Horleck & Horleck

FAMILY COURT OF AUSTRALIA

HORLECK & HORLECK AND ORS

[2008] FamCA 506

FAMILY LAW – PROPERTY – Alteration of property interests

APPLICANT:

Mrs Horleck

FIRST RESPONDENT:

Mr Horleck

SECOND RESPONDENT:

Ms Lyman-Horleck (in her capacity as Director of X Pty Ltd

THIRD RESPONDENT:	X Pty Ltd as Trustee for the H Trust
FOURTH RESPONDENT	Ms Lyman-Horleck

FIFTH RESPONDENT:

Ms Cooper

FILE NUMBER:

BRF

8480

1994

DATE DELIVERED:

7^th July 2008

PLACE DELIVERED:

Brisbane

PLACE HEARD:

Brisbane

JUDGMENT OF:

Carmody J

HEARING DATE:

30 and 31 January 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Byrnes

SOLICITOR FOR THE APPLICANT:

Lane Hemming & Hall

FOR THE FIRST RESPONDENT:

First Respondent appeared in person

FOR THE SECOND RESPONDENT:

Second Respondent appeared in person

FOR THE THIRD RESPONDENT:

No appearance on behalf of the Third Respondent

FOR THE FOURTH RESPONDENT:	Fourth Respondent appeared in person
FOR THE FIFTH RESPONDENT:	Fifth Respondent appeared in person

Orders

That paragraphs 1 – 24 of the WIFE’s application filed on 2^nd August 2006 be dismissed;
IT IS DECLARED pursuant to r 20.07 of the Family Law Rules 2004 that the total amount owing under the obligation in par (11) of the final property adjustment orders made by the Honourable Justice Butler on 8^th December 1995 is $58,398.75.

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

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRF 8480 F of 1994

Mrs Horleck

Applicant

And

Mr Horleck

First Respondent

Ms Lyman-Horleck (in her capacity as Director of X Pty Ltd)

Second Respondent

X Pty Ltd (as Trustee for the H Trust)

Third Respondent

Ms Lyman-Horleck

Fourth Respondent

Ms Cooper

Fifth Respondent

REASONS FOR JUDGMENT

Introduction

This is the wife’s application under s 79A (1) (b) of the Family Law Act 1975 to set aside and replace a final property order made by Butler J in 1995 so that she receives 62 per cent of the re-valued residual including notional assets, viz $232,730 either in a lump sum or via transfer. Declarations of trust or s 106B orders rescinding suspect conveyancing transactions are also sought.
Alternatively, enforcement is sought of cls (8) and (11) of the 1995 order by way of an accounting by the husband for unpaid rents etc plus interest.
The husband rejects the applications as frivolous or vexatious and asks for them to be summarily dismissed. He contends that the 1995 order was properly and irreversibly carried into effect under 1996 consent orders which the wife has already once unsuccessfully tried to have overturned by the court and, in any event, asserts that the lapse of such a long period of time makes judicial interference with the status quo unjust and inequitable.
Both the husband and wife also want to reopen and re-litigate issues about a gemstone collection which each alleges the other secretly has in their possession.
The wife has always maintained that the husband, who was found to have an extensive knowledge of gemstones and jewellery, concealed $200,000 worth of gemstones. Butler J rejected the allegation in 1995 and assessed the item at $17,000 (the husband’s estimate) in the matrimonial pool. The husband’s position is that whatever they are worth the gems are in the wife’s hands not his.
However, in my view, there is insufficient reliable evidence of either the past or current whereabouts or value of the gem collection to resolve this controversy and the matter will therefore not be further investigated now.
The third, fourth and fifth respondents, who are chiefly concerned with the s106B complaint raise the protection of the bona fide purchaser proviso in subsection 106B(3).

Agreed or uncontested facts

The case has a long litigation history dating from the parties’ separation in June 1994 after 17 years of cohabitation. At that time, the husband was the sole registered proprietor of six parcels of real estate:
·    E Street (the former matrimonial home);
·    J Street (rental property);
·    D Street (rental property);
·    L Street (rental property);
·    M Street (rental property);
·    V Street (vacant land).
The E Street land was acquired in 1980 and the former matrimonial home was built on it in 1983 for $60,000.
V Street was purchased for $3300 in 1987 followed in the same year by M Street for $5000. D Street was bought in 1990 for $70,000 as an investment as was L Street two years later for $69,000.
Only E Street and J Streets were mortgaged at the date of separation. The E Street mortgage increased from $77,000 to $87,000 between separation and hearing. J Street decreased by $4000 from $56,000 to $52,000 while D Street went from nil to $62,000. Thus, the total mortgage debt at separation of $134,000 had risen to be just under $202,000 at trial in May 1995.
The legal title was held by the husband alone for negative gearing purposes as he was the only income earner in the family.
The husband’s real property assets were valued at $410,000.00. The net divisible property was held by Butler J to be $331,099.00.
Final orders dividing the property 62/38 to the wife based on almost equal contribution adjusted for future needs were made in December 1995. The calculation entitled the wife to just over $205,000 and the husband $126,000 of cash or property.
The judge directed that, subject to the wife exercising the option of having the former matrimonial home at E Street transferred to her, all real estate be sold with the husband to indemnify the wife in respect of the D Street mortgage.
The wife opted to stay on possession of E Street but was unable to refinance the mortgage into her own name because of lack of means. She tenanted the property and diverted the rent received to her loan account. The husband failed to transfer title in E Street to the wife as required by Butler J’s order and, at all material times, remained mortgagor of the property. The house deteriorated during the period it was in the wife’s hands. Neither the mortgage nor the rates were serviced. It was eventually sold by the mortgagee in possession for $95,000.
J Street was disposed of in 1996 for $63,000 or thereabouts by the mortgagee in possession for non-repayment and D Street was the subject of foreclosure in 1995 while L Street was sold in February 1996. Of the proceeds $14,000 was applied to the E Street mortgage arrears, $25,500 credited to the husband’s building society account and $5200-odd credited to lawyers’ trust accounts.
On 10th July 1996 the parties signed consent orders concerning the disposal of the M Street and V Street properties. M Street was to be auctioned on 31st August 1996 at a reserve of $60,000 with the proviso that “the best lesser offer” made within 7 days of the auction be accepted. V Street was to be sold by private treaty on the basis of the best offer received within 30 days. A later application by the wife to have these orders overturned was dismissed.
On 22 May 1997 the third respondent, X Pty Ltd, was incorporated as Trustee for the H Trust with the husband as the first director but replaced within hours by Ms W (now deceased). The sole shareholding in X Pty Ltd was transferred from Ms W to the husband on 6 May 1988 when the husband’s current wife, the second respondent, succeeded Ms W as the sole director.
The trust beneficiaries include the husband and second respondent as well as their children and grandchildren. Distributions are at the discretion of the sole director of the trustee company, namely, the second respondent.
X Pty Ltd’s principal place of business has been c/o Mr Cooper Accountants since 1998. Mr Cooper is married to Ms Cooper the family accountant during the marriage and the husband’s current tax agent.
V Street was transferred by the husband to the fifth respondent, that is, the husband’s tax agent, Ms Cooper, on 21 January 1997. The conveyancing documents were witnessed by Mr Cooper. That property was later transferred by Ms Cooper to the third respondent X Pty Ltd in July or August 2002 for $8600.
M Street was sold by the husband to X Pty Ltd for either about $5000 or $10,000 some time around mid-1997.
The proceeds of both sales should have been remitted to the wife’s lawyers trust account under the consent orders but apparently never were.
The wife was later declared bankrupt with debts, mostly legal fees, exceeding $91,000 in 1997.
As can readily be seen, Butler J’s s 79 order was never given full effect and the wife did not receive anything like her intended share of the parties’ assets. The husband, by contrast, retains an indirect beneficial interest in the V Street and M Street properties via his current wife’s ownership as trustee for the H Trust.

Varying and setting aside property settlement orders

Section 79A is intended to prevent miscarriages of justice or redress other practical difficulties encountered by spouses who for one reason or another cannot take the benefit of a property settlement award in their favour. Its provisions should be construed liberally to affect its intended purposes.[1] A claimant seeking a re-exercise of what is normally a once and for all jurisdiction must show that the attainment of justice has failed or been frustrated by relevant conduct or circumstances.[2] Support must be found in one of those grounds specified in s79A(1). There is no power to make a new order altering existing property interests of parties without knowing what those interests are and unless relief is granted under s79A .
[1] Re Gilbert v Estate of Gilbert (1990) FLC 92-125
[2] Kokel (1981) FLC 91-078
A favourable exercise of the s79A discretion means that a party may (not must) be entitled to the benefit of a substitute property settlement order based on relevant justice and equity considerations in addition to or instead of a declaration of rights under s78.
Under the subsections of s 79A(1) an order for alteration of spousal property interests is liable to be set aside on four separate grounds. The first one of miscarriage of justice relates to events at or before the final hearing and is not applicable here. The second deals with the concept of impracticability (as distinct from impossibility or problems of enforcement) due to an unforeseen (or unforeseeable) post order change in circumstances. The supervening situation, which cannot be self-induced, must be one which was unlikely to have been contemplated by anyone when the orders were made, have a frustrating effect on the intended object and be of such significance that it cannot, as a matter of justice, be overlooked or ignored by the court.[3]
[3] cf La Rocca (1991) FLC 92-222; Cawthorn (1998) FLC 92-805.
The remaining basis allows an innocent party who would otherwise be left with nothing to substitute one asset or property interest for another because of default of another party in carrying out their obligations by, for example, destroying or transferring ownership of it or disposed of at a gross undervalue to allegedly related entities.
When subparagraph 79A(1)(b) is raised a careful examination is required to ensure that the events relied on could not reasonably have been foreseen or anticipated by the claimant at the time the frustrated or defeated order was made. Impracticability goes beyond mere difficulty.[4] It is not a means of enforcement or variation in cases where no genuine miscarriage has occurred. Thus, failure to comply with an order by a party is not included even if it is a clear or even unconscionable contravention.
[4] cf La Rocca (1991) FLC 92-222
The wife places sole reliance on the frustration of the 1995 order. However, in light of the 1996 consent orders relating to the only two properties in question, namely, V Street and M Street, par (c) of s 79A(1) may be as, or even more, appropriate assuming default on the husband’s part.
That paragraph is also relevant to the wife’s alternative enforcement of unpaid rents, etc, but it was not raised by the wife and has not been the subject of evidence or argument in these proceedings. It would be procedurally unfair, therefore, to use it against a respondent for the wife’s benefit without notice.
The wife contends, in effect, that despite the 1996 consent order, the 1995 s 79 order was not and now cannot be complied with because of a dramatic unanticipated deterioration in real estate values between 1995 and the sales in 1996 and 1997.
She wants the transfer of M Street from the husband to X Pty Ltd on 24 May 1997 and the sale and resale of V Street to and from the fifth Respondent on 23 December 1996 and 1 July 2002 respectively set aside and the properties returned to the pool at valuation for redistribution via ss. 79 and 79A(1)(b).
Because the disputed real property is no longer in the name or possession of either party to the marriage the wife firstly has to trace her beneficial interest in the matrimonial property into the hands of third parties via s 106B before subs 79A(1)(b) or (c) can be invoked.

The s 106B issue

Section 106B is a powerful anti-avoidance provision. It deals with “dispositions” a term is relevantly 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.
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.[5] Thus ‘sham’ transactions or dispositions made meaning to defeat actual or anticipated court orders or having that likely practical effect can be set aside or reversed.
[5]Gould v Gould; Swire Investments Ltd 1993 FLC 92-434 per Fogarty J at 80,442.
The s 106B claim inevitably fails if the wife cannot demonstrate that the challenged transactions were probably either intended or had the likely or actual effect of defeating Butler J’s orders.
As with s 79A(1) itself, however, a grant of relief under s 106B 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,[6] unexplained delay prejudices a party or the applicant has acted inequitably in connection with the transaction in question.
[6] cf s 106B(3).
A “sham” transaction 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:[7]
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]
[7] (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 [8] 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.
[8] (1988) 82 ALR 530 at 537 referred to and adopted in Gould and Swire Investments (1993) FLC 434.
For acts of documents to be a sham in the relevant legal sense all the parties involved have to have a common intention not to create the legal rights and obligations that the documents or transactions in question appear to create. The need for a common intention applies not only to bilateral transactions but equally to transactions such as settlement of property or the creation of a trust. As a matter of principle a trust which was legitimately created for genuine purposes can subsequently be used to facilitate a sham transaction.[9] This would, of course, require the trustees and all or at least the controlling beneficiaries (in this case the husband and third respondent) to collude.[10]
[9] Shalson v Russo (2005) Ch 281
[10]In re Smith, Public Trustee v Aspinall (1928) Ch 915
In Halabi v Arttillaga & Ors[11] 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 … 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]
[11] (1994) FLC 92-470
The Full Court expressly approved of these observations in Gould and Gould v Swire Investments Ltd.[12]
[12] (1993) FLC 92-434.
Thus, the likely effect of the transaction is what really counts. There is no real suggestion here, by the husband or the third party respondents, that the transfers did not result in depriving the wife of her share of the pre-existing value of the mortgaged properties and other assets in the pool. However, there probably needs to be a demonstrated or manifest causal connection between the disposition and the defeated order.[13]
[13] cf Whittaker (1988) FLC 90-813 per Nygh J at 75,129; Halabi v Artillaga & Ors (1994) FLC 92-470 PER Nicholson CJ.
The central questions to be decided, therefore, are whether (a) the sales of M Street and V Street were bona fide commercial transactions or shams entered into with the intention or practical effect of defeating the wife’s entitlement under Butler J’s order; and (b) the third party respondents (i) had notice of the intended purpose of practical effect (ii) provided adequate consideration; and/or (iii) are otherwise entitled to the protection offered by s 106B(3).
That is to say, does the preponderance of evidence reasonably justify the conclusion that the husband’s current wife and Ms Cooper allied themselves to the husband’s cause and with the assistance of others dispose of the property with the effect of defeating the 1995 property orders? Were the second to fifth respondents bona fide purchasers for value without notice and, if not, should the challenged transactions and related transfers be reversed?
The 1995 Evidence Act prescribes the standard of proof in civil proceedings, including those conducted in this court, and describes the level of persuasion that must be reached by an alleging party and the relevant considerations to be taken into account by a judge in deciding whether or not a case has been proved to the requisite standard.

The proof required to achieve that standard can vary depending on the three qualitative factors referred to in subsection 140(2). The authorities, particularly the High Court decisions in Briginshaw v Briginshaw [14] and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [15] make it plain that the more serious and unusual an allegation, the stronger the evidence required to overcome the assumption that it is less likely to occur and thus prove it.
[14] (1938) 60 CLR 336 at 362
[15] (1992) 67 ALJR 170 at 170-2
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. [16]
[16] 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[17]) in the light of the parties' respective power to produce or capacity to contradict it. [18]
[17] See generally, Ligertwood, A, Australian Evidence, 4^th ed, Butterworths, 2004 at pp 82-83.
[18] 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. [19] 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. [20]
[19] Vines v Australian Securities and Investments Commission [2007] NSWCA 75 per Ipp JA at 813 and Spigelman CJ agreeing at [539].
[20] 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 there collusion?

The first contentious factual issue to be resolved is whether the wife has sufficiently proved that the respondents shared 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.[21]
[21] R v Wilmot(No 2) [1985] 2 Qd R 413 at 418.
Gross or reckless indifference may equate with the actual intention.[22] 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.
[22] Minwalla v Minwalla and D M Investments SA, Midfield Management SA and C I Law Trustees Ltd [2005] 1 FLR 771.
Disputed states of mind such as knowledge and intention are and should be difficult but not impossible facts to prove. In the absence of a satisfactory explanation the facts adduced by the wife need to be cogent enough to justify without compelling a finding in her favour.
The question is not whether the second and other respondents should but whether they did or must have known what the husband was up to. If an ordinary person 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.
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.

The wife’s case

M Street

The wife questions both the timing of the sale and purchase price of this property.
She says the creation of the trustee company and establishment of the trust within days of the auction and the subsequent purchase of the property by X Pty Ltd cannot be explained away as a mere coincidence and clearly points to collusion. Leaving aside the dispute about whether the property fetched $10,000 or less than half that figure, on the wife’ s case, the consideration was inadequate compared with the husband’s valuation of $67,500 and hers of $69,000 [Ex. 8] in 1995. It was more than $30,000 less than the $42,000 offer made in July 1996 [Doc 32 and Ex. 8] much lower even than the rateable value of the land [Ex. 9] and valuation of $75,000 attributed to the property by the trust in its mortgage insurance application in 1999 [Ex. 17].
The mutually reinforcing effect of these and other relevant circumstances pointed out in the applicant’s written submissions at par 12 – 16 are relied on to convince me that the M Street sale was not a bona fide commercial one and should be set aside.

V Street

The fifth respondent paid the husband $2000 for this property in December 1996 with the stated intention of building on it. That price compares unfavourably with the husband’s and wife’s 1995 valuations of $14,000 and $15,000 respectively [Ex. 9]. It is also curiously at odds with the rateable value of the land before and after sale and its estimated insurable value in 1999 of $38,000 [Ex. 17]. Moreover, it is about half of what the husband originally paid for the property in 1987 [Doc 10].
Curiously, says the wife, the fifth respondent used her maiden name of F… in the contract for the first sale in 1996.
The land was sold back to the trust on 1 July 2008 for $8600. The price was apparently fixed by reference to what it had cost the fifth respondent to maintain in the intervening years.
According to the wife the low valuations were contrived and coupled with the fact that the trust claimed to have owned V Street in 1999 give rise, she says, to a reasonable inference that the fifth respondent was holding the legal title on an undisclosed trust for the husband and related interests.

The respondents’ response and reply

All respondents agree that the two contested properties were sold for less than the court valuations in 1995. They contend, however, that the prices, though disappointing, were fair at the time for the reasons set out in paragraph 15 of their submission.
The husband explains the low return on V Street on the basis that the block was originally valued on the basis of the assumption that it was suitable for housing but by the time of sale it was known to be flood prone and suitable only for agisting livestock.
The highest bid of $2000.00 from Ms Cooper was later accepted. He also points to the fact that the land was sold in line with the 1996 consent order by real estate agents appointed by the wife’s own lawyers. The offer was made through the agent and not directly to the husband. The contract was signed by Ms Cooper using her maiden name of F… because she had recently separated from her husband. There is no indication in any correspondence passing between the wife and the husband or with their solicitors of any objection to the sale of V Street.
The sale complied with the consent orders. Par (3) did not provide for a minimum acceptable price, only that the best offer be accepted within seven days of the auction if the reserve was not met. Ms Cooper made an offer through a real estate agent four times higher than any other bidder and the Court, through the registrar, lifted the caveat to enable the transfer.
The wife made no complaint to the Real Estate Institute of Queensland. Eleven years have passed since then.
V Street was sold by Ms Cooper in 2002 to the second respondent, the husband’s new wife in her capacity as director of the third respondent.
The price, he says, reflected the belief of both parties that it was only suitable for grazing stock.
That Ms Cooper sold the property for more than she paid for it originally is explained by her 6½ year period of ownership and the fluctuation in the local property market. The suggestion of a round robin transaction is disputed because the trust was not even created until six months after Ms Cooper purchased the property. There is no evidence to suggest that Ms Cooper was simply holding the property for the husband and his new wife.
The inclusion of V Street in a loan application by the trust in 1999 is put down as clerical error and, in any event, the house at M Street, which was owned by the trust, was the only security.
M Street too was sold by agents appointed by the wife’s lawyers. The wife’s caveat was lifted by a family court registrar to allow the transfer to take place.
Apart from a steep decline in the property market during the two to three years between the original valuations it fetched a lower than expected price, according to the husband, because the property had been rented out by the wife to tenants who vandalised it.
The auction was delayed, he says, because of the s 79A application by the wife. That was dismissed in December 1996. The husband alleges that the wife contributed to that result to such a degree that disentitles her from a favourable exercise of the s 106B discretion. After filing of the consent orders, her lawyers rejected an offer of $42,000.00 on M Street, presumably on her instruction? Her 1996 s 79A application delayed the sales and she refused to remove caveats during the advertising period prior to auction, and did not assist in preparing the properties properly for presentation at sale, including preventing M Street from being vandalised.
The property was initially passed in because the reserve of $60,000.00 fixed in cl 3 of the consent order was not met. M Realty continued as agent as per par(2) of the order. The H Trust placed the only bid of $10,000.00. The auctioneer later accepted the highest offer as per the consent order.
There was some uncertainty as to why a transfer document has been amended to $4800.00.
The husband was unable to give evidence as to who drew up the settlement cheque and how proceeds were distributed other than the council rates and agency fees. He says he believed that the remaining proceeds were paid to the wife’s solicitor, although accepted that there was no evidence to that effect.
It is possible that there were no net proceeds from the sales. The wife refused to release the caveats but the necessary documents were signed by the registrar as per par (6) on the husband’s application.
The decision to bid on M Street was made by Ms W who is now dead. Ms W had no apparent way of knowing that the reserve would not be met or that the trust’s offer would be the highest, or, indeed, only offer received in that period.
There is no evidence of any higher valid offers. The only other offer made on the house during the three years it was on the market of $42,000.00 in July 1996 was rejected by the wife’s then solicitors.
The husband denies that the creation of the trustee company and the trust was designed to coincide with the M Street auction and points out that neither he nor the husband nor the directors of the trustee company could have known or have been shown to have anticipated so little interest being shown at the auction.

Determination

There is substantial inferential support in the totality of the evidence for the conclusion that the third, fourth and fifth respondents were aware of the outcome of the 1995 property settlement case between the husband and the wife and that the effect of the transfers by the husband to them would deprive the wife of her share if he did not account to her for the proceeds. It is reasonable to conclude that a new wife and a long-standing accountant and tax agent would be familiar with such things. However, having regard to the available evidence and the factors mentioned in s140(2) of the Evidence Act, I am not reasonably satisfied that the challenged dispositions were intended to, or did actually, defeat Butler J’s order.
The explanation given by the respondents is not so improbable as to be incredible and adequately answer the wife’s prima facie case.
There is no evidence that the husband and the agent was compliant in holding a dummy auction rejecting or suppressing valid bids.
Neither party called the real estate agent involved in the sales nor any other expert in the local property market to give evidence of the value of the contested properties at the time of sale.
Moreover, the section requires a property order to be likely or actually to be defeated. Hence, if the order was, or would in any event have been, defeated by other supervening circumstances, it cannot be said that it was defeated by the challenged disposition in the relevant sense. Although the pool of property of the parties was diminished by the conveyancing transactions in question, and to that extent, had a negative impact on the 1995 order based on higher expected prices rather than defeating the order the transactions completed (or satisfied) it, thus properly characterized the transactions fulfilled rather than avoided the 1995 order in accordance with the machinery provisions for carrying it out in the 1996.
The properties in question are now owned by third parties. The discretion to set aside defeating transaction must be made having regard to the interest of bona fide purchasers or other interested persons. A “purchaser” in the relevant sense includes “a person who in a commercial sense provides a ‘quid pro quo’.[23]
[23] Heath v Heath: Westpac Banking Corp (Intervenor) (1983) FLC 91-362 at 78,426.
The second respondent is clearly a person interested in the transactions and may be affected by the outcome of the wife’s claim and, therefore, in my opinion her interests have to be taken into account under s 106B(3).
A spouse claiming against assets in the hands of a third party has to identify and prove a proper legal basis for doing so. The determination of ownership disputes between a spouse and third party differs in a fundamental way from the expansive discretionary process involved in inter-spousal property settlement proceedings in relation to the property of one or either or both of them. The court should adopt a robust, questioning and (where appropriate) sceptical approach to trust and company structures, but that does not mean that it can ride rough-shod over established principles where legitimate third party interests are asserted. [24]
[24] Av A and St George Trustees Ltd and Or Interveners (2007) Fam Law 791
Significant time has passed since their impugned sales. They have been materially altered and are not the same properties as they were in 1996. Their current value is unknown but it is to be expected that over the 11 years the properties have greatly increased in worth, especially with improvements.
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 [25] and Bassi [26] 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.[27]
[25] (1999) FLC 92-867.
[26] (2007) FLC 93-333. See also Ioppolo (1987) FLC 91-852.
[27] cf. BAP Associations and Ors v K and Ors (2006) FamCA 516 (16 June 2000).
These considerations have overlapping relevance to the wife’s s 106B applications and s 79A(1)(b) and (c) as well.
Even if I am wrong and the distributions did in fact defeat rather than give practical effect to the original property and later consent orders, I would not have exercised the discretions conferred by s 106B and s 79A(1) to set aside the property order in the wife’s favour because:
(a)the sales were handled by a real estate agent in the normal course of business under the supervision of the wife’s own lawyers and the wife has failed to establish that the value received for the husband’s assets were not as he asserted them to be at the time of the order or the sale;
(b)the dramatic drop in value of the properties post the making of the orders which led to them not being capable of being implemented as intended or that the parties receive their fair share, without proof of collusion, does not, in my view, amount to a basis on which to set aside the transactions;
(c)although apparently unreasonable, the price has now shown to be market value;
(d)the sharp downturn in value while dramatic and understandably incited the wife’s suspicions, has not been shown to have been contrived and there is no reason to conclude that the wife could have achieved a better price on either property at the time;
(e)the distributions were made many months after the 1995 order;
(f)the wife took no steps for many years to redress the situation;
(g)Ms Cooper held the M Street land for seven years without any attempt by the wife to have her beneficial interest impugned. She was a bona fide purchaser and entitled to full benefit of its subsequent sale;
(h)Some forensic prejudice can be assumed. Important (unidentified) documents have been lost or destroyed and recollections forgotten and at least one key witness has died. The death of Ms W has a significant impact on the ability of the trust and the respondents to defend the action;
(i)the bona fides of the purchasers has not been displaced despite the fact that the transactions may not have been for full value.

Enforcement

Par (11) of Butler J’s order required the husband to account to the wife for rents and other income from the rental properties and for any mortgage payments, rates, insurance and other outgoings, which might be due or owing pending sale.
The husband declared $26,850.00 as income received from the properties to the ATO. He failed to account for the rents received but his 1994 tax return can be used to estimate the amount due. The arrears of rates for each property were paid from their sale proceeds.
The husband has not explained or offered any excuse for his failure to abide by the court orders but he contends the awarding of any interest on the proceeds of property etc to the wife would only reward her for undue delay in commencing the proceedings.
In most states a civil judgment cannot be enforced by court action after 12 years. However, there is no statutory bar to enforcing s 79 orders after that period of time. [28] The length of explanation for delay however is relevant to the discretion to grant or limit the payment of interest.
[28] cf Barrack and Barrakat (2005) FamCA 906

The right to interest on unpaid moneys is recognised in s 117B. The current rate prescribed by r 17.03 of the Family Law Rules 2004 is 11.75 per cent from the date the order is made on so much of the money as is from time to time unpaid.
In this case I am satisfied that the husband defaulted in carrying out a clear obligation under the 1995 orders and that in the circumstances it is just and equitable to remedy that default as best it can be at this point in time. Accordingly, I declare that for the purposes of any subsequent enforcement proceedings the outstanding amount is $26,850.00 plus interest for ten years at 11.75 per cent totalling $31,548.75.
An obligation to pay under an order is enforceable via r 20.05 of the Family Law Rules 2004. This rule provides for four methods. The procedure for applying for an enforcement order is set out in Chapter 20 of the rules. The wife has not yet formally applied for such an order.

Costs

The respondents seek costs in the matter and oppose any order for costs in favour of the applicant.
The applicant seeks costs on the basis of the parties comparative financial circumstances and the husband’s failure to comply with terms (8) and (9) of the 1995 order without any excuse.
Neither party has persuaded me of any circumstance justifying a departure from the general rule in s 117.

I certify that the preceding one hundred and ten (110) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carmody

Associate:

Date: 7^th July 2008

Current net assets

Property	Value	Credit of Party
V Street	To be sold	Neither
M Street	To be sold	Neither
Necklace stones & domestic equipment in the wife’s possession	$9234.00	Wife
Motor vehicle, gem collection, opal stones, tax refund and rents in Husband’s possession at time of j’ment	$46,450.13	Husband
Solicitors’ fees paid by Husband	$9,000.00	Husband
Unpaid rates	$14,503.51 (est)	Husband
Unpaid mortgage payments, insurance & other outgoings due at time of sale of properties	$57,505.08 (est)	Husband
Indemnity J St	$65,000.00	Husband
Rents received by Husband post j’ment	$26,850.00 (est)	Husband
Family Report	$1,245.00	Wife
Family Report	$1,245.00	Wife
… & Assoc (Valuers)	$1,200 .00	Wife
Dist from sale of L St	$2,064.00	Wife
Dist from sale of L St	$2,000.00	Husband
Rentals received by Wife	$5,433.00	Wife
TOTAL	$232,729.72

Division of property pool excluding properties	Wife $19,176.00	Husband $213,553.72
Wife 8%	Husband 92%
Adjustment required excluding properties	$125,116.43 from Husband to Wife		=	…%

[2008] FamCA 506

7 July 2008

Key Legal Topics

Areas of Law

Family Law

Civil Procedure

Legal Concepts

Remedies

Jurisdiction

Costs