DCSR and B - [2000] FMCAfam 32

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DCSR & B

[2000] FMCA fam 32

ENFORCEMENT CHILD SUPPORT – Section 72C Child Support (Registration and Collection) Act s85 FLA

Applicant:

D C S R

Respondent:

M J B

File No:

ZB2081 of 2000

Delivered on:

11 September 2000

Delivered at:

Brisbane

Hearing Date:

24 August 2000

Judgment of:

Baumann FM

REPRESENTATION

Counsel for the Applicant:

Mr Burridge

Counsel for the Respondent:

Mr Drysdale

ORDERS

That M J B is indebted to the Commonwealth of Australia in the sum of $33.990.52.
That the sum of $3,000.00 (and any accruals thereon) paid to the AUSTRALIAN GOVERNMENT SOLICITORS under paragraph (4) of the order of this Court made 5 July 2000 be released in part payment of the said debt.
That all moneys due, or accruing to M J B and/or M P PTY LTD and/or E Z B from V PTY LTD from this day, until further order, shall be retained by V PTY LTD on behalf of the payee until further order.

I DIRECT

The applicant’s application for a garnishment order and consequential orders be adjourned until 9.30 am on 26 September 2000.
The applicant serve a copy of this order upon E Z B and V LIMITED.
V LIMITED is to produce to the applicant by 18 September 2000 details of all current contracts with M P PTY LTD and/or E Z B and/or M J B together with estimates of anticipated amounts and timing of payments under those contracts.
M P PTY LTD E Z B and the respondent produce to the applicant by 18 September 2000, details of actual and estimates of anticipated expenses incurred in generating the anticipated payments from V LIMITED.
That the costs of this matter (including reserved costs) be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

ZB 2081 of 2000

DEPUTY CHILD SUPPORT REGISTRAR

Applicant

And

M J B

Respondent

REASONS FOR JUDGMENT

Introduction

This is an application for enforcement brought by the Deputy Child Support Registrar (“DCSR”) against M J B (“the respondent”). The Summons, in Form 45B, was filed in the Family Court of Australia on 27 April 2000 initially returnable on 24 May 2000. Ultimately, the matter was transferred to this Court on 5 July 2000.
Evidence in this matter was heard on two separate occasions (5 July 2000 and 24 August 2000) for reasons which will become apparent in these reasons.
At the conclusion of evidence and submissions, I invited the applicant to provide me with minutes of the proposed orders. For simplicity, they are annexed to these reasons. The respondent was invited to make any further submissions on those proposed orders, in writing, but has elected not to do so.

Proposed orders

It is convenient to deal with this matter by reference to the relief sought by the applicant and the evidence and findings which may support (or otherwise) that relief.

The debt

A certificate was tendered on 5 July 2000 pursuant to s116(2) of the Child Support (Registration and Collection) Act 1988 (“the Act”) evidencing a registrable maintenance liability (within the meaning of s17(2) of the Act), of $33,321.92 (being $26,728.08 maintenance and $6,593.84 penalty).
A further “updated” Certificate was tendered on 24 August 2000, evidencing a liability of $33,990.52 (being $26,772.50 maintenance and $7,218.02 penalty) at 7 August 2000.
The amount of the liability is currently the subject of an application for departure before this Court (now returnable on 9 October 2000), however at this time I am satisfied that the respondent is indebted to the Commonwealth of Australia in the sum of $33,990.52.

Section 72c of the act

The proposed orders seek an order pursuant to s72C of the Act that the Court set aside a disposition on 11 February 2000 whereby E A B transferred the sum of $80,000.00 to the respondent.
This application was made orally at the conclusion of the evidence on behalf of the DCSR.
Section 72C of the Act provides in part (so far as is relevant for this case) that:
“(1)The Court may:
(a)Set aside an instrument or disposition that has been made; or
(b) …
By or on behalf, or by direction or in the interest of, a payer of an enforceable maintenance liability.
(2)If the Court is satisfied that the instrument or disposition has been made … to reduce or defeat the payer’s ability:
(a) …
(b)If there is an enforceable maintenance liability in respect of the payer:
(i) To pay any child support debt under the enforceable maintenance liability; or
(ii) To meet the enforceable maintenance liability.
The Court may set aside the instrument or disposition … as the case requires”
There are few reported decisions on this provision, however I was urged to consider the line of authorities which have dealt with s85 of Family Law Act for guidance. S85(1) provides:
“In proceedings under this Act, the Court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order”
It can be seen that although the provisions are similar, they are not identical in their terms. S85 applies “irrespective of intention” to dispositions “likely to defeat any such existing or anticipated order”. Under s72C(2) the Court must be satisfied that there was an intention to defeat or reduce the payer’s ability to meet their obligations. As will become apparent in these reasons, it was not necessary to decide whether there existed any intention to defeat or reduce the respondent’s ability to meet his obligations.
The evidence established to my satisfaction that:
a)Through a long history of correspondence, discussions and negotiations the respondent was well aware of the assertion by the DCSR of a substantial liability to the Commonwealth;
b)Notwithstanding these assertions, the DCSR had not commenced formal proceedings for enforcement until April of this year;
c)The respondent anticipated such proceedings ultimately. He says that he had many discussions with various officers of the Child Support Agency (“CSA”). He claims to have consistently argued that the arrears calculated were incorrect, not having taken into account a number of payments he made to his former wife and also expenses he incurred for the children’s benefit;
d)He confirmed he knew that there were no orders against him, and says he actually invited the CSA to commence action against him;
e)E B (the respondent’s de-facto) was well aware of the ongoing dispute with CSA and appears to have adopted the position of the respondent in respect of his argument against liability attaching;
f)The respondent was entitled as beneficiary in the estate of his late Uncle, J D, to a gross benefit of at least $161,357.15 standing to the credit of the deceased with the Commonwealth Bank of Australia;
g)Apparently shortly after probate was produced to the Bank, funds were withdrawn from the four accounts of the deceased, and with the written authority of the respondent, funds were credited to the account number 1111 1111 1111, in the name of E B trading as P conducted with the A Branch of the Commonwealth Bank as follows:
·30 July 1999................................... $111,349,88
·2 August 1999.................................. $50,000.00
·9 August 1999............................................ $7.29
h)On 9 August 1999, Ms B’s account was closed with a Bank Cheque for $132.813.85 (balance of account) being drawn in her favour. Later on the same day a special clearance was requested on this cheque by the National Australia Bank, A.
i)A bank statement for the P Account (page 111) reveals the following significant entries:
·30 July 1999..................... $111,349.86 Credit
·30 July 1999................ $16,527.24 Withdrawn
·2 August 1999.................... $50,000.00 Credit
·2 August 1999............... $5,000.00 Withdrawn
·6 August 1999............... $7,000.00 Withdrawn
·10 August 1999........ $132,813.35 Withdrawn
j)The evidence of B is, and I find, that all these transactions occurred at the direction of the respondent. She made it clear that she regarded the funds as Mr Bs and, at one point of her evidence, almost with a hint of fear she indicated that:
“I don’t tell Mr B what to do with his money.”
I found the tenor of her evidence in respect of these transactions consistent with my general findings, set out below, that Mr B directed and exercised control over the financial decisions of Ms B.
k)The transactions on 11 February 2000, where B withdrew $80,000.00 cash from her NAB account 11-111-1111 and handed those funds to the respondent completed the return of the funds to him. Under cross examination, Ms B was questioned at some length as to disposal of the moneys credited to her account. The evidence was disjointed and did not completely explain disposal of the funds, because of a mixture of entries to her account for alleged business purposes (and their inter relationship with transactions allegedly on her Visa account). I was satisfied, however, on the evidence and after drawing reasonable inferences, that at 11 February 2000 the payment of $80,000.00 represented the final return of the balance of funds to the respondent.
l)The respondent’s explanation for disposal of the funds (including the final $80,000) was vague, inconsistent and generally unhelpful. The statement he produced in response to my direction on 5 July 2000, was tendered as Exhibit 12, and suggests the cash was used to pay:
i)Gambling Losses............................. $55,000.00
ii)Living costs, including restaurants 3 to 4 times per week;
iii)Expenses for the children;
iv)Solicitor expenses................................. $500.00
v)Dental...................................................... $800.00
vi)CSA...................................................... $3000.00
m)No evidence has been produced to satisfy me where the funds, if not dissipated as suggested by the respondent, can now be found. Ms B, in her evidence suggested that giving the respondent money “is like seeing it blown absolutely”.
I was satisfied on the totality of the evidence and after drawing reasonable inferences where apparent gaps in the evidence occurred that:
a)The respondent, contrary to his protests under cross-examination, used the accounts of Ms B to conceal the receipt of the inheritance from at least the CSA;
b)That he did so, in full contemplation of the likely attack on that inheritance for the debt (although disputed by him) for child support;
c)That he was well aware that there were no orders preventing him from so acting;
d)That receipt of the funds on 11 February 2000 in cash would effectively enable him to dissipate the moneys without trace;
e)That although B was used as a vehicle for these transactions, I cannot be satisfied that she got a benefit from the funds save for the benefit accruing from her relationship with the respondent (in the form of the overseas holiday, living expenses, restaurant outings etc);
f)I am satisfied that she held a reasonable belief that the funds were the entitlement of the respondent who could direct her absolutely as to their disposal and withdrawal from her account. I cannot be satisfied that she retains the use of any of the funds originally credited to her accounts from the inheritance.
Counsel of DCSR, in submissions referred me to Ivanovic (2000) FLC 93-003. Briefly in that matter the husband, aware of an enforcement summons actually issued, assigned a remainder interest in property to his brother for a cash sum of $45,000.00 The husband then spent the funds on debts and gambling. The Court set aside the assignment under s85 of the Family Law Act.
This case is quite different in my view. Apart from the difference in the wording between s72C of the Act and s85 of the Family Law Act, B received the subject funds of $80,000.00 on behalf or as trustee for the respondent, and then returned them to him.
If the return of the funds to the respondent is a disposition within the meaning of s72C of the Act, then it is my view that the Act which defeated or was likely to defeat any anticipated order in favour of the DCSR, was the respondent’s dissipation of the proceeds of the disposition, rather than the disposition itself (see ANZ v Arthur & ORS (1988) FLC 91-938)
It follows that I will not make the order sought at paragraph 3 of the proposed orders.
Because I am not satisfied that E B is indebted to the respondent for the reasons set out above, I will not make the order sought at paragraph 4.

Garnishment order

Paragraph 2 of the proposed orders seeks a garnishment order pursuant to O33R4 of the Family Law Rules.
O33R2(1)(a) provides that the Rule applies to recovery of a debt due to the Commonwealth under s30 or s67 of the Act. Accordingly, it applies to these proceedings.
O33R4(c) provides the following moneys may be the subject of a garnishment order:
“(c) any debt or other sum of money due or accruing to the respondent.”
The proposed orders seek to attach by garnishee, funds which flow from V Pty Ltd to M P Pty Ltd (“the company”) or the respondent’s de facto E B. The basis for seeking such an order, and the only basis that would sustain such an application, is that the company is the “alter ego” of the respondent in respect of contracts for services between the company and V. The payment for such services are directed to an account of Ms B as confirmed by the evidence. She holds such funds as Agent for the company.
A “alter ego” or “puppet” of a person is different to a “sham”, as that term has been described, often with approval, by Lockhart J in Sharrment Pty v the Official Trustee in Bankruptcy (1988) 82 Air 530 at 537.
In Gould & Gould and Swire Investments Ltd (1993) FLC 92-434, Fogarty J indicated that the correct description of a “alter ego” or “puppet” is that:
“ … it is not an assertion that it is a “counterfeit, a facade or a false front”. Rather, it describes an actual situation, although as a matter of law or practicality the actions of the other entity may be capable of or may in fact be controlled by the party in question” (my emphasis).
The submissions of the applicant, simply put, is that the respondent, is capable of or in fact controls the company and/or the company’s sole director E B in her management of the company that I should find that the company is the “alter ego” of the respondent.
The respondent says, in his submissions, that the company is a bona fide legal entity under the ownership and control of B and not a vehicle for the respondent, whose sole role is as a building supervisor.
The evidence on this aspect of the matter established to my satisfaction that:
a)A high level of trust existed between the respondent and B. A suggestion by B that no “close financial arrangement” existed between her and the respondent is contrary to the evidence. It is hard to image a more clear demonstration of both trust and control, than the undisputed evidence that the respondent’s inheritance of over $160,000 (and his only asset) was placed into the account of B, until the respondent requested its withdrawal. More than half of those funds remained in her account for the period from 2 August 1999 to 11 February 2000 – some 6 months;
b)There was a continuity in the business activities of the respondent and the company demonstrated by:
i)Prior to incorporation, the respondent had contracts with V as a sub-contract tiler. The respondent had been in the tiling industry for 30 years and had a long previous association with V;
ii)The personal relationship between the respondent and B gained some permanency with co-habitation commencing in B’s home in 1997. Although no evidence of the date of incorporation of the company was tendered, Ms B’s evidence was that she “started her company in November 1997” and certainly after the respondent began co-habitating with her. Mr B in his evidence confirmed that both B and the respondent were present when incorporation of the company was discussed. The company then appears to have entered into arrangements with V for tiling services, which B and the respondent acknowledged is their sole customer;
iii)The previous accountant of Mr B during his business activities, Mr B B, was introduced to B by the respondent and he (or a firm associated with him) is retained as accountant and adviser to the company. It was also his advice which prompted the respondent to accept a short appointment as a director of the company for “superannuation” structure purposes;
iv)B has no experience as a tiler but apparently has brought experience as an administrator in a hospital to the role of sole director and, she says, absolute controller of the company engaged solely as a tiling company. She concedes that the respondent is the on-site supervisor and that other tilers are employed as required from time to time.
c)There is a intermingling of the financial affairs of the company and B which tends to support submissions that the respondent has the capacity to control some of the business activities of the company in that:
i)B, in her personal National Australia Bank Flexiplus mortgage account number 11-111-1111, receives all the income for the business activities for the company. The explanation offered for this arrangement is that it enable Mr B to gain the offset interest advantages of the business income;
ii)An examination of Exhibit 14, (pages 17-27) being Bank Statements for the Account from 16 July 1999 to 16 May 2000 reveals that:
(i)     The balance at 16 July 1999 was $30,501.11 Debit and the balance at 16 May 2000 was $32,429.23 Debit. Ms B says her credit limit (secured over her home) is $40,000.00;
(ii)    During this period the credits (excluding the inheritance deposited on 9 August 1999 of $132,813.85 and a “round-about” transaction from account 1111 1111 1111 of $60,000.00 on 11 October 1999) total $176,314.94. It follows that as the only deposits to this account relate to the business of the company from its sole customer, V, this represents the gross income for the business for the period;
(iii)   The relative equality of the account balance (as per (a) above) suggests that all the income has been disposed of for business expenses and drawings from the account. The lack of evidence produced, in particular Visa card statements, which Ms B says would reveal the expenses of the business, makes it impossible to dissect the withdrawals between business expenditure and private drawings;
(iv)   I can however, reasonably infer from the evidence as well as Exhibit 7 (the application for the Visacard) that the respondent had unrestricted access to the Account and therefore the gross income of the business;
(v)    A substantial number of cash withdrawals are unidentified. Some withdrawals, from notation on the Statements, appear to represent payments to sub-contractors (probably other tilers). There is no way I can be satisfied on the material before me and the evidence as to how much money the respondent may have accessed for his own purposes;
(vi)   There is some evidence suggesting he held himself out as a Director of the Company or was regarded externally as representing the company in that:
1.
Exhibit 2 is an “outgoing passenger card” dated

25 September 1999 in which the respondent declares not only that his occupation is a director but that his main reason for overseas travel was business. The respondent asserted that he did this because a company director will always get better service;
2.Exhibit 3, being a copy of a letter from V to CSA dated 15 February 2000, in which V give details “concerning payments that have been made to Mr M J B, trading under the name of M-P Pty Ltd”;
3.The respondent was examined as to the contents of a letter written to CSA by V which gave further details of payments made for the year 2000 to the date of the letter.
The letter indicated that payments were directed to be deposited to the National Bank account of B. An examination of the Bank Statements reveals that that at least from the deposit of 28 October 1999, moneys were directly credited by V to the B account. It appears since then deposits have been made weekly. The letter which was put to the witness, indicated that V had been directed to deposit payments to the said account “as nominated by him”. The respondent denied he nominated the account. He said the “him” could have been a “M D”. M D is the V project manager. Exhibit 3 confirms the respondent was at 15 February 2000 “working on our W W site under the supervision of our Project Manager, Mr M D”. I infer, although this aspect is not critical to my ultimate finding, that the respondent either directly or indirectly nominated the account to which V were required to make payments for the company.

I am satisfied by the totality of the evidence and inferences which I can reasonably draw, that the company is the “alter ego” or “puppet” of the respondent. I found the respondent often evasive when giving his evidence and exhibiting selective memory. To the extent that he and Ms B attempted to dismiss suggestions either of their close financial connection or the influence and control that the respondent has over the company and the income from the V contracts, I reject such evidence.
I am therefore prepared to make a garnishment order subject to certain further evidence being produced.
In this regard, the Counsel for the respondent submitted that the Rules of natural justice would prevent me from making any orders against the company (or for that matter Ms B) without affording it the opportunity of being heard.
It may be said that the submission is consistent with the following general statement made by Fogarty and Treyvard JJ in the Full Court decision in Barro and Barro (1983) FLC 91-300 that:
“The right of a third party, who has been affected by orders made in proceedings in which it is not a party, to be heard either upon the making of those orders is rooted in the most fundamental principles of natural justice”.
However in circumstances where, as in this case, the entity has been found to be the “alter ego” of a party to the proceedings a more robust approach can be adopted.
For reasons which I now give, I am unable to make an order in the precise terms proposed by the applicant (namely as a rate of $2,000 each calendar month) because:
a)I have received insufficient evidence to ascertain that is a fair and reasonable sum to be garnished. In this regard O33R4(5) provides that:
“Where application for a garnishment order is made by a person other than the Registrar, it shall be verified by affidavit”.
b)I would not be required necessarily to have a separate affidavit, if sufficient admissible evidence was before me of the matters specified in O33R4(6) namely:
“(i)Particulars of the moneys payable by the respondent” – I have sufficient evidence before me to determine that issue;
“(ii)Efforts made by the applicant or any other person to obtain payment of those moneys” – I again am satisfied on this issue;
“(iii)Details of any relevant information furnished by the respondent….” – I regard is as particularly relevant when determining the quantum of the garnishee to have particulars of the expenses reasonably incurred by the company in generating its income from V. No financial statements for the company, estimates of current expenses or even the Visacard Statements (from which Ms B said business expenses were recorded and withdrawn) were tendered in evidence. I cannot estimate a fair “protected earnings rate” as required by O33R4(9)(b) without such evidence;
“(iv)Particulars of the moneys in respect of which application is made for garnishment” – although I have evidence of the extent of past earnings )see paragraph 28(c)(ii)(b) and Exhibit 3) I have no evidence of the level of future earnings upon which the garnishment order will attach.
I believe the proper process for me to adopt in the circumstances, as empowered by O33R4(7) and R4(8) is to:
a)Adjourn the proceedings to 9.30 am on 26 September 2000;
b)Require the applicant to give notice of the adjourned date to E B and V Ltd;
c)Direct and require V Ltd to produce to the applicant details of all current contracts with the company and/or E B and/or M B together with estimates of anticipated amounts and timing of payments under those contracts;
d)Direct and require M P Pty Ltd, E B and M B to produce to the applicant details of accrued expenses and estimates of anticipated expenses incurred in generating the anticipated payments from V Ltd.
O33R4(8)(c) provides a discretion to the Court to:
“make such other order as it thinks necessary to prevent the moneys that are the subject of the application from disappearing or being dissipated”.
I intend to exercise that discretion by ordering that all moneys due or accruing to the respondent and/or M P Pty Ltd and/or E B from V Pty Ltd from today, until further order, shall be retained by V Pty Ltd on behalf of the payee.
No submissions have been made in respect of costs including the reserved costs order by Registrar Rimmer on 24 May 2000 and costs reserved by my order of 5 July 2000. I shall hear submissions on an appropriate costs order on 26 September 2000.
Finally it was the submission of Counsel for the respondent that I should stay the effect of any order pending the hearing of the respondent’s application for departure from the administrative assessment which is to be heard by this Court in the near future. The applicant submitted that the respondent’s application for departure was ill-founded because of a failure to have made an “objection” to the assessment before seeking to depart from it as, it was submitted, is required under s116(aA) of the Child Support (Assessment) Act. The granting of any stay is a matter of discretion, which among other factors, would include a consideration of whether the respondent can be restored to his position in the event of success in his application for departure. The level of the current debt and the likely early final date for the departure application persuade me that no stay is appropriate in this case.
It follows that I should extinguish the injunction I ordered on 5 July 2000 and order those funds be released to the applicant towards payment of the debt.

Formal orders

(1)That M J B is indebted to the Commonwealth of Australia in the sum of $33.990.52.
(2)That the sum of $3,000.00 (and any accruals thereon) paid to the AUSTRALIAN GOVERNMENT SOLICITORS under paragraph (4) of the order of this Court made 5 July 2000 be released in part payment of the said debt.
(3)That all moneys due, or accruing to M J B and/or M P PTY LTD and/or E Z B from V PTY LTD from this day, until further order, shall be retained by V PTY LTD on behalf of the payee until further order.

I DIRECT

(4)The applicant’s application for a garnishment order and consequential orders be adjourned until 9.30 am on 26 September 2000.
(5)The applicant serve a copy of this order upon E Z B and V LIMITED.
(6)V LIMITED is to produce to the applicant by 18 September 2000 details of all current contracts with M P PTY LTD and/or E Z B and/or M J B together with estimates of anticipated amounts and timing of payments under those contracts.
(7)M P PTY LTD E Z B and the respondent produce to the applicant by 18 September 2000, details of actual and estimates of anticipated expenses incurred in generating the anticipated payments from V LIMITED.
(8)That the costs of this matter (including reserved costs) be reserved.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Baumann FM

Associate:

Date: