DISHI & DISHI

[2017] FamCA 164

FAMILY COURT OF AUSTRALIA

DISHI & DISHI [2017] FamCA 164

FAMILY LAW – PRACTICE AND PROCEDURE – Reserved interim property – Application to re-open – land tax liability – where it is in the interests of justice to re-open

FAMILY LAW – PROPERTY – Fund for litigation – Controlled monies – where the husband is in a relatively stronger financial position than the wife – where the wife has an inability to meet her litigation costs – where a litigation funding order by way of interim property division is appropriate – where there is an interim property settlement in the wife’s favour.

Family Law Act 1975 (Cth) ss 72, 74, 79, 80(1), 117

Abdo and Abdo (1989) FLC 92-013
Harris & Harris (1993) FLC 92-375
Norbis v Norbis (1986) FLC 91-712
Paris King Investments Pty Ltd v Rayhil [2006] NSWSC 578
Strahan & Strahan (interim property orders) (2011) FLC 93-466
Summitt & Summitt (Re-opening) [2009] FamCA 365
Zschokke & Zschokke (1996) FLC 92-693

APPLICANT: Ms Dishi

RESPONDENT: Mr Dishi

FILE NUMBER: SYC 1195 of 2014

DATE DELIVERED: 21 March 2017

PLACE DELIVERED: Cairns

PLACE HEARD: Cairns (by video link to Sydney)

JUDGMENT OF: Tree J

HEARING DATE: 23 February and 15 March 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Lethbridge SC on 23 February 2017 and Mr Macpherson on 15 March 2015

SOLICITORS FOR THE APPLICANT: Warren McKeon Dickson Lawyers

COUNSEL FOR THE RESPONDENT: Mr Todd

SOLICITORS FOR THE RESPONDENT: Jordan Djundja Lawyers

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

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

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

FAMILY COURT OF AUSTRALIA AT CAIRNS

FILE NUMBER: SYC1195/2014

Ms Dishi

Applicant

And

Mr Dishi

Respondent

REASONS FOR JUDGMENT

INTRODUCTION  

1. On 20 June 2016 Watts J made consent orders establishing a controlled monies account, which presently stands with a credit balance slightly in excess of $400,000.00 (“the controlled monies”). 

2. By Application in a Case filed 11 October 2016,[1] Ms Dishi (“the wife”) seeks that all of those monies be disbursed to her, with 50 per cent being paid to the account of her solicitor “by way of interim costs” and the other 50 per cent be paid to her, with the nature of that payment to be reserved for characterisation by the trial judge.  By his Response filed 9 December 2016, Mr Dishi (“the husband”) opposes the wife’s application, but instead seeks, in substance, that those funds be paid to the Australian Tax Office or himself in various sums, and that any balance remaining be retained to pay expenses of specified companies as and when they arise.  After my decision was initially reserved on 23 February 2017, by Application in a Case filed 28 February 2017, he sought to re-open his case to also include a specific land tax liability as a debt for payment. 

   [1]The wife’s Amended Application in a Case filed 22 February 2017 claimed further relief which was not ultimately pressed before me.

3. The wife’s Application in a Case also sought orders in relation to the appointment of a single expert; however at the hearing before me that issue substantially resolved by consent, with the only remaining matter outstanding relating to the payment of her or his fees.  As to that, the wife’s argument was to the extent that her application did not see all of the controlled monies released to her, that they should be used to fund the experts’ costs.  In the event that her application was wholly successful in relation to the controlled monies, then her position was less clear, although by her Application in a Case she had sought that the husband be primarily responsible in the first instance for the payment of those fees.

4. The position of the husband was that the experts’ costs should be borne from the controlled monies.  He suggested that, together with other looming valuations, an allowance of $100,000.00 should be made in that respect.  Alternatively, in the event that the wife received some interim costs, he argued that both parties should equally be liable to meet the single experts’ costs.

5. These are my reasons for judgment in relation to both the wife’s Application in a Case of 11 October 2016 and the husband’s Application in a Case of 28 February 2017.

BACKGROUND FACTS

1. The husband was born in 1964 and hence is presently 52 years of age.  The wife was born in 1970, and hence is presently 47 years of age.  They married in 1987 in Sydney, and to that marriage were born four sons, the youngest of which is now 21 years of age.

2. During the course of the marriage, the parties engaged in extensive business activities.  Their respective roles and contributions to that business appear to be in dispute and likely issues for trial.  However is it plain that they were highly successful in their business and accumulated a substantial pool of assets.

3. The parties separated on 17 October 2013 and since then have been engaged in what appears to be a disconcerting amount of litigation, both in this court and in the Supreme Court of New South Wales. 

4. One of the significant assets owned by the parties, albeit via Dishi Pty Ltd, (“DPL”) are a number of residential units at B Street, Sydney Suburb C.  The 20 June 2016 consent orders provided for the sale of two of those units, and after payment of certain debts, the net proceeds became the controlled monies.  Although, the order creating the account provided specifically that the account was held in the joint names of the parties’ solicitors “on behalf of the husband and wife,” it was not seriously contended that the funds did not remain the property of DPL. 

5. As at the time of the hearing before me, the wife remained living in the former matrimonial home at Suburb D (which home is said to be worth in the order of $3.75m), together with the four children of the marriage.  Although at the time that she filed her Application in a Case she was not in employment, at the hearing on 23 February 2017, I was told without demur that she was due to commence employment in an unspecified role in the following week.  For his part, the husband remains in control of the parties’ business, but otherwise I know little of his present circumstances.

RELEVANT STATUTORY PROVISIONS AND LEGAL PRINCIPLES

Applications to re-open

1. The question of whether or not to admit further evidence is necessarily one of discretion. Whilst there has been considerable discussion as to the relevant principles governing the admission of further evidence in appeals in the Full Court of this court (see for example Abdo and Abdo (1989) FLC 92-013) I was not referred to any case which specifically dealt with the principles relevant to reopening the evidence in reserved interim property proceedings. Some assistance can be derived from the authorities dealing with the re-opening of evidence in reserved trials. Those cases have been helpfully reviewed by Murphy J in Summitt & Summitt (Re-opening) [2009] FamCA 365 in the following terms:-

   What are the Applicable Principles?

   14.In a case involving an application for settlement of property, it can broadly be said that common law principles govern applications to re-open in this Court. (see eg Gelley & Gelley (1992) FLC 92-290 and the cases there discussed).

   15.Those principles make it clear that the granting of leave to re-open is discretionary.  That discretion is guided by the interests of justice.  The essential question is, is the court more able to do justice in the facts and circumstances of the particular case if the application is granted.  (see eg Smith v NSW Bar Association (1992) 176 CLR 256; Urban Transport Authority v NSEISER (1992) 28 NSWLR 471 at 478 and EBv CT (No. 2) [2008] QSC 306)

   16.In cases where reasons for judgment have not been delivered, the High Court has held that the primary consideration should be embarrassment or prejudice to the other side.  (see Smith above, at 266-267)

   17.A recent decision of the Supreme Court of Queensland, EBv CT (No. 2) [2008] QSC 306 was referred to by both counsel for the husband and wife. That case involved an application for property settlement under (then applicable) State law with respect to a de facto relationship. In that case, Applegarth J summarised, by reference to earlier authorities, the (common law) principles applicable to a re-opening:

   [2] The guiding principle in deciding whether to grant leave to re-open is whether or not the interests of justice are better served by allowing or rejecting the application.  Reference is made in Finbrough Investments Pty Ltd v Airlie Beach Pty Ltd and in the cases referred to in it to the need for finality and litigation.

   [3] In Smith v New South Wales Bar Association the High Court stated that different considerations may apply depending on whether the case is simply one in which the hearing is complete, or one in which reasons for judgment had been delivered.  As to the former situation, the Court said it was difficult to see why the primary consideration should not be that of embarrassment or prejudice to the other side.

   [4] In Reid v Brett the criteria governing the exercise of the discretionary power to re-open a case to admit further evidence where the hearing has concluded but judgment has not been delivered, was said to be as follows:

   The further evidence is so material that the interests of justice require its admission;

   (b)         the further evidence, if accepted, would most probably effect the result of the case;

   (c)         the further evidence could not by reasonable diligence have been discovered earlier;

   (d)         no prejudice would ensue to the other party by reason of the late admission of the further evidence.

   [footnotes and references omitted]

   18.In addition, his Honour held  that:

   [5] Reference by the High Court to prejudice to the other party, and the guiding principle of the interests of justice, require account to be taken of the strain that litigation imposes on personal litigant.  The prejudice caused by delay in the delivery of an expected judgment at the end of stressful litigation can not always be measured in terms of money or cured by an order for costs.  The interests of justice is served by finality in litigation, particularly where prolonged litigation imposes a strain on personal litigants.

   19.I consider that that is particularly true of litigation in this court generally, and in this case specifically.  I will return to this issue below.

2. In my view, the factors adverted to in that passage are factors relevant to re-opening the evidence in interim proceedings, although it needs to be borne in mind that the finality which attends a trial judgment is not normally a feature of an interim judgment. The exercise of the discretion must be according to the interests of justice.

Litigation funding orders

1. There are at least three sources of power to make litigation funding orders. The first is s 117 of the Family Law Act which relevantly provides as follows:

   117(1) Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 118 each party to proceedings under this Act shall bear his or her own costs.

   117(2) If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.

   117(2A) In considering what order (if any) should be made under subsection (2), the court shall have regard to:

   (a)the financial circumstances of each of the parties to the proceedings;

   (b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

   (c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

   (d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

   (e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;

   (f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

   (g)such other matters as the court considers relevant.

   …

2. The second source of power is under s 79, which is the general power of the court to alter property interests of parties to a marriage. Section 80(1) articulates the powers of the court in exercising, amongst other things, the discretion under s 79. Those powers include the order of a payment of a lump sum or periodic sums.

3. A further source of power is under the maintenance power created by ss 72 and 74 of the Act.

4. Many cases have now emphasised the importance in applications such as this of identifying the relevant source of power for the proposed order, as that determines the necessary preconditions and relevant considerations for making the order.[2]  However irrespective of which power is in play, there are three relevant matters common to each source of power, namely:[3]

   ·A position of relative financial strength on the part of the respondent;

   ·A capacity on the part of the respondent to meet his or her own litigation costs;

   ·An inability on the part of the applicant to meet his or her litigation costs.

   [2]Zschokke & Zschokke (1996) FLC 92-693; Paris King Investments Pty Ltd v Rayhil [2006] NSWSC 578 and Strahan & Strahan (interim property orders) (2011) FLC 93-466 at [84].

   [3]See Zschokke (supra) at 83,217, Paris King Investments (supra) at [30], and Strahan (supra) at [90]-[91].

5. However when s117 is under consideration, other matters arise, particularly:[4]

   ·An applicant should have “at least an arguable case for substantive relief which deserves to be heard”;

   ·There should be evidence of the applicant’s likely costs of the litigation;

   ·It is not an essential precondition that the applicant’s legal representatives will continue to act unless the costs are paid or secured on an ongoing basis;

   ·An order may make a provision for litigation expenses at a rate that appears reasonable in all the circumstances;

   ·An order can be made in respect of costs already incurred as well as future costs;

   ·Whether the order is to be in respect of costs already incurred or costs to be incurred, and whether the applicant’s lawyers will continue to act in the absence of provision for costs be incurred, may be relevant to the discretion to make an order, and its quantum;

   ·Any such order should be framed to protect the parties from any risk of injustice arising from the manner in which the funds are expended, and this may be done by requiring that the funds be administered solely by the applicant’s solicitors and applied only to meet the expenses referred to in the order, with detailed records being maintained to permit review by the court at the time of the exercise of its discretion in the substantive property proceedings or the final determination of the issue of costs.

   [4]Strahan (supra) at [96] quoting from  Paris King at [30] and [31], with relevant citations omitted.

6. In considering an application for litigation funding by reference to s79, it is plain that the exercise of the discretion must be undertaken within the usual parameters applicable to that section[5] and because, of necessity such an exercise is likely to be imprecise, it must be conservative and the Judge satisfied that the remaining property will be adequate to meet the legitimate expectations of both parties at the final hearing, or on a practical level, be able to be reversed.[6]  However it is no longer correct to say that the exercise of the power should be confined to cases where circumstances presented at the time are “compelling,”[7] although more is required than the mere fact that upon a final hearing the applicant would receive the amount being sought – or more – from the other party.[8] However none of the foregoing should be confused with binding principles of law: “the nature of the issues which arise under s79 is such that there is either little or no scope for giving guidance in the form of binding rules of law.”[9]

   [5]Harris & Harris (1993) FLC 92-375 at 79,929-79,930 and Strahan (supra) at [100].

   [6]ibid.

   [7]Strahan (supra) at [132].

   [8]Strahan (supra) at [139].

   [9]Norbis v Norbis (1986) FLC 91-712 at 75,166.

Interim property settlement

1. Much of what I have discussed above in relation to using s 79 as the power for an interim costs order remains relevant, even where the purpose of the exercise of the power is not costs related. The cases established that considering making such an order engages a three step process:

   ·The first step involves an inquiry as to whether, in all the circumstances, interim property division is appropriate;[10]

   ·The second step, which is “substantive,” requires the application of the ordinary processes of considering the matters in s 79(4), although again, compelling circumstances are not required;[11]

   ·The third step requires a consideration of whether the amount to be ordered can be adequately “clawed back” if needs be, on the final hearing.[12]

   [10]Strahan (ibid) [130] compelling circumstances are not required.

   [11]Strahan at [134] and [135].

   [12]Strahan at [136].

HUSBAND’S APPLICATION TO RE-OPEN

1. In his Application in a Case filed 28 February 2017, the husband sought “leave to re-open his case for the sole purpose of the tender of the NSW Office of State Revenue Land Tax Assessment Notice dated 18 February 2017 to Dishi Pty Ltd requiring payment of 2017 Land Tax of $72,557.35 by 30 March 2017 or alternatively $73,662.30 by 31 May 2017.”

2. He also sought authority for his solicitor to be able to withdraw the sum needed to pay the Land Tax Assessment from the controlled monies.

3. In support of that application, the husband relied upon an additional affidavit of his also filed 28 February 2017.  In substance, it asserted that the Assessment Notice had only been received by him after the initial hearing before me on 23 February, and further, that the only funds available to DPL to discharge its liability in that regard were the controlled monies.

4. However on 13 March 2017 the husband also filed an affidavit of the accountant for DPL, a Mr E.  Although at paragraph 15 of that affidavit he also annexed the Land Tax Assessment Notice and said that it should be paid from the available company funds, the other 14 paragraphs of his affidavit dealt with an issue quite unrelated to the Land Tax, namely DPL’s capital gains tax and income tax liabilities, the former of which had been a live issue in the proceedings heard by me on 23 February 2017.  This evidence therefore plainly falls into quite a different category to that relating to the land tax.

5. Dealing with Mr E’s affidavit first, whilst the evidence is potentially relevant to matters in issue in the proceedings before me, it was not contended that it was not reasonably available to the husband until after the conclusion of the interim hearing on 23 February 2017 and more, counsel for the husband conceded in submissions that there was no explanation in the evidence as to why that material was not led in the earlier hearing.

1. Mr Macpherson, who on 15 March 2017 appeared as counsel for the wife, argued that the nature of the evidence of Mr E, if admitted, would require his client to traverse it.  In that regard paragraph 9 of Mr E’s affidavit is particularly relevant in that it purported to give evidence as to whether or not there was a possibility for DPL to utilise capital gains tax losses of a related entity, which had been contended for by the wife in her material.

2. In my view, it is not in the interests of justice that the husband have leave to re-open his case before me to include the affidavit of Mr E, insofar as it deals with anything other than the land tax issue.  Firstly, no such leave is sought by the Application in a Case filed 28 February 2017, and more, the affidavit was only filed two days prior to the hearing of the application to re-open.  I am particularly mindful that the evidence was reasonably available as at 23 February, that there is no explanation as to why it was not then led before me in the material, and finally, that to admit it would further prolong the determination of this application.

3. Turning then to the application to re-open to include the land tax debt, there was a faint effort made by the wife to assert that the husband knew of the debt at the time of the 23 February hearing before me, but I reject that.  I accept the submission of Mr Todd, counsel for the husband, that had the husband been aware of the debt at the time of the hearing before me, he inevitably would have sought to specifically add it to the liabilities which he sought payment of from the controlled monies.  Moreover, the admission of this material will not see further prolongation of the resolution of this application, and further, the debt is relevant to the appropriate disposition of the funds in the controlled monies account.  It is in the interests of justice that he have leave to re-open in this respect.

4. I therefore will allow the husband to re-open his case as sought by him in paragraph 1 of his Application in a Case filed 28 February 2017.

WIFE’S APPLICATION FOR LITIGATION FUNDING

Overview

1. The wife seeks one half of the controlled monies be paid to her solicitor to fund her costs in this litigation. Although not eschewing s 117 as being the power upon which she based that application, her submissions were principally directed towards the power under s 79.

Relative financial strengths of parties

1. There can be little doubt that the husband is in a relatively stronger financial position than the wife, by virtue of his control of the relevant corporations which underpin the parties’ business.  They include properties valued at over $10 million, although there are said to be significant liabilities of the corporations which own the lands.  That said, the wife does remain living in the former matrimonial home, which plainly is of significant value, and both parties are in receipt of considerable fortnightly payments from the rent derived from the residential units at Suburb C (although the wife denies that this is strictly income, as it is received by her by way of repayment of a directors loan).  However even taking those matters into account, I am comfortably satisfied that the husband is in a relatively stronger financial position than the wife.

Capacity of husband to meet own litigation costs

1. It is not in dispute that the respondent has in the past demonstrated a capacity to fund his own litigation costs.

2. His affidavit did not contend any future incapacity to continue to do so.

Inability of wife to meet litigation costs

1. As I have indicated, the wife receives fortnightly payments derived from rents of the Suburb C units.  The precise amount that she receives varies depending upon the expenses associated with the units in the relevant period, including costs associated with the husband having recently established a strata management corporation for the unit complex, apparently when he did not need to.  Doing the best I can it appears as though the wife’s income (accepting that she denies it strictly is income) derived from this source is about $6,000.00 - $7,000.00 per month.

2. In her financial statement the wife deposed to weekly expenses totalling $2,916.00 and therefore about $12,636.00 per month.  Some of these were criticised by counsel for the husband; for instance it was said that the weekly cost of petrol for the wife of $300.00 seemed too high (even noting that $100.00 of that was said to be attributable to the four adult children who live with her).  However the wife’s financial statement does tend to support that she does indeed incur considerable expenditure.  For instance the total balance of her six credit cards was, as at the time she swore her financial statement on 7 October 2016, in excess of $105,000.00.  Further, she has personal loans in the sum of $200,000.00, which in her material she deposed to having taken out in order to pay down credit cards and to otherwise meet her costs of living.  Further, it is said that she had outstanding legal bills as at October 2016 slightly in excess of $75,000.00.

3. By letter dated 14 September 2016, the wife’s solicitors estimated that their costs between then and the conclusion of what was estimated to be a five day trial, would be between $89,243.00 and $116,193.00.  That correspondence confirmed that there was also then outstanding unpaid invoices totalling $75,703.66.

4. However it appears that those estimates relate only to the professional costs of the solicitors, and there will be, in addition costs of senior counsel (whose retainer was in evidence before me) and other disbursements, including a forensic accountant.

5. Whilst it is the case that the wife does have an income stream from rents (and is likely to have an additional income stream from salary by the time of these reasons), and whilst it may be that some of her expenditure is extravagant (albeit what may constitute extravagance in the context of a person living in a Sydney waterfront mansion may be open to debate) nonetheless I am satisfied on the material before me that the wife does indeed have an inability to meet her litigation costs, both already to date and ongoing in the future.

Other matters

1. Counsel for the husband conceded that the amounts being sought by the wife would not exceed her likely entitlement under the final property division. That concession absolves me from a more detailed discussion of the s 79(4) considerations. Further, even if there is error in relation to that, it is plain that the substantial asset pool which this litigation relates to would comfortably accommodate any claw back.

2. The primary basis upon which the husband resisted the wife’s claim was that the controlled monies were the property of DPL, and should therefore be used to meet its liabilities, rather than the needs of the parties. Whilst plainly the controlled monies were derived from the sale of properties owned by DPL, it was not – and could not – be contended that its assets do not form part of the property of the parties to the marriage available for division under s 79. That said, I will give some regard to the legal ownership of the controlled monies, but I do not give that ownership determinative weight.

Evaluation

1. I am satisfied that, in the circumstances of this case, subject to any better competing claim, it is appropriate to make a litigation funding order by way of interim property division, and for any such order to be met from the controlled monies.  As has been seen, the husband is in a position of relative financial strength as compared to the wife, and he has the capacity to meet his own litigation costs whereas she does not.  The amount in question sought by the wife – about $200,000.00 – is conceded to be within her entitlements under any final property division, and there is sufficient assets to claw it back if that proved to be incorrect.  Moreover, whilst the controlled monies are the property of DPL, that of itself is not a bar to them being used to meet the litigation funding order, although in ranking any competing claims, that will be a relevant factor.

2. Prima facie therefore, the wife has established an entitlement to a litigation funding order.  I will however defer a consideration of what orders should ensue until I have considered all of the other competing claims, for payment.

WIFE’S APPLICATION FOR PAYMENT OF BALANCE OF CONTROLLED MONIES

Overview

1. The wife seeks the payment to her of the other half of the controlled monies, save that she says the nature of the payment should be reserved for characterisation by the ultimate trial judge. That said, her argument before me primarily was based on the power to make any such order under s 79 by way of interim property division.

Is interim property settlement appropriate

1. I have already detailed something of the wife’s financial circumstances.  She remains residing in a Sydney waterfront home perhaps worth in excess of $3,750,000.00.  She also receives a considerable sum of money on a fortnightly basis derived from the Suburb C property rents, and by the time of this decision, will be in employment, albeit the wages or other remuneration which she will receive was not in evidence.  On the other hand, she has considerable credit card debt in excess of $105,000.00, and $200,000.00 worth of personal borrowings, $100,000.00 of which came from a relative, and another $100,000.00 came by refinancing her German motor vehicle.  She also has significantly weekly expenditure.  A considerable part of that expenditure – approximately a third – is said by her to relate to expenditure associated with the children who reside with her.

2. Several other matters are relevant.  I see those as being:

   ·Although the parties separated as long ago as 17 October 2013, it does not seem as though the parties are yet anywhere near a position to have a trial of this litigation;

   ·Since separation and continuing, the husband remains in control of the parties’ business assets (accepting that the wife derives an income stream from some of them);

   ·The husband has been unsuccessful in previous litigation both in the Supreme Court and in this court, with costs orders against him in the Supreme Court reflecting that loss.  Inevitably the wife’s financial resources will have been depleted by her own costs (accepting that there would inevitably have been some irrecoverable costs);

   ·All four children remain residing with the wife.

3. I am therefore satisfied that, subject to there being any other more meritorious claim or claims to the monies, the wife has established that it is appropriate that there be an interim property settlement in her favour.

Section 79(4) considerations

1. Again, my consideration of this part of the claim is substantially absolved by the concession made by counsel for the husband that the amounts sought by the wife are within her likely entitlement upon the final division of property.  That concession is soundly based.  Whilst there are considerable matters in dispute between the parties including, it seems, the legitimacy of over $4 million of debts claimed by the husband to be owed by the parties’ corporate entities to his father, and perhaps an argument by the husband that there was a substantial erosion of the wife’s contributions to the asset pool by virtue of some imprudent losses which she incurred, said to be without the husband’s knowledge, nonetheless it is plain that the wife’s ultimate entitlement will likely be significantly in excess of the amounts presently held in the controlled monies.

Claw back

1. Likewise it is plain, that in the event that the wife’s entitlement is less than the amounts which may be ordered, there are ample assets with which to enable any claw back in favour of the husband.

Evaluation

1. I am satisfied that this would be an appropriate matter in which to make an interim property division, that the amount which the wife seeks is within her likely entitlement and in any event if it is not, can be adequately dealt with in the final property division.  Again, although the controlled monies are the property of DPL, that is no bar to them being paid to the wife.  However in ranking any competing claims, the legal ownership will be relevant.

2. Therefore, subject to any more meritorious claim to the controlled monies, the wife has persuaded me that she should have one half of them paid to her.

HUSBAND’S APPLICATION FOR PAYMENTS

Overview

1. The primary argument on the part of the husband was that the controlled monies are not in fact the parties’ money, but belong to DPL.  It was this which informed the husband’s argument that all of the funds should be retained to pay the current and likely future liabilities of DPL arising from the sale of the Suburb C units or otherwise.  In the alternative however, he contended that the monies should be used to pay other expenses of related entities, or be used to reimburse him.  His final argument was that if there were funds otherwise remaining in the controlled monies account, they should be used to fund the payment of the single expert and any other experts.

The capital gains tax payments

1. The husband contends that there will be a capital gains tax liability of DPL in the sum of $290,256.16 to the ATO arising from the sale of the two units from which the controlled monies were sourced.  To this argument the wife says several things.  Firstly, subject to my admitting it into evidence, she relies upon an opinion of forensic accountants retained by her to the effect that there are substantial capital losses available to DPL which would wholly offset any capital gains tax which may be due.  Secondly, the wife says that any liability to pay the tax will in fact not accrue until March 2018, and unless and until the tax is assessed, it is not payable.  Finally the wife says that in any event, there are substantial assets still retained by DPL which, if in March 2018 there ultimately is a capital gains tax liability, could be sold to generate sufficient funds to pay it.  Indeed in that regard I note that the two units that were sold, in part, so as the proceeds could be used to defray liabilities to the ATO arising from other transactions.

2. Turning firstly to the admission of the F Accountants’ letter of 22 February 2017 (the ruling on which I reserved, and admitted it de bene esse) I am satisfied that it is relevant, and does not occasion the husband any prejudice, as it does little more than helpfully summarise and highlight the fact that, according to historical tax returns for DPL, there have been significant tax losses carried forward.  Moreover, some of that evidence is demonstrated by references to documents annexed to the husband’s own material.  I will admit the report into evidence.

3. Turning then to the substance of the dispute between the parties, as to the likelihood of the debt arising, I accept the wife’s arguments.  Particularly the evidence does not satisfy me that there is indeed a certain liability to the Australian Tax Office in the sum of $290,256.16 payable by virtue of capital gains tax arising from the sale of the two units.   Further, even if there is, it will not be payable for something in the order of 12 months from the date of these reasons.  Therefore there would be no basis for the payment of that sum to the Australian Tax Office within 14 days, as the husband seeks by his orders, as it would simply result in, presumably, a tax credit arising in favour of DPL, which could then be accessed by it without the restrictions attaching to the controlled monies.

4. Finally I am satisfied that it is not essential that the funds to be held in anticipation of any tax liability, as the company has ample assets which could be liquidated to fund any subsequent liability that may be assessed.  Whilst prudent management might suggest that liabilities arising from a transaction should be budgeted for by retaining sufficient funds derived from the transaction, as has been seen, I am not presently satisfied that the claimed liability will accrue in the sum claimed.

5. I am not persuaded that there should be an order as sought by paragraph 4(a) of the husband’s Response.

Reimbursement of funds expended by husband

1. The husband claims two sums; the first is $17,300.59 being expenses which he claims to have paid in relation to a farm property owned by the parties, and a further $130,308.73 which he says is in reimbursement of funds which he has paid to the ATO, the Office of State Revenue and ASIC on behalf of the parties and their companies.

2. It is easiest to deal with the second of those claims first.  At paragraph R to the husband’s affidavit filed 9 December 2016, there is a table in which the composition of the $130,308.73 is said to arise. 

3. Two amounts that were specifically said to have been paid by the husband, are an amount of $29,249.20 on 14 April 2014, and an amount of $42,493.99 paid on 15 May 2015.  Senior counsel for the wife argued that these could have been claimed by the husband and paid to him as part of the settlement of the sale of the two units, because clause 4.4 of the 20 June consent orders provided that the funds could be used “in reimbursement to the husband upon proof on settlement of any payments in reduction of any land tax penalties, interest and costs to the Office of State Revenue debt as referred to in annexure “B” hereto.”

4. The drafting of that clause in the orders is a little unclear.  Assuming that the orders used the terms “annexure” and “attached notice” interchangeably, then it refers to a land tax assessment in the sum of $108,576.15.  Additionally, order 4.4 refers to “Office of State review debt” which presumably is intended to in fact be the “Office of State Revenue” as order 4.3 provides.  However simply there are not penalties, interest or costs claimed in the document which is annexure B to the orders, and moreover, on its plain reading, order 4.4 only refers to “land tax penalties,” not land tax itself.

5. Although it is by no means clear, in my view order 4.4 was intended to provide for the reimbursement to the husband of any debt in addition to the $108,576.15 (which was due on 5 April 2016) arising from its late payment.

6. The wife also argued the husband’s table claimed a sum of $108,576.15 said to have been paid on 25 February 2016 to the Office of State Revenue in respect of land tax, and that by order 4 of the consent orders of 20 June 2016, it was expressly provided that from the proceeds of sale of the two units, that land tax liability would be paid.  However this argument misconstrues the table.  In fact the $108,576.15, while said to be still outstanding, does not form part of the $130,308.73 claimed to have been paid by the husband. 

7. However that brings me to an anomaly in the table: some items of what is said to have been paid by the husband, has the same amounts not still “outstanding,” totalling $45,209.44.  This is not explained in the evidence, and doing the best I can, I am only satisfied that $85,099.29 remains due for reimbursement.

8. The final argument raised by the wife was that there was no other substantiation of the individual sums claimed in the table in paragraph R of the husband’s affidavit.  It was said that therefore, other than the husband’s contention, any reimbursement should await the proof of those individual items at the final trial.  In my view that argument is deserving of a little weight.  Although one would ordinarily have anticipated that there would have been some proof of payment, in the form of some documentary evidence, rather than a mere assertion, that said, the husband’s evidence of payment is not otherwise challenged.

9. I am persuaded that the husband has sufficiently established entitlement on his part to reimbursement of $85,099.29 of the sums claimed at paragraph R.

10. The second component claimed by the husband by way of reimbursement, is said to be monies expended by him on a farm property which is owned by the parties.  That is said to be in the sum of $17,300.59; by far and away the largest component of that is a payment said to have occurred on 19 August 2016 which is described as “Mr and Ms G” in the sum of $16,500.00.  By paragraph O of the husband’s affidavit he says that he has paid that amount in full and it was costs for repairs half of which were, at the time, unsuccessfully sought to be obtained from the wife.  The balance of these expenses are also supported by substantiating material in the husband’s affidavits.  I am satisfied that the expenditure has been incurred by him and that it was in discharge of joint liabilities of the parties.  I am satisfied that the husband has likewise shown he should be reimbursed.

1. The final amount claimed was the payment of $1,570.52 for apparently outstanding council rates.  That rates notice does not appear to be annexed to the husband’s affidavit of 9 December 2016 or otherwise in evidence.  That said, there is no reason to doubt that there will be a rates liability attaching to the property, and I am satisfied that the husband should be able to have recourse to the controlled monies in order to satisfy that debt.

2. Whilst the precise power relied upon by the husband to found reimbursement to him of monies paid for the joint purposes of the parties was not articulated, it would seem to at least lie in an interim property division under s 79. As to that I am satisfied that it is appropriate to make an interim order by virtue of the unreimbursed expenditure by the husband. There can be no doubt his ultimate entitlement will far exceed the amounts now sought, and any overpayment could be clawed back.

3. I am therefore satisfied that the husband has sufficiently established a claim to be reimbursed $103,970.40, subject to any better competing claim or claims.

Prospective claims

1. By paragraphs 5 and 6 of his Response, the husband sought that the controlled monies account be retained to pay, in substance, liabilities of DPL, another two related companies and a trustee, as and when they arise.

2. By his Application in a Case filed 28 February 2017 some additional specificity was made in relation to such liabilities, as the husband sought payment in the sum of $72,557.35 by way of land tax assessment on the remaining ten Suburb C units.

3. I have determined to give leave to the husband to re-open his case to deal with that specific issue, and there can be no doubt that the liability exists, is a liability of DPL, and primarily its resources should be used to defray such an expense. 

4. In fairness, the wife did not really argue that there was no land tax liability, or that it was not a liability of DPL, or that primarily its resources should not be used to defray that expense.  Rather what she said was:

   ·That there was an error in the calculation of the land tax, and that the proper liability was $69,963.00;

   ·That the husband should be required to lodge an objection or an amended land tax return so as the correct amount was levied;

   ·That thereafter the husband should negotiate for a repayment schedule of the sum over a minimum of a six month period;

   ·That the rental income stream from the Suburb C units should be used to make the instalment payments.

5. It is clear that there is an opportunity to pay the amount outstanding by three instalments, being due on 30 March 2017, 1 May 2017 and 31 May 2017.  That much is plain from the Land Tax Assessment Notice itself, but it is also equally plain that in that event, a further $1,104.95 would be payable, as the total amount due is $73,662.30.  It is only if the entire sum is paid by 30 March 2017 that the discount can be achieved.

6. Counsel for the husband argued, in my view cogently, that it is in the company’s interests to pay as little as possible, and there is no certainty in any event that a payment period over six months could be negotiated.  I accept that even if it were able to be negotiated, it is likely to involve some additional payment.  However there is a significant prospect that such a negotiation could not be successfully achieved: this is a company with significant assets and resources.  Precisely why it should be allowed an extended period of time to pay is difficult to articulate.

7. I am not persuaded that the means for discharge of the land tax debt contended for by the wife is either realistic or appropriate in the circumstances.  I am satisfied that the sum of $72,557.35 should be ordered to be paid from the controlled monies account, again subject to there being a competing claim with greater priority.  Any subsequent refund arising from an incorrect assessment should be returned to the controlled monies account.

8. Otherwise it seems to me that the future liabilities which orders 5 and 6 are largely directed towards are in the nature of ongoing expenses associated with the remaining Suburb C units owned by DPL, and in the ordinary course they should be met by recourse to the income stream which is derived from those properties that I have already discussed.

THE COMPETING MERITORIOUS CLAIMS

1. As discussed, the following are, in my assessment, meritorious claims upon the controlled monies account:

   ·The wife’s application for litigation funding;

   ·The wife’s application for interim property division;

   ·The husband’s application for reimbursement of some monies which he has expended in the sum of $103,970.40;

   ·The payment of land tax in the sum of $72,557.35 due on 30 March 2017.

2. The difficulty is that there are simply not enough funds in the controlled monies to satisfy all of these individually meritorious claims.  Two options present themselves.  The first is to rate their relative merit; the second is to accept that they all meritorious and pay them pro-rata.

3. In my view the former should prevail.  Particularly a pro rata payment would see shortfalls in relation to the sum available for payment of land tax, and in relation to the other claims, would see them all inadequately satisfied.  In my view it is better to have some of the claims fully met rather than all of them partially unmet.   As to that, I assess the most meritorious claim being the forthcoming land tax payment, because it plainly is an immediate liability on the part of DPL, and prima facie, its resources should be used to discharge that debt.

4. Next I assess the husband’s claims for reimbursement which I have assessed as meritorious as deserving priority.  That is because he has used his funds to actually discharge liabilities of DPL or other entities associated with the parties, and there is no reason why, given that there are funds indeed available to reimburse him, that he should await trial for that.

5. I assess as next meritorious the wife’s claim for litigation funding.  It is important in that it will enable her to discharge her present indebtedness to her lawyers, and to continue to have competent legal representation until the conclusion of the proceedings.  I will order that the sum of $200,000.00 be paid to her solicitors for costs.

6. On my calculations these amounts total $376,527.75, meaning that there is then a balance of slightly more than $25,000.00 left.  As to that, the remaining competing claims are as follows:

   ·The wife’s claim for interim property settlement;

   ·The husband’s (and indeed, the wife’s) argument that it should be used to defray the costs of experts, including the single expert which the parties have agreed should be appointed to value the overall businesses. 

7. The sum of $25,000.00 is only about one-eighth of the wife’s non-costs related claim; in the overall scheme of this litigation it is almost a trifle.  Ultimately I conclude that the best use of that sum is to fund experts, given that ordinarily the parties ought be expected to jointly fund them, and providing some monies to achieve that will benefit these parties and, hopefully, the expeditious disposition of this litigation more generally.  The parties should otherwise be jointly responsible for the experts’ costs.

CONCLUSION

1. I direct the solicitors for the wife to bring in orders consistent with the parties’ agreement and these reasons within 7 days.            

I certify that the preceding eighty three (83) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Tree delivered on 21 March 2017.

Associate:

Date: 21 March 2017