Forlan and Forlan and Anor

[2017] FamCA 58

FAMILY COURT OF AUSTRALIA

FORLAN & FORLAN & ANOR [2017] FamCA 58

FAMILY LAW – PROPERTY – interim orders – litigation funding – where the wife seeks funds to assist in her expenses of litigation – where the application is opposed by the husband – where there is an expert report – where the Court is not satisfied that such an order should be made – where the application is dismissed.

FAMILY LAW – EVIDENCE – where the husband seeks a section 128 certificate – where the Court does not consider that section 128 has application in the present circumstances – where the application is dismissed.

Family Law Act 1975 (Cth) s 117(2), 78(1), 80(1)(h)

Evidence Act 1995 (Cth) s 128
Corporations Act 2001 (Cth) s 233(1)(h)

Family Law Rules 2004 (Cth) r 15.45

Cornwell v The Queen (2007) 231 CLR 260
Ferrall and McTaggart as trustees for the Sapphire Trust and Ors & Blyton & Blyton & Attorney-General of the Commonwealth (2000) FLC 93-054
LGM & CAM (2011) FLC 93-481
Song v Ying (2010) NSWCA 237
Turner & Brown (No 2) [2014] FamCA 226

APPLICANT: Ms Forlan

1st RESPONDENT: Mr Forlan

2nd RESPONDENT: Mr J Forlan

INTERVENOR:

FILE NUMBER: ADC 1582 of 2015

DATE DELIVERED: 9 February 2017

PLACE DELIVERED: Adelaide

PLACE HEARD: Adelaide

JUDGMENT OF: Berman J

HEARING DATE: 8 December 2016

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Lewis

SOLICITOR FOR THE APPLICANT: Black & Wood Divorce & Family Lawyers

COUNSEL FOR THE 1ST RESPONDENT: Mr McGinn

SOLICITOR FOR THE 1ST RESPONDENT: Mellor Olsson

COUNSEL FOR THE 2ND RESPONDENT: No appearance

SOLICITOR FOR THE 2ND RESPONDENT: Hunt & Hunt Lawyers

Orders

1. That the Further Amended Application in a Case filed 4 November 2016 and the oral application for orders as sought by the applicant wife on 18 November 2016 be dismissed.

2. That the oral application made on behalf of the respondent husband for a certificate pursuant to section 128 of the Evidence Act 1995 (Cth) in favour of the husband is dismissed.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: ADC 1582  of 2015

Ms Forlan

Applicant

And

Mr Forlan

First Respondent

And

Mr J Forlan
Second Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. By Application in a Case filed 10 October 2016 Ms Forlan (“the wife”) sought the following orders against Mr Forlan (“the husband”):-

   (1)That paragraph 17 of the interim Orders sought in the wife’s Further Amended Initiating Application filed on 25 January 2016 be relisted for hearing as matter of urgency.

   (2)That supplementary to paragraph 1, the wife shall be authorised to transfer to the Trust Account of her solicitors the balance of funds held in the National Australia Bank account # …74 in the name of I P/L in partial satisfaction of the wife’s application for litigation funding.

2. Paragraph 17 of the Further Amended Initiating Application filed 25 January 2016 and as amended in the Second Further Initiating Application filed 25 January 2017 seeks the following order:-

   17.That the husband pay to the wife the sum of $100,000 by way of contribution to her anticipated legal expenses, either personally or from the resources and assets of the [F] Group and/or the [Forlan] Group.

3. The Application in a Case was the subject of amendment on 27 October 2016 and most recently by Further Amended Application in a Case filed on 4 November 2016.

4. Paragraph 2 has been amended to provide that in addition to the sum as sought by relying on paragraph 17 of the interim orders sought in the Second Further Amended Initiating Application, the wife seeks a further sum of $50,000 by way of litigation funding, with the money to be provided from cash or the assets of FI Pty Ltd and/or any other entity within the Forlan Group, with the further condition that the husband do all things as may be necessary to authorise the release of those funds to the trust account of the wife’s solicitors.

5. The wife also sought that following the provision of the litigation funding taking into account the combined effect of paragraphs 1 and 2 that there be an order pursuant to s 233(1)(h) of the Corporations Act 2001 (Cth) (“the Corporations Act”) appointing a receiver and manager to the entities of the Forlan/F Group.

6. On 10 November 2016 orders were made that required the husband to provide a list of all plant and equipment attributable to any of the entities that comprise the F Group.

7. In particular, the order provided for the following specific information:-

   (a)Specifics as to each item of plant and equipment currently held;

   (b)The entity which currently owns the plant and equipment;

   (c)If any item of plant and equipment have been sold or transferred to an entity outside the F Group since 1 July 2006, the date of sale, the purchase details and the date and entity which received the proceeds of sale.

8. The wife seeks $150,000 to assist in her expenses of litigation.

9. The husband resists the wife’s application and broadly asserts that the wife has not made out a case that should attract an order either by way of partial settlement of property or by way of litigation funding, but that in any event the husband does not personally have the resources to be able to satisfy the wife’s claim, nor is it proper, permissible or viable for the resources of the F Group and/or the Forlan Group of companies to utilise their resources (if any) for that purpose.

10. As part of previous orders made, on 10 June 2016 orders were made pursuant to r 15.45 of the Family Law Rules 2004 (Cth) (“the Rules”) requiring the parties to instruct a single expert forensic accountant to prepare a financial report in respect of the financial viability of the F Group of companies and the extent to which the assets of I Pty Ltd have been utilised for the benefit of other entities in the F Group.

11. The parties instructed Mr N (accountant) who published his report on 10 August 2016.

12. The wife relies heavily on the following extract from the N report:-

    57.Of note is the fact that the group is largely operating as if it was one entity.  While the group comprises a number of different entities with some differences in underlying ownership structure, I have the impression that the group operates without direct reference (in the main) to the underlying ownership structure.

    …

    60.It is apparent that the business continues to operate on a ‘group’ basis without recognition from a commercial perspective of the different entities and which entity contributes to what is the underlying business operation.

    61.I gather the current business operations are predominantly conducted through F Pty Ltd and F2 Pty Ltd.  This is despite the fact that much of the equipment being used is owned by I Pty Ltd.

13. The wife’s focus on I is based on an assumption that if equity exists anywhere within the commercial operation of the various entities, it is this company that is likely to hold unencumbered plant and equipment.

14. By affidavit filed 8 November 2016 the husband sets out the various entities that comprise the F Group (including I) and as at 31 October 2016 there were no funds remaining in the I accounts following a call by the National Australia Bank (“NAB”), nor was there any surplus funds available in any of the other entities as referred to in paragraphs 11 and 12 of the affidavit.

15. Moreover, the husband sets out the manner in which various funds that were present at 10 August 2016 in the various entities have been dispersed and advises that on 10 October 2016 the NAB issued a notice of demand in respect of a loan of $3.55 million together with a balance of a loan of $100,000.

16. It is the husband’s general contention that even upon the sale of real estate at Suburb K there is likely to be a shortfall on monies owed.

17. The husband complied with the order to provide the ownership of plant and equipment and to identify the entity that owns the equipment by schedules marked “CLW1” to the affidavit of the wife’s solicitor filed 17 November 2016.

18. Separate to the wife’s application for the appointment of a receiver to the entities comprising the F and Forlan Groups of companies, a receiver has now been appointed by the NAB with a focus on the inability of the F Group to discharge the outstanding loan.  It is significant that the entities that hold plant and equipment in the F Group are now the subject of receivership.  There is no resolution to the receivership and on present indications it is reasonable to find that the preponderance of plant and equipment, but in particular that held by I, will be subject to the receivership and accordingly not available for sale or disposal without the consent of the receiver.  Any proceeds are likely to be attributed in reduction of the outstanding NAB loan rather than being available for distribution in satisfaction of the outgoings and liabilities of I or the distribution to the parties or either of them by way of dividend or loan account adjustment.

19. On 18 November 2016 orders were made that provide for further consideration of paragraphs 1, 2 and 4 of a minute of order tendered to the Court by the wife’s counsel, with the balance of the orders being dealt with effectively by consent.

20. Paragraphs 1 and 2 of the minute of order amends the nature of the orders sought by the wife in respect of litigation funding in that the head of power relied upon is s 117(2) of the Family Law Act 1975 (Cth) (“the Act”).

21. It also seems that the wife now seeks the lump sum of $50,000 as opposed to the original sum sought being $100,000 and that paragraph 2 of the minute of order should be considered an order in the alternative, that is to be considered under s 79 (and s 80) or s 74 of the Act.

22. The order of 18 November 2016 provided for the husband to file and serve an affidavit in response to an affidavit filed by the wife’s solicitor on 17 November 2016, with particular focus on the manner in which various motor vehicles had been dealt with.  The husband filed an affidavit in response and it would appear that whilst there may have been aspects of the husband’s actions in respect of the vehicle that are unsatisfactory and at the very least raise the potential that he has acted without appropriate transparency, nonetheless it would seem that his explanations are adequate and that they are accepted by the wife as representing an impediment to paragraph 2 of the minute of order which seeks that the lump sum of $50,000 be either paid by him or by way of sale of various motor vehicles.

BACKGROUND

1. The wife’s application should not be seen in isolation to the earlier proceedings that were considered by me in my judgment delivered 10 June 2016.

2. Whilst there have been some changes in the financial circumstances of the various entities the background history remains the same.

3. That judgment considered an application by the wife for litigation funding in the sum of $100,000 to assist her in respect of her current and anticipated future legal fees.  Clearly the extent of the wife’s impecuniosity and inability to meet her legal fees as they fall due has now been exacerbated by the efflux of time and the filing of further affidavit material.

4. The husband argues that it was inappropriate for the Court to have recourse to the assets and resources of the various entities that comprise the F Group, particularly where there were third party interests to be considered.  That submission now must include the added complexity of receivership.

5. It is notable that the final orders sought by the applicant as reflected in the Second Further Amended Initiating Application filed 25 January 2017 now seek relief pursuant to s 78(1) of the Act in respect of the assets of Mr J Forlan (“the second respondent”) in terms of the real property held by him at R Street, Suburb S and that following “an enquiry and accounting” a declaration that the second respondent holds his shareholding in F Constructions on trust for the applicant and the first respondent.

6. The considerations as set out in the judgment in respect of the wife’s application for litigation funding are apposite to the current application and I do not propose to repeat those matters.

7. Paragraph 87 of the judgment seeks to summarise the contentions of the parties in the following terms:-

   The husband considers that his obligation to support a number of outgoings and liabilities across the group is a paramount consideration and a first priority before any surplus funds could be considered for distribution to the wife.  The wife does not agree with that contention.  She queries what obligation I has in respect of those entities that are poorly performing.  In particular she can see no good reason why money should be diverted to the liabilities of [E Pty Ltd] now under voluntary administration or indeed in respect of any other entity that has a liability to a third party.

8. In an attempt to explore the issues raised by each of the parties orders were made for an expert to be appointed pursuant to r 15.45 of the Rules to consider the financial viability of the group. The N report has been the subject of earlier comment, but essentially the expert’s remarks that the plant and equipment was being treated as being available to the group as if one entity was the catalyst for the wife seeking schedules of plant and equipment to be prepared. Presumably the wife did not consider that the greater clarity that now arises in respect of the ownership of plant and equipment may well assist the receiver and at least initially have the consequence of creating substantial uncertainty as to whether the plant and equipment now properly attributed could be available for consideration even if it were appropriate to do so.

9. I considered that it was premature to determine the wife’s application seeking a lump sum and the issue that now arises is whether the further N report and the information presented by each of the parties in their most recently filed affidavits would allow an order to be made.

LITIGATION FUNDING

1. It is appropriate to consider the application pursuant to s 117(2) or where an interim order of property settlement is sought under s 80(1)(h) with regard to the following relevant matters:

   (1)A consideration of the separate financial positions of the parties bringing to account the assertion of the wife that the husband has been able to pay his legal fees as required.

   (2)A capacity on the part of each of the parties to meet their ongoing litigation costs.

   (3)An inability on the part of the applicant to meet her litigation costs.

2. I am satisfied that the wife’s financial position is parlous.  I have regard to the matters as set out in paragraphs 66 to 83 of the affidavit of the wife’s solicitor filed 17 November 2016.  It is clear that the wife’s financial resources are almost exhausted and that there remains substantial uncertainty as to how she will be able to retain the assistance of her solicitors without their forbearance.  I note that there is no assertion by her solicitors that they intend to cease acting for the wife unless she is able to secure their fees, but that is not required in order to determine whether an order should be made.

3. It may well be argued that the involvement of a receiver appointed by the NAB should have been considered as a significant intervening event, but I also accept that there are proceedings issued in other courts in respect of the Suburb K property and other claims.

4. To some extent I consider it is also permissible to bring to account (if established to an appropriate level) the detailed assertions of the wife that the husband has not made full and frank disclosure of his financial circumstance and in particular what actions he has taken in respect of the continued operations of the F Group and Forlan Group of companies.

5. Whilst there is some basis for the wife to complain as to the lack of transparency by the husband, at this stage I do not consider that the matters raised by the wife in the various affidavits reach a level where the Court would be able to form the view that there is likely to be a substantial untapped resource available to the husband and that would be known to the wife but for the husband’s non-disclosure.

6. It would also be reasonable for the wife to be sufficiently concerned as to the husband’s actions for her to ask for information that would enable her to have a reasonable understanding of the ongoing conduct of the F Group of companies and the manner in which valuable plant and equipment is disposed of and how funds received are then dispersed.

7. I do not propose to conflate issues of transparency and non-disclosure to the focus of the application namely, whether in the circumstances of this case it is reasonable to seek a lump sum by way of partial property settlement or litigation funding and if so whether sufficient is understood for an order to be made satisfying her application bringing to account the consequences that might arise.

Conclusion

1. In circumstances where there was uncertainty as to whether assets existed which could be disposed of and/or utilised to provide a lump sum to the wife, orders were made for the husband to be subject to a dollar for dollar order.

2. The history of this application as evidenced by the continuously changing orders sought by the wife reflects a certain dynamic dimension to the parties financial position and interests.  The involvement of a receiver appointed by the NAB does not assist in crystalizing the financial position, but rather, raises the very real dilemma of the Court being asked to make an order which would see certain plant and equipment disposed of that are currently owned by entities the subject of receivership.

3. Moreover, no balance sheet has been presented setting out the assets and liabilities of the parties and whilst the wife might argue that the husband’s conduct makes such an exercise difficult if not impossible and therefore any attempt to do so would produce an unreliable outcome, nonetheless it is difficult to ascertain whether there is even a net pool and if so the magnitude of scale.

4. Even if it was established that an entity owned plant and equipment (and/or cash resources) free of encumbrance or third party claim, the pathway that would exist that would enable money to be paid to the wife is not established or demonstrated.

5. The wife also seeks an order that the husband appoint an auction house to sell all plant and equipment owned or controlled by F1 with the proceeds of such sale after the payment of expenses to be paid into the trust account of the wife’s solicitors.

6. The Court is not assisted as to how that process would occur and if orders were made requiring the sale of plant and equipment, what consequences might flow from such an order and whether third party interests would be affected.

7. I am not satisfied that such an order should be made in the absence of clarity of consequence and outcome.

8. I propose to dismiss the Further Amended Application in a Case filed 4 November 2016, but also the orders as sought by way of oral application on behalf of the wife as set out in the minute of order tendered 18 November 2016.

APPLICATION FOR A CERTIFICATE PURSUANT TO s 128 OF THE EVIDENCE ACT 1995 (Cth)

1. The husband’s counsel referred to the provisions of order 6 of orders made 10 June 2016 in the following terms:-

   That the husband be restrained and an injunction granted requiring the husband to provide to the wife through her solicitor with a copy of any contract of sale of any item and if no written document then a confirmation of an intention to sell any item not less than seven (7) [days] prior to a contract being signed or an intention to dispose, sell or transfer any item and following any sale to confirm receipt of payment of such sale proceeds within seven (7) days of it having been received.

1. The wife alleges that the husband has caused property to be sold without providing proper notice and details of sale or transfer.

2. The husband is concerned that affidavit material filed or by reason of evidence that he may be obliged to give in future proceedings may be self-incriminating and may tend to prove that the husband:-

   (a)has committed an offence against or arising under Australian law or a law of a foreign country; or

   (b)is liable to a civil penalty.

3. It is understood that the expectation of the husband is that if a certificate is granted it would have retrospective effect.

4. Counsel for the husband referred to the most recent Full Court decision of LGM & CAM (2011) FLC 93-481. In that case the husband sought a s 128 Certificate granted to the unrepresented wife not be retrospective although there were pending contravention and contempt proceedings. The Full Court set aside the orders of the trial judge and the sentence imposed on the wife. The Full Court held that it was open to the trial judge “at any time to grant a certificate notwithstanding that the evidence had already been given”: at [158]. The Full Court relied on s 128(6) of the Evidence Act1995 (Cth) (“Evidence Act”) which states:-

   (6)The court is also to cause a witness to be given a certificate under this section if:

   (a) the objection has been overruled; and

   (b)after the evidence has been given, the court finds there are reasonable grounds for the objection.

5. The Full Court said further in relation to the issue of retrospectivity of the section at [159]:-

   Section 128 is protective in its operation. It seems to us that answers may at the time of being given appear innocuous but later, in the context of other evidence or answers, take on another complexion that require a warning to be given and a certificate considered. To interpret the section in a way so as to limit the power to grant a certificate only to the point in time at which the condemning evidence is given would be to rob the section of its intent.

6. The decision of the Full Court in LGM & CAM (supra) may not necessarily be the last word on the matter.

7. In Cornwell v The Queen (2007) 231 CLR 260 the High Court considered but did not decide whether in the context of criminal proceedings a witness could object to giving evidence when it was part of the material that they were attempting to adduce by way of evidence in chief from themselves.

8. The New South Wales Court of Appeal in Song v Ying (2010) NSWCA 237 took a different approach and considered that a witness who was compellable by way of subpoena or other process may obtain the benefit of a certificate under s 128 by virtue of that compulsion. The court made it clear that it would not apply to parties who gave evidence in answer to questions from their own counsel as the element of compulsion was not present.

9. Even if it is accepted that a s 128 Certificate can be given to cover evidence in chief given by a party by way of affidavit (see Ferrall and McTaggart as trustees for the Sapphire Trust and Ors & Blyton & Blyton & Attorney-General of the Commonwealth (2000) FLC 93-054) and that the certificate can have retrospective effect, I consider that s 128 of the Evidence Act can only have application in circumstances where “a witness objects to giving particular evidence or evidence on a particular matter” for the purposes of a hearing.

10. The affidavits that have been filed are not filed in preparation of a trial and as Thornton J noted in Turner & Brown (No 2) [2014] FamCA 226 Part 15.2 of the Rules contains a note that the filing of an affidavit does not make that affidavit part of the evidence, but that affidavits only become evidence when they are relied upon by a party at trial.

11. Accordingly, it is yet to be ascertained that the affidavit material filed by the father which is the potential focus of a certificate pursuant to s 128 of the Evidence Act was filed in circumstances that may amount to compulsion. It could be argued that the obligations under the Act and the Rules are predicated on the parties making full and frank disclosure, but that does not necessarily equate to the husband being compelled to provide the evidence.

12. Consequently, I do not consider that s 128 of the Evidence Act has application in the present circumstances and in particular where there has not been any attempt to identify any part or portion of affidavits filed which might give rise to the potential for self-incrimination. The affidavits have not been filed in contemplation that if adopted that they would be used as evidence in chief in any trial setting.

I certify that the preceding fifty nine (59) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 9 February 2017.

Associate:  P M Malone

Date:  9 February 2017