HMT & FHL
[2006] FamCA 206
•21 February 2006
[2006] FamCA 206
FAMILY LAW ACT 1975
IN THE FAMILY COURT OF AUSTRALIA
AT SYDNEY
No. SYF. 2516 of 2005
IN THE MATTER OF:
HMT
Applicant
- and -
FHL
Respondent
REASONS FOR JUDGMENT
BEFORE: The Honourable Justice Watts
HEARD: 21 December 2005
JUDGMENT: 21 February 2006
APPEARANCES:
| Mr Campton Mr Richardson | of counsel, instructed by Karras Partners (DX 3622 Double Bay), appeared on behalf of the Applicant Husband. Senior counsel, instructed by Pearson Family Lawyers (DX 13122 Sydney Market Street), appeared on behalf of the Respondent Wife. |
Catchwords
FAMILY LAW – PROPERTY – interim orders – partial orders – interim order for payment of part of a tax debt
Legislation considered
Sections 79; 79(5); 79(6); 79A; 80(h) and 80(k) Family Law Act
Cases considered
Mullane (1983) FLC 91-313 at 78,071
Hickey and Hickey and A-G for the Commonwealth of Australia (intervenor) (2003) FLC 93-143
Burridge and Burridge (1980) FLC 90-902
Grace and Grace (1998) FLC 92-792
Harris and Harris (1993) FLC 92-378
Bassi & KD Sales Force Specialists Pty Ltd v Maas (1999) FLC 92-867
N and N (2005) Fam CA 188 (11 March 2005)
S v S (2002) 195 ALR 283
J and J (2003) Fam CA 751
Omacini and Omacini (2005) FLC 98-218 at p 79,620
Ruscoe and Walker (2002) FLC 93-093
G & G (2001) Fam CA 1453
M and M (2005) Fam CA 868
Hunt and Zuryn (2005) FLC 93-226
Tynan and Tynan (1993) FLC 92-285
Hudderfield Banking Co Ltd v Henry Lister & Sons Ltd (1985) 2 Ch 278
Harvey & Phillips (1956) 95 CLR 235
Harrington v Lowe (1996) FLC 92-668
Scott and Scott (2003) FLC 93-170
L and H (1990) unreported
INDEX
Catchwords
Legislation considered
Cases considered
INTRODUCTION
THE HUSBAND’S APPLICATION IN A CASE
BACKGROUND
PREVIOUS ORDERS
Orders of May 2005
Second set of Orders made in May 2005
THE PARAMETERS OF THE DISPUTE PURSUANT TO SECTION 79
The current net property of the parties
Increase in value of assets during the cohabitation
The Wife’s Gold Coast property
Wife’s jewellery
The Ferrari provided by the Husband’s company
The taxation debt
The company’s debt is the Husband’s debt
Evidence that the Wife acted as a practice manager in the Husband’s practice
The Husband’s income
The Wife’s current income
The Wife’s income during the marriage
Mortgage payments by each party
Other payments made by the Husband
PRELIMINARY MATTERS REFERRED TO BY SENIOR COUNSEL FOR THE WIFE
What is the intention of the National Australia Bank upon settlement of the sale of the Federal Highway property?
What is the basis upon which the Husband makes his Application in Case filed in November 2005?
The difference between “interim orders” and “partial orders”
What type of order is the order of May 2005
Can the interim order of May only be varied by a final order?
The nature of the contract underlying the consent orders of May 2005
The Husband’s alleged lack of financial disclosure
SUBMISSION THAT THE HUSBAND SHOULD PAY THE ARREARS OF TAX FROM HIS CURRENT AND FUTURE INCOME
TAX LOSSES
CONSIDERATION OF THE MATTERS REFERRED TO IN HARRIS
CONCLUSION
ORDER
INTRODUCTION
These are proceedings by the Husband to obtain access to the balance of proceeds of sale of rural land on the Federal Highway in the State of New South Wales for the purposes of paying a taxation debt in the sum of $385,063.77. This debt is owed to the Australian Taxation Office by E Pty Limited. E Pty Ltd is a company incorporated for the purposes of the Husband providing professional services as a Medical Practitioner. The Husband is the sole director and shareholder of that company. The Australian Tax Office has indicated that they hold the Husband personally liable for unpaid PAYG taxes of the company which should have been withheld by E Pty Ltd and paid to the Australian Tax Office.
The Husband’s Outline of Case Document indicates that the Orders were to be sought “as to interim property/maintenance/injunctive orders”. Counsel for the Husband, however, in opening, indicated that no reliance in the proceedings before me was to be placed on the maintenance or injunctive powers of the Court.
The Application was bought within the confines of Section 79 Family Law Act as assisted by Section 80 Family Law Act.
THE HUSBAND’S APPLICATION IN A CASE
By an Application in a Case filed in November 2005 the Husband sought orders in the following terms:
1.That order 3 of the orders made by this Honourable Court in May 2005 be vacated.
2.Pending further order, the Husband and Wife do all acts and things necessary to distribute the proceeds of sale of the properties known as the Spit Road property, in the State of New South Wales, rural land on the Federal Highway, in the State of New South Wales and the ACT property in the following manner and priority:-
2.1.in payment of such amount required to discharge the mortgage in favour of the National Australia Bank Limited registered upon the title of the property known the Spit Road property:
2.2.in payment of advertising expenses, agent’s commission and auction expenses (if any) due on the sale;
2.3.in payment of reasonable legal costs in respect of the sale;
2.4.in payment of the sum of $385,063.77 plus accrued general interest charges to the Australian Taxation Office in respect of the debt owing to that Office by E Pty Limited;
2.5.in payment of such amount required to discharge the mortgage in favour of the National Australia Bank Limited registered upon the title of the ACT property;
2.6.the balance of proceeds of sale (if any) to be distributed equally between the parties subject to such adjustive property order made between the parties in finalization of these proceedings.
3.That the Wife pay the Husband’s costs of this Application.
BACKGROUND
The Wife was born in April 1953.
The Husband was born in August 1966.
The parties commenced living together in August 2001 and were married in November 2002.
The parties separated in the second half of 2004 and a Decree Nisi of the parties’ marriage was granted in October 2005.
At the date of cohabitation, the Wife asserts that she had net property in the sum of $993,000.00 and that the Husband had net property in the sum of $40,000.00; a total of $1,033,000.00.
The Wife was employed during the cohabitation as a Consultant Psychiatrist by a company which she controls known as FHT Pty Limited. Her declared income in the tax year ended 2001 was $315,178.00.
I will deal with the lack of evidence about her subsequent income later.
PREVIOUS ORDERS
Orders of May 2005
The Orders which are central to the matter before me were made in May 2005. They were made “by consent and pending further order”. They provided for the sale of three properties at Spit Road property, the Federal Highway property and the ACT property (Orders 1 and 2).
The sale proceeds of these properties (in accordance with Order 3) “shall be paid in the following manner and priority:-
3.1In payment of the amount required to discharge the following mortgages:-
3.1.1For the ACT property to National Australia Bank Limited or as it directs; and
3.1.2For the Spit Road property to National Australia Bank Limited or as it directs;
3.2In payment of advertising expenses, agent’s commission and auction expenses (if any) due on the sales;
3.3In payment of legal costs on sale;
3.4The balance of proceeds of the sale (net proceeds) to be placed in a controlled monies account in the joint names of the parties requiring both parties’ signatures for withdrawals pending further Order of the Court.”
Orders were made also declaring the Wife to have sole legal and beneficial ownership of the contents of the ACT property and the Husband be declared to have sole legal and beneficial ownership of the entire contents of the Spit Road property. Orders were made (Order 8) for the Husband to transfer his interest in a flat screen monitor and other orders were made to allow the Wife to remove certain items from the Husband’s storage premises (Orders 6 and 7).
Paragraphs 13 to 22 of the Husband’s Affidavit set out details as to what has happened in relation to implementing the terms of Order 1 to 3 made in May 2005.
The Husband deposes to the fact that the Spit Road property was sold and after distribution to the National Australia Bank there was no surplus.
Paragraphs 15 to 17 of the Husband’s Affidavit are in the following terms:-
“15.The Federal Highway property was sold by contracts exchanged in October, 2005 in the sum of $570,000.00.
16.The title of the Federal Highway property is encumbered but there is no loan account to be discharged in relation to this property. It is held by the National Australia Bank as collateral security.
17.I estimate that the agent’s commission and other sale costs in relation to the Federal Highway property will be approximately $20,000.00 and that settlement will take place in or about February 2006.”
The Husband consequently asserts that the amount that will be paid into the controlled monies account referred to in Order 3.4 of the Orders made in May 2005 will be in the approximate sum of $550,000.00.
The Wife disputes that this assertion is accurate and I will refer to that argument shortly.
The Husband asserts that the third property (ACT property) is on the market for sale, has been passed in at auction and is not likely to lead to a sale price which, after discharge of the registered mortgage to the National Australia Bank, will produce any surplus funds being added to the controlled monies account referred to in Order 3.4 made in May 2005.
Second set of Orders made in May 2005
There have been one other set of interim orders made in this matter. These Orders were by consent and pending further order and related to the Husband moving out of the Clontarf property and the sale of that property. Order 4.1 provides that all monies secured on the title of the property in favour of the National Australia Bank will be discharged on sale (the reserve price under the Orders is $3,300,000.00 - see Order 3.3). Any balance after the discharge was dealt with by Order 4.4 in the following terms:-
“4.4In payment of the balance then remaining into a controlled monies account, in the joint names of the parties, pending further agreement or determination in these proceedings.”
The Husband gives no evidence as to what has happened in relation to the order for the sale of the Clontarf property. In paragraph 31 of his Affidavit he estimates that Clontarf (which is in joint names) is worth $2,850,000.00 and has an outstanding mortgage of $2,370,000.00 (that is an equity of $480,000.00).
The Wife makes no mention in her Affidavit as to what has happened in relation to the order for the sale of the Clontarf property. The Wife’s Financial Statement sworn in April 2005 indicates that she would estimate that there is an equity in the Clontarf property of about $730,000.00 (($1,550,000.00 - $1,185,000.00) x 2).
THE PARAMETERS OF THE DISPUTE PURSUANT TO SECTION 79
The Wife wishes a final order by way of her Amended Response that she receive the whole of the net assets of the parties including the proceeds of the Federal Highway property but excluding some things that the Husband currently holds including an interest in a trust that owns a property in Macquarie Street. She wishes the Husband to have total responsibility for the taxation debt of E Pty Ltd.
The Husband by way of his Amended Form 1 filed in August 2005 seeks that the Wife retain the Clontarf property subject to the mortgage; that the Spit Road, the Federal Highway and the ACT properties be sold and their net proceeds divided evenly and that the Wife pay to him the amount of $257,294.00.
The parties differ as to what is the current pool of assets and liabilities.
This is a short marriage of 3 years in duration. On any Final Hearing there will be an emphasis on analysing the contributions that both parties have made during the 3 year period and it is probably there will be a particular emphasis on analysing financial contributions.
Both parties have set out in their evidence before me substantial details in that regard. There are, however, clear inadequacies in the evidence which both parties have presented and the evidence is yet to be tested by cross examination. This creates some problem in predicting with any certainty the range of possible results.
In relation to initial contribution, only the Wife has provided detailed evidence. Her estimate is that she had $993,000.00 worth of net assets at the commencement of the cohabitation and the Husband had $40,000.00 worth of net assets (see paragraph 14 of the Wife’s Affidavit).
The current net property of the parties
The parties disagree as to what are their current level of net assets.
The Wife on the face of her Financial Statement sworn in April 2005 says that her assets are $1,957,972.00 and her liabilities are $1,185,000.00. That is, she has net assets (excluding superannuation) of $772,972.00.
She has a 50% interest in the property at Clontarf and a 50% interest in the property at ACT property. On the Wife’s figures, the Husband’s 50% ownership in the equity in these two properties would add a further $515,000.00 ($1,550,000.00 + $150,000.00 - $1,185,000.00). On the Wife’s Financial Statement therefore it seems that her estimate is that the net assets of the parties are about $1,288,000.00 ($772,972.00 + $515,000.00).
The Husband, in paragraph 31, of his Affidavit estimates that the current net pool of assets is in the sum of $1,191,225.00.
This takes into account, however, two liabilities, namely:-
Company tax (which is the central concern of the Application before me) $385,063.77
Criminal law fees $172,000.00
At the final hearing, if those two liabilities are not added back (as would be the Wife’s Application at final hearing) on the Husband’s estimate the overall net pool of assets would then be in the sum of $1,748,000.00 ($1,191,000.00 + $385,000.00 + $172,000.00).
It is not appropriate, in the confines of this hearing to explore the difference in the estimated values.
Increase in value of assets during the cohabitation
It can be said from the above that the Wife estimates that the increase wealth of the parties from date of cohabitation to June 2005 was about $255,000.00 ($1,288,000.00 - $1,033,000.00). The Husband’s estimate of the increase in the net pool of assets (using the Wife’s figure as a starting point) is in the sum of $715,000.00 ($1,748,000.00 - $1,033,000.00).
The Wife’s Gold Coast property
The Wife has given no information about the financial arrangements she has entered into with the National Australia Bank to complete the purchase of the Gold Coast property. The purchase price was $875,000.00 (see paragraph 55 of her Affidavit). The purchase was settled on or about October 2005 (see paragraph 84 of her Affidavit). By inference, from paragraph 85, the whole of the purchase monies came from a borrowing from the National Australia Bank. No specific details of the amount of that borrowing nor the repayment terms have been put in evidence before me (and the Wife has not updated her financial statement).
I infer that the Wife had the ability to borrow, in her own right, an amount of $790,000.00 and that the bank was satisfied that she had the ability, in her own right, to service the interest on those borrowings from rent for short term holiday lettings of the unit and her other income.
Wife’s jewellery
The Husband in paragraphs 31 and 34.7 of his Affidavit asserts that the Wife has in her possession $100,000.00 worth of jewellery.
The Wife in her Financial Statement sworn in June 2005 seems to indicate that her estimate of her jewellery is $17,000.00 (see Item 43 - “ring - diamond; watch - Rolex”).
The Ferrari provided by the Husband’s company
The Husband has a 1986 Ferrari motor vehicle provided to him by the company. It is said to be worth $100,000.00. I note that the Husband’s Financial Statement says that the Wife has a BMW motor vehicle said to be worth $78,000.00. On the estimates of value before me, there is a $22,000.00 difference in the value of the motor vehicles driven by each party.
The taxation debt
Annexure “F” to the Husband’s affidavit sworn December 2005 is an interim statement by the Australian Tax Office to E Pty Ltd dated November 2005 (annexure “C” is the identical document). In this document the Australian Tax Office tells the company that the total tax payable if paid by the December 2005 is in the sum of $392,455.09 (statement closing balance $389,481.69 + estimated general interest charge $2,973.40).
The major debits on the account are for “pay as you go tax withheld”. Pay as you go tax is the tax that a company withholds from the salary of its employees and remits (usually) on a quarterly basis to the Australian Tax Office.
There is no detailed evidence before me as to who the employees of E Pty Ltd were during the period to which the statement refers. The Wife was the Practice Manager of the company, but it is unclear if she was paid any salary. I think it is safe to assume that the wage expenses recorded by the company almost exclusively relate to wages paid by the company to the Husband. This is confirmed by the debts being “pay as you go withheld” always recorded on Annexure “F” as “self assessed amounts”.
Some payments of tax have been made. About $38,000.00 was paid at the end of June 2003. A further amount totalling about $62,800.00 was paid between July 2003 and October 2003. There was then no payment until April 2004. Between April 2004 and September 2004, ten payments of $10,000.00 each were paid at various times (a total of $100,000.00).
In October 2004 the statement records outstanding tax at $57,838.31.
An analysis of the running balance account as at the date of separation might lead to the conclusion that it was under control at that time. The balance at the end of September 2004 stood at $49,741.00. The problem, however, was clearly that there had been a failure to lodge Activity Statements leading up to that time.
In October 2004 the account was reconciled by the Australian Tax Office. At the end of that reconciliation the amount owing was adjusted from about $50,000.00 to $329,334.00.
That adjustment is primarily as a result of the Australian Tax Office charging the account with “pay as you go tax withheld” for the last ten months of the marriage. The tax in that period was $260,000.00, details of which are as follows (in the order that each entry appears on the RBA):-
Dates Dollar Amounts
June 2004 $19,880.00
February 2004 $19,306.00
May 2004 $24,904.00
November 2003 $23,641.00
July 2004 $29,426.00
March 2004 $34,976.00
December 2003 $40,056.00
January 2004 $22,254.00
April 2004 $24,226.00
August 2004 $21,416.00
Total $260,085.00
When the opening balance as at September 2004 is added to these figures, the total is $309,826.00 ($260,085.00 + $49,741.00).
The Husband continued to service repayments on the Spit Road property mortgage till June 2005, the ACT property mortgage until June 2005 and the Clontarf mortgage until April 2005. In that period there were three additional entries on the RBA for pay as you go tax withheld.
They were:-
Date Amount
September 2004 $28,470.00
October 2004 $11,078.00
November 2004 $9,428.00
Total $48,976.00
This brings the running total to $358,802.00.
There have been some payments received since the separation by the ATO together with some goods and services tax credits. The remaining amounts which make up the current balance is represented by penalties for late lodgement of Activity Statements and interest charged. A number of fines appear on the statement relating to failure to lodge Activity Statements on time. About twelve entries record penalties for failure to lodge Activity Statements on time. The most recent is for the period ended March 2005.
The account balance has now built to $392,455.09.
This balance attracts interest at a rate of 12.62% per annum (that is an interest rate of about $50,000.00 per annum).
Annexure “I” to the Husband’s Affidavit is a notice which sets out calculations by the Australian Tax Office as to the amount of the running balance which represents unpaid amounts of the company’s liability in respect of PAYG withholding amounts. The total of column 3 is in the sum of $281,637.00. This is the best evidence I have of the amount of the running balance of Exhibit “F” that actually relates to unpaid amounts of PAYG withheld. The balance of the $392,455.09 in the main is interest charged and penalties for non lodgement of Business Activity Statements.
The company’s debt is the Husband’s debt
The Husband has received notification by the Australian Tax Office in a letter dated November 2005 (annexure “H” to his Affidavit sworn December 2005). That penalty notice asserts that pursuant to the provisions of Section 222AOC and/or Section 222AOD of the Income Tax Assessment Act 1936, the Husband as the Director of the company becomes personally liable for action to recover a penalty equal to the amount of the unpaid tax owed to the Commissioner by the company. The Australian Tax Office has served on the Husband a Creditor’s Statutory Demand for Payment of Debt of the amount of $389,481.69 (see annexure “J”). This is the amount on the running balance on annexure “F” as at November 2005.
Evidence that the Wife acted as a practice manager in the Husband’s practice
In paragraph 116 of her Affidavit, the Wife says:-
“With the exception of the financial year 2002, I am unaware of the Husband’s taxable income during the course of our marriage.”
Senior Counsel for the Wife also complained that the Husband had failed in discovery to produce Activity Statements to the Wife. It is reasonable to assume from annexure “F” to the Husband’s affidavit that the statements were never prepared and sent to the Australian Taxation Office.
In paragraph 11 of her Affidavit, the Wife deposes to the fact that she assisted the Husband in setting up E Pty Ltd. Its registered office at the time was the Wife’s clinic. In paragraph 27 the Wife says that after the Husband was admitted as a Fellow of the Royal College of Surgeons, he practiced from her rooms.
In paragraphs 27 to 31 the Wife gives details of the assistance that she gave the Husband in his medical practice. In particular in paragraph 30, she says:-
“30.When we were cohabiting I worked as H’s Practice Manager.”
That is the Wife is asserting that between August 2001 and sometime after the completion of the 2003 tax year, the Wife was the Husband’s Practice Manager. It is during that period that it seems that over $100,000.00 was paid as wages to the Husband (incurring taxation liabilities in the Husband’s hands). The Husband says that the Wife should bear some responsibility for the taxation consequences which have flowed from that. If proper accounting had been done “wages” would not have been paid to the Husband at a time when the company had insufficient profits to pay them.
Obviously, the Husband has primary responsibility for paying his tax but given that the Wife has asserted that during the marriage she managed the administration side of the Husband’s professional services, on the evidence before me the Wife bears some responsibility for the disarray the Husband’s paperwork had obviously got into by the date of separation given the 10 months of retrospective assessments that were entered on RBA shortly after separation. If the Wife was the Husband’s practice manager, as she asserts, then upon the untested material before me she may bear some responsibility for the non lodgement of activity statements.
The Husband’s income
Paragraph 7 of the Husband’s Affidavit sworn December 2005 is in the following terms:-
“7.I am a Consultant General and Laparoscopic Surgeon and a Fellow of the RACS”.
In paragraph 30 of his Affidavit he says “I am now working”.
The Husband leads no evidence as to what is his current level of income.
His most recent Financial Statement sworn June 2005 indicates that his average weekly salary or wage before tax was “nil” and that his total average weekly income was “nil”.
The evidence Exhibit A and Exhibit B discloses the Husband had the following taxable income, for the following tax years:-
Tax Year
Note
Amount
2001/2002
See Exhibit A
$386,900.00
2002/2003
See Exhibit B; this is after ($15,224.00) in rental property losses
$375,650.00
2003/2004
See Exhibit B; this is after a deduction of ($80,231.00) for rental property losses
$524,089.00
The Wife puts some reliance on information in Exhibit “5”. Exhibit “5” is a document apparently completed by the Husband for the purposes of making an application for a loan serving ability. That records an estimate of the 2002 gross business income for the company at $526,787.00. Exhibit “5” is not dated so I am unable to tell when the Husband prepared that document. It is not clear to me whether or not that was a recording of an actual income as per the company tax return or some estimate of what it was expected to be by the Husband.
The information in the above table has to be viewed in light of losses recorded in the Husband’s service company E Pty Ltd which was paying his wages. They are as follows:
2003/2004 $14,194.00
2002/2003 $111,606.00
2001/2002 $7,244.00
Total $133,044.00
So the company recorded a loss in the 2003 tax year of $111,606.00. When that loss is taken into account, the Husband’s income is actually in order of $264,044.00.
The actual gross income received for professional fees in the 2003 tax year by the Husband’s company was $636,741.00 (see Exhibit “7”). This should be compared with the estimate in Exhibit “5” of $846,677.00. (Again I assume that the estimate in Exhibit 5 is for the purposes of an application for a loan facility made by the Husband and was made at a time prior to the preparation of the actual figures in Exhibit “7” which is the tax returns for the company as lodged for the 2003 year).
The Husband’s income for 2004 is stated in his tax returns to be $524,089.00 (Exhibit “B”). Again, some regard has to be taken of the loss in the Husband’s service company of $14,194.00. When that loss is taken into account the Husband’s income for the 2004 year is $509,895.00.
Income Tax Ruling IT 2503, which was handed up during submissions, sets out what is expected of medical and other professional practices when they incorporate. The ATO allows incorporation of medical practices for the purposes of doctors and other professionals being able to provide superannuation for themselves.
Paragraph 6 of the Ruling is in the following terms:-
“Generally, this would mean that a practice company should have no taxable income. The total income for a year, after expenses, should have been fully paid out to the professional person by way of a salary.”
One would normally expect, therefore, in a service company of this nature for the net income of the company after expense (primarily, in this case, payment of wages to the Husband) would be nil or close to it. That is not what happened. In 2002/2003 the Husband drew wages from the company (upon which he has to pay tax) of an amount which generated the loss of $111,000.00 in the company (in respect of which there is no personal deduction to the Husband).
There is no specific explanation as to how these losses have come about. The most likely explanations are bad bookkeeping caused by the breakdown of the marriage, the Husband’s criminal charges, the Wife not properly fulfilling her role as practice manager and/or inadequate accounting advice.
The parties separated in the early part of the 2004 tax year. I infer the personal lives of the parties were not going well at that time. There were domestic violence proceedings in Canberra in 2005 (paragraph 4 of the Wife’s Affidavit).
I know that the Husband has incurred “criminal law fees” of $172,000.00 as at December 2005 (see paragraph 31 of his Affidavit).
The Wife gives evidence that in November 2005 criminal proceedings were brought against the Husband by the Police of various matters and were dismissed (see paragraph 106 of her Affidavit).
The Wife’s current income
The evidence as to what the Wife is currently earning is not clear. In her Financial Statement sworn April 2005, there are two pieces of information.
At Item 9, she deposes to the fact that her average weekly salary or wage before tax is $1,000.00.
In Item 11, she indicates that she has income from a company, FHL Pty Limited. She, however, does not indicate the amount of that income. She indicates in a note on page 12 of the document that the turnover for the business as at June 2005 is approximately $10,000.00 per week. She adds the note:-
“At times drawings from the business occur for mortgage payments.”
Given that Income Tax Ruling IT 2503 would generally mean that a practice company should fully pay its net profit by way of salary to the Wife, I am left in some uncertainty as to what the Wife’s evidence in her Financial Statement means. I note that the Wife promised to update her financial circumstances but that has not happened at the time of the hearing before me (see indication that she gives in paragraph 118 of her Affidavit).
The uncertainty in the Wife’s evidence is of some importance given the attack on the Husband for not having his financial position up to date (that is referred to later).
The Wife’s income during the marriage
There is no direct evidence as to what the Wife’s income was during the marriage. In paragraph 111 of her Affidavit she says that she earned income as a Consultant Psychiatrist. I know that in the year prior to the commencement of the cohabitation, Wife earned $315,000.00 (see paragraph 9 of her Affidavit which annexes her 2001 tax return).
Paragraphs 112 to 115 of the Wife’s affidavit are in a section entitled “My Income”. They set out schedules of payments made by the Wife during the cohabitation. It is not clear to me, however, that all of those payments have been made from income. Absent any evidence at all from the Wife as to what her income was during the three relevant years, I am left in a somewhat uneasy position in relation to that evidence. The Wife has, in other parts of her Affidavit, indicated that she drew on a mortgage on the “Forrest Property” for various purposes during the marriage (this property was sold in April 2003). At a Final Hearing there will be presumably a more detailed exploration as to where the Wife’s funds came from for the purposes of the expenditure she has set out.
Mortgage payments by each party
In paragraphs 38.10 to 38.12 of the Husband’s consolidated Affidavit - Interim Matters sworn December 2005, he attempted, pursuant to Section 50 of the Evidence Act, to attach schedules of payments made by him through the cohabitation. Although it was conceded that the material to which these schedules related had been available to the Wife for some little time in subpoenaed and discovered documents, the schedules were rejected on the basis that the late service of the Affidavit meant that the Wife could not be said, within the terms of Section 50(2)(b) Evidence Act, to have had a reasonable opportunity of examining the documents for the purposes of checking the schedules. That evidence is therefore not before me.
However, paragraph 33 of the Husband’s Affidavit is in the following terms:-
“33.The tax debt arose during the course of the marriage…our mortgage repayments which were running at the rate of up to $386,000.00 per annum as follows:-
33.1.Clontarf property as $16,343.00 per month being $196,116.00 per annum;
33.2Spit Road property at $3,169.00 per month being $38,028.00 per annum;
33.3Seaforth property at initially $8,369.63 and then $9,402.88 per month being $112,834.56 per annum;
33.4ACT property at $2,613.00 per month being $31,356.00 per annum;
The mortgage commitments vary from month to month but were generally in the amounts referred to above throughout the period during which the taxation liability of the company accumulated significantly in accordance with the RBA attached hereto and marked “F”.”
I noted during submissions that the figures did not add to $386,000.00 but rather $378,334.00 per annum.
The Wife in her Affidavit replied firstly by saying that at all times she was solely responsible for repayments in relation to the mortgage on the Forrest Property (using the rents on that property as well as her income to support those payments - see paragraph 119.33.2).
She concedes that from September 2002 to June 2005 she did not make any contributions to the payments of mortgage on the Spit Road property which was leased for some of the period (see paragraph 119.33.3).
She concedes the Husband was solely responsible for all the mortgage payments in relation to the ACT property up until June 2005 (see paragraph 119.33.4).
In relation to the repayment on the Seaforth property, the Wife assets that her impression is that she paid half the mortgage from February 2003 to October 2004. She asserts that that mortgage ranged between approximately $6,000.00 and approximately $9,000.00 per month (see paragraph 119.33.5 and paragraph 119.33.10).
Between June 2003 and August 2004 the monthly repayments in respect of the Clontarf mortgage were approximately $16,313.00 per month. The Wife asserts she paid half of those monthly mortgage repayments (see paragraph 119.33.7).
The Wife asserts that her contributions to the Clontarf mortgage were made by her giving cheques and cash to the Husband which were then put into a joint account from which the payments in relation to the Seaforth and Clontarf mortgages were made (see paragraph 119.33.8). The Husband denies that any cash payments were made to him by the Wife (see paragraph 38.9 of the Husband’s Affidavit).
The Wife asserts that between November 2003 and the current date she has paid $426,549.40 on mortgage payments excluding payments on the Forrest mortgage (see paragraph 119.33.12 and Annexure “T”).
The concessions made by the Wife amount to concessions that the Husband paid substantial amounts of money during the marriage on the servicing of debts on properties acquired by the parties during the cohabitation.
I find the source of that money paid by the Husband partly came from rents but mainly came from the Husband’s income.
Other payments made by the Husband
The Husband in paragraph 34 of his Affidavit gives evidence of about another $200,000.00 that he paid during the marriage on holidays, renovations to various properties and purchases of jewellery for the Wife. The Wife in her Affidavit does not seem to take issue with the Husband’s assertion that he made these payments and the Wife in her Affidavit confirms that the parties spent Valentines Day weekend in February 2004 on the Gold Coast.
PRELIMINARY MATTERS REFERRED TO BY SENIOR COUNSEL FOR THE WIFE
Senior Counsel for the Wife submitted that the Husband’s Application should fail on any one of four preliminary grounds. They were:-
1.The Application is futile because of the intention of the National Australia Bank in relation to the discharge of the mortgage on the Federal Highway property.
2.The Husband’s Application in a Case is an application to vacate an Order made pursuant to Section 79. The Wife submits that the only basis upon which that application can be made is Section 79A and it is conceded by Counsel for the Husband that there is no ground under Section 79A available.
3.The Application is an application to vary Orders which were made by consent and the Husband cannot impugn the underlying contract that is the basis of that consensual arrangement.
4.In circumstances where the Husband has to satisfy the Court that there are compelling reasons why his Application should be granted, the Husband has not sufficiently disclosed his financial circumstances.
I will discuss each of these preliminary grounds.
What is the intention of the National Australia Bank upon settlement of the sale of the Federal Highway property?
Senior Counsel for the Wife submits that the Orders sought should not be made as they are nugatory given the intention of the National Australia Bank to take the whole of the proceeds on settlement.
The Orders as sought before me are silent in respect of what is to happen to the bank’s mortgage on the Federal Highway property. Obviously for there to be any proceeds of the sale of the Federal Highway property, the bank has to provide a discharge of the mortgage on that property.
Order 3 made in May 2005 does not refer to the discharge of any mortgage on the Federal Highway property.
Exhibit “2” consists of two documents setting out facility agreement details between the parties and the National Australia Bank. The first January 2003 is for $1,400,000.00. The securities referred to in that document are the Seaforth and Federal Highway properties. The second increases the facility to $2,450,000.00 and is dated June 2003. It records as the security the Seaforth property, the Federal Highway property and the Clontarf property as well as guarantees given by each party’s service company.
The Wife in her Affidavit indicates the Seaforth property has been sold. At that time $1,375,000.00 was repaid to the National Australia Bank.
Exhibit “3” is a title search of the Federal Highway property as at December 2005. A mortgage to the National Australia Bank Limited is registered on the title of the Federal Highway property.
Counsel for the Husband relies on Exhibit “8”. Exhibit “8” is a document produced by the National Australia Bank entitled “Settlement Instructions” as at November 2005. That document in the box entitled “Limit and other liability details - state whether limit will be cancelled, or otherwise, on receipt of proceeds” has the handwritten entry “BAL + Limit to be reduced”. Senior Counsel for the Wife has invited me to interpret those words as an instruction by the bank to take the balance of the Federal Highway property for the purposes of discharging the mortgage registered on the Federal Highway property.
Exhibit “C” is a letter written by the Husband’s Solicitors to the National Australia Bank in December 2005. That letter encloses a copy of the Application which is before me.
As set out above (under the heading “The Husband’s Application in a Case”) that Application, in Orders 2.4 and 2.5 as sought, seeks that the Husband’s debt in the sum of $385,063.77 to the Australian Taxation Office be paid from the Federal Highway property in priority to any money now owed to the National Australia Bank.
The letter refers to the bank’s mortgage over the Federal Highway property. The letter asserts to the bank that there is no specific loan attached to the Federal Highway property because the mortgage was registered by way of collateral security in relation to other facilities borrowed by the parties jointly.
The letter notes that the proceeds of the sale of the Spit Road property has lead to a significant debt reduction and that ACT property is presently in the course of being sold. The letter refers to the bank’s intention to call on the proceeds of the sale of the Federal Highway property in order to reduce the overall debt position (presumably a reference to what is contained in Exhibit “8”). The letter asserts there is sufficient equity in the Clontarf property and the property recently purchased by the Wife on the Gold Coast. There is an indication in the letter that the Husband, prior to December 2005, refused to “cross-collateralise” the loan that the Wife took to purchase the Gold Coast apartment by securing it against the title of the Clontarf property. The letter of December 2005 makes it clear that the Husband, as at that date, was prepared to offer that security.
The Husband was also prepared to guarantee the loan that the Wife had taken to purchase the Gold Coast property.
In the third full paragraph on page 3 of the letter, the Husband sets out to the bank what the Husband asserts to be the effect of the Application he has made to the Court, namely, that the Application before the Court was to realise from the settlement of the Federal Highway property an amount that would enable him to pay the outstanding tax debts. It is noted that if the bank require the proceeds of Federal Highway for the purposes of reducing debt then that intention would be frustrated.
Annexure “Q” to the Husband’s Affidavit sworn December 2005 is a response by the National Australia Bank to the letter by the Husband’s Solicitors dated December 2005. It reads in part:-
“I advise that the National has considered your letter and does not intend to oppose the orders which you are seeking from the Family Court in December 2005. However, it is the National’s understanding that the mortgagee of the ACT property is M Pty Limited and not the National.
The National does not currently require a guarantee from your client in respect of any debts owed to the National by his Wife.”
Senior Counsel for the Wife submits that that response by the National does not address the substance of what is sought by the Husband’s Solicitors in the letter of December 2005. Senior Counsel for the Wife asks me to infer from what is contained in Exhibit “8” that the National still intends to insist upon the payment of the proceeds of the sale of the Federal Highway property for the reduction of debt and that all that they are saying in the letter of December is that they have no opposition to the orders sought in the Husband’s Application in a Case because those orders as sought do not say anything about what is to happen to the mortgage on the Federal Highway property.
On balance, I do not believe that that is an interpretation that is open.
I find that it came to the Husband’s attention that the bank initially (in November 2005) wanted the whole of the proceeds of the Federal Highway property. The letter to the bank dated December 2005 quite specifically requests the bank to allow from the net proceeds of the sale of the Federal Highway property an amount to the Husband of $385,063.77 plus accrued general interest charges for the purposes of reducing the Husband’s taxation liability.
I interpret the letter from the National dated December 2005 as unequivocal agreement to that course by the bank.
The submission made by Senior Counsel for the Wife that any order made in the terms sought by the Husband would be nugatory because the bank will take all of the proceeds in any event, is not one that I accept.
What is the basis upon which the Husband makes his Application in Case filed in November 2005?
Senior Counsel for the Wife submitted that the Husband was confined in his Application by the manner in which he has framed the application filed in May 2005.
As the High Court said in Mullane (1983) FLC 91-303 at 78,071 the substance of the application is more important than its form.
The substance of the orders sought by the Husband is set out in the first sentence of these reasons for judgment.
Senior Counsel for the Wife submits that the order May 2005 is a property order and the only basis upon which it can be vacated (or varied or set aside) is pursuant to Section 79A Family Law Act (or on appeal against the order itself).
In that regard, Senior Counsel refers in a general way to cases spanning from the High Court’s determination in Mullane to the Full Court’s pronouncements in Hickey and Hickey and A-G for the Commonwealth of Australia (intervenor) (2003) FLC 93-143 at paragraphs 43-48.
The difference between “interim orders” and “partial orders”
Nygh J in Burridge and Burridge (1980) FLC 90-902 said at 75,679:-
“[T]he court cannot make an interim property order under para. (h), i.e. an order altering provisionally the interests of the parties to property pending the final determination of the matter. For the order, if it is made, must be an order under s.79 and once it is made it cannot be altered except in the limited circumstances set out in s.79A. Taylor and Taylor (1977) FLC 90-226; (1977) 3 Fam LR 11,220. There cannot therefore be such a thing as an “interim property order”.
It was then argued that the Court can make a determinative order under s.79 altering the rights of the parties to the fund in question in so far as there did not appear to be a dispute between them, leaving the balance in trust for final determination. In argument, I refer to this approach as a “salami order” whereby the sausage is sliced and distributed to the extent that there are no disputing claims, leaving the fate of the balance to be determined later. A more dignified term may be “partial order”. Such orders to my knowledge have been made on occasions by consent, under sec.80 para.(j). On my interpretation of sec.80, if such orders cannot be made in a contested case, then they can’t be made by consent either. But obviously the point of jurisdiction is not taken in proceedings ending in consent orders.
Unless there exists a principle in relation to s.79 that property applications must be made once and for all, it is in my view possible to make such an order under para. (k), if the justice of the case so requires.” [emphasis added]
So, in 1980 Nygh J was asserting two things:
1.There can not be an interim property order
2.There can be a partial final (“salami”) property order which is not subject to variation at a final hearing (absent an 79A application or appeal).
In 1983 Section 75(5) and (6) were introduced into the Act. Their purpose was to allow a trial judge at a final hearing to adjourn proceedings in circumstances where a final order could not be made. The most common examples was where superannuation or an inheritance (see Grace and Grace (1998) FLC 92-792) had not yet vested in one of the parties. In those circumstances Section 79(6) provided the Court could make “such interim order or orders or such other order or orders (if any) as it considers appropriate”.
In Harris and Harris (1993) FLC 92-378, the Full Court disagreed with Nygh J’s view that the court, in s.79 proceedings, cannot make interim orders under s.80(h). The court said at 79,929
“The distinction which Nygh J drew in Burridge between an “interim” order and a “partial” order appears to be that an interim order is one which operates until the final hearing but may then be submerged into the final order whereas a partial property order is a property order complete in itself but dealing with part only of the property and not intended to be a final determination of the proceedings.
We do not doubt that the court has power in a proper case in sec 79 proceedings to make what may be conveniently described as an interim order, that is an order dealing with some of the property of the parties prior to the final hearing. We do not consider that it is necessary to draw a distinction in terminology between an “interim” order and a “partial” order.” [emphasis added]
However, in exercising that power, the Full Court in Harris went on to say (at pp 79,929 – 79,930) that the following matters need to be considered:
“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 sec 79 proceedings.
2.It is an exercise of the sec 79 power. Consequently it must be performed within those parameters. Since it is not the final hearing the Judge is unlikely to have the 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 the parties at the final hearing or that the order which as 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.” [emphasis added]
So in Harris the Full Court said:
1. The distinction between the names “interim” or “partial” was not necessary or desirable
2. That any order made in interlocutory proceedings was capable of modification at a final hearing.
Thus Harris disagreed with both Nygh’s propositions in Burridge.
The guidelines in Harris have been consistently followed since it was decided and were relied on by both parties in this case.
In Bassi & KD Sales Force Specialists Pty Ltd v Maas (1999) FLC 92-867 at 86,265, the Full Court found that the trial judge had made final partial property orders when utilising the provisions of s.79(5) and (6). The court said:
“…Whilst the Full Court in Harris and Harris (1993) FLC 92-378 at 79,929 considered it unnecessary to draw the distinction which Nygh J drew between “interim” and “partial” orders in Burridge and Burridge (1980) FLC 90-902, it did not decide that there is no such distinction, or that it is inappropriate to draw it in a proper case.”
So the Full Court in Bassi & KD Sales Force agreed with one of Nygh J’s assertions and said there is a distinction between a final partial property order and an interim property order. The Full Court in Bassi said that a partial order is permissible under s.79(6) in circumstances where a final hearing is to be adjourned pursuant to s.79(5).
As both the authors of “Super splitting on Marriage Breakdown (CCH 2002 at p 78) and O’Ryan J in N and N (2005) Fam CA 188 (11 March 2005) at para 27 observe the Full Court in Bassi ignored the statement in Harris that such a distinction is not desirable.
In 2001 Section 5 of the Family Law Legislation Amendment (Superannuation) Act 2001 allowed cases which were only subject to interim orders under Section 79 to take advantage of the new super splitting regime. “Interim property orders” were made in at least two reported cases leading up to the introduction of Part VIIIB Family Law Act. (see S v S (2002) 195 ALR 283 (Ryan FM); J and J (2003 Fam CA 751 (Young J).
In Hickey the Full Court said:
“47.The principle demonstrates that but for the operation of s.79A, the court has power to make only one order for property settlement pursuant to the provisions of s.79. Thus, any such order inherently has the effect of finally disposing of all issues relating to the disclosed property of the parties. This has two significant effects on property orders. Firstly, it means that “catch all” orders are essentially ineffectual if they do not affect an alteration of interest. Nevertheless, it is said that their value lies in their form in order to appease concerned parties rather than their possible empty substance. Secondly, an order for property settlement made pursuant to the provisions of s.79 cannot legally constitute “orders” in the plural sense, but rather is a single order made up of various paragraphs or clauses
48.In our view, an order made pursuant to the provisions of s.79 was correctly described by Senior Counsel for the husband as a “once and for all” proposition. Although there may be partial or interim orders (s.79(6) of the Act) ultimately there is only one exercise of power under s.79 in respect of the property of the parties, even though that single exercise of power may be reflected in a complex order of many paragraphs or clauses, each dealing with a different item of property and some dealing with questions of implementation. It may be that some items of property are not dealt with in paragraphs or clauses of the order as it is not proposed that there be an alteration of interest in such property. However, the single exercise of power prevents a further application in relation to both specified and non specified items of property except pursuant to the provisions of s.79A.” [emphasis added]
In N and N (2003) Fam CA 188 (11 March 2005) O’Ryan J refers to the “jurisdiction to make a partial final property order which cannot be later reversed except pursuant to Section 79A or an appeal” and says that he “expresses no views as to whether there is such a power particularly in light of Hickey and for other reasons”. O’Ryan J goes on to say “I am of the view that the issue of the jurisdiction to make a partial final property order should be reconsidered”.
The Full Court in Hickey didn’t directly consider what Nygh J had said in Burridge or what the Full Court had said in Harris and Bassi.
It seems that the Full Court in Hickey asserted that property applications must be concluded once and for all by the making of a single final order.
In Burridge Nygh J prefaced his remarks with the words “unless there exists a principle in relation to s.79 that property applications must be made once and for all”. It seems Hickey asserts that principle exists (absent an application relying on Section 79(6) Family Law Act).
The Full Court in Omacini and Omacini (2005) FLC 98-218 at p 79,620 having upheld an appeal against only particular parts of a property order decided that the order in its entirety had to be dismissed. In doing so, the Full Court referred to the single exercise of power referred to in paragraph 48 of Hickey.
This however has to be compared with a number of pre and post Hickey decisions of the Full Court which has indicated that partial property orders can be made when re-exercising discretion after a successful appeal.
In Ruscoe and Walker (2002) FLC 93-093 the majority (Lindenmayer and Joske JJ with Coleman J dissenting) held that the new trial judge in the re-hearing of the matter could not go behind the original findings as to the net property of the parties (including its value); as to the contributions of the parties up to the date of the orders of the original trial judge, and as to the method of distribution, in specie, between the parties of their existing property. The trial judge was asked to re-exercise discretion in relation to the division of the pre-determined net property.
This approach was considered appropriate by McHugh J who refused special leave to appeal to the High Court.
This decision adopts a similar approach to the approach taken in Bassi. A partial property order, in the sense described by Nygh J, is made as a result of one exercise of discretion. There is then a further discretionary exercise at a later time in relation to the balance of the property of the parties. There is not one single exercise of power.
Ruscoe and Walker was relied upon by a subsequent Full Court in G & G (2001) Fam CA 1453.
In that case the Full Court discussed the options available to it at the conclusion of a successful appeal. One option was that the parties could present the Court with an agreed statement of relevant facts and the Full Court could re-exercise its discretion based on that statement. Another option was that the Court could remit the proceedings to a judge for a limited hearing.
A third option was discussed in the following terms:
“352. Another possible option for this Court (although the appropriateness of such a course would need to be the subject of further submissions) might be to allow the appeal and cross-appeal, make such orders as flow from a re-exercise of the discretion by us on the basis of our conclusions about the net property available, the contributions of the parties and the impact of the s.75(2) factors, all considered as at the date of the trial Judge’s orders, but to designate those orders as either “partial final” or “interim” orders (as to which, see Burridge and Burridge (1980) FLC 90-902 and Harris and Harris (1993) FLC 92-378). We could then remit for determination by a single judge the question whether either party should pay to the other any further cash adjustment as a consequence of relevant events relating to both contributions and s.75(2) factors which have occurred or arisen since that date, in order to produce a just and equitable result as at the date of that determination.”
Whilst G and G is a pre Hickey decision it has been followed in at least two of Full Court decisions that were decided after Hickey (see M and M (2005) FamCA 868; Hunt and Zuryn (2005) FLC 93-226).
So, the Full Court has endorsed the concept of partial property orders as described by Nygh J in Burridge:
1. Where a trial Judge at a final hearing grants an adjournment pursuant to Section 79(5) Family Law Act. Hickey itself seems to endorse Bassi and say partial orders can be made if the Court deals with the matter using s.79(6) (see paragraph 48); and
2. Where the Full Court is making some orders after hearing a successful appeal and before remitting the balance of the matter to be determined by a single judge in a limited way.
Whether these exceptions sit comfortably with the single exercise of power espoused by Hickey might be the subject of future consideration by the Full Court.
There seems no doubt that interim orders can be made prior to a matter reaching a final property hearing. These types of orders are, to quote Harris, orders which are capable of being reversed or adjusted if it is subsequently considered necessary to do so.
What type of order is the order of May 2005
The order of May 2005 is “until further order”. It, therefore, does not on its face purport to be a partial final property order. I find that the order of May 2005 is an interim order which can be varied without involving the provisions of Section 79A Family Law Act.
Can the interim order of May only be varied by a final order?
Senior Counsel for the Wife says that the words “until further order”, in the context in which the orders of May 2005 were made, “clearly contemplated until the final hearing pursuant to s.79”.
On the face of the order the words “until further order” do not say that the “further order” referred to could only be a final order.
Section 80(1)(h) Family Law Act provides, amongst other things, that in exercising it’s powers under Section 79 the court may:-
Make an order pending disposal of proceedings
OR
Make an order until further order.
Senior Counsel for the Wife, in submissions, said that there was no difference between these two phases in Section 80(1)(h) Family Law Act.
I have some difficulty in finding that there is no distinction between these two phases but that is not a matter which I need to resolve.
It is possible that an order “until further order” might mean either be until a future final order or a further interim order.
The Husband’s affidavit (at page 10) says:-
In May 2005 orders were made by consent in relation to interim financial matters (“the May orders”).
Paragraph 11 of the Husband’s affidavit says:
It was anticipated that there would be surplus funds available and such funds would be placed in a controlled monies account in joint names, pending further Order of the Court.”
Paragraph 40 of the Husband’s affidavit says:-
“I respectfully request this Honourable Court to vary the May orders to enable the tax debt to be discharged from the proceeds of sale of the Spit Road property and the Federal Highway property thereby enabling the tax debt to be discharged in priority to the discharge of the mortgage registered upon the title of the ACT property.”
Paragraph 4 of the Wife’s affidavit records that in May 2005 the Husband’s application in a case was heard by a Judicial Registrar.
The Wife refers to the May orders in paragraphs 97 and 98 of her affidavit. Those paragraphs do not give any evidence about what she contemplated by the orders.
Nor is the “clear contemplation” contended for by Senior Counsel for the Wife evident in the Wife’s response dated October 2005 to the request for variation of the May orders (see letter by the Wife’s solicitors of October 2005; annexure “J” to her affidavit).
In paragraph 121 the Wife records that the orders made in May 2005 were made by consent but nothing else in that paragraph evidences anything about what was “clearly contemplated” in May 2005. The Wife points to what she subsequently sought in an amended response filed July 2005 but that happened at a time after the interim orders had been made in May 2005.
I am consequently of the view that the words “until further order” on their plain meaning in this case allow either party, prior to the final determination of the proceedings, to make some application about what is to happen to all or part of the monies in the solicitor’s controlled money account.
I find that there is power to vary an interim order by a further interim order without the need to wait until the final hearing to do so.
Whether or not that application is then successful would depend on whether or not the court exercises its jurisdiction in accordance with the principles set out in Harris’ case.
The nature of the contract underlying the consent orders of May 2005
The third preliminary argument raised by Senior Counsel for the Wife upon which it is submitted the Husband’s application must fail was that what the Husband was seeking to do is vary an order made by consent.
Senior Counsel referred to passages from Tynan and Tynan (1993) FLC 92-285; Hudderfield Banking Co Ltd v Henry Lister & Sons Ltd (1895) 2 Ch 273; Harvey v Phillips (1956) 95 CLR 235; Harrington v Lowe (1996) FLC 92-668.
These authorities were referred to to support the proposition that the Husband, having agreed to a certain thing by consent in May, cannot then at a later time simply come back to the court and say in effect “well I’ve changed my mind about that”. It was submitted that in order to impugn the consent order, the Husband has to impugn the underlying contract on some basis such as it was void, voidable, uncertain or unenforceable. Senior Counsel for the Wife submits that just because the document which has been consented to become orders there is no loss of the underlying contract that forms the basis of the orders.
These submissions may have had some force had the facts of the case provided a ground for them to be made.
Senior Counsel for the Wife relies upon what is in exhibit 6 which is paragraphs 12 and 13 of an affidavit of the Husband sworn March 2005. That evidence of the Husband is:
“12.Apart from fees and the amount of about $12,000.00 due from patients I have operated on, I have no business or personal income at the moment compared to an average monthly business income of over $60,000.00 in the last three years.
13.I have an outstanding debt to the Australian Taxation Office (“ATO”) currently at $353,000.00. The ATO has contacted me several times a week asking for details of the properties. I am concerned at the ATO may intervene and force a sale of some of the properties.”
The substance of the Wife’s submission is that the Husband knew about the tax debt at the time he consented to the orders of May 2005. He agreed to have the proceeds of sale put into a solicitor’s trust account. The court therefore must infer that he was agreeing at that time that no further interim order would be made in relation to that fund in relation to his tax debt.
Given what I have found the words “until further order” mean, in the context of this case, that interpretation as to the basis of the consent order is not sustainable.
I do not find that there is any evidence that the parties agreed when they were entering into the consent orders in May 2005 that the monies in the solicitor’s controlled account were frozen in such a way as to mean that they could not become available to pay the Husband’s tax debt.
Consequently I am unable to conclude that there is any substance in the third preliminary submission made by Senior Counsel for the Wife.
The Husband’s alleged lack of financial disclosure
The fourth basis upon which Senior Counsel for the Wife submits the application should be dismissed is that, like any application pursuant to Section 79, fundamental to it is the applicant’s disclosure of his financial circumstances. It was submitted that this is ever more so in a case such as this where the Husband is asking for relief arising out of compelling circumstances and where the application is presented as one of financial necessity.
Senior Counsel for the Wife submits that the Husband has not disclosed what he is earning at the date of the hearing. As is set out above I can be comfortable that he has returned to practice as a general surgeon. Senior Counsel for the Wife submits that I have no current information about what he has earned in any time since his return to surgery. Senior Counsel for the Wife asserts that the lack of documentation (including activity statements) leads to a lack of certainty as to whether or not the assessment made by the Australian Tax Office in relation to the payment of tax is an accurate one.
Senior Counsel for the Wife refers to the fact that the husband received $185,000.00 from the sale of the Globe Apartment. The Wife says she was unaware of what happened to those funds. The Husband in paragraph 38.3 of his affidavit sets out what he says he did with those funds. Paragraph 38.3.3 refers to $38,000.00 being spent to fund the purchase of a boat.
Senior Counsel for the Wife complains that no activity statements have been lodged for the company.
It is clear from Annexure “F” that no Activity Statements have properly been prepared. There are penalties for not lodging Activity Statements.
Senior Counsel for the Wife puts that since June 2002 balance sheets or profit and loss accounts for the company have not been produced; that is, no one can tell the basis of what representations have been made to the Tax Office or what assumptions the Tax Office has made in levying this liability. Senior Counsel for the Wife concedes that tax returns for the company for the years 2003 and 2004 have been produced (see exhibit 7). Senior Counsel for the Wife asks rhetorically how does one prepare a tax return if there are no profit and loss accounts?
The Husband has not sought to update what is happening to his current financial position in his consolidated Affidavit - Interim Matters sworn December 2005.
His Financial Statement sworn June 2005 indicates that at that time he had “nil” salary (Item 9) and “nil” income (Item 16).
As at March 2005 he was aware of an outstanding tax liability of $353,000.00 to the Australian Tax Office (stated to be $360,000.00 in Item 48 of his Financial Statement sworn June 2005).
As set out previously, paragraph 7 of the Husband’s consolidated Affidavit says “I am a Consultant General and Laparoscopic Surgeon and a Fellow of the Royal Australian College of Surgeons”. Paragraph 11 of an Affidavit sworn by the Husband in October 2005 (Exhibit “4”) is in the following terms:-
“11.I am a Consultant General and Laparoscopic Surgeon in Sydney. I additionally work from rooms in the western suburb of Sydney.”
Consequently, it can be inferred that the Husband has returned to work and is earning an income.
Exhibit “5” (a document entitled “Self Employed - Business Income Ready Reckoner” - a document apparently in the Husband’s handwriting created for the purposes of aiding in the calculation of loan servicing ability) sets out what the Husband has previously asserted is the gross business income of E Pty Ltd. In 2002 it was $526,787.00. In 2003 it was $846,677.00.
Exhibit “7” is the Tax Returns for the company for tax years ended 2003 and 2004.
The estimate contained in Exhibit “5” of the income of the company of $846,677.00 for the income tax year of 2003 needs to be compared with the tax return for the company as lodged (see Exhibit “7”). That Tax Return indicates that the professional fees received by the company for the 2003 tax year were in the sum of $437,163.00 (not $846,677.00 as predicted on the document prepared by the Husband for the bank). The stated professional fees received for income tax year ended 2004 by the company are in the sum of $636,741.00.
Senior Counsel referred to Rose J’s decision in Scott and Scott (2003) FLC 93-170.
It was an Application for interim costs. I am specifically referred to page 78-729 at paragraph 28. The Husband’s information is six months out of date. Rose J refused to exercise a discretion in favour of the Husband because the Husband had not updated his financial information (presumably earning capacity).
It is my view in the circumstances of this case that the Husband’s failure to estimate his level of income at the date of hearing is not fatal to his application.
I assume that he has returned to practice as a general surgeon and that his earning capacity in general terms is similar to the earning capacity of the Wife.
In relation to the complaints raised by Senior Counsel for the Wife in respect of the inadequacies in the paperwork relating to periods of time when the parties were still together, I am mindful of the Wife’s assertion throughout the marriage she was the practice manager and so prima facie bears some responsibility for any inadequacies in the documentation such as the non lodgement of BAS statements (although it would be a matter for the trial judge to determine where that primary responsibility falls).
The Wife’s current financial information is also less than complete. As earlier noted the Wife has not updated her financial statement. Evidence of her current earning capacity is not clear. Evidence of the income she has earned during the marriage is not before me. Nor is there any evidence in relation to her current periodic liability in respect of the recently acquired Gold Coast property.
At this stage of the preparation of the case I do not accept the thrust of the submission by Senior Counsel for the Wife that the Husband has involved himself in non disclosure that would prohibit him from bringing the application that he has.
SUBMISSION THAT THE HUSBAND SHOULD PAY THE ARREARS OF TAX FROM HIS CURRENT AND FUTURE INCOME
Counsel for the Husband referred to an unreported 1990 Full Court decision of L and H. The passage quoted by Counsel was as follows:-
“It seems to be entirely unacceptable in such circumstances to take into account a liability which the Husband could well have provided for during the tax year and which he would in any event have no difficulty in providing for in the subsequent tax year against the Wife and not at the same time take the Husband’s income into account.
It would seem to me that in a case such as this it was almost irrelevant to consider the tax liability given the substantial gross income which the Husband anticipated and had received in the past.”
The remarks of the Full Court relied upon by Counsel need to be viewed in light of the facts in L and H.
In that case the Husband had not paid his tax when it was due.
The Trial Judge had reduced the 75(2) factors in favour of the Wife from 17.5% to 7.5% based on evidence that there was a taxation liability of the Husband of $94,000.00 that was outstanding.
The Husband had a flourishing insurance business. The Wife had been out of the workforce primarily as homemaker for about 19 years at the date of the hearing and had only recently obtained a Diploma of Education.
The Husband’s gross taxable income was about $274,000.00. The Wife’s was nil. The Husband had not used the income to service debt or to acquire other property but to rather fund an affluent lifestyle solely for his own benefit.
I find the facts very different in this case. Both parties have substantial earning capacities. Income was used during the marriage to acquire properties and service debt. The evidence about affluent lifestyle has not been developed by either party in this case.
The remarks of the Full Court in L and H are of some assistance in determining what allowance I should make for the tax losses in the Husband’s company but are otherwise of little assistance in determining what I should otherwise do in this case.
TAX LOSSES
Exhibit “7” is the tax returns for the financial years ending 2003 and 2004 for the Husband’s company.
The 2004 tax return contains information about carried forward tax losses of the company.
As set out above, they are as follows:-
2003/2004 $14,194.00
2002/2003 $111,606.00
2001/2002 $7,244.00
Total $133,044.00
I assume that the Husband is currently earning an income attracting the top marginal tax rate (48.5%).
Given the amount of the tax losses in the company, $133,044.00 of the Husband’s future professional income can be paid into the Husband’s company before the carried forwarded losses are eliminated.
Had the losses not been there the Husband’s company would have had to have paid the $133,044.00 to the Husband (gross) and from that amount the company would have had to have withheld and paid to the Australian Tax Office on the Husband’s behalf the sum of $64,526.00 ($133,044.00 x 48.5%).
Even though it relies on the generation of future income by the Husband, I find that it is appropriate that the sum of $64526.00 be deducted from the amount that is made available to the Husband for the repayment of the company’s debts.
CONSIDERATION OF THE MATTERS REFERRED TO IN HARRIS
There have been gains made in the value of the properties owned and acquired by the parties jointly and severally during the cohabitation.
These properties have been either acquired and/or maintained in part or in whole by borrowings.
The borrowings have been paid in part or in whole from the income of the parties.
For the last ten months of the cohabitation (and for a couple of months after that), tax has not been withheld by the Husband’s company and paid to the Australian Tax Office on income paid by the company to the Husband.
This is primarily the Husband’s responsibility but the Wife claims a role as the Husband’s Practice Manager during the period up to separation.
During the cohabitation the Husband maintains that he paid another $200,000.00 on holidays, renovations to the property and jewellery for the Wife. The Wife does not directly contradict this although she does not account for the value of the jewellery asserts to have been provided to the Husband by her.
Senior Counsel for the Wife says that E Pty Ltd should sell the Husband’s motor vehicle before the controlled monies accounts are used to pay tax.
Given the lack of disparity in the value of the motor vehicles driven by the Husband and the Wife I do not agree that the motor vehicle which the Husband drives should be liquidated for the purposes of paying the tax debt.
I find that there are compelling reasons for making the orders which are sought. The Husband’s concerns in relation to the company being wound up and personal action being taken against him seem to be well founded and are urgent.
Can I be comfortably satisfied that there is no risk in making an order for the payment of the tax as sought by the Husband?
I clearly do not have in this hearing, all the evidence that will be brought before the Trial Judge at the Final Hearing.
On balance I am satisfied, however, that, on a conservative approach, the charge by the Australian Tax Office for “pay as you go tax withheld” to the company, which was not paid in the last 10 months of the marriage, will not be a responsibility that is solely left with the Husband in circumstances where the Wife receives the whole of the remaining net assets of the parties.
I am unable to confidently predict, taking a conservative approach, that a Trial Judge at a Final Hearing will add back the liabilities for penalties and the interest as set out in the RBA. A Trial Judge may well leave these with the Husband depending upon what evidence is brought before the Trial Judge. I do not intend therefore to allow that part of the tax debt to be paid from the controlled monies account.
The advantage of the Husband’s carried forward losses in the Husband’s company have to be taken into account.
CONCLUSION
The amount of the debt referable to the “pay as you go tax withheld” is $358,802.00. That is to be reduced by the advantage the Husband has in his company’s carried forward losses.
Consequently, the further interim order I will make is that the sum of $294,276.00 (being $358,802.00 - $64,526.00) can be made available to the Husband for the purposes of reducing his company’s taxation debt to the Australian Tax Office.
ORDER
The order I propose to make is:-
That both parties do all things and sign all necessary documents to cause the sum of $294,276.00 to be paid from the controlled monies account referred to in Order 3.4 made May 2005 to the Australian Taxation Office for the purpose of reducing the debt E Pty Limited owes to the Australian Taxation Office.
I certify that this and the preceding pages is a true copy of the Reasons for Judgment herein of Justice Watts.
Associate
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