DUNCAN & KELSO

[2012] FamCA 900

FAMILY COURT OF AUSTRALIA

DUNCAN & KELSO [2012] FamCA 900

FAMILY LAW – PRACTICE AND PROCEDURE – Appointment and payment of experts – Appointment of single expert valuer to value of real estate and corporate entities – Whether respondent’s family company and related subsidiaries should form part of the valuation – Where cost of valuation of family company and its subsidiaries would be high – Where respondent’s evidence is that he holds no voting rights and no entitlement to participate in a distribution of assets on winding up – Family company and its subsidiaries not to be included in valuation process at this interim stage – Where the only source of funds readily available for the payment of the valuers is that of the  respondent by way of drawdown on the mortgage over his property – Where final responsibility for costs of valuation can be made at final hearing – Orders made that the respondent meet the costs of the expert valuer at first instance.

FAMILY LAW – INTERIM PROPERTY SETTLEMENT– De facto relationship – Short period of cohabitation – Where applicant is asking for a lump sum interim property settlement – Where parties entered into a business arrangement in relation to the development of properties in New Zealand – Where the initial contributions of the parties are vastly disparate – Where it is not disputed that the applicant has withdrawn significant funds from the parties business enterprises – Where applicant is unable to demonstrate to the Court’s satisfaction that she will receive monies which would allow an interim property settlement to be paid back – Application for interim property settlement dismissed.

FAMILY LAW – SPOUSAL MAINTENANCE – Where the applicant sought to agitate a claim for periodic spousal maintenance at the conclusion of submissions – Where transcript of proceedings from a Court appearance in the previous month demonstrated that the applicant abandoned an application for a periodic amount by way of spousal maintenance – Where senior counsel for the respondent was not in a position to meet an application for periodic spousal maintenance – Where fresh application for periodic spousal maintenance required.

FAMILY LAW – PROPERTY – Sale of property – Where the applicant sought an interim order that he parties join in the sale of a property owned by their partnership enterprise – Where the respondent wishes to retain that property on a final basis – Where the respondent has other assets from which a property order in favour of the applicant could be made – Application dismissed.

FAMILY LAW – PROPERTY – Appointment of agent for partnership – Where the respondent sought an order that he be appointed agent for the partnership – Where the applicant sought an order that she and the respondent be appointed joint agents for the partnership – Where applicant has withdrawn significant funds from the partnership without the knowledge or agreement of the respondent in circumstances that appear to be contrary to the partnership agreement and contrary to an undertaking made by the respondent that she not deal with the assets of the partnership without the respondent’s consent – Application to appoint respondent agent of the partnership successful.

Family Law Act 1975 (Cth)

APPLICANT: Ms Duncan

RESPONDENT: Mr Kelso

FILE NUMBER: SYC 232 of 2012

DATE DELIVERED: 1 November 2012

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Rees J

HEARING DATE: 22 October 2012

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Page SC

SOLICITOR FOR THE APPLICANT: Paul & Paul Lawyers

COUNSEL FOR THE RESPONDENT: Mr North SC

SOLICITOR FOR THE RESPONDENT: Diana Perla & Associates

ORDERS

IT IS ORDERED

1. That B Group, being a New Zealand company, be joined to these proceedings.

2. That B Group New Zealand as trustee for the B Trust: C, D Town Pty Ltd and C, E Town Pty Ltd, be joined to these proceedings.

3. That the applicant forthwith do all things and sign all documents necessary to appoint the respondent as agent for the partnerships relative to the business of property development in New Zealand at F Street G Town and H Street, Suburb J.

4. That notice of these orders is to be provided by the applicant to:

   (a)       National Bank of New Zealand;

   (b)       Australia and New Zealand Banking Group Limited;

   (c)       K Pty Ltd;

   (d)       Mr L;

   (e)       C Pty Ltd;

   (f)       M Pty Ltd.

5. That in the event that the applicant refuses or neglects to execute any deed or instrument necessary to give effect to Orders 3 and 4, made herein then the Registrar of the Family Court of Australia shall be appointed pursuant to section 106A of the Family Law Act to execute such deed or instrument and do all acts and things necessary to give validity and operation to the said deed and instrument.

6. That within 14 days of these orders the parties do all acts and things to agree on the appointment of a single expert property valuer pursuant to Rule 15 of the Family Law Rules for the purpose of preparing a valuation of all real estate registered in the parties’ names and / or any company and / or trust in which either of them has an interest.

7. That such valuations be prepared in respect of the following periods:

   (a)       The market rate presently;

   (b)       1 January 2006;

   (c)       1 January 2009.

8. That within 14 days of the date of these orders the parties do all acts and things to agree on an appropriately qualified forensic accountant to prepare a valuation pursuant to Rule 15 of the Family Law Rules in respect of the value of the applicant and / or respondent in any trust and / or any entity in which the parties have an interest but not limited to:

   (a)       B Group Australia;

   (b)       B Group New Zealand;

   (c)       C, D Town Pty Ltd;

   (d)       C, E Town Pty Ltd.

9. That the respondent be responsible in the first instance for the payment of the costs of the valuations, the responsibility for such costs to be adjusted at the discretion of the trial judge.

10. That the application for the payment of the sum of $500,000 by way of interim property settlement, and / or interim costs, and / or spousal maintenance be dismissed.

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

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 232  of 2012

Ms Duncan

Applicant

And

Mr Kelso

Respondent

REASONS FOR JUDGMENT

1. Before the Court are applications by both the applicant, Ms Duncan, and the respondent, Mr Kelso, in relation to interim orders arising out of applications for property settlement.

2. The parties lived in a de facto relationship until November 2011.  The relationship commenced either in 2007 according to the applicant or in 2009 according to the respondent. 

3. At the commencement of cohabitation, the applicant had $300,000 which was the proceeds of a property settlement and an option to purchase a property in D Town, New Zealand.  She was not in a position to exercise the option since she did not have the money to do so.

4. The respondent, at the commencement of cohabitation, had cash of $2,500,000, a property in Sydney Suburb N which he estimated then to be valued at $4,000,000, paintings and household contents.  The respondent also held shares in a family company.

5. The shares will take a position of some importance in the property settlement proceedings.  Before me, the evidence of the respondent was that the shares did not entitle the respondent to voting rights, and did not entitle him to participate in a distribution of assets on the winding up of a company.  That evidence was disputed by the applicant but no other evidence has been made available to support the applicant’s assertion that the respondent was entitled to share in a distribution on winding up. It is not disputed, however, that the family company is controlled by the respondent’s mother and that the respondent’s mother and brother are the only other shareholders.

6. The family company conducts a retail business and other businesses which include property development.

7. The applicant and the respondent together entered into a business venture in New Zealand purchasing properties in D Town and E Town which they then developed.  Before me the evidence was that the respondent had provided the whole of the monies used for the purchase and development of those properties totalling in excess of AU$9,000,000.  Those monies had come in part from the money he had in savings and in part from a sum in excess of AU$5,000,000 which he had borrowed from the family company with the consent of his mother.  As a consequence of those borrowings Division 7A of the Income Tax Assessment Act 1997 (Cth) been invoked and, prior to the end of the current financial year, the respondent has to repay approximately $1,400,000 of the loan to the family company.

8. The parties jointly borrowed NZ$4,200,000 from the ANZ Bank and that money was repaid to the respondent in part payment of his initial advance.

9. Before me it was asserted by the applicant that the New Zealand properties had a total value of NZ$12,800,000 and owed NZ$4,200,000 to the bank giving a net value of the New Zealand enterprise of NZ$8,600,000.  On behalf of the respondent it was asserted that he was currently owed by the partnership the sum of AU$6,740,000 by way of capital and AU$2,370,000 by way of interest.  The amount of AU$6,740,000 is, according to the respondent, approximately NZ$8,400,000 and therefore the monies advanced by the respondent to the joint venture of the parties represents almost the entire, if not the entire, equity in the venture. I note that the figure of NZ$8,400,000 was not queried by the applicant for the purpose of the proceedings but I was not informed of the exchange rate applied to the calculation. The figure has been accepted for the purpose of this application.

10. At the commencement of the proceedings Senior Counsel for the applicant indicated that the applicant sought orders encapsulated in an Amended Application in a Case filed 27 September 2012 and that those were the only orders which the applicant sought.

11. Senior Counsel for the respondent indicated that the respondent sought orders in accordance with paragraphs 1, 2, 4, 8, 10, 11, 12 and 13 of a response filed on 1 June 2012.

12. Orders 1 and 2 sought by the respondent sought that the corporate vehicles, of which the applicant is the sole shareholder and director, associated with the partnership in New Zealand, be joined as parties to the proceedings and those orders will be made by consent. Before me, it was agreed that, for the purpose of the present application, the corporations were represented by the applicant who is the sole director and shareholder of each of them.

13. The balance of the matters which were agitated before me will be dealt with in the order in which they were argued.

APPOINTMENT OF EXPERTS

1. There was no issue between the parties that it was necessary to appoint a single expert valuer to value both the real estate and the corporate entities which comprise the partnership.  The issue between them was the parameters of the appointment and how the valuers were to be paid.

2. The applicant sought orders, not only for the valuation of the properties and enterprises conducted jointly by the parties in New Zealand, but also of the family company in which the respondent held shares and the eight subsidiary companies which were wholly owned by the family company. 

3. Orders sought by the applicant in relation to the New Zealand properties and their joint venture will be made by consent. 

4. There is no readily available source of funds for the payments of the valuers, other than the funds which are available to the respondent by way of drawdown on the mortgage over his property.  I propose therefore to make an order that the respondent initially be responsible for the payment of the costs of the valuations and that final responsibility for those costs be adjusted at the discretion of the trial judge.

5. In relation to the application for valuation of the respondent’s family company and the wholly owned subsidiaries, the evidence before me is that the respondent’s shares carry no voting rights.  It was asserted on behalf of the respondent that he has no entitlement to participate in a distribution of assets on winding up.  That assertion was denied by the applicant, but her denial was not the subject of evidence.  I invited the tender of the memorandum and articles of association of the corporations, and although those appeared to be available, the documents were not tendered.  On behalf of the respondent it was submitted, and I accept, that the valuation of the nine corporate entities and their properties will be an extremely expensive enterprise. 

6. Absent evidence that there is any value to the respondent in his share holding in that enterprise I do not propose at this time to make that order. The respondent’s contention is that he receives funds from his mother and has no other entitlement to income from the companies. There is no doubt that he has received substantial sums, initially by way of salary. After the respondent borrowed $5,000,000 from the family company he ceased to receive a salary and was thereafter supported by payments made by his mother. It may not be necessary to value the whole corporate enterprise in order for the Court to determine what the respondent’s interest is, if, ultimately, it is established that his only entitlement is that determined by his mother in her discretion.  In the event that the applicant wishes to bring before the Court evidence to substantiate her assertion that the shares are valuable in the hands of the respondent, then her application can be pursued at that time.

INTERIM PAYMENT

1. By Order 7 of the Amended Application filed by the applicant on 27 September 2012 she sought the following order:

   7.Within 7 days of the date of these (sic) the Respondent husband pay to the Applicant wife the sum of $500,000 such payment to be made to the Trust Account of Paul and Paul Lawyers (bank account details provided) by way of partial property settlement and / or interim costs and / or spouse maintenance and that the categorisation of such payment be a matter for determination by the trial judge.

2. It was argued by Senior Counsel for the applicant that the Court had power to make that order by way of interim costs, by way of interim spousal maintenance or by way of interim property settlement.  It was conceded on behalf of the applicant that whichever head of power was invoked, an order for a lump sum of $500,000 would not be made if the Court were of the view that the amount could not be “clawed back” from any final order made in favour of the applicant.  It was conceded by Senior Counsel for the respondent that, if the Court came to the view that the amount which was sought by the applicant was within the amount she was likely to recover at final hearing, and if there was a fund from which it could be paid, then an order should be made.

3. The applicant at final hearing seeks an order for the payment to her of the sum of $5,000,000 on the basis the respondent will then retain the whole of the assets of the partnership in New Zealand.

4. The respondent at the final hearing seeks an order that the assets of the partnership in New Zealand be transferred to him and that the applicant pay to him the sum of $1,900,000.  It was common ground before me that the applicant had no funds with which she could satisfy such an order.

5. It was argued on behalf of the applicant that an order for interim property settlement could safely be made because she had a contractual entitlement to receive a sum of between $400,000 and $800,000 by reason of an agreement entered into by her relating to the sale of a property owned by the family company in Sydney Suburb O.  That agreement was by way of a joint agency agreement for the sale of the property, the applicant intending to act as an agent for the purpose of the sale.

6. The applicant was unable to produce a signed agreement to that effect.  The respondent referred the Court to documents suggesting that the other party to the agreement, another real estate agent, is no longer prepared to enter into an agreement with the applicant.  There is no reasonable expectation that the applicant will receive any money pursuant to the unexecuted agreement and I do not propose to take it into account.

7. It is difficult at this point of the proceedings to value precisely the property of the parties.  Their property falls into three categories.  Firstly the property in New Zealand in relation to which they have carried out, in partnership, a joint venture which, as I have said earlier in these reasons, taking the applicant’s case at its highest has a net equity of approximately NZ$8,600,000.  On the respondent’s case the value of the New Zealand property is NZ$4,190,000.

8. The respondent’s contribution to that property is NZ$8,400,000.

9. The second pool of property to be considered is the real property, savings and household contents of the respondent at the date of co-habitation.  There is a significant dispute as to the contribution which the applicant made to the present value of that property.  For example, she asserts significant contributions to the renovations of the real property.  In contrast the respondent says no renovations at all have been undertaken.  In any event this property represents substantial assets to which the applicant even on her own case made no contribution as to their acquisition.  The parties did not live in the property and, on the respondent’s case, there would be no adjustment in favour of the applicant in relation to those assets.

10. The third pool of assets relates to the share holding of the respondent in the family company.  The state of the evidence does not allow me to draw any conclusion as to whether or not that share holding has any value to the respondent.  Although he receives money from the company he receives that money entirely by the grace and favour of his mother.  The company was in existence long before the parties met and there is no evidence that the applicant made any contribution to the acquisition of those assets.  She claimed she made a contribution in relation to the improvement of the assets insofar as she conducted negotiations in relation to the property at Sydney Suburb O.  That assertion is disputed.  Again it is submitted on behalf of the respondent that there would be no adjustment in the favour of the applicant in relation to the family company asset pool. 

11. On the respondent’s case the only asset pool out of which any adjustment would be made is the partnership pool in New Zealand.  It is his case that the applicant has already received far more from that pool than she is entitled.  The respondent asserts that the applicant has received over the course of co-habitation and after co-habitation sums totalling $1,900,000. the applicant does not dispute having received large sums. There may be some dispute about the precise amount because some of the funds she received were in New Zealand dollars and some in Australian dollars. 

12. The applicant asserts that the net equity in the New Zealand properties is $NZ8,600,000 and the applicant concedes that the respondent contributed $NZ8,400,000 to the acquisition of those properties.  She seeks an order that she be entitled to 30 per cent of the equity or $2,500,000.  The respondent seeks an order that she receive no monies and repay those which she has already received.  This may be unrealistic. 

13. If the applicant were to receive 20 per cent of the equity in the New Zealand properties (noting that the equity which she asserts is far greater than that which the respondent asserts) then on her figures she would receive $1,700,000.  If the Court accepts the position of the respondent that the whole of the funds which she has already received be treated as an addback being money improperly removed by her from the partnership and used for her own purposes, then she may have no further entitlement to property settlement.  Thus it would not be appropriate to make any order for a lump sum payment at this time, whether by way of interim costs, interim spousal maintenance or interim property settlement, there being no certainty that the money could be retrieved from the ultimate amount paid to the applicant at the conclusion of the hearing.

1. In circumstances where the applicant is unable to demonstrate to my satisfaction that she is certain to receive monies which would allow the $500,000 to be paid back if appropriate, it is not necessary to go on to consider the possible source of funds for the payment.

periodic spousal maintenance

1. Towards the conclusion of the submissions by Senior Counsel for the applicant it was sought to agitate a claim for periodic spousal maintenance of $2000 per week.  Senior Counsel for the respondent objected.  Tendered before me was a transcript of proceedings in front of her Honour Justice Stevenson on 27 September 2012 where Senior Counsel for the applicant abandoned an application for a periodic amount by way of spousal maintenance. 

2. The combination of that position before Justice Stevenson and the precise terms of Order 7 of the Application before me, led those representing the respondent to the conclusion that there was no application for periodic spousal maintenance being agitated.  Senior Counsel for the respondent indicated that he was not in a position to meet an application for spousal maintenance having made no enquiries of the applicant in relation to the justification of her claimed expenditure or the disposition of the funds she had already received and in those circumstances I was not prepared to hear that application.  If the applicant wishes to pursue an application for periodic spousal maintenance then she should file a fresh application and the respondent will then have the opportunity to respond in the usual way.

SALE OF PROPERTY AT E TOWN

1. The applicant sought an interim order that the parties join in the sale of a property owned by their partnership enterprise in E Town, New Zealand.  The respondent wishes to retain that property.  He has other assets from which an order for property settlement in favour of the applicant, if made, could be satisfied and he has the financial means to support the E Town property.

2. The Court at trial will determine whether the asset is to be retained by the respondent, or sold.

3. In those circumstances I do not propose to make an order that it be sold.

THE FUTURE CONDUCT OF THE PARTNERSHIP

1. The applicant sought orders that she and the respondent be appointed as joint agents for the partnership to continue to conduct, together, the business of the partnership.

2. The respondent sought an order that he be appointed as agent for the partnership for the purpose of continuing to conduct the businesses.

3. The structure of the partnership is explained in the partnership agreement dated 20 June 2007.  The first partner is B Group Australia Pty Limited as trustee for the B Trust Australia.  This is a corporation of which the respondent is the sole shareholder and director.  The second partner is B Group New Zealand Limited as trustee for the B Trust New Zealand. This is a company of which the applicant is the sole shareholder and director.  The partnership agreement provides that B Trust Australia will provide to the partnership the services of the respondent as its key person and B Trust New Zealand will provide to the partnership the services of the applicant as its key person. 

4. The partners appoint B Group Limited, a company of which the applicant is the sole shareholder and director, as their agent for the purpose of conducting the partnership.

5. The manner in which the partners will share partnership assets and income is set out in the agreement.  The respondent is entitled to receive interest on the amounts contributed by him to the partnership at the rate accepted for 90 day bank accepted bills published by the Reserve Bank of Australia for the month of May in the preceding financial year plus 1.5 per cent.  The partners will then share the balance of the profit of the partnership business equally. 

6. The agreement, relevantly, provides that neither partner will use the money, property or credit of the partnership in any way other than for the benefit of the partnership; neither will do anything which is in direct conflict with the partnerships business interests; neither will mortgage or charge its share in the partnerships business; neither will do or permit anything by which any partnership property may be seized, attached or taken in execution of a judgment.

7. The agreement provides that neither partner has the authority to encumber any asset of the partnership except by unanimous resolution of the partners.

8. It is against the background of that agreement that the conduct of the parties in relation to the partnership falls to be examined, bearing in mind that the agent for the partnership, B Group, is the corporation of which the applicant is the sole shareholder and director. 

9. It is not in dispute that the applicant has caused the agent to transfer to her significant sums of money, contrary to the partnership agreement.  The agent, B Group, being the entity under the control of the applicant, caused financial statements for the partnership to be created which disclosed that the partnership has lent to the applicant NZ$1,700,000.  The respondent says that he was not aware of those loans, which took place without his authority and without agreement. 

10. In addition on 17 November 2011, the day the parties separated, the applicant withdrew from the bank account of the partnership the sum of NZ$135,035.

11. Between 16 February 2012 and 18 June 2012 the applicant caused rent to be paid directly to her, which would otherwise have been paid to the partnership totalling AU$90,598.72 and caused to be transferred from the bank accounts of the partnership to her account a further sum of NZ$103,744.83 (AU$79,808). 

12. Between 16 November 2011 and 27 June 2012 a total of AU$271,497.72 was received by the applicant either from the bank accounts of the partnership or directly from the tenants.  The total amount which is asserted by the respondent to have been received by the applicant is therefore AU$271,497.72 plus the loan account of NZ$1,700,000.

13. The sequence of events needs to be examined.  The applicant withdrew NZ$135,035 on 17 November 2011.  On 2 December 2011 the respondent’s then lawyers sought from the applicant’s lawyers an undertaking that the applicant would not deal with the assets of the partnership without his consent.  On 8 December 2011 the applicant’s lawyers wrote to the respondent’s lawyers stating “our client extends to you her undertaking as sought …save and except that in the event that our client intends to access any funds in that account your client will be provided with 28 days prior notice in writing.”

14. Orders were made by the Court on 14 March 2012 for the provision of documents by the applicant to the respondent.  The documents were received by the respondent on 14 May 2012, including statements for the relevant bank accounts. Those documents disclosed that the applicant had received from the company into her own accounts between 15 February 2012 and 21 May 2012 (after giving the undertaking on 8 December 2011) deposits totalling $146,486.89. 

15. Also after giving the undertaking requested by the respondent in December 2011, the applicant had requested the tenants of the investment properties to divert the rent from the partnership accounts and to pay the rent in the total sum set out above, into her own accounts.  On her behalf it was asserted that by doing so she did not breach the undertaking which she had given.  In any event monies continued to be transferred by the applicant from the partnership bank accounts until June 2012.  It is against that background of dealings that the respondent asks the Court to appoint him as agent for the partnership.

16. The respondent will retain the assets of the partnership in the final proceedings.  He made the sole financial contribution to the partnership and is owed substantial amounts of money by the partnership which, at the present time, do not appear to be recoverable.  It is in his interest to maximise the value of the partnership and the income of the partnership.

17. The applicant cannot be relied upon to act in a way which is consistent with the interests of the partnership when those interests do not coincide with her own.  It is unreasonable to expect the parties to jointly cooperate in the running of the partnership having regard to the degree of acrimony between them and to the lack of trust which is held by the respondent towards the applicant.

18. In those circumstances it is appropriate that the respondent should have the conduct of the partnership businesses.

I certify that the preceding fifty-six (56) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 1 November 2012.

Associate:

Date:  1 November 2012