Cao & Trong (No 2)
[2019] FamCA 941
•9 December 2019
FAMILY COURT OF AUSTRALIA
| CAO & TRONG (NO. 2) | [2019] FamCA 941 |
| FAMILY LAW – PROPERTY – Interim Property Orders – tax debt owed by husband – wife already disbursed over $600 000 by way of interim property orders – inability to reverse order if made – only property available for division is funds in a controlled account – ATO debt exceeds sum in account – application refused. |
| Child Support (Registration and Collection) Act 1988 (Cth) s 113A Civil Procedure Act 2005 (NSW) Civil Procedure Act 2010 (Vic) Family Law Act 1975 (Cth) ss 75(2), 75(2)(ha), 79, 80(1)(h), 112AP, 117 Family Law Rules 2004 (Cth) ch 13, rr 1.07, 1.08, 13.07, 13.15(2) Income Tax Assessment Act 1997 (Cth) |
| A v A; B v B [2000] 1 FLR 701 Brewer & Brewer [2019] FamCA 247 Browne v Green (1999) 25 Fam LR 482 Cao & Trong [2019] FamCA 336 Gabel & Yardley (2008) 40 Fam LR 66 Giorginis v Kastrati (1988) 49 SASR 371 In the Marriage of Chemaisse (1987) 11 Fam LR 392 In the Marriage of Harris (1993) 16 Fam LR 579 In the Marriage of Kowaliw (1981) 7 Fam LR N13 In the Marriage of Malpass & Mayson (2000) 27 Fam LR 288 In the Marriage of P & P (1985) 9 Fam LR 1100 In the Marriage of Radwan (1985) 11 Fam LR 1 In the Marriage of Rowell; Deputy Commissioner of Taxation (Intervener) (1989) 96 FLR 449 In the Marriage of Tingley (1984) 10 Fam LR 707 In the Marriage of Zdravkovic (1982) 8 Fam LR 97 In the Marriage of Zschokke (1996) 20 Fam LR 766 James v Plummer (1888) 23 LJNC 107 Johnson v Johnson (No 1) (1999) 26 Fam LR 475 Kyriakos v Kyriakos (2013) 48 Fam LR 618 Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 Mitchell v Darley Main Colliery Co (1884) 1 Cab & El 215 Myers v Elman [1940] AC 282 Page v Vanker (Court of Appeal of the Supreme Court of New South Wales, unreported, 7 December 1990) Palmdale Insurance Ltd (in liquidation) v L Grollo & Co Pty Ltd [1987] VR 113 Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 Price v Price [2014] FamCA 1020 Sala & Habner (2018) 337 FLR 299 Strahan v Strahan (2009) 42 Fam LR 203 TNT Management Pty Ltd v Trade Practices Commission; Brambles Holdings v Trade Practices Commission (1983) 47 ALR 693 Trustee of the Property of Lemnos v Lemnos (2009) 41 Fam LR 120 |
| Sidney Edward Williams and Frank Guthrie‑Smith, Daniell’s Chancery Practice: being a treatise on the practice of the Chancery Division and on appeal therefrom (Sweet & Maxwell, 8th edition, 1985) Justice Paul Cronin, ‘The obligation to disclose; but what if they don’t’ (conference paper, National Family Law Conference, April 2008) Edward Bray, Digest on the Law of Discovery with practice notes (Sweet & Maxwell, 1904) |
| APPLICANT: | Mr Cao |
| RESPONDENT: | Ms Trong |
| FIRST INTERVENER: | Deputy Commissioner of Taxation |
| SECOND INTERVENER: | Child Support Registrar |
| FILE NUMBER: | MLC | 2555 | of | 2016 |
| DATE DELIVERED: | 9 December 2019 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Wilson J |
| HEARING DATE: | 27 November 2019 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Dr R Ingleby |
| SOLICITOR FOR THE APPLICANT: | Westminster Lawyers Pty Ltd |
| COUNSEL FOR THE RESPONDENT: | Mr P Testart |
| SOLICITOR FOR THE RESPONDENT: | JK Lawyers |
| COUNSEL FOR THE FIRST INTERVENER: | Mr P Sest of One of Her Majesty's Counsel with Mr H Mazloum |
| SOLICITOR FOR THE FIRST INTERVENER: | Australian Government Solicitor |
| COUNSEL FOR THE SECOND INTERVENER: | Not applicable |
| SOLICITOR FOR THE SECOND INTERVENER: | Hunt & Hunt Lawyers |
Orders
The application by the wife for further interim property orders from the controlled monies account is refused.
The application by the husband for interim property orders from the controlled monies account is refused.
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 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
| Deputy Commissioner of Taxation |
First Intervener
And
| Child Support Registrar |
Second Intervener
REASONS FOR JUDGMENT
Introduction
Following my decision in this proceeding on 27 May 2019,[1] this litigation has escalated with the wife seeking a further interim property order in the sum of $250 000.[2] As presently stated by the parties, the property to be divided is “estimated” to be in the order of a little over $3m. I say “estimated” because both husband and wife contend that the respective asset position of each has not been properly and exhaustively divulged.
[1] [2019] FamCA 336
[2] The amount sought was fluid
The Australian Taxation Office (“ATO”) contends that the husband owes the ATO almost $6.3m of which an amount in excess of $3.2m is the subject of a conclusive liability certificate and other amounts in excess of $3m are the subject of certificates stating the prima facie nature of the liability for those amounts. The husband has challenged the amount of $2 342 751.36 leaving –
a)the sum of $3 237 778.26 unchallenged and conclusively owing; and
b)the sum of $706 994.12 unchallenged and prima facie owing.
A debate emerged about whether the wife is or will be affected in this litigation by the husband’s tax liability. On behalf of the ATO, Mr Peter Sest QC who appeared with Mr Hadi Mazloum of counsel submitted that the preponderance of learning is to the effect that “parties to a marriage who share in good economic times to generate an asset pool should also generally share in the bad economic times, or in other words should ‘take the good with the bad’”.[3] In support, they relied on decisions of various members of this court in cases such as In the Marriage of Zdravkovic,[4] In the Marriage of Kowaliw,[5] Trustee of the Property of Lemnos v Lemnos,[6] Browne v Green[7] and Johnson v Johnson (No 1).[8]
[3] ATO’s written submissions, 21 November 2019, paragraph 33
[4] (1982) 8 Fam LR 97
[5] (1981) 7 Fam LR N13
[6] (2009) 41 Fam LR 120
[7] (1999) 25 Fam LR 482
[8] (1999) 26 Fam LR 475
The husband argued that despite having received sums of nearly $600 000 in interim property orders, the wife persisted in her contentions that she was in need of further funds to continue this litigation. The husband argued that he had made exhaustive disclosure, no further funds were available and in any event the wife had been meeting expenses for some time from her own sources. The ATO urged me to refuse orders in the terms sought by the wife because any grant of orders in her favour further depleted the one source of recourse to amounts owed.
The Child Support Registrar said he did not support or oppose the making of the orders sought by the wife save for submitting that under s 113A of the Child Support (Registration and Collection) Act the wife could not seek an order in terms of paragraph 1.3 of her summary of argument filed on 26 November 2019 in relation to a contribution by the husband towards the child support arrears she claims he currently owes. Unrelated to the interim hearing, Mr Gauci the solicitor for the Child Support Registrar provided a minute in relation to directions for his client’s future involvement in this proceeding which was adopted by all parties by consent. I made that order by consent. It was as follows –
1.By 18 December 2019, the Child Support Registrar file and serve upon all other parties –
a.an application in a case seeking the orders as set out in the schedule annexed to the affidavit of [Ms W] filed 22 November 2019; and
b.any further affidavits of evidence in chief upon which it intends to rely.
2.By 17 January 2020, the Child Support Registrar file and serve upon all other parties –
a.a response to the husband’s further amended initiating application filed 15 October 2019; and
b.any further affidavits of evidence in reply upon which it intends to rely.
Against that backdrop the wife sought further interim property orders.
Synopsis
For the reasons that follow, in my judgment this application for further interim property orders in the sum of $250 000 is refused.
Relevant factual narration
The husband was born in Country DD and is currently 49 years of age. The wife, the applicant in the interim hearing before me, is 35 years of age. The husband and wife have three children born to the marriage aged 6, 9 and 14 respectively.
On 27 May 2019 I made orders setting aside a notice of discontinuance filed by the husband, a partial property settlement order as well as various procedural orders. Paragraph 3 of my orders that day is of particular relevance to the dispute before me. It was as follows –
3.Payment is to be made, from the controlled monies account, to the wife’s solicitors of the sum of $317 946.52, such sum to be released within seven days and such sum to be characterised as a partial property settlement order.
Since then this proceeding has come before me for directions on 19 June, 12 July and 7 November 2019. Consent orders were also made in chambers on 9 August 2019, although they were procedural only.
On 21 October 2019 the wife filed an application in a case seeking additional interim property orders. The wife sought the following –
1.That from the Controlled Monies Account managed by JK Lawyers pursuant to paragraph 4(d) of the Court Orders dated 20 March 2018, the sum of $666,156.63 be advanced to the Wife towards her legal costs and expenses in this proceeding.
2.That from the Controlled Monies Account managed by JK Lawyers pursuant to paragraph 4(d) of the Court Orders dated 20 March 2018, the sum of $42,000 be advanced to the Wife towards her living expenses.
3. Such further or other orders as this Honourable Court deems fit.
She subsequently amended the sum sought from $666 156.63 to $250 000.
The wife affirmed an affidavit on 10 October 2019 in support of her application in a case. In it she deposed to a number of matters relevant to her application for litigation funding. The more important of those matters were the following –
a)she disputed the claim by the Deputy Commissioner of Taxation (“DCT”) against the husband for a tax debt in the sum of $5m or thereabouts;
b)the events that had occurred since the wife’s previous application for interim funding on 1 May 2019 included the setting aside of the husband’s notice of discontinuance, the adjournment of the trial to 16 March 2020 and various interim hearings and orders;
c)those events added to the complexity of the matter as well as to costs;
d)the husband is liable in the sum of $209 630.36 by way of arrears for child support payments as at 9 September 2019;
e)she did not have the necessary funds to continue to fund the preparation of her case for trial;
f)to date she has incurred legal fees and disbursements for this proceeding in the sum of $1 195 718.54;
g)the sum of $360 693.03 in legal costs remained outstanding and only $1 942.67 remained in her trust account with the firm;
h)in accordance with previous orders the matrimonial property at G Street, Suburb C was sold in February 2019 for a net total of $3 684 408.32 with $3 090 730.65 currently remaining in the controlled monies account ;
i)she sought the release of the sum of $666 156.36 from the controlled monies account to meet outstanding legal fees ($360 693.03) as well as future legal costs ($307 406) (however as identified above, the claim relating to outstanding legal fees was no longer pressed on 27 November 2019); and
j)she said the sum of $42 000 should be released to meet her day to day living expenses including rent and utilities (characterised by Mr Testart on 27 November 2019 as a spousal maintenance claim).
On the subject of legal fees Ms Joyce Khoo, solicitor for the wife, affirmed an affidavit made on 10 October 2019. In it Ms Khoo deposed to matters largely repetitious to those identified by the wife in her affidavit. Her affidavit recited various matters pertaining to existing and anticipated legal costs including –
a)the wife had incurred legal fees and disbursements totalling $1 195 718.54 to 25 September 2019;
b)the wife had paid $835 025.51 towards those costs yet the balance of $360 693.03 remained outstanding;
c)the wife currently has $1 942.67 in her personal account;
d)the sum of $3 090 730.65 remains in the controlled monies account;
e)Ms Khoo estimated the total legal costs and disbursements leading up to and including the trial (listed for 10 days) to be $307 406, comprised of $128 250 in counsels’ fees and $179 156 in solicitors’ fees; and
f)Ms Khoo’s firm may be unable to continue to act for the wife unless the sum of $666 156.36 (comprised of outstanding and future costs less the current balance in the wife’s trust account) is released from the controlled monies account and paid into the wife’s trust account.
In opposition to the wife’s application in a case, the husband filed a response on 21 November 2019 seeking the following orders –
1.The wife’s application in a case filed 21 October 2019 be dismissed;
2.In the alternative to order 1 above, that pursuant to s 117 of the Family Law Act1975, from the controlled monies account managed by JK Lawyers:
(a)the sum of $200,000 be paid to the wife’s solicitors on account of the wife’s legal costs and expenses of these proceedings;
(b)the sum of $200,000 be paid to the husband’s solicitors on account of the husband’s legal costs and expenses of these proceedings.
In support of applications for orders set out in his response the husband made an affidavit on 21 November 2019. The following is a relevant distillation of the contents of his affidavit –
a)the husband opposed the release of further funds to the wife because he said she had previously received large sums from the matrimonial assets;
b)any remaining matrimonial assets should be preserved to discharge the debts of the marriage, particularly tax liabilities;
c)the wife had received $622 946.52 to date by way of partial property settlement from matrimonial assets;
d)granting the wife’s application would leave insufficient funds to discharge the debts of the marriage;
e)the extent of the tax debt owed to the DCT was the subject of challenge in the Administrative Appeals Tribunal (“AAT”), scheduled to be heard in January 2020;
f)the preparation of the wife’s affidavits for trial had, for the most part, previously been undertaken in the lead up to the original listing in November 2017;
g)the husband incurred legal costs and disbursements with his current solicitors in the sum of $144 855.20 of which $27 377.09 was outstanding;
h)the husband incurred legal costs and disbursements with his former solicitors in the sum of $280 000 with a balance of $135 000 currently outstanding;
i)an amount of Country JJ $40 000 is held in trust by his Country JJ lawyers in relation to the settlement of a proceeding in Country JJ;
j)anticipated legal costs leading up to and including the trial in March 2020 are estimated to be $242 329, comprised of $136 719 in solicitors’ fees and $105 601 in counsels’ fees;
k)the husband’s solicitors have informed him that they will be unable to act for him at the trial of this proceeding if the outstanding fees are not paid and ongoing fees are not paid in advance;
l)he seeks $200 000 to be released from the controlled monies account to meet outstanding, ongoing and future legal costs and disbursements;
m)the husband is currently employed full time in a senior role with E Pty Ltd, earning an annual gross income of $180 000;
n)he deposed that he has not been paid an income from E Pty Ltd since June or July 2018 by reason of a down-turn in business; and
o)he has no other income or resources to meet the costs of this proceeding.
Mr Julian James McDonald, solicitor for the husband, swore an affidavit on 21 November 2019. In it he deposed to the following matters –
a)the husband owes outstanding legal fees to Mr McDonald’s firm in the sum of $27 337.07;
b)work in progress amounts to $1 402;
c)estimated legal costs leading up to and including the trial are $242 329, comprised of $136 719 in solicitors’ fees and $105 601 in counsels’ fees;
d)the firm requires costs to be paid within 14 days of a tax invoice being rendered to the client; and
e)to continue acting for the client at trial the firm will require payment in accordance with their costs agreement and in advance of the trial.
The claim by the DCT in this proceeding has created uncertainty in the parties receiving any division of property in this case. The tax debt owing to the ATO may well eclipse the pool of assets of the husband and wife. In response to the wife’s application in a case, a representative of the DCT affirmed an affidavit on 21 November 2019 recording the current figures owed by the husband to the DCT. In that affidavit, Mr Y (an officer employed at the ATO) deposed to the husband’s taxation liabilities. They can be summarised as follows –
a)the husband has a current tax-related liability; and
b)the liability owed to the DCT is made up of three sums that aggregated $6 287 523.75.
Mr Sest QC who appeared with Mr Mazloum helpfully provided a document categorising the husband’s tax-related liabilities. The DCT said $6 287 523.75 was due as at 20 November 2019 and made up of –
a)$3 237 778.26 in primary income tax liability and general interest thereon (the subject of a conclusive evidence certificate and therefore an established debt);
b)$706 994.12 shortfall interest charge and general interest charge thereon (subject to prima facie evidence provisions); and
c)$2 342 751.36 income tax shortfall penalties and general interest charge thereon (subject to prima facie evidence provisions and the only sum of the three that the husband is challenging in the AAT).
In counsels’ outline of submissions filed on 21 November 2019 the DCT sought the dismissal of the wife’s application for interim property orders.
As mentioned above, the Child Support Registrar did not wish to be heard on the application before me.
The hearings on 7 & 27 November 2019
The hearing of the wife’s application was initially listed for 7 November 2019. On that day only the wife’s counsel expressed a desire for the hearing of the application in a case to proceed. Dr Ingleby of counsel for the husband and Mr Mazloum of counsel for the first intervener requested that the matter be adjourned as they said they were short-served. They also said the application would take longer than the time allocated to it that morning. The remainder of the hearing was then treated as a directions hearing leading to the following orders being made –
1.the wife’s application in a case filed on 21 October 2019 is adjourned for hearing on 27 November 2019 at 2:15pm.
2.by 4pm on 21 November 2019 the husband and the intervener file and serve any affidavit material and/or any outline of submissions they seek to rely.
3.by 4pm on 25 November 2019 the wife file and serve any affidavit and/or outline of submissions in reply.
4. each party’s costs are reserved.
The proceeding returned before me on 27 November 2019. Mr Testart said that he no longer pressed for the release of money to meet outstanding legal costs yet the application for future litigation funding and spousal maintenance remained on foot. Consequently he said the figure of $666 156.63 originally sought by the wife had reduced to a “sum less than $250 000” (Mr Testart’s words) which he revised to $307 406, being the estimated legal costs and disbursements leading up to and including the trial of this proceeding. The amount of $42 000 on account of spousal maintenance was not included in the revised figure so it was difficult to tell whether the wife pressed for payment of that amount.
Mr Testart conceded that on the DCT’s submissions the tax debt would exceed the value of property that fell for division. Whether the tax debt was the sole liability of the husband or whether the wife was jointly liable for it by reason of having enjoyed the benefits of the unpaid tax was a point in contention. In debate with Mr Testart he outlined the consequences that would flow from a dismissal of the wife’s application for litigation funding. The relevant exchange was this –
HIS HONOUR: Well, okay. One of the thoughts that’s going through my mind is if I were to – I haven’t heard the Commissioner, of course, and I need to hear the Commissioner, but if the upshot is that no funds should be released, that would have the effect of determining this case, because the case couldn’t be advanced on proper legal grounds without funding, and that would mean the end of your role, no doubt.
MR TESTART: Yes. The end of my instructor’s role and effectively the end of the financial viability of my client.
Mr Sest QC and Mr Mazloum on behalf of the DCT disputed the wife’s inability to fund her ongoing litigation in this case. In verbal and written submissions Mr Sest highlighted that on the wife’s evidence, particularly her affidavit affirmed 10 October 2019, she failed to discharge the evidentiary burden in relation to an inability to self-support. He contended that on her evidence the wife enjoyed an expensive lifestyle in the sum of $270 000 per annum despite being unemployed and that she ought not to be granted the relief she seeks. He said the DCT questioned the source of funds that have been used to fund her solicitors thus far. He said the following –
MR SEST: Well, we raised the question in our submissions, your Honour, about the question of what the evidence really is ‑ ‑ ‑
HIS HONOUR: Right.
MR SEST: ‑ ‑ ‑ about whether she can or cannot fund, because we pointed out – and it’s an obligation on the wife on her application here to be putting forward evidence to show essentially, “I just cannot fund.”
HIS HONOUR: Of course.
MR SEST: You can’t make assertions is really what we’re saying. And what the wife has done is, in effect, summarised the income she’s getting, she has – and I’m now referring to around about paragraph 48 of our submissions just for a shorthand reference, your Honour. The wife’s evidence is to the effect that she’s unemployed, receives payment of 2000 a month from her husband and approximately 1100 from Centrelink. But she estimates she has lifestyle expenses of 270-odd thousand per annum. $270,000 per annum.
HIS HONOUR: Yes.
MR SEST: And ‑ ‑ ‑
HIS HONOUR: Is that all in – is it your contention that that’s all in discretionary spending?
MR SEST: Well, we don’t know what it is, your Honour, to be honest. But what it does as a first pointer is shows your Honour that if that’s the amount she’s meeting, then she has got a lot of money from somewhere to be able to do that. And the very essence of it all is that she does make complaints – and we don’t enter into the, you know, merits of this because we just don’t know. She says the husband isn’t providing enough. That’s a separate question from our point of view. But what she does say is that she has been receiving borrowings and largesse from friends in, as it were, almost a throwaway line.
Now, in our respectful submission, that’s not appropriate evidence for your Honour to be relying on to be making orders essentially giving her hundreds of thousands of dollars. We have said in our submissions, amongst other things, who’s loaning this money? What are their terms? If there’s largesse beyond borrowing, which is moneys by way of gift of benefaction, what is it? We haven’t seen anything about that. And more importantly, your Honour hasn’t seen anything about it in order to be making – or comfortable getting across the threshold that Strahan has said about ensuring that what she gets now, added to what she has already received, which is already a sum of 620-odd thousand – to make sure that at the end of the day, she’s going to get at least that. But she hasn’t put that evidence forward, in our respectful submission. So it’s really, in essence, a threshold point. We’re not coming here, saying, “She just shouldn’t have any money to fight.”
HIS HONOUR: You say she hasn’t discharged her evidentiary burden on the threshold point.
MR SEST: Yes. To show your Honour that ‑ ‑ ‑
HIS HONOUR: Need and capacity.
MR SEST: ‑ ‑ ‑ “I really don’t have money to fight.”
HIS HONOUR: So – okay. Even before we get to capacity, you say no evidence of an inability to self-support.
MR SEST: Yes, your Honour. Just the barest throwaway evidence, in my respectful submission.
HIS HONOUR: Well, where will that leave this case if I’m with you on that point?
MR SEST: Well, what your Honour would say is, in effect, well, the figures here, particularly the large expense figures, and the fact that she has been funding her solicitors not totally but quite a bit over the journey in this case means that she’s getting funds from somewhere. But we’re not getting full disclosure about that. How can I not be sure that she doesn’t have some various sources of benefaction where she really is getting money, what she’s trying to do is take more out of the pot at the end of the day that could go either to the Commissioner and/or the husband depending on what the final settlement position is on all the evidence at the end of the trial?
In reply Mr Testart of counsel for the wife submitted that a distinction existed between what he called “expensive taste” and an actual ability to make such payments. He submitted that the wife had disclosed documents evidencing loan agreements that she had entered into to meet some of her expenditure. He also pointed out that his client was a “means tested pension recipient”.
Relevant head of power
In his written submissions filed on 21 November 2019 Dr Ingleby of counsel for the husband contended that the wife’s application for relief fell short of identifying the relevant head of power on which she relied. He relied on the Full Court of the Family Court of Australia authority in Kyriakos v Kyriakos.[9] That provided, in effect, that when a court is faced with an interim application for litigation expenses, the court must identify the relevant source of power because the source of power determines the necessary preconditions and relevant considerations for the making of the order. Dr Ingleby called in aid the decision of the Supreme Court of New South Wales in Paris King Investments Pty Ltd v Rayhill,[10] In the Marriage of Zschokke[11] and Strahan v Strahan.[12]
[9] (2013) 48 Fam LR 618
[10] [2006] NSWSC 578
[11] (1996) 20 Fam LR 766
[12] (2009) 42 Fam LR 203
Mr Testart disputed the application of Kyriakos to the relief sought by his client submitting that the Full Court’s decision in Kyriakos does not stand for the proposition that “if an applicant for relief in the nature of litigation funding cannot specify precisely the head of power under which they seek that remedy then their application is doomed to fail” (Mr Testart’s words). Mr Testart submitted that it was “for the judicial officer to identify the head of power under which the order is made”, not his client.
I do not agree. Counsel should discharge his or her obligations to bring all relevant authorities to the court’s attention and not leave it to the judge to do counsels’ work. In my view, the ratio in Kyriakos is applicable.
Disclosure generally
In Brewer & Brewer[13] I held that in the specific context of family law litigation ch 13 of the Family Law Rules governs a party’s obligations concerning disclosure. The centuries of learning concerning civil litigation in courts of common law and chancery as recorded, for example, in Daniell’s Chancery Practice[14] have been largely supplanted by ch 13. In what can only be described as “clear and unambiguous terms”, as Cronin J described the phrase when referring to the rule in his Honour’s extrajudicial speech entitled ‘The obligation to disclose; but what if they don’t?’,[15] ch 13 sets out not only what to disclose but how to do so. By way of emphasis, the provisions of ch 13 are to be read in conjunction with the provisions of r 1.08 that imposes upon each party a responsibility to promote and achieve the main purpose recorded in the seven sub‑paragraphs of r 1.07. Among those are timeliness, proportionality and cost efficiency in the conduct of family law litigation. In many respects, the legislative aspirations evident in the Civil Procedure Act of the State of Victoria and its counterpart in New South Wales have been largely replicated, consonant with a legislative imprimatur across many jurisdictions of the Commonwealth of Australia that compels parties to get to the heart of disputed issues quickly, time efficiently and cost effectively while concurrently keeping uppermost in mind the proportionality of the disputed issues relative to the overall contest.
[13] [2019] FamCA 247
[14] Sidney Edward Williams and Frank Guthrie‑Smith, Daniell’s Chancery Practice: being a treatise on the practice of the Chancery Division and on appeal therefrom (Sweet & Maxwell, 8th edition, 1985)
[15] Justice Paul Cronin, ‘The obligation to disclose; but what if they don’t’ (conference paper, National Family Law Conference, April 2008)
The disclosure obligation is a continuing obligation. That point is traceable to older English decisions such as Mitchell v Darley Main Colliery Co[16] and Myers v Elman.[17] Yet the proposition was not as clear as it was once thought to be having regard to other earlier observations to the contrary, such as those emanating from the Divisional Court in James v Plummer.[18] For that matter, in the Full Court of the Federal Court of Australia in TNT Management Pty Ltd v Trade Practices Commission; Brambles Holdings v Trade Practices Commission[19] Sheppard J pointed out that the authorities said to impose the obligation of continuing discovery were not even referred to in Bray’s Digest on the Law of Discovery.[20]
[16] (1884) 1 Cab & El 215
[17] [1940] AC 282
[18] (1888) 23 LJNC 107
[19] (1983) 47 ALR 693
[20] Edward Bray, Digest on the Law of Discovery with practice notes (Sweet & Maxwell, 1904)
Rule 13.07 of the Family Law Rules describes the obligation of disclosure as a “duty”. Mirroring equitable principles, that rule provides that the duty of disclosure applies to each document that “is or has been in the possession, or under the control, of the party disclosing the document”. Noticeably, the word “power” was omitted from r 13.07, the word “power” having attracted a rash of judicial intrigue in common law courts such as in Lonrho Ltd v Shell Petroleum Co Ltd[21] and in Palmdale Insurance Ltd (in liquidation) v L Grollo & Co Pty Ltd.[22] At all events, severe consequences befall a party who deliberately withholds a document. In his Honour’s paper cited above, Cronin J observed that when it comes time to list a proceeding for trial each party is required to undertake that each has disclosed everything and if that undertaking is false on the basis that all documents have not been disclosed, the party in default thereby exposes himself or herself to the offence created by r 13.15(2). That offence is additional to the contempt power reposed in s 112AP of the Family Law Act.
[21] [1980] 1 WLR 627
[22] [1987] VR 113
It will be immediately apparent that the legislature has taken the view that parties’ disclosure duties are very serious and disobedience towards them or dereliction in a party’s approach in relation to them will not be trifled with.
Interim property order – applicable legal principles
In relation to interim property orders, certain guiding principles are applicable to the facts of this case. They include the following –
a)the majority of the court in Strahan & Strahan[23] held that when consideration is being given to the appropriateness of an order being made for an interim property settlement order, more is required than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party;
b)balance must be given to the risks of unduly limiting the final orders that can be made against the circumstances said to show that it is just and equitable to make interim orders;
c)in Strahan it was held that the first stage of any consideration of an application for a partial property settlement order requires a determination of whether the interests of justice require the exercise of power under s 79 and s 80(1)(h) on an interim basis;
d)compelling circumstances need not be shown by an applicant for a partial property settlement order, as was held in Strahan;
e)ordinarily an order under s 79 is made once only after a final hearing, as was held in Strahan at [132];
f)consideration must be given to the reversibility of the order, as was held in In the Marriage of Zschokke[24] and Gabel & Yardley;[25]
g)in addition, a court entertaining an application for a partial property settlement should consider the need for and effect of interim orders weighed against the risks that the exercise of the power on an interim basis will interfere with the power of the court to make just and equitable orders on a final basis;
h)further, a court entertaining an application for a partial property settlement order should consider whether the order is just and equitable according to at least a preliminary view of the likely range of outcomes;
i)further, a court entertaining an application for a partial property settlement order should balance the risks by considering not only the quantum of the orders but also the risk of unduly limiting the final orders that can be made or even potentially defeating parties’ claims; and
j)a court entertaining an application for a partial property settlement should take into account that a party should not be denied the ability to liquidate assets where there are real needs for those resources such as meeting debts due to creditors.
[23] (2009) 42 Fam LR 203
[24] (1996) 20 Fam LR 766
[25] (2008) 40 Fam LR 66
Both the husband and wife were critical of one another for failing to disclose their true financial position as might enable a more informed view to be gleaned of their real financial circumstances on this application. But it seemed to me that merit existed in the wife’s contention that –
a)the husband’s disclosure had been inadequate;
b)the husband was likely to have assets overseas; and
c)it was not possible to derive a meaningful understanding of the husband’s true asset position at this juncture in this litigation.
Equally, it seemed to me that merit existed in relation to the position of the wife as advanced on behalf of the husband by Dr Ingleby. That included –
a)her discretionary spending had been significant;
b)she had already been the recipient of interim property divisions in significant sums;
c)she somehow maintains herself from funds the sources of which have not been given in depth;
d)she continues to live a lifestyle that is dependent on a continuous supply of substantial amounts of money;
e)it is possible, more likely probable, that she has benefitted from the fact that the husband did not pay all sums due to the ATO when those sums should have been paid;
f)the final determination of the facts recorded in the immediately preceding sub-paragraph must await the trial of this proceeding; and
g)until the trial of this proceeding, I must proceed doing the best I can with –
i)the arguments advanced by the husband that the wife has no need for an interim property order; and
ii)the arguments advanced by the wife that unless the order she seeks is made, she will be unable to participate in the trial of this proceeding.
At present very little in the way of established facts exist in this proceeding. The assertions, counter assertions and denials are plentiful and long. The Full Court has cautioned single judges hearing interim applications against making findings of fact that should more properly be made at trial once all the evidence has been adduced and all relevant witnesses have been cross-examined. That caution accords with common sense. One wonders why a proposition so obvious would not go without saying. At all events, I have proceeded in this application on the basis that at trial all questions bearing upon the parties’ financial circumstances will fall for determination and that until such determination is made, the evidence on the point is in an embryonic state, it is untested and it is therefore not amenable to acceptance in full on the balance of probabilities.
The position of the DCT
At the heart of the determination of this application was the reality that the undisputed sum owed to the ATO will not be met from the sum in the controlled account. The ATO is owed $6 287 523.75. The sum in the controlled account is $3 090 730.65. Any erosion of the funds in the controlled account, to be applied for whatever purpose, necessarily depletes the amount recoverable by and properly due to the ATO.
The wife took issue with the notion that it was appropriate for the ATO to attempt to quarantine the money in the controlled account. She argued that the ATO should not enjoy some form of priority in the division of assets. She also said she needed funds to contest issues with the husband and that without funds, so she said, she will be unable to properly advance her case.
On behalf of the DCT, Mr Sest QC with Mr Mazloum advanced a collection of propositions that to my mind supported their contention that no interim property orders should be made. In no special order, they included the following –
a)a tax debt of $6.28m is owing in tax whereas the value of matrimonial property is between $3m and $4m;
b)the wife has not demonstrated (and the onus was on her to so demonstrate) that she is likely to receive at least $1.33m pursuant to final orders for the division of property in this proceeding;
c)the proposed orders sought by the wife involves payments to third parties, that is to say, to the legal representatives of the wife, and so under principles adumbrated in Strahan v Strahan,[26] as well as in In the Marriage of Harris[27] and In the Marriage of Zschokke,[28] it will not be possible to reverse any interim disbursements when making final orders for the division of property;
[26] (2009) 42 Fam LR 203
[27] (1993) 16 Fam LR 579
[28] (1996) 20 Fam LR 766
d)the wife failed to demonstrate that she was unable to meet her legal costs;
e)pursuant to orders of this court made on 24 April 2017 the wife has already been provided with access to $305 000;
f)pursuant to orders made by me on 27 May 2019 the wife had access to a further sum of $317 946.52;
g)the wife “has enjoyed a luxurious lifestyle” (counsels’ words);
h)she should share in the tax liability flowing from the wealth generated by the husband’s business dealings;
i)the decisions of In the Marriage of Zdravkovic,[29] In the Marriage of Kowaliw,[30] Trustee of the Property of Lemnos v Lemnos,[31] Browne v Green[32] and Johnson v Johnson (No 1)[33] support the contention advanced in the immediately preceding sub-paragraph;
[29] (1982) 8 Fam LR 97
[30] (1981) 7 Fam LR N13
[31] (2009) 41 Fam LR 120
[32] (1999) 25 Fam LR 482
[33] (1999) 26 Fam LR 475
j)in making an interim property order the court must be satisfied that a collection of matters including those enumerated in s 75(2) of the Family Law Act one of which is s 75(2)(ha), namely “the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt”;
k)here, a negative total in the value of property exists;
l)applying the reasoning of In the Marriage of Harris, given that the tax debt significantly exceeds the value of property to be divided, any decision to grant the wife funds from the controlled account should be made cautiously;
m)the relevant question is best expressed as this – unless the court can be satisfied on the wife’s evidence that the amount she will receive on a final property settlement will exceed the total of the amounts she has both previously received and is now seeking by interim property orders, that is, the approximate total of $1.33M mentioned above, the court is not in a position, given the above Full Court authority, to grant the orders the wife seeks;
n)the court cannot be satisfied as to the wife’s true capacity to meet her litigation costs on the evidence currently before it because the lack of detail as to how the wife is funding her lifestyle, as well as paying her legal fees, is such that the court cannot be satisfied that she is unable to meet her litigation costs;
o)further detail would be required about who is loaning her money, on what terms, in what amounts, and why those loans are no longer available to her (if that is so) and particulars would be required in relation to any ‘largesse’ that is not by way of borrowing so that absent that detail, the wife’s alleged inability to meet her litigation costs is offset by her ability to borrow, or to otherwise obtain funds through benefaction to meet those costs;
p)to allow another partial property order in the amount the wife seeks would not be just and equitable having regard to the following –
i)the amount of the tax debt and the fact that it was incurred during the marriage of the husband and wife, and therefore prima facie subject to the principle of joint spousal liability mentioned above;
ii)the fact that the trial should have been held on 20 November 2017 and that the matter has extended for over two years since, largely because of the husband and wife’s conduct in seeking to exclude the Commissioner from pursuing his application, and the events that arose therefrom;
iii)the wife expended approximately $110 000 for the period 20 November 2017 to 20 June 2018 during which she pursued her wholly unsuccessful claims on the jurisdictional issue, the Commissioner’s alleged abuse of process of the court and in resisting the operation of the court’s accrued jurisdiction;
iv)the excessive legal costs and fees charged to the wife and the fact that she has continued to pay costs and fees significantly above scale;
v)the failure to particularise the estimate provided in the amount of $179 156 for her solicitor’s costs and disbursements up to trial, noting that as trial material has previously been filed, without further detail, it can be said that a significant part of the work has already been done; and
q)the fact that the wife was able to borrow money, no evidence existed she was being sued in relation to her financial affairs and her solicitor has not deposed to ceasing to act unless paid all of which indicate that it would not be appropriate to make the orders sought by the wife.
A question arose whether the applicant and respondent had complied with their obligations under the Income Tax Assessment Act.
A strong line of authority has held that a court has a duty to protect the revenue of the Commonwealth, that the court should take such steps as it is able to ensure that the revenue laws are not evaded and that the referral of the papers to the Attorney-General attains that object. Authorities supporting that view include the decision of Lindenmayer J in In the Marriage of P & P,[34] the decision of the plurality in In the Marriage of Tingley,[35] the decision of the Full Court of the Supreme Court of South Australia in Giorginis v Kastrati[36] and the decision of Handley JA of the Court of Appeal of the Supreme Court of New South Wales in Page v Vanker.[37]
[34] (1985) 9 Fam LR 1100
[35] (1984) 10 Fam LR 707
[36] (1988) 49 SASR 371
[37] (Court of Appeal of the Supreme Court of New South Wales, unreported, 7 December 1990)
In one decision, now well over 30 years in age, Frederico J commented in In the Marriage of Radwan,[38] that it is demeaning to the court to require judges to report to the taxation authorities “all and sundry transgressions” of the taxation laws.
[38] (1985) 11 Fam LR 1
One of the last authoritative statements on point was given in the decision of the Full Court in In the Marriage of Malpass & Mayson.[39] A more recent illustration was given of a single judge referring a case to the Australian Taxation Office in Price v Price.[40]
[39] (2000) 27 Fam LR 288
[40] [2014] FamCA 1020
An equally impressive stream of judicial learning has cautioned against enthusiastic referrals to the authorities because by doing so parties to matrimonial litigation may be less likely to comply with their obligations of making full and frank disclosure. In that category of cases are the UK decision of A v A; B v B[41] and the cases referred to therein by Charles J.
[41] [2000] 1 FLR 701
Doctrinally, the question confronting me is more satisfactorily analysed by reference to ascertaining the nature and extent of the property available for division. If a liability to the Commissioner of Taxation will or might have a bearing on the ascertainment of the value and extent of assets available for division, that is a matter of very direct relevance at this point in time, aside from any issue of referring the papers to the Attorney-General. It seems to me that such an approach is wholly consistent with the decision in In the Marriage of Chemaisse,[42] In the Marriage of Rowell; Deputy Commissioner of Taxation (Intervener),[43] as well as In the Marriage of Malpass & Mayson. As to the approach the court should take where contingent liabilities may have the effect of diminishing the overall state of the assets, the Full Court said the following in Malpass –
It is clear that once a trial judge has determined that there is a prospect of the pool of assets being diminished because of some contingent liabilities, namely, potential arrears of income tax, the trial judge should normally invite the parties to make submissions on the effect that such liabilities might have in relation to either the future conduct of the proceedings or its outcome. This is not an invariable rule however and questions of proportion and the remoteness of the risk that such liabilities will be incurred should be taken into account in determining to invite such submissions. There may be other circumstances, such as those outlined hereafter, when we consider that a trial judge is not under such a duty.
[42] (1987) 11 Fam LR 392
[43] (1989) 96 FLR 449
Analysis
The wife has already received very large sums by way of interim property orders. The property to be divided is mercurial in its composition by reason of defective disclosure yet funds in the controlled account are real, quantified and available. The DCT has a claim for all of it. Any depletion of the amount in the controlled account by way of interim property order will erode what appears to be the only available Australian-based asset. A creditable argument will be run at trial that both the husband and the wife are liable for the existing tax liability –
a)the husband, on the basis that he is the taxpayer who has been assessed as liable for the payment of the sums claimed by the ATO; and
b)the wife, jointly, on the basis that she has enjoyed a lavish lifestyle which may not have been provided to her had the husband diligently paid on time all sums properly due by way of tax liability.
If orders are made in the manner sought those orders will not be reversible. If those orders are made, the wife will receive much more than $600 000 by way of interim property distribution, leaving the ATO’s debt commensurately diminished. Further I was not persuaded that the wife had discharged the evidentiary burden of demonstrating the factual and legal elements that must be proved as preconditions to the making of the orders she sought. I do not share in the enthusiasm exhibited by Mr Testart to the effect that the wife will (as a matter of certainty) be unable to advance this case further if her application for further interim property orders is refused. She has been able to fund this case so far. Counsel for the ATO characterised the wife’s lifestyle as “lavish”. On this interlocutory application I am neither required to make such a characterisation nor is it desirable to do so until after all evidence at trial has been adduced. However, it is possible to say that a high likelihood exists that the sums due to the DCT will be eroded if the orders sought by the wife are made. Any depletion of the credit balance in the controlled account is not reversible.
I refuse the entirety of the wife’s application. Lest it be necessary, the same may be said of the husband’s application for $200 000 by way of interim property orders. His disclosure has been defective, a matter I mentioned in my earlier decision. None of the matters calling for proof about his claim for $200 000 have been given in a persuasive manner.
The position of the Child Support Registrar was relevant. It was put on behalf of the Child Support Registrar that no “exceptional circumstances” had been shown within the contemplation of s 113A of Child Support (Registration and Collection) Act with the consequence that the wife’s application was incompetent insofar as her application purported to intrude into orders about child support. I agree. The metes and bounds of the phrase “exceptional circumstances” have been plumbed by many previous authorities. I surveyed them when sitting as a member of the Federal Circuit Court of Australia in Sala & Habner.[44] In essence, those authorities revealed that “exceptional circumstances” were those out of the ordinary. In my view, no circumstances that are out of the ordinary have presented themselves here. No warrant was shown to alter the orders already in operation for the payment of child support.
[44] (2018) 337 FLR 299
Conclusion
The wife’s application in a case filed 21 October 2019 is dismissed. Lest it be necessary, I also order that the husband’s application for an interim property order in the sum of $200 000 is dismissed.
I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson delivered on 9 December 2019.
Associate:
Date: 9 December 2019
8
7
6