KAVANAGH & KAVANAGH

[2015] FCCA 2517

FEDERAL CIRCUIT COURT OF AUSTRALIA

KAVANAGH & KAVANAGH [2015] FCCA 2517

Catchwords:
FAMILY LAW – Application to set aside Binding Child Support Agreement – Agreement not registered with Child Support Registrar within time limit stipulated in Agreement – whether such deficiency vitiated the Agreement – application to set aside Agreement pursuant to s.136 of the Child Support (Assessment) Act 1989 – late registration of the Agreement not rendering it inoperable – no new circumstances since Agreement entered into – applicant not establishing hardship in any event – application dismissed.

Legislation:

Child Support (Assessment) Act 1989, ss.80C, 136, 136(2)(d)

Applicant: MR KAVANAGH

Respondent: MS KAVANAGH

File Number: MLC 1961 of 2010

Judgment of: Judge Burchardt

Hearing dates: 22 & 23 July 2015

Date of Last Submission: 23 July 2015

Delivered at: Melbourne

Delivered on: 29 September 2015

REPRESENTATION

Counsel for the Applicant: Mr Bacon

Solicitors for the Applicant: Manby and Scott Lawyers

Counsel for the Respondent: Mr Hall

Solicitors for the Respondent: Ken Smith & Associates

ORDERS

1. The Application filed 12 March 2014 is dismissed.

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 1961 of 2010

MR KAVANAGH

Applicant

And

MS KAVANAGH

Respondent

REASONS FOR JUDGMENT

Introductory

1. The central issue in this case is whether the Court, as the Initiating Application filed 12 March 2014 seeks, should set aside the Binding Child Support Agreement between the parties, dated 15 July 2010. The applicant’s outline of case indicates the two bases upon which it is said the Agreement should be discharged. The first proposition is that the Agreement was improperly registered with the Child Support Agency, because it was registered outside the timeframe provided for by the Agreement itself. The second submission, in the alternative, is that the Agreement should be discharged pursuant to s.136 of the Child Support (Assessment) Act 1989 (“the Assessment Act”), due to changed circumstances.

2. For the reasons that follow, I do not think that the registration of the Agreement was in any way improper, nor do I think that the Court should exercise its discretion pursuant to s.136 of the Assessment Act.

Facts that are either agreed or uncontroversial

1. The applicant father was born on (omitted) 1972, and the respondent mother on (omitted) 1971.  They commenced cohabitation in 1995 and ultimately married on (omitted) 1998 (although the parties’ materials provide inconsistent dates for these events)  Their three children, X, born (omitted) 2000, Y, born (omitted) 2002, and Z, born (omitted) 2006, followed in due course.  The parties finally separated in November 2008. 

2. The parties have litigated energetically, although not all the time, ever since, but relevantly for these purposes, on 15 July 2010 final property orders were made by consent.  Those orders were accompanied by an annotation that:

   “B.    The Husband and Wife intend to enter into a Binding Child Support Agreement in relation to the children of the marriage such that the husband pays $100 per week for each child, and the parties will sign all such Acts and do all such things as are required to register that Agreement with the Child Support Agency.”

3. It should be noted that, relevantly for these purposes, the mother retained an interest in a property in Property M, and the father retained his interest in his (omitted) business.

4. On 15 July 2010 the parties signed a Binding Child Support Agreement (“the Agreement”), which is K-02 to the affidavit of the father filed 12 March 2014, accompanying his Initiating Application.

5. The Initiating Application now before the Court seeks that the Agreement be set aside and the amount of child support set as assessed pursuant to the Assessment Act. A claim relating to the children does not appear to have been prosecuted.

6. The mother’s Response, filed 13 May 2014, essentially seeks that the application be dismissed.

The father’s affidavit material

1. The father’s affidavit filed 12 March 2014 asserts that he has struggled to pay the child support pursuant to the Agreement due to changes in his financial situation.  He deposed to a significant decline in income, the birth of his child, A, now two years old (at that time), and an increase of the amount of time the children now spend to him from zero per cent in 2010 when the Agreement was made, to 38 per cent.

2. It should be noted that there was a substantial further tranche of litigation about parenting issues in 2011-13. 

3. The father’s second, and final, affidavit filed 23 June 2015 responds, essentially, to the affidavit of the respondent mother.  It adds somewhat to the picture of the financial difficulties that the applicant had already indicated in his earlier material, and gives details of how the father says he refused to sign a second version of the Agreement in October 2010. 

4. The father’s partner, Ms L, also filed an affidavit, on 28 May 2015.  She deposed that she and the father work together in their business, (business omitted).  The father is responsible for hands-on physical labour, and she attends to the administration.  She deposed, at paragraph 5 of the affidavit:

   “5.    One of my other duties is to consult with the applicant on the overall strategic direction of the business.  As part of that, in late 2012 we both decided to focus very heavily on expanding the business.  We decided to build up our order book and increase the work that the business did.  We decided the best way to do that was to aggressively reduce our pricing structure, essentially to quote low to get much more work through the door.  The idea was that as the business grew various economies of scale would cut in and we would become profitable at the lower charges we were getting for our work. 

   Although that approach has led to an increase in work and turn over the business’ profitability has not increased as we had hoped.  The business turnover increased by a factor of about two from 2012 to 2014.  Profit though hardly increased.  One reason for this might be that, whereas when we were smaller the applicant did most of the actual physical work, we have had to make use of many more (expensive) tradesmen as we got more work in. 

   In any event, the applicant and I are now reconsidering our strategic direction.”

5. The father’s Financial Statement, filed 12 March 2014, shows a substantial shortfall of income over expenditure (although that shortfall is reduced by the $540 paid each week to Ms L).  It also reveals a significant deficit as to property and liabilities.  It should be noted that the affidavit of Ms L shows that she and the father have not only A (their child) but three children of Ms L’s from a previous relationship living with them.

The materials filed by the mother

1. The mother’s affidavit, filed 13 May 2012, takes issue with the matters asserted by the father.  She deposed to the fact that the father was already in a relationship with Ms L at the time the Agreement was entered into (one of the difficulties between the parties is that the father commenced the relationship with Ms L, who had previously been one of the mother’s closest friends).  The mother deposed to doing casual work as a (occupation omitted), earning about $20,000 per annum, but being otherwise reliant on statutory benefits.  The affidavit otherwise responds to issues about time spent with the children which, as I say, do not appear to have been further pressed.  The mother filed a contemporaneous Financial Statement, but this has been overtaken by a later one.

2. The mother filed an Amended Response on 4 June 2015.  It sought indexation of the $110 originally ordained by the Agreement, in total amounting to $331.89 per week for the three children, and costs, together with arrears asserted in the sum of $3,937.29. 

3. The mother filed her trial affidavit on 14 July 2015.  The affidavit essentially involves a detailed analysis of the financial circumstances of the father and Ms L, which may be broadly paraphrased as suggesting that their true financial circumstances were much better than indicated by tax returns.  She pointed to a number of purchases of vehicles, and other matters all suggestive of a greater income availability in the father’s household than had previously been disclosed.

4. Although a substantial amount of material is annexed to the affidavit, it is not necessary to traverse that at this stage, or the other materials filed. 

5. The mother filed an Amended Financial Statement on 14 July 2015.  It shows a shortfall of income over expenditure of some $602 per week.  The sums disclosed by way of expenditure do not appear to be in any way extravagant, and I do not recall that any such proposition was put to the mother in any event.

6. The husband also filed an affidavit of Mr N, his accountant.   Mr N gave details of the father’s trust and his personal taxable income over the relevant periods from 2010-2011 to the present, noting that 2014-2015 tax returns have not been prepared. 

The evidence given at Court – the father

1. In evidence-in-chief the father explained that the caravan that he had bought was used often.  It was used to house workers when they were working away, and was cheaper than a hotel by a significant amount.  It was, however, also used for private purposes.

2. The father confirmed that he works from home.  It would cost $60,000 per annum to hire a factory. 

3. So far as the VW Touareg motor vehicle referred to in paragraph 16(b) of the mother’s trial affidavit was concerned, he said this car was used every day for work.  He drives about 70 to 75 thousand kilometres each year, of which only about 5000 kilometres would be for private use. 

4. The father disagreed with assertions that the profitability of the company had increased.  He said that the Child Support Agreement was discussed with his lawyers who had told him to get property out of the way first before addressing children’s issues.  The children now spend about 43 per cent of their time with him.

5. When cross-examined by counsel for the mother it was put that he and his partner were able to pay $320 per week off the capital on their mortgage.  He was unable to say.  He agreed, however, that the mortgage had declined by some $50,000 in the last two years.  He did not agree that he was financially comfortable.

6. The father was cross-examined in some detail about the various cars that he and Ms L control.  It is not necessary to traverse the detail of these questions.  I will return to the matters that can be taken from it when I deal with the parties’ submissions.  It should, however, be noted that the father’s evidence, when pressed as to the extent of his expenditure and the private benefit he got from various vehicles, was evasive and unresponsive.  In part he tried to blame his accountant (in my view, unconvincingly).  He confirmed that he lives on a 12 acre property and that there are four big vehicles in the business.  Ms L has use of the Kia. He said he borrowed money to pay the mother the $300 per week child support on several occasions from his parents. 

7. The father was cross-examined about his journey to the (omitted) for three days in November to December 2014 and confirmed the trip.  He also confirmed he spent a week offshore in Queensland in March 2015 at a total cost of $4,500 approximately.  He confirmed that he and his family spent two weeks away at Christmas and he was unable to say any idea what his turnover would be in 2015.  Cross-examination about the trust’s turnover suggests approximately $1.5 million to 2015.  He was unable to say how much he had spent on legal expenses as he himself did not make the payments. 

8. The father confirmed that his solicitor had witnessed the signing of the signature to the Child Support Agreement and had given advice.  He was cross-examined about the provision in the Agreement that it was required to be registered within 14 days.  He said he knew he had to pay $100 per week, whatever he earned, at the time he signed it.  His responses as to the nature of his understanding about the 14 day registration requirement were unsatisfactory and evasive.  He has never, however, paid more than $100 per week, but had received letters from the Child Support Agency about this.  He confirmed the obligation to pay $100 per week was in the original Agreement.  He was not sure if the Agreement was still in place because it had not been lodged in time. 

9. When taken to exhibit R3 which shows the arrears of child support he said the mother had not chased it.  He did not think the Agreement was still binding.

10. The father confirmed that his BAS statements for turnover in 2014 were not provided.  He said revenue was down in the last six months and that he would assume the March BAS had been filed.

11. In re-examination the father confirmed that the caravan’s use for employees has saved approximately $500 per night and there were 80 such nights.  He said the trip to (country omitted) was free because he swapped it with a tradie.  He said the 14 days registration requirement was important to him.

The evidence of Mr N

1. Mr N confirmed that he had read the mother’s trial affidavit.  There were no audit requirements in the business.  He said there was some $24,000 of personal expenditure in annexure B to the wife’s affidavit relating to credit card expenditure.  He confirmed that profit and loss in the accounts is prepared on an accrual basis, but expenses on an actual expenses basis.

2. When cross-examined about exhibit R1 (the financial statements for (omitted) for the year ended 30 June 2014) Mr N confirmed that he relies on Ms L for the figures. When taken to exhibit R 4 he said that FBT is paid on private use. He was not aware the caravan was used for private purposes. He confirmed that his office does not prepare the business’s BAS statements which are done by Ms L.

The evidence of Ms L

1. Ms L gave evidence-in-chief that exhibit R 4 was a credit card summary to which she had annexed all source documents. $24,000 of expenditure was personal and $80,000 on the business. She went on to say that the statements show a combined total of $107,000 and was critical of the mother’s methodology attached in her materials.

2. Cross-examination showed, however, that the way in which Ms L had dealt with various forms of payment has led to the business expenses being exaggerated.  For example, all rates payments were attributed to business use whereas it is quite clear that a portion should have been allocated to personal expenses.

3. Ms L confirmed that she went to (omitted) with her children in (omitted) 2011 and thereafter to (omitted) in (omitted) 2014.  She confirmed that she and her partner had paid around $25,000, or were due to pay sums in that amount, to her current solicitors and they had previously paid CE Family Lawyers about $8,000.  These payments had been made from the overdraft.

4. Ms L confirmed that she had been aware the father would sign the Agreement in 2010.

5. Despite some methodological weaknesses in the way she had approached the various figures, Ms L impressed me as a good and honest witness. 

The evidence of the mother

1. The mother adopted her affidavits and financial statements as true and correct.

2. Under cross-examination the mother confirmed that she is now paying some principal off her mortgage and that her parents assist her from time to time.  She was cross-examined about a $4,500 payment on her credit card and confirmed that her father had paid this sum.  The mother was not able to say how much her parents had contributed towards her legal costs.  Such monies advanced were, however, not a loan.

3. The mother confirmed that she spends $150 a week on holidays and about $45 a week on parties and gifts.  She had no idea how many kilometres she drove per year and did not claim a deduction for driving costs in her tax return.

4. When questioned about the failure to lodge the Agreement in 2010 the mother said it was intended to be filed.  The father already knew he would have to pay $300 per week, but her solicitor had failed to lodge it in time.

The submissions of the parties

1. Counsel for the mother relied upon his case outline.  In relation to the father’s claim that he had been misled by poor advice from his previous solicitor counsel submitted this was not made out.  The father could have produced the file from the former solicitor.

2. Counsel submitted that it was not necessary to file the Financial Agreement for it to be binding.

3. In respect to the s.136 claim counsel submitted that the applicant had not satisfied the test in s.136(2)(d). There were not exceptional circumstances arising since the Agreement was made, such that the applicant father or the child would suffer hardship if the Agreement was not set aside. It was submitted that the applicant and his family had spent a lot of money in the past few years, particularly on holidays. Counsel pointed to the fact that the father and his partner are able to pay $320 per week net off the mortgage as an additional payment. Ms L was paid $39,000 net in the last tax year and the father $78,000. The cars owned by the business, (and effectively controlled by the father and Ms L), are free of debt. Capital expenditure on this scale, it was submitted, was inconsistent with hardship.

4. Counsel conceded that any arrears of child support were not pressed and could be approached through the Child Support Agency.

5. Counsel for the father submitted that the Child Support Agreement was attended by a condition precedent.  Since that condition precedent had not been met the Agreement was no force and effect.  Counsel referred to authority in support of this proposition, but in my view the authorities referred to are not really on point.  Counsel further submitted that the father had paid the child support under a mistake.  He also made submissions as to the arrears aspect of the claim with which, in the circumstances, it is not necessary to deal.

6. Counsel submitted that there were indeed exceptional circumstances leading to hardship pursuant to s.136(2)(d). Once again, counsel referred to authority, but these decisions turned on their own facts.

7. Counsel submitted that the father and Ms L now have another child and, further, were spending no time with the children when the Agreement was signed.  It was submitted that the father now has the children with him for somewhere between 38 and 41 per cent of the time.

8. Counsel submitted that it now seems agreed that the income in the father’s household is some $117,000 which is divided equally.  This is less than $60,000 per annum, albeit more than the income when the Agreement started.

9. He further submitted that the respondent had not provided evidence of need.

The proper construction of the Binding Financial Agreement

1. The Agreement itself is annexure K-02 to the father’s affidavit filed on 12 March 2014.  It is a Binding Child Support Agreement dated 15 July 2010 between the parents.  The recitals note at paragraph 3.9 that the children live with the mother and “the parties have agreed about the amount of time the children will spend with Mr Kavanagh.”

2. The recitals note at paragraph 3.17 that:

   “Before they signed this Agreement each party was provided with separate independent legal advice from a legal practitioner as certified in the Certificates annexed to this Agreement as to the following matters. 

   3.17.1. the effect of the agreement on the rights of that party;  3.17.2. the advantages and disadvantages at the time the advice was provided to the party of making the agreement.”

3. By clause 4 it is provided that the father will pay $100 a week for each child and that the rate will be indexed in accordance with the CPI from 1 July each year.

4. Paragraph 5 provides that:

   “Within 14 days of the date of this Agreement the parties will forthwith make an application to the Child Support Registrar for acceptance of this Agreement pursuant to s88 of the Act.”

1. Clause 7 required that:

   “The parties shall do all acts and things and sign all documents as may be necessary to give effect to this Agreement.”

2. The solicitors of each of the parties signed certificates of independent legal advice.

3. It is common cause that the Agreement was not registered within 14 days, as is shown, if nowhere else, by K-03, a letter dated 19 October 2010 to the father’s solicitors from the mother’s solicitors.  This indicated inter alia that a representative from the Child Support Agency had indicated that there was no objection to accepting the Agreement, but that it did need to be lodged within 28 days of signing.

4. I do not accept the truthfulness of the father’s assertions as to any reservations he may have had as to the Agreement at or about the time it was signed.  He was, I regret to say, an extremely poor witness and generally unbelievable.  His observations have all the hallmarks of reconstruction.  He was clearly independently advised at the time he entered into the Agreement and there is no reason to doubt the competence of the advice that he was given.

5. Looked at on its face the requirement for registration was clearly a mechanical matter designed to set the rights of the parties in place pursuant to the legislation itself. The father started paying the child support immediately. He did not do so under any mistake at the time. He knew he had agreed to pay and he did so. The clause in the Agreement requiring the registration of the Agreement does not for a moment say that in the event of non-registration the Agreement is not binding. This failure cannot be construed in the circumstances as amounting to a matter of any moment in circumstances where the father has continued to pay child support ever since. Further, the Agreement does not require to be registered to be effective. The case outline of the respondent is, in my view, entirely accurate to assert that the terms of s.80C of the Act are fully complied with. It is not, in the circumstances, necessary to say more than that as the submission is so clearly correct.

6. It would appear to be common clause that the Agreement was, in fact, registered with the child support agency about a month or so after it was executed, but this does not, as the respondent correctly submits, affect the operation of the Agreement on any sensible reading of its terms or the binding nature of the Agreement having regard to s.80C of the Act.

The s.136 application

1. First, it should be observed that the need of the mother for financial support has not changed at all.  Her work remains very limited and she has a real, as opposed to illusory, shortfall of income over expenditure.  She has only been able to get by with help from her parents from time to time.  I do not know the exact amounts of such assistance, although I note the payment of $4,500 on her credit card by her father. The mother was an excellent witness who was clearly telling the truth and it is clear that her need for financial assistance with the children continues.

2. Although various schedules have been presented and the affidavit materials of the parties are replete with reference to details of alleged expenditure and the way in which items have been dealt with (including quite a lot of time spent in Court looking at documents and noting the taxation treatment of various expenses) it is not in the particular circumstances of this case necessary to trawl through this in minute detail.

3. It is apparent that the father and his partner have been able to have holidays which have cost some money – and quite considerable money, at that – of recent times.  This is so, even if I accept that the trip to the (omitted) was free.

4. Further, the applicant and his partner are paid a joint net income of almost $120,000 on any view.

5. They have managed to buy a number of expensive vehicles and a caravan, which are free of debt.  Even accepting, as I do, that the caravan in particular is used predominantly for work and some of the other vehicles also, the fact is that these are extensive capital outlays which the business, which is effectively the husband and his partner, have been able to sustain.

6. In the ultimate the one critical illustration (although I bear in mind the evidence as a whole) is the treatment of the father’s mortgage.  A party that is able to pay off some $320 a week over and above their normal mortgage payments is not suffering financial hardship.  Indeed, there are probably few households in Australia that would not be exceptionally gratified to have that kind of surplus.

7. It is quite clear, examining the circumstances of the father as a whole, that the current arrangements do not cause him hardship in the sense contemplated by the statute.

8. Further, I think there is considerable force in the mother’s counsel’s submission that nothing has happened since 2010 that was not readily foreseeable at the time.  The father had already commenced his relationship with Ms L.  It was wholly foreseeable that they would, as they happily have, had a child.  It is also readily foreseeable that the father would seek to spend more time with the children.  He made a decision, apparently upon advice, not to pursue parenting orders in the final proceedings (a rather strange decision, one might feel, in the circumstances) and it was always likely, as the children got older, that he would be allotted more time.  As his own affidavit points out, there is no history of family violence and there was always an excellent chance that the children’s time with him would increase.

9. Thus, while a number of things have, of course, changed, they were not matters that, as a question of true analysis, that have arisen since the Agreement was made.

10. Even if, however, I am wrong in that conclusion I would state again that the application must fail because hardship is not demonstrated.  In addition to all the other matters I have mentioned, the applicant has been able to pay substantial amounts of legal fees without, it would appear, financial difficulty.

Conclusion

1. In all the circumstances of this case the Application must be dismissed.  It is not clear to me whether the respondent mother seeks any orders in relation to either the extant child support arrears (which I have been assured will be pursued through the Agency) or the indexation issue.  I will hear from the parties accordingly.

I certify that the preceding seventy-one (71) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Associate: 

Date:  29 September 2015