Cao and Trong and Anor
[2017] FamCA 245
•24 April 2017
FAMILY COURT OF AUSTRALIA
| CAO & TRONG AND ANOR | [2017] FamCA 245 |
| FAMILY LAW – PROPERTY – partial property division – spousal maintenance – child support – where there is an injunction precluding the wife accessing any property – where the injunction was consented to – where the injunction is oppressive – where consideration is given to variation – where wife seeks to pay large legal fees but court considers that should wait until after trial but prospective fees should be limited. |
| Child Support (Assessment) Act 1986 (Cth) Family Law Act 1975 (Cth) |
| Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 |
| APPLICANT: | Mr Cao |
| RESPONDENT: | Ms Trong |
| INTERVENOR: | Commissioner of Taxation, Commonwealth of Australia |
| INDEPENDENT CHILDREN’S LAWYER: | Victoria Legal Aid |
| FILE NUMBER: | MLC | 2555 | of | 2016 |
| DATE DELIVERED: | 24 April 2017 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 13 April 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Dickson QC |
| SOLICITOR FOR THE APPLICANT: | KCL Law |
| COUNSEL FOR THE RESPONDENT: | Mr North SC with Ms Devine |
| SOLICITOR FOR THE RESPONDENT: | JK Lawyers |
| COUNSEL FOR THE INTERVENOR: | Mr Mazloum |
| SOLICITOR FOR THE INTERVENOR: | ATO Review & Dispute Resolution |
| COUNSEL FOR THE INDEPENDENT CHILDREN’S LAWYER: | Ms Agresta |
| SOLICITOR FOR THE INDEPENDENT CHILDREN’S LAWYER: | Victoria Legal Aid |
Orders
That the injunction in the order made on 5 October 2016 in so far as it affects the wife is varied to allow her to sell such shares in B Ltd that will provide $305,000 net.
That of the $305,000, $237,000 is to be paid to the solicitors for the wife to be held by them on trust to pay counsel’s fees associated with the hearing on 13 April 2017, $7000 towards the costs of the solicitor for the hearing on 13April 2017 and otherwise the remaining sum to be held on trust in respect of the forthcoming final hearing of all outstanding matters between the parties.
That the wife be at liberty to use the remaining $68,000 for the living expenses of herself and the three children in addition to the child support paid by the husband.
That the file be referred to the case management judge for consideration as to whether this trial should be listed as soon as practicable on the basis that the parties assert that it is ready for trial subject only to the completion of discovery obligations.
IT IS CERTIFIED:
That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel including senior counsel and, in the case of the wife, junior counsel.
That all extant interim applications are otherwise dismissed.
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 Cao & Trong and Anor 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 MELBOURNE |
FILE NUMBER: MLC 2555 of 2016
| Mr Cao |
Applicant
And
| Ms Trong |
Respondent
And
Commissioner Of Taxation; Commonwealth Of Australia
Intervener
Independent Children’s Lawyer
REASONS FOR JUDGMENT
On two occasions in 2016, Ms Trong (“the wife”) and Mr Cao (“the husband”) (but specifically and relevantly for these proceedings, the wife) agreed that the court should make injunctive orders against both of them.
The first injunctive order was made on 18 May 2016 which read:
12.Both parties be and are hereby restrained from encumbering, selling, dealing with or otherwise disposing of the real property or any other asset without the other’s prior written consent.
Subsequent to that on 5 October 2016, the Commissioner of Taxation for the Commonwealth of Australia, by then an intervener, along with both the husband and the wife, sought a variation of that May 2016 injunction. The amended injunction read:
The husband and the wife are hereby restrained from encumbering, selling, dealing with or otherwise disposing of the real property or any other asset, otherwise than in the ordinary course of business without the written consent of all parties, including that of the intervener. (emphasis added).
In both of the hearings that saw those orders being made, the wife was represented by solicitors and counsel (although not the counsel who appeared in these current proceedings). There is no evidence that the wife has any asset that might be disposed of or otherwise dealt with in the “ordinary course of any business”. However, the two major assets which are central to the property proceedings are a real property unit said to be worth $3.5 million and a bundle of shares in B Ltd said to be worth either 10 cents or 11 cents each which, on the basis of the number of shares, would value them between $1million and $1.1million. In respect of all of that property, the wife is the sole legal owner.
Reference must also be made to the other unusual feature of both of those injunctive orders namely “any other asset”. As Mr North SC for the wife rather aptly put it, the injunctions, albeit consented to, were so oppressive, that the wife could not even buy a banana.
These proceedings have been extant for over one year. Initially they were commenced in the Federal Circuit Court and then transferred to this court. Alarmingly, albeit both parties dispute the extent of the assets, and in the wife’s case, there are allegations that the husband has hidden assets, over just on 13 months, the wife has incurred $427,296 in legal fees and disbursements. She anticipates that if the matter proceeds to trial, a further $296,100 will be so expended. Although senior counsel for the husband observed that his client had only spent about one-third of that, it must also be said that the husband has been engaged in a dispute over taxation issues since 2013 and has spent over $800,000 upon that litigation until November 2016. If I add to that his current legal costs and an additional sum for the purposes of the ultimate conclusion of these proceedings, the husband will have spent well over $1million in legal fees and expenses. Combined, the parties will have spent close to one-third of the two main assets. That is appalling.
In addition to the property proceedings, there are bitterly fought parenting disputes which have been compromised on an interim basis but there is also a pending disputed intervention order proceeding in the Magistrates’ Court to come.
That background sets the context for the proceedings that I heard on Thursday 13 April 2017.
It would seem that proceedings for a variety of orders had been filed in late 2016 but for reasons that I am unable to ascertain, not heard until now. On 7 April 2017, the wife filed an amended application in a case. In summary, she sought an order for the sale of the B Ltd shares to enable her to meet what she described as spousal maintenance for the period from May 2016 until December 2016, $648,000 for her lawyers and $200,000 anticipated repair costs for the home unit in Suburb C where she lives with the three children.
The application also sought child support departure orders to depart from the administrative assessment and for the sum to be fixed at $9600 per calendar month for the three children. There is a recent and extant administrative assessment by the Child Support Agency of $584 per month to be paid by the husband. The wife asserts that she cannot support the children on that sum thereby giving rise to the application for the departure order.
The wife also sought orders that the husband pay the D School boarding school fees for one child and all of the expenses for the other children including an amount described as “gifts for teachers and staff”.
Interestingly, the wife also then sought an order that the husband pay $50,000 by way of security for the performance of his obligations relating to the D School fees in circumstances where she acknowledges that having the children in that private school is beyond the parties’ means and she would be comfortable for them to attend public schools.
The next order sought by the wife related to the husband paying all medical, dental and optical expenses as and when those arose.
Other expenses were directed towards securing the payment of the expenses earlier mentioned arising out of the B Ltd share sale.
The wife then sought spousal maintenance of $4819 per calendar month.
Finally, the wife sought an order that the injunctions be removed to enable her to pay her ordinary living expenses and those of the children, along with her legal fees and the repairs to the Suburb C home.
The husband’s response was set out in the interim orders he sought in the amended initiating application he filed on 21 March 2017. The husband is the applicant in the substantive proceedings. In his proposed interim orders, (39 in total) he sought in that the wife’s application be dismissed.
Mr Mazloum on behalf of the Taxation Commissioner joined with the husband to oppose any alteration of the injunctions. Although it is unclear, the present debt of the husband to the Taxation Commissioner exceeds $4million. On the face of the husband’s evidence, he has no assets that could satisfy that debt. He proposes that orders should be made that the house and the shares in the name of the wife, be sold to satisfy that debt. It was not suggested that the husband and the Commissioner have considered a payment plan from his income.
The Taxation Commissioner also has an application before the court for orders under s 79 of the Family Law Act 1979 (Cth) (“the Act”) seeking relief by way of the payment of the husband’s debt. Mr North SC for the wife asserts there is no power for the court to be able to make that order (see The Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552, Trustee for N Lasic v Lasic (2009) 41 FLR 369, Deputy Commissioner of Taxation v Kliman (2002) 29 Fam LR 301 and the determination of the Full Court in this court in Rogers v Rogers (No 2) (2016) 55 Fam LR 167).
Notwithstanding considerable agitation by Mr North SC that the court should see the Taxation Commissioner removed as a party as having no standing, my view is that the issue should be left for trial and in any event, his continued involvement does not affect the orders I propose to make which are set out at the commencement of these reasons.
Mr North opened the case for the wife relying upon voluminous affidavit material. The incessant filing, no doubt for the purposes of “updating the court”, and making complaints about the husband’s recalcitrance as the wife sees it, has undoubtedly added to the extensive costs that the wife now faces. But so too, the husband has been drawn into filing voluminous material. I have endeavoured to read all of that material but in my view, the way in which the wife’s senior counsel approached the case and to which Mr Dickson QC on behalf of the husband responded, is the most pragmatic approach.
Mr North conceded that although the application seeking spousal maintenance, child support, legal fees and house repair costs was all directed at the husband and in the absence of an opportunity to challenge his evidence, there were considerable difficulties in making the orders his client sought. The logical approach was to sell property owned by the wife to satisfy some or all of her past and ongoing expenses.
The written submission prepared by counsel on behalf of the wife said that:
[22]The wife’s legal advisors are not willing to continue to act without funding in place.
Whilst that may very well echo the sentiments of both senior and junior counsel, the wife relied upon an affidavit filed by her solicitor on 21 March 2017 which did not indicate that the solicitor proposed to withdraw from the proceedings if the firm was not paid its outstanding fees or money provided for ongoing services and the forthcoming trial.
One of the dilemmas for the court in dealing with applications relating to legal costs particularly those sought from the other party particularly when the wife seeks a variation of the injunction so that she can spend her own money, is that all of those fees exceed the scale of costs set out in the Family Law Rules 2004. The affidavit of the solicitor for the wife set out that the wife had executed a costs agreement and noted that she had been given advice to obtain independent advice about those costs. The wife therefore has entered into an arrangement (and presumably so has the husband) to pay fees full knowing that they exceed the scale costs. That has influenced my ultimate determination to restrict the amount that might otherwise be used for legal services already incurred. I return to that below.
It will also be evident that the education fees of the three children aged 12, 6 and 4 respectively, are at a high level having regard to the prestige status of that school. Thus, any consideration by the court of a departure from administrative assessment and in particular, reference to ss 123 and 124 of the Child Support (Assessment) Act 1986 (Cth), has to take into account how the parties are portraying their financial positions. As I earlier mentioned, the wife has asserted that the husband has hidden assets and created corporate entities offshore but she also concedes it is difficult to prove just exactly what his wealth is. For his part, the husband denies any such conduct and says that the problem arises from the parties living beyond their means.
There is even a dispute in this case as to how it is that the two major assets have become the legal property of the wife. From the wife’s perspective, Mr North said that she had money and made a significant financial contribution towards the acquisition. Mr North went on to say that the husband had claimed that the house was in the wife’s name for asset protection purposes and as such, it must follow, he could not have a beneficial interest in any trust sense because the divesting action was deliberate. Accordingly, there seems no dispute that the wife is the legal owner but the husband now seeks an order under s 79 of the Act and so does the Taxation Commissioner.
When approaching the question of the orders sought by both parties it is difficult to make any assessment not only of the evidence but any findings therefrom. The usual starting point is to look at the pleadings of the parties. Neither has pleaded with particularity and as Mr North described it, each is effectively seeking that they keep what they have. I suspect that is not what they meant. The husband wants the assets used for the purposes of ameliorating his potential liability for the tax that the Commissioner is now pursuing. The wife’s position seems to be that the tax is a matter for the husband and if necessary, he can go into bankruptcy.
Whether or not the Commissioner has standing to seek the claimed relief and whether he is simply entitled to participate by virtue of s 79(1) is a disputed issue. In my view, it is unnecessary for me to make any finding not only about his standing but about what is the correct approach. Either the debt is deemed to be a joint debt by virtue of the fact that the husband contributed to the welfare of the wife and therefore the tax (and for that matter any other creditors’ claims) should come “off the top” or alternatively, the Taxation Commissioner has to wait to see whether the husband succeeds in obtaining some form of order that the wife is required to disgorge property by way of an alteration of her interests. If the latter occurred, money would then presumably be taken by the Commissioner. Although I do not have to make any determination about that issue, I raise it because it affects whether or not I should permit a variation of the injunctions that currently affect both parties but mostly, the wife.
The power to make an injunctive order even if made by consent of both parties, lies in s 114 of the Act, the fundamental premise of which is that the order must be proper. The court was entitled to make the order because of the fact that all parties consented to it and therefore it must have been proper at that time. I agree with Mr North however that the extensive nature of it was oppressive if it did not permit the wife to be able to use her own property for the purposes of living expenses in circumstances where she was unable to obtain both child support and spousal maintenance at a level that both parties had enjoyed until the time that they separated. In addition, with the complexities of both the parenting and the property proceedings, and the bitter dispute that is currently raging, it would be unfair to the wife not to be able to use her own property for the purposes of engaging representation particularly where she alleges that the husband’s financial position is not accurately portrayed. True it is that the wife was represented on both occasions and consented to the orders but in my view, that is not an insurmountable hurdle.
All interlocutory injunctions continue until further order and, as the High Court said in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170, the court must remain in control of its interlocutory orders.
In Adam P Brown, the court said that a further order would be appropriate whenever new facts came to light, “which render its enforcement unjust”.
Various authorities including that of the Full Court of the Federal Court of Australia in AMP Investments Pty Ltd v Trade Practices Commission (1983) 48 ALR 475 make clear that a party cannot fight again a battle which has already been fought unless there have been some significant change in circumstances. In that case, the issue was about an undertaking given to the court which was expressed to be until further order and an application was made to vary the terms. Smithers J (at 489) said:
But on the question of whether the application should be granted, the circumstance that there was such an element of contract would be relevant. The weight to be given to that element would depend upon circumstances, in particular, what each party had gained from the contract or arrangement and what each party had suffered thereby. Inevitably, on considerations of justice, the relief of the suffering of one or some of the parties while one or others continue to suffer would be unfavourably regarded, and, in most cases, one would think decisive.
In the same case, FitzGerald J made reference to the fact that the parties had “struck a bargain”. The clear implication was that there were contractual-type arrangements involved. It is hard to see how the wife here entered into any contractual-type arrangement because there was no obvious consideration. All of the property that she owned was the subject of the injunction (hence the reference to the banana) and there was no obvious solution as to how she was to support herself and the children. As Mr North observed, injunctions of this nature in the civil jurisdiction usually permit basic living expenses. That must be seen to have been the parties’ intention here (or at least whoever had drafted the terms of the injunction because of the reference to “otherwise than in the ordinary course of business”).
As has been said on previous occasions, when parties separate, the court cannot expect them to remain in a state of suspended financial animation. This is a good example. Whilst it may have been the expectation of the wife that she would have received some form of support from the husband consistent with the lifestyle to which both parties had been accustomed, that did not occur. That must give rise to the question of whether or not the injunction was proper in the first place rather than a question of whether there has been a significant change in circumstances.
To the extent that I am obliged to find that there are new facts in this case, one can clearly see new facts not anticipated at the time such as the inability to provide for basic living expenses and repairs to the very property that the wife owned. Whilst the wife wants to spend $200,000 on those repairs and maintains that the condition of the property is not good for the children, there is not enough evidence to satisfy me that it is a new problem.
Furthermore, if the only property is owned by the wife, why would the husband be paying for those expenses? On the other hand, if as anticipated by the husband and pursued by the Taxation Commissioner, the real property and the shares are to be disgorged by the wife for the purposes of satisfying the Commissioner’s claim for relief, presumably, the property would have to be sold and the parties (including the Commissioner) would have to contemplate whether or not it is worth putting capital into the renovation and preparation for sale, to get a better price. All of these are matters that I cannot determine on the untested evidence. They do however fall to be contemplated as part of the exercise of discretion.
In Marello and Marello (No 2) [2011] FamCA 799, Kent J contemplated a case in which undertakings had been given by both parties. The husband subsequently sought to be excused from being bound by that undertaking. His Honour at [26] set out his understanding of the basis upon which a modification of an undertaking given at an interlocutory stage of proceedings could be accepted. His Honour observed that the law is that the undertaking stands as the starting point and its correctness is not in question. I agree with Mr North that in this case, for whatever reason, the extensive nature of the injunction made it oppressive and that warrants questioning its correctness. Kent J went on to observe that it is not for the court to review or to reconsider de novo, the balance of convenience test. I agree with that on the basis that by virtue of the consent, I do not need to look at the usual questions that make up the discretionary determination as to what is proper. The balance of convenience in any event here must favour the wife for two reasons. First, the pleadings themselves do not indicate from the point of view of the husband how his entitlement to relief can be viewed. Even in circumstances where the rules of the court permit imprecise pleading where discovery is incomplete, this is not a case where it could be asserted that the wife has significant assets such that she would be obliged to disgorge all of the equity in both the former home and the shares unless of course the Commissioner is entitled to the whole amount. That seems unlikely.
I take into account that the wife too asserts against the husband that he has not been candid in relation to discovery but her claim in any event seems to be that she retain what she has. What the husband has not disclosed and how it affects her entitlement, I am unable to say. A flippant remark was made about “the known unknowns” (said to have been made by Mr Donald Rumsfeld) but the court is being asked to determine risk in a vacuum. Returning then to the observations of Kent J in Marello, I agree with his Honour where he said:
The onus is not simply to establish that the discharge or modification would be just. The onus is to establish (from the starting point that the correctness of the undertaking when given is assumed) that continued enforcement of the undertaking would be unjust in the circumstances of the case.
Two observations must be made about that point. I am satisfied that the wife has established that there is some doubt as to the correctness of the original injunction by virtue of its oppressive nature. Secondly, where the basis of the claim against the wife’s real property remains obscure its continued operation in circumstances where the wife has satisfied me that she has been unable to adequately support herself and the children and pay legal fees to enable a level playing field entitles a finding that the continued enforcement of the injunction is unjust.
The nature of the claim of the husband and the position of the Commissioner, is that it is possible to argue that the wife has benefited in some way from the largesse of the husband and consequently, she has assets she should disgorge to pay his debt. Taking into account Mr North’s observation about the oppressive nature of the injunction and that it was ill-conceived and inappropriate in the first place because it made no provision for the wife at all, I accept that it is not appropriate or proper to simply discharge it.
I take into account the husband’s position that the wife might have to disgorge something to satisfy an order that the court ultimately finds is just and equitable in his favour which in turn would enable the Commissioner to receive something towards his debt. In those circumstances, it would not be appropriate to simply discharge the injunction.
Both senior counsel agreed that the court was not bound by the parties’ proposals and it is to that issue that I now turn.
In relation to the claim for relief by way of a retrospective spousal maintenance order, the evidence shows that whilst the wife might have struggled, she has managed. Over the past 13 months, she has managed to pay $75,000 in legal fees. There is no basis for me to find that there is a justification for backdating that amount of money. So too, she has apparently borrowed money and there is no indication that anyone is suing her including her own lawyers. On that basis, I could not be satisfied that it is appropriate to allow her to wipe the slate clean by the sale of assets.
The same must be said of retrospective legal expenses. As I have already observed, the solicitor for the wife has not indicated that she will cease acting. In any event, if an order was not made in favour of the wife at trial that she keep all her property, the lawyers would then have to recover their costs in the usual way. If they were now paid all of the money they have claimed from the wife, they could not be expected to disgorge or repay that except under unusual circumstances that are hard to see here. To allow them to be fully paid now with the possible prejudice to the husband and the intervener as I have described, is not reasonable or just where I am unable to make clear findings.
I have already mentioned the question of the repairs to the former home and see no reason why those should be paid now but if as may be contemplated, the wife has to sell the home for the purposes of paying her own legal fees, that problem will arise then. The evidence does not support that conclusion now.
The private school fees are not matters that I should take into account because it is the wife’s position that the children should go into the public system to substantially reduce costs. If the husband wants the children to continue to benefit from that privilege, he will therefore have to pay for it. How that could be done when he owes the Commissioner $4 million is not mentioned.
I find three particular areas that need to be contemplated in respect of modification of the injunction. Those are spousal maintenance, legal fees and child support.
In respect of child support, the assessment is currently $584 per month. The unchallenged evidence (albeit it is untested) of the wife’s financial position shows that she spends $2221 per week on these children. Much of that can be seen as an annual cost and/or related to lifestyle which is a matter of choice. In my view, allowing for various deductions of those sums, a more appropriate figure is $1046 per week and by the time the $585 per month is taken into account, the wife needs about $3500 per month to support the children in a lifestyle somewhat equivalent to that to which they had become accustomed excluding their school fees. Anticipating that this case could be heard easily within the next 12 months within this court, I propose to allow $42,000 to be used from the sale of the shares to cover those costs over and above what the husband is currently obliged to pay for the next 12 months.
In respect of spousal maintenance, the same logic can be used and in my view, the wife needs approximately $26,000 to cover herself in a reasonable way over the ensuing 12 months to trial.
In respect of legal expenses, as I have already observed, this case needs a resolution and to that extent, the hearing conducted on 13 April was productive because all parties agree that it should be fixed for trial as soon as possible. I have indicated that I will approach the case management judge so that the attention can be given to it as quickly as possible.
The legal fees incurred for 13 April and my estimate of what this might cost for trial, are very discretionary. For both the hearing on 13 April and the potential trial, bearing in mind much of the ground work has been done in relation to the evidence, I propose to allow $37,000. Counsel’s fees are justified for both senior and junior counsel having regard to the complexity of the argument not to mention the issue associated with ascertaining the husband’s financial position. Accordingly, I propose to allow $172,000 or thereabouts for those expenses. That leaves expenses associated with some form of forensic inquiry and I have accepted the solicitor’s estimate of $27,000 for that. All of those costs come to about $237,000.
In my view, the wife should be permitted to sell such shares as is necessary to obtain a figure of $305,000. That undoubtedly will incur costs and tax arising from any such sale and that should be covered in a sale whatever is necessary to give effect so that the wife receives $305,000. Of the amount of money so received, she is obliged to pay to her solicitors $237,000 to be held by them on trust for the purposes of paying the figures that I have just mentioned in respect of the hearing on 13 April making sure that the amounts otherwise as I have described them, are kept for the forthcoming trial.
Accordingly, I propose to make orders in terms of those reasons.
Insofar as the parties had other issues outside of those matters, it was agreed that I should make orders relating to discovery and I have done that. It is quite disconcerting that Mr North had to indicate he was embarrassed by the fact that he had agreed that discovery would occur and it did not. I accept that that had nothing to do with him but I am very concerned that the parties get on with the discovery issues so that I can assure the case management judge that this matter is getting ready for trial. All other parts of the respective applications were not pressed and accordingly there is no basis for me to keep those alive. I propose to dismiss them. I will certify that it was appropriate for senior counsel to attend and in the case of the wife, senior and junior counsel.
I certify that the preceding 54 (Fifty Four) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 24 April 2017.
Associate:
Date: 24 April 2017
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