application. At paragraph 3 of the affidavit she confirms that she is seeking at least a 50 per cent interest in all of the matrimonial pool of assets, but seemed to reserve the right to ask for more. She explained that she had been living in the former matrimonial home since about 2000.
She asserts in her affidavit that the Trustee should be able to realise the other properties in order to pay out the debt. She also asserted a capacity to raise funds by way of loan to refinance the current mortgage on the property to Bank 1. She asserts that she had a loan approval in this regard. The Court observes that on the basis of the Applicant Wife’s own Financial Statement, deposing to nil income and nil expenses, it is inherently implausible that the Applicant Wife would have had capacity to refinance the loan.
The Applicant Wife’s next affidavit was sworn on 2 December 2015, filed the next day. She is represented by a lawyer, but a different one to the one who filed the Initiating Application. In this affidavit, she gives her residential address as Property A, which, as it turns out, is the property owned by COMPANY A. In this affidavit, she explains that the former matrimonial home was purchased by her estranged Husband in about 1988 for about $275,000. She now put the value of the former matrimonial home at $1,300,000 and the properties at Property C at $500,000.
She also deposed to the moneys owing to Bank 1 totalling $950,000, being joint loans with the Husband, cross-collateralised across both properties. There is an obvious inconsistency between these assertions and the Financial Statement filed and sworn by the Applicant, as well as the earlier affidavit in which she asserts a capacity to refinance the loan. Indeed, within a matter of months, the Applicant seems to have moved from asserting that her liability to Bank 1 was a mere $215,000 to recognising that she was at least responsible for a half-share of $950,000, putting aside the obvious issues raised by the cross-collateralisation of the debts.
In the same affidavit, she deposes to not receiving any income but receiving a disability payment. She was aware of the former matrimonial home having been listed for sale by way of auction and complained about having been denied access to the auction that was held on 7 November 2015. She insisted in her affidavit that she had finance approved which would have enabled her to purchase the property at the price at which it was sold, ie, $1,325,000. The Court again observes that at no point was the Court ever provided with evidence establishing that the Applicant Wife did have the finance approval in question.
In the same affidavit the Applicant Wife explains that the former matrimonial home was purchased in her Husband’s name only, as it was purchased prior to marriage. At paragraph 27 of the said affidavit, the Applicant Wife deposes to her understanding that there would be sufficient moneys from the sale proceeds of the sale of the former matrimonial home to discharge the mortgage over the two properties (presumably the former matrimonial home at Property B and the properties at Property C) and after all the costs and expenses are paid, there would be a residue of $350,000.
The Court observes that at later stages during the proceedings, the Applicant Wife presented as being ignorant of the fact that the Bank 1 loans would need to be paid in full from the sale proceeds of the former matrimonial home, but this fact was inevitable and the Wife was clearly aware of this on 2 December 2015.
In this affidavit, the Applicant also sets out details of her Husband’s bankruptcy. In particular, at paragraph 37 she explains that as a result of some dealings with a lawyer that she details in her affidavit, she and the Husband decided to commence proceedings for professional negligence against the lawyers who had acted on their behalf. These proceedings were commenced in July 2009 and were dismissed by Justice Davies in the Supreme Court of New South Wales in September 2011, with costs in the amount of $230,000 against the Husband and herself. This is an interesting contrast, the Court observes, to the Wife’s earlier statements that she had no involvement in her Husband’s bankruptcy and indeed professed innocence in that regard. The costs order was obviously a joint one.
At paragraphs 38 and 39 of this affidavit, the Applicant Wife deposes to all her work in running the Supreme Court proceeding (which ultimately resulted in the costs order against them). She deposes at paragraph 39:
My estranged Husband agreed with me prior to the commencement of the court proceedings referred to above, that he would, in consideration of the money I spent and lengthy contribution in running of the proceedings in both professional negligence cases, he would allocate to me a further 35 per cent entitlement across all real estate and property, of the pool of assets we had, being both the marital home and any investment properties we acquired prior and after the marriage.
This is the first indication in her evidence that the Applicant Wife’s claim was in fact for about 85 per cent, based on contribution. There is no similar evidence from the Husband in his material.
At paragraph 47, the Wife deposes that the Trustee focussed on the sale of the family home “knowing that this would render the most damage and did not even attempt to effect any sale of the untenanted properties located on the Region X...” She goes on to attribute wilful and reckless malice to the Trustee, a theme, the Court observes, that continued right throughout the rest of the proceedings. The Court notes that the Wife’s contention was inconsistent with her own evidence.
Even if the Property C properties were worth $500,000 as she asserts (bearing in mind that the Court finds that the properties have a value of $325,000 at the time of the hearing), even the Wife acknowledged that the total liability to Bank 1 was $950,000. There would have an obvious shortfall and, in the circumstances, the Trustee’s decision to sell the former matrimonial home seems unimpeachable.
The next document filed on behalf of the Wife seems to be a Financial Statement sworn 2 December 2015, filed 3 December. Here, the Wife describes her employer as being COMPANY A, her address as being the former matrimonial home and that she was in receipt of sickness benefits as her only income. She deposed to her personal expenditure being a payment to Bank 1 of $1,050 per week. At item 43 of this financial statement she refers to her other personal property as being jewellery, paintings, clothing and wine collection as having a value of $1. The Court observes that the Applicant Wife’s later stance in relation to the said value changed completely.
On 24 December 2015, the Applicant Wife, through her solicitor, filed an Amended Application. The changes from the first application are not clear. The Wife sought, as a final order, at least 50 per cent of the matrimonial pool of assets. The interim orders again focused on restraining the Trustee from dealing with the sale proceeds of the former matrimonial home. Her address was stated to be the former matrimonial home. She described herself as a (occupation omitted).
An amended application was filed on 24 December 2015, but it seems identical to the one filed 3 December 2015. A further Amended Application was filed on 23 September 2016 by a solicitor on behalf of the Wife. By way of final orders, the Wife sought a declaration that she was the sole legal and beneficial owner of the Property C properties and that the Trustee transfer to her the share in those properties that had been vested in him. The Applicant Wife also sought an order that the Trustee pay to her the entire remaining sale proceeds of the former matrimonial home.
By way of interim orders, the Wife sought that the Trustee be restrained from dealing with the remaining sale proceeds of the former matrimonial home and be restrained from further dealing with the Property C properties. In this Amended Application, the Wife gives her address as being Property A, ie, the COMPANY A property. She described her usual occupation as a volunteer at COMPANY A.
On 20 July 2016 the Wife swore and filed a new Financial Statement. She was assisted by a lawyer. She gave her address as being the COMPANY A property, and that she was working as a volunteer at COMPANY A. Her only income was Centrelink sickness benefits in the sum of $437 weekly. Her weekly expenditure was $680. There is no reference in these expenses to rental. In this document, she put her half-share of the Property C properties at $175,000.
This time, at item 43, she provided the following information. The contents of household goods at the former matrimonial home “misplaced by the Trustee at an unknown location and unaccounted by Trustee” as having a value of $25,000. She refers to jewellery and the contents of two safes missing from the said property “misplaced by the Trustee at an unknown location and unaccounted by Trustee” as having a value of $45,000. She also referred to paintings, clothing and wine having a value of $3,000. The Court observes the obvious inconsistency with an earlier Financial Statement in which the Wife deposed to the value of her other personal property as being $1.
The next affidavit filed by the Applicant Wife was sworn and filed on 24 October 2016. It looks as if this affidavit was prepared by the Applicant herself, though using the name Ms Callas. This time she put her address as being Property A. However, the address for service continued to be Property A, namely the COMPANY A premises. The affidavit is made in her capacity as an authorised public officer of COMPANY A. Together with annexures, it is a long and dense affidavit.
Further cross-examination demonstrated that the bankrupt Husband used the account to meet payments due on his motor vehicle and, indeed, even he admitted that there were hundreds of transfers to him personally from the COMPANY A bank account. Initially, the bankrupt sought to explain this on the basis that the transfers to him were actually repayments of money owed to him as a result of the advance of $275,000 which he asserts was used to purchase the COMPANY A property.
The bankrupt resiled from this evidence, however, when it was pointed out to him that the account transfers in his favour from the COMPANY A account commenced much earlier than the deposit in question. The Trustee submits that this was yet another example of the bankrupt Husband advancing any proposition in evidence that he thought he could get away with, until being confronted with incontrovertible proof to the contrary, at which point his evidence would change.
The Pool of Assets
In his written closing submissions, the Trustee submitted that the pool of assets should be as follows:
| Description | Applicant’s value | Trustee’s value | |||
| 1. | Real property known as Property C, being property comprised in folio identifier ("the Property C Property") | $350,000 | $325,000 | ||
| 2. | Equitable interest in real property known as Property A, NSW, being property comprised in folio identifier and owned by COMPANY A ("the COMPANY A Property") (100% share) | $NIL | E$350,000 | ||
| 3. | Contents and household goods of Property B, NSW | $25,000 | reportedly $25,000 | ||
| 4. | Jewellery and contents of safes located at Property B, NSW | $45,000 | reportedly $45,000 | ||
| 5. | Paintings / clothing and wine at Property B, NSW | $3,000 | reportedly $3,000 | ||
| 6. | Funds released to the Wife pursuant to Orders dated 21 July 2016 for application towards legal expenses of these proceedings. | $25,000 | $25,000 | ||
The Court accepts that the Property C property should be included in the balance sheet at the value attributed by the Trustee. The Court accepts that the COMPANY A property should be included in the balance sheet, also at the value attributed by the Trustee. In both cases the Trustee adduced the only cogent evidence about value.
It is interesting to note the Trustee’s assertion that the $25,000 that the Court ordered the Wife to receive by way of an interim distribution to cover her legal costs should, in effect, be added back in to the balance sheet. The rationale for doing so, the Court assumes, is that the Wife had the benefit of joint assets, ie, part of the sale proceeds of the Property B, property.
Of course, the Trustee also had the benefit of a payment from the sale proceeds of the Property B, property, and this was also pursuant to an order of the Court. Why should the Wife’s payment of $25,000 be added back, but not the payment that the Trustee received? The Wife, the Court accepts, used her money for legal fees as was intended by the Court. The Trustee, the Court accepts, used the moneys available to him to pay the costs of the administration of the bankrupt estate.
The Trustee was obviously acutely aware that one of the significant issues for the Court was that of add-backs. Indeed, the Court had foreshadowed to all parties, but especially the Applicant Wife, that some of her concerns about the Trustee’s expenditure could be taken into account as an add-back. The Court is prepared to infer that this is what the Wife, in fact, intended, though that is clearly not the language that she used.
This is an important issue and the Trustee’s written submissions bear reproduction in these reasons for judgment. These are found at 4.1 to 4.8 of the Trustee’s written submissions:
4.1 At various times whilst participating in the hearing both the Wife and the Husband made claims that the Trustee should be held to account for his dealings with the proceeds of sale of the Property B Property. It was contended, without proof it has to be said, that the Trustee had either not accounted for or appropriated for himself a large proportion if not the majority of the proceeds. An accounting had been given in the affidavits filed on behalf of the Trustee in the lead up to the hearing[25] but this was thought not to be sufficient by the Husband and the Wife. One consequence of the failure of the Husband and the Wife to continue to participate in the hearing was that they forfeited the chance they would have had of making good those assertions through cross examination of Mr D. Nevertheless any suggestion of waste should be rejected. True that the task of recovering possession, readying the property for sale, conducting an auction and selling the property incurred substantial costs but there is no reason to conclude that they were excessive or unreasonable such as might attract the application of the principle of waste (see in this regard the decision in Nelson & Perry & Anor[26] where a similar complaint about a trustees fees was made. There as here, the wife sought an order that monies which had been paid in discharge of the trustee’s fees be repaid into the matrimonial pool. The claim was rejected[27] on the basis that the complainants had not established unreasonable about what the trustee had done) If anything it was the actions of the Wife and the Husband which exacerbated those costs. Their conduct added to the expense involved in the following respects[28]:
[25] Affidavit of Mr D sworn 19 October 2016 including annexure C; affidavit of Ms N sworn 15 March 2016
[26] Nelson & Perry & Anor [2011] FMCAfam 239
[27] At [62 ] of the judgment.
[28] See affidavits of Mr D sworn 10 December 2015, 17 November 2016 and 3 March 2017
4.1.1It precipitated the need for protracted and defended possession and caveat proceedings to recover physical control of the Property B Property.
4.1.2It led to the need for engagement of security for the auction of the Property B Property, occasioned by the actions of the Wife including multiple police attendances required at the Property B Property[29].
[29] Exhibits 2R5, 2R25 and see T 360
4.1.3The costs of removal of the Wife’s possessions from the Property B Property and storage of those goods because the Wife failed to comply with Court orders to remove her goods.
4.1.4The costs of cleaning the Property B Property which was in a deplorable state as shown in the photographs at MFI#1.
4.1.5The costs of complying with a council order in respect of the Property C Property because the property was unkempt and overgrown. The Wife has not taken any steps to maintain this property or contribute to the costs incurred in compliance with the council order, notwithstanding she is a joint owner.
4.1.6Responding to various demands, requests and correspondence from the Wife from the appointment of the Trustee on 14 March 2014.
4.2 If anything it is the Wife’s conduct which should be taken into account as an instance of waste as it had the direct consequence of adding liabilities (namely additional costs and expenses ) to the matrimonial pool,. See as an example the Notice circulated to potential bidders at the auction regarding the risks involved in purchasing the property[30].
[30] Page 224 to the exhibit of the Sampson affidavit sworn 10 December 2015
4.3 In accordance with the Court orders dated 19 May 2016, the Trustee has applied the proceeds of sale of the Property C Property to costs to which he is afforded priority in accordance with the principles enunciated in In re Universal Distributing Co Ltd (in liquidation) (1933) 48 CLR 171. The Court should not treat any part of the proceeds which were used to meet the costs of the realisation process as being notional property which remains available and should be ‘added back’ into the matrimonial pool.
4.4 The principle of add-backs is one which assists the Court in determining what is a fair share of the pool available for distribution; it is not a means of increasing the size of the pool[31]. Whilst the principle cannot be confined to any particular conduct or expense it is most commonly engaged in circumstances where[32]:
[31] Milankov v Milankov (2002) FLC 93-095
[32] Omacini v Omacini (2005) FLC 93-218
4.1.1One or both of the parties have expended money or assets which would otherwise have formed part of the matrimonial pool on legal fees. It should be understood however that this is a reference to the legal fees of the proceedings. Prima facie, parties to proceedings regarding section 79 of the FLA each pay their own costs (section 117 of the FLA). The rationale for including money spent on the proceedings as an add-back is that to do otherwise would undermine the policy which is reflected in section 117. In this case the Wife has had the benefit of $25,000 paid from the matrimonial pool to meet the costs of these proceedings. The costs which have been met from the balance left of the sale proceeds once the mortgage and conveyance costs have been met are not of that character. They were in the nature of realisation expenses (as to which see below).
4.1.2 there has been a premature distribution of matrimonial assets (see Townsend & Townsend[33] ). If the evidence showed that any part of the sale proceeds had been applied to pay the trustees general costs and expenses of the administration ( as opposed to the costs of recovering and selling the property) or as payment of creditor claims there may have been argument for an add back to that extent. But that has not occurred; and
[33] (1994) FLC 92-569
4.1.3 In cases of waste-within the meaning of Kowali v Kowali[34]. There can be no finding of that type as against the Trustee on the basis of the evidence led in this case.
[34] (1981) FLC 91-092
4.5 The application of the principle of claims of premature distributions (which must be the type of claim made here) was explained in Townsend by Nicholson CJ in the following terms ( at [30] of the judgment ):
“In my view, what occurred in this case, as I said during the course of argument was, in fact, a premature distribution of a proportion of the matrimonial assets. What the Husband did was to distribute to himself an asset in which the wife had a legitimate interest. ............It seems to me that the Husband has had the benefit of that money. Had he retained, for example, the taxi licence instead of selling it, that would have been brought into account as an item of property which would have been dealt with in the same way as the remaining items of property in this case. Accordingly, I am of the view that the correct way in which to deal with the Husband's receipt of those moneys is to bring them into the pool of assets on a notional basis and make a distribution accordingly”.
4.6 Although the circumstances in which the principle will apply cannot be confined to closed categories it is ordinarily engaged “where one party has unilaterally assumed control of, and has improperly disposed of, or diminished the value of, an asset to the detriment of the other party, that the disposal should be regarded as a premature distribution to the party at fault...” [35]
4.7 Finally, by way of principle the Full Court in Stephens & Stephens and ors explained the basis for this approach and of the waste doctrine as identified in Kowali & Kowali in the following terms:
“However, there is no difference between the two sets of principles insofar as the major difficulty that stands in the way of applying them here. In other words, just as with KOWALI, for TOWNSEND to apply the property concerned needs initially to be the property of at least one of the parties or capable of being treated as such” (omitting references to authority) at [180] and
What is required is a premature distribution of assets which if it had not occurred would have left those assets available for division between the parties.” At [182]
4.8 What has happened in this matter is that in discharge of the positive obligations imposed by the Bankruptcy Act, the Trustee has sought to recover and realise for the benefit of creditors, assets in the bankrupt estate. For reasons given by Mr D in his oral evidence, the Trustee determined that those interests would be best served by selling the Property B Property first. At that time that property as well as the Property C property were the subject of mortgages to Bank 1 and those mortgages were in default and were accruing default interest charges[36]. Had the Trustee not acted then it is likely the mortgagee would have (it had already issued call-up Notices threatening enforcement proceedings) and the mortgagee would have incurred similar costs and expenses to the Trustee and these would have been added to the mortgage debt in accordance with the usual provisions in modern mortgage documents. Because the Property C security, which was also in default, was cross collateralised with the Property B Property that debt was repaid from the sale proceeds. That brought to an end the accrual of default interest on that debt. In taking these steps the Trustee, wearing the hat of trustee of the bankrupt estate rather than the successor in title to the bankrupt owner of the matrimonial property has incurred costs and expenses no different in kind from those which would have been payable to the mortgagee had the steps not been taken or to ordinary necessary realisation expenses incurred in every sale. It is, in a real sense, a distraction to focus on the fact that the costs and expenses were incurred by someone who was then made a party to the family law proceedings. Payment of those accrued costs and expenses should not be treated as a premature distribution to the Trustee. The property and hence sale proceeds was subject to the equitable charge held by the Trustee based upon Universal Distributing principle just as it was. And those sale proceeds were, subject to the registered mortgage. The initial “net surplus” being the whole of the surplus left after paying out Bank 1 and nothing else was never money available to the parties to the marriage as part of the matrimonial pool because first, and in accordance with legal rights not discretionary considerations, there always had to be deducted from those proceeds the sale costs that had been incurred. There is no room for the application of the principle of add-backs in circumstances such as these. To do so would, apart from anything else, positively discourage trustees from taking any action in like circumstances in the future and, as this case demonstrates, that would normally just leave to higher and higher costs.
[35] Essex & Essex [2009] FAMCAFC at [32]
[36] See paragraphs [63] and [64] of the affidavit of Mr D sworn 10.12.15 and pages 233-237 of the exhibit to that affidavit.
The financial position of the bankrupt estate is set out in the affidavit of Mr D sworn 19 October 2016 and filed on that date. The Applicant Wife and the bankrupt Husband have had this information since at least when this document was filed. The information is already out of date on the reasonable assumption that further expenses have been incurred as a result of the litigation and the need to continue to administer the bankrupt estate. As at the date of the affidavit, and taking into account all the assets then known, Mr D estimated that the estate was in deficit to the extent of $762,000.
The Court notes, however, that Mr D includes the COMPANY A property at a value greater than that which was asserted at the date of the hearing. He includes a figure for a claimed repayment of the Bank 1 mortgage which benefitted the Wife because it discharged her share of the debt over the Property C property. This issue was subsumed, of course, in the course of the present proceedings, but the point to be made is that the total assets were probably estimated to be much higher than what they have turned out to be. At that time, however, he estimated that the unsecured creditors were in excess of $1.3 million, the estate expenses at that time were over $242,000. The Trustee’s work-in-progress was $165,000. The Trustee’s lawyers’ work-in-progress was over $220,000.
Doing the best that the Court can in circumstances where the Applicant Wife chose not to participate in the final day of the hearing, the Court infers that her complaint was about any payments made in relation to the administration of the bankrupt estate, realisation costs, any payments made to the Trustee’s firm and any payments made to the Trustee’s lawyers. There can be no basis for the Wife’s complaint of any payments made to both secured and unsecured creditors.
The affidavit of Ms N sworn and filed 15 March 2016 provides further evidence. She was employed by the Trustee’s solicitor and had the daily carriage of the matter. She sets out comprehensive information that provides transparency and accountability in terms of the distribution of the sale proceeds on settlement of the Property B property.
There are a number of interesting and important aspects to this evidence which bear stating here. First, payments made to the Trustee and BPS Recovery relate to reimbursement of disbursements incurred and not any of the Trustee’s remuneration or legal expenses. Second and in relation to what the Wife considered to be the contentious issue of possessions that were stored in the former matrimonial home, Ms N explains that since January 2016, the storage unit in which these items were held was transferred to the Applicant.
Third, Ms N records that the Trustee’s solicitors’ costs incurred in relation to the Federal Circuit Court proceedings before Judge Manousaridis in relation to obtaining possession of the property, the enforcement of the possession orders relating to the property, the lapsing of the Applicant Wife’s caveat on the Property B property, the conduct of the sale of the Property B property in circumstances where the Applicant Wife and the bankrupt had sought to disrupt the same, the disposal of the bankrupt’s possessions from the Property B property and the disposal of abandoned vehicles on the Property B property, collectively called “realisation related costs”, were in excess of $105,000.
However, only $15,000 of this has been billed and paid by the Trustee and that represents disbursements including Counsel’s fees, transcript fees and other such disbursements. The Trustee’s solicitor has not otherwise been paid. Ms N further deposes to approximately $90,000 of time costs incurred on a speculative basis and not hitherto billed presumably relating to these proceedings. Ms N deposes to having received information from the Trustee’s office that it has unbilled realisation related costs of about $100,000. Ms N gives some detailed evidence in relation to the work that had to be undertaken on behalf of the Trustee, in most cases merely responding to claims brought and accusations made by the Applicant Wife.
Mr D gave oral evidence on the last day of the hearing, 15 August 2017. It is most regrettable that the Applicant Wife and the bankrupt Husband were not present. His evidence was crystal clear. The legal proceedings that were commenced by the Trustee were absolutely necessary and the inevitable result of lack of cooperation by the Bankrupt and the Applicant Wife. Even what appeared to the Court as being excessive conveyancing fees on the sale of the Property B property were adequately explained by the unusual but necessary lengths taken by the Trustee and the lawyer on the sale to ensure that the auction proceeded without undue complications.
It became apparent that any money that was actually paid to the Trustee’s firm was merely to reimburse it for expenses incurred and for which they were out of pocket. Legal fees were paid, including Counsel’s fees, but they did not relate to the present proceedings, but to the earlier proceedings which resulted in the order for possession of the property. The petitioning creditors’ costs were paid. The bankruptcy realisation charge was paid. The Trustee has only received $55,000 by way of remuneration for all of its work in the matter to date. The payment to the Trustee of its remuneration was approved by the unsecured creditors. Indeed, the payment in question related to possession of the Property B property and not to the present proceedings.
The Court has set out, quite extensively it believes, the evidence before it that might relate to the Wife’s contention that there be added back into the asset pool the expenses relating to the sale of the Property B property, and realisation costs and expenses incurred by the Trustee generally. This evidence leads to the conclusions set out below.
The Court accepts the Trustee’s submissions set out above. The Court thus accepts that in cases such as the present a careful distinction needs to be drawn between costs and expenses of proceedings under the Family Law Act 1975 and costs and expenses incurred pursuant to the Bankruptcy Act. As a general proposition, proceedings under the Family Law Act may not be the best framework for dealing with concerns about costs and expenses necessitated under the Bankruptcy Act. The well-established family law jurisprudence about add backs and nominal property, as flexible and responsive as it is to meet the seemingly infinite diversity of add back claims that are made in family law litigation, does not sit comfortably with the detailed statutory scheme established under the Bankruptcy Act. In this regard, the Bankruptcy Act contains its own statutory remedies that gave transparency and accountability about the costs and expenses of administering bankrupt estates. These remedies are available, not just to the Bankrupt but even to the Applicant Wife. These comments should not be interrupted by the Applicant or the Bankrupt as any suggestion by this Court that any such claim is meritorious. Whilst any such claim is ultimately a matter for the Court hearing it to determine, this Court observes that the evidence before it creates a very strong impression that the Applicant Wife, and her Bankrupt Husband, were very much the architects of their own perceived dilemma.
What this means in the present case about the constitution of the pool of assets is that the Wife’s claim for add backs, implicit or explicit, is not accepted by the Court.
The Trustee’s claim to add-back the $25,000 released to the Wife by way of orders made on 21 July 2016 is well supported by the authorities referred to. In the Court’s discretion it will order this amount to be added back into the pool of assets.
The Court will not include in the pool of assets, however, any of the items of personal property referred to at 3 to 5 of the schedule referred to above. There is no reliable evidence about the value of these items. Whilst it is more likely than not that these items are, in fact, in the possession or control of the Wife and/or Bankrupt, given the uncertainty about values the better outcome should be that these items not be included in the pool.
The pool of assets, therefore, will constitute:
Item
Value
Property C property
$325,000
COMPANY A Property
$350,000
Funds released to Wife
$25,000
Total
$700,000
Mr D made it very clear that no part of the sale proceeds of the Property B property have been applied towards the costs of the present proceeding, either of the Trustee or of its solicitor. The only payments have been out of pocket expenses.
Assessment of Contribution
As at the date of separation of the Wife and her Husband, their most significant asset was the former matrimonial home at Property B. The Wife concedes that her Husband purchased this before marriage. In the circumstances, the Court believes it is appropriate to assess contribution to this property separately to the remaining assets. The Wife’s financial contribution towards its acquisition were nil, but her financial contribution towards its conservation and/or improvement was meaningful.
She worked during their relationship and there is no reason to doubt her assertion that her income was used towards the cost of the conservation and maintenance of the property and indeed its improvement. The Court accepts her evidence that she also made non-financial contribution towards the conservation and improvement of the Property B property, including maintaining the property even after it was divided into discrete liveable spaces and attending to cleaning and maintenance, both internally and externally. She also played, it would seem, a significant role in property management.
Given the Court’s findings that COMPANY A is, in effect, the alter-ego of the Husband and the Wife, the Court accepts that whatever she did in terms of managing COMPANY A’s alleged investment in the Property B property, should be treated as a contribution towards its conversation and improvement and indeed as a contribution to the marriage generally. The overwhelming contribution nonetheless was the Husband’s initial financial contribution and for this reason, the Court assesses his contribution to this property to be 60 per cent, and the Wife’s, 40 per cent.
The remaining property, of course, consists of the lots at Property C. The Court accepts that this was purchased during the relationship and that she contributed financially to its acquisition, as well as to conservation and improvement. The Court also accepts that the Wife made a substantial contribution as homemaker since cohabitation, as she asserts. Some of these contributions continued post-separation though it would seem that the Wife also had the benefit of occupation (it would seem rent-free) of accommodation in the Property B property and, it would seem, also in the COMPANY A property.
Nonetheless, the Court assesses the Wife’s contribution to the remaining property as being equal. Thus, in summary and by way of overview, the Husband made the greater contribution to the former matrimonial home at Property B, but the Wife made an equal contribution to the remaining property.
The Court does need to discuss the Wife’s contribution to the COMPANY A property in Property A, given its findings that this property is, in effect, the property of the Husband and the Wife. It is apparent from the Court’s findings expressed above that it does not accept that the COMPANY A property was beneficially owned by COMPANY A or that indeed money is owed to the bankrupt Husband’s mother or indeed to his late father’s estate. Whilst the source of these funds is not entirely clear, that is a matter that can be sheeted home entirely to the Husband and the Wife, it is more likely than not that the Husband’s mother provided funds to him which he used to purchase the property, but not on any condition or basis that involved her taking an interest in the same. It could hardly be said therefore that the Wife’s contribution to this property was the same as that of her Husband.
Nonetheless, the Trustee’s approach was a very pragmatic one. The Trustee submitted that if the Court found that an order under section 79, after taking into account section 75(2) considerations, were made that reflected equality as between the Husband and the Wife, the Trustee would submit that this was just and equitable. Given the Wife’s strident belief in the malfeasant and malicious actions of the Trustee in administering her Husband’s bankrupt estate, the Court needs to record that the Trustee would have been well entitled, on the evidence before the Court, to assert that the Husband’s contribution was much greater than 50 per cent. It adopted a pragmatic, commercial approach which ultimately benefits the Applicant Wife.
Nonetheless, the Applicant’s Wife to a claim under section 75(2) needs to be considered. The Wife has created many of the difficulties that stand in the way of making a realistic assessment of these factors. Her evidence about any matter financial was unreliable. Whilst the Wife is clearly receiving some form of Centrelink benefit, the Court cannot be satisfied that it is her only source of income. She is an intelligent, highly articulate woman who obviously has appropriate qualifications as an (occupation omitted). The medical evidence that she presented to the Court was incomplete and did not address the issue of her capacity for gainful employment in any event. The Court accepts that she is probably suffering from anxiety, but the only evidence before the Court about her anxiety seems to suggest that it is linked to the present proceedings so there is nothing to suggest that this anxiety will not abate on its completion.
The Court accepts that other than the interests in property that are identified in these reasons for judgment, she probably has no property or other financial resources. The evidence before the Court does not enable it to find that she does not have capacity for gainful employment. The Court accepts that the Wife probably owes her sister money.
When all the above matters relating to contribution and future needs are assessed, the Court is comfortably satisfied that it is just and equitable to make an overall assessment in the Wife’s favour of 50 per cent, including her future needs. To the extent that the Wife explicitly or implicitly argued for an assessment of contribution in excess of 50 per cent, this is unsupported by the evidence. To the extent that the Wife asserts that her future needs are greater than those allocated by the court, the Wife is the author of her own fate, given the inconsistency and inadequacy of her evidence.
Was the Trustee Entitled to Delegate the Day-to-Day Administration of the Husband’s Bankrupt Estate?
Much was made of this by the Applicant Wife and the Respondent Husband bankrupt. This is dealt with in the Trustee’s written submissions at 5.1 to 5.4 reproduced below:
5.1 The issue of the ability of the Trustee to delegate matters to his staff arose during the hearing.
5.2 The Trustee’s ability to delegate matters to staff is established and recognised by:
5.2.1 Subsection 134(1)(i) of the Bankruptcy Act, which enables a trustee to obtain such advice or assistance as he or she considers desirable relating to the administration of the estate or to the conduct or affairs of the bankrupt.
5.2.2 Subsections 19(1)(j) and (k) of the Bankruptcy Act, which impose on a bankruptcy trustee a duty to:
(a) administer the estate as efficiently as possible by avoiding unnecessary expense; and
(b) exercise powers and perform functions in a commercially sound way.
5.2.3 Sections 5.9 and 5.10 of Inspector-General Practice Direction 14, issued by the Australian Financial Security Authority (Exhibit 2R26, page 14), which:
(a) Requires trustees to consider “when and how far” matters may be delegated to staff; and
(b) Propounds an expectation that the trustee will use common sense in having the task performed as economically as practicable.
5.2.4 The line of authority following from Wily v Fitz-Gibbon [1998] FCA 121 , in which Hill J refers to the “impracticability” of a trustee being required to take every step in a bankruptcy administration personally in finding delegation by a trustee is permissible.
5.3 The evidence of Mr D is that key decisions regarding the Husband’s estate were made by the Trustee. Whilst the day to day administration of the estate was delegated from time to time to staff of BPS Recovery, the Trustee remained informed and involved with the administration of the estate, including by way of monthly meetings, telephone calls and face to face meetings. The delegation by the Trustee in this matter is wholly appropriate in light of the duties imposed on a trustee under the Bankruptcy Act and in accordance with Inspection-General Practice Direction 14. To require the trustee himself or herself to conduct all COMPANY A of the administration would not only be impractical but would add significantly to the costs of bankruptcy administrations.
5.4 As for items of personal property there is very little reliable evidence of what it might comprise or what would be its value, certainly the Trustee has not received or realised any such property. To the extent that there may have been such property then the Court should conclude it is now, and has been for some time in the Wife’s possession (given the evidence as to what has happened to the contents of the matrimonial home (see T 113 Line 20-T114 Line 30). If anything, the Wife should be found to have in her possession any valuable items of personal property (including jewellery) and the orders proposed by the Trustee do not seek to disturb that position.
The Court accepts the submissions made by the Trustee. Paragraph 5.4 of the submissions deals with the issue of personal property. This is a matter that seems to have caused the Applicant Wife much grief and many hundreds, if not thousands of words were expended by her making allegations against the Trustee in this regard, including of malfeasance and malice. The very obvious inconsistencies in the Applicant Wife’s evidence about the value of these items have already been noted.
The Court accepts that the totality of the evidence establishes that whatever personal property of the Applicant Wife was located in the Property B property was made available for her collection, but she did not. Judge Manousaridis empowered the Trustee to remove the goods in question. These goods were stored in a storage unit. The storage unit was transferred to the Applicant Wife. At one stage in her evidence, the Applicant Wife in fact referred to the contents of the same, namely items in garbage bags.
When asked whether she had inspected the same to find out whether some of the items that she alleges were missing were in fact there, she explained that she had not. The Court agrees with the Trustee’s submission. It is more likely than not that the alleged missing items are still in the possession and control of the Applicant Wife. She had no reason to complain about the Trustee’s conduct in this regard.
A just and equitable order?
The Court must of course, make just and equitable orders. The pool of assets is valued at $700,000. Contribution and future needs have been assessed in the Wife’s favour at 50%.
The Trustee seeks orders which, in effect, declare that the COMPANY A property in Property A be considered property of the parties to the marriage between the Wife and now Bankrupt Husband. For reasons articulated above, the evidence clearly supports the making of such declaration or order. In practical terms, this means the COMPANY A property is declared to be the property of the Wife.
The Trustee then seeks an order that the Wife transfer to him her interest in the Property C property. The Trustee otherwise contends that each party retain what they already have.
The effect of this is apparent from the Trustee’s closing submissions - the Trustee only wants the Property C property even though its value is less than 50% of the property pool as found by the Court. This is another example of the Trustee very pragmatic approach to this litigation. The Court believes that the order proposed by the Trustee is just and equitable on the facts of this case and that order will be made.
It is unclear whether a costs application will be made following the making of these orders. If so, it should proceed by way of written submissions and affidavit. Orders will be made to give effect to this.
Alternative relief
The Trustee’s claim was framed on a number of bases alternate to the Family Law Act 1975. As that claim has been successful, it is unnecessary to consider the alternative claims.
I certify that the preceding two hundred and nine (209) paragraphs are a true copy of the reasons for judgment of Judge Altobelli
Date: 22 February 2018
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