COLEMAN & NORWOOD

[2014] FamCA 469

FAMILY COURT OF AUSTRALIA

COLEMAN & NORWOOD [2014] FamCA 469

FAMILY LAW – PROPERTY – Where property adjustment Orders were previously made – Where an independent solicitor was appointed as trustee to sell the parties’ property interests – Where the husband made an offer to purchase the property – Where the trustee applied for further directions as to whether or not he was obliged to accept the husband’s offer – Where the trustee did not consider that there was “compelling evidence” to cause the Court to make an order that the trustee accept the husband’s offer – Where the wife also submitted that there was no evidence to support a finding that the husband’s offer was “compelling” – Where the Court was not persuaded that the trustee should accept the husband’s offer. 

Family Law Act 1975 (Cth)

APPLICANT: Ms Coleman

RESPONDENT: Mr Norwood

FILE NUMBER: BRC 1271 of 2012

DATE DELIVERED: 1 July 2014

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Forrest J

HEARING DATE: 30 June 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Selfridge

SOLICITOR FOR THE APPLICANT: Family Law Group Solicitors

COUNSEL FOR THE RESPONDENT: Mr Matthews QC

SOLICITOR FOR THE RESPONDENT: Gayler Legal

TRUSTEE FOR SALE: Mr Sheehy

Orders

1. Mr Peter Sheehy continue to act as Trustee for Sale in accordance with the Orders made 22 August 2013 by his Honour Justice Forrest, save that he should now use his best endeavours to cause all of the properties to be sold within six (6) calendar months of the date hereof.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Coleman & Norwood has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 1271 of 2012

Ms Coleman

Applicant

And

Mr Norwood

Respondent

REASONS FOR JUDGMENT

1. On 22 August, 2013, I handed down judgment in property adjustment proceedings between the husband and the wife in this matter. Amongst other things, I ordered that an independent Brisbane solicitor, Mr Peter Sheehy, be appointed as trustee to sell the parties’ former residential property and the remaining lots held by them (through a trust entity with a corporate trustee).

2. My Orders enjoined the trustee to use his best endeavours to cause all of the properties to be sold within eight calendar months of the date of those Orders and gave him liberty to apply to the Court for any further directions he considered necessary.

3. Only the residential property has been sold in the time that has elapsed since those final Orders were made. It sold for less than the debt that was owed on it to the bank. The ultimate net sale proceeds realised before discharge of the debt secured by mortgage over the property fell about $160,000 short of the actual debt. The mortgagee bank released the security to allow the property to sell in return for advancing the husband and the wife a further $200,000 secured over the remaining industrial properties. That $200,000 was used to pay out the shortfall on the loan that was secured by the residential property, pay some of the trustee’s costs and outlays, pay $10,000 to the wife to facilitate the relocation of her and the three children of the parties, and to provide some additional funds to the corporate trustee to allow it to continue meeting expenses associated with the ongoing ownership of the industrial properties as well as amounts my Orders limited the husband and the wife to be drawing against the trust’s income for their own living expenses.

4. My Orders of August 2013 also provided for the trustee to be able to sell any of the properties to either of the parties, either at his discretion or pursuant to further order of the Court. It is about just this issue that the matter is back before the Court. Yesterday, 30 June, 2014, the matter was before me again, on the application of the trustee, for further directions. Firstly, the trustee was seeking directions as to whether or not he had to accept a recent offer made by the husband to purchase all of the industrial properties so that the matter can be finalised and, after that question was determined, any further directions considered necessary.

5. At the hearing, Queen’s Counsel for the husband confirmed that the husband offered to purchase all of the industrial properties for a sum equal to the total of the parties’ debt secured over all of the properties plus a further sum of $50,000. For the husband, it was submitted that the trustee should be directed by the Court to accept that offer.

6. The trustee, Mr Sheehy, did not accept the husband’s offer as an appropriate offer and submitted that I should not direct him to accept that offer as there was no “compelling evidence” to cause me to consider that he should be directed to accept that offer.

7. The wife was also represented by counsel who submitted that Mr Sheehy should not be so directed to accept the husband’s offer. He, like Mr Sheehy, relied on the fact that there was no evidence before the Court in the form of a valuation of the properties from an expert that actually supported a finding that the husband’s offer was “compelling”.

8. I have determined not to direct Mr Sheehy to accept the husband’s offer but to direct that he continue to act in accordance with the terms of the Orders I made in August last year, with an extension of the time within which he should use his best endeavours to cause the properties to be sold.

More relevant facts

1. Paragraph 10 of my reasons for judgment published 22 August, 2013 reflects that there was evidence (the opinion evidence of a single expert valuer jointly instructed by the parties) that the industrial properties were valued for trial at a total of $3,610,000. Regardless of that, both parties agreed that in order to effect just and equitable property adjustment orders between them all of those industrial properties would need to be sold with each agreeing that Peter Sheehy should be appointed by the Court as trustee for the sale of those properties.

2. Paragraph 71 of my reasons for judgment also reflect that the single expert property valuer did give oral evidence that the properties might realise up to 20 – 30 per cent less in gross terms than the values he ascribed to them, if they were sold over six months rather than a longer period.  Such circumstances would, on that evidence, see the sale of the properties realising anything from $2,527,000 to $2,888,000.

3. As I understand things, all of the industrial properties have been on the market now since well before August, 2013 and none of the units remaining unsold at the trial have been sold in the period since the trial.

4. The industrial properties now secure the following liabilities, all to the NAB:

   ·An interest only loan of $2,150,000;

   ·An overdraft used by the corporate trustee to meet ongoing expenses and to pay the parties $450 each per week for their living expenses, as well as the husband’s child support liability – currently said to be around a debit amount of $147,000 against an approved limit of $150,000 (income from the industrial properties is deposited to this account);

   ·The interest only loan of $200,000 recently borrowed by the parties.

5. Accordingly, there is agreement that the total debt of the parties currently secured by mortgage over the industrial properties is $2,500,000, but that it is, having regard to the current level of the overdraft account, just a little below that, namely $2,497,000.

6. Thus it can be seen that the husband’s offer is effectively to buy the industrial properties “in one line” (all in one package deal) for the sum of just under $2,550,000. 

What evidence is there as to the appropriateness of the husband’s offer?

1. In discharging his duties as trustee, Mr Sheehy has engaged D Real Estate to market and sell the properties on his behalf. In particular, he has engaged Mr F, who is a Registered and Certified Practising Valuer, a Licensed Real Estate Agent, a Licensed Auctioneer and a Qualified Justice of the Peace, to act for him and advise him in this respect.

2. On the evidence before me, at Mr Sheehy’s request in the lead-up to a proposed auction of the properties, Mr F provided opinion as to the “current market values” of the various industrial properties by recent letter dated 27 May, 2014. That letter is in evidence, exhibited to affidavits of both Mr Sheehy and the husband. 

3. Mr F provided what he described as his “market based” view on what prices should be achievable for each of the lots. He predicted selling only 2 out of the remaining 11 lots at the auction at the price he opined was “current market value”, and stated that:

   ..we should expect that it may take somewhere in the order of 5 to 6 years to achieve the sale of all 11 lots at our assessed figures...

4. He went on to say:

   If however, a faster rate of sale were required, that is, to sell all of the remaining 11 lots by (say) the end of this year then the only variable which could achieve that would be price.

5. Mr F then went on to set out the prices he considered “should be realistically anticipated” in three specific scenarios. They were:

   1.$3,320,000 assuming a selling period of 5 to 6 years;

   2.$2,810,000 assuming a selling period of 6 to 8 months (from late May 2014); and

   3.$2,200,000 to $2,400,000 “in one line” within a selling period of 60 to ­90 days (my highlighting).

6. Mr F went on to say, in respect of the “in one line” scenario the following:

   Obviously, from a seller’s perspective, this would be a silly way to sell the remaining lots as it merely results in a vastly lower realisation than selling them individually even with discounts to bring forward the rate of sale.

The time period for sale

1. In my judgment, I noted that the wife asked for the properties to be sold over two years and the husband asked for them to be sold over a shorter six month period. Consistent with my obligations pursuant to s 81 of the Family Law Act, I determined that the properties should be sold over eight months. I remain of the view that the properties should be sold over a period of time that reasonably allows each of the parties the prospect of obtaining some return after discharge of debt. Clearly, selling “in one line” as per Mr F’s opinion will not facilitate that. 

The costs of sale

1. The evidence before the Court also reveals that Mr Sheehy is still owed approximately $18,000 for his costs and outlays to date with an estimated further amount of $20,000 to be incurred for work he will be required to do to get the remaining properties sold.  The evidence also reveals that another $10,000 in marketing costs to sell the properties is expected to be incurred, as well as $23,155 in legal fees for the firm undertaking the conveyancing for Mr Sheehy on the sales. In addition, Mr Sheehy estimated commissions on sales to be calculable at 2.5 per cent of the total sale price, which would be, on sales of $2,810,000, an amount of $70,250. These costs, which will necessarily reduce the sale proceeds available for division between the parties pursuant to my August 2013 Orders, would total $141,405. On gross sales of $2,810,000, those costs would reduce the amount that would be available to meet the $2,500,000 in secured debt to the amount of $2,668,595. The simple fact is, that remains $118,000 better than the offer made by the husband that he urges me to direct the trustee to accept over the objections of the trustee and the wife.

2. On the basis of Mr F’s opinion and that evidence, it is relatively easy to attribute merit to the objections of Mr Sheehy and the wife, particularly when one also has regard to the fact that the evidence establishes that the husband was considering seeking his own expert valuation report in respect of the properties, but has not put any such evidence before the Court to give support to the submission that his offer is a fair and reasonable one in all the circumstances.

3. In fairness to the husband’s position, he also submits that the evidence establishes that the company will have difficulty meeting the ongoing expenses of owning the properties, the debt repayments and the money to be paid to the parties for their living expenses in the period pending sale of the properties because of a recent significant change in the tenancy circumstances at the properties. He deposes to the fact that a major tenant, who leases three of the eleven units, is going to vacate because of financial difficulties and is unlikely to be able to pay the rent. He deposes to that tenant’s rent being $170,000 per annum, or more than half of the company’s income. He says, given that the overdraft account is currently almost at its limit, that the company will not be able to continue meeting all of its outgoings including those he was ordered to cause to continue to be paid by the August 2013 orders.

4. It is correct, as the evidence stands, that the balance of the company’s overdraft account has gone from $90,026 debit balance at time of trial to the figure of $147,000 debit balance now. The fact that the wife has not asserted in evidence that there has been improper expenditure or contravention of the Court’s Orders about the manner in which the husband was to operate this account pending sale of the properties, when Orders providing for full disclosure of expenditure to the wife were also made, suggests that the company has actually gone backwards financially since the trial.

5. However, the large debt of $1,100,000 which the husband was also servicing from that account in respect of the residential house mortgage has now been discharged and replaced by the significantly lesser sum of $200,000, a substantial saving in monthly interest. Additionally, I take account of the fact that Mr F already considered, as part of the basis for the provision of his opinion on the market values of the properties, the likelihood that the major tenant would be gone. It is indeed the case that the three lots that the major tenant still occupies at this point in time could potentially be the first lots sold at the auction and the proceeds used to discharge debt. The income they generate would then not be available to the company in any event but the monthly outgoings would be much less as well. Clearly, as each unit is sold down, the income available to the company is reduced but so too are the total debt and monthly outgoings.

6. Finally, on this point, the wife gave evidence that the company has the benefit of directors’ guarantees from the directors of that company that is the major tenant that could be defaulting on its lease obligations and that her searches reveal each director owns real property. The wife’s evidence that she would expect the husband to pursue the directors on their personal guarantees for unpaid rent was not answered by the husband in any form. I accept there is merit in taking it into account in considering the husband’s case in this respect.

7. Ultimately, without expert valuation opinion evidence that satisfies me that the husband’s offer of just under $2,550,000 for the remaining industrial properties represents fair and reasonable value to both parties, having regard also, of course, to the savings that would inure to the parties through the avoidance of all of the costs of sales in the ordinary course, I am not persuaded that I should direct Mr Sheehy to accept it over his objection.

8. I will simply direct that Mr Sheehy continue to act in accordance with the August 2013 Orders, save that he should now use his best endeavours to cause all of the properties to be sold within six calendar months of the date hereof.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 1 July 2014.

Associate: 

Date:  1 July 2014