Hinde & Hinde and Anor
[2008] FamCA 24
•25 January 2008
FAMILY COURT OF AUSTRALIA
| HINDE & HINDE AND ANOR | [2008] FamCA 24 |
| FAMILY LAW – PROPERTY – Dissipated funds to be recouped from third party before distribution – Bona fide purchaser |
| APPLICANT: | Mrs Hinde |
| FIRST RESPONDENT: | Mr Hinde |
| SECOND RESPONDENT | Mr Fray |
| FILE NUMBER: | (P) | BRF | 811 | of | 2006 |
| DATE DELIVERED: | 25th January 2008 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Carmody J |
| HEARING DATE: | 20 and 21 September 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Burridge |
| SOLICITOR FOR THE APPLICANT: | Hogan Stanton Lawyers |
| FIRST RESPONDENT: | Mr G.I. Holmes |
| SOLICITOR FOR THE SECOND RESPONDENT: | MacPherson & Kelly |
Orders
I direct the parties’ lawyers to confer and email either a draft consent minute or competing proposals (with short written reasons) of property orders giving practical expression to this judgment by 4.00 pm on 6th February 2008.
IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Carmody delivered this day will for all publication and reporting purposes be referred to as Hinde
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRF 811 of 2006
| Mrs Hinde |
Applicant
And
| Mr Hinde |
Respondent
And
Mr Fray
Second Respondent
REASONS FOR JUDGMENT
Introduction
This is the wife’s application for property settlement. It is one of those rare and exceptional cases where, instead of dealing with existing property owned and in the possession of a party the claimant has to recoup dissipated funds from a third party before the redistribution exercise can be conducted.
The major assets at stake are the former matrimonial home at A and a farm in Tasmania with an estimated but unsubstantiated combined market value of around $600,000. The husband holds the legal title in both but there isn’t much equity left in either because of the post filing disposal of nearly $1/2 million most of which was given to the second respondent as part of an alleged sponsorship deal and the rest spent on living expenses.
The second respondent is a businessman and appears to have a controlling interest in a trading company valued in excess of $2,025,000. He used the $430,000 received from the husband in 2006 to discharge private as well as business debts in addition to funding his sporting career. He denies any personal liability to repay but there is no evidence that requiring him to do so would cause undue financial hardship or that it is possible to meet the wife’s claim from alternative sources or by other means.[1]
[1] cf: In the Marriage of Heath;Westpac Banking Corporation Intervening (1983) 9 Fam LR 97 at 110
The issues for determination are, firstly, whether an order setting aside the suspect transaction should be made under s 106B of the Family Law Act 1975 and, if so, who, if anyone, is legally responsible for reimbursing the wife.
Mr Sweeney accepts for the purposes of argument that subject to meeting procedural justice requirements generally and the right to be heard in particular, it is possible to attack a non party transaction under s 106B[2] but submits that despite Nicholson CJ’s remarks in Halabi[3] about the issue of joinder of parties the court has to act carefully before attempting to interfere with the substantive rights of companies without any evidence that they are “controlled” by a party.
[2] Whitaker v Whitaker (1980) FLC 90-813.
[3] (1993) 17 Fam LR 675.
The Full Court said in Gould: [4]
….a person against whom a claim is made must be given notice of that claim and a reasonable opportunity to be heard ….the correct procedure where an applicant in proceedings under the Family Law Act seeks relief against a person who is a stranger to a marriage or relationship, is to name that person as an additional respondent in proceedings and set out the nature of the claim and the basis of it in the ordinary way in the application…
[4] (1993) FLC 92-434.
This may all be perfectly true but the target of this application is the initial transfer of funds to the second respondent not any later disbursements to related entities such as W Pty Ltd.
The mortgagee bank is not joined either. This is doubtless because all of its dealings were with the sole registered owner through the agency of a broker and there was nothing about the transaction to put them on alert or notice as to the husband’s purpose or the financial consequences for the wife.
Thus, the argument that a mortgage bestows a bundle of rights in rem and in persona on the bank and therefore amounts to a disposition does not have to be considered here because the disposition the wife wants sets aside is the voluntary transfer or gift by the husband of the funds to the second respondent not the bank loans.
The historical facts
The parties were married for the 14 years between 1990 and 2004. They have a 12-year-old daughter who lives with the mother under court orders and spends infrequent periods of time with the father. For most of the marriage the parties worked in a business owned by the husband’s parents which was sold in 2001. Thereafter the family moved into the home at A which the husband purchased in his sole name in 1995 from pre-marriage business proceeds. He also acquired a farm in Tasmania shortly after the sale of the parents’ business. The wife later worked in schools while the husband commenced a maintenance business known as P Company.
Shortly after separation the husband agreed to deposit the proceeds from any sale of the A property into his solicitors’ trust account on account of future litigation.
The wife’s lawyers wrote to the husband’s solicitors on 7 February 2006 foreshadowing an application for a property settlement (Exhibit 2). He denied receipt. The wife’s Form 1 was filed on 26 March 2006. Within a fortnight the husband had mortgaged both properties to the ‘hilt’ ($488,000) and transferred $430,836 in ‘sponsorship’ monies to the second respondent in two instalments. He used the balance of $57,173 to buy the Toyota vehicle for $20,000 and for self support.
The husband’s actions dramatically reduced the equity in the properties virtually extinguishing the wife’s unascertained share in the process. She did not become aware of the suspect transactions until 21 April 2006.
The wife contends that the transfer of the funds to the second respondent was a sham and should be treated by the court as an outstanding debt owing to the husband and ultimately to the marriage.
She asserts that justice and equity require the second respondent to be ordered to reimburse the full amount and revert to his pre-transfer position.
The second respondent resists the making of restitution orders.
The husband admits that his 2006 borrowings to fund the sponsorship arrangement had the practical effect of defeating the wife’s claim but denies knowing of the intended or actual institution of the wife’s proceedings before finalising the challenged transaction. He claims the sponsorship deal was a genuinely mutually beneficial and commercially realistic transaction and says it was entered into in good faith for valuable consideration without malice or intent to defeat or defraud the wife.
The husband has not filed an affidavit-in-chief but gave oral evidence and was cross-examined. He did lodge a Form 13 Financial Statement on 17 April 2007 declaring $629,300 in liabilities and $515,000 in assets, with a superannuation interest of $2,500 and nil financial resources. His stated average weekly wage is $350 plus $850 a year business income from P Company.
The heads of claim
The wife seeks to have the sponsorship deal between the husband and second respondent and related transactions set aside under s 106B on the basis of the allegation that within a week or so of the commencement of these proceedings the husband either intentionally or recklessly incurred bank mortgage debts for the windfall benefit of the second respondent to defeat her claim by placing otherwise distributable assets out of reach..
She also alleges that the second respondent was either complicit in the sham or knowingly concerned in the husband’s attempt to fleece her.
The first sum of $280,826.53 was made by direct bank transfer into an account controlled by the second respondent on 6 April 2006. The second amount of $150,010 was paid by bank cheque into the same account the following day. The day after receiving the funds, the second respondent transferred $210,515 into a W Pty Ltd account and applied $142,417.87 to the discharge of four motor vehicle hire purchase agreements used in connection with his business. A remaining $35,719.32 was transferred into an N Pty Ltd account. As the second respondent explains in his Affidavit filed 3 April 2007 that the money was used to “avoid debt, and interest repayments and ..set up a line of credit’. This debt reduction strategy indirectly enabled him to continue his sporting career. [13]
The wife prepared and initially presented a case solely aimed at proving an intentional “sham” disposition but then in her written submissions contended, in the alternative, that irrespective of intention the transfers should be reversed as likely to defeat an anticipated order in her favour.
In the event that she recovers the $430,836.53 she claims 55% of the net pool or about $366,500.
If the whole sum is not ordered to be paid back she seeks that the amount used by the second respondent to pay out unrelated hire purchase agreements ($142,417.87) together with retained monies of $16,182.54 be placed back into the matrimonial pool. Alternatively, she asks for orders for the sale of both the A home and Tasmanian property on stated terms with the whole of the net proceeds, if any, being paid to her as well as being allowed to keep minor assets including $30,000 in superannuation so as to leave the husband with a second-hand car, household contents, his maintenance business, and any modest superannuation he has.
The wife further contends that in the event that the dispositions are not set aside and/or no order made for partial repayment of any funds by the second respondent, the overall conduct of the husband in relation to the mortgages and transfer of funds should be viewed as a premature distribution in accordance with the well known dicta in Townsend v Townsend and notionally added back.[5]
[5] (1995) FLC 92-569.
Presumable this would allow her to enforce the order against the husband for the payment of money if and when he ever gets any and she finds out about it. Otherwise, all she is left with is the remaining in equity in the two houses viz., less than $150,000 plus any amount the second respondent will be ordered to pay back under s 106B and the minor assets in her possession.
There is no doubt in my mind that the husband is caught by both the Townsend and Kowaliw v Kowaliw[6] guidelines but there is judicial division as to whether or not making an order awarding property valued at more than the net available assets is within power. Milankov[7] is authority for the proposition that it is.
[6] (1981) FLC 91-092.
[7] (2002) FLC 93-095.
In the majority judgment Nicholson CJ and Buckley J upheld an order beyond the extent of the actual pool of assets was open to the trial Judge first because it only exceeded the actual pool of assets by a very small amount and second because the husband’s inability to meet the orders was a direct consequence of his receipt of a prehearing distribution to meet his legal expenses.
However, in his dissenting judgment Kay J[8] held that:
The court cannot make an order for the alteration of property interests that extends beyond the available assets of the parties.
and that:
Inclusion of the notional add backs to the pool of assets ought not to be seen as an incorrect method of increasing the size of the pool but merely assists the court in determining what should be a fair share of the pool that is available for distribution.
[8] (2002) FLC 93-095
Notably, the Full Court only very recently said in Dollings v Scott[9]
…normally adjusting property interests under s 79 in favour of one spouse cannot exceed the totality of the net assets and/or superannuation entitlements of the parties. The peculiar circumstances in Milankov that saw the majority conclude that the award to the wife of slightly larger than the actual assets that existed at the date of trial should be seen as an exception to the rule rather than conforming with it.
[9] (2007) 37 FamLR 428 at 455.
In the face of this uncertainty and because of its pivotal importance I will decide the s 106B issue first and defer any notional add back or related considerations until later.
Legislative provisions
Section 106B is a powerful anti-avoidance provision enabling the court to set aside ‘sham’ transactions or dispositions made meaning to defeat anticipated court orders or having that likely practical effect. Its purpose is to ensure the statutory object of attaining economic justice between the parties is not thwarted rather than to achieve some other public purpose.[10] It can support orders made after the event against a third party to recover marital property with the practical effect of depriving a creditor or mortgagor of fixed security. A grant of relief is purely discretionary. Even if all the requirements of the section are met, a wrong may stay unremedied where, for example, it is necessary to avoid unduly prejudicing the legitimate rights of a non-party.[11]
[10] Gould v Gould; Swire Investments Ltd 1993 FLC 92-434 per Fogarty J at 80,442.
[11] cf s 106B(3).
The issues and facts to be proved
The main contested issues are whether the sponsorship deal was (a) a bona fide commercial transaction or a “sham”; or (b) intended to defeat the wife’s anticipated property orders or had that practical effect; and (c) the second respondent had (i) notice; (ii) provided adequate consideration; and/or (iii) is otherwise entitled to the protection offered by s 106B(3).
Thus the elements of intention, effect, knowledge, value and notice all are of major significance to the outcome.
The applicant bears the onus of proof in this regard. There is no legal (as distinct from evidentiary) obligation on the defending party in family proceedings to disprove an allegation. Section 140 of the Evidence Act 1995 (Cth) prescribes the standard of proof in civil proceedings including those conducted in this court. It provides that the court must find the case of a party (with the onus of proof usually being on the alleging party) proved if it is satisfied that the case has been proved on the balance of probabilities. There are degrees of probability but, when the law talks about "the balance of probabilities", it envisages a level of confidence to the point that the court can be reasonably satisfied that the alleged facts in issue is more likely than not. Subs 140(2) then goes on to say that together with any other relevant matter it may take into account when deciding whether subs 140(1) is satisfied it is to take into account the (a) nature of the cause of action or defence; and (b) the nature of the subject matter of the proceedings; and (c) the gravity of the matters alleged.
Sub-section 140(2) introduces notions of weight and variability similar to those nominated by Dixon J in his famous dictum in Briginshaw v Briginshaw[12] where his Honour described proof as being the feeling of actual persuasion of the occurrence of a disputed event or the existence of a contested fact and noted that at common law it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the decision maker which:
“… is not a state of mind…attained or established independently of the nature and consequence of the fact or facts to proved. The seriousness of an allegation made, the inherent unlikelihood of a occurrence of a given description or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal.”[13]
[12] (1938) 60 CLR 336 at 361-2 from which s 140 of the Evidence Act 1995 (Cth) is derived. See also K v R (1997) 22 Fam LR 592 at 599, 602 - 603, cited with approval in Re: W (2004) FLC 92-478.
[13] Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. This was a divorce case involving alleged adultery.
Thus, Dixon J concluded inexact proofs, indefinite testimony, indirect inference or equivocal hypothesis will not do.
In practice the same applies under the statutory formulation even though s 140(2) does not specifically mention either the seriousness of the allegation, the inherent unlikelihood of the event or the consequences of an adverse finding.
As the following paragraph from Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd[14] shows, the High Court does not see the civil standard as a sliding scale or “spectrum” :
"The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct"(emphasis added).[15]
[14] (1992) 67 ALJR 170 at 170-2.
[15] (1992) 67 ALJR 170 at 170-2.
In explaining the standard of proof to be applied in UK child related proceedings in Re: H & Ors[16] Lord Nicholls of Birkenhead said:
When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence (emphasis added) before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. . . . Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.
Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established (emphasis added).
[16] (1996) 1 All ER 1 at 16.
These passages make it plain that there is no special standard of proof in family matters where criminal or other serious misconduct is alleged. There are not two distinct standards – the Briginshaw approach and the ordinary civil standard. There is only one constant standard of proof in civil cases. That standard is the balance of probabilities. The evidence required to achieve that standard may vary depending on the three factors referred to in s 140(2) of the Evidence Act 1995 (Cth) which relate to the quantum as opposed to the standard of proof required. They are taken into account principally because the more serious an allegation is the less likely it is to occur and the stronger the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.[17]
[17] Re: Dellow's Will Trusts, Lloyd's Bank Ltd v Institute of Cancer Research (1964) 1 All ER 771 at 773 per Ungoed-Thomas J.
In other words, as a general forensic rule the usual is more likely to occur than the unusual but the unlikely sometimes happens though not very often. Once the likely is rejected then the unlikely may be more likely to be true. [18]
[18] Justice PW Young, ‘Practical Evidence’,(1998) 72 ALJ 21.
The civil standard takes account of the instinctive judicial feeling that even in civil proceedings a court should be surer before finding serious allegations proved than when deciding less serious or trivial matters. Civil proof, therefore, is not a simple matter of grave suspicion or belief but of "reasonable satisfaction" following a search for the truth and properly evaluating the evidence adduced with regard to the matters mentioned in s 140(2) (and by Dixon J in Briginshaw[19]) in the light of the parties' respective power to produce or capacity to contradict it. [20]
[19] See generally, Ligertwood, A, Australian Evidence, 4th ed, Butterworths, 2004 at pp 82-83.
[20] Blatch v Archer (1774) 1 Cawp 63 at 65; 98 ER 969 at 970. See also Vetter v Lake Macquarie City Council (2001-2002) CLR 439 at 454[36]; Burke v LFOT Pty Ltd (2002) 187 ALR 612 at 647[134].
Where, as here, the alleging party relies on circumstantial rather than direct evidence to prove a state of mind such as knowledge notice or belief it is sufficient in a civil case that the circumstances support a more probable inference in favour of the asserted fact, Vines v Australian Securities and Investments Commission [2007] NSWCA 75 per Ipp JA at 813 and Spigelman CJ agreeing at [539]. Where competing inferences are finely balanced or of equal likelihood or the choice between them can only be resolved by conjecture or speculation the allegation is not proved; Luxton v Vines (1952) 85 CLR 352 at 358.
However, the law looks for probability not certainty. In many aspects common sense and worldly experience may be as good a guide as any. A reasonable starting point is the supposition that husbands do not normally cheat former wives out of their fair share of family property. That assumption prevails unless and until the contrary is clearly and adequately established. The reinforcing effect of the combined force of all the circumstances considered together at the final stage of the reasoning process is what is important.
Was the sponsorship deal a sham disposition in the relevant sense?
The term “disposition” in s 106B is defined to include a gift, grant or transfer. It denotes disposal or bestowing something on somebody as by way of gift or sale. It does not normally involve a charge or encumbrance over property or the loss of equity.
A “sham” transaction has no legally defined characteristics. It is a financial transaction that may or may not actually confer any ownership rights or property interests as it purports to. It is commonly a devise used to avoid a liability or defeat a creditor or other claimant.
The relevant concept was explained by Lord Diplock LJ in Snook v London and West Riding Investment Pty Ltd:[21]
I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. One thing I think, however, is clear in legal principle, morality and the authorities … that for acts or documents to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a "shammer" affect the rights of a party whom he deceived. [emphasis added]
[21] (1967) 2 QB 786 at 802.
The term was also discussed by Lockhart J in the Full Federal Court decision of Sharrment Pty Ltd and Ors v Official Trustee in Bankruptcy[22] stating:
“ A “sham” is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be…It is a spurious imitation, a counterfeit, a disguise or a false front………It is something that is false or deceptive”.
[22] (1988) 82 ALR 530 at 537 referred to and adopted in Gould and Swire Investments (1993) FLC 434.
Although the court may adopt a robust and even skeptical approach to dubious transactions like the one in question but that does not mean that it can:
…ride roughshod over established principles where third party interests are involved.[23]
[23] A v A [2007] 2 FLR 467.
Common intention is a pre-requisite for relief from a “sham” s 106B settlement of property but gross or reckless indifference may equate with the actual intention.[24]. It also includes awareness of inevitabilities or moral certainties or reckless indifference involving the taking of clearly unacceptable risks in gross deviation from the standard of honest conduct with somebody else’s money. If intent cannot be established, then the question becomes whether the disposition was likely to defeat an anticipated order.[25]
[24] Minwalla v Minwalla and D M Investments SA, Midfield Management SA and C I Law Trustees Ltd [2005] 1 FLR 771.
[25] ANZ Banking Group Ltd v Harper and Ors (1998) FLC 91-938 at 76,782-83.
Was there a common intention to deceive?
The ordinary natural meaning of the word “intends” is to mean, to have in mind. Relevant definitions in the Shorter Oxford English Dictionary show that what is involved is the directing of the mind, having a purposeful design. Intention is not the same as motive or desire. A person may do something fully intending to do it without desiring it at all. Euthanasia is an example. A motive is having a reason to do or not to do something. It is a subjective state of mind which can not be conclusively established as a fact except perhaps by truthful admission.[26]
[26] R v Wilmot(No 2) [1985] 2 Qd R 413 at 418.
The conduct and state of mind of both respondents in April 2006 needs to be judged and understood in the context of his continuing undertaking in 2004 to hold any sale proceeds of the A property on trust.
The husband admitted to commencing to make arrangements with a mortgage broker to encumber the A property and the farm in mid-February 2006, which is just after Exhibit 2 was sent to him by the wife’s lawyers. This was one of the last in a series of legal correspondence relating to, among other things, a property settlement. He admitted that he sought to obtain mortgage finance by borrowing at the maximum possible extent against both properties. Notably, the husband did not mention his plans to give the funds to the second respondent.
Some time around the middle of March 2006, the husband was informed that there would be a sum of approximately $330,000 in mortgage finance available in relation to the A property. It is unclear when he found out that a $150,000 loan could be secured against the Tasmanian property.
The husband denied being served with the wife’s Form 1 before borrowing and transferring the money to the second respondent but was unable to say when he actually was. However, an unchallenged affidavit of a process server deposes to personal service of the wife’s application on the husband on 30 March 2006. I have no reason not to accept that to be true.
I am, therefore, reasonably satisfied that, when the husband transferred the funds to the second respondent on 6-7 April 2006 , he knew that the wife had actually initiated a property claim against him.
I also find the contention on behalf of the wife that, on any objective view, the combined strength of the totality of the available direct and circumstantial evidence shows that the husband probably embarked on a course of conduct with the intention of defeating any property settlement order in her favour. Incurring the mortgages debts and entering into the sponsorship deal were integral and indispensable steps in that course of conduct. Guilty intention against the husband is readily established by inference from the united force of the following cluster of evidentiary facts:-
a) his probable knowledge that the wife was about to commence proceedings as early as February and the service on him of the Form 1 on 30 March 2006;
b) overstating the level of his income to the mortgage broker (saying variously that it was $80,000 pa or $100,000 pa);
c) the raising and now abandoning of the alleged debt of $126,000 to his mother;
d) his failure to inform the broker in February about the proposed transaction with the second respondent. The second respondent says it was around about this time that he first had discussions with the husband about the sponsorship;
e) his statement to the family report writer that he believed the wife was trying to take all his money and that he held that belief at around the time that the wife commenced proceedings establishes evidence of motive for his actions;
f) his failure to inform the wife of the mortgage transactions before transferring the funds, despite knowing she had commenced proceedings;
g) adopting a device or strategy inconsistent with the spirit if not the letter of the undertaking he gave in 2004 to quarantine any proceeds of sale of the A property and his witness box admission that he mortgaged the properties precisely because he was not able to sell them;
h) the improbability of his belated trial evidence that he actually informed the wife of the sponsorship deal and his inability to remember the details or explain why he had not deposed to such an important event in his affidavit in chief or financial statement sworn on 20 April 2006;
i) the apparent failure of the husband to tell his own lawyers about the mortgages and sponsorship deal;
j) the chronic non-attendance at sports events and disinterest for promotional events he had paid $430,000 for and his overall lack of any meaningful understanding of the terms and conditions of the sponsorship deal or how the benefits accruing to P Company under its represented value for money in a commercial sense.[27]
[27] See Bain Pacific Assoc v Kelly (2006) FLC 93-270.
The overwhelming bulk of the husband’s evidence was elusive, evasive, unreliable and entirely unsatisfactory especially about important events and when they occurred. He was particularly obscure about his receipt of Exhibit 2. He ultimately conceded knowing that the wife was at least talking about starting proceedings in February 2006.
It offends common sense to conclude in these circumstances that the husband – an experienced business man – honestly believed – even unreasonably –that the $430,000 he gave to the second respondent was a good business decision or sound investment in his economic or trading future.
The only circumstance I find curiously at odds with guilty or dishonest motive is the fact that the husband appears to be keeping up the mortgage payments and thereby increasing the equity of redemption[28]. Anyway, intention aside, the husband clearly acted with reckless disregard or utter indifference to the wife’s beneficial interest in the properties as to amount to almost the same thing. Not to mention shirking of the primary obligation of a parent to the financial support of a natural child.
[28] cf Bassi and Sales Force Specialists v Mass (1999) FLC 92-867.
I am not satisfied, however, that the admissible evidence is safe, sound or sufficient enough to satisfactorily support the inference that the second respondent shared the husband’s dishonest intention.
The determination of a dispute with a third party is completely different from the same exercise between former spouses. The inferences available in the one may not be supportable in the other because of the different nature of the parties’ relationships and motives.[29] A spouse claiming an entitlement to third party property has to identify and then prove a proper legal basis for doing so. That means in this case that the wife effectively has to prove collusion between the husband and second respondent.
[29] A v A and St George Trustees Ltd [2007] EWHC 99.
The motive of the second respondent for financial advantage is relevant to his relevant states of mind including knowledge. So too would evidence of plan design or preparation. Admissions or statements against his financial interests would or might indicate lack of bona fides. Similarly events occurring afterwards but relating back may shed light on the issues. So also, of course, is the nature and extent of his relationship with the husband.
Standards of comparison or customary practice and industry standards may assist. Does the second respondent’s conduct in relation to the sponsorship agreement for instance comply with objective standards of reasonableness within the industry? Did the husband get value for money or was the windfall transaction to him just too good to be true?
Knowledge like intention is and should be a difficult state of mind to prove but not impossible.
If an ordinary person in the second respondent’s position would have been suspicious enough about the husband’s motives and actions to have made relevant enquiries for fear of learning the truth when ignorance is bliss it is better to be wise this is wilful blindness and tantamount to actual knowledge.
The question is not whether the second respondent should but whether he did or must have known what the husband was up to.
Mere suspicion no matter how strong or reasonably based is an insufficient basis for depriving him of the benefit of the sponsorship monies. A combination of suspicious features associated with a transaction or receipt and failure to make reasonable enquiry may sustain an inference of guilty knowledge or recklessness. However, intention is more than mere inadvertence to the possibility or even probability of a state of affairs.
In the absence of a satisfactory explanation the facts adduced by the wife might have been cogent enough to justify without compelling a finding in her favour the explanation given by the second respondent is credible and adequately answers the wife’s prima facie case.
The wife, therefore, has failed to persuade me that the second respondent was complicit with the husband. The case based on the sham allegation therefore cannot succeed.
However, s 106B does not require proof of a “sham” transaction to be called in aid of a s 79 claim. The likely effect of the transaction is what really counts and there is no real suggestion here, by the husband or the third party respondent, that the ‘disposition’ did not result in depriving the wife of 55% of the pre-existing value of the mortgaged properties and other assets in the pool.
In Halabi v Arttillaga & Ors[30] Nicholson CJ said at 80,885:-
It seems to me that the section clearly contemplates two possibilities, one being that the instrument [or disposition] was made with the intention of defeating an order, and the second being that, regardless of the intention with which it was made, it did have the effect of being likely to defeat an anticipated order. I consider that if the necessary intention has been demonstrated there is nothing in the section which imposes the further requirement that the instrument is likely to defeat any such order. However, I think that it is clear enough that if it cannot be shown that the instrument is made with the intention of defeating the order, or even if the contrary can be shown, ie that it was not made with the intention of defeating the order, then it can still be set aside if it can be established that it was, at the time that it was made, likely to defeat any such order. [emphasis added]
[30] (1994) FLC 92-470
The Full Court expressly approved of these observations in Gould and Gould v Swire Investments Ltd.[31]
[31] (1993) FLC 92-434.
Was the anticipated order defeated?
The second respondent submits that the failure to call evidence of value means that the wife has not satisfied the burden she bears to establish that the transaction really defeated her claim?
He says there would be no need to set the transaction aside between the husband and the third party if there is sufficient equity in the property remaining in their hands to achieve justice and equity without doing so. As a corollary, even if certain transactions need to be set aside to achieve an equitable order is it necessary to set aside all of the transactions if this will result in a payment to the husband who’s actions have brought about the proceedings? In those circumstances the interests of at least the husband would be wrongly taking precedence over the interests of the third party.
I reject the validity of both these submissions.
It is as obvious as the nose on your face that the sponsorship payments to the second respondent were likely, if not actually intended to, and indeed did, have the practical effect of depriving the wife of her full share of the ‘fruits’ of the marriage by putting the pre-existing equity in the real mortgaged real estate properties beyond her reach unless relief under s 106B is granted.
The respondents do not seriously contest the wife’s proposition that the inevitable result of creating a secured debt over the two properties and transferring the funds to the second respondent was to significantly reduce the distributable equity in the asset pool from $600,000 to just over $100,000.
Thus, instead of getting over half of $600,000 in unencumbered real estate the wife will be lucky to get one-sixth of that figure.
Was the defeated order anticipated?
The more difficult question is whether the husband anticipated the making of that order when he divested himself of the equity in the property or converted the mortgage monies to his own use by handing them over to the second respondent. The decision in Gelley v Gelley(No.2)[32] and a consistent line of earlier cases including Heath v Heath: Westpac Banking Corp (Intervenor)[33] emphasise the need for a “causal connection” to be shown between the disposition and the anticipated order.
[32] (1992) FLC 92-291.
[33] (1983) FLC 91-362.
I think it unlikely that the sponsorship monies would have been advanced to the second respondent by the husband “but for” the service on him of the wife’s Form 1.
There is substantial inferential support in the evidence for the conclusion that by late February 2006 the husband reasonably anticipated that the wife was preparing to launch a property claim against him and there is direct evidence from the process server that he knew that she actually had done so in the week preceding the transfers.
The husband concedes at least 50% for past contribution to the wife. I infer that he believed that she would get about that back in March-April 2006. He pre-empted and defeated that anticipated outcome by incurring crippling mortgage liabilities and divesting the proceeds to the second respondent. I readily find that the husband was then acting on the assumption that she could be reasonably expected to be awarded at least half of the beneficial interest in A property and the farm. To my mind it was a plain case of if he couldn’t have it then neither could she.
The proviso
Subsection 106B(3) makes consideration of the interests of bona fide purchasers for value without notice and other innocent third parties mandatory.
The protective shield of s 106B(3) can, however, be dislodged by showing that the second respondent was actually or constructively aware at the time of the funds transfer and/or subsequent disbursement that they were intended or likely to defeat the anticipated order.[34]
[34] Heath v Heath (1992) FLC 91-517 at 79,995.
As Nygh J observed in Whitaker[35] about the nature of s 106B’s predecessor:
“. . . by its very nature envisages that an order can be made thereunder ordering a transferee, who is not a party to a marriage, to reconvey property. Indeed it envisages that even if a bona fide purchaser for value such an order could be made in appropriate circumstances and subject to appropriate conditions.”
[35] (1980) FLC 90-813 at at 75,130 per Nygh J.
Thus, because of the beneficial role and function of the s 106B(3)discretion a third party with ‘unclean hands’ or afflicted by wilful blindness may be left out in the cold.
Is s 106B(3) relief available to the second respondent?
The court must make an order proper for the protection of a bona fide purchaser or other person interested in the disputed property. It is one thing for the wife to show a legal right or interest in non-existent disposed of or past property and have its value notionally added back to the pool. It is quite another to trace that interest into the hands of a third party who claims the same interest in that property as a result of an arms length transaction.
In Gould[36] and Bassi[37] third parties were ordered to repay money but there appears to be no reported decision where the discretionary power has been exercised to set aside a transaction involving a bona fide purchaser for consideration.[38]
[36] (1999) FLC 92-867.
[37] (2007) FLC 93-333. See also Ioppolo (1987) FLC 91-852.
[38] cf. BAP Associations and Ors v K and Ors (2006) FLC 93-270
The discretion to set aside defeating transaction must be made having regard to the interest of bona fide purchasers or other interested persons.
Counsel for the wife submits that there is substantial doubt whether the second respondent could in truth be said to be a purchaser or a person interested. However, there is no denying that the second respondent is a person interested in the disposition. A “purchaser” in the relevant sense includes “a person who in a commercial sense provides a ‘quid pro quo’.[39]
[39] Heath v Heath: Westpac Banking Corp (Intervenor) (1983) FLC 91-362 at 78,426.
The second respondent arguably fits this description too and, therefore, in my opinion his interests have to be taken into account under s 106B(3).
Moreover, in Bassi[40]the Full Court said:-
In order to claim the protection of s 85(3) [the predecessor of s 106B], a disponee from a party to proceedings under the Act must be ‘a bona fide purchaser or other person interested.’ In this case, the first appellant could not properly be described as a ‘purchaser’, whether bona fide or otherwise. Rather, she was purely a volunteer, being the beneficiary of the husband’s generosity. However, in Balnaves and Balnaves (1988) FLC 91-952 at 76,888-76,889 (1988) 12 Fam LR 488 at 501, the Full Court (Nicholson CJ, Fogarty & McCall JJ) held that the expression bona fide qualifies only the expression ‘purchaser’ and not ‘other person interested’, so that a disponee may still qualify for protection under s 85(3) as a ‘person interested’ whether or not he or she acted bona fide. The court, however, added this rider to that statement:-
``... although of course the presence or absence of bona fides (or negligence or other conduct of a like kind) no doubt will have an impact upon the extent to which, if at all, a court will extend to that person the protection which subs (3) allows: see Heath and Heath: Westpac Banking Corporation (1983) FLC 91-362.'' [Emphasis added.]
[40] Bassi and KD Sales Force Specialists Pty Ltd v Maas (1999) FLC 92-867 at [79].
Next, the wife contends that granting relief to the second respondent under s 106B(3) is not justified in the circumstances. She relies for support on the following facts or allegations:
The “consideration” provided for in the sponsorship agreement prior to being joined as a party was “illusory” or inadequate
The second respondent claims to have given consideration by:
(a)promoting the husband’s business in posters in both 2006 and 2007;
(b)promoting P Company in interviews conducted on television…;
(c)promoted his business on apparel including designer T-shirts; and
(d)having equipment painted with sponsors and logos including the husband’s business in December 2006.
The exhibits including purchase receipts corroborate his evidence in this regard. There is ample evidence of consideration for the sponsorship in the form of posters, logo’s, T-shirts and website exposure.
Yet the wife argues that the timing of promotions of P Company suggest that the alleged consideration in par 79(a)-(d) is wholly inadequate and amounts to a retrospective attempt to make it look like they were connected with the sponsorship agreement when, in fact, they have more to do with trying to avoid an adverse finding about the bona fides of the funds transfer and the second respondents own complicity.
She points out that:
a) the second respondent said in the witness box that although his lease agreement with R Company was silent on the point there was nonetheless a naming rights and a prominent display of the R Company logo requirement. The wife argues that it defies belief that the second respondent would agree to provide naming rights or prominent display to the husband as well as R Company given that on the second respondent’s own evidence he was only able to enter the lease agreement with R Company to lease equipment because of the husband’s sponsorship;
b) the second respondent’s evidence was that R Company compete worldwide with competitors’ equipment in the “same colours”. R Company would not allow the equipment to be re-painted in colours of our clients choosing until late 2006. He repainted the equipment in December 2006 and entered into an agreement to lease the equipment from R Company Australia for the next year. This was prior to the commencement of the 2007 competition year. That agreement is exhibit 27 and commits the second respondent to the expenditure of funds for the lease to a total of $110,400 for the season. The agreement states “such fees are payable regardless of whether the [equipment] is utilised by the [competitor] at any event and are payable 2 weeks in advance of each event.” Further terms of the agreement commit the second respondent to other expenditure. The second respondent could not have resiled from the terms of the agreement with R Company in any event;
c) the failure to actually provide naming rights in both 2006 and 2007. The second respondent knew he was unable to provide such naming rights for 2006;
d) the only evidence of webpage or equipment logos sponsorship for P Company was some time after the 2007 E competition meet;
e) that P Company does not appear in the online photos in March 2007 and therefore must have been added afterwards (for effect).[41]
[41] See Annexures HLU 18 and HLU 21 to Ms Ubank’s affidavit.
When Ms Ubank searched the website in March 2007 there was no reference to P Company. When she subsequent searched the site months later there was a reference to that business. The inference is that the site was changed by or on behalf of the second respondent subsequent to the making of the injunctive orders against him.
This is adequately explained, says the second respondent, by unchallenged evidence that records of the changes to the website are only retained for 6 months but that there were changes to that website at the time alleged by the second respondent. Ms Ubank had the opportunity to seek and explanation in March 2007 as to why P Company was not on that website. Had she done so, our client’s explanation could have been “tested” at that time. He asserts that the website was changed in or about October 2006 to delete references to P Company because of the lack of cooperation by the husband in providing a link from the R Sports website to his own website. When questioned about this Ms Ubank said that she was “holding back” this discovery so that it could be made use of for “tactical purposes”;
f) The second respondent’s equipment was not repainted to include the P Company logo until towards the end of 2006 or early 2007.
There is no evidence to place the changes to the logo as being in March 2007. This may have been the effect of questions but again the evidence was that this was done at the time the equipment was repainted in late 2006 so that it would be ready for the 2007 competition season. Further there is no evidence that “photos taken at [E Meeting] did not reveal the [P Company] logo”. The Second Respondent did give evidence that … the day before the competition there was an issue with the wrong accessory to the equipment being provided but he was not challenged in his evidence that this was corrected quickly and he had the P Company logo attached for the competition;
g) P Company did not feature prominently in media promotions and received a logo placement that did not adequately reflect the size of the husband’s sponsorship;
h) the second respondent did not declare the funds received from the husband in April 2006 as income for that tax year the second respondent explained that it would be declared for the 2007 year and relied upon taxation advice from his accountant on the treatment of the GST component of such sponsorship and the treatment of the balance. His explanations in this regard were not challenged;
i) for a period following April 2006, the second respondent paid the mortgage installments;
j) the husband failed to avail himself of any sponsorship entitlements throughout 2006;
k) the second respondent did not appeal the order of Barry J on 20 March 2007 which injuncted him, or corporate entities related to him, from dealing with a number of properties. This submission Mr Sweeney says misunderstands the point at issue. Strictly, the Second Respondent didn’t need to worry about an appeal in circumstances where there was no injunction preventing a Trust from doing what it does. There was no sense in appealing such an order. His compliance with the spirit of the order actually favours him and reflects his honesty and bona fides;
l) an employee of the second respondent rented the husband’s house or alternatively lived with him at some point prior to the advancement of the funds;
m) that “in all likelihood he knew given the relationship….that the husband and wife had separated”. However the second respondent gave direct evidence that he had no such knowledge. It was never put that they had a close social relationship or that the separation was common knowledge within their social circle. The evidence from which this conclusion is asked to be drawn simply does not exist. There was certainly no evidence by the wife or adoption by the husband or Second Respondent of any evidence that would lead to this inference being drawn;
n) the wife attended the second respondent’s wedding during a period when they were separated but initially said that the wedding invitation was not addressed to her and the husband and thus, she asserts, one could infer knowledge of their separation on the part of the second respondent. It transpired in cross-examination that she could not give the evidence she did on this topic and she had not read the invitation. Further, the evidence of the second respondent was that they were invited as sponsors, sat together, had photos taken together and he only spoke to them briefly. It was not a personal, friendly or social relationship;
o) The alleged lack of consideration, due diligence and commercial viability in relation to the sponsorship agreement.
All things considered, I accept that the second respondent provided the husband with the ability to “develop his business” to the extent the husband took “advantage of the opportunities offered”. The second respondent’s unchallenged evidence was that the public relations benefits offered to the husband’s business by the sponsorship deal was worth between “$300,000 and $500,000” in the market place. Evidence contradicting this assertion would have been highly persuasive but because none was adduced I can only assume that it did not exist.
Sufficient consideration passed between the husband and second respondent in my view to make him a purchaser of value.
The possibility of “collusion”
The closest the allegation came to being one involving “collusion” was when it was put to the husband that the payment made to him as a contract payment was “close to” the amount of the mortgage. The second respondent gave evidence that he did not authorise or make payments on behalf of the company to contractors and subcontractors. These were authorised by his managers and paid by the “paymaster” [sic] who happened also to be his wife. In any event, the wife does not have to prove that the second respondent was acting in collusion with the husband to succeed in having the disposition set aside. Collusion may, however, be relevant to costs under s106B(4).
The agreement lacked the quality of commerciality
This allegation is closely related to the no consideration issue. It is contended that the second respondent entered into a non-commercial arrangement and he could not have realistically believed that the sponsorship arrangements could in any way advance the husband’s maintenance business.
The cost of venturing into this level of competition was high. The husband and second respondent knew that. The second respondent is involved in a high profile sport which gives promoters access to wide media coverage which is obviously very costly. The second respondent testified to lengthy discussions leading up to entering into the agreement and the fact that he would need a sponsor to finance the venture. The husband offered himself as a sponsor after claiming to have made enquiries about other potential investors.
The second respondent swore and I accept that the way he saw it, the husband had a business worth promoting and attempted to introduce the husband to persons in the industry and others who could assist in this regard but the husband did not take any real advantage of the benefits. There is not evidence capable of giving rise to a contrary inference. The wife accepts the husband was “boastful” and “would say anything to get what he wanted”. He portrayed himself as a “successful businessman” and carried large amounts of cash. He talked about other successful business ventures that he had been involved in and the overseas trips that he had undertaken. He had made a $8,000 sponsorship previously.
The fact that all the money due under the agreement was paid over by the husband at one time must have been puzzling to the second respondent but does not rob the agreement of its lack commerciality.
Whether as Mr Sweeney submits on behalf of the husband that it is “usual and proper” for a recipient in such circumstances to reduce non-tax deductible debt on borrowings by the use of such funds which did not have to be immediately expended or not is debateable but the second respondents use of the funds received from the husband to reduce personal debt levels does not logically or necessarily demonstrate an antecedent lack of bona fides, consideration or commerciality.
The sponsorship agreement is unstamped and therefore invalid
In the end, this argument was only faintly and briefly raised, no doubt because, as Mr Sweeney points out, it misunderstands the wording and effect of the Duties Act 2001 (Qld). The legislation protects the public revenue by precluding the enforcement of an unstamped agreement. This is not the case here. The written agreement is tendered here merely as a record of the terms of the sponsorship between the husband and the second respondent. No party is seeking to enforce its terms. It is therefore valid but its non stamping not only affects its enforceability but is reasonably capable of supporting adverse inferences about its grievances.
There was a lack of “due diligence” on the part of the second respondent
This issue was raised by the wife as reflecting upon the bona fides of the second respondent but was never developed in argument by counsel. It was suggested that there was a duty on the second respondent to exercise “due diligence” to make proper enquiries when he was receiving moneys from a third party. There is no such obligation and, therefore, failure to discharge it has no forensic significance. The wife could have but did not have her lawyers (who had apparently been representing her for 2½ years) lodge a caveat on title before March 2006.
The test is whether the second respondent was on notice or should have been aware by making due enquiry at the time of the transfer of the funds that the transaction was likely to defeat an anticipated property order in favour of the wife.
The second respondent entered into the sponsorships deal with actual or constructive notice of either or both the separation of the husband and the wife and the commencement of these proceedings
The wife asserts that the second respondent’s relevant state of mind, knowledge or belief in April 2006 has to be assessed in light of the following primary facts:
a)his knowledge that the first respondent was married;
b)the husband had worked for him since about 2002 and the second respondent’s father had some commercial dealing with the husband during the period of his separation;
c)the husband could not recall whether or when he had told the second respondent about the breakdown of his marriage. The second respondent himself swore that he did not even find out that the husband and the wife had even separated until many months afterwards;
d)despite the non-personal nature of their employer-employee relationship, the husband told the second respondent about overseas holidays and previous business involvements;
e)a person who formed part of the second respondent’s sports team, Mr M, had lived with the husband for a few months after separation but was not called;
f)the second respondent did not make any enquiry as to the husband’s means or the source of the funds but had previously seen the husband with ‘wads’ of cash up to $8,000;
g)the second respondent refrained from questioning the husband’s motives and financial capacity in connection with the sponsoring deal. This suggests willful blindness if he did not ask a reasonable person in the same position probably have;
h)the husband’s payments on 6 April 2006 covered both the 2006 and 2007 seasons;
i)the immediate use of the funds by the second respondent for private and business purposes unconnected with sport;
j)the agreement was unenforceable at the apparent behest of both the husband and second respondent because while it permitted the second respondent to allow other sponsorship arrangements without the consent of the husband to such other sponsors, the husband and the second respondent had a right to “renegotiate current agreements”.
Another matter raised by the wife was correspondence from the second respondent to the husband in March 2006 (Annexure 15 to the second respondent’s affidavit of August 2007) which refers to the funds’ transfer almost two weeks before the second respondent says the husband raised the matter with him and were “first revealed…buried deep within the mountain of invoices attached to his August 2007 affidavit”. The Second Respondent’s evidence was that this formed part of the documentation offered to Ms Ubank in the telephone call to her office on the day he was served which is not inherently improbable and I accept the second respondents evidence that he made these documents available at the outset. Indeed there was never a challenge that the solicitor for the wife was not provided with these documents well prior to trial. She gave evidence and could have challenged it then. She did not. She accepted that the Second Respondent was co-operative and offered her all his documents and that these were legitimate letters sent at the times and dates that they bore. There is no evidence that they hadn’t been.
The second respondent claims to having at all times acted:
i)bona fide in his dealings with the husband. He points out in this connection that, to his credit, he has since being joined to the proceedings abided by the spirit of injunctions of this court even though they did not bind him, other than as a company director and shareholder, and his co-operation with the wife’s practitioners and provision to them at the earliest of stages of any and all documents they requested as proof of good faith. It is clear from that affidavit that W Pty Ltd was the registered proprietor of the real property sought to be made the subject of an injunction by the wife. The company acts as a Trustee of the Property Trust. W Pty Ltd is not represented in these proceedings and never has been. The second respondent’s lack of “control” of those entities was fatal to her claim against other than the second respondent; and
ii)trusted the husband and had no notice or any reason to suspect his motives or that the wife’s property proceedings was on foot or even in contemplation when the money was advanced.
The generosity and simplicity of the husband’s offer must have sounded very attractive. Too good to be entirely above board even. It certainly called for enquiries and answers to questions that were never made or asked but it may not have confounded common sense. Self-interest has a bad habit of clouding judgment and impairing vision when money is involved.
Overall, however, I am not convinced to the requisite standard that the wife has proved that the second respondent was, or should have been, aware after making due enquiry that the disputed transaction was likely to defeat an anticipated property settlement order.[42] No evidence was adduced from which inference that the second respondent had any notice of the separation of the husband and the wife prior to the commencement of 2007 could be properly drawn especially in view of the fact that he kept his relationship with his employees including the husband on a business basis and does not appear to have discussed personal or intimate matters with them.
[42] Heath and Heath (No.2) (1984) FLC 91-517.
The second respondent swore that he knowingly allowed himself and his own interests to be used by the husband as an instrument to defraud the wife. I believe him. There inadequate proof of actual notice or bad faith on the second respondent’s part.
Summary of findings on s 106B issues
The disposition of $430,836.53 on 6 and 7 April 2006 was intended by the husband to defeat an anticipated s 79 order in favour of the wife. In any event it had that likely and actual effect.
I am reasonably satisfied that the anticipated order was defeated in the relevant sense and that the order defeated was anticipated by the husband at the time of the transaction.
I am, however, not satisfied to the statutory standard of civil proof that the second respondent was knowingly concerned in a sham transaction and, although reasonable suspicions would have been aroused I am unable to conclude that the sponsorship deal was illusory or supported by inadequate consideration. I am not satisfied of illusion or the alleged lack of commerciality of the arrangement between the husband and the second respondent. Although I suspect otherwise I cannot make a positive finding of actual or constructive notice against the second respondent.
I cannot say how “innocent” or “bona fide” the second respondent was. What I can say, however, is that the wife has failed to satisfy me that he lacked the necessary bona fides had notice or gave inadequate value to entitle him to the prima facie protection of s 106B(3). The purpose of this provision is clearly protective. It requires the court to consider the interests of arms length purchasers and shall make any order proper for their protection.
The Available Assets
The residual pool of property consists of the following assets:-
husband’s contents $22,000 husband’s interest in his various superannuation entitlements Unknown Wife’s Q Super fund $29,695 Wife’s furniture $500 Wife’s motor vehicle $200 Total $52,395
The equity in the A place is put at $72,000 by the husband and $16,000 in the Tasmanian farm. There is no proof of the precise current value. The wife estimates it at about $100,000.
This Mr Sweeney says is the fundamental impediment to the making of a just and equitable property order consistently with the requirements of s 79. However, the husband’s figure of $88,000 for the equity in the mortgaged properties and $36,000 for P Company including the truck can be taken as a admission against pecuniary interest and in the absence of any contrary evidence sufficient to prove value which in view of the order for sale does not have to be precise. The order can be worded in such a way that each receives their percentage entitlement or the husband’s receives the balance after the wife’s 55% is deducted or alternatively the husband’s share is given a dollar figure and the wife takes the rest.
The Alleged Debt to the Husband’s Mother
An alleged debt of $121,000 said by the husband to be owed to his mother in relation to the Tasmanian property has been abandoned and in any event should be disregarded. In the witness box the husband said initially that it was a “paper” debt although sought later to undo such a concession. When asked what would happen if it was not repaid the husband responded by saying that he does a lot for his mother and that she loves him. The husband provided various accounts of this debt but on any view his mortgaging of the Tasmanian property almost to the full extent is entirely inconsistent with the existence and genuineness of the debt. His failure to inform the mortgage broker of the debt in circumstances where he understood his obligation to do so is again inconsistent with the debt. The husband should he have chosen to do so could have adduced evidence from his mother as to the existence and circumstances of the debt. The alleged debt is said to arise in circumstances inconsistent with the other evidence given by the wife that the Tasmanian property was purchased utilising funds from the sale of the parents’ business.
Notional Replacements
An add back of the $57,173 retained in April 2006 is also sought. Although it is clear that the husband utilised some of the funds sought to be added back to discharge liabilities to his ANZ Classic Account of $19,211 around 6 April 2006 and the ANZ Visa card of $20,186 on 7 April 2006, the balances standing to those accounts at around the time of separation were considerably less. The ANZ Classic Account had a debit balance of $6,810, while the ANZ Visa card had a debit balance of $5,784. Both accounts therefore in the period in question had been increased by some $27,000 post-separation. Although it is accepted that the husband is entitled to get on with his life post-separation, the husband was able, on his own account, to pay the second respondent $8,000 sometime in 2005 and that payments of child support were at best minimal during this time. It would seem unjust for the husband to be able to utilise funds taken out on mortgage to pay out the two debts using what would otherwise be the equity available to both the husband and wife. It should also be noted that throughout the relevant period the husband occupied the former matrimonial home at A unencumbered by mortgaged (until April 2006). For the same reason the balance of funds of approximately $17,000 ordinarily could have been said to have gone to self support in the circumstances of this case should not be held to do so
However, the husband spent $20,000 on a new business ute and lived off the balance, the ute is a notional asset but now worth only $5,000. I am not satisfied that adding back the $57,173 is a proper exercise of discretion. Accordingly, the pool for distribution purposes is valued at:-
Agreed $52,375 Retained Equity in A and the farm $88,000 P Company $36,000 Total $176,375
This is about ½ of what the wife would reasonably have anticipated receiving or retaining on pre April 2006 values.
Respective entitlements
Initial contributions favour the husband to a modest but unquantified degree.
During most of the marriage the wife worked long hours in the parents’ business for little or no remuneration. The wife claims the sale proceeds of the business as equal contribution to the Tasmanian farm property. All other contribution from commencement to separation is also said to be equal.
For the greater part of the three year post-separation period the wife has been the sole homemaker and parent of a primary school-aged child with no financial assistance from the husband until May 2007 and only minimal support since then.
The wife claims 55 % and the husband concedes 50 % of the pool to her after adjustment for future needs.
The husband wants to keep his business and trading equipment and share the balance with the wife. He has an $11,000 overdraft liability and an anticipated tax debt. He also seeks the removal of all existing caveats.
In compliance with the statutory direction I have had regard to the interests of second respondent. However, I am satisfied that making an order partially setting aside the disposition by the husband to the second respondent would not be improper or economically inequitable as far as he is concerned. The second respondent is not responsible for the husband’s actions. He is, however, liable, in my view, to repay the wife the $142, 417 he used for personal or non-sponsorship purposes and to account for the unused sum of $16, 182. Section 106B(3) is not intended to protect bona fide purchasers against all the financial consequences of becoming unwittingly embroiled in a matrimonial dispute. The husband needlessly paid 12 months sponsorship in advance which the second respondent applied to collateral purposes. Why should he be able to reduce his personal debt levels with matrimonial property when it was given to him, ostensibly at least, for sponsoring his sporting career? Relevant concepts of justice and equity which expressly underpin s79 and, by implication, influence the discretion in s 106B(3) seem to me to require him to repay at least those amounts to the wife.
I have decided to allow the husband to keep his business, ute and trading equipment together with any undisclosed property he currently has as well as his contents of $22, 000 giving him about $58,000 plus the mortgage liability to the bank and any superannuation entitlements he has.
This would see the wife retaining her super fund of $29, 695 furniture of $500 her motor vehicle of $200 receiving the residual equity in the A property and the farm of $88,000 as well as recouping just over $158,500 from the second respondent. The total retained or received by the wife on my calculations would be just under $277,000 which is still about $90,000 less than what she would have been entitled to if the equity in the husband’s A property and Tasmanian farm property had been left intact.
I am not satisfied that the difference can be legitimately made up by a notional add back under the authority of the majority decision in Milankov. It would be dangerous and potentially counterproductive for me to make an order altering property interests beyond the available assets of the parties.
Minutes of order
I will hear argument if necessary on the appropriate terms of the order before making it. Accordingly, I direct the parties’ lawyers to confer and email either a draft consent minute or competing proposals (with short written reasons) of property orders giving practical expression to this judgment by 4pm 6 February 2008.
I certify that the preceding one hundred and thirty-seven (137) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carmody
Associate:
Date: 25th January 2008
Key Legal Topics
Areas of Law
-
Family Law
-
Civil Procedure
Legal Concepts
-
Consent
-
Remedies
-
Costs
3
8
0