Kelby and Kelby

[2017] FamCA 438

FAMILY COURT OF AUSTRALIA

KELBY & KELBY [2017] FamCA 438

FAMILY LAW – PROPERTY – INTERIM PROCEEDINGS - Where previous orders were made by Justice Rees for the husband to cause the sale of the parties former matrimonial home and to pay the costs of the real estate agent and the legal costs of sale and to pay one half of the balance remaining to the wife by way of interim property settlement – Where the former matrimonial home was sold for $431,000 – Where the wife received a cheque for $194,335.44 which was stated to be 50 per cent of the net proceeds of the sale –Where the amount of $23,640 was withheld by the husband for Capital Gains Tax on the basis that it formed part of the “the legal costs of sale” – Where the wife sought that the husband pay her the sum of $11,820.00 – Court finds that the Capital Gains Tax liability should not be included in the “legal costs of sale” – Court finds that pursuant to the orders made by Justice Rees the husband was required to pay to the wife the amount of $206,155 being 50 per cent of the net proceeds of sale in the sum of $412,310.87 – Declaration made pursuant to Rule 20.07(a) of the Family Law Rules 2004 (Cth) – Costs reserved to final hearing.

Family Law Act 1975 (Cth), ss 74, 75, 79, 79A

Family Law Rules 2004 (Cth), rr 1.12, 11.02(1), 16.07, 20.07(a)

Rosati and Rosati [1998] FamCA 38

APPLICANT: Ms Kelby

RESPONDENT: Mr Kelby

FILE NUMBER: SYC 8071 of 2014

DATE DELIVERED: 26 June 2017

PLACE DELIVERED: Parramatta

PLACE HEARD: Sydney

JUDGMENT OF: McClelland J

HEARING DATE: 22 May 2017

REPRESENTATION

SOLICITOR FOR THE APPLICANT:  Yates Beaggi Lawyers

SOLICITOR FOR THE RESPONDENT: McGirr Lawyers

Orders

THE COURT ORDERS PENDING FURTHER ORDER THAT:

1. Pursuant to r 1.12 of the Family Law Rules 2004 (Cth) (“the Rules”) I dispense with the requirement for compliance with r 11.02(1).

2. Costs of this application are reserved to the final hearing of this matter.

THE COURT DECLARES THAT:

1. I DECLARE THAT pursuant to Order 2 of the Orders made by Rees J on 24 August 2016, upon the sale of Property D, the husband was required to pay to the wife the total amount of $206,155.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Kelby & Kelby (No.2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC8071 OF 2014

Ms Kelby

Applicant

And

Mr Kelby

Respondent

REASONS FOR JUDGMENT

introduction

1. In this matter the applicant wife (“the wife”) alleges that she has been underpaid an amount of $11,820 from the proceeds of sale of a property held in the name of the respondent husband, Mr Kelby (“the husband”) pursuant to orders made by Justice Rees on 24 August 2016. The husband admits to retaining the sum of $11,820 from proceeds distributed to the wife but contends that the deduction was properly made in respect to an anticipated Capital Gains Tax (“CGT”) liability incurred in respect to the sale of the property.

Background

1. The history of this litigation is set out in the decision of Rees J delivered on 24 August 2016 and will not here be repeated.

2. On 24 August 2016 Rees J made orders which included the following:

   1.That within twenty-eight (28) days of the date of these orders, the husband pay the wife, by way of interim property settlement, the sum of $250,000.

   2.In default of payment of the sum referred to in Order 1 by the due date, the husband do all acts and things and sign all documents required to effect the sale of the property at B Street, Suburb C (“Property D”), to pay the costs of the real estate agent and the legal costs of sale and to pay one half of the balance remaining to the wife by way of interim property settlement

3. It is common ground that order 1 was not complied with and, consequently, order 2 was activated. In accordance with order 2, on 18 March 2017 Property D was sold for $431,000.

4. On 27 April 2017 the wife received a cheque for $194,335.44 which was stated to be 50 per cent of the net proceeds of the sale of the property.

5. The settlement adjustment sheet provided by the solicitors for the husband to the solicitors for the wife indicates that, following deduction of council rates, water rates, strata levies, fees payable to L Lawyers and M Real Estate, the balance payable into the Trust Account of L Lawyers was $412,310.87.

6. The Settlement Adjustment Sheet also records an additional amount “withheld on account of Capital Gains Tax” in the sum of $23,640. Leaving a balance of funds of $388,670.87. From that balance of funds an amount of $194,335.44 was, as noted, paid to the wife.

Application

1. The Application in a Case filed by the wife on 19 May 2017 sought the following orders:

   1.    An Order that the Respondent Husband produce within 48 hours of order all documentation concerning completion of the contract for sale of the property described as [B Street, Suburb C (Property D)] including but not limited to the executed Contracts for Sale, Settlement Statement and Chequer (sic) Directions.

   2.    An order that the Respondent Husband pay to the Applicant Wife the sum of $11,820.00.

   3.    An order that the Respondent Husband paid the Applicant Wife’s costs of this application on the special indemnity basis.

   4.    Any further Order/s this Honourable Court deems fit.

Written submissions

1. This matter was listed in the judicial duty list on 22 May 2017. On that day only the parties’ legal representatives attended at Court. Having regard to r 16.07 of the Family Law Rules 2004 (Cth) (“the Rules”), as result of the non-attendance by the parties in person, the matter was stood in the list pending the arrival of the parties at Court. When this matter was called at 4:30 pm neither party was in attendance. I indicated to the parties’ legal representatives that I would record my dissatisfaction with the discourtesy shown by the parties’ non-attendance. This is in circumstances where the parties have filed a multiplicity of applications in respect to their dispute.

2. Nevertheless, as result of the fact that the parties had incurred legal fees in respect to their lawyers’ attendance for the entirety of the day, I indicated that I was prepared to consider the wife’s application.

3. The solicitor for the husband, justifiably in my view, objected to the application being determined on that day on the basis that he had only been served with the Application in a Case and supporting affidavit late in the afternoon of the previous Friday.

4. However, both legal representatives agreed to deal with the application by way of written submissions. Orders were made for the wife to file her written submissions by 29 May 2017 and for the husband to file written his submissions in reply by 12 June 2017.

5. The wife’s written submissions were not provided until 1 June 2017. Consequently, the solicitor for the husband has objected to my considering those submissions, contending that the provision of those written submissions is to be deemed to be of “no effect” as result of the operation of r 11.02(1) of the Rules.

6. I note the relatively brief delay that occurred in respect to the submissions being provided by the wife. I further note that the wife would be deprived of the remedy she seeks if r 11.02(1) is applied. Accordingly, pursuant to r 1.12 I dispense with the requirements of the Rules in so far as they would prevent me from considering the wife’s application.

7. The wife’s written submissions traversed the background of the matter. It was submitted that the Court should have regard to the fact that, according to the wife, Property D was not sold until the husband was pressured to do so by way of the wife making a further application to the Court. With respect, that submission is irrelevant to my consideration of the wife’s application in this matter.

8. The substance of the wife’s argument is that the component for CGT, which was deducted by the husband from the proceeds of the sale of Property D, should not have been treated as forming part of “the legal costs of sale” of the property and should not have been deducted from proceeds payable to the wife pursuant to the orders of Rees J.

9. The written submissions of the husband, as noted, objected to the Court considering the written submissions of the wife on the basis that they were provided out of time. The husband contended that, in any event, the wife has not established the basis for the Court ordering that the husband pay the wife the amount of $11,820. Specifically, it was submitted that the wife has not particularised why she was entitled to that payment by way of spousal maintenance pursuant to s 74 of the Family Law Act 1975 (Cth), partial property settlement pursuant to s 79 or, by way of a variation to the orders made by Rees J on 24 August 2016 pursuant to s 79A of the Act.

10. The submissions of the husband also alleged that the wife is in contempt of Court as result of failing to participate in mediation in accordance with consent orders made on 27 October 2015. The allegations of contempt of Court were first raised in the husband’s submissions in reply and are not supported by an affidavit setting out the evidence justifying the serious allegation. In those circumstances, I do not propose to consider that aspect of the husband’s written submissions.

Issues

1. Accordingly, the issues to be determined are as follows:

   1.Has the wife properly particularised her case?

   2.Is the amount withheld by the husband on account of a CGT liability an item that was properly included as forming part of “the legal costs of the sale” as contemplated by the Orders made on 24 August 2016?

Consideration

Nature of the wife’s application

1. It is clear from the wife’s Application in a Case and affidavit in support that the wife is not seeking an additional payment from the husband. Accordingly, possible issues regarding the operation of ss 74, 75, 79 or 79A of the Act do not arise.

2. The substance of the wife’s application is that she is seeking to enforce order 2 of the orders made by Rees J on 24 August 2016 by requiring the husband to pay the total amount of proceeds of sale that she alleges he is required to pay to her.

Funds withheld in anticipation CGT

1. The Orders of Rees J made on 24 August 2016 did not, in my view, intend CGT to be included as a legal cost of the sale.

2. In Rosati and Rosati,[1] the Full Court considered an appeal against orders adjusting the parties’ property interests pursuant to s 79 of the Act. Relevantly, grounds 6 and 7 of the Grounds of Appeal included the following:

   6.        That His Honour failed to take into account that to discharge the mortgage secured on the matrimonial home would of necessity involve the sale of assets requiring capital gains tax to be paid by the husband.

   7.        That His Honour erred in law in failing to consider the capital gains tax consequences that would inevitably flow as a result of the Orders.

   [1] [1998] FamCA 38.

3. The Full Court held that, on the facts of that case, there was no error on the part of the trial judge in not automatically making an allowance for CGT that was potentially payable on the sale of the business.[2] In so finding, the Full Court said:

   (1)      Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.

   (2)      If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.

   (3)      If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid-term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.

   (4)      There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset.  In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.

   [2] Ibid at [6.44].

4. Consistent with that authority, at final hearing, it may well be that the CGT liability in respect to Property D is treated as a joint liability of the parties.

5. However, that begs the question as to whether the CGT liability in respect to Property D should have been treated as constituting part of “the legal costs of sale” provided for in the Orders made on 24 August 2016. In my view, the CGT liability should not be so included.

6. Rosati and Rosati[3] makes it clear that a potential CGT liability that applies to a property should not automatically be deducted from the proceeds of the sale of that property as a necessary consequence of the sale. Whether such an order should be made will depend upon the particular facts and circumstances of the case.

   [3] [1998] FamCA 38.

7. In my view, pursuant to order 2 of the Orders made by Rees J on 24 August 2016, the husband was required to pay to the wife the amount of $206,155 being 50 per cent of the net proceeds of sale in the sum of $412,310.87 which was paid into the Trust Account of L Lawyers. Pursuant to r 20.07(a), I will therefore make a declaration to that effect.

Costs

1. I reserve the question of costs of this application to be determined at final hearing.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of the Honourable Justice McClelland delivered on 26 June 2017.

Associate: 

Date:  26 June 2017.