Cornish & Cornish (No 3)
[2024] FedCFamC1F 32
•1 February 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Cornish & Cornish (No 3) [2024] FedCFamC1F 32
File number: MLC 12589 of 2019 Judgment of: CARTER J Date of judgment: 1 February 2024 Catchwords: FAMILY LAW – PROPERTY – Orders made after the death of a party in the exercise of the Court’s power pursuant to s 79(8) of the Family Law Act1975 (Cth) – Determination of the pool – Assessment of contributions – Assessment of section 75(2) of the Family Law Act1975 (Cth) factors. Legislation: Family Law Act 1975 (Cth) ss 75(2)(o), 78, 79(2), 79(4), 79(8)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rr 10.17, 12.19
Cases cited: Aleksovski v Aleksovski (1996) FLC 92-705
Bevan v Bevan (2013) FLC 93-545
C v C [1998] FamCA 143
NHC & RCH (2004) FLC 93-204
Dickons v Dickons (2012) 50 Fam LR 244
In the Marriage of Biltoft (1995) FLC 92-614
In the Marriage of Randle (1987) FLC 91–828
Mallet v Mallet (1984) 156 CLR 605
Menzies and Evans (1988) FLC 91-969
AJO and GRO (2005) FLC 93-218
Pierce & Pierce (1999) FLC 92-844
Stanford v Stanford (2012) 247 CLR 108
Stein and Stein (1986) FLC 91-779
Stephens & Stephens & Anor (Enforcement) (2009) FLC 93-425
Van der Linden & Kordell [2010] FamCAFC 157
Weir & Weir (1992) FLC 92-338
Division: Division 1 First Instance Number of paragraphs: 389 Date of last submission: 15 December 2023 Date of hearing: 16 – 19, 30 October 2023, 15 December 2023 Place: Melbourne Counsel for the Applicant: Mr Dunlop Solicitor for the Applicant: Taussig Cherie Fildes Solicitor for the First Respondent: Marsdens Law Group Second Respondent: Did not participate Third Respondent: Did not participate Fourth Respondent: Did not participate ORDERS
MLC 12589 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS PEARCE AS PERSONAL LEGAL REPRESENTATIVE OF MS CORNISH
Applicant
AND: MR CORNISH
First Respondent
CC PTY LTD
Second Respondent
DD PTY LTD (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
CARTER J
DATE OF ORDER:
1 FEBRUARY 2024
Amended pursuant to rule 10.13 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) on 28 February 2024
THE COURT ORDERS THAT:
1.The Application in a Proceeding filed 11 December 2023 is dismissed.
Election
2.Within 30 days of the making of these orders the husband elect in writing either:
(a)to retain the property at EE Street, Suburb F in the State of Victoria more particularly described as the whole of the land in Certificate of Title Volume … Folio … (“EE Street”); or
(b)for the property at EE Street to be sold.
3.In the event the husband fails to make an election within 30 days, he will be taken to have elected to retain EE Street.
Balance of proceeds of sale of 2 U Street, Town V
4.Unless within 14 days of these orders the parties agree as to the dollar amount of capital gains tax liability incurred by the husband for the financial year ending 2021 arising from the sale of the property at 2 U Street, Town V, the parties jointly appoint an agreed accountant to forthwith determine that amount at their equal expense.
5.The parties have liberty to apply in relation to the appointment of an accountant pursuant to Order 4 herein.
6.Within seven days of receiving advice from the jointly appointed accountant as to the dollar amount of the capital gains tax liability, the applicant and the husband do all such acts and things and sign all documents as necessary to authorise the release of that amount from the balance of the proceeds of sale of 2 U Street, held on trust by AH Lawyers (“the monies held on trust”) to the husband’s solicitor’s trust account.
7.In the event the husband elects to retain EE Street, and once payment has been made to the husband pursuant to Order 6 herein, the applicant and the husband do all such acts and things and sign all documents as necessary to authorise the balance of the monies held on trust be divided equally between the parties.
8.In the event the husband elects to sell EE Street, and once payment has been made to the husband pursuant to Order 6 herein, the applicant and the husband authorise and direct the balance of the monies held on trust be held on trust by the applicant’s solicitors in an interest bearing account pending determination of the capital gains tax arising from the sale of EE Street, and thereafter distributed as set out in Orders 29 and 30 herein.
Payment to the estate
9.In the event the husband elects to retain EE Street, then within 90 days of the making of these orders (“the due date”), the husband pay to the estate the sum of:
(a)$821,473 (“the payment”) together with;
(b)an additional sum of $1,498 plus interest calculated pursuant to rules 10.17 and 12.19 of the Federal Circuit and Family Court of Australia (Family Law) Rules2021 (Cth) (being the costs ordered on 8 April 2021) if the husband has not already paid the outstanding costs order and interest.
10.In the event the husband elects to sell EE Street, the husband pay to the estate the sum of $821,473 and for the costs ordered on 8 April 2021 as follows;
(a)the sum of $600,000 (“Tranche 1 payment”) together with the payment of costs arising from orders of 8 April 2021 as set out in order 9(b) herein within 90 days of the making of these orders (“Tranche 1 payment due date”) and;
(b)the balance of $221,473 (“Tranche 2 payment”) upon the settlement of the sale of EE Street (“Tranche 2 payment due date”).
The estate’s additional entitlements
11.The estate retain free from all claims:
(a)Motor Vehicle 1 motor vehicle registration;
(b)the late Ms Cornish’s (“the late wife”) jewellery and personal items;
(c)the rights of interment in respect of graves numbers … in row …, section … at the AN Cemetery (“Burial Plots”);
(d)funds standing to the estate’s sole credit in bank accounts;
(e)$200,000 partial property settlement paid to the late wife pursuant to 22 July 2020 orders;
(f)$100,000 litigation funding paid to the late wife pursuant to 22 July 2020 orders; and
(g)$50,000 partial property settlement paid to the late wife pursuant to 14 January 2020 orders.
The husband’s entitlements
12.Subject to the enforcement of these and any subsequent orders the husband retain his interest in:
(a)BB Street, Town V subject to the mortgage/s encumbering that property;
(b)4 U Street, Town V, subject to the mortgage/s encumbering that property;
(c)EE Street, Suburb F (in the event he elects to retain the property), subject to the mortgage/s encumbering that property;
(d)the following entities (“the entities”):
(i)AC Pty Ltd;
(ii)AD Trust
(iii)E Pty Ltd
(iv)AP Pty Ltd;
(v)AO Investment Trust;
(vi)E Trust;
(vii)J Pty Ltd;
(viii)J Trust;
(ix)OO Pty Ltd;
(x)Superannuation Fund 1.
(e)Motor Vehicle 1 registered in his name;
(f)funds standing to his sole credit in bank accounts;
(g)all loans owing to him or the entities by any third party;
(h)any shares held in his name;
(i)his jewellery and personal items;
(j)the furniture and contents of BB Street, Town V;
(k)his superannuation entitlements with Superannuation Fund 2 and the Superannuation Fund 1; and
(l)his interest in AQ Street, Suburb AR.
Additional obligations on the husband
13.To give effect to Order 11(a) the husband forthwith withdraw and discharge any encumbrance including that on the Personal Property Securities Register in relation to Motor Vehicle 1 registered in the name of Ms Pearce as executor of the late wife’s estate at his expense, if any.
14.To give effect to Order 11(c) the husband forthwith transfer the burial plots to the estate at his expense, if any.
15.The husband shall pay and otherwise be wholly responsible for and indemnify the estate in relation to any taxation liability in the name of the late wife as a result of distributions made to her from the AD Trust for the financial years ending 2018, 2019, 2020 and 2021.
16.The husband otherwise pay, be responsible for and indemnify the estate in relation to:
(a)any and all unpaid past, present and future liabilities of the entities including any taxation payable and liability personally guaranteed by the late wife;
(b)all taxation payable of whatsoever nature and kind, including penalties and interest, assessed, or hereinafter assessed against the husband or any of the entities;
(c)all taxation payable, including penalties and interest assessed or hereinafter assessed against the late wife in respect of income derived or deemed to have been derived by her including without limitation by way of salary or income distribution from the entities or any one of them;
and from all costs, claims, demands, proceedings, interest and penalties of and in relation thereto.
Additional obligations on the applicant
17.Contemporaneously with the payment to the estate in accordance with Order 9 or 10 (whichever is applicable), the applicant do all such acts and things and sign all documents as necessary to remove any caveats lodged on the properties at BB Street, Town V, 4 U Street, Town V and EE Street, Suburb F by the applicant, by the late wife, or on behalf of the late wife or the estate (including any caveat lodged by AK Pty Ltd) at the expense of the estate.
Sale of EE Street
18.In the event the husband elects to sell EE Street, the property be forthwith placed on the market for sale.
19.For the purposes of the sale:
(a)the husband forthwith appoint a selling agent to conduct that sale and a conveyancer, and advise the applicant of such appointments;
(b)the husband do all things necessary to co-operate with the selling agent, and to comply with all reasonable directions of the selling agent regarding the sale, including preparing the property for sale; and
(c)the husband keep the applicant fully informed as to the progress of the sale, including any offers made prior to the acceptance of any such offer.
20.Pending payment to the estate in accordance with these orders, or sale the husband has the right to occupy the property at EE Street, and during such occupation the husband:
(a)be and is hereby restrained from alienating, further encumbering, transferring, disposing of or in any way dealing with the property contrary to the provisions of these orders without the prior written consent of the applicant; and
(b)pay all mortgage payments, utility rates, land taxes and all other expenses and outgoings for the property.
21.The proceeds of the sale be applied as follows:
(a)first to meet the costs, commissions and expenses of the sale;
(b)secondly to discharge the mortgages encumbering the property;
(c)thirdly, the sum of $221,473, being the Tranche 2 payment, to the estate; and
(d)the balance to the husband.
22.The applicant and the husband have liberty to apply in relation to the terms and conditions of the sale.
Sales in default – BB Street and 4 U Street, Town V
23.In the event:
(a)the husband elects to pay the estate, and fails to make the whole of the payment pursuant to Order 9 on or before the due date; or
(b)the husband elects to sell EE Street and fails to make the whole of the Tranche 1 payment pursuant to Order 10(a) on or before the Tranche 1 payment due date; or
(c)the husband elects to sell EE Street and fails to make the whole of the Tranche 2 payment or there is insufficient equity in EE Street to make that payment pursuant to Order 10(b) on or before the Tranche 2 payment due date;
then the properties at BB Street, Town V and 4 U Street, Town V shall be forthwith placed on the market for sale (“sales in default”).
24.For the purposes of the sales in default:
(a)the parties forthwith jointly appoint a selling agent to conduct the sales;
(b)in the event the parties do not agree as to the selling agent, the applicant shall nominate a list of three proposed selling agents and conveyancers within seven days of the date of default and the husband shall select an agent and a conveyancer from that list within a further seven days. In the event the husband fails to select an agent or conveyancer within seven days of the applicant providing him with the list, the applicant shall determine the selling agent and conveyancer;
(c)the parties do all acts and things as may be necessary to appoint the selling agent and conveyancer, and to co-operate with and comply with all reasonable directions of the selling agent regarding the sales, including preparing the properties for sale and signing documents as requested by the selling agent or conveyancer; and
(d)the sales shall be on such terms and conditions as are agreed and failing agreement as nominated by the selling agent.
25.Pending payment to the estate in accordance with these orders or sale in default the husband has the right to occupy the properties at BB Street, Town V and 4 U Street, Town V and during such occupation the husband:
(a)be and is hereby restrained from alienating, further encumbering, transferring, disposing of or in any way dealing with the properties contrary to the provisions of these orders without the prior written consent of the applicant; and
(b)pay all mortgage payments, utility rates, land taxes and all other expenses and outgoings for the properties.
26.The proceeds of the sales in default of BB Street Town V and 4 U Street, Town V be applied as follows:
(a)first, to pay the costs, commissions, and expenses of the sales;
(b)secondly to discharge the mortgages encumbering the properties;
(c)thirdly to pay to the estate so much of the payment as is outstanding together with interest thereon calculated in accordance with the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth);
(d)fourthly, if the husband has not complied with Order 15, such sum to the Australian Taxation Office as is necessary to discharge all taxation payable owed by the estate including penalties and interest; and
(e)the balance paid to the husband.
27.The husband be solely liable for any capital gains tax liability arising out of the sales in default.
Payment of capital gains tax on EE Street sale
28.In the event the husband elects to sell EE Street;
(a)if the sale occurs prior to 30 June 2024, the husband do all such acts and things and sign all necessary documents to lodge his personal taxation return for the financial year ended 30 June 2024 by no later than 29 September 2024;
(b)if the sale occurs in the financial year ending 30 June 2025, the husband do all such acts and things and sign all necessary documents to lodge his personal taxation return for the financial year ended 30 June 2025 by no later than 29 September 2025; and
the husband shall provide the applicant a copy of the relevant personal taxation return as lodged together with evidence from his accountant of the dollar amount of any capital gain liability triggered by the sale.
29.The husband shall forthwith thereafter advise the applicant if he is assessed to pay capital gain tax on the sale of EE Street. If so, the husband provide the applicant with a copy of his Notice of Assessment, and subject to Order 31, the applicant and the husband thereafter direct and authorise the balance of the monies held on trust be distributed:
(a)first to pay to the husband the dollar amount of the capital gain tax liability triggered by the sale (and the husband remains wholly responsible for the payment of that liability to the Australian Tax Office); and
(b)any balance remaining be divided equally between the parties.
30.In the event there is no capital gains tax liability triggered by the sale, the monies held on trust be divided equally between the parties.
31.The applicant and the husband have liberty to apply in relation to the calculation of the capital gains tax arising from the sale of EE Street.
Miscellaneous
32.Unless otherwise specified in these orders, and save for the purposes of enforcing any monies due under these or any subsequent orders:
(a)each party be solely entitled to the exclusion of the other to all property (including choses-in-action) owned by or in possession of such party as at the date of these orders;
(b)insurance policies remain the sole property of the owner named therein;
(c)the husband forego any claim he may have to any superannuation, long service leave, redundancy, retirement, retrenchment and like benefits belonging to or earned by the late wife;
(d)the estate forego any claim it may have to any superannuation, long service leave, redundancy, retirement, retrenchment and like benefits belonging to or earned by the Husband; and
(e)each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled, pursuant to these orders.
33.The parties each do all acts and things necessary including signing all documents to give full force and effect to the provision of these orders.
34.All extant applications are dismissed, and the matter removed from the list of pending cases maintained by the Court.
AND THE COURT NOTES THAT:
A.The applicant was granted leave pursuant to rule 1.33(2) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) to proceed with her application on an undefended basis against the second, third and fourth respondents.
B.Pursuant to rule 10.13(1)(a) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth), the Court may vary or set aside a judgment or order made in the absence of a party.
lodge his personal taxation return for the financial year ended 30 June 2024;
lodge the taxation return for the E Trust for the financial year ended 30 June 2024Note: 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 a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUSTICE CARTER
The parties to these proceedings are:
(a)Ms Pearce – the applicant – the deceased wife’s legal personal representative;
(b)the respondent husband;
(c)the husband’s brother, Mr E Cornish – the fourth respondent; and
(d)two entities, CC Pty Ltd and DD Pty Ltd – the second and third respondents. The husband said those entities were operated by his brother. The applicant asserts those entities are a sham, and their assets should be treated as assets of the husband.
BACKGROUND
The husband and wife married in 2003. There is one child of the marriage, Z. She is 14 years old. Pursuant to final orders made by consent on 31 January 2023 Z lives with her maternal grandparents and does not spend any time with her father. He does not contribute to her financial support.
During the marriage, a number of property developments were undertaken, with the proceeds of each project being invested into the next one, used for living and travel expenses, or to repay liabilities. Properties were purchased in the name of the wife, and then later in the name of E Pty Ltd. The husband is the sole director of E Pty Ltd. The husband and the fourth respondent are shareholders. There were also some developments undertaken with the wife’s brother Mr Waley.
In addition to these property developments, the husband was engaged in full time employment.
The wife was engaged in employment until about 2008. Z was born in 2009, having been conceived naturally.
In around 2010 a property at 2 U Street, Town V was purchased in equal shares between E Pty Ltd and the wife’s brother Mr Waley. The land was subsequently divided into two titles, with the second title being AT Street, Town V.
In 2011 the properties at BB Street, Town V and 4 U Street, Town V were purchased for about $1,430,000. AS Investment Group – a company operated by the wife’s brother – and E Pty Ltd were the registered proprietors, as tenants in common in equal shares. The properties were subject to a mortgage with the NAB.
The 4 U Street property remains a vacant block of land.
The property at BB Street has buildings on it. It is the applicant’s case that the wife, her brother, and the maternal grandfather undertook renovations to one of the buildings on the property and that the Waley family used it for many family events and celebrations. The respondent says the renovations are incomplete and there remains much work to be done on the other building. He says he has undertaken some works to make part of that building habitable, and that he lives there now.
Later in 2011, the husband and wife established the AD Trust, for which AC Pty Ltd was the corporate trustee. The husband and wife were the beneficiaries and appointors of the trust. E Pty Ltd owns the shares in AC Pty Ltd.
In 2012 the E Trust was established. E Pty Ltd is the corporate trustee. The husband said he and the wife were joint appointors and beneficiaries of the trust.
In 2013 or 2014 E Pty Ltd purchased Mr Waley’s interest in the BB Street property from AS Investment Group for $875,000.
In 2017 the entity B Company, was established, which operated through AC Pty Ltd. The husband said B Company was a consultancy firm which in the early stages he operated from home before moving to a serviced office.
In 2017 the property at AT Street was sold.
In April 2018 the wife was diagnosed with an illness.
In February 2019 the J Trust was established. J Pty Ltd was the trustee. The husband and wife were the joint directors of the trustee company, and appointors of the trust, as well as beneficiaries of it. J Pty Ltd holds shares in FF Company (worth about $25,000) and cash of about $4,000.
The husband and wife separated on 15 October 2019.
The wife commenced these proceedings on 7 November 2019.
In late 2019/early 2020 the husband said the fourth respondent started working with him and B Company, before B Company began to experience financial difficulties in 2020/2021. It has subsequently stopped trading.
The wife passed away in 2021. Ms Pearce filed an application seeking to be substituted for the wife as a party to these proceedings on 25 June 2021.
The husband did not consent to Ms Pearce’s substitution in this Court. He also objected to the grant of probate in relation to the wife’s will in the Supreme Court of Victoria. His objection was struck out and he was ordered to pay costs to the estate.
In mid-2021 the property at 2 U Street was sold by consent. The husband and the estate have received some funds by way of partial property settlement. The wife’s brother was paid his share, and the balance of around $300,500 remains on trust.
Pursuant to orders made 30 March 2022, Ms Pearce was substituted for the wife in these proceedings, in her capacity as the wife’s personal legal representative.
Should leave be granted for the matter to proceed undefended as against the second, third and fourth respondents?
The applicant sought the matter proceed undefended as against the additional respondents. The husband did not object to the matter proceeding on an undefended basis, and otherwise did not seek to be heard on the issue.
The second, third and fourth respondents did not participate in these proceedings. No trial material was filed on behalf of any of those additional respondents. I was offered no explanation for the non-attendance and non-participation of the fourth respondent. The husband appears to say he does not know his brother’s whereabouts. I was also offered no explanation for the non-attendance and non-participation of the husband’s other brother Mr AV who was appointed a director of the second and third respondents in early 2021.
The fourth respondent was briefly represented in these proceedings. He filed a response to final orders on 25 June 2021, together with an affidavit in support. At that time he asserted he had an interest in the property at 2 U Street, Town V. The fourth respondent asserted he and the husband were 50 per cent shareholders of E Pty Ltd and accordingly he said he was entitled to 50 per cent of the sale proceeds of the property.
The lawyer for the fourth respondent filed a Notice of Ceasing to Act in October 2021. The fourth respondent has not participated in these proceedings since that time.
The husband was ordered to provide an address for his brother. However, he advised the applicant’s solicitors in January this year that he was “unaware of the address” for his brother.
I made orders on 11 January 2023. Those orders included orders that the second, third and fourth respondents finalise various financial documents to enable tax returns to be completed for the second and third respondents. Similar orders had been made previously by the Senior Judicial Registrar on 30 March 2022, and not complied with.
My orders of 11 January 2023 also included an order that the applicant have liberty to seek to proceed on an undefended basis if the second, third and fourth respondents did not comply with the orders made that day.
On 13 January 2023, the orders of 11 January 2023 were provided to the fourth respondent to his email address. On the same day, the applicant’s solicitors received an email in response advising the fourth respondent was on long service leave and would not check his emails until June 2023.
The orders of 11 January 2023 were not complied with.
The fourth respondent is a registered proprietor of 3/10th interest in a property in Suburb AR New South Wales. The husband also has a 1/10th interest in that property – it being a property previously owned by his parents, and now inherited in different shares by the husband and his siblings, and inhabited by his brother Mr AV.
The applicant arranged for the fourth respondent to be personally served at that address in March 2023, but that was unsuccessful. An affidavit of attempted service was filed on 25 July 2023 which sets out that the process server attended the Suburb AR address, and the fourth respondent was not present. The process server said the person who answered the door identified themselves as Mr AV, who advised the process server he had a falling out with the fourth respondent, that the fourth respondent did not live at the Suburb AR address, and that Mr AV had not seen him for several months and did not know how to contact him.
Despite the email advising he would be on long service leave and checking his emails in June 2023, the fourth respondent has failed to contact the applicant or her solicitors, or to comply with orders for the preparation of various financial documents.
On 25 September 2023 the applicant sent a copy of her Further Amended Initiating Application and trial affidavit by way of registered post addressed to the fourth respondent at the Suburb AR address. She also served her trial material on him by email on that day. Neither the applicant nor the husband say they have any other means of getting in contact with the fourth respondent. The applicant’s material identified that the matter was listed for a trial on 16 October 2023. I understand the applicant has received no response.
Similarly on 25 September 2023 the applicant sent copies of her trial material to Mr AV. No response has been received.
I am satisfied the second, third and fourth respondents are either aware of these proceedings and of the orders sought or have determined to ignore attempts at service upon them. They have determined to play no part in these proceedings. In the circumstances, I am prepared for the matter to proceed against them on an undefended basis. The proceedings have been on foot for a considerable amount of time and need to come to a conclusion.
WHAT ARE THE ISSUES IN DISPUTE?
The dispute between the applicant and the husband is long-standing and complicated. It is exacerbated by grief and distrust. The applicant asserts the husband has deliberately acted to obfuscate and confuse in an effort to diminish the pool. She said he has failed to provide full and frank disclosure, and acted in a way that has prolonged proceedings and made it very difficult to understand the true financial position of the husband.
The applicant seeks the estate retain the property at BB Street/4 U Street, Town V, together with a cash payment, the late wife’s car and burial plots purchased by her and situated near her gravesite. It is asserted the property at BB Street holds significant sentimental value for the late wife’s family, being a venue at which many important family milestones were celebrated. The applicant asserts the pool should be divided equally.
The husband denies that he has been difficult or opaque. He says he has conducted the litigation appropriately and that the applicant’s case is built on suspicion and aspersions cast without foundation. It is his case that he should retain the BB Street/4 U Street property, as he says he lives there. He says the estate cannot have that property unencumbered, as the estate’s claim, as formulated, exceeds the pool for which he contends. Moreover, he said a transfer of the property to the estate would trigger a capital gains tax liability, and if it was transferred subject to a mortgage, there is no evidence the estate can borrow monies to meet these liabilities.
Additionally, the husband says he made greater contributions initially, during the marriage and post-separation and that there can be no adjustment in favour of the estate on the basis of s 75(2) factors. According to him, the pool should be divided 70 per cent to him and 30 per cent to the estate.
The parties do not agree as to:
(a)the assets and liabilities to be taken into account in determining the pool;
(b)the appropriate assessment of the contributions of the husband and late wife at the commencement of, during, or after the marriage;
(c)the appropriate adjustment in light of s 75(2) factors; or
(d)what assets should be retained by who in the division of property, with both parties contending the properties at BB Street/4 U Street, should form part of the assets to which they are entitled.
A significant aspect of the dispute in so far as determining the pool regards the involvement of the fourth respondent in B Company and whether the establishment of the second and third respondents was done in an effort to move assets out of the matrimonial pool.
After the trial concluded, the applicant filed an Application in a Proceeding seeking to adduce further evidence in relation to the quantum of the NAB loan encumbering the property at BB Street, Town V. That was opposed by the husband. I will turn to the Application in a Proceeding shortly.
At the mention in relation to that Application in a Proceeding, I also sought submissions from the parties’ representatives in relation to a number of matters that had become evident to me as requiring clarification. Most of the matters were not in dispute. However, I also sought that I be provided with a figure for the capital gains tax liability incurred by the husband as a result of the sale of the property at 2 U Street. I will deal with that matter, and the submissions made later in these reasons.
THE EVIDENCE
The applicant relied on:
(a)her Further Amended Initiating Application filed 11 September 2023;
(b)her trial affidavit filed 11 September 2023;
(c)her affidavit-in-reply filed 10 October 2023;
(d)the affidavit of Mr AF filed 24 August 2023; and
(e)the affidavit of Mr AU filed 7 September 2023.
The husband relied on:
(a)his Amended Response to an Initiating Application filed 20 September 2023;
(b)his trial affidavit filed 20 September 2023;
(c)his Financial Statement filed 11 October 2023;
(d)the affidavit of Mr AW, the husband’s accountant, filed 10 October 2023; and
(e)the affidavit of Mr AM filed 8 September 2023.
The parties also relied on a joint statement by business valuation experts (Mr AF and Mr AM) dated 9 October 2023.
The husband was not an impressive witness. At times, he did not answer questions directly. He took considerable time to formulate his answer on other occasions. He struggled to make concessions, even after being shown documents that supported the contentions being put by counsel for the applicant. The husband appeared at times to be quite pedantic, deposing to very specific and detailed evidence regarding his contributions to the various property developments, and giving careful answers under cross-examination. Yet there were demonstrable inaccuracies in the husband’s sworn material, which were difficult to reconcile with the precise manner in which he gave other parts of his evidence and could not, in my view, be readily explained as genuine error or oversight.
It was apparent that the husband sought to frame the assets and liabilities in a way that would reduce any entitlements the estate may have. Sensibly, some of the liabilities he initially sought to include were not pressed at the conclusion of the trial, as they were clearly unsustainable. However, the husband should have known those liabilities were not appropriate to include, and Court time was wasted on some of these points.
For instance, the husband initially sought to include what he said was outstanding office rental of $55,717.44 (being from when he vacated the premises in early 2023 until the expiry of the lease in late 2023) and an office lease make-good liability of $90,893.
When cross-examined by counsel for the applicant, the husband very reluctantly had to concede the offices he had occupied had in fact been re-let as of mid-2023. Accordingly it was most unlikely the landlord would or could seek rental from the husband of $55,717. Moreover, the husband also had to reluctantly concede he would not be required to ‘make good’ the office space he had rented as it was now occupied by another tenant.
The husband’s reluctance to concede these matters was plain. It took some time for him to accept the evidence presented that it was indeed the very same offices that he had leased that were occupied by another tenant. He would not concede under cross-examination that he was not liable for either the rent or make-good amounts, and said the landlord might still seek to recover monies from him. However, it was conceded in closing that there was no need for the make good amount to be included as a liability.
There was apparently no such concession as to the office lease asserted liability. Whilst the separate line item at 64 on the joint balance sheet recording the liability for outstanding rent was removed, it was asserted that amount should continue to be treated as a liability of B Company and factored into the net value of that entity. I will turn to the value of B Company shortly. I note that prior to the amendment of the joint balance sheet, the non-existent office lease liabilities would in fact have been included twice, on the husband’s case. Once as a liability reducing the value of B Company and secondly as a separate, stand-alone liability.
At the outset of the proceedings the husband also sought to include a liability to the fourth respondent of $307,395. As best as I can tell, that liability was said to have arisen in circumstances where the fourth respondent was a 50 per cent shareholder in E Pty Ltd and that pursuant to an agreement between the husband and the fourth respondent made in 2000 the fourth respondent was entitled to 50 per cent of any return upon the sale of E Pty Ltd’s assets. The assets sold were the properties at 2 U Street and AT Street being a property subdivided from 2 U Street.
In circumstances where the fourth respondent was joined, was well aware of the sale of the properties, initially articulated his claim and subsequently declined to participate in these proceedings, the inclusion of that liability was, sensibly, abandoned during the applicant’s opening. It was however deposed to in the husband’s trial material and included in the asset pool he contended at the commencement of the trial.
Similarly, the husband’s evidence regarding contributions appeared to be exaggerated in his favour. I will set out the evidence and my findings about contributions later in these reasons.
I formed the impression that the husband sought to formulate the pool, and the evidence, very much to his advantage.
The applicant, similarly, sought to formulate the pool in a manner that increased the funds available for division in a way that advantaged the estate. It was apparent she was highly suspicious of the husband, and regarded his explanations as to various financial matters with much scepticism. Her distrust was fuelled by what at times has clearly been poor behaviour by the husband in the context of the separation and as a litigant. That included his apparently tactless communications with the wife towards the end of her life, his belligerent engagement with the single expert in 2020, and the husband’s tardiness, and failure at times to meet his disclosure obligations.
Like the husband, the applicant resiled from a number of matters sought to be included in the pool after a testing of the evidence. In relation to a number of matters that was because for the first time the husband at trial provided a reasonable explanation for some of the concerns raised by the applicant.
THE APPLICANT’S APPLICATION IN A PROCEEDING
On 11 December 2023 the applicant filed an Application in a Proceeding seeking to adduce further evidence regarding the mortgage encumbering the property at BB Street, Town V. In particular, the applicant asserted that unbeknownst to her E Pty Ltd was in default of the loan agreement and the mortgage was in arrears as at November 2023 of $206,422.55. That meant the amount owing on the mortgage was more than $50,000 greater than the husband had asserted at trial. She said she was concerned the bank may commence proceedings for possession and foreclosure.
At the hearing before me on 15 December 2023, the applicant said the arrears had further increased and were now $216,000, and not $161,444 as had been the figure used at trial. It was further submitted on her behalf that at trial the arrears were $170,000, and that information was not provided by the husband to the applicant.
That application was opposed by the husband. In his submissions, Mr Reeve said the liability has continued to increase in circumstances where the husband has not been paying the mortgage. He said that was known at the hearing. He further said the date in the joint balance sheet fixed the mortgage at $1,155,531 as at 4 August 2023, which was correct. He said that to simply change the mortgage amount on the balance sheet, whilst not also amending, and updating all other changed amounts on the balance sheet would be inappropriate. He said there are other, more appropriate ways the Court can deal with the increasing mortgage amount without acceding to the application to adduce further evidence, and that the evidence sought to be adduced by the applicant was not sufficiently significant to allow a re-opening of the evidence.
Whether new evidence should be admitted after judgment has been reserved requires a consideration of whether the interests of justice are best served by allowing the application or rejecting it; Stephens & Stephens & Anor (Enforcement) (2009) FLC 93-425 at [272].
For the following reasons, I am satisfied the application should be dismissed.
The fact that the mortgage is increasing cannot be a surprise to anyone. The husband ceased paying it some time ago and there was no suggestion by him at trial that he had commenced making payments towards it.
Whilst the applicant had pressed for the increase in the mortgage to be notionally added back into the pool, for the reasons set out later in this judgment, I have declined to do so. Rather, I am of the view it is more appropriate to take the husband’s failure to meet the mortgage into account pursuant to s 75(2)(o) of the Family Law Act 1975 (Cth). Accordingly, the precise figure increase is unnecessary. I should note that whether the figure was $161,444 – or $216,000 as now contended by the applicant – my treatment of this issue would not alter.
Further for the reasons set out later in this judgment, I have determined that the husband shall retain the properties at BB Street and 4 U Street, and the liabilities on those properties. Again, the precise figure owing on the mortgage would not impact that decision, as my determination turned on the husband’s current occupation of that property, and the limited evidence I have of the estate’s ability to service a mortgage of at least $1,000,000.
Accordingly, I am not satisfied the admission of the further evidence as to the additional increase in the arrears would affect my determination.
The prejudice in not admitting the evidence falls to the husband, as the pool I have determined fixes the mortgage owing at $1,155,531 and not greater. He opposed the admission of the evidence.
In all the circumstances, I am satisfied that the interests of justice are better served by rejecting the application.
ALLEGATIONS OF NON-DISCLOSURE
The applicant asserted the husband fell well short of his duty to make full and frank disclosure. She said many requests for documents were not answered at all, including his failure to explain a number of transactions. Those that were answered were often partially responded to, and the provision of documents was often tardy. She asserted the husband did not provide complete answers to multiple questions posed by AG Pty Ltd who were appointed by the applicant to value B Company. She said she incurred considerable additional costs having to subpoena material that ought to have been produced by the husband. The applicant also said the husband had failed to provide documents evidencing how he had applied over $700,000 withdrawn by him from various accounts post-separation.
A number of documents were disclosed for the first time in the husband’s trial material. The ATO portal documents regarding the various entities were only disclosed by the husband in the running of the trial.
The husband denied he had not complied with his obligations, save to acknowledge he did not provide his ATO portal printout until the final hearing. It was submitted on his behalf that the requests made by the late wife and then the estate for the production of documents was at times overwhelming, and the husband endeavoured generally to comply. It was further submitted that a number of requests for documents were based on the applicant’s suspicions and worries which were baseless. For instance, at closing, Mr Reeve pointed to the applicant’s assertion that a term deposit of $100,000 had not been disclosed, that there was a clause missing from the E Trust Deed and that the husband had financial dealings with a Ms AY. None of these concerns were based on anything more than suspicion and were readily explainable.
The husband also asserted the applicant had not provided full and frank disclosure. That was denied by the applicant. There was little time devoted to the husband’s complaints at trial.
There has been almost no disclosure from the second, third or fourth respondents. This has made it more difficult for the applicant to present her case. Their non-participation has also made it more difficult for the Court to determine the veracity of the parties’ competing applications.
Parties to proceedings are required to make full and frank disclosure. The duty of disclosure is absolute and continuing.
The Full Court of the Family Court said in Weir & Weir (1992) FLC 92-338 at 79,593:-
… once it has been established that there has been a deliberate non-disclosure … the Court should not be unduly cautious about making findings in favour of the innocent party…
Accordingly, in the event of one party failing to meet their obligations of disclosure, the Court may then draw adverse inferences against that party, “if there is material upon which the inferences can be based”. This observation was made by the majority of the Full Court in Stein and Stein (1986) FLC 91-779.
In this matter the husband’s involvement in multiple entities has meant that there has been an unusually large amount of documents required to be disclosed. Whilst the husband has at times been tardy about producing documents, I accept that, generally, he has produced documents. However, the applicant has also had to subpoena a significant number of documents. The applicant’s solicitors have been extremely meticulous in the documents they sought and their inspection of them.
I have already referred to the significant level of distrust between the parties. Any slight discrepancy, or page apparently missing from documents produced has resulted in the applicant suspecting the husband acting in an underhanded manner. The asserted missing clause from the E Trust Deed, which was in fact not missing, provides an illustration. Similarly, the applicant formed a view the husband had not provided disclosure of a financial relationship with a Ms AY, when subpoenaed documents seemed to indicate (incorrectly) he co-owned shares with her. There was no such financial relationship.
Overall, I am not satisfied that the husband has failed in his duty to provide full and frank disclosure to an extent that enables me to draw any adverse inferences against him about his financial circumstances.
However, in circumstances where the husband has been tardy at times in providing documents, and in particular his tax documents, I am satisfied that it is appropriate to make the indemnities sought by the estate in relation to all and any taxation liabilities arising from the wife’s involvement with the husband and the various entities.
ASSETS, LIABILITIES AND FINANCIAL RESOURCES
Disputes in relation to the pool
Over the course of the hearing the parties, to their credit, were able to resolve some disputes in relation to the pool. For instance, the parties agreed that distributions from D Trust to the late wife would not be re-allocated.
However, the parties were not able to agree as to the following items:
Valuation issues
(a)value of AC Pty Ltd as trustee for AD Trust, trading as B Company;
(b)value of the J Trust;
Items to be excluded/included
(c)whether funds in an ANZ account should be included in the pool;
(d)whether CC Pty Ltd and DD Pty Ltd were entities operated by the husband, and accordingly, whether any assets of those entities should be included in the pool;
(e)whether the wife’s jewellery should be included in the pool;
Addbacks
(f)whether the superannuation paid to the estate should be notionally added back into the pool;
(g)whether withdrawals by the husband from various accounts should be notionally added back into the pool;
(h)whether the husband’s legal fees of $158,629 should be notionally added back into the pool;
(i)whether there were surplus amounts paid to the ATO which should be notionally added back into the pool;
(j)whether the increase in the mortgage encumbering BB Street should be notionally added back into the pool;
Liabilities
(k)what ATO liabilities should be included;
(l)whether the husband’s loans from Mr AZ and Mr BA should be included as a liability;
(m)whether the unpaid council rates for the husband’s home should be included as a liability in the pool;
(n)whether the husband’s credit card liabilities should be included; and
(o)whether there should be any consideration for capital gains tax.
Valuation issues:
(a) AC Pty Ltd as trustee for the AD Trust trading as B Company
As set out the husband commenced B Company in 2017. He said he had registered the name years earlier – in around 2011 – as he was a history buff, and really liked the name. He said the business provided consultancy services, initially operating from home and then taking serviced offices. He said at its “peak” in 2020 he hired his brother – the fourth respondent – and a number of other freelance contractors for specific outsourced tasks. He received a consulting income, as well as capital raising fees and on occasion he would also acquire shares in companies. Major clients included AJ Limited and FF Company.
The husband said at some point he “needed support in multiple areas” of B Company and the fourth respondent provided that support. The husband set out some of the work that the fourth respondent undertook, and pointed to a number of communications that he said supported his assertion that the fourth respondent was genuinely engaged in work for B Company. The husband deposed that the fourth respondent agreed to work on a low base salary, and that as the cash flow slowed for B Company, the fourth respondent was paid in FF Company shares to the fourth respondent’s company CC Pty Ltd.
The exact times the fourth respondent was asserted to have worked ‘in the business’ is not completely clear. It appears that he was said to have been involved from about late 2019 as a consultant paid by way of invoices and then by way of sales commissions. The husband said the fourth respondent was then made an employee from about mid-2020, receiving a very modest income, which was subsequently further reduced. It is unclear when the husband asserts the fourth respondent ceased working with B Company.
It was the husband’s evidence that the B Company target market was “risky” and a number of his former clients became insolvent. The husband said that B Company was in financial difficulties in 2020 (although he also said it hit its peak in 2020), and that FF Company terminated his services in about late 2020. The husband advised the previously appointed single expert that B Company ‘shut down’ by the end of 2020.
In his affidavit sworn 16 November 2020 the husband deposed that the business was losing money and he must now shut it down. Specifically, he deposed that B Company “lost $60,042 in the three months to [late] 2020, forcing me to close the business to avoid further losses” and that B Company “is closing due to ongoing losses”.
In his affidavit filed 14 December 2020 the husband deposed:
10.There is no need to value [B Company] because it is closed down and has negative value, with office lease and taxation liabilities of more than $559,059.
(Emphasis in original)
He further deposed that a valuation of B Company was not required because “[B Company] does not exist”.
However, in his trial affidavit the husband also deposed that as managing director of B Company he earned as follows:
(a)July 2019 to June 2020 – $417,037;
(b)July 2020 to June 2021 – $355,947; and
(c)July 2021 to June 2022 – $388,613.
Even though those precise amounts were in his affidavit, in his oral evidence the husband refused to accept his own figures, querying the ‘purpose’ for which he was being asked to accept his own evidence.
The husband denied he had exaggerated his financial impecuniosity, or the poor financial circumstances of B Company. He struggled to acknowledge that he had not been accurate when he deposed that B Company ‘was closing’ in his affidavit of November 2020 and ‘had closed’ in his December 2020 affidavit. He did acknowledge that he probably should have clarified the annual position of B Company rather than just what occurred in the last three months.
The husband also acknowledged that his Financial Statement filed on 16 November 2020 stated he was employed full time, earning $1,392 from that employment. He did not refer in that Financial Statement to his continued work as managing director of B Company, nor the income he continued to derive from that work. Under cross-examination the husband acknowledged that his documents ‘perhaps did not capture’ the true nature of his income earning at that time.
In his trial affidavit the husband deposed that “initially, [B Company] did well”. He went on to say that in 2021 “the operating environment became more challenging”. These statements also seem at odds with the husband’s evidence that B Company was closed, or closing in 2020.
In his trial affidavit the husband deposed he downgraded his business licence from a corporate licence (which he had held from late 2018 to early 2021) to a single licence in early 2021 and thereafter traded as a sole operator. At that time he cancelled the B Company ABN.
B Company has now stopped trading. However, B Company clearly did not ‘close down’ at the end of 2020. It was misleading for the husband to repeatedly say that it had.
The parties agreed that it was appropriate for a value for AC Pty Ltd as trustee for the AD Trust trading as B Company to be included in the asset pool. However, they do not agree as to the appropriate value.
The husband’s value
The husband initially asserted the appropriate value to include was $71,015 being the value attributed to B Company as at 30 June 2022 by his expert.
At closing, the figure the husband asserted should be included in the pool was $122,510.
At the mention on 15 December 2023, Mr Reeve confirmed this figure comprised:
(a)the fair market value determined by Mr AM to be $92,500 as at June 2022;
(b)plus the surplus assets of GST [$727], shares in FF Company [$30,000], and the motor vehicle [$55,000]
LESS
(c)the office lease liability of $55,717.
As I have already set out, I am not satisfied there is any office lease liability. The husband struggled to acknowledge that the office had been re-let, and accordingly that there would be no requirement that he pay that liability (at least not from mid-2023). There was no evidence at all that the landlord was taking any action or considering taking any action to recover any rent whatsoever from the husband or B Company. The husband was also reluctant to concede that Mr AM had included the office lease liability as a liability of AD Trust. However, it is clear on the face of his valuation that he did.
The applicant’s value
The applicant was highly sceptical in relation to the husband’s assertions in relation to B Company’s decline. She pointed to documents that suggest B Company continued to operate in some fashion well into 2022 and possibly into 2023. That included invoices to FF Company until early 2023; emails being signed by the husband as managing director of B Company in July 2022; invoices to AJ Limited from B Company in March, August and October 2021 and invoices from another company as late as August 2022.
The applicant also did not accept that the fourth respondent genuinely worked for B Company. Rather, she asserted the monies paid to the fourth respondent were not payments for work done, but sham payments made in a deliberate attempt to move funds out of the reach of the late wife. Accordingly she said in circumstances where the fourth respondent’s employment with B Company was not genuine, payments were never, in reality, made to him, the monies ostensibly paid to the fourth respondent by way of remuneration should be regarded as an asset of B Company.
It is the applicant’s case therefore that the appropriate value for the purposes of the asset pool is the sum of the value of the motor vehicle owned by AD Trust – $55,313 – together with the sum of $159,975 identified as “Receivables – [Mr E Cornish]” – totalling $215,288. The figure of $159,975 she said reflects the payments made by B Company to the fourth respondent, according to the Xero accounting software used by B Company.
It was argued by the husband that including the receivables as an asset of AD Trust would be incorrect. As indicated, he said his brother was engaged, on a genuine basis, and remunerated appropriately. Additionally, he said the fourth respondent used his salary and commissions in part to fund the purchase of FF Company shares in the name of CC Pty Ltd. Indeed, it is not in dispute that the purchase of FF Company shares in March 2020 was funded by what the husband said were commission payments paid to the fourth respondent (see [162]-[187] of this judgment). Thus, if the fourth respondent’s payments were included in the value of B Company and if the shares owned by CC Pty Ltd are also included in the pool, it was asserted that would amount to a double counting.
For the reasons set out later in these reasons, I am satisfied that the monies paid to the fourth respondent into joint account …87 on 24 December 2019, 9 January 2020 and into the joint account …94 on 13 January 2020 ostensibly as commissions (totalling $111,574.91) were funds that remained the husband’s, and that he retained control of those monies. I will return to this issue later in these reasons.
In circumstances where I will deal separately with the monies asserted to have been paid to the fourth respondent, and with the shares acquired by the second and third respondents, I am satisfied the appropriate value for AD Trust is $178,227. That figure accords with the figure presented by Mr Reeve, excluding the office lease liability on the basis that there is no such liability. As indicated, that figure comprises the fair market value, plus the surplus assets identified by Mr Reeve.
(b) the J Trust
The applicant asserted the J Trust should be valued at $24,982, being the value of 499,460 shares in FF Company, and an additional $4,045 being funds in the ANZ bank account.
The husband said the appropriate value is negative $22,980. That included an unpaid present entitlement owing to the husband of $51,824, which he included as a separate asset in his version of the balance sheet.
It seems to me there is little difference between the two contentions. On the applicant’s case the trust has assets valued at $24,982. On the husband’s evidence the trust has a negative value, but he has a corresponding asset – resulting in an overall net position of $28,844.
There was little said about this issue at trial.
It is an asset to be retained by the husband, and I am content to use his valuation of it. I will use the overall net position of $28,844 and leave out the unpaid present entitlement as a separate entry in the pool.
Inclusion/exclusion of items
(c) ANZ bank account
The sum of $8,100 remains in an account in the joint names of the husband and the late wife. The applicant asserted those funds should be included in the pool. In his closing the husband’s representative said it did not matter whether those funds were or were not included. No argument was advanced as to why it would not be included. Accordingly, in circumstances where the funds exist, one party says the funds should be included, and the other is non-plussed either way, I am satisfied it is appropriate that the asset be included in the pool.
(d) CC Pty Ltd, DD Pty Ltd and the L Trust
It is not in dispute that the net cash and share position of CC Pty Ltd is $118,407. This comprises $112,800 worth of shares as at 17 October 2023 and cash of $5,607.43. These figures are taken from documents produced by NAB pursuant to subpoena. The question is whether or not those assets should be treated as assets of the husband’s and included in the pool.
As already observed, it is the husband’s case that post-separation he engaged the fourth respondent to work for B Company initially as a consultant and then as an employee. The husband said this was a genuine engagement, that the fourth respondent undertook considerable work at and for B Company, and that the fourth respondent was appropriately remunerated for his work.
The husband also said the fourth respondent established his own entities – CC Pty Ltd, DD Pty Ltd, and the L Trust – that those are not sham entities, and that any assets of those entities cannot form part of the pool for division.
In terms of the structure, the fourth respondent and Mr AV are the directors of DD Pty Ltd and CC Pty Ltd. DD Pty Ltd is the trustee for the L Trust (which has now been renamed). The fourth respondent is the appointor of the trust. When it was first established, the husband and Z were the only beneficiaries of the trust.
Conversely, it is the applicant’s case that the fourth respondent was never genuinely employed by the husband, and that instead the husband used the second, third and fourth respondents to syphon money and assets away from the late wife. The applicant says that the assets of the second, third and fourth respondents are really assets of the husband and should be included in the pool.
To determine this issue, a careful examination of the chronology is required.
The husband and wife separated in October 2019.
On 11 December 2019, the husband set up a joint bank account …87 with the fourth respondent. This was about four weeks after the wife had instituted proceedings. In his trial affidavit, the husband deposed that this account:
…was a joint account operated by [Mr E Cornish] and myself, when [Mr E Cornish] worked inside the business, for the purposes of paying ordinary operating expenses such as rent, utilities, contractors etc.
That is incorrect. It was not used for such purposes.
In December 2019, the fourth respondent obtained an ABN as an individual/sole trader.
On 24 December 2019 the husband transferred $44,000 from B Company into account …87.
On 9 January 2020 the husband transferred a further $36,374.91 from the B Company account to …87.
On that same day the husband and the fourth respondent established a second joint bank account (…94). At trial the husband referred to this as the real estate account.
On 13 January 2020 the husband transferred $31,200 from B Company into account …94.
The first return of the matter took place on 14 January 2020. The husband did not file any material prior to that hearing. He was ordered to file his responding material on or before 14 February 2020.
The husband conceded he met with Mr AW, his accountant at K Accountants on 12 February 2020 – two days before his responding material was due to be filed – regarding the establishment of entities for his brother. That admission was made when the applicant tendered an email from K Accountants to the husband dated 13 February 2020 which read as follows:
Structure for investments
the structure we discussed yesterday for your brother could be:
XYZ Pty Ltd as trustee for the XYZ Trust.
Mr E Cornish as sole director and shareholder
Mr E Cornish as sole appointor
Beneficiaries: Mr Cornish and Z
The key roles – director and appointor could be changed at a later stage…
(Emphasis in original)
At about the same time, the husband also contacted Mr BF, from M Pty Ltd, an accounting firm. He said that Mr AW referred him to Mr BF. In his oral evidence the husband denied that he went to another accounting firm to give the impression that the establishment of the CC Pty Ltd entities and the L Trust were separate from him, but he was unable to explain why Mr AW would not have set up the various structures himself.
In an email dated 12 February 2020, the husband referred to earlier text messages with Mr BF and sought a meeting with him. On 13 February 2020, the husband advised Mr BF that there were some matters “I need to attend to relatively urgently” and they arranged to meet that day at 2.00 pm. The husband could not recall what the urgency was, but said he may have had work on or was travelling. He did not concede the urgency was that his responding documents in these proceedings were due the following day.
The husband conceded that the fourth respondent did not participate in the meetings with Mr BF.
In early February 2020, CC Pty Ltd and DD Pty Ltd were both registered. The husband deposed that they were both registered by the fourth respondent.
At a similar time the L Trust was established. The fourth respondent was the sole appointor, and the beneficiaries were the husband and Z. The wife was an excluded beneficiary.
On 17 February 2020, an invoice was rendered by M Pty Ltd, addressed to “[Mr Cornish], [DD Pty Ltd]”. The work for which the husband was charged by M Pty Ltd was in relation to the establishment of CC Pty Ltd, DD Pty Ltd and the L Trust.
On 26 February 2020 the husband emailed an employee at M Pty Ltd and asked questions regarding how clients of CC Pty Ltd were invoiced.
Shares were issued to CC Pty Ltd by FF Company in early 2020.
The husband filed material on 18 March 2020.
It appears at least some of the FF Company shares were sold in early 2020. The sale proceeds of $17,450.49 were paid into account …87 on 23 March 2020.
On 23 March 2020 the sum of $94,439.71 was withdrawn from joint account …87. The sum of $40,000 was withdrawn from account …94. Those monies were used to purchase further shares in FF Company in the name of CC Pty Ltd.
Some time later, a further 2,443,772 shares in FF Company were issued to CC Pty Ltd.
The husband said that in May 2020 his brother ceased working as an independent contractor and became an employee of B Company. The husband also said that B Company was then experiencing negative cashflow and at risk of losing FF Company as a client.
In mid-2020 B Company was granted 2,339,285 shares in FF Company. Those were issued in mid-2020 as 50 per cent to AC Pty Ltd, and 50 per cent to CC Pty Ltd. CC Pty Ltd has subsequently sold tranches of FF Company shares between early 2020 and early 2023.
In mid-2020, AJ Limited stated the company had reached an agreement “with [J Pty Ltd] ([B Company])” to issue B Company or its nominees 4,500,000 options on shares. The husband then advised AJ Limited that the option recipient would be CC Pty Ltd. However, subpoenaed documents revealed that the husband ultimately exercised those options in the name of AC Pty Ltd.
On 25 June 2020, Mr N of M Pty Ltd sent an internal email to another M Pty Ltd employee about the share call options issues form, in which he specified “our client is [CC Pty Ltd] ([Mr Cornish])”.
In July 2020 the husband contacted the NAB and made enquiries as to how he could be removed from the joint account …87.
On 22 July 2020 the husband filed further responding material. The matter was also listed in Court that day. Orders were made by consent including orders for the sale of various properties, and injunctions against the husband.
In August 2020 joint account …87 was closed.
The husband said in September 2020 FF Company terminated the services of B Company.
At the end of 2020, the husband told the then appointed single expert that B Company had closed and there was therefore nothing to value. He also said he was returning to work in his profession. In his oral evidence the husband agreed that he continued to operate B Company until early 2021, selling the FF Company shares shortly before then, for which AC Pty Ltd received $59,430.39.
In early 2021 the trust was renamed. The husband said he was aware of this, but that it was his brother who sought the changes.
The ABN for B Company was cancelled in early 2021.
The husband said in late 2021 AJ Limited terminated his services.
The husband said by the end of 2022 he had to look for full time work to provide him with an income.
It is the husband’s evidence that he has nothing to do with CC Pty Ltd, DD Pty Ltd, or the L Trust which were, he said, entirely operated and funded by his brother.
The husband’s evidence about the entities, and his brother’s involvement with B Company was at times confusing, and not compelling.
The naming of the entities
At trial the husband was asked about the name CC Pty Ltd. In circumstances where he had previously confirmed he chose the name B Company because he was a history buff, it seemed to me that under cross-examination the husband feigned his lack of knowledge about the naming of the entities. The husband was unconvincing in his evidence that he was not aware that one had any connection to B Company, and that he thought CC Pty Ltd was a joke. He subsequently said he could not recall whether he or his brother came up with the name for the entities.
The joint accounts
As set out, the husband operated two NAB joint accounts with his brother.
Account …87 was established in late 2019 and closed in mid-2020. The first deposit into that account of $44,000 was made in late 2019. The second deposit was made into that account on 9 January 2020 for $36,374. It is the husband’s case that those deposits were commission payments to his brother. There was a third deposit of $17,450 into that account from an NAB Trade account. The sum of $94,439 was withdrawn on 23 March 2020 and used to purchase shares in the name of CC Pty Ltd. There were no deposits or withdrawals after 26 March 2020.
The second account – …94 – was set up in early 2020. It is the husband’s case that the initial deposit into that account of $31,200 was a commission payment to his brother. In his affidavit filed 22 July 2020 the husband deposed this account was a “liability reserve management account of the business”, and that funds were deposited into that account for “operating liabilities” including payment of the PAYG withholding tax for the fourth respondent. This does not explain why the deposit of $31,200 ostensibly being a commission payment to the fourth respondent, was paid into that account.
Commencing on 17 March 2020 deposits of $600 were made with some regularity into account …94; described as payments to “[BM] consulting”. These reduced to deposits of $300, and ceased altogether in August 2020. These payments correspond roughly to the period the husband said his brother was a PAYG employee of B Company (which according to the husband’s evidence commenced around May 2020).
The sum of $40,000 was withdrawn on 23 March 2020 by way of internet transfer, described as “[…]”. Smaller amounts were withdrawn in April, May and June, to a trade account, back to B Company, to an investment firm and the sum of $4,048 described as being paid to “[Mr Cornish …] ”. I have no evidence as to what that payment was for.
From July 2020 regular transfers of $4,905 were withdrawn from the account, described as “[B Company Mr E Cornish]” until the account was virtually depleted. The account then remained effectively dormant until March 2022. At that time there were a number of small deposits and withdrawals which appeared to have ceased in September 2022.
The husband’s evidence about these joint accounts at trial was confusing.
In his trial affidavit, the husband deposed that he and the fourth respondent “operated a joint bank account for the purposes of making payments to creditors in the ordinary course of operations” and that account …87 “was a joint account operated by [the fourth respondent] and myself, when [the fourth respondent] worked inside the business, for the purposes of paying ordinary operating expenses such as rent, utilities, contractors etc”.
The bank statements tendered demonstrate that evidence was not correct. As set out, there were payments into account …87 in December 2019, January 2020 and March 2020 and two withdrawals, being $94,439 in March 2020 and $3,385 in March 2020. Those monies were transferred to other NAB accounts. The account was not used to pay rent, utilities or contractors. At trial, the husband conceded that the monies were used to purchase shares in the name of CC Pty Ltd.
Account …94 was also not apparently used to pay B Company contractors, utilities, or creditors in the ordinary course of business operations. The only payments that could potentially fall into that category was a transfer of $4,950 back to B Company in May 2020 and then transfers of $4,905 on about a fortnightly basis from 20 July 2020 to “[ B Company Mr E Cornish]” until virtually no funds remained. Whilst the deposits of $600 and then $300 may have been PAYG withholding tax for the fourth respondent, those funds were not directly transferred from account …94 to the ATO.
The husband’s evidence at trial about account …87 was also inconsistent with an affidavit sworn by the husband on 22 July 2020. In that earlier affidavit, the husband deposed account …87 was held in the name of BE Finance, an entity owned and operated entirely by the fourth respondent, that his brother was the signatory, and that the husband had “approver status” only. There was no suggestion in that affidavit that account …87 was a joint account. There was no reference to the …94 joint account at all. He called account …87 the fourth respondent’s BE Finance consulting account.
In his oral evidence the husband conceded his July 2020 affidavit was incorrect in relation to asserting the account …87 was in the name of BE Finance. He also conceded that he did not have “approver status” only, but was in fact a joint account holder, and that his approval would be required for all withdrawals from either of the joint accounts.
In his oral evidence the husband also conceded when he swore the affidavit on 22 July 2020 he knew account …87 was a joint account.
In the July 2020 affidavit, the husband further deposed that the transfers from B Company into account …87 of $44,000 in December 2019, and $36,300 in January 2020 and the transfer of $31,200 in January 2020 (which was actually a payment into account …94) were payments of commission to BE Finance for the work done by the fourth respondent in capital raising for AJ Limited. He attached invoices dated late 2019 to support that assertion.
In relation to the payment into account …94 of $31,200, the husband’s July 2020 affidavit was inconsistent both with the bank statement and with the invoice for which it was purportedly paid in satisfaction. According to the bank statement, the payment of $31,200 was into account …94, not …87. It was recorded as being made to BD Consulting and not to BE Finance. The invoice for that amount did not refer to capital raising for AJ Limited, but for FF Company.
In his oral evidence the husband acknowledged he made the payments and entered the descriptor BD Consulting. He was unable to explain why the payment descriptor did not match the invoice, and suggested it was possible that he paid the fourth respondent before receiving an invoice. He said in relation to the entity for which the capital was raised that B Company raised capital for both clients.
The husband was also unable to explain why the sales commission transaction spreadsheet completed by his accountant recorded the payments to BE Finance in December 2019 and January 2020 and the payment to BD Consulting in January 2020 as “spend money” and not “payable invoice” as is recorded against most payments to other contractors and consultants, particularly where the payments are significant.
It was put to the husband that these discrepancies were because the invoices from BD Consulting were not created on the dates they purported to have been created. The husband said he did not know. The husband conceded he may not have had the invoices from his brother when those payments were made and said he “may have been a bit looser” with his brother, and more flexible in relation to paying him than he would have been with an unrelated third party.
Despite acknowledging at the time he swore the 2020 affidavit he knew he was a joint account holder, the husband did not include either of the joint accounts in his Financial Statement filed contemporaneously with that affidavit. He then suggested that his lawyer drafted that July 2020 affidavit, and perhaps he confused his lawyer, or he himself may have become confused about the two joint accounts.
It is difficult to understand why the fourth respondent’s commissions were paid into accounts operated jointly with the husband. It is also unclear why the proceeds of the sale of shares issued to CC Pty Ltd in March 2020 of $17,450 would be transferred into account …87. What would be the purpose of the fourth respondent depositing the proceeds of the sale of shares it is asserted were his into an account from which he could not withdraw those funds without the husband’s approval?
The husband’s oral evidence was that the intention behind having a joint account with his brother was so the husband could concentrate on customers, and delegate administrative functions to the fourth respondent. However, it is plain from the bank statements that the joint accounts were barely used for business administration, with few payments made for the business during the period the fourth respondent was involved with B Company from either account.
Even if the purpose of the fourth respondent being a joint account holder was to enable the fourth respondent to undertake administrative tasks such as attending to paying B Company accounts, why would separate joint accounts in the name of the husband and his brother be established? Why wouldn’t the husband simply provide his brother with the authority to use the existing B Company accounts? If the funds genuinely represented commissions paid to the fourth respondent, why would they be paid into a joint account which would require the husband’s approval before any withdrawals could be made?
In his oral evidence the husband said whilst it was the fourth respondent’s funds that were paid into the two joint accounts, his brother agreed not to spend the funds, so as to ensure monies were available to the husband to meet business costs if needed. The husband said this agreement was struck as the husband was worried about his financial capacity to meet his obligations in the business as the business was volatile and could experience negative cash flow. That explanation was not compelling. Either it was the fourth respondent’s money, or it was not. I do not understand how the husband can assert it was his brother’s income/commission payments and yet the husband required those monies be made available to him to access and his approval required before they could be withdrawn. The contention that the business might be experiencing negative cash flow also does not fit with the husband’s evidence that the business was doing so well that he required additional support.
It is also difficult to accept the husband became ‘confused’ about the two accounts when deposing his material. In his affidavit sworn 22 July 2020, the husband specifically referred to account number …87, deposed that payments into the account were payments for commission to the fourth respondent, and that the account was no longer active and had a current balance of $1.74. He must have looked at the statements to give that specific figure. The statements plainly state the account is a joint account in the name of the husband and his brother. It is also plain from the statements as already observed that account …87 was not used to pay the expenses for B Company.
Moreover, on 21 July 2020, just the day before he swore the affidavit on 22 July 2020, the husband contacted the NAB and sought to be ‘removed’ from account …87. He contacted the branch twice and then attended the branch in person seeking to be taken off as a signatory to the account. Under cross examination, the husband had some difficulty conceding that this was him. At one point he suggested it was possible that it was another of the Cornish brothers who had attended the bank. That explanation was not plausible. The bank documents produced under subpoena refer to Mr E Cornish and Mr Cornish setting up accounts in early 2020 and to Mr Cornish wanting to be removed from an account. There is no reference to any other brother.
The husband has also had the benefit of living in the property at BB Street since late 2021.
The husband also not made contributions towards the support of Z as best as I can tell since 2021.
It could not be said that the husband’s post-separation contributions outweigh those of the wife.
RELEVANT CONSIDERATIONS PURSUANT TO SECTION 75(2) OF THE ACT
There are a number of cases regarding the impact the death of a spouse has on s 75(2) factors. Those cases make it plain that a deceased spouse has no future needs, and accordingly, there are no factors that operate in their favour.
The husband in this case is 50 years old. He says he has recently commenced full time employment as a professional earning a base salary of $60,000 plus superannuation and commissions. In closing, Mr Reeve advised that according to the husband’s employment contract, the calculation for his commissions was essentially that the husband would receive 70 per cent of the capital he raised in excess of a certain figure.
The husband has historically been able to derive a far greater income than his current salary. His own evidence is that as managing director of B Company his income was $417,037 in the financial year ending 2020; $355,947 in the year ending 2021; and $388,613 in the year ending 2022.
The husband says he is in good health.
The husband does not provide any care for Z, nor does he contribute towards her support.
I note that the husband’s superannuation entitlements are modest. However, he is 50 years old, and in employment. His employer will continue to make contributions to his superannuation fund.
Given the husband’s income earning capacity, his lack of support for Z, his good health, and his age, it is not readily apparent what the husband’s real needs might be. However, I do accept that when comparing the position of the husband and the wife, the wife no longer has any future needs, whereas the husband does. I also accept the husband does have some liabilities, including the ATO liabilities he will need to meet.
However, it seems to me in all the circumstances that the husband’s ‘future needs’ are of moderate significance only and the outcome of this matter depends instead largely on the extensive contributions the husband and wife made over the years.
ASSESSMENT OF CONTRIBUTIONS AND PROSPECTIVE NEEDS
Pursuant to the High Court case of Mallet there is no presumption of equality of division of property, not even in a long relationship, and in each case the contributions of each party must be assessed on their own facts.
As already observed, the husband’s initial contributions outweighed those made by the wife. However, as I have set out, it is not possible to make definitive findings as to the quantum of the husband’s initial contributions, beyond acknowledging he had equity in EE Street of around $113,000, some savings likely of around $30,000 and some superannuation which must have been less than $150,000. It seems likely the wife also had modest superannuation, and may also have had some savings.
The approach to be taken to the assessment of initial contributions is now well-settled. I refer to the observations of the Full Court in Pierce & Pierce (1999) FLC 92-844 at [28] where it said:-
28.In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all the other relevant contributions of both the husband and wife. …
The husband’s greater initial contributions were made at the start of a 16 year relationship that produced one child, and are to be considered in the context of the myriad of contributions made by the husband and wife.
As indicated, during the relationship each of the husband and wife worked hard, with the husband being the primary income earner and the wife being the primary homemaker and parent. Both of them contributed to the property developments as best they could.
Post-separation, the overwhelming responsibility for Z fell to the wife. Whilst the husband asserted he made greater financial contributions post-separation, this assertion is tempered by the fact that the husband had the use of EE Street, and did not make payments on the mortgage encumbering BB Street even when he was in occupancy of it. Indeed, he allowed the mortgage to increase in excess of $161,000 post-separation. As already set out, I take the increase of the mortgage encumbering BB Street post-separation as a relevant consideration that the justice of the case requires I take into account.
In all the circumstances I do not regard the husband’s post-separation contributions as warranting an adjustment in his favour.
Similarly, as already set out, I regard the funds received by the estate from the wife’s Superannuation Fund 3 and from Superannuation Fund 4 as a relevant consideration under s 75(2)(o).
Overall, and doing the best I can to weigh the initial contributions, with all other relevant contributions of the husband and wife over the course of their relationship and post-separation, and taking into account the additional facts outlined as requiring consideration pursuant to s 75(2)(o), I assess those contributions to the asset pool on a global basis to be equal.
The Full Court considered the approach in relation to assessing s 75(2) factors in a case where a spouse has died in Van der Linden & Kordell. Their Honours said:-
83.… although it is clear that when a spouse dies there are generally no s 75(2) factors that can be taken into account in favour of the estate, and that that should highlight the needs of the surviving spouse and the fact that they have to be met, it is equally apparent that that should not detract from the need to recognise the entitlement of the deceased spouse (which devolves onto that spouse’s estate) arising from a consideration of the respective contributions of the parties.
Their Honours then quoted with approval the following passage by Smithers J in in Menzies and Evans (1988) FLC 91-969 where his Honour said this, at 77,010:
The only significant difference in the analysis of the case arising out of the death of the deceased, is the obvious one that, when comparing the position of each of the parties, the deceased no longer has sec. 75(2) needs for the future, while the husband continues to have such needs. This does, in my view, alter the situation in a way which should be reflected in the outcome of the case. Even though his needs can be met out of income, the fact that he does have to meet them, and that the deceased does not have such needs, is the significant factor here. This aspect of the case should be of moderate significance only however in view of the amount of the assets, the age of the husband, and the extent of his future needs. Save to the extent necessary to reflect this aspect of the case it would in my view be wholly inappropriate that the deceased should be deprived of the benefits of her contributions over so many years. That is to say that it is still appropriate, following the death of the deceased, that the outcome of the case should depend, largely, upon the extensive contributions of the parties over so many years.
The husband in that case was elderly and quite unwell. He was not earning an income and needed funds to accommodate himself in an elderly people’s home. The parties had been married for just under 50 years. Smithers J divided the assets effectively equally.
The Full Court in Van der Linden & Kordell observed, at [90]:
90.As this court has often recognised (eg see Steinbrenner & Steinbrenner [2008] FamCAFC 193, at para 234), given that the assessment of the relevant factors arising under s 75(2) of the Act inevitably moves from a “qualitative evaluation” of those factors to a “quantitative reflection of such evaluation, there will inevitably be a ‘leap’ from words to figures”. That is the nature of the exercise of discretion.
I am of the view that no adjustment in the husband’s favour on the basis of s 75(2) is required. He is still alive and must continue to meet his own support. However, as set out he is in employment, he is in good health, he does not provide care for Z or contribute towards her support. Whilst he currently asserts he is on a modest income, he has historically demonstrated a significant earning capacity. I accept that his superannuation entitlements are modest and he owes monies to the ATO. However, he is relatively young and able to continue working and earning an income and contributing towards his superannuation.
That the wife is deceased and has no future needs does not, in my view, require an automatic adjustment in favour of the husband on the basis of s 75(2) considerations where those considerations do not of themselves warrant that adjustment.
No application was made for property to be transferred to the child of the marriage, as was sought – and granted – in the case of In the Marriage of Randle (1987) FLC 91–828. In that case Treyvaud J considered the needs of the children of the marriage not just for maintenance and support, but also for accommodation and the use of other items. His Honour noted that in that case the children had no property, no income and no means of self-support and were entirely dependent on the legal personal representative of the deceased wife. In the extant matter, Z is not dependent on the applicant. Moreover, I have no evidence as to Z’s income, earning capacity, property or financial resources, although it is likely as a child her means are very limited. However, no submissions were made to me in regard to this issue. For these reasons I do not consider it appropriate to make any further adjustment on the basis of Z’s needs.
ORDERS TO BE MADE
I am not treating superannuation any differently. Neither party proposed that I do so, and at all times they proposed I deal with all assets as a global pool.
As set out, I am satisfied that it is appropriate that the husband and the estate receive an equal division of the pool as I have determined it.
The assets currently in the possession of the estate are:
Jewellery
$12,945
Motor Vehicle 1
$78,000
Part Property pursuant to orders 14 Jan 2020
$50,000
Part property pursuant to orders 22 July 2020
$200,000
Litigation funding paid pursuant to orders 22 July 2020
$100,000
TOTAL
$440,945
For the reasons I will set out shortly, the funds currently held on trust shall be set to one side until the capital gains tax issues have been resolved. Leaving those monies on trust to one side, the pool is $2,524,836.
Taking into account the assets the estate has already received, I am satisfied it is just and equitable that the estate receive additional assets totalling $821,473 to make up a 50 per cent share of the pool.
1 BB Street/4 U Street
Both the husband and the applicant wish to retain the BB Street/4 U Street properties. As set out, the properties are held by E Pty Ltd as trustee for the E Trust.
The husband said he should keep the properties, as he has maintained and improved them, and he says, he wishes to continue to reside at BB Street. He said he moved into the property in late 2021 and that prior to doing so he “completed extensive repair and renovation work” to make the manse habitable. He said since living there he has continued to repair and improve the property, investing time and funds to do so.
Additionally, the properties are close to where Z resides in Town V. The husband said if she became interested in spending time with him she would easily be able to do so given the close proximity of the property to the maternal grandparents’ home.
Further, the husband said he can work from home in a home office he has set up there, and can easily travel to Sydney to visit his family given how close the property is to the airport.
Lastly, the husband said it makes more financial sense for him to retain the properties. He is able to borrow $2,000,000 which he says will enable him to refinance the debt encumbering BB Street/4 U Street and to pay some funds to the estate. Mr Reeve asserted that if the estate retained the property subject to any liability, there was no evidence that the estate could refinance the property. Moreover, the husband said he would retain the properties in the E Trust and accordingly no capital gains tax liability would be triggered and no stamp duty would be payable, thereby maximising the monies available for distribution.
The applicant does not accept the husband lives in the property. She said he resides in New South Wales and pointed to some of the husband’s bank statements which were sent to an address in that state. However, in circumstances where the husband was not significantly challenged about his residential address, I accept that the husband has been living at the premises.
The applicant also deposed that shortly before her death, the wife told her that she wanted to leave BB Street/4 U Street to Z. She also said it is a property that has sentimental value to the maternal family. I accept that the applicant’s evidence about the wife’s wishes, and that the property at BB Street is of sentimental significance to her and the maternal family. However, those matters are of little import. In my view, I am not required to consider the desires of the applicant to retain that property. The obligation of the estate is to maximise the financial advantage to the beneficiaries of the estate, and it seems there may be financial benefits to the property remaining in the trust and not being transferred to the estate. It is not agreed whether the transfer from E Pty Ltd to the estate would attract a capital gains tax rollover relief. It may also be that the transfer would attract stamp duty.
Moreover, on the basis of my determination of the composition of the asset pool, and my assessment as to contributions and needs, if the estate retained BB Street/4 U Street, it would take it subject to a mortgage of at least $1,000,000. There is limited evidence that the estate would be able to borrow funds to secure a mortgage, and no evidence the estate could obtain a mortgage of that magnitude. At its highest, in re-examination the applicant said she had considered whether it was possible for the estate to have a co-investor who could take over the mortgage which she described as an “option” open to the estate. There was no evidence that a co-investor had been approached, nor any evidence as to the terms of that co-investment, or any indication as to the level of debt that could be taken on.
I am satisfied the appropriate division of the pool allows for the husband to retain BB Street/4 U Street, and for the estate to receive a further cash adjustment. As set out, the husband will need to pay the estate $821,473. Once the capital gains tax issues have been resolved, any monies remaining from the monies on trust would then be divided equally.
AO Pty Ltd gain tax issues
As already observed, the parties did not agree as to the figure for the capital gains tax on the sale of 2 U Street. A jointly appointed accountant will need to determine that issue.
The husband’s case was that he had some borrowing capacity, but depending on the cash adjustment he is required to pay to the estate, he may have to sell EE Street. In the circumstances, I am satisfied it is appropriate for the husband to elect whether he will sell EE Street in order to make the payment to the estate, in which case any capital gains tax liability from the sale of EE Street should also be included in the pool. However, if he elects not to sell the property, but to borrow the funds to pay the estate, any capital gains tax arising from sales of either EE Street or BB Street/4 U Street in default would fall to the husband.
To cover the capital gains tax from the previous sale of the U Property, and any capital gains tax that will be incurred in the event the husband elects to sell EE Street, the funds held on trust from the sale of the U Property will be quarantined and used for those purposes.
As already observed, by setting the balance of the proceeds of sale of $300,532 to one side, and dealing with the capital gains tax issues and those funds separately, the pool is reduced to $2,524,836. The cash payment to be made to the estate is accordingly $821,473. Any funds remaining from the $300,532 currently held on trust from the sale of the U Property after allowances have been made for the payment of capital gains tax shall be divided equally. I do not anticipate there being any shortfall, but if there was, that would also need to be borne equally.
Payment in tranches if husband elects to sell EE Street
I note the husband’s proposal was to make payments to the estate in two tranches. Given his evidence as to his borrowing capacity, it appears he has the capacity to make the payment as I have determined in one tranche if he retains EE Street. I do note, however, he also has significant legal fees to pay.
In the event the husband elects to sell EE Street, I will make orders for payment to the estate in two tranches – with the first payment to be made within 90 days of my orders and the balance of the monies to be paid at settlement of the sale of EE Street. In my view that will ensure the estate is not prejudiced by having to wait for the sale of EE Street for the entire payment (which exceeds the equity in EE Street), in circumstances where the conduct of the sale will be in the hands of the husband.
At the time of trial there was equity of approximately $575,540 in EE Street. I do not know whether the husband has continued to attend to the mortgage payments on the property since trial, or whether the mortgage has further increased. If there is insufficient equity in EE Street to meet any outstanding liability, or if the husband otherwise defaults on payment to the estate, then the properties at BB Street and 4 U Street will need to be sold. As I understand it, they cannot be sold separately as buildings on BB Street encroach on 4 U Street. Any sale in default will need to be conducted with the parties acting in concert. In my view, if the properties are sold as a result of default, it would be appropriate that the husband bear the capital gains tax liabilities arising from their sales.
Costs
Both parties sought various costs orders in their proposed final orders. However, I was not addressed about costs in any meaningful way, including no submissions being made as to how various figures were calculated, and accordingly cannot deal with these matters.
The parties retain their right to make such application as they deem appropriate under the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth). That observation should not be taken as encouraging either party to do so, as the usual rule is that each party bears their own costs.
The only exception is in relation to the orders made 8 April 2021. On that date an order was made for the husband to pay the wife’s costs of $1,498. According to the applicant’s trial affidavit, that had not been complied with and she sought payment of that costs order together with interest. The husband provided no explanation as to his failure to pay and did not respond to this issue in his trial material. The husband was required to make the payment by 22 April 2021. Pursuant to rule 12.19 of the Rules, interest “is payable on outstanding costs at the rate referred to in rule 10.17” which sets out the rate of interest. I see no reason why that costs order should not be paid together with interest, if the husband has not already attended to this matter.
For all of the foregoing reasons, I make the orders as are set out.
I certify that the preceding three hundred and eighty-nine (389) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Carter. Associate:
Dated: 1 February 2024
SCHEDULE OF PARTIES
MLC 12589 of 2019 Respondents
Fourth Respondent:
MR E CORNISH
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