Edie & Alora
[2023] FedCFamC1F 922
•27 October 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Edie & Alora [2023] FedCFamC1F 922
File number(s): ADC 3070 of 2021 Judgment of: BERMAN J Date of judgment: 27 October 2023 Catchwords: FAMILY LAW – PROPERTY – Interim – Where the applicant seeks an order for $500,000 by way of partial property settlement – Where the first respondent concedes that there is likely to be a settlement of property – Consideration of s 80(1)(h) of the Family Law Act 1975 (Cth) – Consideration of s 79 of the Family Law Act 1975 (Cth) – Consideration of Strahan & Strahan (2009) FLC 93-466 – Orders.
FAMILY LAW – PROPERTY – Interim – Litigation funding – Where the applicant seeks a lump sum payment or a “dollar for dollar” order – Where the application does not satisfy a cursory consideration – Where the first respondent seeks to quarantine the funds for the potential payment of the second respondent’s unpaid wages claim – Where the parties’ fees are alarming and out of proportion – Consideration of r 1.04 and r 12.10 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 – No orders made for litigation funding – Orders made that the first respondent is restrained from disbursing the funds.
FAMILY LAW – PROPERTY – Interim – Single expert – Where the parties jointly instructed a single expert to value a business – Where the applicant obtained a “ghost” valuation report – Where the two valuers are in broad agreement – Where the issue in contention is in respect of the wages attributed to the first respondent – Where it is now agreed that the single expert should provide a fresh valuation report – Where the parties are unable to agree as to what information should be given to the single expert – Where the Court will, if necessary, provide the single expert assistance to enable him to discharge his obligation – Orders.
Legislation: Family Law Act 1975 (Cth) ss 80, 80(1)(h), 79, 117, 117(2A).
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rr 1.04, 12.08, 12.10, 12.10(4)
Cases cited: Breen v Breen (1990) 65 ALJR 195
Chester v Chester (1995) FLC 92-612
Davidson & Davidson (No 2) (1994) FLC 92-469
Felice & Felice (2011) FamCA 162
Gabel & Yardley (2008) FLC 93-386
Medlow & Medlow (2016) FLC 93-692
Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578
Stanford v Stanford [2012] HCA 52
Strahan & Strahan (2009) FLC 93-466
Wenz & Archer [2008] 40 Fam LR 212
Zschokke & Zschokke (1996) FLC 92-693
Division: Division 1 First Instance Number of paragraphs: 139 Date of hearing: 5 October 2023 Place: Adelaide Counsel for the Applicant: Mr Bullock Solicitor for the Applicant: Tolis & Co. Counsel for the First Respondent: Ms Lewis Solicitor for the First Respondent: Jacqui Ion Lawyers Pty Ltd Counsel for the Second Respondents: Mr Dillon and Ms Hoskins Solicitor for the Second Respondents: Douglas Hoskins Legal ORDERS
ADC 3070 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR EDIE
Applicant
AND: MS ALORA
First Respondent
MS HAHN AND MR ALORA
Second Respondent
ORDER MADE BY:
BERMAN J
DATE OF ORDER:
27 OCTOBER 2023
THE COURT ORDERS THAT:
1.Pursuant to s 80(1) and s 79 of the Family Law Act 1975 (Cth), within seven (7) days of this order, the first respondent do pay to the Trust Account of Tolis & Co Lawyers, for and on behalf of the applicant, the lump sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000).
2.The first respondent be restrained and an injunction granted restraining her from disbursing the sum of EIGHT HUNDRED AND FIFTY SEVEN THOUSAND TWO HUNDRED AND THREE DOLLARS ($857,203) being the balance of the sum of ONE MILLION THREE HUNDRED AND FIFTY SEVEN THOUSAND TWO HUNDRED AND THREE DOLLARS ($1,357,203) transferred into the business account of B Company being ANZ Account #...26, save as to any amount as may be agreed between the parties to be withdrawn or disbursed or further order of the Court.
3.The parties provide updated discovery within twenty-eight (28) days of the date of this order.
4.The applicant provide by way of disclosure the documents in respect of paragraphs 7(a)(i)-(ii),(c)(i)-(ii),(e),(h),(i),(j),(k) and (l) of the Application in a Proceeding filed 25 August 2023.
5.The first respondent provide by way of disclosure the documents in respect of paragraphs 7(a) to (n) inclusive in the Response to an Application in a Proceeding filed 27 September 2023.
6.The balance of the outstanding interim proceedings are dismissed.
7.The Initiating Application filed 25 June 2021 is listed for a First Day Hearing on 13 November 2023 at 9.00 am.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
By Initiating Application filed 25 June 2021, Mr Edie (“the applicant”) seeks final orders for property settlement and division such that there be an adjustment of net non-superannuation assets as to 65 per cent to the applicant and 35 per cent to Ms Alora (“the first respondent”) and that the applicant will retain the following property:
·Any settlement sum necessary to give effect to the adjustment sought;
·A property situate at C Street, Town D, SA (“the Town D property”);
·The product stock retained by the applicant from the Alora Edie Family Trust;
·Motor Vehicle 1;
·The applicant’s interest and assets in the business known as “Otherness”;
·Furniture and effects in his possession;
·Clothing, jewellery and personal effects in his possession;
·All amounts standing to his credit in his bank, building society or credit union account; and
·The applicant’s superannuation interest, subject to orders made.
The applicant proposes that the first respondent retain the following property:
·The property situate at E Street, Town F, SA (“the former matrimonial home”);
·The first respondent’s interests in the Alora Edie Family Trust;
·The first respondent’s interest in G Pty Ltd as trustee for the G Trust noting that H Street, Town F, SA (“the H Street property”) and K Street, Town F, SA (“the K Street property”) are assets of the G Trust;
·The rights to the businesses, B Company and J Company;
·The product stock in the possession of the first respondent;
·Motor vehicles in possession of the first respondent including Motor Vehicle 2 and Motor Vehicle 3;
·Furniture and effects;
·Clothing, jewellery and personal effects;
·All amounts standing to her credit in any bank, building society or credit union account; including accounts held by her or on behalf of the Alora Edie Family Trust, B Company, the G Trust and J Company;
·The first respondent’s superannuation interest subject to orders made; and
·the respective entitlements of the applicant and the first respondent in Superannuation Fund 1 (“the SMSF”) be equalised by way of a superannuation splitting order.
The applicant joined Mr Alora and Ms Hahn, the first respondent’s parents, as second respondents to the proceedings although it is not apparent from the orders sought by the applicant what substantive relief, if any, is sought as against the second respondents or to what extent the orders sought by the applicant will, or are likely to, affect the substantive rights of the second respondents.
By Response filed 13 September 2021, the first respondent seeks that the first respondent pay a settlement sum to the applicant as may be required to effect a division of the net assets of the parties as to 60/40 in favour of the first respondent, noting her contention that the applicant has received the sum of $900,000 by way of partial property settlement.
Other than a difference between the applicant and the first respondent as to the percentage adjustment of property as between them, the parties are agreed as to the property and interests that each are to retain.
The first respondent seeks to retain the SMSF in circumstances where:
(1)L Pty Ltd is the trustee company of the SMSF;
(2)The applicant, first respondent and second respondents are directors and each hold one third of the shares of the trustee company;
(3)The applicant and first respondent are members of the SMSF;
(4)M Pty Ltd is the trustee of N Trust; and
(5)The applicant, first respondent and the second respondents are directors and each hold one quarter of the shares of N Trust.
The first respondent seeks that the applicant resign from the office of director and secretary of L Pty Ltd, transfer his shareholdings in L Pty Ltd to the first respondent and resign as a member of the SMSF.
To complete the removal of the applicant from the SMSF, the first respondent also seeks that the applicant resign from the office of M Pty Ltd and transfer his shares to the first respondent.
By Response to Initiating Application filed 23 November 2021, the second respondents seek orders summarised as follows:
·That the applicant and first respondent do pay to the second respondents a sum equivalent to their loan account balances as identified in the Alora Edie Family Trust and the G Trust;
·A declaration that the H Street property is held on either a constructive or resulting trust to the benefit of the second respondents;
·That the applicant and first respondent do pay to the second respondents the sum equivalent to 50 per cent of the value of the H Street property;
·A declaration that the C Street property is held on either a constructive or resulting trust to the benefit of the second respondents; and
·The applicant and first respondent do pay the second respondents a sum equivalent to 73 per cent of the value of the C Street property.
Whilst the applicant and the first respondent are not agreed as to a settlement sum that should be paid to the applicant, the overarching focus of the parties has been to identify and value the separate legal and equitable interests of the parties in property.
By Application in a Proceeding filed 25 August 2023, the applicant seeks the following summary of orders:
(1)That pursuant to s 80(1) and s 79 of the Family Law Act 1975 (Cth) (“the Act”) the first respondent pay to the applicant the lump sum of $500,000;
(2)That pursuant to s 79 and 117 of the Act, the first respondent pay to the applicant such sum as is equivalent to the total sum paid by the second respondent to her solicitors and counsel on account of her legal costs and disbursements as at the date of this order;
(3)In the alternative, that there be a “dollar for dollar order” pursuant to s 117 of the Act in favour of the applicant;
(4)That pursuant to s 90XT of the Act, a base amount be allocated to the first respondent from the interests of the husband in the SMSF in such amount as would enable the applicant to roll out his superannuation entitlement;
(5)That the first respondent provide discovery; and
(6)That the parties jointly instruct a single expert to update and undertake valuations of the following entities:
(a)Alora Edie Family Trust trading as B Company;
(b)G Pty Ltd, in its own right; and
(c)G Trust trading as J Company.
In addition, the following properties are sought to be valued:
(1)E Street, Town F (“the E Street property”);
(2)K Street, Town F (“the K Street property”);
(3)H Street, Town F (“the H Street property”);
(4)P Street, Town F (“the P Street property”); and
(5)C Street, Town D (“the C Street property”).
By Response to an Application in a Proceeding filed 27 September 2023, the respondent seeks the following summary of orders:
(1)That the Application in a Proceeding filed 1 September 2023 be dismissed;
(2)That the parties instruct Mr Q of R Accountants to value the entities identified by the applicant;
(3)That the parties instruct Mr S of T Real Estate to value the real property as identified by the applicant;
(4)That the first respondent pay the costs associated with the valuations of entities and real estate in the first instance with the applicant to reimburse her 50 per cent of the costs at settlement;
(5)That the parties provide each other with update discovery within 30 days; and
(6)That the applicant provide to the first respondent documents particularised in her application.
By their Response filed 29 September 2023, the second respondents agree that the entities and real property should be the subject of valuations although there is a challenge as to when the valuations should be undertaken and they are opposed to the applicant tendering a report and adducing evidence from Mr U who is a “ghost” forensic expert instructed by the applicant.
Whilst more could be said as to the status of the second respondents, the issues that are joined between the applicant and the first respondent for the purposes of the interlocutory proceedings would not appear to impact adversely on the substantive rights of the second respondents.
LEGAL FEES INCURRED BY THE PARTIES
As at the date of the hearing on 5 October 2023, each party filed a Cost Notice setting out the costs incurred and the estimate as to future costs for each of the parties which are as follows:-
As to the applicant:
Costs billed and paid to date $16,427 Disbursements including counsel fees, mediation fees and expert fees paid to date $17,087 Costs billed and not paid to date $198,302 Counsel fees billed and not paid to date $20,097 Costs unbilled to date $17,777 Estimated future expenses for expert witnesses $40,000 Estimated costs to the conclusion of the interlocutory application inclusive of counsel fees $20,000 Estimated costs to the conclusion of a final hearing inclusive of counsel fees $200,000 TOTAL $529,510
As to the first respondent:
Costs billed and paid to date with previous lawyers NA Costs incurred to date including counsel fees, disbursements and office costs $195,460 Costs paid to date including counsel fees, disbursements and office costs $166,352 Costs outstanding to date including counsel fees, disbursements and office costs $29,107 Estimated unbilled costs to date $500 Estimated costs including counsel fees for the interlocutory application $6,000 to $10,000 Estimated costs of trial $100,000 to $200,000
As to the second respondent:
Costs billed and paid $60,197 Disbursements (interpreter fees) $286 Counsel fees (paid) $12,890 Disbursement invoice (translator fees) $2,433 Legal fees and disbursements (unpaid) $12,047 Anticipated fees up to and including the interlocutory hearing including counsel fees $6,900 Solicitors’ fees to the conclusion of the final hearing $50,000 to $200,000 Counsel fees up to and including the conclusion of the final hearing $50,000 to $100,000
The reality of the position in which each of the parties finds themselves is that the total fees, if the matter proceeds to trial, will likely exceed $1.6 million dollars.
Given that there remains some disagreement between the parties as to the extent of the assets and liabilities of the parties, even at the most generous view, the fees incurred are out of all proportion to the issues in dispute between the parties.
A tipping point will soon be reached, if that has not already occurred, where the extent of each of the parties’ legal fees, costs and disbursements would be a barrier to the parties being able to resolve their differences. The parties and their legal representative have developed a regrettable level of enthusiasm for the proceedings which is likely to be out of all proportion to the issues necessary for determination of the matter.
Rule 1.04 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the Rules”) requires that legal representatives during the conduct of proceedings should take a sensible and pragmatic approach to the litigation and to incur only such costs as are fair, reasonable and proportionate to the issues that are genuinely in dispute. Rule 12.08 provides:
(1) The legal costs incurred in a proceeding must be:
(a) fairly, reasonably and proportionately incurred; and
(b) fair, reasonable and proportionate in amount;
in the circumstances of the proceeding.
An indication of the importance that the Court now places on the concept that legal costs should be proportionate to the issues genuinely in dispute is amplified by r 12.10 which provides that:
(1)A party may apply to the court for an order specifying the maximum costs as between party and party that may be recovered for the proceeding.
The rationale that underpins the Court making a maximum costs order is set out in r 12.10(4) as follows:
(4)The court may make a maximum costs order in relation to any or all of the parties, if:
(a) it is in the interests of justice to do so; and
(b)there is a substantial risk that, without such an order, costs will be disproportionately incurred; and
(c)the court is not satisfied that the risk referred to in paragraph (b) can be adequately controlled by either or both of the following:
(i)case management directions or orders made under this Part; and
(ii) a detailed assessment of costs.
Ultimately, it may well be a matter for each of the parties as to the extent to which the fruits of any litigation may be consumed by the unquenchable thirst for legal fees to be incurred such that any perceived victory is rendered pyrrhic.
VALUATION OPINION
By letter dated 23 September 2021, Mr Q was jointly instructed by the applicant and the first respondent to provide an opinion as to the value of the first respondent of her interests in the following entities:
(1)Alora Edie Family Trust which operates a business named “[B Company]”;
(2)G Trust which operates a business known as “[J Company]”, the trustee of which is G Pty Ltd; and
(3)G Pty Ltd in its own right (a trust distribution company).
The businesses are situate in Town F in Region V. Mr Q complied with the joint letter of instruction and provided a forensic valuation report dated 9 December 2021. The valuation outcome is not agreed as between the parties.
The distribution of the report created what could only be described as a maelstrom of litigation, much of it unnecessary.
The applicant has used the services of Mr U to provide a ghost valuation report. Mr U is not a single expert however, his report now is part of the Court file. What is immediately apparent is that in respect of the substantive parameters of the valuation exercise including methodology and a determination of an appropriate capitalisation rate necessary to bring to account future maintainable earnings underpinned by the history of trading, the two valuers are in broad agreement.
Where the parties are in contest, is in respect of the assertion by the first respondent as to a bench marking of what would be considered a reasonable and appropriate wage to be paid to a person who undertakes the extensive and wide-ranging duties of the first respondent and the second respondents.
The contention of the applicant is that the amount sought to be brought to account by the first respondent, initially in the sum of about $400,000 per annum, is untenable and unreasonable.
The issue between the parties has somehow become mired in a disagreement as to what information should properly be forwarded to Mr Q to enable him to consider the areas of dispute and disagreement.
It has now been agreed, irrespective of the position previously adopted by the parties, that Mr Q should be instructed to undertake a fresh valuation. It seems to me that two years has now passed and given that a valuation based upon future maintainable earnings draws its substance and foundation from the past history of trading, two further years is a relevant consideration. In any event, the Court is obliged to look at the most up to date evidence in respect of valuations as is reasonable.
As I understand the matter, the parties have reached agreement as to an approach to Mr Q which will enable each of them to make a submission as to areas of concern.
How Mr Q intends to progress the matter will be a matter for him to decide however, if necessary, the Court will provide assistance to enable the single expert to discharge his obligation.
I propose to make no orders in respect of the anticipated valuation process other than to confirm that, if necessary, I will draft the necessary joint instruction and make orders that set out the relevant issues as may be necessary for Mr Q to prepare an update report and enable him to ask questions as may be necessary to clarify his task.
SHORT BACKGROUND
The applicant is 62 years of age and the first respondent is 40 years of age.
The parties commenced cohabitation in 2001, married in 2002 and separated on 12 August 2019.
The parties have reached agreement as to the parenting arrangements for their children, X now aged 15 years and Y now aged 10 years. The children live with the parties on a week about basis.
The first respondent is assisted in the B Company business by her parents, the second respondents.
From the sale of a jointly owned property in Suburb W, the applicant and first respondent purchased the property situate at E Street, Town F (“the former matrimonial home”). The property sits on a substantial parcel of land. Six acres was utilised for crops and formed the basis of the applicants’ business enterprise known as “[Z Company]”. The former matrimonial home was also used to grow crops.
The parties commenced the B Company business in 2010 from the P Street property which is held in the parties’ SMSF.
There may well be some disagreement between the parties as to the applicant’s contention that, upon the establishment of the Alora Edie Family Trust and the commencement of the business, the applicant contributed the sum of $500,000 from his personal savings.
The parties are agreed that some of the appliances and other equipment was gifted to them by friends.
Each of the parties worked in the business until separation in 2019.
The parties are agreed that the business is considered to be a prominent hospitality venue in Region V. They are not necessarily agreed as to what might underpin the business’ success. For her part, the first respondent considers it is because of the quality of the goods and management whereas the applicant considers that his knowledge of products resulted in the business having a preeminent and highly regarded product list.
Upon separation, the applicant retired as appointor of the Alora Edie Family Trust leaving the first respondent responsible for the business.
In 2013, the first respondent’s mother purchased the H Street property for over $450,000. The second respondent’s live in the H Street property.
In 2015 the parties undertook extensive renovations to the B Company business. The applicant estimates that the cost of the renovations was in the approximate sum of $1,000,000 which was funded directly from the business income.
In 2018, the wife caused the incorporation of G Pty Ltd as trustee for the G Trust. The first respondent is the sole director, secretary and shareholder of the trustee company and is the appointor of the trust.
In 2018, the G Trust purchased the K Street property with some funds derived from the business but predominantly by way of bank loan.
In 2019, the H Street property was transferred from the first respondent’s mother (and as to 1/100 interest of the first respondent) to the G Trust for $485,000. The applicant says that the Alora Edie Family Trust provided the funds for the purchase. Thereafter, the H Street and K Street properties formed the basis of another business.
The SMSF was established by the parties in 2014. L Pty Ltd is the trustee of the SMSF and as discussed, the applicant, first respondent and second respondents are directors with each of the four parties holding one share.
The applicant and the first respondent are also the appointors of the N Trust. The trustee is M Pty Ltd of which the applicant and first respondent are directors. The parties, together with the second respondents, each hold one share. The N Trust holds the P Street property as part of its capital base.
There is some uncertainty as to the current value of the SMSF with the applicant considering that the value of the SMSF as at 30 June 2020 was $2,163,854 and the first respondent’s contention as at 30 June 2021 that the super fund had a value of $1,753,554.
The wife and her parents set up a further fund known as Superannuation Fund 2 which the first respondent assesses as having a value of $367,244.
The parties are not agreed as to a schedule of assets and liabilities although the likely focus is upon the value of the Alora Edie Family Trust trading as B Company.
As briefly discussed, the first area of contention is the extent to which the valuation of the Alora Edie Family Trust is impacted by the first respondent’s estimate of an appropriate level of commercial wage for both her and the second respondents.
Mr Q’s report dated 9 December 2021 is annexure “B” to the affidavit of Nadia Patrizia Behar filed 1 April 2022.
Paragraph 6.8 of the report sets out the first respondent’s contention that the duties undertaken by her in the business should be represented by the sum of $400,000 as an appropriate wage and in respect of the second respondents, their time should be represented by $234,000.
At paragraph 7.37 of the report, Mr Q summarises the value of the Alora Edie Family Trust and the G Trust as follows:
Entity Valuation Loans (to) from the parties Excluding loans (to) from the parties Alora Edie Family Trust ($47,027) ($412,643) ($459,670) G Trust $317,328 $641,569 $958,897 G Pty Ltd $134,061 0 $134,061 Total equity $404,362 $228,926 $633,288
Based upon the report received from Mr U, the applicant values the Alora Edie Family Trust and the G Trust at $2,386,443.
Part of the difference can be explained by the applicant excluding loans relating to the former matrimonial home and beneficiary loan accounts, but the predominant area of difference is the extent of wages attributed to the first and second respondents.
It is hoped that Mr Q will bring to account the separate submissions of the parties in updating the valuation of the relevant entities.
CLAIMS OF THE SECOND RESPONDENTS
The second respondents were joined by the applicant because of orders that he sought, namely that the second respondents would roll out their entitlements in the SMSF so that the applicant could retain the balance.
The second respondents now seek the following orders:
(1)A declaration that the Town D property is held on trust for their benefit given their view that the property was purchased using funds held in Superannuation Fund 2; and
(2)A declaration that the H Street property is held on either a constructive or resulting trust for their benefit in circumstances where the first respondent’s mother’s interest in the H Street property was transferred from her to the G Trust for no consideration.
It is also likely that there will be a dispute as to the extent of the purported beneficial entitlements of the second respondents in the Alora Edie Family Trust.
In relation to the Town D property, the claim of the second respondent is underpinned by their proposition that the purchase of the property in 2020, in the husband’s name for $750,000, was in part funded by the sum of $290,000 which was derived from the second respondent’s member entitlements in Superannuation Fund 2.
At paragraph 85 of the applicant’s affidavit filed 24 August 2023, he sets out a table prepared by Mr U detailing the income distributions and loan movements covering all income for the Alora Edie Family Trust.
The applicant contrasts the manner in which distributions were made for the financial years ending 2017, 2018 and 2019 which recorded equal and modest distributions made to each of the second respondents. In contrast, the applicant highlights that in the financial year ending 2020, no distributions were made to him whereas the first respondent received the largest single distribution that had been made to any beneficiary to date. In 2021, the first respondent and the second respondents received a distribution in the sum of $1,002,066. No distribution was made in favour of the applicant.
There are a number of other aspects to the first respondent’s financial control of the Alora Edie Family Trust.
The broad contention of the applicant is that whilst there had been a history of the second respondent’s receiving a modest distribution, there was a broad understanding between all parties that the method by which distributions was made was to minimise income tax payable. Simply put, the applicant does not consider that there was ever an expectation on the part of the second respondent’s that they would receive their distributions.
The serious consequence of this aspect of the dispute is brought into sharp focus by the first respondent in her affidavit filed 25 August 2023 at paragraphs 86 to 99.
The first respondent says that the second respondents have been seeking a reimbursement of their beneficial entitlements (credit loan accounts) and following advice from the accountant, a calculation was made that the first respondent’s father was owed $409,384 on account of a shortfall on wages and $573,390 owing to him under his beneficiary account. Similarly, the first respondent’s mother is purportedly owed $319,116 on account of a shortfall on wages and $509,607 under her beneficial account.
The first respondent also calculated that she owed her parents the sum of $169,000 for funds loaned to her during the period 14 December 2021 and 11 April 2023.
It is to be remembered that as at 2021, the second respondents did not claim that there were issues relating to a shortfall on wages.
According to the first respondent, the consequence of the request by her parents, the calculations undertaken by the accountant resulted in her transferring the sum of $169,000 from her ANZ account #...42 to her parents account #...71. In addition, on 8 September 2023 the first respondent transferred the sum of $1,357,203 from her ANZ account to the business account for B Company, being ANZ account #...26 and then on the same date, a transfer comprising four payments in the total sum of $1,357,203 to the second respondents’ personal account.
The first respondent obviously considered her conduct and summarised her decision to seek the return of the funds paid to the second respondents in her affidavit:[1]
96.On reflection I decided that I should not have transferred the statutory entitlements owing to my parents and part of their beneficiary loan accounts to them without the husband’s knowledge and consent. I asked my parents to return the funds to me and they agreed to do so not withstanding their position that these entitlements are due and payable to them upon request and that such funds are needed by them to purchase their own property in which to live.
97.On 20 September 2023 I attended at the ANZ at [Town F] with father and assisted him to effect the transfer of $1,357,203 from ANZ Account ending […71] to the business account of [B Company] (ANZ Account ending [...26]).
[1] Affidavit of Ms Alora filed 27 September 2023.
The applicant now estimates that the net non-superannuation asset pool is in the sum of $3,686,312 with superannuation entitlement of $1,895,050.
The applicant brings to account the value of the Alora Edie Family Trust at ($47,030), G Pty Ltd at $134,060 and the G Trust comprising the value of the H Street and K Street properties at $787,330.[2] Of significance to the current proceedings is the sum of $1,441,430 held in the first respondent’s personal ANZ Account #...42 as at 31 October 2022.
[2] Affidavit of Mr Edie filed 24 August 2023 at paragraph 7.
The simple summary is that the applicant holds property to the net value of $724,112 with the first respondent retaining control of the bulk of the asset pool.
I do not ignore that the applicant brings to account a liability of $242,931 in respect of his Z Company business and that there may be significant addbacks by way of legal fees paid by the first respondent on her own behalf and on behalf of the second respondents.
INTERIM SETTLEMENT OF PROPERTY
The applicant seeks a lump sum of $500,000 by way of interim property settlement. It is conceded by the first respondent that there is likely to be a settlement of property and other than a dispute as to whether the indebtedness of the applicant should be brought to account as a liability of the parties, it is not the position of the first respondent that the applicant will only retain his interest in the Town D property (subject to the claim of the second respondents), his personal effects and the balance of stock retained from the B Company business.
Legal Principles
There are essentially two stages to the consideration of an application for interim property orders:[3]
(1)The first stage is a “procedural step” which requires an analysis of whether the circumstances of the case triggers the Court’s power to invoke s 80(1)(h) of the Family Law Act 1975 (Cth) (“the Act) to make an order for interim property settlement before a hearing. At this stage, the “overarching consideration” is the interests of justice.[4]
(2)The second stage is the “substantive step” where the provisions of s 79 of the Act must be considered and applied but with limitations, given that it is not the final hearing.[5]
[3] Strahan & Strahan (2009) FLC 93-466 at [118].
[4] Strahan & Strahan (2009) FLC 93-466 at [132].
[5] Strahan & Strahan (2009) FLC 93-466 at [135].
In Medlow & Medlow (2016) FLC 93-692 (“Medlow”) at 81,088, the Full Court confirmed that the starting point in respect of any property application, including an application for interim property orders, is the identification of the parties’ property and of their interests in it.[6]
[6] Medlow & Medlow (2016) FLC 93-692 at [69].
In circumstances where a party seeks interim property orders, the Full Court said in Medlow (supra) at 81,090 as follows:-
86.The onus was clearly upon [the applicant] to establish that there were sufficient assets available for the interim distribution and that the effect of any interim order was capable of being reversed as part of the final hearing or at least would not defeat [the respondent]’s property claims. The onus was not on the [respondent] to adduce such evidence.
In that context, the Full Court in Medlow (supra) referred to Strahan & Strahan (2009) FLC 93-466 (“Strahan”) and the authorities referred to therein in confirming that an interim order for the distribution of property must be “amenable to adjustment on a final hearing”.[7] The very nature of an interim hearing is such that the Court is not in a position to properly evaluate the evidence and accordingly, the Court should take a conservative approach including in respect to determining whether there is likely to be sufficient resources of the parties available at final hearing to accommodate any “adjustment issue”.
[7] Medlow & Medlow (2016) FLC 93-692 at [83].
The applicant carries the onus of satisfying the Court that any interim distribution of matrimonial property can be accommodated at a final hearing.
In terms of the second consideration in respect to an application for interim property orders, the High Court in Stanford v Stanford [2012] HCA 52 stated as follows:-
2.Under s 79(2) of the Act, a court shall not make a property settlement order unless satisfied that it is “just and equitable” to do so….
As the Full Court said in Medlow (supra) at 81,089, in the context of considering an appeal concerning interim property orders:-
72.… . This is not to be determined “by beginning from the assumption that one or other party has the right to have the parties’ property divided between them” (Stanford at [40]).
The following principles are relevant to the Court’s consideration of this matter:
(1)Together, s 79 of the Act and s 80(1)(h) of the Act confer a power on the Court to make orders for interim property settlement; and
(2)Section 79 of the Act confers the discrete power to make orders for property settlement and the Court may exercise the power conferred by s 79 of the Act through “a succession of orders until the power… is exhausted” [8] or, until a final order dealing with all of the known property of the parties is made.
[8] Gabel & Yardley (2008) FLC 93-386.
Section 80 of the Act is not in itself a source of jurisdiction for such an order to be made. Rather, the section is an “enabling provision” that provides various ways in which the general power in s 79 of the Act may be exercised in individual cases.[9] Section 80(1)(h) of the Act includes providing for the making of “a permanent order, an order pending the disposal of proceedings or an order for a fixed term or for a life or during joint lives or until further order”.
[9] Davidson & Davidson(No 2) (1994) FLC 92-469.
Given that the applicant is effectively seeking access to the parties’ own funds, it is unnecessary for a “detailed enquiry as to the purposes for which the funds are to be used”.[10]
[10] Felice & Felice (2011) FamCA 162 at [12].
Sufficient particulars must nonetheless be provided to enable the Court to determine:
(1)That the application is genuine;
(2)To identify the circumstances that make it appropriate to give consideration to exercising its power; and
(3)To sufficiently weigh the identified need “against the benefits of having only one exercise of a s 79 power”.[11]
[11] Wenz & Archer [2008] 40 Fam LR 212 at [55].
While the usual s 79 considerations apply to the second stage of the process, a detailed analysis of those considerations is not required in an interim hearing.
Nevertheless, an applicant is required to show more than mere fact that upon a final hearing the applicant would receive the property sought from the other party.
The overriding consideration at all stages of the process is that the Court must be satisfied that it is just and equitable to make the order in the circumstances presented before the Court.
In evaluating the competing contentions, it is necessary to have some regard to the fact that in family law proceedings, one party may have the preponderance of resources.[12]
[12] Wenz & Archer [2008] 40 Fam LR 212 at [50]-[57].
The applicant now identifies the amount of $1,357,203 transferred from the second respondents’ personal account to the business account.
The applicant proposes that if granted, the money to be paid by the first respondent would be used to reduce liability and supplement his modest income. The first respondent opposes the applicant receiving any partial property settlement on the basis that she does not know, nor has there been adequate discovery to explain, the basis for the applicant obtaining a debt of $378,670.
The further contention is that the applicant has had the benefit of $900,000 which enabled him to purchase the C Street property. The difficulty with that submission is that it is the core of assets currently retained by the applicant in circumstances where the second respondent’s claim is that the applicant holds 38 per cent of the value of the property on trust for them.
The first respondent highlights the balance of each of her personal accounts and business accounts which also reveals that in her ANZ Account #...42 she holds the sum of $219,876.[13]
[13] Affidavit of Ms Alora filed 27 September 2023 at paragraph 75.7.
There is no explanation as to how the money, comprising two payments of $169,000 and $1,357,203, is transferred from the first respondent’s personal account to the second respondents.
It is apparent that the first respondent sought to remove a significant sum of money by a purported payment to the second respondents. She recognised almost immediately upon the transaction being completed that at the very least, the optics of the transaction were poor and subsequently she caused the sum of $1,357,203 to be restored not to her personal account but to the business account.
I am satisfied that the first respondent has control over the majority of the asset pool.
It is not a serious contention that the applicant would receive less than the amount that he now seeks even taking into account the retention of the Town D property again, subject to any successful claim by the second respondents.
There is no doubt that the first respondent has exercised complete control in respect of the distributions from the Alora Edie Family Trust in preference to herself and the second respondents as opposed to any distribution to the applicant.
I reject the contention of the first respondent that the sum of $1,357,203 must be retained for the purposes of the discharge of the beneficial and wage related entitlements of the second respondents. Again, those matters are live issues and much of the claim of the second respondents in relation to reimbursement for unpaid wages has not been established.
I propose to accede to the application of the applicant and order that the first respondent pay to the applicant’s solicitors the sum of $500,000 by way of partial property settlement.
LITIGATION FUNDING
The fees incurred, and estimates required to complete the proceedings, are alarming.
At this stage, I do not propose to make orders as sought by the applicant that the second respondent pay to the solicitors for the applicant a sum as is equivalent to the total sum paid by her to her solicitors and counsel. I am not certain that I fully understand the proposed order, nor do I consider that it satisfies even the most cursory consideration before an order for litigation funding could be made.
In Strahan (supra), the Full Court said:-
79.The need for a party to proceedings under the Act to seek an order for the provision of funds to enable the payment of his or her legal costs of participating in the proceedings has been recognised for many years. It is a reflection of an important matter that distinguishes litigation under the Act from civil litigation between parties who are not parties to a marriage, namely that "very often the wealth of the parties is controlled by one rather than by both of them”; Blueseas Investments Pty Ltd v Mitchell (1999) FLC 92-856 at 86,128 per Full Court (Nicholson CJ, Lindenmeyer and O’Ryan JJ).
Following the decision of Zschokke & Zschokke (1996) FLC 92-693 (“Zschokke”), the heads of power that would permit the making of an interim order are summarised as follows:-
(1)A maintenance order (either periodic or lump sum) under s 72 and 74 of the Act;
(2)An order under s 79 as allowed pursuant to s 80(1)(h) of the Act; and
(3)A costs order under s 117 of the Act.
In Zschokke (supra) the Full Court said at 83,217:-
If the order is to be made under s 117(2) then, in our view, the matters contained in s 117(2A) must be addressed, and this would seem to have been recognised, if not expressly at least by implication, by the Full Court in Poletti. In saying this we acknowledge that a number of the paragraphs in the sub-section (notably paragraphs (d) failure by one party to comply with Court orders; (e) total lack of success by one party in the proceedings; and (f) existence and terms of an offer for settlement) may not have relevance in an application for an order of the type in question. We also acknowledge that it may well be necessary in such an application for the Court to have regard to a range of relevant matters other than those specified in the sub-section, as is permitted by (g). …
In Strahan (supra), the Full Court said:-
90.In Zschokke at 83,217 the Full Court said that “whether the matter was determined as an interim property settlement order under s.80(1)(h), or as an interim costs (or security for costs) order under s.117(2), or indeed a maintenance order”, three matters would all be relevant, namely:
1. a position of relative financial strength on the part of the respondent;
2.a capacity on the part of the respondent to meet his or her own litigation costs;
3.an inability on the part of the applicant to meet his or own litigation costs.
When considering s 117(2A) of the Act, clearly the relevant sections relate to the financial circumstances of each of the parties to the proceedings, the conduct of the parties to the proceedings and such other matters as the Court considers relevant.
In Strahan (supra), the Full Court referred to the remarks of Brereton J in Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 as follows:-
96.In Paris King Investments Brereton J at [30] and [31] said that in addition to the three matters described in Zschokke, where the order was made pursuant to either s 74 or s 117 of the Act:
•an applicant should have “at least an arguable case for substantive relief which deserves to be heard”: Chester v Chester (1995) FLC 92-612 (“Chester”) at 82,107 per Moss J;
•there should be evidence of the applicant’s “likely costs of the litigation”: see Wilson and Chester;
•“it is not an essential precondition” that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis: Columb and Columb (unreported, Family Court of Australia, Fogarty J, 27 November 1987); see however Coomes and Coomes (1995) FLC 92-558 per Cohan J;
•an order may “make 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 of 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 to 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 on the final determination on the issue of costs”: Breen.
The decision of Chester v Chester (1995) FLC 92-612 and Breen v Breen (1990) 65 ALJR 195 impose a level of rigor in terms of the ability to calculate both how costs have been incurred and are likely to be incurred into the future. It is only by some reasonable assessment upon the basis upon which costs have been incurred that the Court is able to consider with any accuracy what is required by way of lump sum order.
I do not ignore that each of the parties may well need to access further funds in order to complete the proceedings. That is a matter for them and their solicitors.
I do not propose to make the orders as sought by the applicant either in respect of the payment of a further lump sum or a “dollar for dollar order”.
In circumstances where the first respondent considers that the sum of $1,357,203 should be quarantined to consider the merit, if any, of the second respondent’s claim, I propose to order that the first respondent be restrained from disbursing the balance of the sum, less the payment of $500,000 to the applicant, being the net sum of $857,203 subject to the agreement of the parties or further order.
SUPERANNUATION ADJUSTMENT
The applicant seeks to resolve issues in respect of the superannuation fund such that he is able to receive his member entitlement.
Whilst it should be uncontroversial that the parties retain their separate superannuation entitlements, the complexity of what is required involves the second respondents.
I do not propose to deal with that matter on an interim basis.
DISCOVERY
Each of the parties seek discovery from the other.
I am uncertain as to the current status of discovery and I note that further documents have been provided by each of the parties.
I will make an order, as sought by each of the parties, that they provide updated discovery within twenty-eight (28) days of the date of this order. I consider that documents should be discovered in respect of the AA Pty Ltd entity, BB Trust, Superannuation Fund 2.
Further, there should be discovery in relation to “Sundry creditors” of the SMSF.
I am uncertain as to the basis for seeking documents in respect of proposed work or redevelopment of any property in which the first respondent has an interest. It is assumed that in the valuation process to be conducted by Mr CC, all documents relevant to valuation would be provided to the valuer or may well be separately discovered.
I am satisfied that correspondence and communication between the applicant and the second respondents with either DD Accountants, Mr EE or Mr FF are relevant to the proceedings.
It is surprising that accountants who at one stage had assisted both parties to their joint benefit may well consider that no conflict arises if they represent only one party following marital breakdown.
It appears as if the accountants have become involved in the proceedings and as such, it is not unreasonable that correspondence and communication passing between the accountants and each of the parties is relevant to an issue in dispute and therefore, discoverable.
Finally, I consider that it is part of an obligation on each party to provide up to date financial information and as such, financial statements and records of trustees’ decisions relating to distributions to beneficiaries should be provided as may be currently available but in any event, on an ongoing basis.
The first respondent also seeks that the applicant provide discovery of his financial circumstances. Whilst significant issues of dispute between the parties are unlikely to be significantly informed by the discovery sought by the first respondent, nonetheless I propose to make an order in terms of 7(a) to (n) inclusive of the first respondent’s Response to an Application in a Proceeding. I do not propose to make an order in relation to the legal fees incurred by the applicant.
At some stage, the extent of the parties’ legal fees and the manner in which those fees may have been paid could become a relevant consideration.
I have received detailed costs statements from the solicitors for each of the parties and am entitled to have confidence that the information contained is accurate.
I see no utility in the further orders for discovery sought by the first respondent.
I make orders as appear at the commencement of these reasons.
I certify that the preceding one hundred and thirty-nine (139) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 27 October 2023
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