Cary and Dalgard

[2018] FCCA 2942

FEDERAL CIRCUIT COURT OF AUSTRALIA

CARY & DALGARD [2018] FCCA 2942

Catchwords:
CHILD SUPPORT – Enforcement.

Legislation:

Family Law Act 1975 (Cth), pt.XIIIA

Federal Circuit Court of Australia Rules 2001 r. 11.01, sub-div 25B, sch.2
Child Support (Registration and Collection) Act1988 (Cth) s.4
Tax Administration Act 1953
Income Tax Assessment Act 1977, ss.84.5, 86.5

Cases cited:

Spratt v IRC (NZ) (1964) 9 AITR 227
Woodhurst & Rubbens(No.2) [2016] FamCA 786

Applicant: MS CARY

Respondent: MR DALGARD

File Number: MLC 7706 of 2009

Judgment of: Judge Harland

Hearing date: 24 September 2018

Date of Last Submission: 24 September 2018

Delivered at: Melbourne

Delivered on: 24 September 2018

REPRESENTATION

Solicitors for the Applicant: Mr Tatti for WMB Lawyers

The Respondent: In person

ORDERS

1. Pursuant to rule 11.01 of the Federal Circuit Court Rules 2001 (Cth) (‘FCCR’), Ms G be joined as Second Respondent.

2. Pursuant to rule 6.04 of the FCCR, further service on the Second Respondent of the documents filed in these proceedings is dispensed with.

3. The Applicant has leave to file with the Registrar of the Court two Third Party Debt Notices (‘TPDN’) for issuing on Business A being:

   (a) In the sum of $350.00 per week to be paid to the Registrar of Child Support; and

   (b) In the sum of $150.00 per week to be paid to WMB Lawyers.

4. For the purposes of the TPDN, the Applicant is dispensed with further compliance with the FCCR, including rule 25B.40(1).

5. For the purposes of rule 25B.41, the Applicant be permitted to serve the Respondents by post and email, and personal service be dispensed with.

6. Upon the Child Support Debt being paid in full, the Applicant have leave to approach the Registrar of the Court to vary the amount provided for in order 3(b).

7. The Applicant have leave to make an oral application for review of the Registrar’s Decision made 24 September 2018 in respect of the Contravention Application filed 14 August 2018.

8. The Contravention Application be re-instated.

9. Pursuant to rule 6.04 and 6.14 of the FCCR, further service of the Contravention Application is dispensed with.

10. The Respondent file and serve an affidavit in response to the Contravention Application setting out his evidence (including as to his reasonable excuse in failing to comply with Orders) by 4.00pm on 30 November 2019.

11. The Contravention Application be listed for Hearing on 27 February 2019.

12. Any further Contravention Application filed in these proceedings be listed before Judge Harland for Mention in lieu of the Registrar’s List.

13. The Respondent pay the Applicant’s costs fixed in the sum of $10,000.00.

14. All extant applications, save for the Contravention Application filed 14 August 2018, be otherwise dismissed.

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 7706 of 2009

MS CARY

Applicant

And

MR DALGARD

Respondent

REASONS FOR JUDGMENT

1. The applicant filed an application in a case seeking orders for Ms G to be joined as a respondent to the proceedings, a third party debt notice to issue and indemnity costs.

2. The applicant relies on the affidavits filed on 14 August 2018, with respect to contravention application filed that day, the affidavit of service, and a further affidavit filed on 17 September 2018.  The applicant has also provided detailed written submissions in support of that application.  The respondent opposes those applications.

3. There is also a contravention application, which was filed by the applicant, with respect to the respondent’s failure to comply with a range of orders, including for the filing of material, the production of disclosure documents, and the orders for payment by instalments, which were ordered previously.

4. That matter went before the Registrar in the contravention list, and the Registrar dismissed that application on the basis that in his view it should have been an application for contempt, and not a contravention application.

5. The applicant makes an oral application today for review of that decision, I grant leave for the applicant to make that oral application, and I will reinstate the contravention application, as it is clear that the Registrar has misunderstood which part of the Family Law Act 1975 (Cth) (“Family Law Act”) the applicant relies on with respect to that contravention application. It is clear that Part XIIIA of the Family Law Act deals with contraventions of orders and other obligations that do not affect children.

6. Contempt applications are brought sparingly, rarely by parties, and rarely by the Court on its own motion, as it is necessary to establish a flagrant disregard for Court orders.  At this stage of the proceedings, I am certainly satisfied that it is appropriate that the contravention application remain on foot, but I am not satisfied that it is appropriate to bring a contempt application at this stage.

7. I am satisfied that it is appropriate to join Ms G as a second respondent to these proceedings, pursuant to rule 11.01 of the Federal Circuit Court Rules 2001 (“Federal Circuit Court Rules”), as her participation is necessary in order for the Court to determine, completely and finally, all matters in dispute.  The basis for making that finding is set out in the applicant’s written submissions and affidavit in support. I accept those submissions.

8. What is clear from the annexures to the affidavit and the evidence given in cross-examination before me on 12 April 2018, is that whilst the respondent claims that Business B is solely his wife’s business and that he has no connection to it, their evidence with respect to this was inconsistent. The annexures to the affidavit filed on 17 September 2018, in particular the invoices at annexure AA04, show invoices issued by Business B to (omitted). The respondent’s name appears directly under Business B and provides his address, so it clearly shows that he was the person responsible at Business B.  Further to that, annexure AA05 is extracts of the website for Business B, which includes a photo of the respondent, and refers to him and his business.

9. The applicant refers to this, and also Facebook entries of Ms G, and says these documents support the submission that it is really the respondent who is the person in control and behind this business. In this regard, I refer to the written submissions that are made at [24] to [32].  That is not to say that Ms G does not have an involvement in that business but the evidence certainly satisfies me that the respondent also has a real involvement and control with respect to that business.

10. It is also telling that after these proceedings were commenced for enforcement the invoices issued by Business B to (omitted) changed and no longer referred to the respondent by name, and were handwritten invoices, rather than typed.

11. The next issue is the orders seeking to issue a third party debt notice to Business A.  They have been served with the application, and do not appear today.  Subdivision 25B of the Federal Circuit Court Rules deal with third party debt notices and the requirements the Court must be satisfied about before issuing such a notice.  What is clear from the material is that, at times, the respondent has worked for Business A as an employee or contractor under his own name, but also invoices have issued from Business B to Business A.

12. The applicant acknowledges that the language in the rules refer to “employer” and “earnings”, and with this respect, particularly with respect to paragraphs 36 to 49 of the written submissions, refers to section 4 of the Child Support (Registration and Collection) Act1988 (Cth) and the definition of “salary or wages”, which includes “work and income support related withholding payments”;  and then the definition of “work and income support related withholding payments”;  and in particular notes that the definition refers to the Tax Administration Act 1953 (“Tax Administration Act”) and also refers to alienated personal services payments.

13. Capturing alienated personal service payments is the significant issue here, as referring to alienation of income is really referring to a person assigning the right to receive income to another person.  What is of assistance too is the definition set out in section 84.5 of the Income Tax Assessment Act 1977 (“Income Tax Assessment Act”) with respect to personal services, wherein it states, at subsection (1) ordinary income is personal services income, if that income is mainly a reward for personal efforts or skills.  Clearly, that is the case here.  What is also of significance are the examples that are given in the legislation:

    Example 1: NewIT Pty. Ltd. provides computer programming services, but Ron does all the work involved in providing those services. Ron uses the clients' equipment and software to do the work. NewIT's ordinary income from providing the services is Ron's personal services income because it is a reward for his personal efforts or skills.

    Example 2: Trux Pty. Ltd. owns one semi-trailer, and Tom is the only person who drives it. Trux's ordinary income from transporting goods is not Tom's personal services income because it is produced mainly by use of the semi-trailer, and not mainly as a reward for Tom's personal efforts or skills.

Example 3: Jim works as an accountant for a large accounting firm that employs many accountants. None of the firm's ordinary income or statutory income is Jim's personal services income because it is produced mainly by the firm's business structure, and not mainly as a reward for Jim's personal efforts or skills.

It is clear that the example is analogous to the circumstances here with respect to Business A and the respondent. 

1. The solicitor for the applicant also drew attention to the section 86.5 of the Income Tax Assessment Act and the definition of personal services income is alienated to an individual.  The applicant also relies on the Australian Taxation Office ruling TR2001-7, and refers to a New Zealand decision of Spratt v IRC (NZ) 1964 9 AITR 227 where Henry J said:

   No taxpayer can, by way of assignment, escape assessment of tax on income resulting from his personal activities – such income always remains truly his income and is derived by him irrespective of the method he may adopt to dispose of it.

2. I accept the submissions made by the applicant that the inference that the Court could draw is that the payment received by Business A and/or Ms G are alienated personal services payments with respect to services performed by the respondent.

3. in these circumstances, the applicant submits that the extension of a third party debt notice should be included in the circumstances in this case, because if it did not there would be a lacuna in law, and refers to the comments of Austin J in Woodhurst & Rubbens(No.2) (2016) FamCA 786 which referred to the equivalent of the enforcement rules in the Family Court, and importantly said:

   In a proper case, the Court should not balk at implementing its full armoury of power to ensure compliance with its orders.

4. The fact is that in child support enforcement matters, where the child support registrar takes such action rather than an applicant making that application in her own terms, the child support registrar would be entitled to issue such a notice to enforce payment, and it would seem strange indeed, given that the child support legislation particularly provides for the capacity of an individual to bring an application for enforcement where the child support registrar does not, but if the applicant was not able to enforce the payments sought when the Child Support Registrar could in the same circumstances.

5. The requirements for issuing a third party debt notice are set out in subdivision 25B.2.4 of the Federal Circuit Court Rules, and the Court must be satisfied as to a number of matters.  In this case, I am satisfied that there is a debt owning, that there is an obligation to pay money, and that the applicant is entitled to seek enforcement of payment of that obligation.

6. The affidavit has been filed appropriately in support, and I am satisfied that it is appropriate to enforce the order in the terms requested, and to fail to enforce the order would send a message that Court orders are optional and are not required to be taken seriously.  I further note that enforcement proceedings, unlike other proceedings brought by parties before the Court, are only brought because one party has failed to meet their legal obligations.

7. I am satisfied that the evidence shows that the invoices issue weekly and that the amounts vary, though typically they exceed $1,000.  After allowing for the protected earnings rate, which is currently at $364.88 a week, I was satisfied that it is appropriate to issue the third party debt notice in the sum of $500 a week until the debt is extinguished, being in the proportions of $350 a week for the child support payments and $150 a week for the costs.

8. The final matter I turn to is the costs application made by the applicant for the costs which were reserved on the last occasion, and the costs sought of today’s hearing, and I mark as exhibit A the outline of costs sought, which are in accordance with schedule 2 of the Federal Circuit Court Rules dealing with child support proceedings.

9. The sum sought total $10,462.80, which include disbursements with respect to issuing subpoenas and to copying supporting documents and, as I indicated, the two appearances, both on the last occasion and today.  I note that although the application in a case was seeking indemnity costs, these costs are in accordance with the scale.  The respondent needs to appreciate is that whilst given the previous cost orders and the cost order that is sought today the costs exceed the debt, which is entirely because of the respondent’s ongoing failure to properly engage with the proceedings and comply with the orders of the Court.

10. The respondent has had multiple opportunities to put material before the Court and comply with the Court orders for disclosure.  Indeed, the respondent has conceded that he has not complied with those disclosure obligations.  This is the fifth time the matter is before the Court because of these ongoing issues.  The respondent made a payment to the Child Support Agency last week of $600.  That represents two weeks of payments with respect to the orders that were made on 25 June 2018.

11. The Department of Human Service has also diverted the respondent’s tax return in order to make a payment to the applicant, but the vast majority of that payment remains outstanding. 

12. It is evident from inspection of the file and the comprehensive material that has been filed by the applicant that the applicant has had to pay significant further costs in order to issue subpoenas to aid her application to enforce the orders, and it is through the issuing of those subpoenas that she has been able to satisfy the Court that there is a basis for making the third party debt notice order. It was not through affidavits or disclosure documents provided by the respondent, which are woefully deficient, despite the respondent having many months to address these issues, and being well-aware, as he has been present in Court previously, when cost orders have been made against him for non-compliance.

13. I see no reason why the applicant should have to meet the legal costs or her lawyer not be paid legal costs in circumstances when it has only been necessary to file the further material and issue subpoenas because of the ongoing non-compliance with the orders.  The contravention application was flagged on the last occasion as being a possible application, and the application in a case was filed on 14 August 2018, well after the last time the matter was before me on 25 June 2018.

14. It is also apparent from the annexures to the affidavits in support that the applicant’s lawyers did not simply issue these further applications without providing the respondent with an opportunity to rectify the defaults.  That correspondence went unanswered.  So in those circumstances, it is the failure of the respondent to engage in the proceedings, circumstances where, again, he has acknowledged this morning receiving these documents that has led to this position. 

15. In these circumstances I am satisfied that it is appropriate to make the order for costs with respect to the last appearance in Court and today, and I propose to make an order for the respondent to pay costs in the sum of $10,000 with respect to those costs.

16. With respect to the contravention application, I will direct that the respondent file and serve an affidavit setting out what he says is the reasonable excuse he has for contravening those orders, and I will list the contravention matter for hearing on 27 February at 10:00am.  One would hope that it may be the applicant is moved to withdraw that contravention application in the event these orders are complied with.  That, of course, will be a matter for her.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Judge Harland

Date: 18 October 2018