Erwin & Loupe (No 3)
[2023] FedCFamC1F 1122
•12 December 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Erwin & Loupe (No 3) [2023] FedCFamC1F 1122
File number(s): MLC 14204 of 2022 Judgment of: MCNAB J Date of judgment: 12 December 2023 Catchwords: FAMILY LAW – PROPERTY- Where there is an application for removal of caveats– Where that application has in substance been brought previously – Where the removal of caveats would likely further diminish the de facto wife’s interest in the property pool - Where the applicant cannot establish capacity to fund borrowings – Where the applicant provides an undertaking which does not allow for proper protection of the assets - Where the applicant has further exposed properties of the de facto relationship to caveat by another lender –– Where an order is made for costs against the applicant – Where the application for the removal of caveats is dismissed. Legislation: Family Law Act 1975 (Cth) ss 117, 121
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)
Division: Division 1 First Instance Number of paragraphs: 27 Date of last submission/s: 12 December 2023 Date of hearing: 12 December 2023 Place: Melbourne Counsel for the Applicant: Mr Guthridge Solicitor for the Applicant: SS Pty Ltd Trading As RR5 Pty Ltd Counsel for the Respondent: Mr Mort Solicitor for the Respondent: Cahill Family Lawyers ORDERS
MLC 14204 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR LOUPE
Applicant
AND: MS ERWIN
Respondent
ORDER MADE BY:
MCNAB J
DATE OF ORDER:
12 DECEMBER 2023
THE COURT ORDERS THAT:
1.The applicant, Mr Loupe, pay the respondent's costs of and incidental to this application filed on 8 December 2023 fixed in the sum of $9,400.
2.The Application in a Proceeding filed on 8 December 2023 and the Response to an Application in a Proceeding filed on 11 December 2023 be dismissed.
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 the pseudonym Erwin & Loupe has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
EX TEMPOREMcNab J
I have before me an Application in a Proceeding filed on 8 December 2023. By that application the de facto husband Mr Loupe seeks orders in the following terms:
1.The property situate at and known as [FF Street], [Town HH] by [sic] forthwith removed from the market for sale.
2.The Applicant forthwith and by no later than 10:00am on Wednesday 13 December 2023, remove the caveats lodged over the following properties:
(a) [FF Street], [Town HH];
(b) [1 BD Street], [Suburb BC];
(c) [2 BD Street], [Suburb BC];
(d) [KK Street], [Suburb LL];
(e) [BG Street], [Town HH];
(f) [BL Street], [Suburb BH];
(g) [BM Street], [Suburb BH];
(h) [BN Street], [Suburb BH];
(i) [BJ Street], [Suburb BH]; and
(j) [BK Street], [Suburb BH].
3.Prior to the Applicant removing the caveats, the Respondent is to file an Undertaking that he will not dispose of the following properties:
(a) [FF Street], [Town HH];
(b) [1 BD Street], [Suburb BC];
(c) [2 BD Street], [Suburb BC];
(d) [KK Street], [Suburb LL];
(e) [BG Street], [Town HH];
(f) [BL Street], [Suburb BH];
(g) [BM Street], [Suburb BH];
(h) [BN Street], [Suburb BH];
(i) [BJ Street], [Suburb BH]; and
(j) [BK Street], [Suburb BH].
4.In the event that the Applicant fails, neglects or refuses to comply strictly with Order 2 herein, [Ms BT] of [RR5 Pty Ltd] be authorised to do all things necessary to complete Withdrawal of Caveats in respect of the real properties and do all things necessary to complete Withdrawal of Caveats.
5. The costs of the Withdrawal of the Caveats be reserved.
The applicant in this application, Mr Loupe, relies upon an affidavit filed on 8 December 2023. By that affidavit he states at [8], and following, that in mid-2023 he entered into a contract of sale to purchase a property at UU Street Town VV (“the Town VV property”); and that he entered into a contract to buy the Town VV property through the purchasing entity PP2 Pty Ltd for $4,600,000. PP2 Pty Ltd is a company of which Mr Loupe is the sole director and shareholder and settlor of the trust associated with the company. He says he paid a deposit of 5% and that he borrowed these funds from Ms GG who is a solicitor who conducts a legal practice “RR5 Pty Ltd” which Mr Loupe has a financial interest in. The Town VV property is scheduled to settle in late 2023.
Mr Loupe states at [9] of his affidavit that in mid-2023 he paid $252,000 to the stamp duties for this property. He then sets out at [10] of his affidavit the terms of the purchase of the Town VV property, which includes that the parties agreed to a 10% deposit, however the vendor has agreed to accept a 5% deposit and exchange the balance either at settlement or, should he breach the contract, he:
… will forfeit the 5% deposit in the amount of $230,000, the stamp duties paid in the amount of $252,000 and be required to pay the additional 5% of the deposit in the amount of $230,000. This is a quantifiable loss to me of $712,000.[1]
[1]Mr Loupe’s affidavit filed 8 December 2023 at [11].
There is a real issue as to whether $712,000 is a correct calculation because it is said by the respondent de facto wife that, in the event the purchase does not proceed, the $230,000 of stamp duty which has been pre-paid will be repayable to the applicant.
In his affidavit the de facto husband states at [12] – [13]:
12.The property is currently ran [sic] as an accredited [holiday accommodation] property known as “[BU Property]”. [BU Property] can be rented out for $1,600 per night for the property.
13.I have forecast that this property will generate an income of around $300,000 per annum or more. I intend to reside at this property as my primary place of residence and operate it as [a holiday accommodation place].
Subject to objection from counsel for the mother, the father relies on a letter dated 12 December 2023 from Mr BV, a director of BW Property.[2] Mr BV stated in that letter:
[UU Street, Town VV]
[BU Property – PP2 Pty Ltd]
This property has operated as a successful Bed and Breakfast. Prior to that it was [accommodation] and it was also a thriving restaurant.
It still holds the approval to operate as an [sic] Bed and Breakfast and it also has current DA approval for a restaurant which holds huge value to the property.
The earning potential for the property is unlimited as it is able to operate for 365 days a year as a whole retreat […] or as individual rooms which is in very high demand and profitable.
Due to the 60 day ruling which will come into affect [sic] in [Town VV] next year the property is exempt from this and it can achieve its maximum earning capacity. Unlike most properties in [Region BY] which will be affected by the new ruling.
[2]Exhibit A3.
The letter was objected to by counsel for the mother: as hearsay, that Mr BV’s evidence was not before the Court in affidavit and that he was not available for cross-examination. In any event, the information provided in the letter is somewhat vague as to the net profit that might be achieved as a result of using this property as holiday accommodation, particularly if Mr Loupe intends to reside at the property and use it as his private place of residence. In any case, there has been no proper forecasting or modelling as to how that business would operate.
There is not sufficient information before the Court to determine whether this is going to be a sustainable venture, given the cost of the property of $4.6 million. Mr Loupe says that he has been approved for finance through BX Company in the amount of $2.775 million, less establishment fees and facility costs to fund the balance of the purchase, and he has attached to his affidavit at ML-03 a copy of a letter of approval for finance from BX Company, which is dated 7 December 2023.
The difficulty that the Court has is that there is not sufficient information before it to establish Mr Loupe has the capacity to fund the borrowings or how the purchase of the property is going to be achieved through those borrowings. He tells the Court that the loan from BX Company is securitised against the following properties:
·KK Street, Suburb LL, Victoria;
·1 BD Street, Suburb BC, Victoria;
·2 BD Street, Suburb BC, Victoria and;
·FF Street, Town HH, Victoria.
Each of those properties are subject to mortgages and, notwithstanding what his counsel said before the Court that the properties were unencumbered, Mr Loupe’s affidavit shows that there are liabilities attaching to those properties in the sum of $1,464,368.[3] Mr Loupe also relies on an email from Mr BZ from BX Company dated 11 December 2023.[4] That correspondence says, relevantly:
Thanks for your call and questions regarding the Letters of Approval provided to you.
I note we have provided you letters of approval for you to assist in ongoing financing facilities especially noting that some of these facilities have expired terms.
We have instructed a number of valuations and these are instructed for “First Mortgage” purposes.
Whilst these valuations have been instructed and reports received we have not been in a position to move forward with these facilities as there are caveats on the securities. These caveats prevent us from completing the [sic] any proposed refinance, as our 1st mortgage would not have priority.
[3]Mr Loupe’s affidavit filed 8 December 2023 at [16].
[4]Exhibit A1.
It is plain from the correspondence that the intention of that lender is to have a first mortgage on the properties, which would mean that the existing mortgage facilities on the properties would have to be paid out. On the figures provided by the de facto husband, from the borrowed funds of $2.775 million, on his figures, about $1.5 million of those funds would have to be directed to pay out the existing mortgages.
The de facto wife has filed a response where, amongst other things, she seeks the sale of the properties and for the monies to be held in trust, pending the resolution of the matter at final hearing. That application is not pressed today, but she opposes the orders that are being sought by Mr Loupe. The de facto wife, in her material, notes that this application was previously before the Court in Mr Loupe's Response to an Application in a Proceeding filed 14 July 2023, when he sought the removal of the caveats, and that response was struck out by orders made on 25 August 2023. The Court allowed this application to proceed as, at the hearing on 25 August 2023, Mr Loupe was self-represented and was not coherent. The Court allowed the application to proceed as it considered that with Mr Loupe represented, he may be better able to articulate a basis for the orders sought by him.
At [6.8] of her affidavit of 11 December 2023, the de facto wife recites the transactions which are referred to by Mr Loupe, and she notes:
… The [Town VV] property was purchased without any consultation whatsoever with me. It is alarming to me that [Mr Loupe] has entered into a contract to purchase the [Town VV] property, with full knowledge that I have registered Caveats on the Title to all remaining properties, as detailed in [Mr Loupe’s] Affidavit, and my own Affidavits filed before this Honourable Court. [Mr Loupe] is telling this Honourable Court that he has finance sufficient to discharge mortgages on our properties and to fund the purchase price. As is detailed later in this, my Affidavit, [Mr Loupe’s] calculations do not add up. On the figures provided, [Mr Loupe] does not have sufficient funds to discharge outstanding mortgages and to complete the purchases of the [Town VV] property. …
The de facto wife then refers to [11] and [12] of her affidavit where she sets out various deductions which would need to come out of the loan which include an amount to cover 12 months’ interest. This interest is outlined in the de facto husband’s affidavit which sets out the terms of the loan agreement, which is annexed at ML-03. The document provides:
The plain reading of that is that, at settlement, the financier will retain 12 months’ interest at the rate of 10.25% per annum, which is a figure of $284,437. The de facto wife further outlines at [11] of her affidavit costs for: an application fee of $12,835, an establishment fee of $61,050 and a loan management fee of $2,775. Then, using the figures which are referred to in the de facto husband's material to pay out the existing mortgages, as would be required in order for the financier to lodge first mortgages on these properties, the surplus funds available to purchase the $4.6 million property is $659,535.
It is not explained in any material before the Court how Mr Loupe is going to pay the establishment fees or the upfront interest payments, or how he will pay out the existing securities and then obtain funds to meet the purchase price of the property.
Mr Loupe also sought orders in relation to a property at BB Street Town HH and says that he has obtained approval for finance in a letter from BX Company dated late 2023 to pay out the existing loan facilities. The relevant document is at ML-05 of the affidavit of Mr Loupe filed on 8 December 2023. The loan facility amount is $1.575 million less establishment fees and facility costs; and the interest rate of 10.25% per annum applies, with six months’ interest retained at settlement.
In relation to that loan, again, at [11] of her affidavit, the de facto wife sets out the calculations which show the loan amount of $1.575 million, the six months of interest which is deducted initially at the rate of 10.25% per annum being in the sum of $80,718, an application fee of $6,750, an establishment fee of $34,650 and a loan management fee of $1,575. Again, this is a mortgage which the financier has said would be secured by a first mortgage, which means the existing mortgage would need to be paid out and that is in the sum of $1,257,626, leaving surplus funds to be directed towards the purchase of the Town VV property in the sum of $193,681. Adopting those figures, the wife says that there remains a total shortfall to complete the Town VV purchase in the sum of $3,516,784, and there is no proper explanation as to where those funds would come from.
Counsel for Mr Loupe claimed that he could simply raise $1.6 million from the equity in the properties. When it was raised that there were mortgages on these existing properties, counsel for Mr Loupe suggested, in fact, there were no such securities, notwithstanding that his client's own affidavit material referred to the securities on the properties. There has been no credible, sensible explanation as to how the purchase of this Town VV property can be achieved. Just in relation to the material put forward by the de facto husband, it is evident this purchase would place the assets - which are presently the subject of the caveats – at significant risk.
Those considerable risks are certainly not met by the undertaking which has been proffered to the Court by Mr Loupe. He has undertaken that following the removal of the caveats to allow the purchase of the property at Town VV and to refinance the loan over BG Street, Town HH:
1.I will deposit the amount of $200,000 into Cahill Lawyers Trust Account in satisfaction of Order 5 of the Orders dated 25 August 2023, within 28 days from the date of the lifting of the caveats, and:
2.I will not dispose of the forementioned properties (including the [Town VV] property) and the properties will only be used as security for the purchase of the [Town VV] property and refinance of [BG Street].
That undertaking does not protect the de facto wife because there is no limitation on the extent to which those properties can be encumbered by further borrowings without the properties, in fact, being sold. Clearly, on the figures that are before the Court, Mr Loupe will need to raise more funds than he presently has available through this particular financier to fund the purchase of the Town VV property. It is more than likely that those properties will have to be further encumbered, thereby reducing the de facto wife's equity in the properties, and undermining her financial position.
The further area of concern is the fact that the Court has become aware of a loan agreement between Ms GG and Mr Loupe, which is said to secure an advance of $630,000, which was advanced between 30 November 2022 and 1 July 2023 by Ms GG to Mr Loupe. By Clause 5.7 of that loan agreement:
Caveat
5.7 The Borrower acknowledges that the security interests under this clause 5 grant to the Lender an equitable interest in the Secured Property and the Borrower hereby consents to the Lender lodging, and authorises the lender to lodge, at any time, a caveat against any real property comprised in the Secured Property in the appropriate land titles register in any State or Territory of Australia. For the avoidance of doubt, this includes but is not limited to the following properties:
(a) [1 BD Street], [Suburb BC], Victoria;
(b) [2 BD Street], [Suburb BC]; Victoria;
(c) [KK Street], [Suburb LL], Victoria;
(d) [FF Street], [Town HH], Victoria; and
(e) [BG Street], [Town HH]; Victoria.[5]
[5]Exhibit R1.
All of these properties are said to secure the borrowings from BX Company. Mr Loupe has, effectively, further exposed the properties to being the subject of caveat from a lender, which is also likely to further diminish the de facto wife's interest in the properties.
CONCLUSION
In these circumstances, the Court is not satisfied that the undertaking proffered by Mr Loupe will protect the assets which are the subject of the caveats. The Court is not satisfied that the lifting of the caveats will not lead to a diminution of the value of the assets. It is more likely than not that by lifting the caveats, the de facto wife would be subjected to significant detriment and there is no evidence before the Court that that could be satisfied from the assets that are held by Mr Loupe.
For those reasons, the application is dismissed.
COSTS
The respondent de facto wife made an application for costs in relation to this application making reference to s 1172A(e). In circumstances where there has been no submission made against the application for costs, either by reference to section 1172A(e) of the Family Law Act 1975 (Cth) as to whether a costs order should follow or as to quantum, I make an order that the applicant, Mr Loupe, pay the respondent's costs of and incidental to this application filed on 8 December 2023. I will fix those costs in the sum of $9,400.
Otherwise, I will make an order that the Application in a Proceeding filed on 8 December 2023 and the Response to an Application in a Proceeding filed on 11 December 2023 be dismissed.
I certify that the preceding 27 (twenty-seven) numbered paragraphs is a true copy of the Reasons for Ex Tempore Judgment of the Honourable Justice McNab.
Associate:
Dated: 20 December 2023
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