Juno and Juno

[2011] FamCA 582

FAMILY COURT OF AUSTRALIA

JUNO & JUNO [2011] FamCA 582

FAMILY LAW – PROPERTY – Interim property settlement

Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth)

Biltoft & Biltoft (1995) FLC 92-61
Black & Kellner (1992) FLC 92-287
Crapp & Crapp (1979) FLC  90-615
Gabel & Yardley (2008) FLC 93-386
Kendling & Kendling (2008) 39 FamLR 404
Kowaliw & Kowaliw (1981) FLC 91-092
Paris King Investments Pty Ltd & Rayhill [2006] NSWSC 578
Rosati & Rosati (1998) FLC 92-804
Strahan & Strahan (Interim Property Orders) (2009) 42 FamLR 203
Townsend v Townsend [2006] NSWCA 352

APPLICANT: Ms Juno

RESPONDENT: Mr Juno

FILE NUMBER: BRC 3550 of 2010

DATE DELIVERED: 30 June 2011

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Murphy J

HEARING DATE: 27 June 2011

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr C Carrigan

SOLICITOR FOR THE APPLICANT: Herbert Greer

COUNSEL FOR THE RESPONDENT: Mr T Kirk SC

SOLICITOR FOR THE RESPONDENT: MacDonnells Law

Orders

IT IS ORDERED THAT:

1. Pursuant to s 80(1)(h) of the Family Law Act 1975 (Cth) (“the Act”) it is ordered until further order that, as and by way of interim property settlement pursuant to s 79 of the Act:

   a.Within 14 days of the date of these orders, the wife and the husband shall do all such things and sign all such documents as might be necessary so as to:

   i.Cause the entity B Pty Ltd to loan to the wife the sum of $500,000 with such loan to be paid to a personal bank account as nominated by the wife for the wife’s sole use and benefit;

   ii.Transfer all right title and interest in and to the real property known in these proceedings as the C Unit into the sole name of the husband.

   b.Any questions as to how the said payment or said transfer, or any taxation liabilities arising from or associated with the said payment or transfer, should be seen within an assessment of a just and equitable settlement of property pursuant to s 79 of the Act, be reserved to the trial judge.

   c.Any applications for costs by either party of and incidental to this application, be reserved to the trial judge.

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

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER:  BRC 3550 of 2010

Ms Juno

Applicant

And

Mr Juno

Respondent

REASONS FOR JUDGMENT

1. The parties to this interim application are involved in litigation by which each seeks an order for settlement of property and other orders.  The trial of those respective applications is due to take place before me in less than a month, commencing 29 August 2011. 

2. On 18 June 2010 it was ordered by consent of the parties relevantly as follows:

   (1)That within 14 days of the date of the making of these orders the wife and the husband do all things necessary and sign all documents necessary to:

   (a)Cause the entities [D Pty Ltd] and [B Pty Ltd] to respectively loan to the husband up to $1 million and to the wife the sum of $1 million, with the loan to the wife to be paid to a personal bank account nominated by her and for her sole use and benefit and the loan to the husband to be payable from funds to be held in a new bank account in the name of [D Pty Ltd] into which the $1 million is to be placed to be available for the sole utilisation of the husband as he may from time to time decide provided, however, that the moneys unused by the husband from time to time shall be invested by [D Pty Ltd];

   (b)Make the loans referred to in order 1(a) above payable to each of the husband and wife on and from 1 July 2010;

   (c)Cause the loans referred to in order 1(a) above to be repaid prior to 30 June 2011 or, failing that, do all matters necessary to document the loans to ensure they are compliant with division 7A of the Income Tax Assessment Act;

   (2)That the characterisation of the money paid to the each of the parties pursuant to order 1 shall be as assessed by the trial Judge at the final hearing …

The Parties’ Respective Applications

1. The orders sought by the wife in these interim proceedings are as follows:

   (1)Within 14 days of the date of the making of these orders, the wife and the husband do all things necessary and sign all documents necessary to:

   (a)Cause the entity [B Pty Ltd] to loan to the wife the sum of $500,000 with such loan to be paid to a personal bank account as nominated by the wife for the wife’s sole use and benefit;  and

   (b) Cause the loan referred to an order 1(a) above to be repaid prior to 30 June 2012 or, failing that, do all matters necessary to document the loan to ensure it is compliant with division 7A of the Income Tax Assessment Act.

   (2)That the loan referred to in order 1(a) above be paid to the wife net of tax and that any taxation liability arising from such cash payment be met by the parties from the accounts of [B Pty Ltd];

   (3)That the characterisation of the money paid to the wife pursuant to order 1(a) above shall be as assessed by the trial Judge at the final hearing …

2. The orders sought by the husband as set out in the written submissions of his senior counsel are as follows:

   2.2      The husband seeks:

   (a)That the wife’s application be dismissed with costs;

   (b)That if the wife is to receive any funds:

   i)it be by way of an unfranked dividend and that she take sole responsibility for the tax payable;

   ii)that the wife transfer the [C unit] to the husband by way of a partial property settlement;

   (c)That the wife comply with her obligations in relation to the $1 million loan that she received under the order of 18 June 2010.

3. The written submissions on behalf of the husband make it clear that orders for the payment of tax by the wife and the transfer of the C unit can be seen as alternative claims:

   6.1That if your Honour is minded to make an order (not withstanding the husband’s opposition) the order sought by the wife will potentially exacerbate the taxation issues and that the wife should be required to receive the money by way of an unfranked dividend and be solely responsible for (to the exclusion of the husband in these proceedings) the tax liability that will arise as a result

   …

   6.3The [C unit].  Being a mere two months away from the final hearing, the husband must struggle to satisfy the principles enunciated by the Full Court in Strahan, but if I am wrong about what constitutes “the interests of justice” in respect of the wife’s application, then the husband would seek to have this unit transferred to him now so that he can commence the much needed repairs/renovation that he has loath to do whilst it remains in the wife’s name and, furthermore, that may enable steps to be taken, hopefully before 30 June 2011, to remove the Div 7A loan in the wife’s name used to acquire the unit and the attendant tax consequences.

4. As will be apparent from the terms of the previous consent order, the terms of the order now sought by each of the parties, and the written submissions, it is common ground between the parties that taxation liabilities, or potential taxation liabilities are likely to be a significant issue – in one form or another – in arriving ultimately at orders which are just and equitable. 

5. As will emerge, they are no less relevant to the justice and equity or “appropriateness” of any interim orders which might be made including whether such orders should be made at all.  In that respect it is important to note that the husband deposes at paragraph 7 of his affidavit filed 24 June 2011:

   I do not oppose the payment of the funds [the wife] is seeking per se but rather the methodology she seeks.

The Court’s Power to Make the Orders Sought

1. The specific issue of “methodology” will be addressed further shortly.  The deposition by the husband might be seen as an acceptance by him that the Court has the power to make an order of the type sought. But the Court should nevertheless be itself satisfied that it has the power to make the orders sought. 

2. In Strahan & Strahan (Interim Property Orders) (2009) 42 FamLR 203 the majority in the Full Court (Boland and O’Ryan JJ) cite with approval dicta from Brereton J in Paris King Investments Pty Ltd & Rayhill [2006] NSWSC 578 at [30] to the effect that it is important to identify the source of power upon which reliance is placed in seeking an order of the type under contemplation.

3. At paragraph 4.1 of the written submissions on the wife’s behalf, it is said:

   The wife seeks an interim property settlement to cover further expenses referred to as follows:

   (a)Debt to the builder to continue construction of the E house   $300,000

   (b)Debt for the trial   $120,000

   (c)Personal expenses including expenses for F (son)

   $80,000

   $500,000

4. It will be appreciated that the claim for the specific items there mentioned might be seen to be referrable to differing powers – spousal maintenance, adult child maintenance and interim property settlement. 

5. In that respect it is correct to say, as submitted on behalf of the husband, that no power is specifically identified in the material filed on behalf of the wife as being relied upon by her.  As I have previously commented in other decisions, in my view, regard must be had to the fact that this Court is not a Court of pleadings.  This might be seen as yet another example of where a system of pleadings might be of considerable assistance, not only to the Court but to a respondent to an application.

6. In that specific respect, much is made by counsel for the husband of the failure by the wife to produce costs letters in accordance with the Family Law Rules 2004 (see in particular rules 19.02; 19.05).

7. That complaint is allied to a submission by Mr Kirk SC on behalf of the husband that there is no explanation for how the moneys advanced to the wife pursuant to the previous order had been spent and a further submission that there was no proper identification of the basis upon which the moneys now sought are claimed, or, at least, that such amount of the amounts as claimed that might relate to future legal expenses.  He submits that attempts have been made to have the wife’s legal advisers detail how those moneys were spent but those attempts have been unsuccessful. 

8. Whilst the assertions by Senior Counsel for the husband may be true, it seems to me that I should have regard to the fact that this is not a Court of pleadings and that the requirement is for the wife to file an application seeking such orders as she would (implicitly) assert the Court has power to make, together with an affidavit providing the evidentiary foundation for the making of those orders.

9. The question then is, as it seems to me, does the material reveal an evidentiary basis upon which a proper source of power might be, and should be, exercised by the Court, notwithstanding the fact that it is not particularised in terms by the applicant for the orders? 

10. In my judgment, there is insufficient evidence upon which the Court might be persuaded to make the interim orders sought pursuant to the Court’s power to order costs (section 117(2A)) or the Court’s power to order spousal maintenance (section 74, or, perhaps, section 77) or adult child maintenance (section 66L). 

11. Each (independent) exercise of the Court’s power requires a Court to be satisfied of matters specified within the sections and Act.  In my judgment, there is plainly an insufficient evidentiary foundation for one or more of those preconditions in respect of each of the powers pertaining to costs, spousal maintenance or adult child maintenance. 

12. It remains to consider whether the same is true of the making of an interim order pursuant to section 79 and section 80(h).

The Court’s Power – Sections 79 and 80(h)

1. Three preliminary observations should be made emanating from the decision in Strahan.  

2. First, noting that the instant application is the second order to similar effect sought by the wife, it was held by Boland and O’Ryan JJ in Strahan at [85] citing Kendling & Kendling (2008) 39 FamLR 404 at [35] (per Finn, Warnick, Boland, JJ):

   [85]  We also observe that in Kendling & Kendling … the Full Court … at [35] concluded that more than one order may be made in the course of section 79 proceedings to fund the litigation expenses of a party. We accept that more than one order may be made, and it is not essential that a second order necessarily be made under the same head of power …

3. Further, as their Honour’s point out, it was held in Gabel & Yardley (2008) FLC 93-386, at [57] (per Bryant CJ and Coleman J):

   [57] The legislative framework and the authorities to which we had been referred suggest that the Court’s power to make orders with respect to settlement of property is not necessarily exercisable at only one time and can properly be exercised by a succession of orders until the power to make orders with respect to property is exhausted. Logic suggests that the power to make orders for settlement of property will be exhausted or “spent” when there remains no property of the parties to the marriage or either of them with respect to which orders by way of alteration of interests of property could be or had been made. In those circumstances there can be no matrimonial cause to enliven the jurisdiction to make orders for settlement of property. It is thus potentially more instructive to focus on the nature and scope of the power conferred by section 79 of the Act and the nature and effect of orders made in the exercise of the power than upon attempts to categorise the kinds of orders which may be made pursuant to the power.

   And further:

   [69] As we have earlier explained, in our view the focus of our attention should be whether or not the power to make orders pursuant to section 79 has been exhausted. Unless it has we see no basis in law or logic for concluding that further orders may not be made with respect to property the subject of earlier orders. …

4. Secondly, while applications of the type currently under consideration are frequently confined to the seeking of funds to be used for legal representation, when the power relied upon is that contained in section 79 and section 80(h) there is no reason in principle why the amount, or amounts, sought should be for that purpose or confined to that purpose, provided the principles otherwise applicable to applications for interim orders pursuant to that power are met. Those principles will be referred to below.

5. Further in that respect, in my view once the head of the power in respect of which an order might be made is established as sections 79 and 80(h), it is not to the point that the amounts sought might, in different circumstances, be referrable to another head of power. What is important is that the necessary evidentiary foundation exists by which the Court can, and should, make an interim order pursuant to sections 79 and 80(h).

6. The third matter that should referred to is that a consideration of an application for interim orders where the power relied upon is that which is contained in those sections can now be seen to involve “two steps”.  The first step has been described as a “preliminary” or “procedural” or “adjectival” step and the second as “the substantive” step.

The “Two Steps” to the Determination of the Applications

1. The majority in Strahan having, at [114] made it clear that their Honours were dealing only with “this issue in the context of section 80(1)(h)”, went on to hold :

   [118] ... There are two stages to the hearing of such an application where the power is to be exercised pursuant to section 80(1)(h) of the Act. This is recognised by the fact that although the power under section 79 should ordinarily be exercised on a once only basis, “circumstances may arise before there can be a final hearing” where the power is exercised. Thus the first step is to resolve whether to exercise the power before a final hearing and if it is resolved to do so then the second step involves the exercise of that power.

2. By reference to, in particular, [132] of the judgment of the majority in Strahan, the first step or stage of the application – that is the consideration of “whether to exercise the power under section 79 and 81(h) … to make an interim property order” – can, in my view, be seen to involve the application of the following principles:

   ·the over-arching consideration is the interest of justice

   ·it is not necessary to establish “compelling circumstances”

   ·“all that is required is that it is appropriate to exercise the power”

   ·the discretion to exercise the power is “wide and unfettered”

   ·in exercising that discretion “regard should be had to the fact that the usual order pursuant to section 79 is a once and for all order made after a final hearing”.

3. Earlier authorities might be seen as providing examples of the circumstances in which the “wide and unfettered” discretion has been exercised, but the discretion is not confined to those examples. 

4. The “substantive step” can, in turn, be seen to involve the application of a number of principles.  It is, I think, important to set out what the majority said in that respect in Strahan at some lengths:

   [135] … As the jurisdiction under section 79 of the Act is being exercised, the provisions of that section must be considered and applied but with limitations given that it is not the final hearing. There is also no requirement of compelling circumstances in relation to the substantive step.

   [136]  As to the third matter identified … by the Full Court in Harris, in discussion before us it was described as the “adjustment issue” or “claw-back issue”.  It was submitted by senior counsel for the wife that it is relevant to consider whether an order would give the applicant “more than they would indubitably entitled to on a final hearing” or alternatively “would it give them so much that it could not be adjusted on a final hearing”.   As we have observed, the Full Court in Zschokke … stress the importance of consideration of the “adjustment issue” if the power in section 80(1)(h) of the Act is being exercised. We accept the submission and observe that this matter is relevant because a discretion conferred by the power in section 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel at [69] and [72], the interim order must be capable of variation or reversal without resort to section 79A of the Act or appeal. Finn J held at [126] that the interim order must be “capable of alteration at any time prior to, or as part of, the final exercise of the section 79 power.”

   [137] Once a Court proceeds to exercise the power in section 79 of the Act being in the substantive phase, a Court is required to undertake consideration of the matters in section 79(4) including by reference to section 79(4)(e) the matters in section 75(2) so far as they are relevant. However, consideration of such matters may be brief and if it is established that “it seems likely to the Court that … the applicant … will be likely open [to] receive by way of property settlement a sum sufficient to cover the advance that would seem to be sufficient to enable the order to be made”: Zschokke;   Poletti per Nighj & Wenz.  As senior counsel for the wife submitted, “provided scope can be found within the assets of the parties for an order of the size sought … that should be the end of the matter.”  In other words, in such circumstances the applicant would only be receiving what he or she was entitled to receive when the power was exhausted.

   [138]  The legislation does not prescribe what the Full Court in Zschokke … described as “preconditions” and nor would we seek to exhaustively prescribe matters that may be relevant to take into account in the exercise of the discretion under section 80(1)(h) of the Act. As to the three “criteria” identified by the Full Court in Zschokke, we accept that an inability on the part of an applicant for an interim property order to defray the costs of litigation to meet his or her litigation costs would be a relevant matter to take into account at the procedural or first stage … We are of the view that it may be that any issue about the bona fides of an application is relevant at the procedural phase in the context of considering if in the interests of justice it is appropriate to make an order before the final hearing.

   [139]  We also emphasise that in order to establish an appropriate case for an interim property settlement order more is required than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.

   [140]  As to the other matters being a position of relative financial strength on the part of the respondent to an application and the capacity of the respondent to meet his or her own litigation costs, there is no doubt that the financial circumstances of both parties are relevant at the substantive stage and may also be relevant at the procedural stage …

   [141]  As to the various matters discussed by Brereton J in Paris King Investments … obviously the applicant should have “at least an arguable case for substantive relief which deserves to be heard”.  Further, in determining at the procedural stage whether to exercise the jurisdiction there may need to be evidence of the applicant’s “likely costs of the litigation” given that the need for funds to defray litigation costs and expenses is the circumstance propounded as to why it is appropriate that an order be made.  We also accept that “it is not an essential precondition” that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis.

1. The matter last referred to in the above quote should be seen as a reference to fact that, in Strahan, the moneys sought were “to defray litigation costs and expenses”. 

2. Here, as has been seen, the money is said by the wife to be required for three purposes only one of which is directed towards defraying litigation costs and expenses. 

3. Whilst I consider it irrelevant to an application for interim orders pursuant to sections 79 and 80(h) that the sums sought in respect of specified purposes (eg, spousal maintenance or adult child maintenance) might not satisfy the Act’s requirement for the ordering of those sums under the relevant respective heads of power, the nature, amounts and purpose of the moneys sought are not irrelevant to the issues to be considered. That is because, for example:

   …more is required than the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the property being sought from the other party). (Strahan, above).

4. Before turning to a consideration of the application of the “two steps”, it is necessary to outline the relevant circumstances – largely uncontroversial – to which the relevant principles must be applied. 

5. The 57 year old wife and 55 year old husband cohabitated for about 28 years.  There were three children of the relationship, one of whom is tragically deceased.  The other two children are each in their 20s. 

6. It is common ground that the parties started their relationship with little in the way of assets. The wife asserts “the property of the parties or either of them” within the meaning of section 79 to be in the region of $33.8 million; the husband says it is about $26.2 million.

7. The wife says she is entitled to half of the net property.  The husband asserts she is entitled to 27.5 per cent.  In dollar terms, the wife’s “best case” is an entitlement of about $17 million.  It is very significant to note that, on his case, the husband concedes the wife is entitled to not less than about $7 million.

8. It is uncontroversial that, whatever be the established value of the property, the bulk of its value is contained in a particular private corporation.  That private corporation is in turn part of a corporate trust structure that has additional value. 

9. As earlier observed, potential taxation liabilities are in issue and it seems there will be arguments at trial as to the means by which any such property settlement as might be ordered should be effected so as to minimise the impact of any consequent taxation upon the property and the corporate/trust structure and the business/es within it. 

10. Potentially relevant to the instant application is the fact that the wife seeks orders that, I gather, would see each of the parties retain some assets and a sale of the balance.  The husband seeks to retain the C property as part of the property to ultimately be retained by him. Similarly, the wife’s proposal would see her ultimately retaining real property which includes the partially completed home in respect of which she is seeking funds to complete. 

11. Further, as earlier noted, each of the husband and wife received by consent an amount of $1 million attributable to future legal costs.  That order was made, and the sums received, about 12 months ago. 

12. That short outline will, I think, already bring clarity to a number of matters required in respect of this application at both the first and second steps.

The Application of the “Two Steps”

1. Although, taken out of order, it can be observed that:

   a)The application of the provisions of section 79, a limited analysis of which must occur by reason of the nature of the application and its attendant inquiry, reveals a “pool” of property and the range of contended results earlier outlined. There is nothing to suggest that the (relatively wide) range of asserted respective entitlements is not arguable on the evidence before the court.

   b)Plainly, a total amount of $1.5 million can be “clawed back” in the sense used in Zschokke  and Strahan.

   c)The section 79 power will clearly not be exhausted by either or both of the interim orders sought.

   d)In respect of the future inability of the wife to meet her future legal costs, senior counsel for the wife submits that there is insufficient evidence of where or how the amount already awarded has been spent.  There is validity in that criticism and it might be expected that in circumstances such as the present, greater particularity ought to have been contained in the affidavit material accompanying the application.  Were it the case that greater doubt attended the capacity for “claw-back”, or other adjustments, at the subsequent final hearing, that lack of particularity may have been fatal to the application, by reason of failing to satisfy the Court of the appropriateness of the exercise of the power to make an interim order.

2. However, here, there can be no doubt that:

   a)the wife has an obligation to disclose ahead of the final hearing as to the use of those moneys (and there are consequences for failure to do so – see as but one example Black & Kellner (1992) FLC 92-287) and;

   b)there is the scope, should the evidence so permit, to argue for an adjustment by reference to the principles enunciated in cases such as Kowaliw & Kowaliw (1981) FLC 91-092 and Townsend v Townsend [2006] NSWCA 352 and;

   c)there is ample in the available property that would allow any such adjustment to be made.

3. It is contended in written submissions on behalf of the husband that:

   The wife spends $1 million in 11 months and says two months out from the final hearing, she has made no allowance for her remaining legal expenses, living expenses and further money is needed to finish the granny flat at the [E house] project and asks your Honour and the husband to accept her bold assertions as to what she has done with the $1 million and why she needs the further $500,000.  The application is misconceived, a mere two months from the final hearing and ought to be dismissed with costs.

4. I do not consider the application is “misconceived”.  Further, it cannot, in my view, be said that the wife’s claim rests on “the mere fact that upon a final hearing [she will] receive the property being sought” or more. 

5. The nature of the expenditure may fall to be considered in a different context in the ultimate determination of the respective claims to property entitlement at the trial, but a conclusion that payment of the funds to her is inappropriate cannot, in my judgment, be drawn from the stated purpose for the applications of the funds.  The husband’s acknowledgement that the sum can be paid can be seen as supporting that conclusion.

6. The consideration of the “over-arching” issue of the interest of justice requires the Court to note that compelling circumstances are not required for the making of the order and that in determining the appropriateness of the exercise of the power it is preferable for there to be a once and for all order at a final hearing. 

7. I very much have those factors in mind and in that context I am aware that particular reliance is placed upon the fact that the final hearing is about a month away.  I agree that this is an important factor that needs to be taken into account in the exercise of discretion. But it also seems to me to be relevant to consider, as has earlier been observed (see eg,  Fogarty J in Crapp & Crapp (1979) FLC 90-615; (1979) 24 ALR 671), that parties do not go into a state of economic “suspended animation” upon separation.

8. Separation marks the point at which individual economic lives commence the process of rebuilding and, in the absence of agreement, a Court determination is but a part (albeit an important part) of that.  Further, the trial does not mark the end point of that determination.  The judgment (or the determination of any appeal from the judgment) marks that end point.  Parties should be permitted to commence leading new individual economic lives to the extent that justice permits, albeit that the details or parameters of how those lives might be constructed is yet to be determined. 

Appropriateness?

1. What might be seen as the “real issue” in a determination of the appropriateness or otherwise of the orders sought can be seen outlined in the written submissions by counsel for the husband, part of which were earlier referred to:

   6.1Unfranked Dividend – Wife to bear the tax solely.  That if your Honour is minded to make an order (notwithstanding the husband’s opposition), the order sought by the wife will potentially exacerbate the taxation issues and that the wife should be required to receive the money by way of an unfranked dividend and be solely responsible for (to the exclusion of the husband in these proceedings) the tax liability that will arise as a result.

   6.2Taxation Issues Re $1 million by order 18 June 2010.  The order of 18 June 2010 required the wife to either repay the loan of $1 million by 30 June 2011 (which she obviously cannot do) or “to document the loan to ensure [it is] compliant with division 7A …”

2. The husband’s concern is that if the wife does not document the loan she will be assessed as having received a dividend of $1 million and that will attract tax at the top marginal rate (ie forty-seven and half per cent for the 2010-2011 year, including the flood levy).

3. At paragraph 4.4 of the written submissions on behalf of the wife Mr Carrigan of counsel submits:

   The methodology for payment of the $500,000 is a method in which the parties had previously agreed to.  The evidence is that “on advice of our respective expert advisers the husband and I agreed to a particular methodology for distribution of such funds.”  The parties implemented that methodology by the order of O’Reilly J on 18 June 2010 …

4. However, it is said on behalf of the husband that, contrary to what is contemplated in the earlier consent order, the amount of $1 million has not been paid back and “obviously won’t be paid back”.  No submission is made to the contrary on behalf of the wife.  It might be observed in that context that the timeframe inherent in that order can be seen to be connected with the potential treatment of the payment for taxation purposes. 

5. The husband’s argument continues that a further payment will, too, have taxation consequences depending upon the timing and circumstances of its receipt and repayment, if any.  Thus, it is submitted on behalf of the husband that there is a significant potential for injustice if a payment of the type sought by the wife is made now and taxation consequences flow from it that might otherwise be avoided if the order, and thus the payment, is not made.  It is said, in effect, that the potential for injustice is exacerbated because, potentially, taxation considerations will likely be a crucial component in the overall assessment of justice and equity (and, perhaps, an assessment of the liabilities and who should bear them). 

6. The wife argues that it is a methodology that was employed in previous orders.  I am not persuaded by that argument; in my view, the authorities make it clear that the determination of an application for one interim distribution might depend on entirely different circumstances (and principles) to those which might apply to a later application.  As has been observed, differing heads of power might apply. 

7. However, it is also argued on behalf of the wife that making orders as sought by her will permit the issue of tax to be dealt with at trial and, provided the circumstances otherwise point to an interim order being made – as it is submitted they do here – that is an approach more consistent with issues of that type being dealt with at a final hearing.

8. Paragraph 2 of the orders sought by the wife’s application seeks an order that payments be made to her net of tax.  An order in those terms does not, in my view, leave that issue to be determined at trial – indeed, it seems to me to predetermine it.  Precisely the same can be said of the orders sought by the husband and, so too, the orders sought by the wife in response to the transfer of the C unit to the husband.  Orders that the husband and/or wife receive any money as a franked dividend seem to me to prejudge the issue of how taxation liabilities generally and, in particular, any taxation liabilities arising specifically from earlier orders or these mooted orders might be determined at a trial.

9. The Court at trial has a clear obligation to identify not only the “property of the parties or either of them” but also the liabilities of the parties or either of them.  Part of the Court’s assessment is, in an appropriate case, to not only ascertain which liabilities are owing or likely to be incurred or enforced (see eg, Biltoft & Biltoft (1995) FLC 92-61) but also to ascertain whether both parties, or one or other of the parties, should be responsible for what liabilities.

10. Mr Kirk SC on behalf of the wife argues that to leave the question of who should pay part of any taxation liability that might be referrable to any actions or inactions of a party that might, at this interim stage, have been avoided had orders (or orders of a particular type) not been made, is to introduce too much imprecision into the process.  He points to the fact that the calculation of any such sum that might be claimed as, for example, “waste” would be extremely difficult. 

11. But, the section 79 process itself is neither precise nor a mathematical exercise. Broad assessments are involved and the discretion is very wide.

12. Moreover, the assessment of taxation liabilities can, of itself be a speculative or imprecise exercise. A common example is where one party retains an asset “pregnant” with capital gains tax and the evidence is that there is no desire to sell that asset. Assessments as between the parties in such a situation can, in certain circumstances, involve an inherently imprecise assessment of the impact of any potential taxation by reference to section 79(4)(e) (see eg, Rosati & Rosati (1998) FLC 92-804).

13. Similar considerations apply to any calculations sought to be made in respect to the amounts asserted to have been unnecessarily incurred, whether by a failure to comply with the previous order or as a result of other actions, or inactions, in and about an interim order including one of the type sought here.

14. The order sought at paragraph 1(b) of the wife’s Application mirrors the earlier order made by consent.  Absent consent, it does not seem to me appropriate for a Court to require a party to do something which may (or may not) have taxation consequences.  The party or parties will either do certain things or they won’t.  Those actions or inactions will have taxation consequences or they won’t.  The role of the Court is to determine at the ultimate trial what should or should not occur based on what the parties have or have not done (or what they might agree as between them) as a means of distributing property, particularly so as to avoid taxation. 

15. In my view, the justice of the case points towards the wife receiving the funds sought by her and I consider it appropriate to make that order.

16. However, the comments just made will, I think, make it clear that I do not consider it just and equitable, on an interim basis, to make orders that will determine the manner in which any taxation liability in respect of that transfer, or, indeed, more generally, might fall.  That is an issue for trial and can properly be the subject of evidence and be determined at trial even if, ultimately, the calculation is necessarily somewhat imprecise.

17. It will, I think, be clear, by reference to the same principles, that the husband should also be permitted to have the C unit transferred to him by way of an interim order. 

18. By reference to the same principles that affect the payment to the wife, it seems to me that the husband’s claim is neither fanciful nor frivolous and plainly falls within the range of orders that would be made by a Court in terms of the overall assessment of the parties’ respective entitlements.

19. In that respect, reference is made to the matters contained in the written submissions on behalf of the husband where he refers to the desire to undertake much needed repairs and renovations (to a unit in which he resides) and that he is loath to do so whilst it remains in the wife’s name. 

20. The effect of each of those orders, I hasten to point out, will be that each of the parties will, pending the trial, have for themselves a home which they can call their own and in respect which they can make such financial and other decisions as they might consider appropriate. 

21. For reasons identical to those just referred to, however, I do not consider that I should make an order that the effect of any such transfer be that the husband should bear any tax liability that might attach thereto.  I reiterate that I consider that the issue of taxation in respect of both the amount to be paid to the wife and the transfer of the C unit to the husband pursuant to these Orders are matters more appropriately left for consideration at the ultimate trial of this action due to take place in approximately four weeks time.

22. I order accordingly.

I certify that the preceding seventy-one (71) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Murphy delivered on 30 June 2011.

Associate: 

Date:  25 July 2011