HERMANSON & TRAVISS

[2019] FamCA 343

FAMILY COURT OF AUSTRALIA

HERMANSON & TRAVISS [2019] FamCA 343

FAMILY LAW – PROPERTY – Interim distribution.

Family Law Act 1975 (Cth) s 75, 79, 80, 117(2)

Harris and Harris (1993) FLC 92 378
Medlow & Medlow [2014] FamCA 530
Strahan & Strahan [2009] FamCAFC 166
Zschokke [1996] FamCA 79

APPLICANT: Mr Hermanson

RESPONDENT: Ms Traviss

INDEPENDENT CHILDREN’S LAWYER: Morton Family Lawyers

FILE NUMBER: SYC 2516 of 2017

DATE DELIVERED: 3 June 2019

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Henderson J

HEARING DATE: 21 May 2019

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Richardson SC

SOLICITOR FOR THE APPLICANT: Barkus Doolan

COUNSEL FOR THE RESPONDENT: Ms Kennedy

SOLICITOR FOR THE RESPONDENT: Cominos Family Lawyers

Orders

That by way of interim property settlement the husband to pay from his D Bank account the following forthwith:

1. The sum of $608,130 to the wife being $308,000 in respect of legal fees, $207,130 for ongoing living expenses and $93,000 for legal fees paid from family advancements.

2. The husband pay to himself the sum of $200,000 by way of payment for legal fees.

3. The balance remaining be paid into a joint account in both parties’ names for the payment of Capital Gains Tax of $330,000 resulting from the on the sale of shares by the husband, payment of the children’s school fees at the B School up to 2021 or as agreed with the balance remaining to be paid as agreed.

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 Hermanson & Traviss 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 SYDNEY

FILE NUMBER: SYC 2516 of 2017

Mr Hermanson

Applicant

And

Ms Traviss

Respondent

REASONS FOR JUDGMENT

1. This was an application for interim property distribution by the wife seeking payment to her of some $775,000.

2. The application was in part agreed and in part resisted by the husband. The husband sought a distribution of funds to both he and the wife by way of an interim property distribution in different terms to that which the wife sought.

3. Ms Kennedy of Counsel appeared for the wife and Mr Richardson SC appeared for the husband.

4. The fund of money for payment to the parties is $1,350,000 held by the husband in a D Bank account. The money is the remainder from the sale of shares that the husband sold post separation.

5. In essence both parties seek a distribution from the fund for legal fees.

6. In addition the husband says money needs to be set aside to pay the children’s school fees at the B School pending finality of the matter, $330,000 for Capital Gains Tax not yet payable but having been crystallised, that money ought be available for the parties to use to further fund the litigation by way of payment of experts fees and the like. He says he and his wife each receive $200,000 for legal fees in two tranches. The first tranche of $100,000 forthwith and the second tranche of $100,000 7 days after trial directions are made. Additionally the wife is to receive $200,000 by way of interim property orders.

7. The material I read is as follows:

   a)For the wife:

   i)Her Application in the Case, Financial Statement and Affidavit all filed 13 May 2019, the exhibits to her affidavit including a costs agreement and cost notification provided by her lawyers

   b)For the husband:

   i)His Response, Financial Statement and Affidavit all filed 20 May 2019 together with the exhibits to his affidavit;

   ii)The husband included a balance sheet in his Affidavit at paragraph 10.

8. At the outset it is clear that the husband concedes the wife has a shortfall of income over expenditure, to his credit, as he agrees she should be paid $200,000 in addition to her legal fees.

9. Secondly, it is clear the wife’s family was the source of her payment of her initial legal fees of $93,000 whereas the husband was able to pay his legal fees of $137,000 from income. He has been able to fund payment of ongoing legal fees from his resources as set out in paragraph 64 of his affidavit. Clearly there is a significant imbalance in the parties’ financial resources.

10. The husband works full-time and earns gross $4,642 weekly the wife has a limited income of $674 weekly which includes $255 in child support and $108 in family benefits. The wife has not been in paid outside employment 16 years and is a 50% owner of a business which provides her with minimal income.

11. The parties separated on 14 December 2016 and the husband sold shares in D Company and F Company post separation which he has used in part to pay off the mortgage Suburb B where the wife and children reside. The children are X born in 2008 and the Y born in 2012. In addition he has paid the children’s school fees, expert’s fees for this litigation, payment of the children’s extracurricular and other activities. Additional payments from the share sale included Capital Gains Tax on the first lot of shares sold by him.

12. The parties are awaiting receipt of an expert’s report as to the value the husband’s shares in D Company. In the absence of this valuation the parties are seized of some $9 million in assets and this will no doubt increase when the awaited valuation is to hand. The sum the wife seeks of $775,000 is a mere 8.6% of their combined wealth. The current value of the entire D Bank account is 16% of their combined wealth at present. I must be satisfied that the money sought to be paid are supported on the evidence.

13. The husband will reimburse himself the sum of $30,000 from the D Bank account for funds he has paid from his own funds to prepare a further expert’s report which was recently carried out. This is agreed.

14. There is clearly sufficient money in the D Bank account to pay the wife $775,000 provide for the payment of the Capital Gains Tax when it is payable and $200,000 to the husband in legal fees. However, there would be little left school fees and the provision of ongoing expert’s reports and like.

15. Having funds available to pay for additional experts’ reports in a joint account may not, however, be as necessary as it has been if each party has funds released to them to cover their anticipated legal expenses.

16. The wife’s financial position is extreme. She asserts a shortfall of income over necessary expenses of $2,500 per week. Her income is $674 from all sources and her expenses are $3,336 weekly. This shortfall she says has been met by her family and this is the debt she wishes to repay and it is approaching $300,000. The wife asserts she spends $2,040 a week on her sons including $400 in school fees which the husband also asserts he pays. The children attend many therapies and extracurricular activities.

17. Her claim for an interim property distribution is set out at paragraph 9 of the affidavit and is as follows:

    c)$285,979 family advancement;

    d)$75,000 current legal fees which is now risen due to this application to $88,000 from wife’s Exhibit 1;

    e)$7,130 credit card; and

    f)$188,004 general living expenses.

18. The wife has been out of the paid workforce for 16 years and is the children’s primary carer.

19. The husband also asserts a negative financial position. He earns gross $4,642 per week with expenditure of $5,592. He asserts he pays $800 a week for the children’s school fees which from his own material he has been paying from capital at least since 2017. He has $79,000 in bank thus supporting the wife’s position that he may not be as impoverished as he asserts. He says he pays $1,276 a week for his children which when added to the wife’s $2,048 is a staggering $3,300 a week. The husband’s net income is only $3,676. The parties assert they spend almost the entirety of the husband’s income on the children and unless there are errors or double counting this cannot continue but is a matter entirely for them.

20. As clearly set out in the decision of Strahan[1] when the Court is determining an interim property distribution if there are property proceedings on foot under section 79[2] as is the case here, funds may be made available to the parties pursuant to other the exercise of discretion under section 80[3] or section 117(2)[4] of the Act. The test under each power is somewhat different.

    [1]Strahan & Strahan [2009] FamCAFC 166.

    [2]Family Law Act 1975 (Cth), s 75.

    [3]Family Law Act 1975 (Cth, s 80.

    [4]Family Law Act 1975 (Cth), 117(2).

21. I refer to a decision of my brother Loughnan J of Medlow & Medlow[5]  who has helpfully set out the relevant law and principles on this issue at paragraphs 20 to 24 which I repeat:

    [5]Medlow & Medlow [2014] FamCA 530.

    20. In Harris and Harris (1993) FLC 92 378 (“Harris”) the Full Court considered an appeal against an interim or partial order for settlement of property. It concluded that there was no doubt that the Court had power to make such an order but said, among other things:

    (1)      The exercise of the power should be confined to cases where the circumstances presented at that time are compelling. As a generality, the interests of the parties and the Court are better served by there being one final hearing of s. 79 proceedings. However, circumstances may arise before there can be a final hearing which dictate that some part of the property of the parties should be the subject of orders. A common example is where both parties agree to the disposal of some assets pending the trial. However, we do not consider that it is confined to cases where the parties consent. Urgent situations may arise where it is necessary to exercise this power if injustice is to be avoided. Examples include cases where it is necessary to do so to avoid an asset being eroded or lost in the intervening period, and cases (beyond the maintenance power) where an order in favour of one party is necessary to preserve or obtain a home for or is otherwise necessary for the welfare of the children.

    ….

    (2)      It is an exercise of the s. 79 power. Consequently it must be performed within those parameters. Since it is not the final hearing the Judge is unlikely to have the final findings, but the exercise must fall within that general framework and the material available at that time.

    (3)      Of necessity it is likely to be a somewhat imprecise exercise. Consequently, it must be exercised conservatively and the Judge must be satisfied that the remaining property will be adequate to meet the legitimate expectations of both parties at the final hearing, or that the order which is contemplated is capable of being reversed or adjusted if it is subsequently considered necessary to do so. It is for this reason that we doubt whether the distinction which Nygh J drew between interim and partial orders is necessary or desirable.

    21. In Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466; [2009] FamCAFC 166 (“Strahan”) Boland and O’Ryan JJ prepared a joint judgment. Although Thackray J gave separate reasons, he substantially agreed with the joint judgment. In the joint judgment Boland and O’Ryan JJ proposed that the process of considering an application for interim property settlement could be undertaken in two stages. They said:

    118.     …

    Thus the first step is to resolve whether to exercise the power before a final hearing and if it is resolved to do so then the second step involves the exercise of that power.

    22.      As to the circumstances that would justify an interim order, the Full Court rejected the contention from Harris that the Court must find compelling circumstances. The joint judgment contained the following:

    132. In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.

    23.      There was no argument by the Full Court in Strahan about an order for interim property relying on s 79. Similarly, the third of the Harris elements found favour in Strahan. In the joint judgment of Boland and O’Ryan JJ they said:

    136. As to the third matter identified at 79,930 by the Full Court in Harris, in discussion before us it was described as the “adjustment issue” or “claw-back issue”. It was submitted by senior counsel for the Wife that it is relevant to consider whether an order would give the applicant “more than they would be indubitably entitled to on a final hearing” or alternatively “would it give them so much that it could not be adjusted on a final hearing?” As we have observed the Full Court in Zschokke at 83,220-221 stressed the importance of consideration of the “adjustment issue” if the power in s 80(1)(h) of the Act is being exercised. We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. As Finn J said at [126] the interim order must be “capable of alteration at any time prior to, or as part of, the final exercise of the s 79 power”.

    24.      In the circumstances before me there is no controversy about there being circumstances that would ordinarily warrant the application of joint funds to certain expenses. Whether crafted in the form of conditions to an injunction aimed at the preservation of property or as an exercise of interim property settlement, the orders of 8 April 2014 were made by consent. Indeed, albeit not the relevant test, as to securing the husband’s legal representation, it is my understanding that the parties are agreed that there are compelling reasons for interim orders.

22. The husband asserts that the $200,000 paid to the wife in addition to legal fees be classified as an interim property distribution and the costs paid as an interim costs order. The wife asks I leave the characterisation of the payment to the trial judge.

23. When making an order under section 80[6] I must have regard to the requirements of section 79[7], 79(4)[8] and 75(2)[9] on a limited basis, to ensure the orders proposed to be made are just and equitable. This principle is set out in paragraphs 87 and paragraph 90 of Strahan[10] where their Honours said 3 matters are relevant:

    g)A position of relative financial strength on the part of the respondent;

    h)A capacity on the part of the respondent to meet their own costs; and

    i)An inability on the applicant to meet their own costs.

    [6] Above, note 3.

    [7] Above, note 2.

    [8]Family Law Act 1975 (Cth), s 75(4).

    [9]Family Law Act 1975 (Cth), s 75(2).

    [10] Above, note 1.

24. In addition I must be satisfied that at the end of the day there will be sufficient funds available to satisfy each parties entitlement to property after having made an interim property distribution. This is not relevant in this matter as the wife’s claim for $755,000 is 8.6% of the pool and the entire fund perhaps comprises some 16% of the pool without yet knowing the current value of the D Company shares.

25. The reality is that the husband has had control of significant matrimonial funds post separation, has been able to find his own legal fees to an amount of $137,000, has $79,000 in the bank and the wife has had no such access or capacity to so do. In addition husband earns income and the wife is penniless, cannot fund ongoing legal fees or what she asserts are her reasonable needs or any living costs in reality yet she has the primary care of two young children and has not been in the workforce for 16 years.

26. The wife has made out a compelling case for an interim property distribution to her from joint funds solely in the husband’s control.

27. Going to her claim. I do not accept she must now repay her family the monies they have provided to her as there is no loan agreement that she has provided to the Court or a request or demand by any family member to repay money. However, it is also clear that the money to pay her initial legal fee bill of $93,000 was money from her family given she had no financial capacity so to do at that time. Given the husband was able to fund his own fees from his resources the monies the wife’s family provided to pay her initial legal fees will be paid to the wife by way of an interim property distribution.

28. The wife’s current legal fees are $88,000 and to the end of the litigation are anticipated to be $220,000. I note from the husband’s exhibits to his affidavit it is anticipated his legal fees to the end of the litigation are some $444,000 thus the wife’s claim for anticipated legal fees is reasonable. This totals $308,000 in legal fees. This sum together with the payment to her of $93,000 being legal fees paid by her family is a total for legal fees of $401,000.

29. In addition it is appropriate that monies be released to pay her current credit card debt of $7,130 given her significant shortfall of income over necessary expenditure. The husband agreed the wife be paid an additional $200,000 for ongoing expenses to be characterised as an interim property distribution and she claimed only $188,000. I agree $200,000 the husband asserted was appropriate should also be paid to the wife for her ongoing expenses. These amounts total $608,130.

30. The total fund is $1,350,000 this leave a balance of $741,870. $30,000 of that sum must go to the husband being a refund of an expert’s fee paid by him and $330,000 must be quarantined to pay Capital Gains Tax crystallised but not yet payable. This is total of $360,000 thus reducing the money remaining to $381,870.

31. The husband seeks $200,000 for his legal fees into the future. On the basis of his evidence and even in the absence of his having to pay school fees I do not see he will be able to pay his anticipated legal fees totally from own resources and I accept he too should receive $200,000 for legal fees. I do not accept this money should be paid in 2 lots as he sought and each will receive that money forthwith.

32. The husband has helpfully set out at paragraph 95 of his affidavit the school fees for the next four years for his sons at the B School which total $177,000. I do not see on the evidence that it is necessary to quarantine 4 years of school fees as this litigation will be resolved one way or another by that time. I do accept 2 to 3 years is a more realistic time frame which would, require no more than $127,000 over 3 years. These 2 figures, the husband’s legal fees and 3 years of school fees total $327,000 leaving $54,870 in the account. This is money that can be used as agreed.

33. On the basis of these calculations both parties will have sufficient resources in the monies they are to receive to fund their ongoing legal costs and for the wife to fund her necessary living expenses for herself and the children without in any way comprising either parties ultimate entitlement to their property.. Therefore I find it is just and equitable to make the orders I propose to make as interim property orders pursuant to section 80(1)(h) of the Family Law Act 1975 (Cth) being for the payment of legal fees for the husband and wife is set out and an additional sum to the wife to ameliorate the shortfall of income over necessary expenses as set out. The orders will be as follows:

    j)That by way of interim property settlement the husband to pay from his D Bank account the following forthwith:

    i)The sum of $608,130 to the wife being $308,000 in respect of legal fees, $207,130 for ongoing living expenses and $93,000 for legal fees paid from family advancements.

    ii)The husband pay to himself the sum of $200,000 by way of payment for legal fees.

    iii)The balance remaining be paid into a joint account in both parties’ names for the payment of Capital Gains Tax of $330,000 resulting from he on the sale of shares by the husband, payment of the children’s school fees at the B School up to 2021 or as agreed with the balance remaining to be paid as agreed.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Henderson delivered on 28 May 2019.

Associate:

Date: 3 June 2019