Faust and Faust and Ors

[2014] FamCA 787

FAMILY COURT OF AUSTRALIA

FAUST & FAUST AND ORS [2014] FamCA 787

FAMILY LAW – PROPERTY – Interim property settlement – Consideration of the two-step approach in respect of interim property applications – Court satisfied just and equitable to make an order – Injunctions – No real risk of disposal of assets – Financial disclosure – Family companies

Family Law Act 1975 (Cth) ss 34, 74, 75, 79, 80, 114, 117

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380

Glover v Walters (1950) CLR 172 [at 175-6]
Harris & Harris (1993) FLC 92-378
In the Marriage of BA and RS Waugh (1999) 27 FamLR 63
Jackson v Sterling Industries (1987) 162 CLR 612; 71 ALR 457
M & DB [2006] FamCA 1380
Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578

Poletti & Poletti (Unreported, Family Court of Australia, Nygh J, 2 March 1990)

Strahan & Strahan [2009] FamCAFC 166
Wilson & Wilson (1989) FLC 92-033
Zschokke & Zschokke (1996) FLC 92-693

APPLICANT: Ms L Faust

FIRST RESPONDENT: Mr A Faust

SECOND RESPONDENT: Mr D Faust

THIRD RESPONDENT: Ms N Faust

FILE NUMBER: SYC 4939 of 2014

DATE DELIVERED: 12 September 2014

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Hannam J

HEARING DATE: 8 September 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Clifford

SOLICITOR FOR THE APPLICANT: Watts McCray Lawyers

COUNSEL FOR THE FIRST RESPONDENT: Mr Schonell

SOLICITOR FOR THE FIRST RESPONDENT: Karras Partners Lawyers

SOLICITOR FOR THE SECOND RESPONDENT: Ms Meredith of Gayle Meredith & Associates

SOLICITOR FOR THE THIRD RESPONDENT: Ms Meredith of Gayle Meredith & Associates

Orders

1. Pending further order, upon settlement of the sale of the property situated at and known as … I Street, Suburb B, NSW 2… (“Suburb B property”), the Respondent husband shall do all acts and things necessary to distribute the proceeds of sale of the Suburb B property as follows and in that priority:

   1.1In payment of agent’s commission and advertising expenses and legal expenses of the sale;

   1.2Discharge of mortgage secured by the Australia and New Zealand Banking Group on the title of the Suburb B property, mortgage number …83;

   1.3In payment of $400,000.00 to the Applicant wife;

   1.4In payment of $100,000.00 to the Respondent husband;

   1.5Any balance then remaining to the Applicant wife.

2. The determination as to whether the payments of the sums referred to in Orders 1.3, 1.4 and 1.5 herein are to be treated as part of the wife’s and/or the husband’s entitlement to property settlement, the provision of maintenance for the wife, and/or in payment by the costs by one party to the other, be adjourned to the final hearing of these proceedings.

3. The application for interim orders 12 to 17 in the wife’s Initiating Application, as amended by application for interim orders 3 to 8 in her undated Case Outline prepared for these proceedings is dismissed.

4. Order 9 of Exhibit “A” to the Orders of 18 August 2014 is varied so that a further 28 days from the date of these orders is allowed to the Respondent husband to provide all outstanding financial disclosure to the wife in accordance with that order.

5. The wife’s application for costs is adjourned to the final hearing in these proceedings.

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

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 4939 of 2014

Ms L Faust

Applicant

And

Mr A Faust

First Respondent

And

Mr D Faust

Second Respondent

And

Ms N Faust

Third Respondent

REASONS FOR JUDGMENT

Introduction

1. The Applicant wife seeks that the Court make interim orders that fall within three categories. She is involved in property proceedings following the end of a long marriage in which there were complex and intertwined property arrangements between herself, her husband and the husband’s parents.

2. The Respondent husband opposes the orders sought by the Applicant and proposes some interim property orders himself.  The husband’s parents oppose the orders sought by the wife, but do not propose alternative orders.

3. Being an interim application, the matter is determined on the basis of the uncontested facts.

Background

1. The parties met in the United States of America in 1979.  The wife was born in 1958 in the United States and is currently 56.  The husband was born in Europe in 1950 and is currently 64.

2. The husband and his parents emigrated from Europe to Australia in 1957.  The husband’s father who is 93 is the Second Respondent and his mother who is 89, suffers from dementia and resides in a nursing home.  She is the Third Respondent. 

3. Prior to the husband moving to the United States a number of companies were registered in New South Wales associated with the husband and his parents.  Details of the companies are set out in the following table:

Name of Company	Date of incorporation	Directors	Shareholders
E Pty Limited	20 March 1969	Husband   )  From Wife        ) 1997 Husband’s parents	Husband – 2 Husband’s father – 2 Husband’s mother - 2
Faust Pty Limited	9 June 1971	Husband   )  From Wife        ) 1997 Husband’s parents	All held by husband’s parents
C Pty Limited	26 April 1974	Husband   )  From Wife        ) 1997 Husband’s parents	Husband – 1 Husband’s mother 1 Faust Pty Ltd – 18
F Pty Limited	31 August 1977	Husband – From 1997 Husband’s parents	Husband – 2 Husband’s father – 2 G Pty Limited – 9

1. The parties purchased a property together in the United States and married there in 1980.

2. The parties bought and sold several properties in the United States when they lived there. These purchases were largely funded by the husband’s father and upon their sale the proceeds were used to either purchase another property or to repay the husband’s father.

3. In 1987 the husband and his parents purchased a house at I Street, Suburb B (“the Suburb B property”).  It was intended that this property would be the husband and wife’s family home when they returned to Sydney to live.  The husband’s parents and the husband are registered as joint tenants.

4. In 1990, the parties’ only child H was born in the United States where he is currently working.  H is 24.

5. In around 1990 to 1991 a new house was built on the Suburb B property site and the husband’s father paid around $2,000,000.00 for the construction costs.

6. When living in the United States the husband practised as a healthcare professional. 

7. In 1996, the husband and wife moved back to Sydney and in 1997 moved into the Suburb B property as their family home.  After their return to Australia the husband worked in an art filed and as a part-time healthcare professional.

8. During their time in the United States the husband and wife had accumulated superannuation entitlements which they withdrew from a superannuation account in the United States and brought with them to Australia.  There is a dispute concerning this sum with the wife asserting that it was approximately USD $1,000,000.00 (made up of USD $400,000.00 from her account and USD $600,000.00 from the husband’s account) and the husband asserting they brought USD $700,000.00, which was AUS $1,000,000.00.  There is no dispute that the money was deposited in a bank account held in the parties’ joint names, known as the Retirement Account.

9. In 1997, the husband and wife became directors of a number of the family companies referred to in the table in paragraph 6.

10. In about June 1997, a property at J Street, Suburb K (“J Street”) was purchased through the company, C Pty Limited.  This was funded to some extent by funds from the husband and wife’s Retirement Account which was lent to C Pty Ltd.  The financial accounts of C Pty Ltd as at 30 June 2013 show a debt to the parties is still current.

11. In around 2000, a property at M Street, Suburb O (“M Street”) was purchased through the company Faust Pty Limited.

12. Various other properties were purchased by Faust Pty Ltd, C Pty Ltd and F Pty Ltd over the years from the respective dates of incorporation.

13. In around 2003 to 2004, significant renovations were carried out on the Suburb B property and M Street was redeveloped.  Around $600,000.00 was borrowed for the Suburb B renovations and $1,400,000.00 appears to have been borrowed for the M Street renovations.  A loan of $2,000,000.00 for both renovations was obtained by Faust Pty Ltd through the husband as director using the Suburb B property as collateral security.  The way in which this loan was treated in the accounts of Faust Pty Ltd is unclear, though currently no loan recorded in the accounts.

14. In about 2001, the husband relinquished his registration as a healthcare professional. 

15. Between 2005 and 2012 the husband studied in Profession P and qualified in Profession P.  In December 2006, the husband registered a company, Q Pty Limited in which the parties are shareholders and directors.  This company relates to the husband’s Profession P practice.

16. Between 1996 and 2012, the father’s father provided the parties with considerable financial support including thousands of dollars per month for household expenses, payments for various holidays including overseas travel, $150.00 spending money in cash each week to H and payment of his private school fees, payment of further education for the wife and the purchase of numerous motor vehicles.  During this time the wife provided some administrative assistance to the husband and his father and says that she assisted her parents-in-law personally, though I understand that the extent of this assistance is in dispute. 

17. In about 2012 there was a breakdown in the relationship between the wife and her father-in-law, the wife was removed from all business cheque accounts and the father-in-law ceased providing monthly allowances to her.

18. On 4 July 2012, the wife registered a caveat on the Suburb B home.

19. In about February 2014 the husband and his parents undertook a further draw-down on the loan facility secured by the collateral mortgage over the Suburb B property and the sum of $800,000.00 was used by Faust Pty Ltd for further construction work on M Street.  The loan is not yet reflected in the company accounts though the husband and his father say it will be in due course.

20. The husband’s mother suffers from dementia and in March 2014 she moved permanently into a nursing home. She has not filed any material in this matter and is unable to provide instructions to a lawyer appearing on her behalf.  A case guardian is yet to be appointed.

21. The Suburb B property was sold in 2014 and settlement was due to occur on the day of the interim hearing, 8 September.  The husband and wife agree that around $500,000.00 is expected to be the total available, after the mortgage is paid out.

22. The proceedings commenced with the wife filing an Initiating Application on 13 August 2014.  The application has been first listed for 19 November 2014.  On 18 August 2014 various orders were made including the second category of orders sought in this application which were to expire at 4.00 pm on 8 September.  Those orders continued on an interim basis by consent until the delivery of this judgment.

Interim property orders

1. The first category of orders sought by the wife relate to the payment of a capital sum.

2. In particular, the wife seeks the payment of $400,000.00 and any balance (after the husband is paid $100,000.00) from the proceeds of the sale of the Suburb B property which was completed on 8 September 2014.  The husband seeks that the proceeds of this sale be shared between the parties equally.  The Second and Third Respondents say that the net proceeds of the sale belong to the husband but they do not seek orders which would have the net proceeds paid to him.

The Law and Discussion

1. It was observed in Paris King Investments Pty Ltd v Rayhill[1] that there are a number of juridical bases for orders of the type sought.  The Full Court in Zschokke & Zschokke[2] had observed that there was some uncertainty as to the source of jurisdiction to make the orders of the type sought but were of the opinion that the decisions in Wilson & Wilson[3] and Poletti & Poletti[4] established that where there are pending proceedings under s 79 of the Act for property settlement, an order for funds for litigation expenses may be made pursuant to s 80(1)(h) or s 117(2).

   [1] [2006] NSWSC 578

   [2] (1996) FLC 92-693

   [3] (1989) FLC 92-033

   [4] (Unreported, Family Court of Australia, Nygh J, 2 March 1990)

2. In Strahan & Strahan[5] at [84] the Full Court said:

   In Paris King Investments Brereton J, with whom on this point we agree, at [30] said that Zschokke “establishes that it is important, when contemplating an order for interim provision for litigation expenses, to identify the relevant source of power because it is the source of power that determines the necessary preconditions and relevant considerations for making the order”.

   The Full Court went on to say at [86]:

   … If the source of jurisdiction is s 117(2) of the Act then the court may make such order as it considers just provided there are justifying circumstances. If the order is sought under s 79 of the Act then the court may make such an order as it considers appropriate provided it is satisfied that it is just and equitable to make the order. …

   [5] [2009] FamCAFC 166

3. This application is based upon s 80(1)(h) utilising s 79 or alternatively s 117 or s 74. It is submitted on behalf of the wife that all of the requirements for each of those sources of jurisdiction are established in this matter, but submissions were mainly directed to s 79/80(1)(h).

A two-step process

1. According to Strahan (supra) where the power is to be exercised pursuant to s 80(1)(h) a two-stage approach is to be taken to the hearing of an application. The Full Court said at [118]:

   … This is recognised by the fact that although the power under s 79 should ordinarily be exercised on a once only basis, “circumstances may arise before there can be a final hearing” where the power is exercised. Thus the first step is to resolve whether to exercise the power before a final hearing and if it is resolved to do so then the second step involves the exercise of that power.

2. So far as the first step is concerned, it is settled in Strahan (supra) that the Applicant is not required to establish that there are compelling circumstances at the time for making an order for interim property settlement.  The test so far as the exercise of the power is concerned is that it be an appropriate case in order to do justice.

3. It is not submitted that this is not an appropriate matter to exercise the power to make an interim property settlement as each of the parties is seeking orders that involve the power being exercised.  Further, it is not in dispute that the order sought (that the wife receive $400,000.00 and any balance) would not result in her receiving “more than [she] would be indubitably entitled to on a final hearing”.[6]  This was observed to be a relevant matter in Strahan (supra) at [136] when the Court said:

   … We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. …

   [6] Strahan (supra) at [136], as identified by the Full Court in Harris & Harris (1993) FLC 92-378.

4. As indicated, each party is seeking that the power be exercised to do justice between the parties and neither seeks that $500,000.00 or so remain in the “asset pool” until the final hearing.

5. On this basis, in my view, it is appropriate for the power to be exercised in order that a just and equitable result may be achieved before the final hearing of the matter.

A two-step process

1. Having determined that the jurisdiction under s 79 should be exercised, I am required to undertake a consideration of the matters in s 79(4), including the s 75(2) matters. However, in Strahan (supra) it was observed at [137] that:

   … consideration of such matters may be brief and if it is established that “it seems likely to the Court that … the applicant … will be likely receive (sic) by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made”. …

2. The wife seeks a final property settlement that would have her receive $4,000,000.00 in addition to part of the proceeds of the sale of the Suburb B property.  It is not in dispute that she made some contribution to the matrimonial assets, especially by way of non-financial contributions.  She also provided a considerable sum from her US superannuation funds. The husband’s orders would see him pay the wife $1,000,000.00 less any sum by way of partial property order, other capital payments or interim costs.  Taking the husband’s case at its highest, the wife’s share of a little less than $1,000,000.00 would still considerably exceed the sum she seeks by way of interim payment.

3. The thrust of submissions on behalf of the husband in relation to the capital payment related to the wife’s application as one under s 117. However, the husband’s counsel then proceeded on the basis that the application is clearly a partial property application under s 79. As noted, the husband himself also seeks orders in relation to the proceeds of the sale of the Suburb B property and approaches the matter himself as a partial property application.

4. So far as the amount sought by the wife is concerned, the husband submits that the wife has not established why a minimum of $400,000.00 is required and submits that if the husband is left with $100,000.00 he is in a parlous situation in relation to the payment of his legal costs and valuation fees.  The wife says that the husband’s own material, particularly his Financial Statement, indicates that he is in a far superior financial position to the wife.  It is also not disputed that the significant generosity of the father’s father which is likely to continue, is a financial resource available to him.

5. I accept the submission on behalf of the wife that this is a typical situation encountered when this discretion is sought to be exercised where one party, being the husband has control over the bulk of the assets of the parties.  Further, there is no evidence to support the submission that if the husband receives $100,000.00 rather than $250,000.00 he will be unable to pay his legal costs.

6. Being satisfied on the undisputed facts that the parties are required to meet ongoing costs associated with their litigation, that a significant cash resource is available to them which they wish to have distributed, that the wife otherwise has very limited resources and that the amount the wife seeks will not exceed the final settlement, in my view it is just and equitable to make these orders sought by the wife.

The injunctions

1. The wife seeks a second category of orders being broad orders in the nature of Mareva injunctions restraining the Respondents from dealing with a number of properties which the wife contends may be matrimonial assets and taking a wide range of actions in their capacity as directors and/or shareholders of various companies associated with the parties.  The Respondents each oppose the making of such orders.

The Law and Discussion

1. Section 114(3) of the Family Law Act 1975 (Cth) (“the Act”) provides that a Court may grant an injunction “in any case in which it appears to the Court to be just or convenient to do so”.

2. The Full Court in In the Marriage of BA and RS Waugh[7] dealt with interlocutory injunctions under this section which had been made by a trial judge restraining the husband from dealing with property, rental income, trusts, business entities or ventures pending the determination of a property settlement between him and his former wife.  In granting leave to appeal and allowing the appeal against these injunctions, the Court set out the principles of law to be applied in such a case.

   [7] (1999) 27 FamLR 63

1. Firstly, it was noted [at 32] that “it is important to bear in mind that the jurisdiction to grant interlocutory injunctions under the Act is a statutory jurisdiction derived from s 114(3) and/or s 34(1) of the Act”. In this regard the Court considered the principles enunciated and explained by the High Court when considering a very similar grant of power to the Federal Court in Jackson v Sterling Industries Ltd[8].  In Waugh extracts from Deane J’s judgment in Jackson include when discussing the purpose of a Mareva injunction the following, [at 37]:

   It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the Court by depriving the plaintiff of the fruits of any judgment obtained in an action.

   [8] (1987) 162 CLR 612; 71 ALR 457

2. It was noted [at 53] in Waugh (supra) that the wife’s affidavit in support of her application in that case had many statements about her fears that the husband would deal with property under his control but there were no assertions that he had, in fact, disposed of anything or incurred any liability other than in the ordinary course of his business operations.

3. Another High Court case dealing with Mareva injunctions referred to in Waugh is Cardile v LED Builders Pty Ltd[9].  In Cardile the plurality referred to the observations of Dixon J in Glover v Walters[10] who referred to a Mareva injunction as a “drastic remedy” and said “its purpose is to preserve the status quo”.  In Cardile Kirby J (concurring with the result reached by the plurality) said “the plaintiff must establish a real risk of assets being disposed of”.

   [9] (1999) 198 CLR 380

   [10] (1950) CLR 172 [at 175-6]

4. It is contended on behalf of the wife that since she has lived in Australia all of the significant matrimonial assets have been under the control of the husband and his parents directly or as shareholders.  It is also the wife’s case that since the relationship between the wife and her father-in-law has broken down, the father-in-law has taken steps preventing her gaining access to funds.

5. The wife concedes that the injunctions sought by her are broad and says that such breadth is warranted.

6. In seeking the injunctions and in justifying their breadth, particular emphasis is placed on transactions relating to the Suburb B property which the wife contends is a matrimonial asset.  This property recently sold for $3.37 million.

7. It is common ground that only about $500,000.00 has been realised from the sale of the Suburb B property.  This is largely because $2,800,000.00 was required to be repaid to the ANZ Bank under a collateral mortgage over the Suburb B property which was in the main given to secure loans to Faust Pty Ltd to fund the redevelopment of M Street.  It is argued that, by virtue of the collateral security for the Faust Pty Ltd loans the net proceeds available to the parties upon sale of the Suburb B property has been significantly reduced.

8. One of these loans (for $1,400,000.00) was facilitated by the husband as a director of Faust Pty Ltd in around 2003.  There is some dispute concerning repayment of this loan to the parties by the husband’s parents.  In any event, this transaction occurred 11 years ago during the currency of the marriage.  A more recent facilitation by the husband of $800,000.00 to this company, secured by the mortgage over the Suburb B property occurred in February 2014, after the parties had separated.  The father and his father say that this loan is expected to be reflected in the 2014 accounts of Faust Pty Ltd.  The wife contends that these two transactions have had the effect of reducing the sums available to satisfy her claim in the property settlement proceedings and thereby establish an objective risk of disposal of assets by the Respondent.

9. There are no other specific transactions relied upon by the wife to support her contention that there is an objective risk that the Respondents will dispose of assets to defeat her property settlement.  Rather, it is submitted that many of the transactions over the years involving the husband, his parents and their companies raise questions about how money has been spent and the precise nature of the parties’ interests, which will need to be resolved by a forensic accountant.  In this context, it is submitted on behalf of the wife that the injunctions are required to preserve the underlying assets of the companies which the wife asserts should form part of the matrimonial assets.  As I understand it, it is disputed by the Respondents that the underlying assets of these companies are matrimonial assets.  In any event, it was submitted on behalf of the husband that a lack of knowledge or the raising of questions about how money has been spent or the exact nature of interests does not amount to an objective risk of disposal of assets.

10. It is submitted by the Respondents that there is no evidence beyond a general assertion of a lack of money of the objective risk of disposition to defeat an order.  Further, the husband says, as was observed by the Full Court in M & DB[11] [at 52]:

    When a Respondent is within the jurisdiction, relevant to the risk of defeat of an ultimate order is the presence of a legislative scheme which enables a tracing and, in appropriate cases a reversion of transactions.

    [11] [2006] FamCA 1380

11. Generally, it is submitted on behalf of both the husband and his parents that the wife is unable to point to a single transaction that demonstrates that there is a risk of disposal of property intended to defeat an order.  They each submit to the contrary, that the evidence establishes that the husband’s parents have built up their considerable wealth over many years and the parties including the wife have been very fortunate to have lived on their largesse.

12. In my view, the wife has established little more than an assertion that the real estate owned by the various family companies which are the underlying assets of those companies, form part of the pool of assets to which she makes a claim.  She has also established that further enquiries will need to be made to support her claim and possibly the legislative scheme may need to be utilised to trace matrimonial assets.  However, the Court cannot grant injunctions in the impermissible manner as occurred at first instance in Waugh (supra) to give the wife some security over property in relation to her claim.

13. In support of her argument that there is a real risk that the Respondents may dispose of property with the intention to defeat an order, the wife relies upon a transaction that occurred 11 years ago during the currency of the marriage.  In my view, this cannot support a current intention or risk of disposal.  The other transaction she refers to is a loan by the husband to one of his parents’ companies in February this year.  I do not accept the submission that this has had the effect of diminishing the pool of assets as contended.  Even though the proceeds of the sale of the Suburb B property were reduced by the necessity to discharge the mortgage, the loan to the Second and Third Respondents of $800,000.00 will form part of the asset pool available for distribution.

14. The Second and Third Respondent are extremely elderly and the Third Respondent has dementia and is unable to provide instructions.  Nonetheless, the Second Respondent is still capable of, and it appears, still does carry on a business of property development.  The husband does some work in Profession P and utilises a company for that purpose.  However, there is no evidence that any of the Respondents have been involved in transactions whereby they have disposed of assets or that they have any intention to do so.  It appears that their only intention is to increase their wealth by the accumulation of assets.

15. For these reasons, I am not satisfied that it would be just or convenient to grant the injunctions sought as the wife has not established there is a real risk of assets being disposed of.

Outstanding Financial Disclosure

1. On 18 August 2014 orders were made for the wife and husband to provide all outstanding financial disclosure within 14 days.  The wife says that a wide range of documents required to be disclosed in accordance with those orders is still outstanding.  The husband says that he has provided many of the documents sought, but that some of the documents are not in existence and some are quite aged.  He says he requires time to obtain the further documents and sought a further 28 days to comply with the orders.  The annexure setting out the documents sought includes some documents of significant age which may not now be in existence such as personal income tax returns dating to 1997 and information regarding the US superannuation account from around December 1996.  In these circumstances, in my view, it is not unreasonable for an extension of 28 days to be provided to the husband to comply with these orders and accordingly the application for further orders is dismissed.

2. No submissions were made in relation to the application for costs for today’s proceedings and accordingly this application is adjourned to determination in the final proceedings.

I certify that the preceding sixty four (64) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Hannam delivered on 12 September 2014.

Associate: 

Date:  12 September 2014