Gee and Luxford and Anor
[2015] FCCA 2944
•2 November 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| GEE & LUXFORD & ANOR | [2015] FCCA 2944 |
| Catchwords: PRACTICE AND PROCEDURE – Joinder of parties – necessary – whether necessary to be a party to the proceeding – necessary witness. PRACTICE AND PROCEDURE – Transfer to Family Court – whether proceedings should be transferred – where final hearing anticipated to take in excess of four days – protocol between Family Court and Federal Circuit Court considered – rules of court considered. COSTS – Application for costs – indemnity costs – conduct of parties to the proceedings – where Respondents failed to disclose transactions that may defeat anticipated property orders – parties to show cause why costs orders should not be made – whether costs should be ordered on an indemnity basis. PRACTICE AND PROCEDURE – Unsatisfactory professional conduct – whether solicitor’s actions amount to unsatisfactory professional conduct – where solicitor required to show cause why a complaint should not be made to the Office of the Legal Services Commissioner. |
| Legislation: Family Law Act 1975 (Cth), ss.79, 90AE, 106B, 114, 117 Legal Profession Act 2004 (NSW), s.496 |
| Cases cited: Brown & Brown; Eley and Henty (interveners) (1991) 15 Fam LR 69; FLC 92-265 Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225; 118 ALR 248 Gee & Luxford [2013] FCCA 271 Hankinson & De Vries & Ors [2013] FamCA 455 In the Marriage of Kohan (1992) 16 Fam LR 245; (1993) FLC 92-340 Prantage & Prantage [2013] FamCAFC 105; (2013) 49 Fam LR 197; FLC 93-344 VC & GC & Ors [2010] FamCAFC 62; FLC 93-434 Wayne & Dillon & Anor [2008] FamCAFC 204 |
| Applicant: | MS GEE |
| First Respondent: | MR LUXFORD |
| Second Respondent: | MR F LUXFORD |
| Third Parties: | MR G LUXFORD & MS R LUXFORD |
| File Number: | SYC 6710 of 2012 |
| Judgment of: | Judge Scarlett |
| Hearing date: | 19 August 2014 |
| Date of Last Submission: | 19 August 2014 |
| Delivered at: | Sydney |
| Delivered on: | 2 November 2015 |
REPRESENTATION
| Counsel for the Applicant: | Ms Beck |
| Solicitors for the Applicant: | James & Associates |
| Counsel for the First Respondent: | Ms Pender |
| Solicitors for the First Respondent: | Newtown Solicitors |
| Counsel for the Second Respondent: | Mr Friedlander |
| Solicitors for the Second Respondent: | Christie Law, Solicitors |
| Solicitors for the Third Parties: | Giles Payne & Co Solicitors & Public Notaries |
ORDERS
The Application to join Mr G and Ms R Luxford as parties to the proceeding is dismissed.
UNTIL FURTHER ORDER the Application to set aside the Transfers from Mr Luxford the First Respondent to Mr F Luxford the Second Respondent of the First Respondent’s interest in the property at Property D being the whole of the land contained in Folio Identifier (omitted) and the First Respondent’s interest in the property at Property B being the whole of the land contained in Folio Identifier (omitted) under the provisions of section 106B of the Family Law Act 1975 is adjourned to the final hearing of these proceedings.
UNTIL FURTHER ORDER The First Respondent and the Second Respondent are restrained by injunction from dealing in any way with the proceeds of the sale by the First Respondent to the Second Respondent of his interests in the said properties AT Property D and Property B.
Within fourteen (14) days of the Date of these Orders the First Respondent must file and serve a Written Submission to show cause why an Order should not be made that he pay all or a part of the Applicant’s costs of this Application and, if such Order be made by the Court, why such costs should not be assessed on an indemnity basis.
Within fourteen (14) days of the Date of these Orders the Second Respondent must file and serve a Written Submission to show cause why an Order should not be made that he pay all or a part of the Applicant’s costs of this Application and, if such Order be made by the Court, why such costs should not be assessed on an indemnity basis.
The Principal Registrar is requested to forward a sealed copy of these orders and a copy of the Court’s Reasons for Judgment by ordinary pre-paid post to SERGIO NICOLAU, solicitor of NEWTOWN SOLICITORS, 5 Stanmore Road, Enmore NSW 2042 PO Box 221 Enmore NSW 2042
Within fourteen (14) days of the date of receipt of the Orders and Reasons set out in the immediately preceding Order SERGIO NICOLAU, solicitor, must file and serve a Written Submission to show cause why the Court should not make a complaint to the Office of the Legal Services Commissioner for unsatisfactory professional conduct in connection with his representation of the First Respondent.
IT IS NOTED that publication of this judgment under the pseudonym Gee & Luxford & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYC 6710 of 2012
| MS GEE |
Applicant
And
| MR LUXFORD |
First Respondent
| MR F LUXFORD |
Second Respondent
| MR G LUXFORD AND MS R LUXFORD |
Third Parties
REASONS FOR JUDGMENT
Application in a Case
This is an Application for orders:
a)joining the First and Second Respondents’ parents, Mr G Luxford and Ms R Luxford, as parties to the substantive Application;
b)against the First and Second Respondent under s.106B of the Family Law Act 1975 (Cth) to set aside transfers of real estate;
c)valuation of properties; and
d)security for costs.
Background
The Applicant wife was born on (omitted) 1966.
The husband, who is the First Respondent, was born on (omitted) 1966.
The parties commenced living together in (omitted) 2004.
The parties moved into a property at Property W, New South Wales, in (omitted) 2006. The property was purchased in the name of the husband for $570,000.00.
The parties separated under the one roof on 11 November 2011 and separated physically on 15 July 2012, when the wife moved out of the former matrimonial home.
There is one child of the relationship. The parties’ son X was born on (omitted) 2006.
The parties were married on (omitted) 2007. They are now divorced.
The Applicant wife remarried on (omitted) 2014.
Procedural History
The Applicant wife commenced proceedings on 9 November 2012 by filing an Application for parenting orders in respect of the child X. The Application was returnable on 17 December 2012. On 27 November 2012 the Applicant filed an Amended Initiating Application, in which she sought not only parenting orders but also property orders.
The Amended Application also added the Respondent husband’s brother, Mr F Luxford, as a Third Party in respect of the property proceedings.
The Applicant filed an Application for Divorce on 19 November 2012, returnable on 24 January 2013. On that date a Divorce Order was pronounced, to take effect after one month.
On 17 December the First Respondent filed a Response to the original Application, which sought only parenting orders.
On the return date, 17 December, the Applicant and the Respondent were directed to attend a Child Dispute Conference. The Third Party, or Second Respondent, was directed to file and serve a Notice of Address for Service within 14 days.
On 8 January 2013 Mr Richard Christie of Christie Law Solicitors filed a Notice of Address for Service on behalf of Mr F Luxford.
On 29 January 2013 the Applicant wife filed a Second Amended Initiating Application. That application sought interim orders relating to various credit cards.
On 30 January 2013 the Applicant and the First Respondent entered into Interim Consent Orders in respect of the parenting of the child X.
On 8 May 2013 the Court heard an Interim Application by the wife seeking orders in respect of certain credit cards in her name. On 17 May 2013 Orders were made providing that:
a)Within 14 days the Respondent was to pay all amounts due and payable in respect of an (omitted) Bank MasterCard and a (omitted) Bank MasterCard in the name of the Applicant;
b)The Respondent was to indemnify the Applicant against all claims made in respect of those two cards; and
c)The parties were to do all things necessary to close the two MasterCard accounts within 14 days.[1]
[1][1] Gee & Luxford [2013] FCCA 271
The parties attended a Conciliation Conference with a Registrar on 22 July 2013. No agreement was reached.
On 22 October 2013 the parties entered into final Consent Orders in respect of the child X. The property proceedings were set down for hearing on 19 August 2014 to continue until 22 August 2014.
On 20 June 2014 the Applicant wife filed an Application in a Case seeking orders that the President of the Australian Property Institute should appoint a valuer as a Court Expert under Rule 15.09 to prepare valuations of certain properties at Property D and Property B.
On 27 June 2014 the Applicant wife filed another Application in a Case seeking Orders that (in summary):
a)The First and Second Respondents’ parents Mr G and Ms R Luxford be joined as parties to the proceedings;
b)That transfers from the First and Second Respondents relating to the properties at Property D and Property B should be set aside under the provisions of s. 106B of the Family Law Act 1975;
c)That the Respondents should be restrained by injunction from dealing with proceeds of sale of the properties; and
d)That the Respondent(s) pay the Applicant’s costs on an indemnity basis.
On 31 July 2014 the First Respondent filed a Response to an Application in a Case seeking that the Application in a Case (presumably the Application filed on 27 June 2014) should be dismissed with costs.
Also on 31 July 2014 the Respondents’ parents Mr G and Ms R Luxford filed a Notice of Address for Service, nominating Gregory George Eliades, solicitor, as acting for them.
That same day the Respondents’ parents filed a Response to an Application in a Case, seeking that the Application in a Case filed on 27 June 2014 should be dismissed with costs.
Again, on 31 July 2014, the Second Respondent filed two separate Responses to an Application in a Case, one relating to each of the Applications filed on 20 and 27 June 2014, seeking in each case that the Application should be dismissed with costs assessed on an indemnity basis.
On 14 August 2014 the Respondents’ parents filed an Amended Response to an Application in a Case, seeking orders that:
a)the Application in a Case should be dismissed;
b)the Applicant should provide security for costs in the sum of $35,000.00;
c)the Applicant should pay their costs; and
d)the final hearing dates should be vacated.
Orders Sought
By her Application in a Case filed on 20 June 2014, the Applicant seeks the following Orders:
1. That pursuant to Rule 15.09 of the Federal Magistrates Court Rules 2001[2] the parties appoint the President of the Australian Property Institute, New South Wales Division, 60 York Street, Sydney 2000 to appoint a court expert to enquire into and report as [to] the value of the properties at:
1.1 Property D in the State of New South Wales and being the whole of the land contained in Certificate of Title Folio Identifier (omitted);
2.1 Property B in the State of New South Wales and being the whole of the land contained in Certificate of Title Folio Identifier (omitted).
[2] The Rules of this Court are the Federal Circuit Court Rules 2001
2. That within a seven (7) days of the making of this order the solicitors for the parties are to forward to President of the Australian Property Institute a joint letter of instructions to the President appoint a court expert to enquire into and report as [to] the value of the properties at Property D and Property B in the form of the letter attached to these Orders.
3. The parties are jointly and equally liable for the cost of the President of the Australian Property Institute and the expert.
4. The Respondent pay the costs of the Applicant of this Application in a Case.
5. The matter be listed for early hearing.
The Application is supported by an affidavit of the Applicant’s solicitor, Raymond Vincent James sworn on 19 June 2014.
By her second Application in a Case, filed on 27 June 2014, the Applicant seeks the following orders:
1. That this Application in a Case be short listed for a hearing.
2. that leave be granted to the Applicant for short service of this Application in a Case on the First Respondent, Second Respondent and Mr G and Ms R Luxford;
3. That Mr G and Ms R Luxford of (address not published) be joined as parties to the proceedings;
4. That the Transfers from Mr Luxford and Mr F Luxford relating to the properties at Property D being the whole of the land contained in Folio Identifier (omitted) and Property B being the whole of the land contained in Folio Identifier (omitted) (‘the properties’) be set aside pursuant to s.106B of the Family Law Act 1975;
5. That the Respondent be restrained from dealing with the proceeds of sale of the properties pursuant to s 114(3) of the Family Law Act 1975.
6. That the Applicant’s costs of this Application be paid by the Respondent on an indemnity basis.
The Application in a Case is supported by an affidavit of the Applicant’s solicitor, Mr James, sworn on 27 June 2014.
The First Respondent, by his Response to an Application in a Case filed on 31 July 2014, seeks the following orders:
1. That the application in a case filed by the applicant be dismissed.
2. That the applicants[3] pay the first respondents costs.
[3] sic
3. Such other orders as the Court deems fit.
The Response is supported by an affidavit of the First Respondent sworn on 20 July 2014.
The Second Respondent, by his Response to an Application in a Case filed on 31 July 2014 in respect of the Application filed on 20 June 2014, seeks the following orders:
1. That the Application in [a] Case in relation to the appointing of a court expert valuer be dismissed.
2. That the Applicant pay the Second Respondent’s costs in relation to this Application.
3. Further, that costs payable by the Applicant to the Second Respondent be assessed on an indemnity basis.
The Second Respondent, by his Response to an Application in a Case filed on 31 July 2014 in respect of the Application in a Case filed on 27 June 2014, seeks the following orders:
1. That the Application in [a] Case inter alia in relation to the joinder of parties be dismissed.
2. That the Applicant pay the Second Respondent’s costs in relation to this Application.
3. Further, that costs payable by the Applicant to the Second Respondent be assessed on an indemnity basis.
The Responses are supported by two affidavits of the Second Respondent sworn on:
a)30 July 2014; and
b)12 August 2014.
By their Amended Response filed on 31 July 2014, the Respondents’ parents, the Third Parties for the purpose of these Applications, seek the following orders:
1. That the Application in a Case filed by the Applicant on 27.6.2014 be dismissed.
2. In the event that Orders are made joining Mr G and Ms R Luxford as parties to this proceeding, the Applicant is to provide security for the costs of Mr G and Ms R Luxford by paying into court the sum of $35,000.
3. Further to Order 2 above, the security is to be provided on or before 2 September 2014 failing which the Applicant’s application so far as it relates to Mr G and Ms R Luxford is struck out or dismissed.
4. In the alternative to Order 3 above, in the event that the security is not provided by 2 September 2014, the proceedings are stayed until such time as the security is provided.
5. That in the event that Orders are made joining Mr G and Ms R Luxford as parties to this proceeding, the final hearing listed to commence on 19 August 2014 be vacated and a new hearing date be allocated with appropriate directions.
6. That the Applicant pay the costs of Mr G and Ms R Luxford of and incidental to this application.
7. That liberty be granted to the parties to re-list on 7 days’ notice in writing to the Court and each other party.
8. Such further or orders as the Court deems fit.
Evidence
In support of her Application in a Case filed on 20 June 2014, seeking the appointment of a court expert valuer, the Applicant relies on the affidavit of her solicitor, Raymond Vincent James, sworn 19 June 2014.
Mr James deposed that the properties at Property D and Property B, comprise part of the property of the parties. Until a short time before the affidavit was sworn, the two properties were jointly owned by the First and Second Respondents as tenants in common in equal shares. Copies of the relevant Folio Identifiers are annexed to the affidavit.
Mr James also deposed that he discovered that the First Respondent had transferred his interest in each of the properties to the Second Respondent upon receipt of a letter dated 17 June 2014 from the solicitor for the First Respondent. A copy of that letter is annexed to the affidavit and says, relevantly:
In the meantime we are instructed to advise you that the Property D property and the Property B property have now been sold. The proceeds of sale were applied in reduction of our client’s debts including most significantly the mortgagees and our client’s parents.[4]
[4] Affidavit of R.V. James 19.6.2014 Annexure “C”
The Applicant’s second Application in a Case, filed on 27 June 2014, seeks joinder of Mr G and Ms R Luxford as respondents, together with an order under s.106B of the Family Law Act setting aside the transfers from the First and Second Respondents of the Property D and Property B properties and injunction under s.114 of the Act against “the Respondent” from dealing with the proceeds of sale of the properties. This Application in a Case is supported by the affidavit of Mr James sworn on 27 June 2014.
In his affidavit of 27 June, Mr James deposed that the Property D and Property B properties comprised part of the property of the parties that would be subject to Orders under s.79 of the Family Law Act. He went on to state that the First Respondent transferred his interest in each of the properties to the Second Respondent. Annexed to his affidavit at “A” and “B” are copies of Transfers of the First Respondent’s interest in the two properties to the Second Respondent.
The Transfer of the First Respondent’s interest in the Property D property is dated “30/4/14” and shows that the interest in the property was transferred for a consideration of $522,500.00.
The Transfer of the First Respondent’s interest in the Property B property does not appear to have a date but shows that the interest in the property was transferred for a consideration of $625,000.00. The First Respondent’s signature as transferor was witnessed by Sergio Nicolau, the solicitor on the record for the First Respondent in these proceedings.
Mr James then deposed:
14. It is not known how much money the First Respondent was paid by the Second Respondent or exactly what First Respondent did with the money but it appears he did receive money and has use[d] all or part of that money in a payment to his parents and has paid other debts.
15. I have not been provided with any other details of the transfer of the First Respondent’s interest in both properties to the Respondent[5] to other than the information contained in Annexure “C”[6]. I am not aware of the amount of money paid to the parents of the First and Second Respondents, what other debts of the First Respondent has paid and the amounts involved.[7]
[5] sic
[6] Annexure “C” is the letter from the First Respondent’s solicitors dated 17 June 2014 referred to at paragraph [40] above.
[7] Affidavit of R.V. James 27.6.2014 at paragraphs [14]-[15]
The Applicant’s solicitor also annexes to his affidavit copies of:
a)A Deed dated 30 November 2012 between Mr G and Ms R Luxford, described as “Lenders” and the First and Second Respondent Respondents, described as “borrowers”;
b)A mortgage dated 30 November 2012 between the First and Second Respondents, as mortgagors, and Mr G and Ms R Luxford, as mortgagee;
c)Copy of a letter from Vobis, Equity Attorneys, dated 20 October 2013, acting for Mr G and Ms R Luxford to the Applicant’s solicitor; and
d)Copy of a letter dated 21 October 2013 from the Applicant’s solicitor to Vobis.
The correspondence related to the claim by Mr G and Ms R Luxford to be owed in excess of $659,000.00 by the First and Second Respondents.
The First Respondent relied on his affidavit of 20 July 2014. In that affidavit he deposed that he and his brother, the Second Respondent, owned a business in equal shares. When they set up the business they obtained a loan, which was secured against the home of their parents[8].
[8] Affidavit of Mr Luxford 20.7.2014 at paragraphs [7]-[10]
In 2005, the First Respondent and his brother bought the property at Property D as an investment property. They used the business loan to finance the purchase, which again was secured against their parents’ home[9].
[9] Ibid at [11]
The First Respondent and his brother purchased the property at Property B in 2005, again as tenants in common in equal shares. Again, their parents’ home was used as security[10].
[10] Affidavit of Mr Luxford 20.7.2014 at [20]
The First Respondent deposed that he was aware that his parents were concerned about the mortgage on their home and in 2012 he and his brother formalised their agreement with their parents in a Deed.[11]
[11] Ibid at [27]-[28]
The First Respondent went on to state:
18[12]. I have been struggling to meet my share of repayments on the mortgage since 2009.
36. As deposed to above, my parents were urging me to pay back the loans and were worried about not owning their house and having debts that they couldn’t pay.
37. I made arrangements to transfer my half share of the Property D and Property B properties to my brother and arranged that my share of the proceeds of transfer would be paid to (omitted) Bank to reduce the mortgage on my parents’ property.
38. My interest in the Property D property was transferred on 30 April 2014 to Mr F Luxford and my interest in the Property B property was transferred on 31st March 2014.[13]
[12] This paragraph is clearly incorrectly numbered, as it comes after paragraphs 35 and 17 (in that order) and immediately before paragraph 36
[13] Affidavit of Mr Luxford 20.7.2014 at [18], [36]-[38]
The Second Respondent relied on his affidavits of 30 July and 12 August 2014.
The first affidavit does not comply with the Rules, as it is in microscopic print with no spaces between paragraphs. The Second Respondent deposed that he and the First Respondent purchased the property at Property D in 2007 and the property at Property B in 2011.[14]
[14] Affidavit of Mr F Luxford 30.7.2014
The Second Respondent stated that in about March 2014 his brother came to him and said that he needed to sell his shares in the Property B and Property D properties as he could not afford to continue with them.[15]
[15] Affidavit of Mr F Luxford 30.7.2014 at [20]
The Second Respondent deposed that he made arrangements to obtain loans to purchase his brother’s shares of the two properties. He obtained valuations of the two properties for that purpose[16].
[16] Ibid at [23]-[24]
A valuation of the Property B property forms Annexure “A” to the affidavit. The valuation is dated 7 February 2014 and shows a market value for the property at $1,250.000.00.
A valuation of the Property D property forms Annexure “B” to the affidavit. The valuation is dated 6 March 2014 and shows a market value for the property at $1,045,000.00.
The Second Respondent deposed that on or about 31 March 2014 a loan was advanced by (omitted) Bank for the purchase of the First Respondent’s interest in the Property B property. A copy of the Settlement Statement forms Annexure “C” and shows that on settlement a cheque for $248,698.20 was drawn in favour of Mr G and Ms R Luxford.
The Second Respondent also deposed that on or about 29 April 2014 a loan was advanced by (omitted) Bank for the purchase of the First Respondent’s interest in the Property D property. A copy of the Settlement Statement forms Annexure “E” and shows that on settlement a cheque for $73,101.60 was drawn in favour of Mr G and Ms R Luxford and a cheque for $80,519.81 was drawn in favour of the Second Respondent. He explained that payment as:
Cheque 9, referred to in Annexure “E” was payable to me because the First Defendant[17] had drawn at least $80,519.81 more than me from the business in order to fund his legal fees in respect of these proceedings, living expenses and child support payments.[18]
[17] sic
[18] Affidavit of Mr F Luxford 30.7.2014 at [33]
The Second Respondent deposed that the Property B and Property D properties are tenanted and he uses the rent together with his director’s salary and savings to pay the mortgage repayments.
In his later affidavit sworn 12 August 2014 (also in microscopic print) the Second Respondent deposes that he underpaid the First Respondent in respect of each transaction. He deposes:
3. I refer to Annexure “E” of my affidavit (“the Property D property direction to pay”) and I now understand that the amount I paid the First Respondent was incorrect as it did not represent the full value of his 50% interest in Property D. Annexed and marked “C” is an analysis of the payment which indicates that sum of $94,120.00 was underpaid to the First Respondent.
4. The reason I underpaid the First Respondent by $94,120.00 in respect of his 50% interest in the Property D property is that I had reached the limit of my borrowing capacity. I acknowledge the sum of $94,120.00 as a debt owed by me to the First Respondent.
5. I refer to Annexure “C” of my Affidavit (“the Property B property direction to pay”). The cheque made payable to Giles Payne & Co Trust Account for $5,000 was in respect of legal fees payable by my parents in respect of these proceedings.
6. Annexed and marked “D” is a true copy of an analysis of the Property B property direction to pay which indicates that I paid an amount to the First Respondent in respect of his 50% interest in the Property D property which is $1,800.54 less than the correct value.
7. The reason I underpaid the First Respondent by $1,800.54 in respect of his 50% interest in the Property B property is that I had reached the limit of my borrowing capacity. I acknowledge the sum of $1,800.54 as a debt owed by me to the First Respondent. [19]
[19] Affidavit of Mr F Luxford 12.8.2014 at [3]-[7]
The Respondents’ parents, Mr G and Ms R Luxford, relied on the following affidavits:
a)the affidavit of Ms R Luxford sworn on 30 July 2014;
b)the affidavit of Ms R Luxford sworn on 13 August 2014;
c)the affidavit of Mr G Luxford sworn on 13 August 2014; and
d)the affidavit of Paula Louise Becker sworn on 13 August 2014.
Ms R Luxford deposed in her affidavit of 30 July 2014 deposed that she and her husband are the registered proprietors of the property that comprises their home. She deposed that when her son Mr Luxford, the First Respondent, wanted to open his own (business omitted), she and her husband agreed to help him. Their son arranged a loan secured by a mortgage over his parents’ home.
In about 2003 her two sons, the First and Second Respondents, decided to go into business in a (business omitted) shop. They borrowed money, secured over their parents’ home.
Ms R Luxford deposed that when she and her husband became aware that the First Respondent and his wife, the Applicant, were having marital problems, they went to see a solicitor named Francis Farmakidis because they were concerned about the loan secured over their home.[20] The solicitor prepared a Deed which she and her husband and sons all signed.
[20] Affidavit of Ms R Luxford 30.7.2014 at [25]
The two brothers also owned an investment property in Property W. When they sold that property, Ms R Luxford and her husband asked their sons to pay some money off the mortgage over their home. Their sons agreed to pay the sum of $180,000.00 off the mortgage.
Later, the First Respondent told them that he was selling his interest in the Property D and Property B properties to his brother. Mr G and Ms R Luxford went to see their present solicitors, who prepared a Deed for them, which all four parties signed on 29 March 2014. A copy of that Deed forms Annexure “D” to her affidavit.
When the transfer of the First Respondent’s interest in the Property B property was settled on 31 March 2014, Mr G and Ms R Luxford received a cheque for $248,698.20, which was used to reduce the amount owing under the mortgage over their home.[21]
[21] Ibid at [37]
The transfer of the First Respondent’s interest in the Property D property was settled on 30 April 2014, a further amount of $73,101.60 was paid to Mr G and Ms R Luxford. This money was all paid off the mortgage over their home[22]
[22] Affidavit of Ms R Luxford 30.7.2014 at [38]
Ms R Luxford deposed at [39]-[41]:
39. At no time since 1999 have Mr G Luxford and I ever been responsible for obtaining loans, refinancing loans or repaying loans. Neither Mr G Luxford or I have paid money from our pension to the loan, we have not drawn any funds from the loan and we do not receive bank statements for the loans.
40. The monies paid pursuant to the 2014 Deed were paid by our solicitors straight into the mortgage following completion of the settlements on the Property D and Property B properties and our sons paid the sum of $180,000 to the mortgage following the sale of Property W.
41. Mr G Luxford and I do not want to lose our Home. We never “gave” money to our sons. We have three children – it would not be fair to give so much money to our sons and nothing to our daughter. The monies were a loan, secured over our Home and repaid by our sons.[23]
[23] Ibid at [39]-[41]
In his affidavit of 13 August 2014, Mr G Luxford gave basically similar evidence to that of his wife of the same date. He deposed:
45. Ms R Luxford and I do not receive any documents from the bank in our name. We do not receive statements and we have no access to the loan money. Ms R Luxford and I have our passbook with the (omitted) Bank where we receive our pension but nothing else.
46. Ms R Luxford and I have not received any money from the mortgage and do not have any access to the mortgage. We do not have a passbook, key cards, credit cards or a cheque book. We do not have statements or other information other than what we have received from our solicitor.[24]
[24] Affidavit of Mr G Luxford 13.8.2014 at [45]-[46]
Mr Luxford also deposed about his and his wife’s financial situation:
51. Ms R Luxford and I do not have the money to pay for solicitors. We have been advised by Mrs Becker[25] that the costs of this application is about $10,000.00 for Mrs Becker’s firm and about $9,000 for the barrister. We do not have this money, our son Mr Luxford has been paying this.
52. We do not have the money to pay back any loan and if we were to draw money from the mortgage, we do not have sufficient income to pay that money back.[26]
[25] Paula Louise Becker, their solicitor
[26] Affidavit of Mr G Luxford 13.8.2014 at [51]-[52]
Mr G and Ms R Luxford’s solicitor, Paula Louise Becker, swore an affidavit in support of her clients’ application for security for costs. The affidavit is in the nature of a submission but Ms Becker provided some very useful information about her clients’ fees, including Counsel’s fees, to date, along with an estimate of the cost of their participation in a four day hearing.
Submissions
Counsel for the Applicant, Ms Beck, handed up a Case Outline and made oral submissions.
It is the Applicant’s case that she disputes the First Respondent’s claim that he received a loan from his parents, secured against their home. The existence of this loan is disputed by the Applicant.
Ms Beck submitted that there are four transactions that are in issue in the property proceedings:
1. The payment to the parents of $180,000.00 following the sale of Property W by the Respondents.
2. The transfer of the First Respondent’s 50% interest in the Property D property to the Second Respondent.
3. The transfer of the First Respondent’s 50% interest in the Property B property to the Second Respondent.
4. The payment by the First Respondent of $321,799 from the proceeds of sale in 2 & 3 above to the parents.
It is submitted that the transactions that have been made by the Respondents and their parents may potentially defeat any potential property orders made by the Court under s.79 of the Family Law Act.
Counsel for the Applicant referred the Court to Rule 11.01, which requires that a person whose participation is necessary for the Court to completely and finally determine all matters in dispute in a proceeding must be included as a party in the proceeding.
Ms Beck referred the Court to the decision of Warnick J in Wayne & Dillon & Dillon[27] where his Honour defined the word “necessary” in Rule 11.01 as meaning something more than “useful” or “expeditious”.
[27] [2008] FamCAFC 204
As to the application by Mr G and Ms R Luxford for an order for security for costs, it was submitted that there is no evidence that the Applicant is impecunious and there is no other reason that the Applicant would be unable to pay costs if an order were made against her. Further, the Applicant’s prospects for success in this Application in a Case must be considered high.
Ms Beck referred the Court to the decision of Butler J in Brown and Brown; Eley and Henty (Interveners)[28], where Butler J said
Generally orders [for security for costs] are made where the defendant is an unwilling participation in litigation and should not be prejudiced by the plaintiff’s lack of funds…But the Court must carefully balance this consideration against the possibility that the plaintiff might be shut out or unfairly dealt with if security is ordered.[29]
[28] (1991) 15 Fam LR 69; FLC 92-265
[29] (1991) 15 Fam LR 69 at 73; FLC 92-265 AT 78,778
Counsel for the First Respondent submitted that the Court should consider section 90AE of the Family Law Act, which is directed towards the power of the Court to make an order under section 79 binding a third party.
Ms Pender submitted that the loan to the First and Second Respondents was a loan from the bank and not a direct loan from the parents or a gift by them to the First Respondent. The orders sought by the Applicant relate to property which is now that of the bank and irrecoverable.
Further, the Respondents’ parents do not come within the purview of s.90AE of the Act.
It was further submitted that the Court would accept the uncontradicted evidence of the First and Second Respondents and their parents that the arrangement for the loan from the bank predated the First Respondent’s relationship with the Applicant by some years and thus were not entered into with an intention to defeat an existing or anticipated order.
Counsel for the Second Respondent submitted that the Respondents’ parents should not be joined as their involvement in the financial affairs of the First and Second Respondents was effectively as guarantors of a loan by providing their home as security. The parents received no financial benefit from allowing their home to be used as security.
As for orders against the Second Respondent, Mr Friedlander submitted that:
The transfer between the respondents was at arms’ length in that proper independent valuations were obtained.
The applicant adduces no evidence to dispute the valuation evidence or assert that the transfers were not for proper market value.
Mr Friedlander went on to submit that the First Respondent gives evidence that he was in a financial position where he was unable to meet the loan repayments to the (omitted) Bank and therefore required to transfer his interest in the properties:
There has been in effect no material change to the matrimonial pool of assets.
It was further submitted that:
The second respondent concedes a debt still owing by him to the respondent husband, which debt can be added to the pool of the respondent’s assets.
Finally, Mr Friedlander submitted that his client was not seeking security for costs in circumstances where he seeks not to be joined and/or participate in the final hearing but supports the application by his parents insofar as that is relevant.
Counsel for Mr G and Ms R Luxford, Mr Gramelis, submitted that the Respondents and their parents all regarded the line of credit to be a loan to the Respondents in that they would be responsible for all repayments and expenses associated with the line of credit and that ultimately the repayment would rest with the First and Second Respondents.
Mr Gramelis submitted that the Application to set aside the transfers from the First Respondent to the Second Respondent is not in the nature of an interim order but a final order and said that the Full Court of the Family Court has cautioned against treating section 106B claims as separate or discrete issues to the rest of the proceedings.
It was also submitted that Mr G and Ms R Luxford were not parties to the transfers sought to be set aside. Apart from an interim injunction seeking to restrain Mr G and Ms R Luxford from dealing with the proceeds of the Property D and Property B properties, no substantive relief or orders are directly sought against them. Again, it could not be said that the interests of Mr G and Ms R Luxford are adversely affected by the Application under s.106B to set aside the transfers between the First and Second Respondents.
Mr Gramelis referred the Court to the decision of Kent J in Hankinson & De Vries & Ors[30] where his Honour drew a distinction between a person who may be a necessary to a proceeding and a person who may be a necessary witness.
[30] [2013] FamCA 455
It was submitted that the Applicant does not have an arguable case against the Respondents’ parents.
Conclusions
The issues to be decided are:
a)Whether Mr G and Ms R Luxford, the parents of the First and Second Respondents, should be joined as parties to the proceedings;
b)If so, whether an order should be made that the Applicant should provide security for the costs of Mr G and Ms R Luxford;
c)Whether an order should be made under s.106B of the Family Law Act setting aside the transfers by the First Respondent to the Second Respondent of his interest as tenant in common in the properties at Property D and Property B;
d)Whether an injunction should be made against the First and Second Respondents restraining them from dealing with the proceeds of sale of the properties at Property D and Property B under s.114(3) of the Family Law Act;
e)Whether orders for costs should be made against the Respondents or either of them and, if so, whether costs should be ordered on an indemnity basis; and
f)What, if any other orders should be made.
The Application to join the First and Second Respondents’ parents
Rule 11.01(1) provides that:
Subject to any order of the Court, a person whose participation is necessary for the Court to completely and finally determine all matters in dispute in a proceeding must be included as a party in the proceeding.
What must be decided is whether the participation of Mr G and Ms R Luxford is necessary for the Court to decide all matters in dispute.
In Wayne & Dillon[31] , Warnick J held at [18]-[19]:
18. The word “necessary” in rule 11.01 must mean something more than “useful” or “expeditious”. In my view, if there are available alternative means to joinder to the substantive proceedings, of obtaining from a third person or someone already a party what is needed to allow an applicant for joinder to establish an identified “case”, joinder is unlikely to be “necessary”.
19. However, if a cause of action, recognisable at law, against a “third person” is particularised, then it is at least highly likely that joinder will be “necessary for the court to completely and finally determine all matters in dispute”.[32]
[31] supra
[32] [2008] FamCAFC 204 at [18]-[19]
The issue was considered more recently in Hankinson & De Vries & Ors[33] where Kent J considered the corresponding rule in the Family Law Rules, Rule 6.02. The rules are not identical but essentially similar.
[33] supra
Rule 6.02 provides at (1):
A person whose right may be directly affected by an issue in a case, and whose participation as a party is necessary for the court to determine all issues in dispute in the case, must be included as a party to the case.
In his decision, Kent J considered the decision in Wayne & Dillon[34] and held:
19. As to participation “as a party” being “necessary” the fact that persons may be necessary witnesses to a particular issue does not mean they are necessary parties to the proceedings. In all the circumstances referred to and, in particular, the fact that the Applicant does not seek relief of orders directly against the Second and Third respondents and, critically, with respect to the shareholding, I am satisfied that the Second Respondent and Third Respondent are not “necessary parties” within the meaning of rule 6.02.
20. I reiterate that they may well be necessary witnesses on the issue the Applicant seeks to agitate in the substantive proceedings as against the First Respondent, but it does not follow that their “participation as a party is, within the meaning of rule 6.02.[35]
[34] supra
[35] [2013] FamCA 455 at [18]-[19]
The decision in Wayne & Dillon is binding, as it is a decision on appeal from this Court. The decision in Hankinson & De Vries, a decision at first instance of the Family Court, is not binding but the rule of judicial comity would require that the decision should be followed unless plainly wrong. I regard the decision in Hankinson & De Vries as persuasive.
The evidence appears to be that the First and Second Respondents borrowed money for business purposes using their parents’ home as security. When they sold the investment property at Property W, they repaid the sum of $180,000.00 in reduction of the mortgage over their parents’ home.
The two transactions from which this Application in a Case arises, involve the First Respondent transferring his interest as tenant in common to his brother, the Second Respondent, with amounts of $248,698.20 and $73,101.60 being paid in reduction of the mortgage over the home of Mr G Luxford and Ms R Luxford.
The Applicant submits that there are four transactions which are in issue:
a)The payment of $180,000.00 from the sale of Property W in reduction of the mortgage on Mr G and Ms R Luxford’s home;
b)The payment of $248,698.20 from the transfer of the First Respondent’s interest in the Property B property in reduction of the mortgage;
c)The payment of $73,101.60 from the transfer of the First Respondent’s interest in the Property D property in reduction of the mortgage; and
d)The circumstances of the two transfers themselves.
The Applicant does not concede that the money advanced to the First Respondent secured over his parents’ home was a loan rather than a gift.
The evidence appears to be that Mr G and Ms R Luxford acted as guarantors for the loan to their sons, the First and Second Respondents, by agreeing that the bank could take security over their home. There is no evidence that they received any of this money in their hands at any time. The only benefit that they have received from all these transactions is a series of reductions in the mortgage debt over their home.
No orders are sought directly against them. The injunction sought against “the Respondent” from dealing with the proceeds of sale of the First Respondent’s interests in the properties at Property D and Property B can have no effect on Mr G and Ms R Luxford. The money that came their way from these transactions went straight to the mortgagee. Not to them.
There appears to be no necessity for Mr G or Ms R Luxford to be joined as parties. They may be necessary as witnesses in the First Respondent’s case, but they can depose to affidavits and give oral evidence without being Respondents themselves.
The Application to join Mr G and Ms R Luxford as parties to the proceeding will be dismissed.
Consequently, there is no need to consider an application for the Applicant to provide security for costs.
Curiously, Counsel for the Second Respondent made this written submission:
The second respondent is not seeking security for costs in circumstances where he seeks to not be joined and/or participate in the final hearing but supports the application by his parents insofar as that is relevant.
The Second Respondent is already a Respondent. There is no application for him to be removed as a party.
The Application to set aside the Transfers from the First Respondent
The Applicant seeks an Order:
That the Transfers from Mr Luxford and[36]Mr F Luxford relating to the properties at Property D being the whole of the land contained in Folio Identifier (omitted) and Property B being the whole of the land contained in Folio Identifier (omitted) (‘the properties’) be set aside pursuant to s 106B of the Family Law Act 1975.
[36] sic
Presumably, there is a typographical error in the Application, as there is no Transfer from the Second Respondent, Mr F Luxford in respect of either property in evidence, only transfers by the First Respondent to the Second Respondent of his interests in each property.
The evidence from the affidavit of Mr James of 27 June 2014 shows that by a Transfer dated 30 April 2014 the First Respondent transferred an estate in fee simple to the Second Respondent for a consideration of $522,500.00, being his interest in the Property D property.
Mr James’ affidavit also shows that by a Transfer that is apparently undated the First Respondent transferred an estate in fee simple to the Second Respondent for a consideration of $625,000.00, being his interest in the Property B property.
It is these Transfers that the Applicant is seeking to set aside.
In order to obtain finance for his purchases of his brother’s interests in these properties, the Second Respondent was obliged to obtain independent valuations of those properties. The valuations are annexed to the Second Respondent’s affidavit of 30 July 2014.
The Property B property was valued at $1,250,000.00.
The Property D property was valued at $1,045,000.00.
However, the Second Respondent deposed in his later affidavit of 12 August 2014 that, because he had reached the limit of his borrowing capacity, he underpaid the First Respondent the sum of $94,120.00 in respect of the Property D property and underpaid his brother the sum of $1,800.54 in respect of the Property B property. This represents a total underpayment of $95,920.54, which is a considerable amount of money.
Mr Friedlander, in his Case Outline, submits that:
The transfer between the respondents was at arms’ length in that proper independent valuations were obtained.
The applicant adduces no evidence to dispute the valuation evidence or assert that the transfers were not for proper value.
This submission completely ignores the Second Respondent’s own affidavit evidence that he underpaid the First Respondent the significant amount of $95,920.54. This could hardly have been an oversight, as the Second Respondent deposes that he underpaid his brother because he had reached the limit of his borrowing capacity.
How could this have happened in two arms’ length transactions where the parties were legally represented? The First Respondent’s signature on each Transfer was witnessed by a solicitor, one of whom was Mr Sergio Nicolau, the solicitor then on the Court Record for the First Respondent. What sort of legal advice could the First Respondent have received?
This underpayment, about which the Second Respondent “came clean” in his second affidavit, raises some questions about the independence of the transactions.
The timing of the two transactions is significant, to my mind.
The Respondents were aware, from the Applicant’s Second Amended Initiating Application filed on 29 January 2013, that the First Respondent’s interests in the properties at Property D and Property B were regarded by the Applicant as part of the asset pool.
In the Orders sought by the Applicant in her Second Amended Initiating Application, Order 7 that is sought says:
That should:
7.1 Property W
7.2 Property W
7.3 Property D; or
7.4 Property B
Be sold then the proceeds of sale that the Respondent is entitled to less his half share of the amounts to pay any secured mortgagee, agents commission, legal fees on the sale and the usual conveyancing adjustments are to be retained in the Trust Account of the Solicitor for the Respondent in the joint names of the Solicitors for the Applicant and the Respondent.
On 22 October 2013 the Court listed the Application for final hearing on 19 August 2014 to run for four days until 22 August 2014.
On or about 31 March 2014, less than five months before the final hearing, the First and Second Respondents entered into their transaction to transfer the First Respondent’s interest in the Property B property to the Second Respondent and a cheque in the amount of $248,698.00 was drawn in favour of the Respondents’ parents and paid directly into the line of credit to reduce their liability to the (omitted) Bank.
Again, on or about 29 April 2014, less than four months before the final hearing, the First and Second Respondents transferred the First Respondent’s interest in the Property D property to the Second Respondent and a cheque in the amount of $73,101.60 was drawn in favour of the Respondents’ parents and paid directly into the line of credit to reduce their liability to the (omitted) Bank.
The First Respondent did not inform the Applicant about either of those transactions.
It was not until the Applicant’s solicitor, Mr James, received a letter dated 17 June 2014 from the First Respondent’s solicitors that he had any inkling of those transactions. The letter said, relevantly:
In the meantime we are instructed to advise you that the Property D property and the Property B property have now been sold. The proceeds of sale were applied in reduction of our client’s debts including most significantly the mortgagees and our client’s parents.
The letter is disingenuous, in my view, and indeed misleading, as it not only omits to mention that the First Respondent had transferred his interest in the properties to his brother but conveys the impression that the properties had been disposed of completely. Clearly, that was not the case. The title to each property was by then in the sole name of the Second Respondent. The money had been paid and the transactions had been completed.
This letter is a cause of significant concern and I will have more to say about it later in these Reasons.
The evidence, to my mind, raises a very clear inference that these transactions were such as to defeat an anticipated order in these proceedings.
Accordingly, the operation of s.106B of the Family Law Act comes into consideration. The Applicant is seeking an order under s.106B to set aside those transfers. However, it appears clear that such an order is by definition a final order and not an interim order. The authority of VC & GC & Ors[37] would support the view that such an order should properly be made at a final hearing where evidence can be tested by cross-examination, rather than at an interim hearing.
[37] supra
Accordingly, the Application to set aside the Transfers under s.106B of the Act will be left for decision at the final hearing.
Whether an Injunction should be made under s.114 of the Act
The Applicant seeks an injunction against the First and Second Respondents under the provisions of s.114(3) of the Family Law Act restraining them from dealing with the proceeds of sale of the properties.
Regrettably, it would appear that most of the damage had been done before the Applicant found out about the transactions between the First and Second Respondents, however, there is the matter of the underpayments of $94,120.00 and $1,800.54, which the Second Respondent admits he owes his brother after having underpaid him on two occasions. These and other amounts will definitely come into contention at the final hearing.
The circumstances of those transactions in relation to the Property D and Property B properties, which were not disclosed to the Applicant until well after they had been completed, clearly call for injunctions to be issued.
Costs
The Applicant seeks costs against “the Respondent” on an indemnity basis. It is not clear whether she means just the First Respondent or both the First and the Second Respondents. The latter would be more appropriate, as it appears that they were both willing participants in the transactions.
Costs in family law proceedings are governed by s.117 of the Family Law Act. If the Court is of the opinion that there are circumstances that justify it in doing so, the Court may, subject to s.117(2A), make such order for costs as it considers just.
Subsection 117(2A) sets out a number of matters to which the Court shall have regard, including:
(c) the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admission of facts, production of documents and similar matters.
It would appear that the First and Second Respondents may, as a result of the Court’s findings, need to make submissions as to why in the circumstances an order for costs should not be made against them in favour of the Applicant.
The Applicant seeks costs on an indemnity basis. It is the usual case that where costs are ordered against a party they are ordered on a party and party basis. Costs would normally be ordered in accordance with the Court scale, which in this case is contained in Part 1 of Schedule 1 of the Rules.
Costs will only be ordered on an indemnity basis where there are unusual or exceptional circumstances (Colgate Palmolive Co v Cussons Pty Ltd[38]; In the Marriage of Kohan[39]; Prantage & Prantage[40]). In the light of the Court’s findings about the conduct of the First and Second Respondents, they may well need to make submissions why, if costs are ordered against them, they should not be assessed on an indemnity basis.
[38] [1993] FCA 536; (1993) 46 FCR 225; 118 ALR 248
[39] (1992) 16 Fam LR 245; FLC 92-340
[40] [2013] FamCAFC 105; (2013) 49 Fam LR 197; FLC 93-544
The Conduct of the First Respondent’s Solicitor
The Solicitor on the Record for the First Respondent has been Mr Sergio Nicolau of Newtown Solicitors. Mr Nicolau filed a Notice of Withdrawal as Lawyer on 31 March 2015, but his involvement with this matter does not end just yet.
The circumstances of Mr Nicolau’s client, the First Respondent, raise some serious concerns which the Solicitor’s actions in this matter. As has been set out in paragraphs [118] to [139] of these Reasons, the First Respondent appears to have kept from the Applicant the fact that he and his brother have entered into transactions that could well have the effect of defeating proposed orders under s.79 of the Family Law Act.
Mr Nicolau of Newtown Solicitors has been the solicitor on the record for the First Respondent, when he filed a Response, an affidavit and a Financial Statement, until he filed the Notice of Withdrawal as Lawyer on 31 March this year.
Mr Nicolau was clearly aware that the applicant was seeking orders about the properties at Property D and Property B, in which his client held a half share as a tenant in common with his brother.
The transactions involving the transfer of the First Respondent’s interests in these properties to his brother took place at the end of March and the end of April 2014, but the Applicant’s solicitor was not made aware of these transactions until the letter from Newtown Solicitors dated 17 June 2014.
Mr Nicolau was clearly involved in at least one of those transactions, that relating to the Property B property, as he witnessed his client’s signature on the Transfer.
The letter from Newtown Solicitors to Mr James dated 17 June 2014 appears to have been signed by Mr Nicolau. Whilst the letter is signed “Newtown Solicitors”, the signature appears to be that of Mr Nicolau. The letter bears the reference:
“Our ref/writer Sergio Nicolau your reference Mr James”
As I stated at paragraphs [136]-[138] above, the letter is disingenuous and misleading. The paragraph that causes concern is the second paragraph, which says:
In the meantime, we are instructed to advise you that the Property D property and the Property B property have now been sold. The proceeds of sale were applied in reduction of our client’s debts including most significantly the mortgagees and our client’s parents.
What this letter did was present the Applicant’s solicitor with a fait accompli. By 17 June 2014 the transactions had taken place and the damage had been done.
The letter is misleading. It refers to the properties having been sold and clearly conveys the impression that they have been sold to a third party. That is not the case at all. What happened was that Mr Nicolau’s client, to his knowledge, had transferred his interest in the properties to his brother. What has also emerged is that the Second Respondent has now admitted in his affidavit of 12 August 2014 that he underpaid his brother in each transaction, on one occasion by more than $94,000.00.
There is evidence that Mr Nicolau was aware of these circumstances because he witnessed his client’s signature on one of the Transfers.
This behaviour is very concerning. If, as it appears, Mr Nicolau knowingly misled another legal practitioner in these matters, it raises the question as to whether this conduct is such that it can be regarded as unsatisfactory professional conduct, as defined by s.496 of the Legal Profession Act 2004 (NSW).
Section 496 of the Act states:
For the purposes of this Act
“unsatisfactory professional conduct” includes conduct of an Australian legal practitioner occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner.
I propose to request the Principal Registrar to forward a sealed copy of the Court’s Orders and these Reasons to Mr Nicolau of Newtown Solicitors and to order that the solicitor should, within fourteen days of receipt of the Orders and Reasons, file and serve a written submission to show cause why a complaint should not be made to the Office of the Legal Services Commissioner about his conduct.
The Future Progress of the Matter
It would appear to be clear that, once the issues of costs and the Court’s concern about the actions of the First Respondent’s former solicitor have been resolved, consideration should be given to transferring the proceeding to the Family Court for hearing. The likely length of the final hearing, even without the addition of the Respondents’ parents as parties, is clearly going to exceed four days. The Protocol between this Court and the Family Court requires that more complex matters, particularly those that are likely to take more than four days to hear, should more properly be dealt with by the Family Court.
That is an issue which will be considered on the next occasion.
I certify that the preceding one hundred and sixty-six (166) paragraphs are a true copy of the reasons for judgment of Judge Scarlett
Associate:
Date: 2 November 2015
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