Chea & Sok
[2022] FedCFamC1F 628
•25 August 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Chea & Sok [2022] FedCFamC1F 628
File number(s): SYC 8551 of 2020 Judgment of: HARPER J Date of judgment: 25 August 2022 Catchwords: FAMILY LAW – PROPERTY – Interim partial property settlement – Husband seeks discharge of injunctions restraining him from carrying out business activities – Where business was the key generator of wealth throughout parties’ relationship – Where business has been unable to trade for eighteen months – Wife seeks continuation of injunctions – No risk that final judgment would be frustrated – Injunctions discharged – Order made for husband to provide 21 days’ notice to wife of sale of properties – Dispute over application of proceeds of sale of property – Husband seeks discharge of further injunction in order to pay ATO debt – Wife does not accept legitimacy of tax liability – Where wife has been on notice of debts for significant period of time – Wife also seeks litigation funding order – Characterisation of order under s 79 and s 80(1)(h) – Where there is presently no clear identification of parties’ assets and liabilities – Property pool between $12 and $19 million – Orders made for litigation funding to the wife and balance of funds to be applied to ATO debt –
Proceedings stood over for further directions and preparation of draft joint balance sheet.Legislation: Family Law Act 1975 (Cth) ss 79 and 80(1)(h) Cases cited: Bing and Bing (2007) FLC 93-318; [2017] FamCA 418
Zschokke and Zschokke (1996) FLC 92-693; [1996] FamCA 79
Medlow & Medlow (2016) FLC 93-692; [2016] FamCAFC 34
Osferatu & Osferatu [2012] FamCA 408
Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578
Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466; [2009] FamCAFC 166
Tsiang & Wu and Ors (2019) FLC 93-911; [2019] FamCAFC 128
Wenz v Archer (2008) 40 Fam LR 212; [2008] FMCAfam 1119
Division: Division 1 First Instance Number of paragraphs: 82 Date of hearing: 1 August 2022 Place: Sydney Counsel for the Applicant: Mr Connor Solicitor for the Applicant: Fox & Staniland Lawyers Counsel for the Respondent: Mr O’Reilly Solicitor for the Respondent: Barkus Doolan Winning ORDERS
SYC 8551 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS CHEA
Applicant
AND: MR SOK
Respondent
ORDER MADE BY:
HARPER J
DATE OF ORDER:
25 AUGUST 2022
THE COURT ORDERS THAT:
1.Orders 6, 7, and 9 made on 9 December 2020 by Judge Kemp be discharged.
2.Within 10 days, the Respondent Husband (“the husband”) shall take all necessary steps, including executing any necessary documents or providing any necessary authorities, to cause the following amounts to be released and paid from the funds held by B Pty Ltd in ANZ account No…13:
(a)$386,904.01 by way of partial property adjustment in favour of the Applicant Wife (“the wife”) into the Fox & Staniland trust account BSB:…Account No…56 (Ref:…); and
(b)The balance to the Australian Taxation Office in discharge of existing taxation liabilities for the financial years ending 30 June 2019 and 30 June 2020 of:
(i)C2 Pty Ltd, C Unit Trust, C Pty Ltd, C1 Group;
(ii)D3 Pty Ltd;
(iii)D2 Pty Ltd;
(iv)E Unit Trust; and
(v)F Unit Trust.
in such order or priority as the husband may determine.
3.Within 14 days of compliance with Order 2, the husband shall provide to the wife copies of:
(a)Bank statements verifying the transactions referred to in Order 2; and
(b)Copies of updated ATO Portal Statements verifying receipt of the payment and reduction of the debts.
4.In the event the husband either personally or in his capacity as a director or officeholder of any entity intends to sell, encumber, dispose of or otherwise deal with any real property owned in his own name, or by any entity comprising the C Group, or otherwise:
(a)he shall provide the wife no less than 21 days prior notice in writing of the proposed sale, encumbrance, transaction or dealing;
(b)in respect of any sale of real property:
(i)prior to the settlement of sale of any real property, the husband shall provide to the wife a copy of the following documents in respect of the sale:
A.Contract for sale;
B.Settlement adjustment sheet; and
C.Bank statements, invoices, and other relevant documents showing how the proceeds of sale are intended to be used
(ii)after settlement, bank statements for the account/s into which the proceeds of sale including deposit are paid, showing receipt of the funds
(c)pending further order or written agreement of the parties, the husband, personally and in his capacity as a director or officeholder of any entity, be restrained from causing or permitting to be transferred out of or removed from the Commonwealth of Australia, any proceeds of sale or other funds arising from, or received as a result of, any sale, encumbrance, disposal or other dealing the subject of this order.
5.All questions of costs of the applications the subject of this judgment be reserved to final hearing.
6.The proceedings, including any outstanding interlocutory applications, be stood over to the MCFP List on 28 October 2022, at a time to be advised, for mention.
7.The parties collaboratively prepare a joint balance sheet (“the Balance Sheet”):
(a)setting out all assets, liabilities and financial resources which the parties assert are relevant to the determination of this matter;
(b)the balance sheet is:
(i)to be divided into clearly identified sections, specifying Assets, Liabilities, Superannuation, and Add-backs (if claimed);
(ii)give totals for each category, and subtotals in each category for each party;
(iii)in the event there is dispute about totals and subtotals, each party is to include the total or subtotal for which they contend
(iv)is to have footnotes which explain the differences between the parties in relation to any disputed items;
(c)if a party contends any item should be included as an “add-back”, the footnotes to the balance sheet must contain a brief description of the basis for the claimed add-back.
8.For the purposes of preparing the Balance Sheet and unless otherwise agreed, no later than 28 days prior to the next hearing date, the applicant provide to the respondent a draft Joint Balance Sheet, using the form available on the Federal Circuit and Family Court of Australia website, setting out the asset pool contended for by the applicant, and by no later than 14 days prior to the next hearing date, the respondent return the Joint Balance Sheet to the applicant having inserted the respondent’s contentions as to the asset pool, their asserted values, and footnotes to explain any disputed items.
THE COURT NOTES THAT:
A.The parties are expected to advise the Court on the adjourned date whether any further interlocutory applications are to be pressed, as well as any necessary orders to bring the matter to final hearing.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Chea & Sok has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HARPER J:
INTRODUCTION
These are property proceedings between the Applicant Wife, Ms Chea (“the wife”) and the Respondent Husband, Mr Sok (“the husband”). Both parties were born in Country QQ. The wife is a citizen of New Zealand. The husband is an Australian citizen.
The proceedings were commenced on 27 November 2020. On 18 January 2022, the matter was transferred to the Major Complex Financial Proceedings List and placed in my docket. The substantive matters concern property adjustment and a child support departure order as sought by the wife.
The matter was originally listed for first return on 4 February 2022, however on 3 February 2022, consent orders were made in chambers for an adjournment. The parties agreed to undertake valuation of several properties, to undergo mediation, and for their accounting advisers to confer regarding the joint balance sheet.
During the first listing on 13 April 2022, orders were made by consent setting down the parties’ competing interim applications for hearing on 1 August 2022.
BRIEF BACKGROUND
The parties commenced cohabitation upon their marriage in 2003. They separated on about 23 March 2018. A divorce order was granted on 15 November 2021.
The husband describes himself in his financial statement as a Manager, however there is evidence that much of his income derives from property investment. The wife is presently unemployed.
The parties’ wealth and the majority of husband’s income derive from his property development activities over approximately the last twenty years. He has incorporated businesses and trusts for this purpose, and is the director and shareholder of a number of corporate entities, including proprietary companies and trusts. Collectively, he refers to these entities as the C Group. This structure has some complexity. However, according to the husband, the C Group is mainly structured around three trusts:
(a)G Pty Ltd ATF the Sok Family Trust. This trust has owned the main trading subsidiaries in the Group, being C Pty Ltd (for residential constructions) and C3 Pty Ltd ATF C Unit Trust (for commercial constructions). These trading entities provided the cash flow and resources to fund various property acquisitions and land investments;
(b)H Pty Ltd ATF the H Trust established to fund investments around City J and City K; and
(c)L Pty Ltd ATF the L Trust, established to fund investments in the City N and M Town areas.
For the purposes of this judgment, it is unnecessary otherwise to set out in full the details of the entities comprising the C Group. I will refer to those details only to the extent necessary.
In general terms, the husband explained in his affidavit filed on 21 July 2022 the operations of the C Group as follows:
28. During the marriage, so that I could meet the running costs associated with each entity within the [C Group], I regularly sold assets (mainly properties) held by one entity and used profits generated to meet the expenses and capital associated with another. This resulted in multiple inter-company loans. This is my usual course of business to grow the companies, build their property portfolios, and increase income and available cash within the Group.
There was no dispute that during the marriage and since separation, the husband has controlled the financial aspects and resources of the parties. A draft balance sheet tendered by him (Exhibit 2) shows this is the case. There was also no dispute that it has been the husband’s business activities conducted through the C Group which have produced the majority of the parties’ wealth.
For the purposes of this judgment, it should be recorded that among the numerous entities and trusts comprising the C Group, B Pty Ltd (“B Pty Ltd”) is the trustee of the B Unit Trust. On 8 December 2020, the husband caused B Pty Ltd to sell a property at O Street, City J (“O Street”). In total, after settlement of the sale, net proceeds of $2,583,764.86 were received by B Pty Ltd inclusive the deposit (“the O Street funds”). These funds were paid into a B Pty Ltd account held at the ANZ bank. They continue to be held in that account presently totalling $2,362,210 (Exhibit 2). The difference between $2,583,764.86 and $2,362,210 arose because $100,000 was paid from these funds to each of the parties by way of partial property settlement, and for ongoing spousal maintenance to the wife pursuant to an order made on 13 December 2021, discussed later in these reasons.
On 9 December 2020, the proceedings came before his Honour Judge Kemp in the Federal Circuit Court as it then was. Judge Kemp made a number of injunctive orders on that date, including a restraint upon dealing with the O Street funds, relevantly as follows:
6. That without admission, and pending the determination of the parties interim applications, the Respondent Husband be restrained, including in his capacity as director or officeholder of any entity, by injunction from encumbering, disposing of or otherwise dealing with the following real estate in which the husband has an interest in his name or pursuant to a company or trust in which he has an interest, including by way of increasing the indebtedness of the entity in which the real property is owned, pending further order of the court or agreement in writing between the parties, namely:
6.1 [City P] property;
6.2 [Q Town property];
6.3 [R Street, City S];
6.4 [T Street Suburb U];
6.5 [V Street, Suburb W];
6.6 [AA Street, City K];
6.7 [BB Street, Suburb CC];
6.8 [DD Street, M Town];
6.9 [EE Street, Suburb FF];
6.10 [GG Centre]; and
6.11 other real estate in the Respondent’s name or in which he has an interest pursuant to any trust or company owned by or controlled by him or in which he has an interest; other than in respect of the sale of the property at [O Street, City J].
…
7. That pending further order the Husband be restrained from injunction from disposing of or applying the proceeds of sale of the property at [O Street, City J] in any way other than for the payment of agents fees and commissions and to discharge the mortgage secured against the [O Street, City J] property which is in the sum of approximately $1,500,000 without the written consent of the Wife.
…
9. That pending the determination of the parties interim application that in relation to any company or trust in which the Husband has an interest, the husband and his agents are restrained by way of injunction in his capacity as a director or as trustee of a Trust from selling, transferring, assigning, encumbering or alienating the assets of the company or Trust without an Order of the Court or the prior written consent of the Wife.
COMPETING APPLICATIONS
Initially, each party sought a raft of orders concerning disclosure, restraints, occupation of the former matrimonial home, spousal maintenance and child support departure, and interim partial property settlement. It is not necessary for the purposes of this judgment to set these orders out in full, because, at the interim hearing, the orders pressed by each party had significantly narrowed.
Ultimately, the wife sought the following interim orders as set out in her Further Amended Initiating Application, filed on 24 June 2022:
4. Orders 6 and 9 of the Orders made on 9 December 2020 to continue pending further Order or agreement being reached by the parties in writing.
5. The husband is restrained by way of injunction in his personal capacity or in his capacity as a director of any company from disposing or applying the net proceeds of sale of the property [O Street, City J] held in the [B Pty Ltd ANZ account No…13] unless otherwise agreed between the parties in writing.
6. The wife personally undertakes to the Court to submit to any order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to the husband in relation to the operation of Orders 4 and 5 above.
…
15. Order 3 of the Orders made on 13 December 2021 continue pending further Order or agreement being reached between the parties in writing.
…
23. Within 7 days from the date of the making of these Orders in addition to Orders 15 and 16, the husband shall pay the sum of $386,904.01 to the wife such sum to be classified as partial property settlement and paid into the Fox & Staniland trust account BSB: [… Account No…56 (Ref: …)] and calculated as follows:
23.1 $207,515 for the wife's future legal costs and disbursements; and
23.2 $179,389.01 for the wife's outstanding legal fees.
24. In the alternative to Order 23, within 7 days from the date of the making of these Orders in addition to Orders 15 and 16, the husband shall pay:
24.1 $179,389.01 such sum to be classified as partial property settlement and paid into the Fox & Staniland trust account BSB:[…Account No…56 (Ref: …)]; AND
24.2 The sum of the equivalent amount which is in the Barkus Doolan Trust account as at the date of the serving of this Further Amended Initiating Application or the hearing of this Application whichever is the higher, to cover the cost of this interim application; AND
24.3 With respect to future legal fees, disbursements, valuations, mediation or counsel fees the following shall apply:
24.3.1 The husband be restrained from paying or causing to be paid howsoever on his behalf any further funds to his Solicitors or other legal advisor on account of his legal costs and outlays without first paying the same amount to the wife's Solicitor's Trust Account;
24.3.2 Within 7 days after payment by or on behalf of the husband of any money in payment of accounts:
24.3.2.1 rendered by the husband's Solicitors in respect of these proceedings; and
24.3.2.2 rendered by any valuer, mediator, legal advisor or counsel or other expert engaged in respect of these proceedings
the husband shall pay or cause to be paid the same sum of money to the wife's Solicitor's Trust Account.
24.4 Any monies paid by or on behalf of the husband as referred to in subparagraphs 24.3.1 and 24.3.2 above are held in trust by the husband's Solicitors and within 3 business days of their receipt of such monies. shall cause to be given to the wife's Solicitors a copy of their Trust Account (or office account) ledger showing the receipt of funds by them.
24.5 All monies paid to the husband's Solicitors by or on behalf of the husband referred to in Order 24.3.1 and 24.3.2 above shall be held in Trust by the husband's Solicitors and not be applied in payment of his legal costs and outlays until such time as the same amount has been paid by or on behalf of the husband to the wife's Solicitor's Trust Account. and in the event that such payment to the wife 's Solicitors is not made within 7 days after the payment by or on behalf of the husband of any money referred to in Order 24, the husband shall direct his Solicitors to pay 50% of the amount(s) held by them rum in trust to the wife's Solicitors.
The husband opposed the orders sought by the wife. He sought orders pursuant to his Case Outline filed on 28 July 2022 and later amended orally in court, as follows:
1. That Order 7 made 9 December 2020 be discharged, and the Husband shall forthwith pay to the Australian Taxation Office in discharge of existing obligations the sum of $2,362,209.86 utilising funds held by [B Pty Ltd] in ANZ account No…13, and shall provide thereafter to the wife copies of:
1.1 Bank statements verifying the transaction; and
1.2 Updated ATO Portal Statements verifying the payment and reduction of the debts.
2. That Orders 6 and 9 made on 9 December 2020 be discharged.
3. That in the event the Husband either personally or in his capacity as a director or officeholder of any entity elects to dispose of any real property, he will provide the wife with 21 day's prior notice in writing, and prior to the sale of any real property the Husband shall provide to the Wife a copy of the following documents in respect of the sale:
3.1 Contract for sale;
3.2 Settlement adjustment sheet;
3.3 Bank statements for the account/s into which the proceeds of sale and deposit are paid, showing receipt of the funds;
3.4 Bank statements, invoices, and other relevant documents showing how the proceeds of sale are intended to be used.
4. That in the event the Court is not minded to grant the Orders sought at paragraphs 2 and 3, that Orders 3 and 4 made 13 December 2021 be discharged.
In summary, therefore, there were three main areas of dispute between the parties: whether injunctions made on 9 December 2020 restraining the husband from dealing with real properties should be discharged, whether there should be a discharge of current orders for the husband to pay spousal maintenance to the wife, and whether there should be a payment to the wife for litigation funding.
DISCHARGE OF INJUNCTIONS
None of the entities comprising the C Group are parties to the proceedings. Orders 6, 7, and 9 are in personam injunctions restraining the husband. Orders 6 and 9 were made on 9 December 2020 until determination of the parties’ interim financial applications. The wife seeks those orders be continued, pending further order. Order 7, which specifically restrained dealings with the O Street funds, was made pending further order. The wife seeks such a further order be made in substantially the same terms, but to operate unless the parties agree otherwise in writing.
In support of her proposed orders, she offered an undertaking to the court to submit to any order the court considered necessary for the payment of compensation required by the continuation of the injunctions. This was said to be an undertaking in the nature of an undertaking as to damages.
The husband seeks discharge of Orders 6, 7, and 9. In relation to Order 7 in particular, he seeks a discharge to enable him to pay an outstanding liability to the Australian Taxation Office (“ATO”) in the sum of $2,402,158. In lieu of Orders 6 and 9, he seeks an order that he provide 21 days’ notice to the wife of his intention to dispose of any real property, and, prior to sale, the provision of documents such as the contract for sale and information regarding the anticipated application of sales proceeds.
The wife took objection to this proposal, suggesting that this could enable the husband to assign property to a family member, thereby circumventing the requirement for notice. This argument appeared to focus on perceived limitations in the semantic range of the verb “sale”. The word “sale” as used in the husband’s proposal, it is said, does not cover the situation sufficiently. During submissions, I suggested to counsel for the wife that any difficulty with the limitations of the word “sale” could be cured was the inclusion of the words “encumbering, disposing, or otherwise dealing with” in the husband’s proposed order, which would follow the wording of the existing Order 6. This was accepted by her counsel, and the husband saw no issue with the inclusion of these words.
By continuation of the injunctions, the wife seeks to preserve the status quo. The relevant principles are well known. The applicant must establish both an arguable case with sufficient likelihood of success to justify the preservation of the status quo, and that the balance of convenience favours the grant of the injunction, in that there is a danger or risk of dissipation of, or dealings with assets which will frustrate any judgment in favour of the applicant; see Tsiang & Wu and Ors (2019) FLC 93-911:
20. The grant of an injunction is discretionary and the basis on which such an order is made is well established. A purpose, as in this case, is to preserve the status quo pending resolution of the controversy. An applicant must demonstrate first that there is a serious issue to be tried. While that statement has been the subject of various iterations, in essence it requires the demonstration of an arguable case or as was said in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65], the applicant must “show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo”.
21. Next the applicant must demonstrate that the balance of convenience favours making the order sought. As part of this, the applicant must show that there is a “danger” or risk of dissipation of or dealings with assets which will frustrate any judgment in favour of the applicant.
(Footnotes omitted)
The key question for the court to consider here is whether there is evidence of intention by the husband to dispose of any assets, such that it would defeat the wife’s case. The husband contends that the wife provides no evidence that there is a risk that any prospective final orders would be wholly or partly unsatisfied because assets may be dissipated.
The wife’s evidence was that during the marriage and since separation, she had not had access to any of the parties’ financial documents or bank accounts. She also deposed to four properties that had been sold either directly or indirectly by the husband in his capacity as director, shareholder, and/or secretary of various companies since September 2018 as follows:
(a)HH Street, Suburb JJ sold in late 2018 for over $2.8 million;
(b)O Street, City J sold in late 2018 for over $5 million;
(c)RR Street, City J in late 2018 for over $4.5 million; and
(d)O Street, City J in late 2020 for over $4 million.
Furthermore, she submitted that the husband had transferred a total of $2,918,576.16 from an ANZ Account held by D2 Pty Ltd, which is part of the C Group. The husband admits to this in his affidavit, noting that the transfer was made to a “[Mr LL]” in Country QQ as an unsecured loan for five to seven years at 8 percent interest. However, he concedes that it may not be recoverable, but that these funds should be added back to the balance sheet and treated as his property for the purposes of the proceedings.
The husband gave evidence that at the time he consented to the injunctions in December 2020, he envisaged those to be interim arrangements to be dealt with relatively quickly pending determination of a number of other interim issues.
He also stated that the existing orders, which have been in place for over eighteen months, have severely constrained the ordinary business activities the C Group. He argues that the continuation of those orders without alteration would make this situation worse. He suggests that insolvency may become a real risk, to the detriment of both parties, because of the following reasons:
(a)there has been a flow-on effect of limited availability of cash by the companies and as a result, the husband, as the only major source of funds available to the C Group are the O Street funds;
(b)the tax payable by the C Group to the ATO now totals $2,402,158.37 as at 11 July 2022 and interest continues to accrue on that amount;
(c)the C Group is running at a loss of approximately $2,486 per week;
(d)the husband’s income from the Group has been significantly impacted, and his income now sits at approximately $580 per week; and
(e)two of the husband’s entities have gone into liquidation as they have been unable to pay debts to third parties totalling over $1 million.
He argues that the injunctions have restricted his income, and it may well be that he may be able to increase the parties’ wealth by the time of final hearing. The properties sold by the husband as set out in [23] above have been included in Exhibit 2, the draft balance sheet tendered by the husband. I accept that the wife has had adequate disclosure about these properties.
The wife referred to suggestions that the husband has a gambling problem, with evidence from 2017 indicating that he had applied $969,433.01 to gambling in an eight-month period from January to August 2017. She did not, however, identify how exactly this would lead to a frustration of judgment in her favour were the injunctions to be discharged.
Furthermore, she contended that the husband “simply will not obey orders.” This, she said, emerged from failures to make certain discovery pursuant to court orders, failure to collaborate on a joint balance sheet, failure to pursue any interim applications he sought by a certain date, and failure to comply with orders for child support departure and spousal maintenance. If this were the case, the wife’s argument should, logically, mean that the husband would breach every order which he does not see to be in his interest. The evidence does not support such a conclusion.
I accept that the injunctions have limited the capacity of the C Group to carry out its ordinary commercial activities for the last eighteen months. This may already have been, and continue to be, to the detriment of both parties. I accept the husband could have given a more detailed explanation the unsecured loan of $2,918,576.16 to person or entity in Country QQ and the court should be reticent to allow a party to send money out of Australia while the proceedings remain on foot. However, I am not satisfied that the wife has demonstrated that there is generally a danger or risk of dissipation of, or any dealings with assets that would frustrate any judgment in her favour.
In the circumstances, I find it appropriate to discharge Orders 7 and 9. I am not satisfied that the wife has demonstrated a prima facie case to continue impeding the commercial activities to the extent resulting from Orders 7 and 9. The balance of convenience also does not favour permitting those injunctions to continue, for the same reasons. The position of the wife can be protected by an order partly conforming to the husband’s proposal, which gives the wife 21 days’ notice of any intention to sell, encumber, dispose, or otherwise deal with properties, and restrains the husband from sending funds offshore, as opposed to a continuing a broad ranging prohibition on the activities of the C Group.
Taxation liabilities
The husband gave evidence that the C Group owes a total tax debt to the ATO in the amount of $2,402,158.37 for the financial years ending 30 June 2019 and 30 June 2020. The components of this total amount are set out in the husband’s affidavit (paragraph 40), with some supporting primary documents. In summary, various entities in the C Group owe tax in varying amounts.
The wife put in doubt the legitimacy of the husband’s taxation liability, submitting that they have not been verified in any real manner. Her submission was that the husband refuses to file current tax returns for his corporate entities, citing the most recent ones to be from 2020, but only drafts in respect of the financial year ending 30 June 2021. She did, however, accept that if the liabilities were real, there was no question that they had to be repaid.
The issue of tax liabilities has been clearly raised by the husband since the orders of 9 December 2020. Indeed, Notation A to those orders records the following:
That upon the Husband providing the wife evidence of tax liabilities or other liabilities that are due and payable the Wife will not unreasonably withhold her consent to pay such liabilities from the proceeds of sale of the [O Street] property.
The husband gave detailed evidence of his attempts to obtain consent from the wife to use the O Street funds to meet taxation liabilities of the C Group since December 2020. By correspondence dated 16 March 2021, his solicitors proposed releasing $2,185,140 of the O Street funds to pay tax of $1,033,344.65 and other outstanding business expenses. There was no consent to this proposal. Between April and November 2021, a good deal of correspondence was exchanged between the parties’ solicitors about disclosure. At an interim hearing before a senior judicial registrar on 23 November 2021, counsel for the wife confirmed that once documents were provided to the wife confirming the amount owing to the ATO, then those debts were agreed to be paid. The senior judicial registrar made orders on 13 December 2021 which included a notation that “the Husband and Wife agree that legitimate debts owing to the ATO are to be paid.”
On 17 January 2022, the solicitors for the husband provided evidence of the tax owing by the various entities in the form of an ATO portal printout. This showed the tax owing was $2,174,980.21 including interest. Between February and April 2022, the respective accountants for the parties conferred. There was no evidence from the wife’s accountant, Ms MM, that the currently owing tax is not legitimate. On 7 April 2022, the wife’s solicitors wrote to the husband’s solicitors indicating her agreement to payment of $346,613.35 for tax and $129,405 for land tax. The wife objected to the payment of any interest on tax debts because the husband may receive tax rebates.
The letter also expressed the wife’s concern that the husband had allowed historical tax liabilities to accrue.
The wife’s real argument about tax liabilities is that the husband has failed to provide adequate disclosure, and that he has made the transfers to D2 Pty Ltd (above at [24]) which could have been used to pay the tax. At paragraph 72 of her affidavit she claims that “I am unable to properly consider taxation and the tax liabilities that Mr Sok asserts are outstanding to the Australian Taxation Office and other issues that I will need to consider regarding my property settlement.” In other words, the argument is that the husband should find the money to pay tax liabilities from some other source than the O Street funds.
In his affidavit, the husband conceded that the tax returns for the year ended 30 June 2021 have yet to be filed as he simply cannot afford to pay the tax that will be owed, in light of present outstanding liabilities.
I do not accept the wife has demonstrated a proper basis to restrain the use of the O Street funds to pay tax liabilities of the C Group for the financial years ended June 2019 and June 2020. They were incurred partly before separation. I am satisfied for interim purposes that the husband has provided adequate disclosure about the tax liabilities. There is ample reason to accept they are real. The wife has known for over eighteen months that payment of tax was a significant issue, and this was included in notations in court orders. She has already led the husband to believe she would permit payment of tax, again recorded in a court notation, but has consistently refused to do so. Her reasons for taking such a position are, if not entirely specious, certainly not persuasive.
The relevant tax liabilities date up to the financial year ended 30 June 2020. Whether or not the husband has made disclosure of documents for the year ended 30 June 2021 does not alter the existence of earlier, unpaid tax liabilities.
The husband also gave evidence that as at 7 September 2021, the taxation liability was just over $1 million. Upon filing his tax returns in November 2021, the amount increased significantly, and continues to do so by accumulating interest.
There was no dispute that the husband’s business activities through the C Group has substantially produced the wealth of the parties. I accept the failure to pay outstanding tax risks those business activities. I conclude it is in the parties’ interests for the taxation liability to be paid. In my view, the O Street funds should be utilised in part for this purpose. The situation is analogous to and ripe for application of the principle that partial property adjustment is appropriate in situations where a party requires access to resources “to meet debts which may result in the party being pursued by creditors”: Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 (“Strahan”) at 85,643, quoting Wenz v Archer (2008) 40 Fam LR 212 (“Wenz”). Again I am not satisfied the wife has demonstrated a prima facie case that disbursal of the O Street funds should be restrained so as to prevent payment of taxation liabilities, and the balance of convenience does not favour such an outcome either. I am satisfied Order 6 should be discharged.
However, currently, the taxation liabilities exceed the O Street funds. The wife also seeks a further partial property settlement. It is necessary to consider this next, because the O Street funds are a possible source for its payment.
INTERIM PARTIAL PROPERTY SETTLEMENT
The wife seeks an order for her current and future legal expenses, either fixed in the amount of $386,904.01, or alternatively the sum of $179,389.01, representing the wife’s present legal fees owing, together with the amount presently held in the husband’s solicitor’s trust account and a dollar for dollar order for future legal fees.
Numerous authorities have emphasised the importance, in an application for litigation funding, of identifying the relevant source of funding for such an order, as this will determine the preconditions and considerations for making the order: Kyriakos & Kyriakos (2013) FLC 93-528; Strahan.
It was unclear which jurisdictional basis the wife relied upon, s 79 and s 80(1)(h), or s 117 of the Act. Her case outline included a heading “Partial Property Settlement,” yet she also asserted that she sought funds “by way of advanced costs.” I will proceed on the assumption that she relies upon s 79 and s 80(1)(h) of the Act.
She made numerous arguments that she has no information about the parties’ finances and is presently unable to fund her litigation. She also alleges that the husband has some form of hidden funds which he is presently using to meet his legal fees. The husband resisted her application on the basis that he presently has insufficient income to meet her demands, and that payment of his ATO liability should take precedence over any orders for litigation funding.
In Strahan, the Full Court held that there is a two-stage process to applications for interim partial property settlement. Firstly, the procedural step, which is the question of whether the court should exercise discretion to entertain and determine the application, and secondly the substantive step, namely the nature of the order which should be made.
With respect to the first step, the Full Court in Strahan approved the approach adopted in Wenz. There must exist appropriate circumstances for an interim order to be made, rather than compelling circumstances. Boland & O’Ryan JJ commented:
132. In relation to the first stage, in our view, when considering whether to exercise the power under ss 79 and 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
Their Honours continued at [133] that circumstances warranting the exercise of the power at an interim stage, included where both parties consent, in urgent situations to avoid injustice, and where “one party requires funds to assist in defraying the costs of litigation without which funds an injustice may be cause.”
The second step identified in Strahan involves the exercise of the Court’s power pursuant to s 79 of the Act. Insofar as it is possible in interim proceedings, this step requires the Court to:
(a)identify “the parties’ property and of their interests in it” (Medlow & Medlow (2016) FLC 93-692 at [69]); and
(b)consider and apply the provisions of s 79 (Strahan at [135]).
Any interim property order should not exhaust the discretion in s 79 of the Act. In Strahan at [136] the Full Court said:
As to the third matter identified at 79,930 by the Full Court in Harris, in discussion before us it was described as the “adjustment issue” or “claw-back issue”. It was submitted by senior counsel for the Wife that it is relevant to consider whether an order would give the applicant “more than they would be indubitably entitled to on a final hearing” or alternatively “would it give them so much that it could not be adjusted on a final hearing?”. As we have observed the Full Court in Zschokke at 83,220-221 stressed the importance of consideration of the “adjustment issue” if the power in s 80(1)(h) of the Act is being exercised. We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. As Finn J said at [126] the interim order must be “capable of alteration at any time prior to, or as part of, the final exercise of the s 79 power”.
In Osferatu & Osferatu [2012] FamCA 408, Watts J at [41] made clear a detailed inquiry is not required:
As was discussed in Harris and confirmed in Strahan, the second step in making an interim property order is to have regard to the usual matters in a section 79 order (ss 79(2) and 79(4) FLA). A detailed inquiry is not required, but there must be some assessment of section 79 factors. Given it is an imprecise exercise, the interim property order has to be “conservative” so that the final outcome of property settlement will not be compromised by the interim property order. Either the remaining property needs to be sufficient to meet the legitimate expectations of both parties at the final hearing, or the order that is contemplated needs to be capable of being reversed or adjusted if it is subsequently considered necessary to do so.
One problem in this matter is the absence of a clear identification of the parties’ assets and liabilities, even in draft form. The husband owns NN Street, City P (“the City P property”), agreed to be worth $3,050,000. The wife and husband own jointly OO Street, Q Town (“the Q Town property”), agreed to be worth $700,000. The wife owns some funds in bank accounts, some shares in public companies and personal effects such as jewellery. But, I was informed that the net property pool is somewhere between $12 and $19 million. This seemed to be common ground, and appears from Exhibit 2. Clearly, the husband in a general sense holds wealth through the C Group. However, this must mean his shareholdings in, or his interests as a beneficiary of, the numerous entities and trusts comprising that Group. There was no clarity in the evidence allowing these interests to be identified. There was a broad tendency of the parties just to treat the assets and liabilities of the C Group as assets and liabilities “of” the husband. This may be an appropriate finding at trial, I do not know. But, for present purposes, his shareholdings and beneficiary interests need to be precisely identified and valued. I will make orders for the collaborative preparation of a joint balance sheet.
The wife put forward the following submissions in support of her claim
(a)She presently owes her solicitors $179,389.01 in unpaid legal fees;
(b)Her future costs and disbursements to final hearing are estimated to be at least $200,000;
(c)She has engaged Ms MM at her own expense, paying $44,363 to date with an estimate of $20,000 in further work to be completed. Without Ms MM, she argues she will be unable to understand the husband’s assets, provide the court with a joint balance sheet, nor consider any tax consequences of property settlement;
(d)She has paid valuation fees and mediation costs to a total of approximately $17,000;
(e)She has no superannuation, no credit card, and no family to support her financially; and
(f)Her income is derived from rental income from the Q Town property and payments from Centrelink.
As pointed out already, the husband has controlled the parties’ finances. The Full Court in Bing and Bing (2007) FLC 93-318 held that where one party controls the vast pool of assets, questions regarding the potential source of the funds to satisfy an interim property order is not an impediment to such an order being made. The Full Court said:
23. ...The mere assertion that there are no immediately available funds to provide to the applicant to enable him or her to continue on with the proceedings cannot simply be accepted at face value. If it is apparent that one of the parties controls a vast pool of assets (irrespective of whether those assets are readily capable of liquidation) then the Court has a broad enough discretion to enable an order to be made for the provision of funds by the holder of those assets to enable the other party to continue on with litigation.
The husband referred to two previous open offers made to the wife, the rejection of which he submits was “wholly unreasonable.” The first was made on 7 September 2021, which would have seen her receive $600,000 by way of partial property settlement, together with exclusive occupation of a property located at R Street, City S (“the City S property”), receipt of all net rental income from the Q Town property, and use of a motor vehicle. The husband formally withdrew that offer in light of the present interim dispute. The second was made on 30 May 2022 in respect of the ATO debts and land tax owed by the C Group. This would have seen $476,018.35 be paid from the O Street funds towards discharge of these liabilities.
It is well established that one purpose of orders for litigation funding is to level the financial “playing field” between the parties. The playing field is not level in this case. The wife has received only $100,000 in partial property settlement so far, pursuant to consent orders made on 16 December 2021. There was no evidence of how the wife has otherwise funded her legal fees. The offers of the husband appear to accept some further partial property settlement would be appropriate. I also note that both parties seek final orders for an alteration of their property interests pursuant to s 79 of the Act. It is implicit in this that they both accept it is just and equitable to make such an order.
Accordingly, having regard to all the circumstances of this case, I find it is in the interests of justice for an order to be made under s 79 and s 80(1)(h) for interim partial property settlement.
Moving to step two, the court is required to identify the parties’ property and their interests, as well as applying the provisions of s 79 to determine the amount which should be paid at an interim stage.
The wife’s evidence is that she presently has approximately $70,000 available to her in savings. She is unemployed and her income is derived exclusively from rental income from the Q Town property, and Centrelink payments to a total of $906 per week. The husband referred to his financial statement, which lists an income of $580 per week derived from distributions. He submitted that, accordingly, he does not have sufficient income to be in a position to meet the payments sought by the wife.
However, this was in a context where the husband’s capacity to manage the C Group was necessarily limited by the injunctions of 9 December 2020. He did not submit that, were the court to discharge the injunctions, he would be unable to pay the sums sought by the wife. Furthermore, both parties accepted that any interim partial property settlement, if made, would have to come out of the O Street funds. There are sufficient funds to meet the wife’s claim, as well as a substantial proportion of outstanding tax.
At the commencement of the relationship, the wife had cash and other personal effects with a total of approximately $50,000. The husband owned a number of properties, including the City P property, purchased in 2001. This was purchased in his sole name, however the wife was added to the title in August 2019.
The wife was previously employed by PP Company, however ceased this job due to an injury and the birth of the parties’ first child in 2005. She remains unemployed. The husband continues the business of C Pty Ltd.
The wife asserted that she was the primary carer and homemaker throughout the parties’ relationship. She cared for their three children, including organising extra-curricular activities, home-schooling them during lockdowns, and engaging in their day-to-day care.
As for an assessment of her future needs, the wife gives evidence that there are no concerns with her health. As noted above, she is unemployed and has been out of the workforce for approximately nineteen years, due to her continuing role as primary carer of the children. Pursuant to consent orders made on 10 May 2022, two of the children spend time with the husband each alternate weekend and half of school holidays, whilst the remaining child, who is aged 16, spends with the husband according to his wishes.
Although there are orders in place for the husband to pay spousal maintenance to the wife, her evidence was that these payments ceased from March 2022. Whether orders should be made for the husband to continue these payments is also the subject of dispute, and is discussed below. However, the husband continues to pay outgoings associated with the City S property.
The wife seeks an amount of $386,904.01. Of this, $179,389.01 is her outstanding legal costs to her solicitors. The remaining $207,515 she claims as anticipated future legal costs up to final hearing. These claims were substantiated by a costs notice and her solicitor’s Debtor’s Ledger annexed by the wife in her affidavit of 24 June 2022. The husband did not otherwise dispute the sums sought by the wife.
Although it has often been said that an order pursuant to s 79 is a “once and for all order”, Boland and O’Ryan JJ in Strahan at [113] made clear that the power in s 79 may be exercised by a succession of orders until the power is exhausted by final orders dealing with all known property. Brereton J in Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 referred to the Full Court’s decision in Zschokke and Zschokke (1996) FLC 92-693, noting that
33. …while the requirements of s 79(2) and (4) must be observed in the same manner as for any interim property order, if it appeared that the applicant would likely receive by way of property settlement a sum sufficient to cover the advance, then an interim order may be made [Zschokke, 780–781; see also In the Marriage of Harris (1993) 16 Fam LR 579 at 586]
This was a relatively lengthy marriage of approximately 15 years. According to their final orders, each party seeks approximately 60 percent of the net pool of assets. If the net property pool is somewhere between $12 and $19 million, I can comfortably conclude that each party would, more than likely, receive no less than $400,000 from the pool at final hearing.
I am satisfied the wife should receive a partial property settlement.
There are insufficient O Street funds to meet both the wife’s claim and to discharge the existing tax liabilities. Although I was informed that the property pool is lies somewhere between $12 and $19 million, and the wife suggested there was approximately $3 million unaccounted for from the sale of properties set out above at [23], both parties ultimately accepted that the only place from which the payments for tax and partial property settlement could be made was the O Street funds.
In submissions, the husband accepted on a hypothetical basis that the court could make an order for $2 million from the O Street funds to be used to pay tax liabilities, with the wife to receive $362,904.01 as partial property settlement.
I take account of the fact that since I will also make orders discharging the injunctions currently in place, the husband may elect to sell any of the properties he presently holds in order to pay the balance of the liability.
I will order that the husband cause the wife to be paid $386,904.01 from the O Street funds in satisfaction of her claim for interim partial property settlement. The balance is to be applied towards the repayment of the taxation liabilities. I will also make an order for the husband to notify the wife of the details and receipts of any payments to the ATO within fourteen days of said payments being made.
SPOUSAL MAINTENANCE
Orders 3 and 4 were made on 13 December 2021 by a senior judicial registrar for the husband to pay the wife spousal maintenance:
3. That the Husband pay to the Wife the sum of $5417 per calendar month, to be deposited into an account nominated by the Wife such that it will be reasonably expected to be available to her by 4pm on the 23rd of each month, with the first such payment to occur on or before 23 December 2021.
4. To give effect to Order 3 herein, the Husband may elect for the payments to the Wife to be paid from the funds held by [B Pty Ltd], upon the provision of fourteen (14) days’ notice to the Wife, and each party shall do all things necessary to enable those funds to be released.
The wife seeks compliance by the husband with his obligations under these orders. She gave evidence that she has not received any payments since March 2022. The husband proposed that “in the event the Court is not minded to grant the Orders sought at paragraphs 2 and 3, that Orders 3 and 4 made 13 December 2021 be discharged.”
In summary, his position was that “if the ATO is paid and thereafter the restraints are varied, that my client will continue to pay the wife the spousal maintenance that she seeks.” Were the court to discharge the injunctions, implicit in that would be that the husband could continue to operate the C Group and continue to pay the wife spousal maintenance.
As outlined above, I propose to discharge the existing injunctions, and make orders broadly conforming to the orders proposed by the husband. Accordingly, I do not propose to discharge the existing orders for payment of spousal maintenance to the wife in the sum of $5417 per month.
CONCLUSION
There remain some aspects of the parties’ competing interlocutory applications to be determined, if they seek to press them. The proceedings will stood over to the MCFP List for mention.
For the foregoing reasons, the orders set out at the commencement of these reasons will be made.
I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Harper. Associate:
Dated: 25 August 2022
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