Campbell and Diboll
[2016] FamCA 911
•24 October 2016
FAMILY COURT OF AUSTRALIA
| CAMPBELL & DIBOLL | [2016] FamCA 911 |
FAMILY LAW – DE FACTO RELATIONSHIP – Property division – Trust with corporate trustee – Orders made by consent for appointment of liquidators of the trustee company – Liquidators effectively liquidated the trust or attempted to do so – quaere what the property of the parties was – only substantial asset in the hands of either party property owned by the respondent before the relationship – husband in eighties living in caravan on son’s property – potential effect of any money being paid to the applicant being taken by the liquidator to discharge obligations in the trust (whether validly or not) – unsatisfactory evidence from both parties – failure to explain many transactions – applicant’s son’s company a party for a short time – liquidators parties to the proceedings.
| Corporations Act 2001 (Cth) s 504 Family Law Act 1975 (Cth) ss 75(2)(o), 90SDF(3)(r), 90SM and 90TA |
Stanford v Stanford (2012) 247 CLR 108
| APPLICANT: | Mr Campbell |
| RESPONDENT: | Ms Diboll |
| OTHER PARTY: | Mr X and Mr Z as liquidators of Y Pty Ltd (in liquidation) |
| FILE NUMBER: | WOC | 455 | of | 2013 |
| DATE DELIVERED: | 24 October 2016 |
| PLACE DELIVERED: | Canberra |
| PLACE HEARD: | Canberra |
| JUDGMENT OF: | Faulks DCJ |
| HEARING DATE: | 24-27 August 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Haughton |
| SOLICITOR FOR THE APPLICANT: | Irene E Pickel |
| COUNSEL FOR THE RESPONDENT: | Mr Millar |
| SOLICITOR FOR THE RESPONDENT: | Certus Law |
| COUNSEL FOR THE OTHER PARTY: | Ms Heusch |
| SOLICITOR FOR THE OTHER PARTY: | Alliance Family Law |
Orders
The respondent will pay to the applicant the sum of $298,630 on or before the expiration of sixty days from the date of these orders.
Upon payment of the said sum the applicant will do all such things as may be necessary to assign or transfer to the respondent any right, title or interest he may have in the property known as U Road, being both the house block and the vacant land block.
As and from the date of such transfer the respondent will indemnify and keep the applicant indemnified against any outgoings of any sort whatsoever in relation to the said properties.
In default of the payment referred to (or such further time as the parties may agree upon), the respondent will do such things as may be necessary to sell first the vacant land and if that should not be sufficient for the purposes of discharging her liability to the applicant, the house block of land.
That there be liberty to apply about the terms of such sale, but if the respondent should determine to sell the property initially by private treaty and no sale is effected within three months then the properties will be put up for public auction. Again, if there is disagreement between the parties about the terms of the sale there be liberty to apply.
If the properties are to be sold and they bring upon sale a sum in excess of $1 million in relation to the house block and $290,000 in relation to the vacant land then in addition to the sum referred to above the respondent will pay to the applicant from the net proceeds of sale 25 per cent of the surplus.
In calculating the net proceeds of sale the respondent will deduct the costs of the sale including conveyancing fees and real estate agent’s commission, the mortgage of approximately $95,000 but not the supplementary mortgage of about $136,000.
The respondent will make available to the applicant, if she has not already done so, the following items to be collected by him or some person on his behalf within fourteen days of the date of these Orders:
(a) Gold scales
(b) Painting …
(c) Photos in frames of the applicant’s parents and grandchildren
(d)Drawings and memorabilia including drawings by the applicant’s grandchildren
(e) Pen portrait of the applicant’s late father
(f) … wristwatch
(g)Framed acknowledgement of [community service]
(h) Two chairs belonging to the applicant’s mother
(i) One chair received from the applicant’s father-in-law…
In addition, the applicant will prepare two lists of the following items:
(a) Paintings by …
(b) Two … paintings, one large and one small
(c) Two acid etchings in aluminium
(d) Original aboriginal painting
(e) Painting of Anglican Church at …
(f) Painting of cobblestone street scene …
(g) Reproductions of horses in storm
(h) Two reproductions of Namatjira’s gum trees
(i) Homestead paining
(j) Rusty old shed painting
(k) Settee from W Street unit
(l) Kitchen table and five chairs purchased at auction in Town B
(m) Antique cast iron two seater chair on veranda
And the respondent may choose one list and the applicant will have the other. Each will assign, so far as it is necessary to do so, his or her interest in the items in the possession of the other person.
The applicant will do such things as may be necessary to ensure that the Mercedes Benz … registration … is transferred to the respondent.
To the extent that it may be necessary the respondent will do whatever is necessary to assign any interest she may have in the applicant’s other Mercedes Benz motor vehicle to the applicant.
Each of the parties will do all such things as may be necessary to cause the company T Pty Limited to be wound up. However, such winding up will be postponed for any reasonable period required by the liquidators (the third parties) to enable them to complete the tasks that they believe still to be required of them.
In addition to any sums recovered by the liquidators in the proper execution of their duties, in furtherance of Order 3 made by me on 13 March 2015, each of the parties will pay one half of the proper costs to the liquidators in relation to Y Pty Limited on the basis that each will be responsible for one half of the amount outstanding taking account of the fact that $7,500 had at the date of the last order already been paid by the respondent.
IT IS NOTED THAT
In this regard that I have taken account of the letter from the solicitors representing the liquidators dated 27 January 2016 and the affidavit filed by Mr L on behalf of the liquidators on 4 February 2016.
No order is made in relation to the accounts of the AA Trust and any amount due to or from Y Pty Limited as trustee for the AA Trust will be either the subject of agreement between the trustee and the debtor or creditor as the case may be or the subject of a separate order from an appropriately qualified court.
These Orders have made no provision for the alteration of the debts due from either party to any creditor or in respect of any guarantee given by either party in relation to any of the transactions of Y Pty Limited as trustee for the AA Trust.
IT IS FURTHER ORDERED THAT
Otherwise each of the parties is as against the other entitled both at law and in equity to all rights in relation to the property or assets in their respective possession or control.
In addition, each of the parties will indemnify and keep the other party indemnified in respect of any debt due by that party to any other party other than those referred to above. In particular, this includes on the part of the respondent her indemnification and continued indemnification of the applicant against any liability in relation to the mortgages in respect of the U Road properties.
By way of completeness if it should transpire that in accordance with the proper execution of the duties of the liquidators either party becomes entitled to any payment from Y Pty Limited as trustee for the AA Trust then such money will be the property of that party and the other party will have no claim against it.
All material produced subpoena which did not become the subject of exhibits will be returned by the Court to the persons producing it as soon as practicable.
Any material produced subpoena which became an exhibit will be returned by the Court at the expiration of the appeal period to the person producing it. Any material produced by a party which became the subject of an exhibit will be returned by the Court to the party at the expiration of the appeal period.
These orders finalise all outstanding applications including the application of the third party filed on 22 January 2016.
The matter be removed from the Pending Cases Inventory.
The respondent and the applicant will cooperate with the third party liquidators to wind up the AA Trust and as soon as is practicable thereafter, the respondent will resign as director of Y Pty limited, transfer her share in the company to the applicant and cooperate in her removal as a beneficiary of the trust.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Campbell & Diboll has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT CANBERRA |
FILE NUMBER: WOC 455 of 2013
| Mr Campbell |
Applicant
And
| Ms Diboll |
Respondent
And
Mr X and Mr Z as liquidators of Y Pty Ltd (in liquidation)
The Other Party
REASONS FOR JUDGMENT
Introduction and Foreword
In this matter I sincerely apologise to the parties for my delay in delivering a decision. I am aware of the importance to them of having a decision and the pain that the delay in my judgment must have caused them. I apologise unreservedly.
This was a matter involving a couple who were in a marriage de facto relationship from about December 1994 until about December 2012. There was some controversy about the precise period of the relationship but very little, if anything, turns on the actual date of separation. There was an age difference between the parties of some 18 years and it was the second relationship for each of them. The orders to finalise the applicant husband’s[1] first marriage took place at about the time the parties commenced cohabitation. Reference was made during the course of evidence to affidavits filed by him in relation to those proceedings and to the material contained within them. This provided a convenient reference point for some insight into the property owned by him at the beginning of the relationship. For her part, at the time the parties began their relationship, the wife had some property on U Road near Town B. This was constituted by some 34 acres and there was a house erected on part of it. During the course of the relationship this was subdivided into the house block, one other block which remains and three blocks which were then sold in 2011 and 2012 producing proceeds of some $704,904.
[1] Although it is obvious that the parties were not married and hence a reference to them as husband and wife is inaccurate for the sake of convenience from time to time I will use those terms. In this matter Mr Campbell was the applicant and Ms Diboll was the respondent.
The applicant was at the beginning of the relationship, and had been apparently for most of his adult life, a heavy industry contractor. He had operated his business in conjunction with his first wife through a family trust. The company Y Pty Limited was the trustee of the Campbell Family Trust.[2] After his relationship with the respondent began, a new trust was set up, the AA Trust. This seems to have been some sort of drawing of a line and for all practical purposes the respondent became “substituted” for the applicant’s first wife in the company and for that matter as a beneficiary of the trust. The parties lived in the house at U Road until they separated.[3]
[2] No one suggested otherwise than that this trust was wound up at about the time of the breakdown of the applicant’s first marriage.
[3] Save for the period the parties operated their motel
It is perhaps apposite to comment that at the time of the relationship the husband had four units in Town B although little evidence is given about the net sale proceeds of those units. He had another unit at W Street which was sold in 1996 for $78,000. And although the provenance of the matter is far from clear, it seems that his trust owned the property at V Street which was sold in 1996 for possibly $850,000.[4]
[4] The husband outlined the property he said he owned at the date of cohabitation in his affidavit sworn 30 July 2015 [30]. This was the subject of comment t p 293, 294 and 295 in the cross-examination of the respondent. The evidence of both parties about these matters both in cross-examination and otherwise is quite unsatisfactory and save for any corroborative written material which in many cases was missing or unsatisfactory it is difficult to come to any firm conclusions about the extent and value of the property or when and for what amount it was disposed of.
The precise sale price of the property was difficult if not impossible to derive from the evidence before me.
It appears although it is by no means certain, that at some point subsequently (see transcript p389) the applicant transferred to his son Mr C some $760,000 and that he subsequently (in January 1995) transferred a further $115,000 to Mr C. This was apparently, in purported equalisation of benefits afforded to each of the applicant’s two sons. The other son had benefited under the property division between the applicant and his first wife.
The applicant also had a unit worth about $140,000 in Town G in New South Wales (NSW) and plant and equipment for the purposes of his business. He also owned a Mercedes Benz motor car.
There was significant controversy about whether or not the applicant had made the payments to his son Mr C. As far as I can comprehend the evidence of the applicant, he denies that he made the payment to even up things between his sons as is asserted by the wife in her affidavit and her oral evidence.
No evidence was called from the son to corroborate the applicant’s evidence. No explanation was given for why he was not called. That would seem to have been a logical way, at least, to have advanced the state of the evidence. In the light of the applicant’s almost total lack of recall about anything of significance and particularly the detail relating to it or any of the figures or recording of the figures I could not rely upon his evidence about this matter. So far as the evidence of the respondent is concerned, although she was sometimes more precise, apart from the conversations she records with the applicant, in which she says that the applicant asserted that he had given the money to his son, she could have had no direct knowledge about the transaction.
As a consequence, I find that it is more likely than not on the state of the evidence that the husband did make the payment to his son. This is in part based on my view of the husband’s credibility but also on the failure of the son, Mr C, to give evidence. The inference to be drawn from this failure would appear to be that his evidence would not have assisted the applicant. That of course is not to say that it would have contradicted the applicant.
This finding is significant because it is common ground that the wife having subdivided part of her U Road property contributed some $700,000 to the trust - to meet expenses. If the applicant had similarly contributed an amount of approximately $700,000 to the trust (to meet expenses) this would have been a significant offset so far as contributions were concerned. That offset on my finding does not exist.
At the time the matter came before me there were proceedings to wind up the company Y Pty Limited and orders were made by me under the Family Law Act1975 (Cth) in relation to the Corporations Act 2001 (Cth) for the appointment of liquidators and to some extent in directions as to the payment of their fees. This is a matter of relevance to which I will return in due course.
The liquidators interpreted their appointment as relating not only to the winding up of the company (which had virtually no assets in its own right) but to the winding up of the trust. In retrospect, it would appear that this was a misconception on their part but one from which the parties did not dissuade them. It should be acknowledged that neither did I, when earlier procedural orders were made relating to the liquidation.
Probably, this Court as part of its accrued jurisdiction should have been asked to make orders about the winding up of the trust in accordance with the trust deed and the laws of equity. No such application was made.
Different principles of course apply to the winding up of the trust from those applicable to the winding up of the company. This matter acquires some relevance in the light of the evidence such as it was, as the history of the “liquidation” unfolded. It seems that the parties did not have the benefit of sensible (if not informed) accounting advice during the operation of their business activities. The late breaking evidence of another entity apparently maintained by the applicant which had not previously been disclosed adds to the confusion in this matter not to its elucidation.
The accounting advice upon which both parties purported to rely (one would infer almost absolutely) appears at least to have been somewhat eccentric and failed to distinguish various obligations under trust law or company law. This may in fairness to the accountants have been as a result of the nature of the instructions received.
However, in the light of what must have been the apparently absolute reliance by the parties on the accountants for structural and tax and accounting advice a higher level of explanation and or diligence by the accountants would be called for. I have no evidence that they did not do this. However, if they did, none of it seemed to affect the parties in any way and it certainly did not improve their apparent understanding of what was required or assist them in meeting their duties and obligations as directors or for that matter as trustees.
So far as I was able to ascertain, each of the parties to some extent, treated the bank account of the trust as if it were his or her own or perhaps their own personal account and withdrew money from it for whatever needs may have arisen from time to time.
While quite a substantial volume of material was produced during the course of the trial and in discovery before it, how the financial records of the trust were compiled remained during the trial (and remains to me) something of a mystery. It appears, (and I emphasis the word appears) that what with a partnership might have been described as “drawings” were simply debited by the accountant to the beneficiaries’ distribution account or in some cases possibly to a loan account.
The net effect of this was that at the time the matter came before the Court, so far as the accounts of the trust showed, the trust owed the respondent some $709,031 and the applicant $452,000. I presume, without being able to be certain, that the purpose of maintaining the loan accounts was to avoid a distribution which might have attracted income tax. At the same time, the money withdrawn from time to time by the parties was allocated, it seems, to the husband’s loan account. This meant that as the date of the trial he owed the trust in excess of $800,000. Why his entitlement and his debt were not offset was not explained notwithstanding my inquiries.
It stands to reason that if the liquidators (assuming they were operating appropriately) were winding up the trust, would recover that amount from the husband and presumably use it, in part, at least to repay the loans due to the parties.
I apologise if this sounds somewhat complicated. Its vagueness is because of the inappropriate way in which the accounts were maintained, the evidence of the parties themselves[5] (which was highly unsatisfactory about almost all issues relating to the business) and is otherwise based on my interpretation of such of the records as appropriately found their way into evidence.
[5] It was agreed that this company should be deregistered or wound up
Over the course of the relationship the business primarily conducted by the applicant (although through the trust by both of the parties) disintegrated. Assets within the business were transferred by the husband to his son. The transactions involved were inadequately recorded, contradictorily reported on, and the subject of heated controversy between the parties. For one such transfer there were, possibly, three different invoices on different dates relating to apparently the same transaction or part of it.
The net effect of all of this was that by the time the relationship came to an end the business no longer existed in any meaningful way although there was some plant and equipment of the minor sort in the possession of the parties, essentially the applicant.
The liquidators having given an initial modest quotation for their fees found that they were, with the encouragement of both the parties, engaged in substantial investigative accounting to try to determine what had happened to various items of plant and equipment and whether they have been accounted for, and if so, in what way. I warned the parties during the course of proceedings that I was considering referring the papers through the Attorney-General to the Australian Taxation Office.
Without necessarily going through all of the details, the net result of the activities of the parties during the period of the relationship meant that when the matter was before the Court the assets of the business were in fact, of minor proportions comparatively. For the sake of clarity, I set out the assets of the parties now. The difficulties in which I have found myself about how I might make just and equitable orders about the division of such properties as remained, will I hope, become apparent.
THE ASSETS AND LIABILITIES OF THE PARTIES
Ownership
Description
Applicant’s value
Assets
W
U Road House block
$1,000,000
W
U Road Vacant Land
$290,000
W
Savings@ July 2013 $20,075
$600
H
Savings
$1,344
H
Mercedes Car Reg: …
$25,000
($43,450)
W
Mercedes Car Reg: …
$14,150
H
H AA Trust Beneficiary Account
$452,001
W
AA Trust Beneficiary Account
$709,031
Liabilities
W
Mortgage
$95,478
W
Personal mortgage acquired post separation despite order of 28.2.14 that the mortgage not exceed $135,000
$136,000
Assets
J
Y Pty Ltd Creditors 072
$244,914
H
Y Pty Ltd (it is owed from the husband)
$836,400
H
S Accounting Firm - Liquidation fees
Superannuation
W
First Guarantee FSS, accumulation benefit
$35,671
Supplementary Balance Sheet
Ownership
Description
Assets
5
W
Jewellery ($30,000 - $5,000 remodel + $400)
0
H
Gold scales, watch, painting, pen portrait of his father, photos owned prior to cohabitation
11
H
H AA Trust Beneficiary Account
12
W
AA Trust Beneficiary Account
There was another company involved, T Pty Limited of which each of the parties was a director and a shareholder. The precise function of this company was not clear and remains unclear to me. Possibly, it was formed to delay distributions direct to the parties. It appears that its major function was to receive distributions from the trust. However, neither party provided satisfactory evidence to explain its function in relation to the parties or what, if any, assets it continues to have. [6]
[6] It was agreed that this company would either be de-registered or wound up.
Each of the parties acquired money to pay their legal fees. It took until the end of the applicant’s final address to get details of what fees he might have paid. It seems that some part of it may have been paid by the applicant himself but a large part was paid by his children and/or their spouses. How much was paid, when and on what basis remains unknown to me at the end of the proceedings. Opportunities to cross-examine about some of these matters were not taken. The evidence otherwise given is contradictory. It would appear that the applicant does not expect to repay his loans. It is not clear what the lenders attitude to this will be.
For her part the respondent drew money out of the trust to pay for some of her legal fees.
I am unable from the evidence before me to ascertain appropriately how either of these matters should be dealt with and accordingly, I find I am unable to make any determination about them on the evidence before me.
Along the way, the business company of the applicant’s son CC Pty Limited was added as a party although in the end little appeared to justify the inclusion and the expense of that additional party.[7] Other parties to the proceedings were Mr X and Mr Z as liquidators of Y Pty Limited (in liquidation). They were represented with my leave by an accountant from their firm during the course of proceedings but were not present or represented during final addresses to the Court.
[7] On 15 July 2015 an order was made which required this company to produce certain financial records and then (order 2) it was removed as a party to the proceedings. In this regard it is noted in the order that neither party sought any orders against the third party and that the third party did not seek any orders against either of the parties.
I have previously commented that the liquidators in this matter have proceeded to liquidate the business of the trust as if it were the business of a company. In their report dated 19 May 2015 (page 35 of the Trial Book) at page 3 of their report, the liquidators comment as follows:
Accordingly, upon the winding up of the Company:
·As noted above, the Company has the right to be indemnified out of the assets of the Trust for the liabilities owed to its creditors;
·All the assets of the Trust will be available to discharge the liabilities of the Company;
·To the extent that there are separate liabilities of the Trust, those liabilities will rank pari passu with creditors of the Company; and
·The Trust can continue to operate independently of the Company and the winding by settlor/appointor [by] appointing a new trustee.
Without the trust deed it is difficult to be definitive as to whether that is an accurate statement relating to the relationship of the company as trustee with the operations of the trust. I accept unequivocally that the trust is not a separate legal person. I further accept that it is probable that the trustee has obligations under the trust deed which include obligations relating to parties with whom the trustee has contracted as trustee.
The extent of those obligations to the company itself and the extent to which it can be validly indemnified by trust funds ought to be matters dealt with in the trust deed. However, there appears to be a misconception that the winding up of the company must necessarily involve the winding up of the trust. The liquidators appear to have taken the position that they are entitled as liquidators of the trustee to operate to recover debts due to the trustee as trustee of the trust. They however in doing so appear to be operating under the Corporations Act rather than in accordance with equity. Properly speaking, in my opinion, the correct approach would be to wind up the trust in the Supreme Court of New South Wales (or under the accrued jurisdiction of this Court) in accordance with equitable principles and the trust deed.
However, each of the parties and more particularly the respondent urged the liquidators to proceed to examine various transactions and to try to determine whether any of the assets of the trust had been alienated inappropriately. Neither party sought any order in relation to the liquidator’s or the scope of the liquidator’s brief and the liquidators as a consequence incurred significant costs. Those costs were summarised most recently in an affidavit filed on 4 February 2016 by Mr L and that affidavit includes the assertion in paragraph 16 that “all proposed remuneration of the liquidators has been approved at creditors meetings”. I have not been requested by anyone to rule as to propriety or otherwise of the claimed costs.
In default of notice having been given to various creditors about any proposal to reallocate the legal indebtedness of either of the parties from one to the other or to share them in some different proportions I do not believe I have the power to make any order under Part VIIIAA of the Family Law Act (with the assistance of s 90TA of the Family Law Act 1975).
THE LIQUIDATORS
The liquidators are parties to the proceedings and various applications have been made with the knowledge of the parties including various estimates for the recovery of legal fees.
I do not propose to make any further substantive order in relation to the fees of the liquidators - which might need to be proved to be proper at some point (if there is a dispute about them). I leave the existing orders in place which would require the parties to meet those fees equally. The liquidators may feel inclined to pursue one rather than the other of the parties for the short-fall in the payment of their fees. It seems to me that the terms of the order originally made by me in this matter (although not in contemplation of the sorts of costs that are presently sought) are that each of the parties would bear one half of the cost only. That will be reflected in the orders I make in finalisation of the application of the liquidators in this Court on 22 January 2016.
I note in relation to that application that I was subsequently sent a letter by Alliance Family Law, on behalf of the liquidators (although that firm no longer represents them), to the effect that the parties through their legal representatives consented to the following pathway to resolve the liquidators application for enforcement filed 22 January 2016.
'That the balance of the Liquidators' unpaid remuneration and costs after payment from any funds received and less any further amounts received, be treated as a liability of the parties and that that be taken into account in the judgement and subsequent final orders made in this matter.
That within 7 days the Liquidator file a statement of fees.
That the Liquidator's application filed on 22 January 2016 be otherwise stood over to a date to be determined.
Notwithstanding no formal order was formally sought or made in those terms, and notwithstanding the third proposed order referred to, so far as I am concerned the liquidators’ application to this Court, at least in so far as these proceedings are concerned, is finalised by these Orders.
So far as I am concerned that leaves a situation where the liquidators are entitled in so far as they have the power to do so, in the exercise in which they have been engaged, to recover the short-fall in their fees from the parties as to one half from each. The parties, if they wish to challenge the quantum of the fees appear to have a basis for doing so pursuant to s 504 of the Corporations Act2001.
OTHER FACTORS
It is asserted, although not proved, that the ANZ bank who is a creditor of the trust has some form of guarantee from each of the parties. Whether that would be enforced, the terms of the guarantee and the current status of any proceedings relating to its enforcement were not in evidence before me in such a way as to enable me to make a reasonable finding. I assume if the bank does have a guarantee it is improbable that the bank would not exercise that guarantee if it had an opportunity to do so.
Another creditor of the trust was the Income Tax Assessment Commissioner - but thankfully for a relatively small amount. The Commissioner would certainly seek to have a preference payment in the course of an ordinary company liquidation although as I have pointed out to the parties during the course of proceedings on a number of occasions, the principles associated with winding up a trust are not necessarily those associated with winding up a company under the Corporations Act.
The attitude of the liquidators to the recovery from the applicant of any money that he may be paid by the respondent to satisfy the debt that he owes to the trust was not clear. Again, the logical assumption would be that the liquidators would take first (in payment of their fees and subsequently in discharge of what they believed to be their duty) any money in the possession of the applicant to satisfy the demand they have served on him to provide funds not only to pay their fees but to satisfy the various creditors - including the two parties. The circular and wasteful nature of this particular activity has only to be stated to be understood.
Counsel for the applicant argued that in effect the parties’ contributions had for all practical purposes been equal both in monetary terms and also as to their labour and involvement in the business and other activities from time to time.
She sought that the properties at U Road should be sold and after a discharge of part of the mortgage, at least the remainder should be divided as to 65 per cent to the applicant and the balance to the respondent. The applicant also sought that the respondent pay the costs of the liquidator and that certain personal items be returned to him. This last relatively minor matter was agreed between them.
There were other items which were not the subject of agreement and in default of the parties being prepared to come to any agreement during the course of the proceedings I indicated that I would proceed on a pick-a-pile basis that being an equal division of those items on the list claimed between the parties, prepared by one with the other party to choose a list.
I should add that the applicant also sought that the car which was commonly agreed as being owned by him but driven at all relevant times by the respondent should be returned to him. Why he would want two motor cars living in a caravan on his son’s property is not clear but I suppose he felt that if the wife was going to keep any of her preowned assets he should have a similar entitlement. I should add that so far as I am able to ascertain the second car was purchased during the course of the relationship but it does not quite fall into the category I have indicated above.
For her part, the respondent somewhat circumspectly suggested that there really was not much point in her being ordered to pay anything to the applicant because if such a payment were made effectively the whole of it would be taken by the liquidators in discharge of their claim against the applicant and that while some of it may be returned to her (as she had the highest quantum of debt owed to her from the trust) the consequences of the payment for the applicant would be minimal and the detriment to her would be considerable. I will return to this issue in due course.
Much energy during the course of the trial and cross-examination was directed to various transactions that had occurred in which items owned by the trust were transferred or sold. I would hate to think how many hours of discovery and investigation was directed to this end. To some extent this activity was substantially wasted in that ultimately I have to make a decision dividing the property of the parties not the property of the parties that previously existed. As part of her urging on the liquidators to pursue issues it is obvious that the wife believed that she had in some way been deprived of access to some assets by the actions of the husband. The liquidators although acknowledging that both parties were in default of their duties as directors, could not ultimately conclude that any of the transactions were illegal or fraudulent or inappropriate or for that matter even improper.
However, even assuming that the wife were right in her suspicions about the transactions it is to be wondered what practical effect a finding consistent with those suspicions might make. As the High Court of Australia pointed out in relation to matrimonial property, the Court’s obligation under the Family Law Act is to make such order as to the property of the parties as is just and equitable and not to make an order unless it is. Their Honours comments are equally applicable to orders made under s 90SM[8] of the Family Law Act relating to the division of the property of couples who were in a marriage de facto relationship.
[8] In particular [90SM(3)] applies
It is not the function of the Court, nor is there any basis under the Act, for one party’s conduct during the course of the relationship to be the subject of some pecuniary penalty or punishment in the division of property. Such actions might in an appropriate case be the subject of some adjustment of the division of property by reference to s 75(2)(o) in relation to matrimonial property and s 90 SDF(3)(r) in relation to marriage de facto property.
It was suggested by counsel for the applicant that the wife was really the architect of her own misfortune. It was suggested that she had no idea what her duties as a director might be and that she had not fulfilled her obligations as a director or queried transactions that in retrospect she obviously should have known about and should have queried.
This is an unkind and harsh assessment of the wife’s approach to the matter. It is clear that she trusted her husband and for that matter his son and their accounting advisers about what she should or should not do. While that may not legally absolve her of any liability for her breach of her obligations as a director, it does make them more understandable.
A similar comment might be made about the applicant. His recollection of almost anything that happened was very difficult and he contradicted himself from time to time in his evidence. I did not form the impression however that he was being intentionally dishonest or deceptive. To put it bluntly, his memory was appalling. It goes without saying that the husband was also in breach of his duties as a director and as he was the instigator of some of the activities that constituted such breaches, his responsibility is potentially higher. What I could not be satisfied about however is that the husband set out intentionally to commit what in legal terms is referred to as “waste”. The best conclusion I can reach on the unsatisfactory evidence before me is that he engaged in activities which he thought at the time would be beneficial to him and to the respondent but with little judgment or discretion or effective advice. I would not be prepared to make an adjustment between the parties based on s 90 SDF(3)(r) in favour of, or against, either party.
What then that leaves is relatively limited amounts of property and some controversy as to contributions. The property in U Road is in the wife’s name and accordingly before I make any order about it I need to be satisfied that it would be just and equitable to make that change.
In this matter given the respective ages of the parties and the length of their relationship I would not be deterred from making an order which I believe would be in the interests of justice and equity by the fact that the property was in the name of the wife alone.
Before considering the practical consequences of making any order I want to turn first to the contributions that each of the parties are asserted to have made.
CONTRIBUTIONS
In this regard, I do not accept the submissions on behalf of the applicant that he contributed an equal amount with the respondent to the trust. I am satisfied that the primary asset he owned at the time that the parties began their relationship which was (indirectly his) V Street almost completely was dissipated in payments to his son. I am not suggesting that such a payment was improper but a payment to the son was certainly not a payment into the trust on behalf of the business and does not constitute a contribution on his part. If anything the trust was entitled to the money because it owned V Street (or at least that would seem to be the case from the evidence). Perhaps the payment to the applicant’s son should have been debited to the husband’s loan account.[9] However the wonders and mysteries of the accounting for the transactions of the trust remain to me wonderful and mysterious!
[9] Or perhaps it was a payment from the now defunct Campbell Family Trust.
There were of course his unit in Town G and the plant and equipment and the hard work he put into the business during the course of their relationship. However in purely financial terms the wife’s contribution from the sale of the subdivided blocks of land in U Road was both substantial and significant.
Moreover, in my opinion, the activities of the parties to the extent that I have been able to ascertain them from the somewhat unsatisfactory evidence that was given, could properly be characterised as being of equal value otherwise during the course of their relationship. There was no particular component on the part of the wife in this matter relating to home-making and parenting as the children of both the parties were older.
This is not strictly correct so far as the wife is concerned because her daughter was but some seven years old when the relationship began. It was argued, although faintly, that the husband’s contributions should be regarded as augmented by the financial support he gave to the mother’s daughter. There is some force to that and in the terms of the Act the wife’s contributions in the raising of her daughter were not contributions that sounded in this relationship with the applicant. He would be entitled to some credit for his contributions but the quantification of his contributions like so much else in this matter has not been effectively proved.
The husband listed[10] a long list of things that he did in relation to the property. Some of these were agreed to by the wife and some were not. There is no doubt that over the period of the relationship, both parties worked in the respective businesses to some extent. While precision is not possible in this matter on the evidence, it is open to me to find, and I do find on the balance of probabilities that the husband contributed more in physical labour and generally to the operation of his (the trust’s) business. The wife contributed substantially from money from the sale of her subdivided blocks to the finances of the trust. The husband contributed in a relatively minor way to the U Road property.
[10] Trial book p 123 [67]
As the wife owned (subject to a small mortgage which was paid out during the course of the relationship with funds that I think ought properly to be regarded as having come from the trust (although the accounting for it is to say the least unsatisfactory)) I would regard her contributions to the U Road property by comparison with those of the husband as being in the order of 90 per cent to 10 per cent.
It was also suggested by counsel for the husband that the fact that the husband was living in a caravan on his son’s property and carrying out some farm work on his son’s behalf while the wife remained living in what was the former family home and with a partner who was contributing to the household was a contribution that should be taken into account. I suppose in broad terms the argument is advanced on the basis that property that might logically have been available to both parties (the wife had the exclusive use) and the husband was left in straightened and relatively uncomfortable circumstances accordingly. I think that is a factor to be taken into account but not as a contribution. It is part of the overall financial circumstances of the parties.
There is force in the argument advanced however on behalf of the applicant that it is not simply the case that because business ventures fail that the party who is essentially the owner of the business must in some way be regarded as an inferior contributor. Undoubtedly, if a business whether speculative or not, were to be spectacularly successful, the other party would seek to share in that benefit. To some extent, it is the case that you take each other (whether formally through a ceremony or otherwise) for better or worse, and that if ventures are not as successful (as it was hoped they would be), that may be simply a reflection of the nature of the business rather than a matter of contribution or what was previously known from time to time in my opinion incorrectly as a “negative contribution”.
Nevertheless, in this matter in my opinion, the evidence as presented on behalf of the applicant failed to make many of the points he wanted to present to the Court.
The reality on the evidence is that I would have to hold that on a financial basis there was a much more significant contribution to the property of the parties from the respondent than there was from the applicant. In coming to that conclusion I acknowledge that the realisation of her asset[11] to produce the money (which eventually was lost) was brought about in part by the labour provided “free’ by the husband and his son - in creating the subdivision.
[11] by subdivision and sale
I regard the actions of the parties during the course of their relationship as being otherwise substantially equal. But given that the only substantive property remaining is the U Road property the best that I could determine is as I have indicated above that the wife in relation to that asset contributed some 90 per cent as against the husband’s 10 per cent.
I would indicatively determine that overall (including the financial contributory component) the wife’s contribution was of the order of 75 per cent against the husband’s 25 per cent. I say indicatively because it was urged on me by counsel for the wife that it was not necessary or in many cases appropriate to look at contributions on a percentage basis. I accept that this is a substantially artificial process and I cannot pretend in this matter that my assessment would in any way be justified on a detailed mathematical analysis. Comparing different forms of contribution necessarily involves a matter of judgment on the part of the person doing the comparison.
This situation is somewhat complicated by the fact that in the end the only property of the parties that really exists or at least of which I have evidence is the U Road property. Each of the parties has some claim on the trust funds although in the husband’s case it appears that he owes the trust significantly more than the trust owes him.
The wife sought an order that the “trust” pay her effectively $1 million. She has lodged that claim with the liquidators. There is no logical support for that claim at all. The trust on its books appears to owe her the money set out above. I have no basis upon which I could query or alter what those figures are based on the evidence before me.
The prospect of her recovering the full amount of her entitlement from the trust must be dependant at least in part on the husband’s repaying the money he is asserted to owe to the trust of some $800,000. If the evidence before me is accurate, I see no prospect of his acquiring that amount of money to pay to the trust. Hence, for all practical purposes the only property available for distribution between the parties (on a property settlement under the Family Law Act) would be the wife’s property in U Road. I have already made comment about the parties’ respective contributions to that property.
Other factors – s 90 SM
It was suggested by counsel for the husband that the wife’s age was such that she could continue to earn money as a health professional for some time. There is no evidence of this at all. She is approaching her mid-sixties which hitherto has been an age at which many people retire. She may well be confined to drawing on the old age pension or living off what residual resources she may have in the future.
Her position is hardly one to generate optimism except by contrast with the husband whose future existence - living as a matter of grace and favour in a caravan on his son’s rural property - could not inspire enthusiasm.
Whatever suspicions I may have and which I voiced during the course of the hearing to counsel for the husband, that ultimately his children would make provision for him in one way or another, there is no evidence to support that suspicion. Moreover, suspicions are not evidence. In my opinion although the wife’s circumstances are hardly desirable, they are better than those of the husband.
In a carefully worded submission and to avoid, properly, any suggestion of callousness, counsel for the wife suggested that in fact the age difference between them was a factor that might operate in her favour because she would have to live for longer on whatever it was that she had available to her. It is impossible to predict how long either of the parties would live or what their financial circumstances will be. Whatever their financial circumstances will be, they are unlikely to be very encouraging and while I understand the nature of the submission I do not accept it.
There is however the very difficult fact that if the liquidators were to pursue the husband any money paid by the wife to him might well simply disappear in the circular transactions to which I have previously referred.
These parties have suffered financially and emotionally in the system which has been trying to bring an end to the conflict at the end of their relationship. It would be a cruel blow in the end to effectively say that both must share in the pain when the only persons who are likely to gain from the infliction of the pain, particularly in respect of the wife, would be the liquidators and the lawyers and the banks.
However, there are a number of unknowns in this matter. It cannot be completely discounted that the liquidator may not pursue the husband. It cannot be completely discounted that the banks will abandon the pursuit of their guarantees if they exist and are capable of enforcement. It cannot therefore be discounted that the husband may finish up obtaining some material benefit from any payment made to him by the wife.
In this matter there are many unknowns. It is unknown whether the liquidators are validly carrying out their task. It is unknown whether if they do carry out their task, with the concurrence of the parties and the creditors and otherwise, whether they will pursue the debt owed by the applicant to the trust. It is unknown whether in carrying out their task, (assuming they do so properly in my opinion in accordance with equity not the Corporations Act) they will collect any money from the husband and then apply that money among the various debtors of the trust in accordance with the principles of equity rateably. It is unknown whether the Tax Commissioner will pursue his remedies against either or both of the parties if he is able to establish an independent liability from the company as trustee of the trust. It is unknown whether the banks will pursue any guarantee they may have against either or both of the parties. It is known that at the very least the liquidators will want to claim from each of the parties’ one half of any outstanding fees. This will significantly diminish the property that is left in any event.
In the face of all these unknowns I believe that the only reasonable step that I might take is to divide the property of the parties (essentially U Road) between them in accordance with the findings and principles that I have set out above. That leaves the various unknowns that I have indicated above to either eventuate or not. If they do not eventuate, or presumably if some or any of them do not eventuate, the parties will be better off. If all of them eventuate and each of the creditors of various sorts pursues the parties, then sadly this exercise has been one of total futility.
I feel very sorry for the parties who in the end deserve much better for all the hard work they have put into their relationship and into the businesses and enterprises that they undertook during the course of that relationship.
I should conclude however by saying that I remain totally perplexed as to how the apparently successful operations, particularly in subdivisions of the parties, over the period of the relationship have not generated funds sufficient to satisfy the various liabilities. The parties do not appear to have had a particularly extravagant lifestyle (possibly leaving aside their expensive motor cars), there is absolutely no evidence that there is any money hidden in some place. Suspicions abound on both sides but particularly on the part of the respondent about the various transfers of assets between the applicant and his son and daughter in-law and their company. In the end there is no evidence which would satisfactorily demonstrate that this has in some way enured for the benefit of the applicant. I accept that he appears to be and probably is a man in his eighties living in a caravan by grace and favour on his son’s property.
SUMMARY
I have indicated that I regard the contributions to the U Road properties as 90 to 10 per cent in favour of the respondent. I have also indicated she should retain responsibility for the mortgage of about $136,000 which she incurred post-separation. I accept that, that debt is a factor to be taken into account in her favour as part of her overall financial situation. I also note that I have found that doing the best I can I regard the parties as having contributed overall to their assets in the proportions of 75 to 25 per cent in favour of the respondent. If the business had prospered as the parties hoped it would, and if they had had better advice, and if they had husbanded their resources better, there would have been more to divide. I cannot in the light of Stanford v Stanford[12] disregard the fact that the principal remaining asset is one which almost exclusively came from the respondent. The other financial circumstances of the parties do not in my opinion warrant a change in the overall proportions of 75/25.[13]
[12]Stanford v Stanford (2012) 247 CLR 108
[13] What that means is that I adjust the U Road properties by deducting the first mortgage (at the figure agreed at trial) and not deducting the second mortgage taken out after separation. The other items of property are divided as indicated in my orders leaving the wife with “her” Mercedes and such assets as may remain in the business as the husband’s subject of course to the actions of the liquidators.
I regret that this which will be my last decision in the Family Court of Australia has been one in which I felt I was the spectator on the outside of an impenetrable fog. Consequently my determinations in this matter have probably not satisfied what either of the parties wanted. I have been only able to deal with the evidence I have before me. It would have been useful if I had some form of divine intuition as to what might be the truth and the facts of the matter. I am not blessed with that intuition.
I certify that the preceding eighty-six (86) paragraphs are a true copy of the reasons for judgment of the Honourable Deputy Justice Faulks delivered on 24 October 2016
Associate:
Date: 24 October 2016
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