Gately and Clegg

[2016] FCCA 2653

FEDERAL CIRCUIT COURT OF AUSTRALIA

GATELY & CLEGG [2016] FCCA 2653

Catchwords:
FAMILY LAW – Property dispute – both parties tardy and deficient in discovery and in preparation for trial – parties’ ultimate positions very close to each other – parties agreeing each to retain one property – court doing best it can with inadequate materials.

Legislation:

Family Law Act 1975, s.78

Cases cited:
Stanford & Stanford (2012) 247 CLR 108
Chang v Su (2002) FLC 93-117

Applicant: MR GATELY

Respondent: MS CLEGG

File Number: MLC 6577 of 2012

Judgment of: Judge Burchardt

Hearing date: 6 September 2016

Date of Last Submission: 6 September 2016

Delivered at: Melbourne

Delivered on: 10 November 2016

REPRESENTATION

Counsel for the Applicant: Mr Testart

Solicitors for the Applicant: Schetzer Constantinou

Counsel for the Respondent: In person

ORDERS

1. Within 60 days:

   (a)the husband transfer all his right, title and interest in the property known as Property W to the wife; and

   (b)the wife refinance the Property W property and discharge all liabilities of whatsoever nature in respect thereto into her sole name.

2. The wife indemnify the husband in respect to all assets retained by her.

3. Within 60 days:

   (a)the husband obtain finance to enable him to pay out the mortgage on the property known as Property M to the husband; and

   (b)the wife forthwith cause (omitted) Pty Ltd to transfer its interest in the Junourton property to the husband; and

   (c)The husband be solely responsible for the payment of any capital gains tax arising from the transfer referred to in order 3(b).

4. The husband indemnify the wife in respect to all assets retained by him.

5. Unless otherwise specified in these orders, each party be solely entitled to the exclusion of the other to all property (including choses in action) in the possession of such party as at this time.

6. In the event the husband is unable to comply with order 3a. hereof, the Junourton property shall be sold, and the proceeds of such sale be applied as follows:

   (a)First, to pay all costs and expenses of the sale;

   (b)Secondly, to discharge the mortgage encumbering the Property M property;

   (c)Thirdly, to pay any Capital Gains Tax liability in respect of the sale;

   (d)Fourthly, to pay the balance then remaining to the husband.

7. There be liberty to the parties to apply as to the terms and conditions of the said sale.

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 6577 of 2012

MR GATELY

Applicant

And

MS CLEGG

Respondent

REASONS FOR JUDGMENT

Introduction

1. This is a property dispute in which, up until final submissions, the issue between the parties was whether the applicant husband should receive anything at all of the extant property pool.  In her final submissions, however, the respondent wife conceded that the husband could have the parties’ property at Property M provided that he also took on the mortgage of it.  The net result of the wife’s changed position is that the parties are, on one view of the matter, only $4,000 apart in a case in which the total pool of divisible assets is in excess of $750,000.  It is really scarcely appropriate for the Court in these circumstances to expend any significant resources in giving a lengthy judgment, and I will paint with a relatively broad brush. Nonetheless, it is appropriate to record why it is that the outcome contended for by the husband is just and equitable in the circumstances.

Agreed Matters

1. There are some matters that are not in dispute.  The husband was born in Melbourne on (omitted) 1958 and the wife was born in (country omitted) on (omitted) 1958.  She has a son, Mr B, born in 1987 from a previous marriage.

2. The wife has lived in Australia for many years and appears to have commenced in the early 1990s a business known as (business omitted), now owned by (omitted) Pty Ltd, of which she is the sole director and shareholder.  The parties seem to agree that they commenced cohabitation in late 1993 and married on (omitted) 1994.  Their child, Mr O, was born on (omitted) 1995.

3. The husband has, for many years, conducted a business as a (business omitted) through a company (omitted) Pty Ltd trading as (business omitted) in (omitted) near (omitted). 

4. The parties have separated.  According to the wife, this was in 2007 and, according to the husband, it was 2011.

Stanford & Stanford

1. The High Court has made it plain in Stanford & Stanford (2012) 247 CLR 108 that the first task for the Court is to determine the legal and equitable interests of the parties and determining whether or not it is appropriate that there be adjustment to property interests.

2. This is important in this case because the wife’s position until final submissions was that there ought not be any adjustment to property interests.  As earlier indicated, however, that position has changed.  Now both parties seek an adjustment to property interests and it is plainly appropriate, given the breakdown of the relationship and the complete alteration of the basis upon which the parties previously regulated their financial affairs, to contemplate an adjustment. 

The Property Pool

1. As counsel for the father accurately observed in opening, this is a case in which all too much is not known.  The parties commenced litigation in 2012, which tranche of litigation was terminated by the summary dismissal effected by orders of Judge O’Sullivan in May 2015 (on the footing that the proceedings were dormant).  Notwithstanding their recrudescence in the father’s application filed on 9 November 2015, the parties have never obtained appropriate valuations of either of the two properties that they effectively own or control, nor of either of their businesses.

2. As indicated during the preliminary applications for adjournment, I took the view that the history of the matter was such that the parties had to simply start with what they presently have in terms of evidence and I referred the wife to the case of Chang v Su (2002) FLC 93-117 and the court’s capacity to be more robust where evidence has not been produced that should have been.

3. In the light of the march of events, it would seem that my decision was eminently justified.

4. Counsel for the father, whose concessions as to the inadequate preparation of the case were wholly appropriate, indicated that he was prepared to adopt the pool largely as set out in the respondent wife’s case outline which produces a pool as follows:

Assets

• Property W, $1,770,000; 

• Share in (omitted), $10,000; 

• Property at Property M (registered in the name (omitted) Pty Ltd) (“(omitted)”), $410,000;  and

• Shares in (omitted), $4000.

Liabilities

• Mortgage registered against Property W, $773,000; and

• Mortgage registered against Property M, $252,000.

1. Neither party has asserted having any superannuation, although there is a reference to some trivial amount in the husband’s most recent Financial Statement.  Neither party has asked, nor will the Court make, any orders in relation to superannuation.

2. Disputed aspects of the property pool relate to the wife’s business (business omitted).  The wife asserts that it has a negative value of some $107,000, together with a superannuation liability of $26,000 and what are described as “business facilities”, being presumably an overdraft, in the sum of $76,000 (all these figures have been rounded off).

3. It should be noted that in his opening, counsel for the father made it clear that there was no valuation of the wife’s business and it was indicated that its overall value might, indeed, be negative, although there was, of course, no valuation.

Contribution Issues

1. The parties have filed voluminous affidavit material, but given the true scope of the dispute between the parties, I simply do not propose to traverse that material in any significant detail.  The gravamen of the wife’s case is that, first, separation took place in 2007 and that, second, at all material times she not only worked harder and more effectively and productively than the husband, but that she had all the child care responsibilities for the two children and, indeed, continues to do so.  Mr O is severely depressed and unable to work and requires care and assistance and lives with the wife.

2. It was the wife’s case that the husband dissipated money through his feckless behaviour, including turning a $30,000 tax debt into approximately $130,000 with penalties and the like and that he continued to receive very substantial post-separation benefit.  Most particularly, he has continued to live at the Property M property since separation, whenever it may be found to have taken place, and has not paid any rent despite agreeing to do so and, indeed, executing a lease to that effect.

3. The husband appeared to me to concede that he had not conducted his business affairs by any means wholly sufficiently.  He said words to the effect that he had not been clever with the way he had handled money in the course of his evidence.  As I discussed with counsel for the father, I propose to find and do find that it was evident simply from what the husband said and the way that he said it that his health, including his mental health, has been poor for some years and that he has been unable, effectively, to properly attend to his business affairs.  Counsel expressly conceded that this was not, so to speak a bridge too far in terms of the Court adopting an expertise it does not have in medical competence, but rather findings open on the demeanour and effect of the husband in Court.

4. It is clear from the evidence given that the property at Property M was, in some fashion, owned by the husband’s family at the commencement of the relationship.  Somewhat surprisingly, the husband conceded that a titles record showing him as the owner for a period of time when he was overseas was inexplicable.  It seems clear to me, however, on the evidence that the Gately family has conducted a (omitted) business at the Property M property for many years and, as far as the evidence goes, it seems probable that that business will be able to be continued.  This is so despite the wife threatening the husband with disclosure to the competent authorities if he did not otherwise agree to a binding financial agreement, a form of pressure that only has to be stated to be appreciated as entirely improper.

5. It is clear from the messages passing between the parties that although the relationship had its ups and downs including earlier periods of separation, the date of separation was in 2011.  The messages sent by the wife to the husband, including exhibit R2 which was sent in December 2011 from the wife to the husband, show a relationship which, for all its problems, had not finally dissolved until that time.  It should be noted, however, that even if separation had taken place in 2007, as the wife asserts, the relationship would still have been one well in excess of 13 years. 

6. It seems clear that the parties incorporated (business omitted) in 2001 and that this entity purchased the Property M property from the husband’s mother.  An endeavour to sell the Property M property in 2005 came to nothing and it seems clear that the parties’ borrowings continued to expand over time, not least because of the husband’s lack of business acumen and success. 

7. The net result in relation to the Property M property is that in February 2014 Mr B acquired a half share in (business omitted) (he owns 50 of the 100 issued shares) in exchange for his commitment to secure a mortgage.  This was because the wife did not have the capacity to borrow the required amounts to pay out various debts.  Mr B, who was not required for cross-examination, deposed to making a capital contribution of $9,343 towards the discharge of debts of (business omitted) secured by the property at Property M.

8. It is immediately apparent that the wife in truth has complete control over the affairs of (business omitted) and that while the contribution made by Mr B enabled further refinancing, the value of what he received in (business omitted) greatly outweighed any contribution he made.

9. The final submissions made by the wife and the way that she put her case generally makes it clear that (business omitted) is wholly controlled in substance by her.  There was no application made at any stage to join Mr B as a party to the proceeding. 

10. It is apparent that the various debts that have been refinanced from time to time have been rolled from one financier to another and now are consolidated with (omitted) to the tune of approximately $773,000.  That figure includes approximately $220,000, as emerged under cross-examination of the wife, spent on the wife’s business and living expenses. 

11. It is implicit in the wife’s case as it was submitted in final submissions that she should take the mortgage on the Property W property together with such debts as (business omitted) may presently have.  Likewise, the husband is to take debts he may have, although there is a subsidiary issue as to capital gains to which I shall return. 

Future Needs Section 75(2) Factors

1. The husband’s health has clearly been precarious for some time.  Although the wife correctly submitted that there was no up-to-date medical evidence of any sort whatever to support the thesis that the husband is not well, it is clear that he is not.  His business has suffered a significant setback with a relatively recent fire destroying much of the premises, which is not yet fully repaired.  Indeed, the wife was trying to prevent the husband operating his business there at all and although the husband seems to think that he will overcome this difficulty, it cannot be said to be certain.  The husband’s income which was previously very substantial, being in excess of $100,000 per annum has declined very significantly because his main client, (omitted), ceased to do the sort of work that was bringing in the vast majority of his income.

2. The wife’s business circumstances are more opaque.  She said and I accept that she is a good businesswoman who works hard, and indeed, much harder than the husband.  While the business has not been valued and I am not prepared to allot, nor have I been asked to, any particular value, it will represent an income stream.  Once free of these proceedings and able to concentrate on her affairs and their child, I have every confidence that the wife, who impressed me as a woman of determination and ability, will do well.

Conclusions

1. The husband’s counsel has sought that he retain the Property M property together with its mortgage, the ski lodge (even though this has long since gone and was probably worth substantially less than the agreed value now) and his shares in the sum of $4,000, being a total of $172,000.  Given that the wife ultimately accepts that an outcome of the husband keeping Property M is appropriate, it is immediately apparent that the difference between the parties is trivial.

2. This is a classic case where an outcome in precise terms rather than percentage terms is appropriate.  In my view, the relationship lasted for a long period of time, albeit, as I find, the wife’s contribution was far the greater (although one has to bear in mind that the Property M property came from the husband’s family in one way or another, whether or not it was sold as the husband asserts at an under-value).  Further, the husband’s business did produce significant income for at least some of the time, although as he himself said he was probably a little bit silly with his money.

3. In my opinion, it is entirely appropriate that the husband retain the property where he and his family have conducted the business for so many years together with the attendant liabilities. 

4. This brings us to the question of capital gains tax. Counsel for the husband submitted in closing that the court should declare that the Property M property was at all material times held by (business omitted) as a bare trustee on behalf of the husband and wife pursuant to s.78 of the Family Law Act 1975 (Cth). This would have the effect, as he submitted, of obviating the need for any payment of capital gains tax. I do not profess to know whether this is correct or not.

5. I indicated to counsel during the currency of the proceeding that there was no question of the court entering into some sort of sham declaration merely to save the parties tax that was properly payable.  That, of course, remains the position now.  I indicated to counsel that had the parties not separated, they would doubtless have continued to own the property through (business omitted) and they would have continued to own (business omitted).  The difficulty with the application for a declaration is that it materially, in my view, misrepresents the true state of affairs. 

6. The parties elected to put the Property M property into (business omitted) as part of a considered management of their affairs, no doubt including tax.  They obtained the benefit of this, notwithstanding that the husband ceased to be a director at (business omitted) in about 2007 or 2008.  While it is true that in large part, the wife lived in Property W and the husband lived in Property M, and these were their primary residences, as I have found, the marriage subsisted until 2011 and the position is simply not as clear as the husband would like to paint it.

7. Putting the matter shortly, the parties cannot as a matter of law set up the trust against all third parties during the period of their marriage and, indeed, thereafter and now try to turn around and pretend that it was never in truth a trust at all and the absolute ownership of the property always reposed in the two parties themselves.  This is all the more the case when one bears in mind that in 2014, half of (business omitted) was transferred to Mr B. 

8. If capital gains tax is payable, the husband as the person receiving the benefit of the property, in my view, should pay for it. 

9. I would emphasise, however, that even if the capital gains tax is substantial, it would still be inappropriate for the wife to have to contribute.  As things stand, she will have a very substantial indebtedness to repay, including any further debts attaching to her business that had not been formally subsumed within the $773,000 mortgage.  She has the ongoing care, so far as the evidence suggests, on an indefinite basis of their adult son.  Given her greater contributions throughout the marriage and the difficulty she presently faces, it would be wholly inappropriate to heap further debt upon her arising out of the resolution of this proceeding.

10. It is, of course, possible that the husband will be unable to obtain refinance in respect of the Property M property and thought will need to be given to the orders necessary to deal with this possibility.

11. This has been an extraordinarily poorly prepared case in which both parties deserve a considerable measure of criticism for their failure to address in a timely way the presentation of documentation to one another and to the court.  I accept that the wife has by and large made greater efforts to comply than the husband, but not only is criticism open to both, but the husband has been debilitated in doing so by his ill-health.  This is a classic case of the court doing the best it can on the limited information available to it and I am comfortable that the outcome I have reached, whatever the effects of the capital gains tax may be, is one that is just and equitable.

12. I have prepared draft orders and will hear further from the parties when they have had an opportunity to consider these reasons. 

I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Date: 10 November 2016