[I] Limited and Chester and Anor
[2010] FMCAfam 68
•29 January 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| [I] LIMITED & CHESTER & ANOR | [2010] FMCAfam 68 |
| FAMILY LAW – Property settlement – application by litigation funder – whether husband and wife are entitled to receive entitlements from previous property order – whether litigation funder is entitled to receive an entitlement from the available funds. |
| Chester & Chester (2008) FMCAfam 115 Chester & Chester (2009) FMCAfam 1102 |
| Applicant: | [I] LIMITED |
| First Respondent: | MS CHESTER |
| Second Respondent: | MR CHESTER |
| File Number: | BRC 2696 of 2007 |
| Judgment of: | Baumann FM |
| Hearing date: | 14 August 2009 |
| Date of Last Submission: | 20 January 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 29 January 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr Hackett |
| Solicitors for the Applicant: | Tucker & Cowan Solicitors |
| The First Respondent: | Self Represented |
| The Second Respondent: | Self Represented |
| Intervenor: | [G] Accountants |
Solicitors for the Intervenor: | Peter Sheehy Solicitor |
ORDERS
That the funds held by Woods Hatcher Solicitors be distributed as follows:-
(a)The sum of $165,690.37 to the husband.
(b)The sum of $332,337.22 to [I] Limited.
A declaration that the balance of $12,155.26 is the entitlement of the wife, subject to the determination of the competing claims of unsecured creditors.
That any application for costs by a party to these proceedings be filed and served within 21 days.
That any reply to such submissions be filed within 14 days thereafter.
IT IS NOTED that publication of this judgment under the pseudonym [I] Limited & Chester & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRC 2696 of 2007
| [I] LIMITED |
Applicant
And
| MS CHESTER |
First Respondent
| MR CHESTER |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This dispute concerns competing claims by a litigation funder, a husband, a wife and another intervenor about entitlements to a remaining sum of over $500,000 which has been frozen for over six months.
It is a complex issue and the lack of legal representation of the husband in particular, who is most affected by the competing claims, is regrettable.
The reasons which follow seek to explain the basis for the decision now made.
Brief Chronology of Federal Magistrates Court Procedures
After a property and parenting trial between the husband and the wife, reasons were published on 15 February 2008 identifying the form of order likely, subject to further submissions, to do justice and equity to the parties (see Chester & Chester (2008) FMCAfam 115). No order was pronounced on that day save for the matter to be adjourned to after 4 March 2008. The parties indicated an intention to exchange draft orders reflecting the Court’s reasons.
On 5 March 2008 the solicitors for the wife sought leave to withdraw. By this time the husband was, and has continued to be, unrepresented as well.
The Court directed the matter to be adjourned to 28 March 2008 to pronounce final orders, with the parties to file any written submissions, including a draft of any agreed terms, by 19 March 2008.
On 28 March 2008, a solicitor appeared for a creditor [G] (Qld) Pty Ltd seeking leave to file an application to intervene. The parties wished to further negotiate and the proceedings were again adjourned to 29 April 2008.
On 4 April 2008, an application seeking leave to intervene on behalf of [I] Ltd was filed. It is abundantly clear from the supporting affidavit of Mr L that the intervention related to various loan agreements and contracts with the wife. Further details of these loan agreements are set out later in these reasons. All proceedings, now involving two unrepresented parties and two intervenors were adjourned to 29 April 2008.
On 29 April 2008, Mr Cooper, a solicitor representing [I] Ltd and
Mr Sheehy, a solicitor representing [G] engaged in settlement discussions after which the Court was presented with a signed consent order between the husband, wife and [I] Ltd.
Although the order perfected does not reveal the order was by consent, it was, and the signed document tendered to the Court on that day evidences such consent. In these reasons, I shall refer to this order as “the April 2008 consent order”. It relevantly provided as follows:-
“4.That from the Wife’s share of the proceeds of sale of the property known as and situated at Property H being the property more particularly described as Lot [omitted] an amount of $238,641.00 together with further accumulated interest from the 1st April, 2008 be paid to the trust account of Peter Sheehy, Solicitor, pending resolution of any dispute between the Wife and [I] in respect of monies owing to [I] and the Wife.
5.That pending agreement being reached if the funds are paid to the trust account of Peter Sheehy they remain there until such time as agreement is reached or further Order is made and the interest accumulated on those funds, which are to be invested, shall be paid as agreed between the parties.
6.That from the Husband’s share of the proceeds of sale an amount of $116,636.21 together with interest accumulated from the 29th April, 2008 until settlement be paid to [I] Limited, the Intervener.
7.That [I] Limited, the Intervener, sign all necessary documents and do all necessary things to release caveats lodged against the title to the said property to enable settlement to proceed on or before the date of settlement.
NOTATION:
That the notice of intervention filed by [I] Ltd on 4 April 2008 is construed as an application to be joined as a party to these proceedings.”
Additionally on that day, 29 April 2008, the husband and wife also reached an agreement with the other Intervenor [G] (Qld) Pty Ltd which resulted in a further order in the following terms:-
“1.That from the sale proceeds of Property H due to
Mr Chester there be paid to Peter Sheehy Trust Account the amount of $13,612 in full satisfaction of all claims that [G] have against Mr Chester with no Order as to costs.
2.That from the sale proceeds of Property H due to
Ms Chester there be paid:-
(a)The amount of $28,612 in part satisfaction of the claims of [G];
(b)The amount of $17,729 to Peter Sheehy Trust Account pending resolution of a dispute on the fees, such amount to be invested in an authorised bank deposit in the name of Ms Chester with the benefit of the interest to be paid to Ms Chester
3.That the issue of the dispute in Order 2(b) be adjourned for six (6) months for further mention.”
On 29 April 2008, both applications by the Intervenors being disposed of, the matter was adjourned to the following day so as to enable the final property orders to be pronounced.
On 30 April 2008, the Intervenors did not seek to further appear and a final property order between the husband and wife was pronounced. As far as is relevant for the current proceedings the order provided that:-
“1.That the property situated at Property H in the State of Queensland (“the house property”) be placed on the market for sale forthwith by private treaty with such agent or agents as may be agreed between the husband and wife or failing agreement may be determined by the Court at a price to be agreed between the husband and the wife, or failing agreement, as may be fixed by the Court.
2.That upon completion of the sale, the proceeds of sale be applied by the husband and wife as follows:
(a)Firstly to pay all costs, commissions and expenses of the sale including legal costs and disbursements in respect of the sale of the home;
(b)In satisfaction of the mortgage to the ANZ Banking Group Limited (“the said mortgage”);
(c)Payment of $214,000 to the Trustee of the [A] Group Pension Scheme;
(d)Payment of $40,000 to the Barclays Select Loan Account;
(e)As to the balance, (“called the net proceeds of sale”) to be dealt with as set out in this Order.
3.Consistent with paragraph 96 of the reasons for judgment delivered in this case the nett proceeds of sale shall be added to the other items referred to, and more particularly set out in Annexure “A” to these Orders, to constitute the nett divisible pool
4.The nett divisible pool shall be divided in the proportions of 65% to the husband and 35% to the wife but on the basis that:
(a)The wife shall be entitled to retain all [S] Equipment ($32,960);
(b)The husband shall retain, free of any claim by the wife, his interest as a beneficiary in the [A] Group Pension Fund (inclusive of the repayment to that fund of the debt of $214,000) having a deemed value of $331,977;
(c)The husband shall retain, free of any claim by the wife, his interest as a beneficiary in the National Farmers Union Pension Fund having a deemed value of $92,982;
(d)The parties shall be deemed to have had the benefit of legal expenses paid of $5,000 (for the wife) and $21,224 (for the husband);
(e)The husband shall be entitled to the full recovery of loans made to Mr C deemed to be $40,776
(f)The husband shall be deemed to have had the benefit of $58,000 for the nett proceeds of the [V] Shares.
5.The parties, by consent, shall adjust the nett proceeds of sale distributable to them under this order by the wife paying to the husband contemporaneously with the payment from the nett proceeds of sale, the following sums:-
(a) $4,084.16 being agreed mortgage arrears;
(b) $4,693.96 being an agreed adjustment.
6.After the wife vacates the said house property and pending settlement of any sale of the said house property, the parties shall contribute to mortgage payments, Body Corporate levies, local authority rates and charges and insurance in the proportions of 65% (by the husband) and 35% (by the wife).
7.The husband shall be solely responsible, and shall indemnify the wife in respect of any liability on the Bendigo Bank Visa Card Account.
8.In respect of [A] Trust, the parties shall sign all such documents and do all such things (whether as officers of the Trustee [A] Pty Ltd or otherwise), so as to perfect the following transactions in accordance with the terms of the parties’ agreement and the reasons for judgment, namely:-
(a)Transfer all right and title relating to the operation of the business [S] to [S] Pty Ltd or such other entity as nominated by the wife;
(b)To Cause the salon lease to be assigned to [S] Pty Ltd or such other entity as nominated by the wife;
(c)To cause [S] Pty Ltd or such other entity as nominated by the wife to assume the liabilities of the business [S] (as identified in the books of [A] Trust) including estimated taxation liabilities (including GST);
9.Pending the perfecting of the transactions set out in Order 9, the wife shall be responsible for and shall indemnify the husband against any claims, actions or demands against the business entity known as [S].
10.As soon as practicable after the transactions in Order 9 are completed, the wife will resign any directorship of [A] Pty Ltd and otherwise transfer all her interest as a shareholder in the said company; beneficiary (if at all in the [A] Trust) or a beneficiary of any remaining loan account or beneficiary account to the husband with the interest that the husband shall thereafter control and have complete ownership of the [A] Trust and the said corporate Trustee.
11.The wife, at her sole costs, shall cause financial statements to be prepared for the [A] Trust for the period commencing 1 July 2006 until the transactions described in Order 9 are completed.
12. That unless otherwise specified in these Orders:
(a)Each party is to be solely entitled to the exclusion of the other party (including choses in action) in the possession of such party as to the date of these Orders;
(b)Each party shall be solely entitled to the credit of any monies in any bank account in their name;
(c)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these Orders;
(d)Each party will be responsible for the costs of transfer of any asset into their name including registration and transfer fees and for any tax arising as a result of that transfer;
13.That in the event that either party refuses or neglects to sign a document necessary to give effect to these orders within seven (7) days of a written request to do so, a Registrar of the Federal Magistrates Court of Australia at Brisbane be permitted to sign documents on the behalf of the defaulting party.
14.That the parties be granted liberty to apply to Federal Magistrate Baumann for any incidental machinery orders.
ANNEXURE A
Property H
Nett proceeds of sale
[S] Equipment
$32,960
[A] Group Pension Fund
(after deduction of $116,375)
$331,977
National Farmers Union Pension Fund
$92,982
Add Backs
[L] Loss/Loan to Mr C
$40,776
Proceeds of [V] Shares
$58,000
Legal Expenses
husband
wife
$21,224
$5000
Liabilities
Mortgage
$757,000
Loan to Pension Scheme Payable
$214,000
Barclay Select Loan
$40,000
$1,011,000”
None of the orders were the subject of any appeal or application to vary until an application was filed some 14 months later on 9 July 2009 by [I] Limited.
The application filed 9 July 2009 sought to vary the order made on
29 April 2008. The urgency for the application was apparent. The home at Property H was under contract and due for completion on 13 July 2009.
The application was supported by an affidavit of Mr N, solicitor who asserted at paragraph 10 that:-
“I am informed by Mr L, and believe that the Application for final orders was not served on [I] Limited, nor was [I] Limited given any notice of the Final Orders.”
As this chronology makes clear, the application for final orders was filed many years before (in May 2006), and the litigation funder for both these parties, was well aware of the proceedings. More importantly however, after the orders made by consent on 29 April 2008, the Intervenor (now named) [I] Limited chose not to make further submissions before the final order was made on 30 April 2008.
On 13 July 2009, Mr Page QC representing [I] Limited (although the order that issued incorrectly described the applicant as [I] Limited), made written and oral submissions, after which the Court restrained any distribution of the nett proceeds of the sale of the Property H home until 15 July 2009. The nett proceeds of sale were expected to have crystallised by then.
On 15 July 2009, the following order was made:-
“1.That the sum of $13612 be paid from the Woods Hatcher trust account to Peter Sheehy Trust Account in full and final settlement of the claim made by [G] against Mr Chester.
2.That the sum of $165,000 be paid from the Woods Hatcher trust account, to [I] Limited in full and final settlement of the claim made by [I] Limited against Mr Chester.
3.That $375,631.48 be held in the Woods Hatcher trust account on trust pending resolution of the dispute between the parties subject to the security claimed by [I] Limited.
4.That the balance of the funds then remaining in the trust account of Woods Hatcher solicitors after payment of their fees of the conveyance and after collection of the balance of the deposit from the Real Estate Agent) be paid to the husband or as he may direct.
5.That leave be granted to the creditors to be heard on this matter.
6.That the matter be set down for final hearing to determine the dispute between the husband and the wife identified in court today, for not more than 2 hours commencing at 10.00am on 7 August 2009 in the Federal Magistrates Court of Australia at Brisbane.
THE COURT DIRECTS:
7. That the wife file and serve any material by which she intends to reply regarding issues in dispute by 24 July 2009.
8.That the parties [I] Limited and [G] Accountants have leave to be heard on the order to be made by the court regarding the dispute between the husband and wife before the order is announced.
9.That the parties shall be granted liberty to apply on 48 hours notice.
10. That the costs of today shall be reserved.”
The effect of this order made 15 July 2009 was to:-
a)Allow for payment to [G] of $13,612 which the husband acknowledged he owed personally to that entity;
b)Allow for payment to [I] Limited of $165,000 “in full and final settlement of the claim made by [I] Limited against the husband”;
c)Restrained $375,631.48 pending resolution of the dispute between the parties;
d)Pay the balance to the husband.
The order has not been the subject of any appeal. The context of the order was that it was clear a dispute between the husband and wife still existed as to the adjustments between them under the order made
30 April 2008. Neither [I] Limited or [G] sought to participate in that hearing, but the Court made it clear that they would be entitled to be heard on the final order distributing the funds available, as a matter of procedural fairness.
The dispute between the husband a wife as to any adjustments between them took place on 14 August 2009 and in reasons published 16 October 2009 (see Chester & Chester (2009) FMCAfam 1102), the Court decided that:-
a)The wife should pay to the husband $2116.24 under order 6 of the final property order for home maintenance;
b)The wife should pay to the husband $9505.70 under order 6 of the final property order for mortgage repayments;
c)The wife should pay to the husband $19,301.03 under order 8(c) of the final property order for taxation liabilities.
The claim by the husband for an adjustment of $55,544.59 under an indemnity contained in order 9 is dealt with later in these reasons.
On 3 August 2009, [I] Limited filed a fresh application seeking a number of orders. The full relief sought was as follows:-
“1.A declaration that item 12 of the financial table, and clause 2 of the special conditions of each of the Loan Agreements between [I] Limited and the Wife dated 7 March 2007, 21 June 2007, 6 August 2007 and 12 September 2007 are a charge on the Wife’s interest in the property at Property H in the State of Queensland, more particularly described as Lot [omitted], situated in the County of [omitted] (“the property”).
2.A declaration that the Wife’s interest in the property as tenant in common with the Husband at the time of each of the Loan Agreements comprised one half undivided share of the property.
3.A declaration that upon the sale of the property the charge in favour of [I] Limited pursuant to each of the Loan Agreements extended to one half of the net sale proceeds of the property.
4.A declaration that the charge in favour of [I] Limited pursuant to each of the Loan Agreements has priority over the Wife’s half share of the net sale proceeds of the property to:
(a)any interest or amount due to the Husband pursuant to the Orders made by FM Baumann on 30 April 2008 between the Husband and Wife, and
(b) the debt owing to [G] Accountants.
5.An injunction restraining the sum of $438,617.03 of the net sale proceeds of the property in the trust account of Woods Hatcher being the Wife’s half share of the net sale proceeds of the property to abide the determination of Supreme Court proceedings BS5989/08 between [I] Limited and the Wife or earlier order.
6.Such further or other Orders as this Honourable Court deems fit.
This application had been urgently listed, but it was apparent service and proper notice to the unrepresented husband and wife had not been afforded. Mr Hackett of Counsel appeared for [I] Limited on 7 August 2009 when the matter was adjourned to 14 August 2009. Written submissions were filed by the Applicant maintaining an assertion that their equitable mortgage could extend as high as 50% of the nett proceeds of the property, that being the wife’s legal interest in the property before its sale.
The clear dispute as to entitlements to the nett proceeds of sale of the Property H home was further complicated by the solicitors in the trial for the husband commencing proceedings on 3 February 2009 against the husband seeking an order for payment of professional costs – such proceedings ultimately resulting in an injunction being ordered on or about 15 July 2009 in the District Court of Queensland, at Southport, restraining funds being disbursed by the conveyancing solicitors Messrs Woods Hatcher. In all respects therefore the funds have, on a number of bases, been frozen.
The Court had given notice to the parties of its intention to deliver reasons on this complex dispute on or about 23 December 2009. The solicitors for [I] Limited forwarded to the Court at 4.44pm on 22 December 2009 an unsealed order of Justice Daubney of the Supreme Court of Queensland which clearly was relevant to the proceedings before this Court. As a result, the publication of reasons were delayed, and the Court received further written submissions culminating in the final submissions in reply by the Applicant filed 21 January 2010.
Application by [I] Limited against the Wife
Because of the order of Justice Daubney, some of the earlier contested issues between the wife and her litigation funder have been resolved. Succinctly stated it is not in dispute that:-
a)The wife entered into loan agreements with [I] Limited (now [I] Limited) who is a litigation funder, on 7 March 2007, 21 June 2007, 6 August 2007 and 12 September 2007.
b)The application to this Court concerns only the charge granted by the wife (the husband, also funded by the same litigation funding in the same property dispute, having discharged his liability to [I] Limited), and the loan agreements contained an agreement to grant a mortgage over her interest at that time (as tenant in common) in the Property H home.
c)On 27 March 2008, [I] Limited lodged a caveat over the wife’s interest in the Property H property.
d)A dispute between the wife and [I] Limited in respect of the wife’s liability under the loan agreements was the subject of Supreme Court proceedings. Although an earlier application for summary judgment was unsuccessful, as already noted, on
22 December 2009 His Honour Justice Daubney made an order, which the wife did not contest, in the following terms:-“1.The defendant pay to the plaintiff the sum of $332,337.22 for claim and interest.
2.The defendant pay the plaintiff’s costs of and incidental to this proceeding to be assessed on an indemnity basis.
3.It is declared that the amounts in paragraphs 1 and 2 are secured pursuant to Loan Agreements executed by the defendant in favour of the plaintiff over the defendant’s one half interest in the net proceeds of sale of the property at Property H in the State of Queensland described as Lot [omitted] (“the property”) in the sum of $438,617.03 presently held in the Woods Hatcher Solicitors Trust Account.
4. Liberty to apply.”
The husband, of course, was not a party to those proceedings. No reasons of Justice Daubney were available; as it seems likely none were required to be delivered. The effect of this order is obviously an important issue in these proceedings.
Submissions
The Applicant [I] Limited relies on submissions dated 6 August 2009; 24 December 2009; and 20 January 2010. They seemed to have abandoned the submissions of Mr Page QC originally relied upon on 15 July 2009. I have carefully considered those submissions.
The solicitors for [G] in a brief submission dated 15 January 2010 say they “concede as a result of the Supreme Court Order made
22 December 2009 that [I] are a secured creditor ahead of other creditors including [G]”, and do not wish to make further submissions at this time.The wife concedes, whatever the result, she will receive nothing. She claims she is now penniless and has no wish to waste anymore time or energy participating in these proceedings.
The husband, not surprisingly, has, he would say, the most at stake, and although he may have been receiving some legal guidance he has not been formerly represented now since the orders were made on 30 April 2008. On 15 January 2010, he filed written submissions under his own hand – although they appear to have been prepared by a person with legal training. Unfortunately no authority is identified for some of the arguments advanced. I have considered those submissions carefully as well.
Issues
I propose to deal with this dispute in this way:-
1)Absent any claims by [I] Limited, what would be the entitlements as between the husband and wife arising from my order of 30 April 2008.
2)What is the entitlement of [I] Limited to the funds available.
Position between Husband and Wife
The amount currently held in the Trust Account of Messrs Woods Hatcher is $510,182.85, which sum is calculated as follows:-
Nett proceeds of Property H (after allowance for rates, adjustments, legal expenses and real estate agent’s commission)
$877,234.07
Less payments to date to or on behalf of the husband (as set out below)
$367,051.22
Balance
$510,182.85
The amount of $367.051.22 is made up of the following payments:-
Amount paid to Peter Sheehy Trust Account (order 1 of order 29 April 2009) in satisfaction of the claim by [G] against the husband (see quantification at order 1 on 15 July 2009)
$13,612.00
Amount paid to [I] Limited (order 6 of the second order 29 April 2009) in satisfaction of the claim by [I] Limited against the husband under his loan agreements (see quantification at order 2 of order made 15 July 2009)
$165,000.00
Additional payments paid or released to the husband to date
$188,439.22
$367,051.22
As between the husband and the wife, I have decided a further adjustment of $30,922.97 is appropriate (see reasons of 16 October 2009). Of course the Intervenor says any such adjustments could only constitute a claim by the husband against the wife akin to a claim by an unsecured creditor ranking behind the interests of [I] Limited as a secured creditor.
Leaving that argument aside for a moment, I must deal with the argument advanced by the husband that he is entitled to a further adjustment of $55,544.59 because of his liability under a guarantee to a lease executed by the company [A] Pty Ltd as Trustee for the [A] Trust. The lease dated 13 August 2004 was for a term of five years commencing 1 September 2004. The husband quantifies this liability as arising from essentially the default by the company to pay rental from 1 November 2008 to date of expiry of the lease. No judgments against the husband, as guarantor have been obtained. This debt, at best, did not accrue or crystalise at the time of the sale of the home – as the adjustments between the husband and wife did for the earlier adjustments. In my view this obligation, if enforceable by the lessor against the husband (under the guarantee he signed), arising as it does for adjustment pursuant to the indemnity in order 9 of the final property order, is in a different category to the other adjustments already determined by the Court. Any debt which the husband was ultimately ordered to pay to the lessor is claimable against the wife by him.
The nett proceeds of sale of $877,234.07 were calculated as follows:-
Adjusted gross sale proceeds
$1,641,828.37
Less first mortgage liability
$764,594.30
$877,234.07
Under the final property order made 30 April 2008 (and in the absence of any claims by [I] Limited), I agree with the husband’s calculations set out in this submission that the funds would have been distributed, as between the parties as follows:-
Payment to [A] Group Pension
$214,000
Payment to Barclays Select
$40,000
Payment to the husband
$247,818.62
Payment to the wife
$375,415.45
$877,234.07
The payments due to the husband and wife under this scenario would be further adjusted for the sum of $30,922.97.
On this basis the final distribution or entitlements as between the husband and wife under the order of 30 April 2008 would be as follows:-
Husband
$278,741.59
Wife
$344,492.48
$623,234.07
As I soon analyse, [I] Limited submits it is entitled as a secured creditor to 50% of the net sale proceeds (of $877,234.07) or a sum of $438,617.03.
Before leaving this aspect of the matter, the Court observes that the husband has already had the use of $367,051.22. Whether he has chosen to use the funds at his disposal to reimburse the [A] Group Pension and Barclays Select seems doubtful. He could have done so. He has clearly used funds to pay his own personal debts (including agreed amounts to both Intervenors). Although the order of 30 April 2008 refers to these two creditors, essentially they are debts of the husband because he had accessed funds from those sources and in accordance with the reasons for judgment delivered on 15 February 2008 the Court regarded it as a matrimonial debt which should be repaid. Setting it out in the order in that manner was designed to simplify the distribution process between the husband and wife. At no time was either of those beneficiaries (the [A] Group Pension or Barclays) parties to the proceedings.
As a result, I agree with the submission of the Intervenor to the effect that payments to those entities should not be regarded as a priority creditor of the parties or the husband. Put another way, ignoring the directed payment to these two entities the husband should receive $532,741.59 ($254,000 plus $278,741.59) and the wife should receive $344,492.48 of the nett proceeds of $877,234.07.
What is the Entitlement of [I] Limited to the Funds Available
The earlier analysis distills; finally in this somewhat complex and convoluted litigation, the essential dispute.
The husband is entitled, on the basis of his arguments (not accepting the further adjustment for the potential obligations to the lessor) to the sum of $532,741.59 of which he has already received the benefit of $367,051.22.
[I] Limited says it has a claim as a secured creditor of the wife, for the reasons set out in its submissions, to payment of $438,617.03 being 50% of the nett proceeds of $877,234.07. On this basis the husband, as an unrepresented litigant not unreasonably from his perspective, sees the actions of [I] Limited as seeking to reduce his entitlement by at least (on the Court’s analysis), the sum of $94,124.55 being:-
Claim by [I] Limited
$438,617.03
Less entitlements of the wife
$344,492.48
$94,124.55
The husband in his submissions says that:-
a)That the orders made 30 April 2008 “finally determined the issues in respect of the husband and wife and in relation to the Intervenors” and the Intervenors claims are res judicata.
b)The order of Daubney J is not inconsistent with the order of 30 April 2008. The husband is not bound by the order of the Supreme Court not being a party to those proceedings.
c)This Court is entitled to make consequential orders following the reasons of 15 February 2008 to give effect to the division of the matrimonial property.
d)The husband “should not be obligated to pay any part of any debts incurred by the wife post separation of the husband and wife, in particular the payment of legal fees of the wife”.
The Intervenor in its submissions says that:-
a)It has rights as an equitable mortgagee against the interest of the wife and that interest held as tenants in common in equal shares by the husband and wife, meant that 50% of the wife’s interest was encumbered under the equitable mortgage – presumably from the date of the first Loan Agreement dated 7 March 2007.
b)The April consent orders were consistent with the equitable mortgage [I] Ltd has over the wife’s interest in the property and “the amount was quantified by reference to the wife’s then indebtedness to [I] Ltd”.
c)Subsequent to the orders of 30 April 2008, [I] Ltd commenced proceedings against the wife out of the Supreme Court of Queensland for specific performance requiring the grant of a legal mortgage and seeking an order for monies due and owing under the Loan Agreements.
d)While [I] Ltd released its caveat to facilitate the sale of the property by the husband and wife, [I] Ltd retains an equitable mortgage over the wife’s interest in the property.
e)There is no longer any dispute that the wife is indebted to [I] Ltd and “the effect of the declaration in paragraph 3 of the orders of Justice Daubney is that there has been a determination by a Court of competent jurisdiction as to the effect of the equitable mortgage held by [I] Ltd. Relevantly, the declaration confirms that [I] Ltd’s equitable mortgage charges the wife’s legal interest in the property now one half of the net sale proceeds”.
f)The interest as equitable mortgage arose prior to the orders made on 30 April 2008.
g)No order has been made by this Court “that varies or extinguishes the equitable mortgage of [I] Ltd in the property and its sale proceeds”.
h)At paragraph 10 in the submission filed 24 December 2009 it is contended in summary that:-
“10. The debt owing by Ms Chester to [I] Ltd must be paid in priority to the other claims made against Ms Chester by the Husband (pursuant to the orders made by Your Honour) and [G] (as a consequence of its debt) because:-
(a)the equitable interest of [I] Ltd arose first in time and as such has priority over them; and
(b)[I] Ltd is a secured creditor, whereas the Husband and [G] are unsecured creditors.”
Discussion
In my view the Intervenor fails, in its submissions, to properly accept the impact and effect of the April consent order it entered into with the benefit of its then legal advice.
The order was made before the final order was pronounced – and in circumstances where the Intervenor did not wish to be further heard on the final order.
The reason, I infer, for that position is that the order of 29 April 2008 did finally determine (clearly by way of commercial compromise) the interest of [I] Limited in the likely share of the wife’s 35% interest of the nett pool. Mr N says in his affidavit in support of the application to vary the sum specified in the order of 29 April 2008, such a new application was necessary because, at least, “[I] Limited did not foresee that it would take over one year to sell the property, nor the length of time it would take before the Supreme Court proceedings are listed for trial …”. This seems to me to be one of the commercial risks that ought to have been properly considered before it entered into the consent order on 29 April 2008.
In my view the order of 29 April 2008 quantified and otherwise defined the agreed monetary limits, as between the wife and [I] Ltd that was to be taken into account by this Court. The husband was on notice about that claim.
It cannot be seriously argued that [I] Limited was not aware of the proceedings (having funded both parties in this expensive family law litigation), and having been given the opportunity to both quantify its claim and be heard on the final order, which at 29 April 2008 had not been pronounced.
In my view the order of Daubney J whilst clearly determining the existence of the rights of [I] Ltd under the Loan Agreements and the declaration that the sum of $332,337.22 for claim and interest and the yet unquantified claim for indemnity costs are “secured …. Over the defendant’s one half interest in the net proceeds of the sale of the property at Property H,” appears the order was made without reference to the prior agreement between the wife and [I] Limited constituted by the consent order of 29 April 2008.
The Intervenor, as equitable mortgagee who comes to equity must do equity and come with clean hands.
In my view the order of the 29 April 2008 where [I] Limited (now [I] Limited) agreed to accept (subject to the dispute between the wife and her funder as to quantum and cross claims), from the wife’s share of the proceeds of sale
“an amount of $238,641.00 together with further accumulated interest from 1 April 2008”
set the limit of the amount that was a secured debt. The order amounted to a variation of the security.
Subsequently the Supreme Court has quantified the claim and interest at a sum of $332,337.22. I see no reason why that sum should not be paid to [I] Limited forthwith.
The original order was further facilitated by injunctive orders seeking to preserve, but not to define the indebtedness of the wife to [I] Limited.
Based on my conclusions I propose to order the funds held by Woods Hatcher Solicitors be distributed as follows:-
a)The sum of $165,690.37 to the husband.
b)The sum of $332,337.22 to [I] Limited.
c)A declaration that the balance of $12,155.26 is the entitlement of the wife, subject to the determination of the competing claims of unsecured creditors who are at least likely to include the husband, [I] Limited (to the extent of its remaining debt under clause 2 of the Supreme Court order) and [G].
I am not required to determine, in these proceedings, those competing claims at this stage. I note that [G] after delivery of these reasons sought leave to make further submissions.
I should mention, for the benefit of the husband, that as I am not aware of the status of the District Court proceedings arising from his dispute with his former solicitors, it may well be that my order determining the husband’s interest in the funds and the direction I make for their release, might be unable to be put into effect because of an injunction by the District Court of Queensland. That is a matter outside this Court’s jurisdiction.
I propose to so order and make directions that any costs application by a party to these proceedings be filed and served within 21 days and that any reply to those submissions be filed within 14 days thereafter.
For completeness I do not think it is necessary for the form of order to be by way of declarations sought in the Intervenors’ amended application because the order of the Supreme Court of Queensland, save for the balance of $12,155.26.
I certify that the preceding sixty-five (65) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date: 29 January 2010
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