Inch and Inch (No. 2)

[2007] FamCA 806

FAMILY COURT OF AUSTRALIA

INCH & INCH (NO. 2) [2007] FamCA 806

FAMILY LAW - PROPERTY SETTLEMENT – Interim proceedings brought by wife by way of partial settlement of property in the sum of $1.5M to enable her to take advantage of the current taxation concessions for undeducted superannuation contributions ($1M) and for a Barro order and interim funding ($500K) - Contested issue as to source of funds - Orders made under contest

Harris v Harris (1993) FLC 92-378

APPLICANT: Mrs Inch

RESPONDENT: Mr Inch

FILE NUMBER: MLF 4911 of 2003

DATE DELIVERED: 26 June 2007

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Guest J

HEARING DATE: 26 June 2007

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr North SC with Ms Johns

SOLICITOR FOR THE APPLICANT: Clancy & Triado

COUNSEL FOR THE RESPONDENT: Mr Kirkham QC with Mr G Dickson

SOLICITOR FOR THE RESPONDENT: Marshalls & Dent

Orders

1. That by 4 pm on 27 June 2007, the husband do pay or cause to be paid to the wife’s solicitors by bank cheques and by way of part-settlement of property:

   1.1$1,000,000 payable to the wife’s PENSION FUND; and

   1.2$500,000 payable to the wife’s solicitors,

   AND THAT such payment be sourced from Z PTY LTD’s share of the funds currently held by C PTY LTD.

2. That C PTY LTD do all things to facilitate the payments referred to in paragraph 1 hereof.

3. That the Form 2 Application of the wife filed on 18 June 2007 and the Form 2A Response of the husband filed on 26 June 2007 be otherwise dismissed.

4. That all questions of costs this day be reserved.

(5) That pursuant to rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of Counsel including Senior Counsel.

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 4911  of 2003

Mrs Inch

Applicant

And

Mr Inch

Respondent

REASONS FOR JUDGMENT

1. I have before me a Form 2 Application filed by the wife on 18 June 2007 in which she seeks an order that the husband pay to her within seven days the sum of $1,500,000 by way of part property settlement.  Her application is supported by two affidavits filed on 18 June 2007 and 22 June 2007. 

2. The wife's application is opposed by the husband, not as to the fact nor quantum of the sum sought, but as to the source of payment.  He has caused to be filed a Form 2A Response together with an affidavit filed this day.  By his Response, the husband seeks an order (in summary) conceding that he pay to the wife the sum of $1,500,000, but that it be sourced by way of mortgage against the property at T.  That property was their former matrimonial home.  He seeks further and other facilitating orders to give effect to his claim. 

3. A short background is as follows.  The husband was born in November 1930 and is 76 years of age.  The wife was born in November 1948 and is 58 years of age.  The husband was previously married to Ms D in 1960 from whom he separated in 1968.  There were two children of that union; namely, M born in July 1962 and S born in June 1964.  The husband and the wife commenced cohabitation in 1973 and married on 14 March 1980.  There is one child of their union, C, who was born in April 1980.  Their relationship fell upon unhappy times and they separated under the one roof in 2001.  Final physical separation took place in July 2003 when the wife left the former matrimonial home.

4. The wife instituted proceedings in this court on 4 August 2003 by filing a Form 3 Application for final property settlement.  Following a number of amendments, she filed a second Amended Form 1 Application on 18 October 2006.  The husband filed his Form 3A Response on 22 October 2003 and, ultimately filed a second Amended Form 1A Response on 9 November 2006.  I have managed the contested property applications in the Long Defended List for some time now and fixed them for trial in the June 2007 sittings of the court.  However, and unfortunately, the husband suffered a heart condition necessitating hospitalisation and treatment.  In those circumstances the trial has been adjourned and is expected to be brought on for final hearing on a date to be fixed in October 2007.

5. There are quite complex issues involved for determination at the final hearing which will include, to varying degrees, the involvement of six named respondents who have earlier been joined as parties.  A significant aspect of the husband's financial position is intricately involved with another independent corporate group, the details of which I need not record in this judgment given the agreement between the husband and the wife as to the fact that the payment of the agreed sum by way of partial property settlement is to be made, relying upon the clear principles explained in Harris v Harris (1993) FLC 92-378.

6. The foundation of the wife's Form 2 Application was to take advantage of the current taxation concessions for undeducted superannuation contributions made prior to 30 June 2007, maximised to $1 million.  The wife annexed to her affidavit filed 18 June 2007 correspondence from her financial adviser explaining the advantages of the transitional provisions in a “once-only” opportunity.  I need go no further than to say that this has been sensibly recognised by the husband's professional advisers and ultimately the advantage secured by the wife will be a factor relied upon at the final hearing.

7. The parties were married for some 28 years.  The wife has assessed the net pool of assets for distribution at about $14,300,000.  On the other hand the pool of assets has been assessed by the husband at about $8 million.  Whatever the final position may be, it is clear that the wife has a substantial entitlement which would, even on a conservative scale, indicate that the application for release of $1,500,000 in funds is for a sum less than that to which she will ultimately become entitled.  Of the principal sum $500,000 is for funding purposes including a Barro-type order which takes into account outstanding legal fees of some $162,000.  This has sensibly been recognised by the husband's advisers and will be characterised at trial.

8. The short issue for my determination is to consider the fund or source for payment of the agreed principal sum of $1,500,000.  The only substantial asset outside the complex corporate and trust structures of the husband is the former matrimonial home of the parties at T, in which the husband resides and is valued by the wife at approximately $2,400,000.  It is subject to a mortgage of only $150,000.  It is from this source that the husband proposes to obtain a loan in favour of the wife and at his expense, thus encumbering it to about 70 per cent and at some financial cost. 

9. Notwithstanding that, there is no material before me from the National Australia Bank acknowledging that it is in a position to facilitate the loan.  However, Mr Kirkham has made it clear that the husband will be able to effect the financial transaction by 4 pm on 27 June 2007.  I accept his representation.  The wife resists the husband’s proposal and seeks that the payment be sourced from a term deposit in the name of C Pty Ltd, the third-named respondent to these proceedings which has an agreed credit balance in a term deposit, certainly as at 18 January 2007, of $8,585,901. 

10. It is common ground that C Pty Ltd, of which the directors are the husband, his son, M, Mr E and formerly one Mr H (now deceased) is trustee of the P Unit Trust, which was established in 1982.  That trust holds 100 units equally for the Inch and H family interest with the interest of the Inch family being held by Z Pty Ltd, the fifth-named respondent in these proceedings on trust for the Z Settlement. 

11. Thus it is that a fund equivalent to one half of the current credit balance has been identified by Mr North, who appears on behalf of the wife and urges that payment be made through that source.  In her Case Outline Document prepared for the substantive trial, the wife has claimed that, in addition to distributions in varying amounts over previous years, the Z Settlement made a distribution to, inter alia, the husband of $3,000,889 on 30 June 2005.  How this should be treated will ultimately be an issue for determination at the final hearing.

12. In support of his submission and in the light of what the husband had to say in his affidavit filed 25 June 2007, Mr North referred me to the further affidavit of the wife and Annexure “SJI1”, being a copy letter from Madgwicks to her solicitors dated 20 June 2007.  The relevant parts of that correspondence reads as follows:

    “We act on behalf of the [H] Family which has a 50% interest in [P] Pty Ltd and [C] Pty Ltd associated Trusts.  The [Inch] Family owns the other 50%.  The writer and [Ms H] are two of the four Directors of [P] Pty Ltd and [C] Pty Ltd. 

    We advise that we have representatives of our office in Court on 19 June who noted that the hearing was adjourned until early next week.  We understand that the wife is seeking an interim payment before 30 June of $1M to $1.5M in order to take advantage of current superannuation laws. 

    We understand that [P] Pty Ltd and [C] Pty Ltd have in excess of $8M on deposit which arose by reason of the sale of [J property] for $15.5M.  The settlement of [J property] occurred 2 years ago.  [The husband] has already distributed approximately $5M to the [H] / [Inch] interests since settlement.  Additionally, there are 2 unencumbered properties worth $4.5M > $5M approx. in [P] Pty Ltd / [C] Pty Ltd. 

    We advise that we have for some months now been requesting [the husband] to make a further distribution to the [H] / [Inch] Families out of the moneys the Companies hold on deposit.  [The husband] has not obliged us with a remittance or reasons for his refusal. 

    In the event that the Court is willing to order an interim distribution to the wife we would, as Directors of [P Company] and [C] consent to a pro rata distribution out of those entities. 

    Should the Court order that the wife receive, say, $1.5M a similar sum would be paid to the husband with $3M being paid to the [H] interests. 

    Kindly advise the outcome of the court hearing.”

13. Thus it was, Mr North said, clear that there would be no impediment to the application sought by the wife.  How that is worked out between the Inch and H interests will be a matter for them.  In his affidavit, the husband deals with matters historic, explaining the financial/corporate relationship between his family and those of the late Mr H.  He makes it clear, and probably so, that one half of any income or capital distributed by the P Unit Trust is received by the Z settlement and one half distributed to the H Unit Trust. 

14. The husband joins issue with some of the matters asserted in Exhibit “SJI1” to which I have referred.  He denies, for example, any implication that he controls either C Pty Ltd or the P Unit Trust, asserting that any past distributions were made by agreement and that whenever Z Pty Ltd received a distribution, V Pty Ltd, an H interest, received a corresponding amount.  The husband deposed that he has responded to any request by Mr E or V Pty Ltd, "always suggesting a directors meeting", before effecting payment.  In particular, the husband deposed that Mr E's suggestion that he had been requesting him to make a further distribution without response was incorrect.  I do not think it matters for the purpose of my determination but what is significant is that there will be no resistance from the H family interests to the payment so long as they receive equal treatment.  That seems fair to me.

15. The gravamen of Mr Kirkham's helpful submissions rested principally upon what the husband had to say in paragraphs 12 and 13 of his affidavit as follows:

    “12.The advice I have received is that the taxation consequences of the separation of the [Inch] and [H] family interests and the restructuring required will be both complex and significant.  Any distribution from the [P] Unit Trust to [Z] (and consequently also to [V]), will trigger taxation consequences this financial year.  I accept that the [H] family will be entitled to a distribution of a sum equivalent to whatever is distributed to [Z] (for onpayment, via my loan account with [Z], to the wife).  If that sum is $1,500,000, that will deplete the cash reserves of the [P] Unit Trust to a point where, after payment of appropriate tax arising from the winding up, the process of that separation of commercial family interests would be significantly more difficult and has the potential to require borrowings and higher rates of interest than are available for the home loan which I am proposing.

    13.For these reasons I do not believe it is prudent for the moneys currently held by the [P] Unit Trust to be physically distributed to [Z] and then made available to the wife.”

16. There was a suggestion in paragraph 11 of the husband's affidavit that there was an agreement with the H family interest that the term deposit would not be dealt with until it was determined or agreed whether one unit holder was to buy out the other and that further withdrawal of cash be deferred to make provision for any taxation impost that would flow from vesting of the P Unit Trust.  There is no suggestion, I am told, of this fact anywhere in the affidavits filed in the proceedings.  In addition to the term deposit, the Unit Trust beneficially owns valuable property at L property and G property to a total value, assessed by the wife, of approximately $4,475,000.  In any event, there is not a scintilla of a mention of the facts referred to in the husband's affidavit in the correspondence on behalf of the H family interests.  They, as I said, invite the payment. 

17. In the circumstances, and in the exercise of my discretion, having regard to the material before me and the helpful submissions of counsel, I propose to make the orders sought by the wife.  I am not satisfied as to the financial consequences deposed to by the husband, particularly as it is a stand-alone assertion that remains unsupported by the position proffered on behalf of his business partners, namely, the H family interests.  The only substantial joint asset of the parties, namely the former matrimonial home should, in my view, remain as it is and not encumbered to the extent sought when there is a readily identified and available fund to meet the wife's application.

18. I propose to make the orders sought, reserve costs and certify for counsel, including senior counsel.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Guest.

Associate: 

Date:  10 August 2007.

IT IS NOTED that this judgment for all publication and reporting purposes be referred to as INCH & INCH.