J and J
[2004] FMCAfam 98
•22 July 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| J & J | [2004] FMCAfam 98 |
| CHILD SUPPORT – Application for departure from administrative assessment of child support – variation of child support agreement – whether any special circumstances – where the father had reduced his hours of work and divested himself of his interest in his company by resigning the directorship and transferred his shareholding to defeat the claim of the mother to the enforcement of child support – where the mother claimed a capitalisation of child support but failed to demonstrate the father’s capacity to pay a lump sum – pursuant to section 100 of the Child Support (Assessment) Act and section 106 of the Family Law Act transactions whereby father resigned as director and transferred shareholding set aside and father’s interest in land charged. |
Child Support (Assessment) Act 1989 (Cth), ss.85, 98, 100, 117, 117(1), 117(2), 117(2)(b)(ii), 117(4), 117(5), 117(6), 117(7), 117(8), 123(1), 124(1)(b), 124(2), 124(5)
Family Law Act 1975 (Cth), ss.66N(2), 100, 106B, 117
Gilmour & Gilmour (1995) FLC 92-591
Gyselman & Gyselman (1992) FLC 92-279
Hides v Hatton (1997) FLC 92-759
Prpic v Prpic (1995) FLC 92-574
Bendeich (1993) FLC 92-355
R & R [2002] FMCAfam 153
| Applicant: | F (F) J |
| Respondent: | E J |
| File No: | DGM665 of 2003 |
| Completed on: | 2 July 2004 by Bryant CFM |
| Delivered on: | 22 July 2004 by Bennett FM |
| Delivered at: | Melbourne |
| Hearing date: | 24 November 2003 |
| Judgment of: | Bryant CFM |
REPRESENTATION
| Counsel for the Applicant: | In person |
| Solicitors for the Applicant: | Nil |
| Counsel for the Respondent: | Dr Ingelby |
| Solicitors for the Respondent: | Tausig Cherrie & Associates |
ORDERS
That the father's application filed 30 June 2003 is hereby dismissed.
That in relation to the mother's application filed 11 November 2003:
(a)Pursuant to s.100 of the Child Support (Assessment) Act 1989 and s.106B of the Family Law Act 1975:
(i)the father's purported resignation as director of his company dated 26 May 2003 be set aside as from 26 May 2003; and
(ii)transfer of the father's shareholding in his company be set aside as from 26 May 2003.
That the father be restrained by injunction from conducting his business other than through his company or as a self employed businessman until further order.
That until further order the father's interest in the property at Noble Park being the whole of the land be charged with all debts owed by the father to the wife and/or the Child Support Agency arising from the child support agreement registered with the Child Support Agency on 27 February 2003 and the mother be entitled to lodge a caveat over the said property to secure her interest pursuant to this order.
That the application otherwise be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
DGM665 of 2003
| F J |
Applicant
And
| E J |
Respondent
REASONS FOR JUDGMENT
Introduction
There are two applications for determination in this matter. The first is an application by the father pursuant to the Child Support (Assessment) Act 1989 (Cth) ("the Act") in which he seeks a departure from administrative assessment of child support which is based upon a Child Support Agreement (“the Agreement”) entered into between the father and the mother. The Agreement was made on 17 July 2002 and took effect from that date. It was registered with the Agency on the
27 February 2003. It requires the father to pay child support for the parties child in the sum of $250 per week.
The father contends that due to changes in his employment he can no longer afford the $250 per week, or the school fees. In particular, he contends that he has ceased to be self employed and has started working for a company as an employee from17 February 2003. He contends that his gross weekly income is $600.
He contends in his application filed 30 June 2003 that:
a)He no longer wishes to work seven days a week as he was previously doing and believes that he has left his family in a more than comfortable position;
b)That he no longer wishes to manage his own financial affairs and would prefer to be employed. This he contends arises from the fact that he walked away from the family home and left it essentially for the mother; and
c)On 31 January 2003 he lost his driver's licence which restricts him from carrying out the work he previously did.
The mother opposes his application. On 11 November 2003 following orders made by Phipps FM, the mother filed an application which it was envisaged would be dealt with at the same time as the father's application. That application was supported by an affidavit and a financial statement. The application of the mother sought dismissal of the father's application but also sought the following orders:
1)That the child support agreement be varied so as to provide that the father pay lump sum child support for the child N in the sum of:
a)$84,500 (being $250 per week times 6.5 years); and
b)$33,269 (being half of school fees for grade 6 to 12 inclusive).
2)
That pursuant to s.100 of the Child Support (Assessment) Act and s.106B of the Family Law Act the Court set aside the husband's purported resignation as director of a company dated
26 May 2003; and
3)The Court secure the payment of all sums due to the mother pursuant to paragraph 1 above or otherwise from:
d)the income and assets of his company and restrain the husband from conducting any paid activity through any other entity.
e)the husband's interest in real estate.
b)the husband's interest in bank accounts.
f)such other asset or resources that may emerge in the conduct of the hearing.
4)That the Court make such orders as may secure the husband's compliance with his child support obligations as the Court sees fit.
The relevant law
Pursuant to ss.95 and 98 of the Child Support (Assessment) Act, the child support agreement takes effect as if it was an order of the court and may be discharged, suspended, revived or varied in the same manner and circumstances in which the court could so treat an order of that kind. In other words, the provision in the child support agreement for payment of periodic amounts of money can be varied in the same way as a departure order for the payment of periodic amounts of money made under the Child Support (Assessment) Act.
In the case of Gilmour & Gilmour (1995) FLC 92-591, the Family Court of Australia was faced with the task of determining whether or not, by virtue of s.100 of the (Assessment) Act, s.66N(2) of the Family Law Act 1975 (Cth) was imported into the Act and therefore required as a threshold the applicant to show a change in circumstances. The Full Court in Gilmour & Gilmour (1995) FLC 92-591 determined that s.100 of the Family Law Act does not apply the principles or provisions in the Family Law Act into a division of the Child Support (Assessment) Act in which those provisions have not been given express legislative statement. In other words, the Full Court concluded that it was not a precondition to a successful application under the Child Support (Assessment) Act to establish that there had been a change in circumstances. Conversely, it seems to me a change in circumstances alone would not necessarily therefore be sufficient to provide a ground on which an agreement may be varied or discharged.
The principles to be considered therefore when considering the basis upon which a child support agreement can be varied are those which relate to the variation or discharge or departure from the provisions of a child support assessment made under the Child Support (Assessment) Act in relation to periodic payments of child support. Those provisions are to be found in s.117 of the Child Support (Assessment) Act.
The provisions of s.117 of the Act empower a Court to make an order for departure from administrative assessment in special circumstances. Section 117(1) provides as follows:
(a)that in special circumstances of the case, one or more of the grounds for departure outlined in s.117(2) exist before a Court can make an order for departure;
(b)that under s.117(1)(b)(ii) it would be just and equitable as regards the child, the carer entitled to the support and the liable parent; and
(c)that it would be otherwise proper to make a particular departure order.
If these three conditions are satisfied, then the Court should make the departure order sought. In Gyselman & Gyselman (1992) FLC 92-279, the Full Court of the Family Court said as follows of the phrase special circumstances:
“Whilst it is not possible to define with precision the meaning of that term, as a generality it is intended to emphasise that the facts of the case must establish something that is special or out of the ordinary; that is, the intention of the legislature is that the Court will not interfere with the administrative formula result in the ordinary run of cases.”
In Gyselman & Gyselman (supra) the Full Court said that there are three steps to be carried out in the exercise under s.117. The three steps that must be addressed by the Court as a separate issue are whether one or more of the grounds for departure in s.117 is established; if so, whether it is just and equitable within the meaning of s.117(4) to make a particular order; and whether it is otherwise proper within the meaning of section 117(5) to make a particular order.
It is clear from a consideration of Hides v Hatton (1997) FLC 92-759 that the Court must follow this three-step process in respect of each year for which a departure order is sought.
Background
The father was 48 years of age at the time of the hearing and the mother 46. They were married in 1978 and had two children. The eldest child is now over 18 years of age. N was born in 1992 and is the remaining dependent child. He is 12 years of age. The parties separated in December 2001.
On 17 July 2002 the parties reached agreement and final orders by consent were made in the Family Court of Australia in relation to parenting and property settlement. Pursuant to the orders the mother paid to the father the sum of $30,000 within 60 days and he transferred his interest in the former matrimonial home to her. In addition to paying a sum of $30,000 within 60 days of the orders the mother also transferred her interest as a beneficiary in the estate of her late father (who had been married to the father's mother) in the property at
Noble Park.
At the same time the parties entered into a child support agreement. The father's gross income for the year ended 30 June 2002 was $91,023. The child support agreement provided for periodic support to be paid for N at the rate of $250 per week commencing on
17 July 2002. The agreement also provided for child support in a form other than periodic amounts which it said were not to reduce the periodic child support. The agreement for non periodic payments was that the father would pay one half of N' tuition fees.
For about five months after the orders were made the father paid the child support in accordance with the agreement. He transferred the sum of $250 per week directly to the mother's ANZ account and paid one half of N' school fees for terms 3 and 4 of the 2002 academic year.
In late 2002 the father unilaterally, without notice to the mother, ceased paying child support for N. The last occasion on which she received a payment of $250 was in December 2002. The father wrote to the school in December 2002 advising that he would no longer be contributing to N' school fees after term four, 2002.
The father is a steel fixer specialising in laying steel foundations for inground swimming pools. During the marriage he was self employed and operated the business through an entity. He worked as a contractor for various swimming pool companies. In the year ended 30 June 2002 his gross income from the steel fixing business was $91,023.
Following the orders made on 17 July 2002 the father received $30,000 cash from the mother. On 21 August 2002 the father deposited $28,000 to an account in trust for N and on 27 August 2002 he withdrew $30,263 from that account. He ceased paying all child support in mid December 2002.
In January 2003 on instructions from the father, a company was registered. This was a company in which the father and his partner each had six shares and the registered office was at the father's residential address.
On 22 January 2003 the father opened a Bendigo Bank account into which his "wages" from the company were paid.
On 30 February 2003 the father transferred money held in trust for N into an ANZ account in his name.
In May 2003 the father started to be paid in cash from Star Bright Enterprises and later in the month of May he ceased to be a director in favour of his de facto partner and transferred his shares to her son. The principal place of business for the company was changed to his partner’s address.
The father filed a financial statement in which he claimed his income was $600 per week by way of salary and wages. He claimed that he lived with his 70 year old mother. In his financial statement which was sworn on 26 June 2003 he claimed to be paying $250 per week maintenance for N although this was patently not being paid. He claimed to have no assets or liabilities and swore that his weekly expenditure on household expenses was $355, that his fixed expenditure was $370 made up of $120 per week tax and $250 per week for N (which he was not paying).
Evidence
The father gave evidence and was cross-examined. He claimed that he is no longer making the money that he used to make and is therefore unable to meet the obligations pursuant to the child support agreement he had entered into. He claimed in his evidence that the Noble Park unit of which the mother had relinquished one third to him, was not owned by him but was his mother's property which she was leaving in her will to him and his sister.
The mother produced a search from the Land Titles Office. The property is the whole of the land comprised in the Certificate of Title. The father's interest is an estate in remainder expectant upon the determination of an estate for the life of his mother. The father's interest is described as one of a total of three equal undivided shares. The co-owner is E J (she having relinquished her interest in the property to the father on 16 August 2002). The father said that his interest in the property was subject to a life interest of his mother and he had taken no steps to investigate whether he could sell the property as his mother lives there.
On 21 August 2002 the father received $28,000 which was the balance of his share of the sale proceeds of the property settlement. On
27 August he paid $30,000 to his sister he alleges because he owed her funds. He admitted that he made no other payments to a debt to his sister in the Family Court proceedings. His explanation was that before separation he had gone into "emotional melt down" and said that he spent money on alcohol. There was no explanation as to why the alleged debt was not shown on his financial statement in relation to the proceedings in the Family Court and I do not accept that he owed his sister $30,000. The reason for the payment to her remains unclear.
The father was unable to recall what happened to a withdrawal of $16,565.33 on 3 February 2003. He claimed to have had no recollection of this sum. Further he was unable to explain where he had spent $6,000 in under a year when his expenses exceeded his income by only $100 per week as set out in his financial statement) and in fact were less than that when one considered that he was not paying the $250 per week child support.
Although the father claimed that loss of his licence was affecting his capacity to work the evidence did not support that contention. He said that he was being collected and driven to jobs and taken to pick up material whereas previously he would collect the material himself and take it to other sites. Now material was delivered direct to the company and he is driven to the sites. There was no evidence that loss of his licence had prevented him from continuing to work as self employed or through the auspices of a company.
The father contended that he had formed his company for tax savings and agreed that he gave instructions to the accountant to set up a company with him as director. He claimed that when his partner (with whom he is in a relationship) found out that he had lost his licence she required him to work for her as an employee and that was the reason that he relinquished his directorship and became an employee of the company. He voluntarily transferred his shares in the company to her son. He claimed to have done so because:
He's a nice boy … he drives me around every now and then.
However he claimed that he was no longer running the company as he did not have to do any book work, it was all done for him. He conceded ultimately that he was paid in cash from June 2003 onwards so that the Child Support Agency (“the Agency”) could not take out child support from his wages before he paid his living expenses.
He also conceded that his change of employment status was entirely his own decision and of his own making. He said that he agreed to the property settlement and to the modest amount paid to him so that the mother would have a house and a small mortgage in which to house the children. He said that when she sold the home he decided that it was not reasonable for him to have to work seven days a week earning the income he had been earning so that:
She can live the good life.
The father was able to write a cheque for $11,000 in April 2003 as start-up capital for the company. He conceded that he could be a director of the company if he wished.
Are there special circumstances by reason of which the agreement should be discharged or varied?
It is clear that in the financial year 2002 when the father was operating his own business he had gross profit from his trading (before tax) of approximately $90,000. In the following year he decided that he did not want to work to that extent and he put in place arrangements to change his financial position. He did so voluntarily. Whereas he had been trading as a sole trader he established the company and at first he was a director and shareholder. He then transferred his directorship to his present partner and transferred his shareholding to her son. He deliberately set about creating arrangements whereby he was merely a wage earner although it is clear that the business he operated was in exactly the same as it was when he had operated previously as a sole trader. The arrangement whereby it appears that the company is owned and operated by his partner and he is merely an employee, I find to be a sham.
I find that as the mother contends, he has deliberately set out to create a structure which gives the appearances of limiting his earnings to $600 per week and gives the appearance of him working for someone else. I am not satisfied on the evidence that there is any reason why the father could not continue to work at the same rate as he had the previous year in which he earned $90,000 before tax. His changed arrangements appear to come directly from the decision on his part that he did not wish to work at that rate, rather than any inability to do so. Loss of his licence did not affect his capacity to work as he was still able to get to and from work. The materials were also arranged to be delivered. His decision to be paid in cash was a means of preventing the Agency from deducting payments. This is indicative of his attitude to child support.
Having regard to all of these matters I am not satisfied that the father has established any special circumstances by reason of which he has demonstrated that he no longer has the earning capacity to meet the payments that he agreed to meet in 2002 and accordingly his application must be dismissed.
The mother's case
The profit and loss statement for the company for the year ended 30 June 2003 shows gross receipts of $72,962 and an operating profit before tax of $36,546. The company was registered on 17 January 2003, approximately six months into the relevant financial year 2002/2003. The profit and loss statement for F J for 2002/2003 year (which I infer to be in the first six months of the year) indicates gross receipts of $80,830 with an operating profit before tax of $30,326. If the father had to continued to operate as a sole trader then, allowing for company expenses, the two figures could be reasonably added together as being the operating profit for the year, before tax.
Although the father claims that he was receiving wages as an employee of the company the profit and loss statement for the year ended 30 June 2003 shows wages of $4830 which does not equate with the sum of $600 per week the father claimed to have been receiving. But as the father transferred his shareholding and ceased to be a director in May 2003 most of the income for the 2002/2003 financial year should be attributed to him in any event. It is clear from his own documents that he has in excess of $66,000 available to him before tax and a capacity to earn significantly more, as he did in the previous year.
The mother seeks firstly a capitalisation of the support in the manner I have described. Section 123(1) of the Act provides that application may be made to a Court exercising jurisdiction under the Act for an order that the liable parent provide child support otherwise than in the form of periodic amounts paid to the carer.
Before the Court can make an order for substituted support, the Court is required by s.124(1)(b) to be satisfied that it would be just and equitable as regards the child, the carer entitled to child support and the liable parent, and otherwise proper to make such an order. The Court is required to have regard to the matters contained in s.124(2) and in determining whether it is “just and equitable” or “otherwise proper” the Court must have regard to the matters contained in subsections 117(4), (5), (6), (7) and (8) of the Act. The Court is not limited by those factors alone (see s.124(5)) which suggests that the Court has a wide discretion in determining the application.
The Full Court of the Family Court of Australia in Prpic v Prpic (1995) FLC 92-574 at 81,688 said:
“Capitalisation orders may well be appropriate where there are difficulties in enforcement or where it is proper to sever the financial link between the parties. However, as a general rule, given that payments of child support depend upon circumstances prevailing from time to time, which circumstances cannot be predicted with any significant degree of certainty, it seems to us that the provision of child support by way of lump sum should not be considered to be a readily available alternative but one that is only exercised where there are circumstances that make it appropriate to do so. We would endorse the observations of Mushin J in Bendeich (1993) FLC 92-355 at 79,954 where his Honour said:
‘The rationale underlying the general approach of the court was that the longer a lump sum order operates the greater chance of change in circumstances necessitating a variation of that order, thereby making the order unjust. Those changed circumstances might be in relation to the liable parent, custodial parent or the children. Incomes may increase or decrease and the children may change their living arrangements from one parent to another’
It is clear that I have discretion to order a lump sum subject to being satisfied as to the matters which I have identified in the Act, but it is also clear that I must exercise that discretion only when there are circumstances which make it appropriate to do so and that normally it is preferable for periodic support to be paid.
Counsel for the mother cited my decision in R & R [2002] FMCAfam 153 as authority for the proposition that capitalisation was an appropriate way to proceed in this case. I do not agree. Whilst the father has been errant in paying, the mother has not demonstrated any capacity on the part of the father to meet a lump sum payment if child support were capitalised. The father owns no property which could be realised now to meet a lump sum and there are no features as there were in R & R where the father had funds available to him from which he could pay capitalised child support.
I accept the contentions of the mother that the father has arranged his affairs in such a way that he has made it difficult for child support to be collected and if there was evidence of funds available from which a lump sum could be paid then this would in my view be an appropriate case for capitalisation. At the present time however there is no evidence that such a sum exists or that he could pay a capitalised sum such as that sought by the mother.
The mother's enforcement application
Part of the mother's application was to seek orders that are really by way of enforcement. In particular setting aside the father's resignation as a director of the company and restraining the father from conducting any paid activity through any other entity.
The father was earning an income as a sole trader and then incorporated the company. The mother accepts that it is appropriate for him to trade through a corporate entity if he wishes but having established the company he then resigned as director and had his present partner become a director and gave his shareholding to her son. This I find was in order to prevent the Agency and/or the mother from collecting child support from him. His assertion that he is nothing more than a wage earner in the company operated by his present partner is a sham. The company carries on exactly the same business as that of the father prior to its incorporation and its income is entirely reflective of his labours.
If there are assets or income of the company through which the father is trading, albeit through his present partner and her son, then those assets and funds should be available to meet his child support obligations. At the present time I do not have sufficient evidence as to the assets of the company and whether any of them could be utilised for the payment of child support. However I find that the father has divested himself of his interest in the company by resigning the directorship and transferring his shareholding in order to defeat the claim of the mother to the enforcement of child support and as a consequence his purported resignation as director of the company dated 26 May 2003 should be set aside as well as the transfer of his shareholding in the company.
In view of the father's attitude it would be appropriate in my view to restrain him from conducting any business through any entity other than his company or on his own account. This is to avoid the fiction of being a wage earner, at a salary fixed by him.
It seems to me that I should also restrain him from disposing of his interest in the Noble Park property. Although his mother appears to have a life interest that nonetheless the property may at some stage be available as security for moneys owed to the mother.
These orders should secure the position for the moment and then if the mother is in a position to do so she can bring further proceedings if she is able to establish that there are assets which could be sold to meet the amount owing to her by way of child support. I am not satisfied that at the present time that she has done so.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Bryant CFM
Associate: Peter Smith
Date: 22 July 2004
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