Falls and Falls and Ors (No 2)

[2010] FamCA 377

FAMILY COURT OF AUSTRALIA

FALLS & FALLS AND ORS (NO. 2) [2010] FamCA 377

FAMILY LAW – PROPERTY – Interim

Family Law Act 1975 (Cth)

APPLICANT: Mr Falls

FIRST RESPONDENT: Ms Falls

SECOND RESPONDENT: Mr Pattow

THIRD RESPONDENT: Mr Cordas

FILE NUMBER: MLC  6406 of 2009

DATE DELIVERED: 21 April 2010

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 21 April 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Stewart

SOLICITOR FOR THE APPLICANT: Kennedy Wisewoulds

COUNSEL FOR THE RESPONDENTS: Mr Indovino

SOLICITOR FOR THE RESPONDENTS: Hayes & Associates

Orders

1. That each of the four parties to the proceedings do all acts and things and sign any necessary document to place the real property at B on the market for sale.

2. That the sale of the B property be on terms to be agreed and failing agreement by 4 pm on 7 May 2010, all and any of the parties have leave to seek to have the matter listed by application in a case in the judicial duty list as soon as practicable thereafter and such application shall set out the precise orders to be sought including the details of the selling agent, conveyancing practitioner, expenses of the sale and conditions of the sale.

3. That upon the settlement of the sale of the B property, the proceeds be applied as follows:

   (a)first, the pay the costs, commissions and expenses of the sale;

   (b)secondly, to discharge the mortgage or mortgages encumbering the B property; and

   (c)thirdly, to place the remaining funds in an interest bearing account in the names of all parties jointly until further order or agreement.

4. That all parties have leave to seek orders on an interim basis in the judicial duty list by application to distribute the proceeds in the said trust account.

5. That save as to issues of costs, all interim applications be otherwise dismissed.

6. That all proceedings await a day before a registrar for directions for trial on a date to be fixed.

7. That any party seeking any orders for costs may do so by filing and serving no later than 4 pm on 7 May 2010 written submissions and any reply thereto be filed and served by no later than 4 pm on 21 May 2010 and any such determination be made on the submissions by me in chambers.

IT IS CERTIFIED:

1. That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend.

IT IS NOTED that publication of this judgment under the pseudonym Falls & Falls and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 6406 of 2009

MR FALLS

Applicant

And

MS FALLS

First Respondent

And

MR PATTOW

Second Respondent

And

MR CORDAS

Third Respondent

REASONS FOR JUDGMENT  

1. Yesterday in the judicial duty list, I heard submissions from both counsel in this matter and adjourned the proceedings overnight to consider the outcome.  I propose to order a sale of the real property at B, and to make procedural orders for the money from the sale to be retained pending further order of the court.  This case is complex, not because of the involvement of third parties so much, but because of the way the litigation has been conducted.  Even during the argument, which in many ways was a discussion and extremely competently undertaken, the parties' respective positions varied significantly.

2. In the end I had each party put their positions and these are my rulings. 

3. This is not the first time this case has been before me.  On 2 March 2010, it was in my judicial duty list, and, on that day, the wife and the second and third respondents were represented by their solicitor.  The husband was represented by Ms Stewart of counsel, and she sought by application that a property at B be sold. The respondents’ position was to oppose that, but also to seek an adjournment because they wanted to put a specific position before the court.  The adjournment was opposed by the husband but granted by me on the basis that his costs were to be paid.

4. Upon the matter returning to the court before me the respondents were represented by Mr Indovino of counsel.  During the course of discussion, Mr Indovino had to concede that his client's case had difficulties largely associated with jurisdictional and factual matters. 

5. The parties to these proceedings are the husband, the wife, the wife's son from a former relationship and the son's partner.  Apart from the connection of the parties by virtue of the marriage of the husband and the wife, they are connected because when the B property was purchased, the Certificate of Title was structured so that each of the four had a legal interest as to one quarter as a tenet in common with the others.

6. The sequence of events relating to the purchase of the B property - and the sequence of events relating to the litigation - have a significant bearing on the problem.  I propose only to deal with the issues relevant to the immediate determination. 

7. The husband and wife began living together in 2002, married in 2004, and separated in 2009.  They are aged 64 and 57 years respectively.  The second respondent is the son of the wife.  His partner is the third respondent. 

8. B property was purchased in 2007 for $880,000.  According to the husband, it was purchased in the parties' four names;  that seems common ground.  The funding of B property does not seem contentious, although just what encumbrance affects the Certificate of Title I am unable to say.  The husband contributed the 20 per cent deposit.  Immediately B property was purchased it was agreed that an extension would be built on it and an allowance of $100,000 was made for that cost.  According to the husband, he contributed 20 per cent deposit, all of the bank fees, charges and duties, and almost $78,000 for the extension.

9. The husband and wife borrowed $193,500 by way of mortgage.  The total amount of the interest of the second and third respondents came from borrowings that they obtained.  They borrowed in excess of the one half of the purchase price because of the impending extension costs.  There was an unresolved dispute between all parties before me about whether there was one mortgage or two encumbering B property.  It seemed common ground that there were two loans, and the husband and the wife were responsible for their loan and the second and third respondents for theirs.

10. There was also a property of the husband and wife at E which was shortly sold after the purchase of the B property, and $91,000 of its proceeds went into the extension at B.  The contribution issues associated with the E property do not affect my decision here. 

11. What is clear to this point is that although the certificate of title showed an equality of ownership, the equity in B property was significantly different.  The Certificate of Title remains reflective of the interests of the parties, but the second and third respondents have now made a claim, through their affidavit, that the interests of the husband and the wife – or some of that interest – is held for them on a resulting, constructive or express trust.  The details of those possible trusts remain a mystery.

12. The substantive proceedings began on 22 July 2009 when the husband filed an initiating application in the Federal Magistrate's Court.  Even that was not simple because: (a) the cover sheet shows just the names of the husband and the wife; but (b), the details of the respondents names the wife and Mr Pattow, who is the wife's son; and (c), the final orders sought included orders that the wife do things to get Mr Pattow and his partner - who was not named as a respondent - to effectively extricate the husband from the liabilities associated with B properties; and (d) the final orders sought also included an order that Mr Pattow pay the husband 50 per cent of the value of … – by which I thought they meant MT business. 

13. Two observations need to be made about the application of the husband: first, the Family Law Rules 2004 do not set out where in or on the initiating application, the respondents are to be named. But one might logically presume that it is more than just on the cover sheet. Secondly, rule 6.02 requires the inclusion of a person as a party if that person has rights which may be directly affected by an issue in the case.

14. Where a person is so joined, there is an obligation to ensure that if orders are sought against them, the court's jurisdiction may be enlivened.  In B Pty Ltd and Ors & K and Anor (2008) FamCAFC 113, the Full Court said:

    We do not accept that it is proper to allow joinder of third parties merely upon the formulation of a paragraph in, or to be added to, an application, on the basis that at trial facts to support the application may be asserted and proved.  Sufficient facts must be asserted to demonstrate that, if proved, the law arguably provides the relief sought.

15. It would be hard to see how the husband's initial affidavit satisfied that test.  Importantly, however, in respect of B property, the husband had set out his contribution to the acquisition. 

16. The wife filed an affidavit in reply to the husband and did not take issue with his overall synopsis of the facts. 

17. On 26 August 2009 – presumably at the request of the parties, but certainly with their consent – the matter was transferred to this court by Connolly FM. 

18. On 17 September 2009, the matter was listed before Registrar Riddiford, but he adjourned it to Senior Registrar FitzGibbon to “determine whether it was ready for an interim hearing before a judge”.

19. On 19 November 2009, the matter came before the Senior Registrar.  He adjourned it to the judicial duty list on 2 March 2010.  It is clear from the published reasons that there was a party absent and documents had not been filed as required by orders.  Despite that, the matter was still sent on to the judicial duty list, albeit for hearing some months later. 

20. It must have been obvious at that stage that these were third party proceedings with some degree of complexity. Alternatively, the second and third respondents had been joined because they had a legal interest in B property and they may have been affected by orders as between the husband and wife.

21. The husband changed practitioners in October 2009 and filed an amended application. Simply and sensibly, the husband sought a division of property under s 79 of the Family Law Act 1975 (Cth) (“the Act”). That must be read as a request for a division as between husband and wife. However, he also sought interim orders including orders of a procedural nature against the second and third respondents.

22. On 17 November 2009, the wife filed a response to the husband's application.  She simply sought undefined property division orders on a final basis.  She also sought a dismissal of the husband's application for interim orders. 

23. The second and third respondents filed responses in December 2009.  They did not take issue with being joined, nor as to the court's jurisdiction.  Perhaps surprisingly, having regard to the interim orders sought by the wife only weeks before, they sought final and interim orders that B property be sold and that the proceeds be divided according to the certificate of title. 

24. When one reads the financial statements of the second and third respondents it is not hard to imagine why they wanted the property sold.  Their respective incomes fell far short of their weekly expenses and they had limited assets.

25. To an objective bystander to this point, the case was largely uncontroversial. 

26. A case assessment conference occurred in February 2010.  The matter did not resolve and it was then placed in the list awaiting a hearing before me. 

27. On 2 March 2010, the husband sought an order that B property be sold, consistently with what the second and third respondents had sought, although contrary to the position of the wife.  The solicitor for the wife and the other two respondents then sought the adjournment to which I earlier referred. 

28. Some concern was expressed by counsel for the husband at the first hearing before me about there being a potential conflict of interest with all of the respondents being so represented, but the solicitor took all of that “on board”.  The two reasons why it was sought to adjourn the proceedings were that:

    a)The second and third respondents wanted to keep B property.

    b)The wife wanted to call evidence of her medical condition such that the property should not be sold on an interim basis. 

29. I expressed concern about the fact that the proceedings were adjourned in November to enable issues such as that to be prepared.  The wife's position was that that was that the case had taken a different turn, because on 19 February, the husband filed his amending application seeking different orders to that which had previously been put before the court.  That, however, belied what was really the responsibility of the third parties to undertake.  Be that as it may, I found at the time that it was always a contentious issue as to what was to happen to B property and there was nothing new in the husband's application such that it would require an enormous amount of work by the respondents.  Despite that, I granted the adjournment.

30. On 9 April 2010, albeit late, the second and third respondents, along with the wife, filed amended responses.  Unfortunately what ended up on the file were three copies of the amended response of the wife.  That was unhelpful but at least the husband's counsel had a copy of the intended filing.  The wife annexed letters from medical practitioners to her affidavit and although counsel for the husband objected to their admissibility, this was an interim hearing.  Unfortunately the evidence did not tell me much other than the wife was unlikely to work in the future, although it seems she was receiving an income which was workers compensation related, and her health would most likely improve with the conclusion of the stressors associated with these proceedings.

31. What the wife otherwise said was that there was a possibility that with the assistance of the second and third respondent she could buy out the husband.  The other matters in her affidavit did little to assist me, having regard to the nature of the application of the second and third respondents. 

32. The second and third respondents sought to say that there was a “realistic prospect” that the husband could be bought out.  It was the second and third respondents' case that they were making a claim for either the whole of the interest of the husband and wife, or some portion of it, pursuant to a trust.

33. The details of how that might have arisen were not stated.  No suggestion was made as to how the court could have the jurisdiction to make the orders.  No indication was given as to why the position had altered from the earlier proposed orders in which no suggestion was made about a departure from the legal interests. 

34. The affidavit material of the second respondent claimed that he had done work on the extensions for a wage pursuant to an agreement with the other three parties.

35. It was not apparent from his affidavit that that was unpaid and outstanding.  If a contract could be proved, presumably it would have been with the wife and the other respondent.  That looked remarkably like a conflict of interest for the solicitor.  Mr Indovino valiantly put the position, but conceded that there really had to be an adjournment.  I said that having regard to the position previously adopted in March, I would need to be satisfied that there was evidence that could be called and a statement of claim or similar claim raised.  Mr Indovino sought the lunch break to consider that position.

36. After lunch, Mr Indovino changed tack and said that if the entitlement of the second and third respondents was paid out to them from the sale of B property, he would consent to the sale.  The husband would not agree.  That gave rise to argument about whether the husband had any cause of action against the second and third respondents.  Mr Indovino submitted quite properly that without a claim within jurisdiction against the second and third respondents there was no power for the court to order a retention of the interest in cash that the second and third respondents might then have been entitled to.

37. He said that his clients were going to issue civil proceedings in another court relating to unpaid moneys.  He was referring to the wage issue.  The details were very unclear, and just against whom such a proceeding could be brought I could not decipher. 

38. Counsel for the husband asked me to make anti-suit injunctions against the potential claimant, but having regard to the fact that I do not know who would be the complainant, and against whom the action could be brought, let alone the quantum, such an injunction could not be sustained as being proper within s 114 of the Act.

39. In the end I am left with the application of the husband seeking a sale of B property and for the proceeds to be held in trust pending further order.  It is to be noted that the husband originally sought orders that from the sale proceeds of B property he be paid a sum of $100,000.  That application was abandoned by counsel for the husband at the commencement of the hearing. 

40. The response of the respondents in writing was significantly different from that argued by their counsel.  I presume that albeit Mr Indovino's offer to sell was conditional upon the dispersal of the proceeds, he had no further evidence to present that would have ameliorated my express concerns that even if there was opposition to the sale, the respondents could show a capacity to buy out the husband.  There was no indication of how they could do that.

41. If the second and third respondents had a claim in equity, its extent was unquantified. 

42. Initially I interpreted the written claim as meaning a transfer of the whole of the property interests of the husband and the wife, but Mr Indovino said that the court had to determine – and the respondents were expecting to have to pay to the husband, and presumably the wife – some amount of money. 

43. Depending upon whether the interest was, as I initially thought, or otherwise, I could not make an order for the sale of a property in which the husband had no legal or equitable interest.

44. Ultimately the application of the husband was for a sale.  There was, in my view, no basis for that sale not to proceed.  It is clear that the property has an agreed market value.  It is clear the parties understand what the net proceeds will be after the mortgagee is paid out.  Whilst the wife wanted to live there for the sake of her health, I could not on the evidence determine whether she could now at any time be, in the future, able to buy out the husband's interest, bearing in mind his evidence of significant financial contributions which were not really challenged by her.

45. The husband's position was that the wife and the other respondents were simply delaying things and the sale of the property would move things forward.  I agree. 

46. The distribution of the proceeds is a matter of some concern, however, because of the potential claims of the second and third respondents.  I see no prejudice to them in ordering the proceeds being held, but with a right for them to seek a distribution of some or all of the trust moneys once their positions are clear. 

47. The power to order a sale lies in s 114 of the Act. It is both an injunctive and protective power. It is that power that I am exercising.

48. Section 114 should only be used in circumstances where the court is satisfied that it is proper to make the orders involved. I am satisfied that having regard to what I have just set out there is no clear direction of this litigation and the husband has a right to have it brought to an end quickly if possible. If the lack of real evidence and proposal of the respondents means that they have no basis to stand in the way of a sale, it is proper to make the orders to protect the interests of all parties. No party is prejudiced as a result of the order, and I say that having regard to the discussions held with both counsel and the various proposals made in open court which indicated what was merely in dispute between the parties.

1. Insofar as the retention of the money is disputed, there is power in both s 114 and s 90AF to make orders of an injunctive nature. Section 90AF requires the court to contemplate the taxation and social security effects of the orders as well as the rights of the third parties. The second and third respondents have clearly been heard on the issue of the sale. I have not taken steps to their prejudice in this case because the order simply puts in place a process by which the asset is crystallised and they can seek to put proper material before the court to seek a distribution if they are so advised.

2. There are no taxation implications - as I see them - nor has anybody suggested that there are social security aspects that may arise from these orders.  Accordingly I will make the orders in the terms that I have indicated.  I will also provide for the parties to make written applications for costs if they so desire, and I will certify for the attendance of counsel. 

I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin.

Associate: 

Date:  18 May 2010