Cutress and Cutress

[2017] FamCA 638

FAMILY COURT OF AUSTRALIA

CUTRESS & CUTRESS [2017] FamCA 638

FAMILY LAW – Interim proceedings – Whether to make s 79 order – whether to make s 117 order

Family Law Act 1975 (Cth)- ss 79,114 and 117

APPLICANT: Mr Cutress

RESPONDENT: Ms Cutress

FILE NUMBER: SYC 5268 of 2015

DATE DELIVERED: 21 August 2017

PLACE DELIVERED: Canberra

PLACE HEARD: Sydney

JUDGMENT OF: Gill J

HEARING DATE: 28 July 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms McIntosh

SOLICITOR FOR THE APPLICANT: Peter Cornock & Associates

COUNSEL FOR THE RESPONDENT: Mr Crampton, SC

SOLICITOR FOR THE RESPONDENT: Mills Oakley Lawyers

Orders

«FCA_LD221»IT IS ORDERED THAT:

1. By consent the parties forthwith do all things as are necessary to instruct Mr B to update the valuation report of the Suburb C and Suburb D properties.

2. By consent the parties forthwith appoint an accountant to take carriage of the accounts, financial compliance, and taxation compliance work as and when required for the Cutress Self Managed Superannuation Fund.

3. By consent the husband is restrained by way of injunction from selling, disposing of, encumbering or otherwise dealing with his interest in Cutress Pty Ltd and/or the business trading as “E Pty Ltd” without the prior written consent of the wife.

4. The wife’s Response to an Application in a Case filed on 22 November 2016 and Minute of Orders Sought in her amended outline document of 26 July 2017 are otherwise dismissed.

5. The husband’s application for exclusive occupation of F Street, Suburb D, New South Wales, per his Amended Application in a Case filed 21 July 2017 is dismissed.

6. If the husband intends to pursue the application for costs in his Amended Application in a Case filed 21 July 2017 he is to file and serve all evidence and submissions on which he intends to rely within 21 days of today’s date.

7. Should the husband not file evidence and submissions as referred to in the previous order the application for costs will be treated as having been discontinued.

8. In the event that the husband does file material as referred to above, the matter may be relisted at short notice before Justice Gill for further directions in relation to the costs application and for the setting down of that matter for hearing before Justice Gill.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT CANBERRA

FILE NUMBER: SYC 5268 of 2015

Mr Cutress

Applicant

And

Ms Cutress

Respondent

REASONS FOR JUDGMENT

1. The husband in this matter commenced an Application in a Case on 7 November 2016 and amended that Application in a Case on 21 July 2017.  He seeks the dismissal of the wife’s application of 22 November 2016, he seeks exclusive occupation of the former matrimonial home at Suburb D and he seeks costs.  The wife in her Response of 22 November 2016 also seeks the exclusive occupation of Suburb D and a transfer to her of the Suburb D property in order to allow her to borrow funds of $400,000.  In the alternative, she seeks the sale of the Suburb D property and 50/50 payments to be made to each of the parties or alternative to that, seeks a payment of $500,000 to her, with the husband then to have exclusive occupation.  She also seeks some orders for evaluation and for the appointment of an accountant for the self-managed superannuation fund and certain matters regarding lodgement of tax returns for 2014 through to 2016.

2. Some evidence was led at the interim hearing although there is some contention as to whether the valuations are now a little out of date.  In short, they provide for a value for the Suburb D property of $1.7 million, for a commercial property owned by the parties from which the husband operates his business, being G Street, Suburb C, of $1.75 million and a value for the business of $375,000, although there is some uncertainty as to this value, as the value may change dependent upon whether or not a lease is available in that commercial property.  There is some dispute over the value of the self-managed superannuation fund, the debts variously estimated by the parties range between $430,000 and $480,000. 

3. What is not in issue is a series of the orders sought by the wife.  Her order 5, which provides for dated valuations, is agreed and the parties agree that I should add the Suburb D property to that so that an updated valuation may be obtained.  It is agreed that there should be an accountant preparing accounts for the self-managed superannuation fund and it is agreed that there be orders made in respect of the business. 

4. In the orders that were sought about the tax returns it was accepted they were not sufficiently supported by the evidence at this interim stage to allow them to be made.  What is also not in issue is that each party has an unassailable claim to at least 35 per cent of the pool, if the business is left out of the equation due to the uncertainty of its value. 

5. As to the power to make a sole occupancy order, that power is contained at s 114 which provides that an order may be made by the Court as it considers proper.  One of the key questions to be resolved there is, is whether there is a need for an order to regulate the position between the parties, thus rendering it to be proper. 

6. In this case both parties accept that co-occupation to the Suburb D property would be intolerable and impractical.  At present, the husband lives in the Suburb D property, the wife has secured a rental property, neither suggests that they share the Suburb D property.  There is a settled position in place with the husband in the Suburb D property and no suggestion that absent orders to enable the wife to take possession that there will be some sort of presumptive action to change the current position. 

7. Accordingly, absent an order for the wife to take possession of the property in order for it to be encumbered, there is no need for an injunctive intervention in respect of the Suburb D property.  Such a need has not been demonstrated because it is not the case that there is any suggestion that either party would act presumptively in the absence of a sole occupancy order to disturb the current arrangements, hence the question of the sole occupancy order will revolve about the resolution of the other matters.

8. The current relative positions of the parties are that the husband takes all of the rental income from the Suburb C property.  The wife has a 40 per cent stake in that property but does not see the income, despite the fact the income seems to be attributed to her.  The husband then uses the whole of that amount to pay debts associated with the Suburb C property and then pays a shortfall in those debts at about $500 per week.  It was suggested, and it is not contested, that that forms a deductible amount to him giving him some advantage.  He lives rent-free in the Suburb D property, although he takes significant steps to maintain it.  If there was a change in position such that the wife was to occupy the Suburb D property then like the wife does now, he will need to obtain accommodation.  While he asserts there is a financial shortfall for him at present there is some indication that he receives benefit beyond those disclosed in his financial statement, being implied by the Fringe Benefit Tax paid by the business and in relation to dividend distributions. 

9. The husband currently work three days a week.  He asserts this is beyond his control but that if the work is available it leaves him with excess capacity.  The wife lives in a rental home that she secured for $650 per week.  The effect is that there is some imbalance between the parties at present because of the use of the joint assets, that is, the wife’s share of those assets provide an effective subsidy to the husband for his expenses.  He has some superiority in his position by virtue of this.

10. The parties share the care of their two children on a 6/8 arrangement across the fortnight.

11. Turning then to the substantive issues the wife relies upon cascading heads of power firstly seeking that the orders be made pursuant to an adjustment under s 79 of the Family Law Act 1975 or in the alternative, a costs award under s 117 of the Act.  The wife’s outline of case helpfully set out the relevant principles which were not challenged by the husband.  Importantly, these principles included an acknowledgement that despite the fact that a $400,000-$500,000 payment would not exceed the 35 per cent that each party agrees the other is entitled to, that fact alone does not justify the making of an order at this stage.  It may however permit the making such an order.  In support of why an order should be made the wife points to the following.  

12. As late as March 2017 the husband had agreed to the sale of Suburb D and sought to retain the Suburb C property now, however, he seeks to retain the Suburb D property and says the wife may retain the Suburb C property in accordance with her application.  The wife alleges there are no prospects for the husband to retain because she says that his financial statement is suggestive of a lack of capacity.  She says that she so far has met from her income legal expenses of $85,000 and has an expected further $85,000 to be paid to the end of the proceedings, which she anticipated she expected would not go to trial until 2019.  From this there is a likelihood that there is some degree of shortfall if that timetable is correct and if her income expenses remains as disclosed.  Her financial statement seems to allocate $30,000 of income per year towards legal expenses, however, that is in a context where, like the father, she does not work full time and also seems to have potential for further income. 

13. The wife says that the orders should be made because it is in the interests of justice to do so. She asserts this inequitable position, particularly because the husband has control over the assets of the marriage.  She further asserts that there have been disclosure issues in relation to the husband which the husband appears, at least in part, to challenge and are particularised as non-disclosure prior to the Case Assessment Conference in November 2015, non-compliance with directions regarding the business, a requirement for the wife to file subpoenas to obtain bank statements in February 2016, in May 2016 late provision of valuations,  the revelation following the obtaining of the bank statements that the husband was $120,000 less in debt then he had previously disclosed.  She also complains that there is a failure at this stage to update.  However, it is unclear how these failures now add weight to the application other than to understand that there is potential that there could be an increase in the wife’s legal expenses by virtue of these.

14. Other than the wife’s application neither party seeks to access the property in order to make their legal costs.  However, that assessment needs to be qualified in that the husband has not produced a cost notice pursuant to the Rules, so it is unclear the degree to which he may have had benefit in the past, having access to the property for prior costs.  Despite there being an additional notice in advance of the interim hearing identifying the requirement for him to provide the notice he only made a partial response to the call for the notice, hence it is not completely apparent how he is able to fund his legal costs.  For example, does he fund them through the business or otherwise.  What has been suggested is that in the absence of an application on his part, and in the absence of that disclosure, the wife suggested I should infer that he has the ability to meet his own costs.

15. For the husband the question is asked what is the impact of a further encumbering of the Suburb D property. The husband asserts that there is a potential risk to the “keepability” of that property in the litigation that is, if the orders are made in accordance with what the wife seeks it will it change the property pool. The wife’s case is that it will not because the title will be retained within the parties and hence amendable to a further s 79 order to transfer it to the husband if that is to be the outcome. The husband poses however the unanswered question as to how the loan would be serviced. The wife, by submission, accepts that she would take responsibility for the shortfall currently met by the husband from the rents taken from the business. The question was further posed that if the wife occupied the Suburb D property what was then the need for the $400,000 payment and importantly posed the question that if there is an interim distribution will there be a basis to add back that distribution. If it is unable to be added back then it arguably places the parties in a significantly different position at the final hearing and potentially affects a change to the law.

16. Looking then at the wife’s application, the $400,000-$500,000 sought by her seems to bear no relationship to the justification she proposes for splitting the discretionary process under s 79 or for making the s 117 orders. It is not suggested that the payment that she seeks relates to the costs that she expects. On her present costs estimate on the timing of the balance of the litigation it seems that the estimated potential shortfall on her part is $40,000-$50,000 without there being any change to her income to reflect full-time work if she undertook that. So far she has been capable of funding her costs through her income and it is not asserted other than by submission that she has an incapacity to continue to do so. The primary remedy sought by the wife is to take a loan against the property and treat it as either a s 79 or a s 117 matter. I accept as correct and undoubtedly correct the wife’s position that there is no requirement that there be compelling circumstances before movement may be made to a preliminary s 79 adjustment. I accept that it is driven by the interests of justice as in an application pursuant to s 117.

17. The preliminary step in considering either matter is to determine whether or not to exercise the discretion in relation to these matters in a fragmented fashion.  Here the key matter put forward for the preliminary step is a lack of a level playing field and a relative advantage on the part of the husband having access to the full assets.  While it is true that the husband has some financial advantage, for example, his $500 shortfall each week appears likely to be deductible, that the rent from the business even if attributable to the wife is being taken by him for the payment of the mortgage, accepting that the wife unfairly bears some tax burden at present for that money not received, and accepting that the wife makes rental payments, the advantage is marginal in terms of both the income capacities of the parties and in terms of the overall pool. 

18. The capacity for the wife has been shown to so far meet her legal expenses and her ongoing capacity to pay legal expenses has been identified earlier, they do not together speak of an uneven playing field sloping against the wife. 

19. The orders sought appear apt to address the level of deficiency of the wife that she experiences while currently working part-time. They are not sufficient to act as a justification for the s 79 or s 117 orders as sought, at least not as a fragmentation of the discretionary process. While the $400,000 payment is within what would be received by each of the parties it is difficult to predict the effect on the pool of encumbering an asset to that degree at this stage. It may be able to be reversed without trouble, it may however seriously impact upon whether particular assets may be able to be assigned in accordance with each party’s case, it may fundamentally change the nature of the pool.

20. The husband at present in particular seeks to keep the Suburb D property. It is premature at this stage to place the current structure of the pool at risk, nor that application at risk, even if it is a late development in the proceedings and that is a matter which tells against a fragmentation of the discretionary process. The wife’s case fails at the point of justifying a departure from the preferred manner of a single exercise of the discretion pursuant to s 79 and at the point of justification for the making of an order under s 117 as being in the interests of justice.

21. As I have indicated previously on the question of sole occupancy it was if orders were to be made as sought by the wife for the encumbering of Suburb D then it would likely be appropriate that she occupy the property as she would take responsibility for the mortgage.  Absent that, the balance of the matters do not justify the sole occupancy order.  The husband at current takes significant steps to maintain the property, each has accommodation at present, neither seeks to share that property and neither has indicated an intention to act presumptively towards the other in respect of the occupation of that property.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Gill delivered on 21 August 2017.

Associate:

Date:  24 August 2017