DELONG & ROUSE
[2019] FCCA 1498
•3 June 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DELONG & ROUSE | [2019] FCCA 1498 |
| Catchwords: LIABILITIES – Tax liabilities – Proposed Deed of Company Arrangement – Australian Tax Office – United States of America Internal Revenue Service – difficulty of ascertaining asset pool – adjournment to properly determine debts – section 90SM(5). PENALTIES – Where parties cause penalties to be imposed – whether the debt should be joint or individual. DEBT – Whether parental support was a gift – whether parental support was a loan. |
| Legislation: Family Law Act 1975 (Cth), ss.79, 90SF and 90SM Corporations Act 2001 (Cth), s.588G |
| Cases cited: Haslam & Haslam [2018] FCCA 734 |
| Applicant: | MR DELONG |
| Respondent: | MS ROUSE |
| File Number: | MLC 4043 of 2017 |
| Judgment of: | Judge McNab |
| Hearing dates: | 14, 15, 16 November 2018, 4 December 2018 and 2 May 2019. |
| Date of Last Submission: | 2 May 2019 |
| Delivered at: | Melbourne |
| Delivered on: | 3 June 2019 |
REPRESENTATION
| Counsel for the Applicant: | Ms M Smallwood |
| Solicitors for the Applicant: | Lander & Rogers |
| Counsel for the Respondent: | Mr M Wilson |
| Solicitors for the Respondent: | Westminster Lawyers |
ORDERS
All previous Orders be discharged.
Within 120 days of the date of these Orders- or earlier at the Applicant's election (provided that the Applicant gives the Respondent at least 42 days' advance notice of the revised settlement date) and contemporaneously:
(a)the Applicant pay to the Respondent the sum of $419,460.
(b)the Respondent do all such acts and things and sign all such documents as may be required to transfer to the Applicant at the Applicant's expense, all of her right, title and interest in the property situated at and known as C Street, Suburb D, in the State of Victoria, more particularly described in Certificate of Title Volume … Folio … (‘C Street, Suburb D property’);
(c)the Applicant do all things necessary and sign all documents necessary to refinance into his sole name the amount owing to Westpac Banking Corporation for loan number … in the parties' joint names and to cause the discharge of mortgage registration number … (‘C Street, Suburb D mortgage’);
(d)the Respondent do all such acts and things and sign all such documents as required to refinance the amount to Westpac Banking Corporation for loan number … in the parties' joint names and to cause the discharge of mortgage registration number … (‘A Street, Suburb B mortgage’);
(e)The Applicant at his expense do all things necessary and sign all documents necessary to cause the discharge of the caveat registered on his behalf over the property at A Street, Suburb B, in the State of Victoria.
Forthwith the Respondent do all things and sign all documents necessary to authorise the Applicant to have sole control over the application to Council to amend the plans for the C Street, Suburb D property, planning permit … submitted 26 September 2018 (‘Council application’).
From the date of the Orders, the Applicant retain (and the Respondent relinquish) his interest in the Company E Business Investment Trust and the company K Pty Ltd trading as Company K (‘Company K’) and indemnify the Respondent in relation to the third party debts owed by Company K, being:
(a)$713,432.26 to the Australian Taxation Office (‘ATO’);
(b)$3,019.50 to Company H Pty Ltd;
(c)$4,300 to Mr M;
(d)$6,427.81 to Company F Pty Ltd;
(e)$9,025.42 to Department of Agriculture and Water Resources;
Total: $736,205.19 (‘Third Party Debts’)
and, in the event that Company K goes into liquidation as a result of the Applicant's inability to meet the Third Party Debts or otherwise, the Applicant indemnify the Respondent for the Third Party Debts, on the basis that the Respondent, her agents or any party acting on her behalf is restrained from entering any proof of debt in any administration/liquidation for the benefit of the Respondent (directly or via any entity in which she has an interest), Company G, or for the benefit of any third party at her direction.
By 8 June 2019 the Applicant pay and indemnify the Respondent with respect to the amount of $29,530.39 owed by Company G to the ATO with respect to penalties in relation to unpaid superannuation.
Within 7 days of the date of the Orders, the Applicant and Respondent do all such things and sign all such documents necessary to cause Company G to pay, from the funds held in the Westminster Lawyers' trust account, the amount of $28,192 to the Applicant for the purposes of the Applicant applying his HSBC and Westpac Credit cards, and thereafter the Applicant do all such things and sign all documents necessary to transfer his shares in Company G to the Respondent, at the Respondent's expense.
Company G pay and indemnify the Respondent with respect to any monies which are owed by Company G with respect to outstanding superannuation.
In the event that Company G is liquidated and the liquidator seeks to recover the debt the Respondent alleges is owed to it by Company K, then the Respondent shall pay that amount on behalf of Company K and indemnify and keep indemnified Company K for any amount so sought by the liquidator.
The Respondent whether by herself, her servants or agents, be restrained from causing Company G to seek to recover any debt said to be owed by Company K to Company G save that the Respondent shall be entitled to respond to:
(a)any request for information or enquiry made by the administrator or liquidator in relation to withdrawals of money from Company K’s bank accounts, or
(b)any claim made or proceeding issued by the administrator or liquidator of Company K in relation to withdrawals from Company K’s bank account, by raising:
(i)that either she or Company G were entitled to withdraw funds as creditors of Company K; and
(ii)the full circumstances of the withdrawals including that the Applicant and Respondent received $140,000 as part settlement in these proceedings from the funds withdrawn.
The parties do all things necessary to deposit into the Company G account number … (‘Company G account’) all monies to which Company G is entitled, including but not limited to monies received by way of any legal settlements and proceeds of sale of stock and monies which are being held by the Respondent's solicitors from Company G and/or in the joint names of the Applicant and Respondent.
Subject to the Respondent's compliance with her obligations pursuant to Order 6, the Respondent retain the assets of Company G to the exclusion of the Applicant, and the Respondent be at liberty to wind up Company G.
In the event that the Respondent fails to comply with her obligations pursuant to Order 2 then:
(a)the parties forthwith do all such things necessary and sign all such documents necessary to cause the sale of the property at A Street, Suburb B, in the State of Victoria, more particularly described in Certificate of Title Volume … Folio … (‘the A Street, Suburb B property’), and to cause the proceeds of sale to be distributed as follows:
(i)first, to pay the usual costs, commissions and expenses of sale;
(ii)second, to pay the usual rates adjustments;
(iii)third, to pay the amount outstanding for loan number … in the parties' names and to cause the discharge of mortgage registration number …;
(iv)fourth, to pay the balance to the Respondent.
For the purposes of the above Order, the Respondent is to forthwith do all things necessary and sign all documents necessary to appoint the Applicant as trustee in sale of the A Street, Suburb B property and the parties have liberty to apply to the Court with respect to the terms and conditions of sale of the A Street, Suburb B property.
In the event that the Applicant fails to comply with his obligations pursuant to Order 2 then:
(a)the parties forthwith do all such things necessary and sign all such documents necessary to cause the sale of the C Street, Suburb D property and to cause the proceeds of sale to be distributed as follows:
(i)first, to pay the usual costs, commissions and expenses of sale;
(ii)second, to pay the usual rates adjustments;
(iii)third, to pay the amount outstanding in order to discharge the C Street, Suburb D Mortgage;
(iv)fourth, to pay the Respondent such amount as is required in order to reflect a 35% adjustment of the asset pool (as set out in Annexure 'A') amended to reflect the actual proceeds of sale of the C Street, Suburb D property; and
(v)fifth, to pay the balance to the Applicant.
From the date of the Orders:
(a)the Applicant have the sole use and enjoyment of the C Street, Suburb D property including with respect to all rental income received from the C Street, Suburb D property;
(b)the Applicant pay and indemnify the Respondent with respect to all liabilities in relation to the C Street, Suburb D property including: loan repayments, land tax (if any), rates and utilities;
(c)the Respondent have the sole use and enjoyment of the A Street, Suburb B property including with respect to all rental income received from the A Street, Suburb B property;
(d)the Respondent pay and indemnify the Applicant with respect to all liabilities in relation to the A Street, Suburb B property including: loan repayments, land tax (if any), rates and utilities.
Subject to these Orders, the Applicant retain, and the Respondent relinquish, all assets in his ownership, possession or control including but not limited to:
(a)his interest in the Company E Investment Trust;
(b)his interest in Company K including but not limited to any monies which may be payable to Company K by Company N (in liquidation);
(c)monies standing in any bank account in his name;
(d)his Super Fund NN superannuation entitlement;
(e)the dog ‘P’.
Subject to these Orders, the Respondent retain (and the Applicant relinquish) assets in her ownership, possession or control including but not limited to:
(a)monies standing in any bank account in her name, including monies standing in her overseas bank accounts with Overseas Bank;
(b)her O Pension retirement entitlement;
(c)her Australian superannuation entitlements.
The Respondent pay and indemnify the Applicant with respect to any monies owing to her parents, including the amount of $294,414 and any liabilities owing in relation to taxation liabilities in the United States of America.
Subject to these Orders, the parties each indemnify the other with respect to any liability attaching to any asset they are to retain pursuant to these Orders and in relation to any liability in their respective names.
The Respondent be and is hereby restrained from, either directly or indirectly through any third party, taking steps to negatively impact upon the Council application including but not limited to filing a complaint in relation to the Council application, including any complaints by way of application/s to the Victorian Civil and Administrative Tribunal.
IT IS NOTED that publication of this judgment under the pseudonym Delong & Rouse is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 4043 of 2017
| MR DELONG |
Applicant
And
| MS ROUSE |
Respondent
INTERIM REASONS FOR JUDGMENT
Introduction
This matter comes before the Court by way of an application for final property orders filed 28 April 2017. The Applicant and Respondent were de-facto husband and wife, respectively.
Prior to the hearing, the Applicant was seeking a division of the non-superannuation asset pool of 80% in his favour, [1] while the Respondent proposed 60% in her favour.[2] However, since the matter has been part-heard, both parties have revised their proposed divisions: the Applicant now seeks 68.4% in his favour[3] and the Respondent now seeks 40% in her favour.[4]
[1] Applicant’s outline of case filed 13 November 2018, 15.
[2] Respondent’s outline of case filed 13 November 2018, 10.
[3] Applicant’s submissions dated 3 December 2018 [1].
[4] Respondent’s submissions filed 3 December 2018 [41].
This case is complex in nature due to the business arrangements, both joint and separate, of the parties. The major issues that the Court must determine are:
a)the value of the parties’ assets;
b)the financial and non-financial contributions of the parties in a property development venture in C Street, Suburb D, including the effect of the Applicant’s renovations of the property on a just and equitable division;
c)the status of current or previous debts the Respondent owes to one of her parents; and
d)the ownership of a dog purchased by the parties named 'P'.
Summary of Findings
The agreed rectification costs of the C Street, Suburb D is $143,143.[5]
[5] See heading ‘Quantum of Costs’ at [46] to [57].
The Applicant is not solely responsible for the rectification costs and the sum of $143,143 is to be treated as a joint liability of the parties.[6]
[6] See heading ‘Who should bear the cost of rectification?’ at [58] to [72].
Company G (‘Company G’) shall pay the credit card debts other than the Applicant’s debt of $8,500 incurred for these legal proceedings.[7]
[7] See heading ‘Credit Card Debts linked to Company G’ at [73] to [76].
Company G is responsible to pay superannuation contributions of $45,431.37.[8]
[8] See heading ‘Company G Superannuation debt’ at [77] to [82].
The Applicant shall pay the penalty in relation to superannuation of $29,530.39.[9]
[9] See heading ‘Company G Superannuation debt’ at [77] to [82].
The debt owed by Company K is presently $739,205.19 although that may be reduced if a Deed of Company Arrangement (‘DOCA’) is accepted by creditors. For that reason there is uncertainty about that matter and therefore there is some uncertainty about the asset pool.[10]
[10] See heading ‘Australian Tax Debt (owed by Company K Pty Ltd)’ at [83] to [94].
The sum of $12,251.83 should be accounted for in Respondent’s favour in ascertaining the total pool of assets.[11]
[11] See heading ‘Funds spent by the Respondent ton the planning permit’ at [95] to [100].
The balance of the loan from the Respondent’s parents in the sum of $296,414 is a debt to be taken into account in assessing the asset pool.[12]
[12] See heading ‘Loan from Respondent’s parents’ at [102] to [110].
The Respondent’s United States of America (‘USA’) tax liability of AUD$70,914 is a liability to be included in the asset pool.[13]
[13] See heading ‘American Tax Debt’ at [111] to [113].
No adjustment will be made for future needs (s 90SF(3)).[14]
[14] See heading ‘s 90SF(3) – Future needs’ at [128] to [132].
A just and equitable division of the property of the parties is 65% to the Applicant and 35% to the Respondent.[15]
[15] See heading ‘Conclusions’ at [133].
'P', the dog, shall remain with the Applicant.[16]
[16] See heading ‘P’ the Dog’ at [134] to [144].
Evidence
The Applicant relies on the following documents:
a)Affidavit of Ms Q filed 21 February 2018;
b)Affidavit of Mr R filed 22 February 2018;
c)Affidavit of Mr S filed 22 February 2018;
d)Affidavit of Mr T filed 23 February 2018;
e)Affidavit of Mr Delong filed 19 October 2018;
f)Financial Statement of Mr Delong filed 19 October 2018;
g)Second Further Amended Initiating Application filed 19 October 2018;
h)Affidavit of Mr U filed 19 October 2018;
i)Affidavit of Mr W filed 19 October 2018;
j)Affidavit of Mr X filed 24 October 2018;
k)Affidavit of Mr Delong filed 13 November 2018; and
l)Documents produced by way of Subpoena.
The Respondent relies on the following documents:
a)Affidavit of Ms Rouse affirmed and filed 5 November 2018;
b)Financial Statement of Ms Rouse affirmed and filed 5 November 2018;
c)Affidavit of Mr Z affirmed and filed 9 November 2018;
d)Affidavit of Ms AA filed 19 May 2017;
e)Affidavit of Ms BB filed 23 May 2017;
f)Affidavit of Mr CC sworn and filed 14 February 2018;
g)Affidavit of Ms Y affirmed 15 February 2018 and filed 16 February 2018;
h)Affidavits of Mr DD affirmed and filed 23 February 2018 and 1 November 2018;
i)Affidavit of Mr EE affirmed and filed 2 November 2018;
j)Affidavit of Mr FF sworn and filed 2 November 2018;
k)Affidavit of Mr GG affirmed and filed 7 November 2018;
l)Affidavit of Ms HH sworn and filed 7 November 2018;
m)Affidavit of Mr JJ affirmed and filed 8 November 2018;
n)Affidavit of Ms KK affirmed and filed 9 November 2018 (served unsworn on 7 November 2018);
o)Affidavit of Mr LL sworn 22 November 2018; and
p)Affidavit of Mr MM affirmed 30 November 2018.
Chronology
The Applicant, who is Australian, is aged 47. The Respondent is American and is aged 37.
In 2003, the Applicant founded a business called Company K Pty Ltd (‘Company K’).
In 2006, the Applicant purchased a block of vacant land at C Street, Suburb D, and commenced developing the land into an apartment block (‘C Street, Suburb D’).
The parties met in … 2010, and began dating in … 2011 in the USA.
On … 2012 the parties moved to Australia together. In early 2012, the parties began cohabitating.
On … 2013, Company G is incorporated by the parties as equal shareholders and the Respondent as sole director.
In 2014, Company N (‘Company N’) is engaged to construct the units at the C Street, Suburb D (‘C Street, Suburb D’).
In mid-2014 the parties obtain separate rental accommodation but remain in a romantic and business relationship.
From mid-2015, the parties were made aware that Company N was mismanaging C Street, Suburb D. The Respondent says Company G lent significant funds to support the development. The Applicant says that Company K took over the building finance.
In late 2015 the parties purchase a property in A Street, Suburb B (‘A Street, Suburb B’). The Respondent’s parents provide her with $330,000 to assist in the purchase. The Respondent asserts this was a loan whereas the Applicant says that this was a gift (and should be excluded from the asset pool). The property is in the Respondent’s name only, but the loan secured against the property is held in the name of both parties.
According to the Applicant, the parties discussed separation and asset splitting around late 2015; the Respondent asserts that this took place in early to mid-2016.
The C Street, Suburb D was ostensibly completed in early 2016 although it is accepted by the parties that there are significant issues with the quality of the building.
In March to April 2016, the Applicant obtained a partial occupancy certificate for the C Street, Suburb D (‘C Street, Suburb D Apartment’). The C Street, Suburb D Apartment is put into the joint names of the parties in differing shares: 2/3 to the Applicant and 1/3 to the Respondent. In June to July 2016 the Applicant instructed a solicitor that the de facto relationship between the parties was intact, signed a statutory declaration to this effect and prepared a transfer of land.
There is considerable dispute about the events alleged to have occurred following this period:
a)the Applicant alleges that the Respondent moved monies between business and loan accounts, depositing $560,000 into her personal account. He further alleges that she prevented him from being involved in Company G and did not comply with Heads of Agreement arising from a conference outlining repayment of the deposited monies in the sum of $379,000. It is also said that there may be $85,026.22 in transactions relating to Company G by which the Respondent could have benefitted, in breach of the Heads of Agreement; and
b)the Respondent alleges that the Applicant made false allegations against her and locked her out of Company G premises. She further alleges that the Applicant failed to disclose planning issues relating to the C Street, Suburb D, attempted to sell the remaining Company G stock at fire sale prices and failed to disclose the receipt of $58,094 from Airbnb rentals of the C Street, Suburb D. It is also said that the Applicant did eventually sell the Company G stock at a loss of around $230,000 - $430,000. The Respondent alleges that the Applicant prevented valuers (appointed for the purposes of these proceedings) from accessing the C Street, Suburb D Apartment.
On 20 February 2018 Company N was placed into administration and, subsequently, liquidation. It is unlikely that there will be any return to parties or creditors generally for any claims that Company K may have had.
Approach to Property proceedings
Section 90SM of the Family Law Act 1975 (Cth) (‘the Act’) provides relevantly:
(1) In property settlement proceedings after the breakdown of a de-facto relationship, the court may make such order as it considers appropriate:
(a) in the case of proceedings with respect to the property of the parties to the de facto relationship or either of them—altering the interests of the parties to the de facto relationship in the property; or
[…]
including:
(c) an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i) either or both of the parties to the de facto relationship; or
[…]
to make, for the benefit of either or both of the parties to the de facto relationship or a child of the de facto relationship, such settlement or transfer of property as the court determines.
[…]
(3) The court must not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court must take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the de facto relationship, or a child of the de facto relationship:
(i) to the acquisition, conservation or improvement of any of the property of the parties to the de facto relationship or either of them; or
(ii) otherwise in relation to any of that last-mentioned property;
whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the de facto relationship or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the de facto relationship, or a child of the de facto relationship:
(i) to the acquisition, conservation or improvement of any of the property of the parties to the de facto relationship or either of them; or
(ii) otherwise in relation to any of that last-mentioned property;
whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the de facto relationship or either of them; and
(c) the contribution made by a party to the de facto relationship to the welfare of the family constituted by the parties to the de facto relationship and any children of the de facto relationship, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the de facto relationship; and
(e) the matters referred to in subsection 90SF(3) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the de facto relationship or a child of the de facto relationship; and
[…]
The Full Court in Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 identified the four-step process that the Court is required to adopt in property matters under the Act involving parties to a marriage. The same principles apply to parties in a de facto relationship:
a)to identify the pool of assets and liabilities generally, and usually at the time of hearing;
b)to assess the relative contributions of both the financial, non-financial, direct and indirect nature as specified by s 90SM(4) of the Act;
c)to consider the factors as are relevant contained in s 90SM(3) of the Act; and
d)finally, determine whether the order the Court proposes to make is just and equitable to both parties.
This approach was approved by the Full Court in In Bevan & Bevan [2013] FamCAFC 116 where the Full Court of the Family Court of Australia considered the Hugh Court’s decision in Stanford & Stanford [2012] HCA 52.
Neither party contends that it is not just and equitable to make orders for the division of the assets of the de-facto relationship.
Asset pool
Below is the Applicant’s asset pool summary:[17]
[17] Submissions for the Applicant dated 3 December 2018 [2].
| Asset | Owner | Value | |
| 1 | A Street, Suburb B | Respondent | $1,175,000 |
| Less mortgage | Joint | -$936,000 | |
| Net equity | $239,000 | ||
| 2 | C Street, Suburb D Apartment | Applicant 2/3 share Respondent 1/3 share | $3,425,000 |
| Less mortgage | -$1,120,000 | ||
| Rectification works | -$429,671 | ||
| Net equity | $1,875,329 | ||
| 4 | Company G Pty Ltd | Nil | |
| Monies in Company G bank account as at 5 November 2018 | Company G | $14,839.27 | |
| Proceeds from sale of Company G stock | Company G | $32,811.94 | |
| Monies from Company G Settlement | Company G | $50,023.56 | |
| 5 | HSBC card number ended … | Applicant | -$8,191 |
| 6 | Westpac card number ended … | Applicant | -$28,507 |
| 8 | Company K Pty Ltd | Company E Business Investment Trust | -$736,205 |
| 9 | Part property settlement | Applicant | $140,000 |
| 10 | Part property settlement | Respondent | $140,000 |
| Total pool excluding superannuation | $1,658,124 | ||
| 18 | Super Fund NN | Applicant | $52,000 |
| 19 | O Pension (US) | Respondent | $236,364 |
| Total with superannuation | $1,946,488 | ||
Below is the Respondent’s asset pool summary, detailed in written submissions filed 3 December 2018:
| Asset | Owner | Value | |
| 1 | C Street, Suburb D Apartment | Joint Applicant (2/3 share) Respondent (1/3 share) | $3,425,000 |
| Less mortgage | -$1,098,308 | ||
| Net equity | $2,326,692 | ||
| 2 | A Street, Suburb B | Respondent | (E)$1,175,000 |
| Less mortgage | -$936,000 | ||
| Less outstanding debt to parents | -$296,414 | ||
| Net equity | (E)-$57,414 | ||
| 4 | Part property settlement of $140,000 (less amount spent on C Street, Suburb D planning application) | Respondent | $127,748 |
| 5 | Company K Pty Ltd (tax debt) | Applicant | -$578,016 |
| 9 | US tax liability ($USD$51,295) | Respondent | (E)-$70,914 |
| 10 | Personal loan from parents ($USD27,915) | Respondent | -$39,360 |
| 11 | Credit card debts less $8,500 spent on legal fees | Applicant | -$28,198 |
| 12 | Savings | Applicant | $19,362 |
| Total pool excluding superannuation | $1,839,900 | ||
| Superannuation | |||
| 12 | Super Fund NN | Applicant | (E)$60,000 |
| 13 | O Pension (USD$167,099.46 as at 30 June 2017) | Respondent | (E)$213,753 (as at 30 June 2017) |
Value of the C Street, Suburb D Property
The current value of the C Street, Suburb D property is not in dispute. An expert valuer, as agreed by the parties, valued the property at $3,425,000. The value of the property takes into account that the building’s issues are rectified and that a certificate of occupancy is obtained for the whole building.[18]
[18] Affidavit of Mr U filed 19 October 2018.
The C Street, Suburb D and rectification works
There were two significant issues at trial regarding the C Street, Suburb D property:
a)the quantum of the rectification costs; and
b)whether the cost of rectification is a joint debt or liable to the Applicant alone.
The parties are in agreement that there are issues with the C Street, Suburb D and the property requires significant rectification for the building to be certified as compliant with the planning permit. The two significant issues for the property to become compliant with the planning permit are:
a)the need to waterproof the property; and
b)the need to remove part of a balcony that crosses into common property.
On 4 December 2018 the Court ruled that the value of the rectification would proceed on the basis of the ‘best case’ approach proposed by Mr V. Mr W, a Building Consultant at Company L Pty Ltd, attached his report to an affidavit affirmed 19 October 2018. The best case approach, being found at [7.3] and [7.5] of his report, was that a planning permit may be issued if the property was waterproofed. Under the best case approach, there would be no need to remove the balcony. The cost of removing the balcony on common property is, therefore, to be excluded from the asset pool.
A significant part of the trial concerned the parties’ disagreement of the cost of the rectification. Both parties retained their own expert quantity surveyors to value the cost necessary to waterproof the property according to the relevant building codes:
a)Mr X (engaged by the Applicant) = $375,140;[19]
b)Mr Z (engaged by the Respondent) = $143,143.
Both parties made written submissions that their expert should be preferred.
[19] Applicant’s final submissions on cost of Rectification filed 12 December 2018 [1]-[4].
The issue of quantum has been overtaken by other events as explained below.
The parties remain in disagreement as to whether the costs should be considered a personal liability of the Applicant or a joint liability.
Quantum of costs
The parties made extensive submissions as to the value of the rectification needed. They both, as noted above, retained experts whose values differed significantly. However, events have overtaken this disagreement.
On 18 April 2019 the Respondent filed an application seeking orders that the documents produced for the purposes of this proceeding (including affidavits, transcripts of evidence and exhibits) be made available to the parties for proceedings in the Magistrates Court where each party was seeking intervention orders against the other.
The Applicant’s response and supporting affidavit, affirmed 24 April 2019, raised issues in relation to Company K. The Applicant informed the Court through this affidavit that Company K had been placed into administration and that a DOCA would be put before creditors for consideration. The Court was advised that a Creditor’s Statutory Demand for payment of debt dated 23 January 2019 had been served on Company K by the Australian Tax Office (‘ATO’) demanding payment of $729,896.30.
On 28 February 2019 the ATO issued proceedings in the Federal Court to wind up Company K on the ground of insolvency. Exhibited to that affidavit were orders made by Justice O’Bryan in the Federal Court on 3 April 2019 which provided, amongst other things, that the time for the Administrators of the company to convene a meeting of creditors be extended to 5 August 2019 and the winding up application issued by the ATO be adjourned to that date.
The application came on for hearing on 2 May 2019. The Respondent appeared in person (having advised the Court in her affidavit in support of her application that she had spent about $250,000 in legal fees in relation to this proceeding and could no longer afford legal representation). The Applicant was represented by Ms Isaacson, solicitor.
In the course of hearing the application, the Court raised with the parties the difficulties faced by the Court in determining the true cost of the rectification works. The Court referred to authority that, where the Court is faced with an issue involving the valuation of property that is complex or difficult, the Court may order the sale of the property in order to determine its value. Such relevant authority includes Little and Little (1990) FLC 92-147 where it was stated at [78,020]:
Whilst a trial judge should determine a disputed issue of valuation where the evidence enables him to do so, we do not accept that there is an obligation cast upon him to determine such a disputed issue irrespective of the state of the evidence. It may be such that a determination is not possible. In such a case, as in a case where there is a very considerable disparity in the valuation evidence and other evidence indicates that the actual ascertainment of the true value is difficult and complex, the proper solution as between the parties may be to order a sale
The Court also noted that when ascertaining the value of property is “hazardous and uncertain” (Smith and Smith (1991) FLC 92-261 at [78,759]) or “too difficult and complex” (Phillips and Phillips (2002) FLC 93-104 at [88,983]), it may be open to a judge to order a sale of property in order to determine its value. The Full Court in Noetel and Quealey (2005) FLC 93-230 at [79,806] referred to authority in relation to the approach to be taken to the ascertain the value of property, stating:
A long line of authority in this Court (Waters and Waters (1981) FLC 91-019 at 76,208; Williams and Williams (1988) FLC 91-959 at 76,940; Docters van Leeuwen and Docters van Leeuwen (1990) FLC 92-148 at 78,024; Little and Little (1990) FLC 92-147 at 78,020; Smith and Smith (1991) FLC 92-261 at 78,759; and Bell and Bell (1993) FLC 92-347 at 79,683) establishes as a clear guideline for the exercise of discretion under s 79 of the Act, that, absent some special consideration (such as a desire by one spouse to retain a particular piece of property, in specie), and particularly where the value of an asset is contentious, or even where it is not but the market for the property is volatile, or there is likely to be a significant time lapse between judgment and sale, and where the value of the asset is to be divided between the parties, the Court should order its sale and the apportionment of the proceeds between the parties rather than order one party to pay to the other a fixed sum representing a notional proportion of its assessed value.
The analysis of the expert evidence in this case does not involve simply preferring one total estimation over another. Rather, because the costs had been broken down into parts, the Court would have been required to deal with each specie of defect as analysed by each expert. To do otherwise would have represented a failure to engage in claims made by the parties. For those reasons, the task confronted by the Court was both complex and difficult.
The hearing was stood down to allow the parties to discuss both the proposal that was before the Court and to consider the matters raised in relation to an order for the sale of property.
Given that neither party had sought orders for the sale of the property at the trial, the Court considered it appropriate and necessary for the parties to make submissions on that point. The Applicant opposed an order for sale, stating that such a course would be financially catastrophic for both parties. Ms Isaacson referred to evidence before the Court that a sale of the property in its current condition would reduce the value of the asset by around $1,000,000. The Applicant also submitted that if the Court ordered the sale of the C Street, Suburb D there would be no prospect of Company K entering into a DOCA and the liquidation of the company would be inevitable. The Applicant further referred to the prospect of the parties (being the company directors) being held liable for the debts incurred while the company was (or was soon to be) insolvent pursuant to s 588G of the Corporations Act 2001 (Cth).
The Respondent did not oppose an order for sale. The matter was stood down for a further few hours for the parties to discuss the issues raised, including whether the terms of mutual intervention orders could be agreed so as to avoid the need for yet more proceedings.
As a result of negotiations between the parties, it was agreed that for the purposes of the Court determining the cost of rectification works, the Court is to adopt the figure of $143,143. This agreement was reflected in consent orders made by the Court and has relieved the Court of a significant burden.
Who should bear the cost of rectification?
The parties’ positions
Despite the parties reaching consent on 2 May 2019 as to the quantum of the rectification, they were unable to reach agreement on how the costs should be apportioned. The Court Order of 2 May 2019 noted that:
the de-facto Respondent maintains that the de-facto Applicant should bear the sole cost of the rectification works on the grounds of wastage (which is not agreed by the de-facto Applicant).
This is the same position held by the Applicant and Respondent at trial: the Respondent asserting the debt is the Applicant’s alone, and the Applicant claiming it as a joint debt.
In support of Respondent’s position, she relied on the case of In the Marriage of Kowaliw,[20] which establishes the principle of wastage. Wastage may occur:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets;
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.[21]
If wastage is shown, it is grounds for the Court to adjust the property pool, taking into account the depletion of a joint asset by one party.
[20] (1981) FLC 91-092 [76,644].
[21] Ibid [76,644].
The Respondent submits that the Applicant, pursuant to this principle, should bear the cost of the rectifications because:
a)he built a rooftop terrace using joint funds “without building permits and contrary to approved Council Plans”,[22] despite being on notice that the property had waterproofing issues;
b)he engaged a contractor to fix the water-proofing issues whom he knew was not able to provide a certificate of compliance and would therefore be unable to comply with the planning permit; and
c)the Respondent claims rectification costs would have been around $10,000 to $15,000 if the necessary works had been completed prior to the Applicant building the rooftop terrace but because the rooftop terrace must be removed before waterproofing the property, the cost has increased significantly.
[22] Outline of case for the Respondent filed 13 November 2018, 5.
The Respondent further relies on a building report prepared by Mr JJ and attached to his affidavit affirmed 8 November 2018. Mr JJ of Company NN is a member of the Royal Institution of Chartered Surveyors. Mr JJ’s instructions were to examine the:
a)roof terrace waterproofing;
b)water damage to Unit … (of the C Street, Suburb D) Property;
c)air conditioning condenser units within the car parking on the ground floor;
d)stormwater in-ground tank within the car parking on the ground floor;
e)north elevation cladding to the building façade
It seems from Mr JJ’s report that the waterproofing works were originally performed by the builder Company N, who engaged the company Company J Pty Ltd (a water-proof installer). Subsequent to Company N ceasing work, a company Company OO was engaged by the Applicant to perform rectification works in about June 2016. Those works were not guaranteed by Company OO and no Certificate of Compliance was issued by Company OO for the work they performed.
In his report Mr JJ has assumed that the Applicant is “an informed person in relation to property development and has a working understanding of the principles of construction".[23] The basis of that opinion is not set out in his report and nor did Mr JJ’s evidence in cross examination shed light on how he came to this view. This premise affected Mr JJ’s reasoning:
6.2 For an informed person needing to complete the works to the roof terrace and building, it would not be necessary to consult with a building consultant; the informed individual could request a building notice from the Registered Building Surveyor themselves and procure a contractor to complete the works to obtain the occupancy certificate required under law. If Mr Delong had proceeded in this vein, the building/building compliance procedures would have prevented him from continuing with work on the rooftop. As an informed developer we assume he is aware of these regulations and it was negligent that he wantonly disregarded them.
6.3 Furthermore if Mr Delong had engaged registered trades to undertake the required rooftop works, the appropriate care, consideration application would have provided Mr Delong with a certificate of compliance for the waterproofing element. Mr Delong has not been forthcoming in who he engaged to do the works, through my investigations I found an invoice from Company OO tiling relating to the product and labour. Mr Delong has not provided a certificate of compliance from Company OO for this work. If Mr Delong did in fact get a proper certificate of compliance, then the warranty provided by that company would cover any such claims made against damage to Unit … below.
[23] Mr JJ, affidavit affirmed 8 November 2018, [3.3] of Annexure -2.
The Applicant submits in reply that “there is no evidence to establish such a wastage argument”.[24] The Applicant submits that the contractor, who is a registered water-proofer, was engaged to fix the waterproofing issues created by Company N. He further states that he took additional steps to fix other issues with the property, as recommended in a building report prepared by an expert.[25] The Applicant seems to submit that no wastage occurs because the rectification works were undertaken with the intention of fixing existing building issues.
[24] Applicant’s submissions dated 3 December 2018 [28].
[25] Ibid [30] – [33].
In relation to the second rectification issue, which involves parts of the property having been built on common land, the Applicant submits that there is undisputed evidence that Company PP, subcontracted by Company N, caused that defect by completing an incorrect survey of the property. The Applicant submits that this means that the Applicant cannot be said to have caused that defect.[26]
[26] Ibid [39].
Further to these arguments, the Applicant submits that the Respondent, by her own evidence, attests to being intimately involved with the development and therefore was well aware of the building issues and the steps taken by the Applicant to rectify them.[27]
[27] Ibid [40].
Finding in relation to who should bear the cost of rectification
Whilst there was no objection to the admission of Mr JJ’s evidence, I do note that he was directly engaged by the Respondent and he failed to set out in his report all of the letters of instruction. The letters of instruction, which were produced at trial and not before, are highly disparaging of the Applicant and reflect the Respondent’s view that everything that went wrong with the development was the fault of the Applicant.
Mr JJ made no reference to the Expert’s Code of Conduct in his report or to the letters of instruction. The tone of Mr JJ’s report was that of an advocate. His evidence was not given as a dispassionate expert, whose evidence was produced to assist the Court. I do not rely on the evidence of Mr JJ for these reasons.
The evidence does not support a finding that the Applicant wantonly disregarded the building regulations. He has, therefore, not engaged in conduct that can be regarded as wastage and the costs of rectification should not sit at his feet.
It is curious that Mr JJ has adopted the expression “wanton disregard” when that same expression is used in the cases involving the wastage by a party. It may be that the evidence supports a finding that the Applicant is an inexperienced property developer but that is quite a different matter to taking the next step to say that he deliberately engaged in conduct causing loss which can be characterised as wastage in the manner that expression is used in the cases. The case of Haslam & Haslam [2018] FCCA 734 (at [6]-8]) is instructive, providing an example of a decision where a poorly managed building development was not characterised as wastage.
I accept the evidence of the Applicant that from the time that Company N was off the site, he was the person onsite managing the funds, and working with a site supervisor and superintendent. He is not a building expert or a person with any expertise in building codes. He was an inexperienced property developer dealing with the consequences of a builder who had left the job either incomplete or otherwise subject to substantial defects which, as the expert evidence of the building experts show, were not capable of straightforward rectification. There were multiple problems to contend with, including incorrectly drawn plans which resulted in issues that require rectification. It is not appropriate that the cost of the rectification work should fall to the Applicant personally.
Credit Card Debts linked to Company G
Neither party asserted that Company G had a positive value. They agreed that the Respondent should retain whatever funds are held by Company G (or owed to it) in order to pay its debts. The parties were content that the Respondent could wind up Company G if she so chooses.
Evidence given by the parties at the hearing indicated that both parties have outstanding credit card debts linked to Company G. The Applicant seeks orders that his $36,698 credit card debts incurred against the account of Company G be paid by Company G (to be paid from the $82,835.50 held in trust on behalf of Company G). The Respondent’s position is that the Applicant should pay the expenses attached to his credit card alone. The Respondent accepts the Applicant has credit card debts totalling $36,698 although she submitted that $8,500 of that amount was for legal fees incurred personally by the Applicant.
The evidence supports a finding that each of the parties used credit cards issued to them by Company G for both private and business use whilst the company was trading. The answers given in cross-examination of both parties supports that finding.
In my view the credit card debts incurred against Company G by both parties should be paid from the funds held by Company G save for the sum of $8,500 which was incurred by the Applicant for the payment of his legal fees. The Court is not in a position to conduct an audit of the accounts to determine precisely what is or is not a business debt in relation to the balance of the entries on the credit card statements.
Company G Superannuation debt
Company G owes a superannuation debt to the ATO of $45,431.37 representing unpaid superannuation contributions to each of the parties and $29,530.39 in penalties.[28]
[28] Respondent’s submissions filed 3 December 2018, [26] – [27].
The Applicant’s minute of proposed orders[29] at [6.1.2] states:
The Applicant be restrained from pursuing any superannuation or any payment otherwise due to him from Company G, and will cooperate with the Respondent, in amending any Company G taxation returns to reflect payments made, and/or in making submissions in regard to an superannuation which may be owing to him by Company G.
[29] Exhibit A1, tendered 14 November 2018.
The Respondent proposes that “each party should pay the amount owing to their respective superannuation funds to the ATO to bring Company G into compliance [and] that the Applicant further pay the amount of penalties to the ATO, which arose as a result of the audit initiated by the Applicant”.[30] The Respondent relies on the evidence of Mr MM, Director of Accounting. Mr MM asserts that had the parties paid the outstanding superannuation debt and if the Applicant had not initiated the audit, the total liability would not include the penalty (and be reduced to $45,431.37).[31] The Respondent also notes that the liability is due to the ATO, not the Applicant.
[30] Respondent’s submissions filed 3 December 2018 [26].
[31] Mr MM affidavit affirmed 30 November 2018 [17].
During the course of closing oral submissions it was agreed between the parties that monies held by Company G would be used to pay the principal superannuation debt and the question of who was responsible for payment of penalties would be reserved to judgement.
The Applicant should be responsible for the payment of the penalties which have been levied on the unpaid superannuation. The penalties arise from his conduct in reporting the unpaid superannuation to the Fair Work Ombudsman (‘FWO’) in circumstances where he was a director and shareholder of that company. If he had taken a different approach in simply raising the issue of the superannuation entitlement due to each of the parties with the Respondent or her legal representatives without involving the FWO, the question of penalties could have been avoided.
There is no suggestion that the ATO was pressing for payment of the superannuation prior to the Applicant’s report to the FWO. The Applicant’s chosen strategy has led to the penalty being imposed. I appreciate that he may have made that report as a tit-for-tat response to a complaint made by the Respondent to the Banking Ombudsmen in relation to the Applicant’s conduct regarding bank facilities involving Company K. However, it does not appear that the Respondent’s conduct led to any penalty being imposed on Company G.
Australian Tax Debt (owed by Company K Pty Ltd)
The parties jointly engaged an expert to provide advice and a report on the personal liability of the Applicant for any and all debts of Company K (including taxation). This report was to also include an assessment of the liability of either party with respect to any restitution due to Company K.
The completed report assessed the Applicant’s liability to Company K at $739,205.19,[32] which comprises of $578,016.00 in GST debt and the remainder in interest on the debt.[33] The Applicant submits that if the C Street, Suburb D is transferred to him, he may be able to refinance to satisfy this debt.[34] It is also stated that it is unlikely that Company K will be able to recover any damages from Company N (as it is in liquidation). [35] Therefore these claims cannot be applied to resolve the debt.[36]
[32] Applicant’s submissions dated 3 December 2018 [49].
[33] Respondent’s submissions filed 3 December 2018 [10].
[34] Applicant’s submissions dated 3 December 2018 [52].
[35] Applicant’s submissions dated 3 December 2018 [53] and exhibit R6 being a letter from the liquidator of Company N advising that there would be no return to unsecured creditors.
[36] Ibid.
The Respondent submits that “it is likely that the Australian Taxation Office would remit all or some of the interest if a proposal was made to it”,[37] citing the evidence of Mr LL, a Partner at a corporate advisory business called Company QQ. Mr LL states in his affidavit[38] that “in [his] experience…it is highly likely that the ATO would negotiate a remission of some of the general interest charges”[39] and “it is not uncommon for the ATO to remit a portion of the general interest charges on the condition that the remainder of the debt is paid”.[40] He concedes, nevertheless, that “the extent to which charges are waived, usually depends on the case officer approached”.[41] Alternatively, Mr LL suggests entering a DOCA would similarly result in a reduction of debt.[42]
[37] Respondent’s submissions filed 3 December 2018 [10].
[38] Mr LL, affidavit of sworn 22 November 2018.
[39] Ibid [3].
[40] Ibid.
[41] Ibid.
[42] Ibid [4] – [7].
In my view the evidence of Mr LL in relation to the prospects of the ATO remitting a portion of the general interest charges is entirely speculative and could not be relied on as a foundation for a finding that the ATO would take that course.
The Applicant submits that the orders proposed by him in relation to Company K give effect to the statutory requirements that orders be made to bring finality to the financial arrangements between the parties.
The Respondent submits that if the payment made to the ATO is less than the amount included in the property pool, that she should receive a further cash payment from the Applicant equal to her percentage entitlement in the asset division to ensure a just and equitable result.[43]
[43] Respondent’s submissions filed 3 December 2018 [11].
Given the events that have transpired since the hearing, in particular the application that is now before the Federal Court for the winding up of Company K and the proposal by the Applicant that a DOCA be proposed to the creditors, there is genuine uncertainty as to whether any DOCA will be accepted by creditors and on what terms. Whilst the provision was not referred to the Court, section 90SM(5) of the Act allows the Court to defer making a final order in respect of certain property of the parties if the Court is of the opinion that:
a)there is likely to be a change in financial circumstances;
b)the likely change is a significant one;
c)having regard to the likely and significant change it is reasonable to defer the proceedings; and
d)an order made if that significant change occurs is more likely to do justice and equity as between the parties than an immediate order.[44]
[44] HMT & FHL [2006] FamCA 206 [25] (extracting In the Marriage of Grace (1997) 22 Fam LR 442 at [4]-[10]).
Section 90SM(5) provides as follows:
(5) Without limiting the power of any court to grant an adjournment in proceedings under this Act, if, in property settlement proceedings in relation to the parties to a de facto relationship, a court is of the opinion:
(a) that there is likely to be a significant change in the financial circumstances of the parties to the de facto relationship or either of them and that, having regard to the time when that change is likely to take place, it is reasonable to adjourn the proceedings; and
(b) that an order that the court could make with respect to:
(i) the property of the parties to the de facto relationship or either of them; or
(ii) the vested bankruptcy property in relation to a bankrupt de facto party to the de facto relationship;
if that significant change in financial circumstances occurs is more likely to do justice as between the parties to the de facto relationship than an order that the court could make immediately with respect to:
(iii) the property of the parties to the de facto relationship or either of them; or
(iv) the vested bankruptcy property in relation to a bankrupt party to the de facto relationship;
the court may, if so requested by either party to the de facto relationship or the relevant bankruptcy trustee (if any), adjourn the proceedings until such time, before the expiration of a period specified by the court, as that party to the de facto relationship or the relevant bankruptcy trustee, as the case may be, applies for the proceedings to be determined, but nothing in this subsection requires the court to adjourn any proceedings in any particular circumstances.
The Court cannot make an order pursuant to s 90SM(5) unless a party requests that order be made.
In circumstances where the application to wind up the company is adjourned until 5 August 2019, subject to any submission from the parties and subject to one party requesting same, the Court’s preliminary view is that it is appropriate and in the interests of justice to order that the determination of the property pool be deferred until a date after 5 August 2019. This will allow the Court and the parties to be in a position to ascertain Company K’s liabilities.
The Court may make other orders in relation to the property of the parties to the de facto relationship pursuant to s 90SM(6) and in that regard I will make directions for the parties to confer for the purposes of settling orders pending the determination of the liabilities of Company K.
The difficulty with the order proposed by the Respondent is that it requires the parties to have ongoing dealings in circumstances where it is manifestly clear that they are incapable of this. An order deferring the determination of the asset pool is likely to engender less aggravation and more likely to lead to final orders. In my view, the better approach is for the matter to be adjourned and a decision about the final property pool be deferred until after 5 August 2019. Should the parties request such an order pursuant to s 90SM(5) be made (after the Court hears submissions on the matter) and the Court deems such an order appropriate, the Court will direct the applicant to file an affidavit 14 days prior to the return date. The affidavit to be filed will set out in detail the results of any attempts that he or the administrator has made on behalf of Company K to have Company K enter into a DOCA or otherwise negotiate with the ATO and other creditors in relation to the debts owed by Company K.
Funds spent by the Respondent on the planning application.
The Respondent, in her trial affidavit of 5 November 2018 at [25]-[27] (‘her trial affidavit’), states that she seeks orders that the Applicant reimburse her $12,251.83 (being money spent from the part-property settlement). This sum was spent to retain a professional planner to progress the planning permit application for the C Street, Suburb D. The Respondent alleges that the Applicant frustrated these attempts, causing the money to be wasted.
The Applicant denies being at fault. He gives evidence (by his affidavit of 13 November 2018 at [11]) that it was the Respondent, whose unreasonable behaviour caused the money spent on the professional planner to be wasted. The Applicant give evidence that his solicitors contacted the Respondent’s solicitors requesting the name, organisation and phone number of the planner that had been retained. The Respondent’s solicitors did not respond.
The Applicant further deposes that when the professional planners attended the C Street, Suburb D (on 17 April 2018, being the agreed time), they refused to provide documentation (including business cards or details of their identity). The professional planners refused to say what their instructions were, as they were not the Applicant’s clients. The Applicant then refused the professional planners access to the property.
According to the Applicant, his solicitors received correspondence from the Respondent’s solicitors almost a month later (on 7 May 2018) stating that “our client is under no obligation to disclose the details of her planning application to your client, nor her instructions to her planner…”. The Applicant clearly disagrees with this position, noting his legal interest in the property and by an earlier email, reiterating the parties’ mutual interest in “clarifying the scope and costs of the works required to rectify the C Street, Suburb D apartment”: at [11] of his affidavit of 13 November 2018.
This is yet another example of conduct between the parties that has caused a reasonably large amount of money to be wasted (particularly in circumstances where the Applicant gives evidence that he is currently paid $22,000 per annum as a consultant and he has no other employment). Given that the persons who announced themselves to be architects engaged by the town planner attended on the day on which it was agreed that they were to attend, and any issue as to their identity could have been easily resolved, the Applicant, by his actions, frustrated the Respondent’s attempts to progress the planning application process. The applicant was in effect trying to control the planning process by demanding details of instructions prior to allowing the architects to inspect the premises. He could have allowed the inspection, viewed any report and if he took issue with the report, raised his complaint at the appropriate time. Instead he stopped the process occurring and thereby caused funds to be wasted.
The sum of $12,251.83 should be accounted for in Respondent’s favour in ascertaining the total pool of assets
Mortgage of the C Street, Suburb D
I accept the Respondent’s submission that the mortgage of the C Street, Suburb D is $1,098,308. The Applicant had deposed to this figure in his financial statement filed 22 February 2018 and 19 October 2018 and there was no evidence produced to support a higher figure.
Loan from Respondent’s parents
The Respondent’s parents made $330,000 available to her in 2015.[45] The Respondent has repaid her parents $70,499 as at 14 November 2018, leaving $296,414 outstanding (as the sum has increased due to interest).[46]
[45] Respondent’s trial affidavit affirmed 5 November 2018 [99].
[46] Ibid [103.]
The Applicant submits that the Respondent will not be required to repay the loan, demonstrated by her mother’s continued financial support while the Respondent holidayed in Country RR recently. The Applicant suggests that the loan should not be construed as a debt requiring repayment from the property division and therefore should not factor into the calculation of the property pool.
I do not accept the Applicant’s submissions and will include the sum in the asset pool for the following reasons.
The case of In the Marriage of Reynolds (1984) 10 Fam LR 388 outlines the principles relating to whether a liability should be taken into account in the property division. After referring to relevant authorities, the Court defined the following instances:
first, where it may be appropriate, either to discount a debt or disregard it, say where a liability cannot be precisely determined; second, where the liability is unlikely to be enforced; third, where the liability was improperly incurred, for example, to prejudice a claim under s 79.
The second instance is the relevant instance in this case. In In the Marriage of Petersens (1981) 7 Fam LR 402 (‘Petersens’), Justice Nygh made the following observations about loans from parents to children in the context of determining the asset pool:
The next question is to what extent I should discount the assets of the parties having regard to their indebtedness. I do not for these purposes for any moment doubt the existence and enforceability of the debts that I have listed above. But in taking account of the “obligations” of the parties, I must consider how pressing such an obligation is. It is fairly common in this court to meet a situation where a parent has made a loan to a child which is in all respects legally enforceable, but which is not in fact enforced and would not really be expected to be enforced. It is no doubt an “obligation” but if the obligation is not likely to have to be met, it should not be taken into account.[48]
[48] Ibid, 413.
In Petersens, the father of the husband loaned money to the husband and wife. Justice Nygh took particular note that there was evidence that the husband had not treated the repayment as pressing, there was no interest attached to the loan and the security offered on the loan was of insufficient value to cover the value of the loan.
Justice Nygh concluded from these findings, in addition to the fact that a demand for repayment had occurred very soon after the filing of the husband’s application, that “the [husband’s] obligations to the father directly or indirectly are not such that I should deduct the full amount from the appropriate figure for property settlement”.[49]
[49] In the Marriage of Petersens (1981) 7 Fam LR 402,414.
In this proceeding, the mother of the Respondent gave evidence that she would not sell the A Street, Suburb B property “out from under [the Respondent]” to recover the debt from her daughter. However this is a different matter to the Respondent's mother saying that the debt is not payable or that the daughter is not under a binding obligation to repay the monies. Whilst the Respondent's mother was not questioned about this, it would have been apparent to her that selling the A Street, Suburb B property would have been an ineffective means to recover the debt due to the lack of equity in the property.
The Respondent is well educated and has a clear and demonstrated capacity to earn an income exceeding AUD$200,000 per annum. In my view it is likely that she will be required to repay the loan from her parents and that loan should be taken into account in assessing the liabilities of the parties. She has already repaid part of the loan and her mother gave evidence that it was expected that the loan would have to be repaid and would not be forgiven. The Respondent’s father went to the effort of having the loan documentation drawn up and it was not suggested that the Respondent’s mother is in a position such that she will not need access to the loaned funds.
American Tax Debt
The Respondent asserts that she has a USA tax liability in the sum of USD$51,295 (AUD$70,914). The Applicant relies on an affidavit of Mr GG sworn 8 November 2018 who is a certified public accountant of 40 years’ experience practising in City SS, USA. By letter dated 5 November 2018 (attached to his affidavit) he assesses her tax liability due to the Internal Revenue Service (‘IRS’) and to the state of City SS on the basis of her reported income for the year 2013. The letter states that the IRS Account Tax Transcripts dated 23 October 2018 indicate that no returns have been filed since to 2012.
The Applicant submits that because the Respondent has not filed a tax return in the USA that there is no liability in existence. No evidence was lead in support of that submission and on its face it does seem extraordinary to suggest that where a person has a legal obligation to pay tax on income earned, that no liability is created until a tax return is filed.
I accept the evidence of Mr GG that the Respondent has a liability to pay tax on income earned in the USA in 2013 and that the Respondent is accruing penalties on a continuing basis due to the non-payment of that tax. Accordingly it is a liability to be taken into account.
Contributions
When did the parties begin their de facto relationship?
The parties applied for a Sponsorship visa in … 2013. By statutory declaration in that application, the parties stated that they were in a de-facto relationship in … 2011. I accept this as evidence of when the party’s de facto relationship began. I do not accept the evidence of the Applicant that the relationship started in 2012 as it contradicts sworn evidence he gave in 2013.
Financial contributions made prior to the commencement of de facto relationship
It is not disputed that prior to the commencement of the relationship the Applicant was the owner of the C Street, Suburb D via the medium of Company K.
Both parties have provided experts to retrospectively value the property when the parties became a de facto in 2011. These values differ:
a)Mr T of Real Estate (engaged by the Applicant) valued the land as at … 2011 at $1,580,000 (including GST); and
b)Mr DD of Valuers (engaged by the Respondent) valued the land as at … 2011 at $1,400,000 (including GST).
Accepting the lower value, [50] the Applicant brought property worth $1,400,000 (including GST) into the relationship.
[50] No submission was put as to what valuation should be accepted.
Additionally the Applicant contends that he had a motor vehicle worth approximately $50,000 and superannuation of about $40,000. He evidenced his claims for the motor vehicle by a letter from the motor vehicle insurer and provided a superannuation statement from the relevant fund from 30 June 2012 (and tendered as Exhibit 4).
The Applicant also gave evidence in paragraphs [33]–[37] of the affidavit of 19 October 2019 that he had expended approximately $500,000 between 2006 and 2011 progressing the C Street, Suburb D. He also gave evidence of his applications for planning permit to construct an apartment block of six units on the land. This permit was issued in … 2007 and subject to amendments in 2008, 2011 and 2013.
I accept that the Applicant had engaged in extensive work and made significant contributions prior to the commencement of the relationship in … 2011.
The Applicant also submits that he had been developing the business which subsequently became Company G prior to the commencement of the relationship. I am of the opinion that the evidence does not support a finding that the business was sufficiently developed such that there was any particular value to that business prior to the commencement of the relationship.
The Applicant submits that the Respondent’s contribution when the relationship commenced was in the form of savings, furniture and effects, and monies in a O Pension fund with a total value of $303,000. The Applicant submits that liabilities that the Respondent had to her parents which were repaid in part from funds accumulated by the Respondent during the relationship are unclear.
It is put on behalf of the Applicant that both parties made contributions to the assets of the relationship from the commencement of the relationship. However the Applicant puts it that he made markedly superior contributions to the C Street, Suburb D in terms of the construction of the building and the Respondent was in a less active role as a customer service officer.
There has not been a great deal of documentary evidence put forward by the Respondent which would support a finding that her contribution was equal to that of the Applicant in terms of the C Street, Suburb D. This does not mean I view her role as simply as a customer service officer. She has given evidence that access to her emails has been impeded, preventing her from providing evidence that may have supported her claims.[51] The Respondent gave evidence at [22](d) of her trial affidavit where she refers to an affidavit sworn by her on 16 February 2018, in which she deposed (at [36]) that:
I have thousands of business emails in my Company K email account in relation to the Development, which I wrote, responded to or received, as part of my role in the Development.
That evidence was not challenged by the Respondent in his trial affidavit filed in reply sworn 13 November 2018 (although other evidence given by the Respondent in [22](d) of her trial affidavit was disputed).
[51] Respondent’s trial affidavit filed 5 November 2018 [22](d).
The Respondent made submissions (at [31]-[33]) in relation to contributions as follows:
Although the Applicant’s initial contributions exceed the Respondent’s by approximately $700,000 by virtue of the Applicant owning (through Company K) the C Street, Suburb D, during the relationship the parties both made significant financial and non-financial contributions to the development of the apartments at the C Street, Suburb D (‘the development’), including Company G providing funding to Company K in the sum of $579,012 in order to allow Company K to complete the development.
The development could not have been completed without financial assistance from Company G. Furthermore, Company G would have been a substantial asset of the parties if they did not divert resources from Company G towards the development.
Following the conclusion of the development, the Applicant spent between $250,000 and $300,000 on interior finishes and the installation of a rooftop garden for Apartment … (paragraph 93 of the Respondent’s trial affidavit). Despite this expenditure, the Applicant failed to undertake works which properly addressed the issues raised in the 2016 report by Mr W.[52]
[52] Respondent’s submissions filed 3 December 2018 [31]-[33].
The Applicant disputed the Respondent’s level of involvement in the C Street, Suburb D Development asserted by the Respondent at [35](a)–(i) of her affidavit filed 19 February 2018. He does, however, accept that she assisted in the C Street, Suburb D Development as the bookkeeper and that she did attend site meetings with supervisors and builders particularly when the Applicant was overseas. Her involvement was clearly not token. Her role was an important one, particularly in relation to obtaining finance and managing the transfer of funds between Company G and Company K.
I also accept the contribution made by the Respondent through her management of Company G and the fact that the company contributed significantly to the C Street, Suburb D through the injection of funds.
No evidence was referred to in any detail by either of the parties in submissions that would guide the Court through the large amount of evidence filed by both parties to make a determination as to contributions on a percentage basis. Indeed, no submission, whether it be oral or written, explained how the respective percentages nominated as appropriate by each party was calculated.
s 90SF(3) – Future needs
The Applicant submits that there should be no adjustment to the contribution percentage due to section 90SF(3) factors given that there are no children and both parties are relatively young (the Respondent being 37 and the Applicant being 47).
The Applicant gave evidence that he is currently employed by a property developer and, at the time of trial, he had been paid a total of $22,000 to manage a refurbishment programme on behalf of that developer. I expect that once this litigation is concluded and the financial ramifications of the relationship and the failed business developments are settled, it is likely that the Applicant will be able to engage in further business developments either as an employee or on his own behalf or as a consultant to others. Whilst he gave evidence that he is a tradesman by training, he has been involved in businesses for over 20 years.
The Respondent gave evidence that she has been unable to obtain work since the commencement of these proceedings. She told the Court that she suffers significantly from stress both as a result of the financial pressure that she is under (with the businesses failing) and what she says is the behaviour of the Applicant in the course of these proceedings. No admissible evidence was filed by the Respondent which would support a finding that the Respondent is medically unfit for work in the future. I do accept that she is extremely upset and stressed as a result of the financial circumstances that she finds herself in and as a result of the stress and cost of litigation. However she has not filed any evidence (apart from her own assertions in relation to her health) which would support a finding that there should be some adjustment made in relation to future needs based on health.
The Respondent is relatively young and is a graduate of a leading American university and has an honours degree. She has previously had the capacity to earn reasonably significant income as an employee and she presents as a highly intelligent and capable person.
The Court will make no adjustment in relation to future needs.
Conclusion
Doing the best with the evidence before the Court, after considering the initial contributions and contributions through the course of the relationship, I find that the asset pool should be divided 65% in favour of the Applicant and 35% in favour of the Respondent. I find that the Respondent’s contributions were greater than was suggested by the Applicant. No party sought an order adjusting superannuation assets.
'P' the dog
Both parties filed extensive affidavit material in support of orders that a dog, 'P', should live with them to the exclusion of the other party. It is apparent from the affidavit material that both parties clearly love the dog. Unfortunately the dog has become something of an emotional totem for these parties with each of them asserting that the other is using the claims in relation to the dog as a means of emotional punishment.
A witness called on behalf of the Applicant, Mr R, was asked a question about 'P'. Mr R agreed that the dog had spent considerable time with the Respondent.
After the witness had withdrawn, Counsel for the Applicant commented that “you won’t hear anything from me about 'P' your honour”. In relation to 'P' she commented “it is a chattel without a value registered in my client’s name”.
The parties agreed that there would be no cross-examination in relation to 'P' and the Court would make a decision based on the affidavits filed by the parties.
The Applicant gave evidence that the dog has been in his care since about August 2014 and that the dog has not spent any time with the Respondent since February 2017. The Respondent denies that the Applicant has had sole care of the dog since August 2014, giving evidence at [169]-[170] of her trial affidavit that the dog spent time living with her in mid-March to June 2016 and from October to December 2016.
The Respondent gave evidence by her affidavit sworn 16 February 2018, that:
a)she was the one who wanted to get a dog;
b)she selected the dog and arranged for its purchase;
c)she arranged for the dog to attend a puppy school;
d)researched her ability to take him to the USA should she return to reside there;
e)arranged for the payment of the dog’s registration fees;
f)established and maintained his pet insurance; and
g)took the dog to the vet for check-ups.
Each party tendered evidence from people to comment on the close bond they had respectively with the dog. The Applicant went so far as to offer his unqualified and inadmissible opinion in his affidavit in reply sworn 13 November 2018 (at [21]) that, in circumstances where the Respondent had not had contact with 'P' for almost 2 years:
I say that it is not in 'P'’s best interests, and in fact would be very traumatic for him to simply be moved to live with someone else in circumstances where he has been my dog since purchase and registration.
The Court is unhappy to be in a situation of having to make a decision about other people’s pets. It is somewhat alarming that the parties could not resolve this matter and have spent well in excess of the cost of a new dog on preparing affidavits and arguing about the matter. The position taken by each party is emblematic of the approach taken to the litigation generally.
I accept the evidence of the Respondent that she bought this dog because she has always had a dog and that she wanted a pet when she came from the USA. I also accept that the Respondent travelled from the USA as a successful person and she now finds herself embroiled in the consequences of two failed businesses and a failed relationship and sees the dog as a companion.
I also accept the dog has been in the sole care of the Applicant since 2017 and spent a lot of time with the Applicant since it was purchased and the dog is now his companion. There is some uncertainty about the Respondent’s future plans, such as whether she will remain in Australia and where she is residing in Melbourne (the evidence is that the house in A Street, Suburb B is tenanted). Given that the Applicant has had the dog in his care since 2017 (although subject to the strong objection of the Respondent) and has looked after it since then, the preferable course is for the dog to remain with him.
Clearly the parties have not regarded the dog as a “chattel without value”. I have tried to approach the question taking into account the sensitivities of the parties. However, given that the parties cannot agree to share time with the dog, one party has got to look after it to the exclusion of the other.
I certify that the preceding one hundred and forty-four (144) paragraphs are a true copy of the reasons for judgment of Judge McNab
Date: 3 June 2019
[47] In the Marriage of Reynolds (1984) 10 Fam LR 388, 393.
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