Charonne and Charonne

[2007] FamCA 1707

FAMILY COURT OF AUSTRALIA

CHARONNE & CHARONNE [2007] FamCA 1707

FAMILY LAW – PROPERTY – Interim increase in borrowings to provide liquidity for husband’s legal practice

Family Law Act 1975 (Cth)

APPLICANT: Mr Charonne

RESPONDENT: Ms Charonne

FILE NUMBER: MLC 4853 of 2007

DATE DELIVERED: 19 December 2007

PLACE DELIVERED: Melbourne

JUDGMENT OF: Watt J

HEARING DATE: 19 December 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT: In person

SOLICITOR FOR THE APPLICANT: B Company Pty Ltd

COUNSEL FOR THE RESPONDENT: Mr K.F. Nicholson

SOLICITOR FOR THE RESPONDENT: Marshalls & Dent

Orders

1. That by no later than 4.00pm on 11 January 2008 the husband file and serve an affidavit of documents and make all documents identified therein in respect of which no objection to production is taken available for inspection at the offices of B Company Pty Ltd, …, Melbourne for 21 days (excluding weekends and public holidays) after the filing and service of the said affidavit.

2. Upon the husband providing to the wife's solicitors by no later than 5.00pm on 19 December 2007 a partial withdrawal of caveat number … permitting an increase in the mortgage loan facility with Bendigo Bank Ltd to include the following amounts:

   (a)       a sum sufficient to discharge the existing mortgage arrears; and

   (b)       the further sum of $125,000,

   the wife instruct her solicitors to execute such partial withdrawal of caveat and to deliver it to the husband by 4.00 pm on 20 December 2007.

3. That the husband is permitted to increase the mortgage loan facility with Bendigo Bank secured over the C property in the amounts referred to in the preceding paragraph of this order.

4. That the application in a case filed 7 December 2007 and response filed 17 December 2007 be and are otherwise dismissed.

5. I reserve the question of both parties’ costs of this application and response to the trial judge.

6. That my reasons for judgment be transcribed and when revised to be released to the parties and a copy placed on the court file.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 4853 of 2007

MR CHARONNE  

Applicant

And

MS CHARONNE  

Respondent

REASONS FOR JUDGMENT

1. This application comes after a number of earlier court events in this matter which was instituted earlier this year.  The earlier court events include a listing on 19 September 2007 when the matter was before Kay J and certain aspects of an interim application by the wife were adjourned to a date to be fixed in February 2008.  Those aspects include payment of litigation funding, or a ‘Barro’ application as it is referred to; payment of single expert witness costs, and the provision of financial information.

2. This application that is before me today arises in what appear to be circumstances that have arisen against the background of an already reasonably complicated matter.  The application before me today has the potential to complicate matters further because it seeks, in effect, to further encumber assets of the husband which are already encumbered by some significant sums. 

3. The property in question is referred to as the C property and it is one of two properties (the other is a property in V) which are security for borrowings from the Bendigo Bank. 

4. The position with the husband's professional engagement is that he is one of the principals of B Company Pty Ltd and owns one-sixth of the shareholding in that entity.  In his affidavit he deposes to the fact that one of the ‘partners’ - when I say partners I mean one of the equity holders in that company and practice - has indicated his intention to withdraw. The husband and Mr O, one of the officers of the company who describes himself as a financial planner but also a director of B Company and responsible for its financial management, assert that this withdrawal requires payment to the retiring director of $25,000 by each of the remaining directors.

5. It is also the evidence of the husband and Mr O that the circumstance of this withdrawal from the practice by one of the shareholders has precipitated an examination of the company's finances and at this stage, it would appear, that the company’s liabilities have the potential - I will not certainly make a finding that they do exceed its assets - but they appear to have the potential to exceed its assets.  It is put that there are a number of very doubtful debts in the company's debtors' ledger which if unable to be collected or if written off would in fact put it into a significant deficit situation.

6. Although it is not in the affidavit material I was informed of one important matter by the husband from the bar table. The information I was given was supported by a document that had been shown to the wife’s counsel. That document is a resolution by the shareholders other than the husband to require each of the remaining partners to contribute $100,000 in capital in the very short term.  This will reduce existing liabilities and provide working capital, it is said.

7. The existing mortgage on the property at C is significantly in arrears and it appears that for something approaching 12 months the husband has simply not made payments in respect of that mortgage whereas he has made payments in respect of other property encumbrances including encumbrances on an overseas property.  He explains this by saying that those other encumbrances existed before the breakdown of the marriage and while he was in a position to service all of the encumbrances prior to the breakdown and separation of the parties, since then he has been obliged to make other payments for the benefit of the wife and at least one of the children and that he is therefore not able to continue to make those payments.

8. I am not in a position to comment on or make any finding as to the accuracy of those statements but clearly the husband as a legal practitioner well understands his obligations of full and frank disclosure to the court and his obligation not to mislead the court.  I attach some weight to that relationship that he has with the court in accepting his assertion that there is a legal obligation on him to abide by his partners' resolution and that his financial circumstances, although not at this stage apparently fully disclosed, will be fully disclosed. The wife will then be in a position to mount any argument that she might seek to make at the trial that payments that have not been made in reduction or payment of interest on the mortgage are to be taken into account in the calculation of the matrimonial pool, if indeed it is found that the husband did have the capacity to pay them.

9. I am of the view that notwithstanding the great uncertainty that the wife deposes to as to the facts underpinning this application, and the fact that she points to other potential sources of the funding, I am satisfied that the evidence such as it is does indicate that even after the increases sought by the husband there will be something like $400,000 left out of the proceeds of sale of this property. That is, after the additional sum of 125,000 plus the arrears of around 50-odd thousand on the mortgage as it stands have been debited to that account.  There is also another unencumbered property worth about $400,000.

10. The wife is in no position to put an estimate on the pool of assets available for distribution between her and the husband, but the husband is because he owns and controls just about all the assets.  He has put to the court that the assets available for distribution will be in the order of 1.5 million dollars and that is in addition to $800,000 in the form of superannuation assets. 

11. Having regard to those matters this additional borrowing is of relatively modest proportions.  The wife articulated through her counsel, Mr Nicholson, the real concern that in fact reducing the funds that are available to be distributed from the proceeds of sale of the C property is possibly putting the only accessible part of the pool out of her reach because some of the other assets are overseas.  However, I am satisfied, having regard to the evidence and the submissions made on behalf of the applicant that in fact it is a relatively modest part of the asset pool that is outside the jurisdiction of this court and that the majority is in fact within the jurisdiction of this court and that if there is a balancing-up exercise to be undertaken later it can reasonably be undertaken.

12. The wife, I think, is strongly disadvantaged in opposing this application by the lack of her knowledge of the situation.  It appears to have been a relationship in which the husband controlled and managed the assets of the parties and has continued to do so to a substantial degree since separation.  The wife's practitioners very properly sought verifying documentation when this increase in borrowings was first raised and it may be that it was not in fact provided at a satisfactory level.

13. However, the potential detriment to the husband and to the wife if I do not grant this application is quite extreme.  It could lead to the significant dilution of his interest in the practice. It could lead to the acquisition of his shareholding by the other partners.  There are no letters threatening that, and there are no letters from the bank saying that some of the things that the husband has asserted are necessarily correct.

14. However, as I say, the husband is in a position where he would be well aware of his obligation to make full and frank disclosure and not to mislead the court and would correctly anticipate that any actions that were subsequently shown to have been based on an inaccurate or incomplete picture having been given to the court on this occasion would not advance his case at all and would do it great harm indeed, particularly as to his credit.

15. In the circumstances, whilst I am not satisfied that the wife has in any way behaved unreasonably in not acceding to this request, I consider that there is an element of preservation of the assets in the husband's application as he asserted to me and that this does justify the increase in the existing mortgage limit and the withdrawal or the partial withdrawal of the wife’s caveat as sought by the husband.

16. The husband has indicated that he will, as a condition of my making an order on his application, undertake that he will within seven days provide any financial information and supporting documents reasonably requested by the wife.  I am going to make the orders premised on the acceptance of that undertaking. 

17. There was an objection raised on behalf of the wife to the giving of the partial withdrawal of the caveat document to the husband himself.  He is, of course, a solicitor and has the conduct of the sale of the C property by consent of the parties.  There is really no‑one else to whom the withdrawal could be given.  I accept as a matter of commercial reality that in order to obtain any increased borrowing - the bank would require before approving that to at least sight an executed partial withdrawal of caveat.  Whether that would require its lodgement is another matter.  However, the husband should be in a position to lodge it if the bank does insist on him doing so.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watt

Associate

Date:  14 February 2008