Kendling and Kendling and Ors
[2007] FamCA 480
•25 May 2007
FAMILY COURT OF AUSTRALIA
KENDLING & KENDLING AND ORS [2007] FamCA 480
FAMILY LAW - COSTS - Payment of an amount to defray applicant's costs of and incidental to pending proceedings for final orders
Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth)Poletti and Poletti ( 2 March 1990) and on appeal (1991-1992) 15 FamLR 794
Luadaka v Luadaka (1998) FLC 92-830 at 85,502
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania) v Fish and Another (2005) 33 Fam LR 123
Zschokke v Zschokke (1996) FLC 92-693
APPLICANT: Mrs Kendling
RESPONDENT: Mr Kendling
SECOND RESPONDENT: T Pty Ltd
THIRD RESPONDENT: Jeremy Kendling
FOURTH RESPONDENT: Penelope Kendling
FIFTH RESPONDENT: L Pty Ltd
SIXTH RESPONDENT: A Pty Ltd
SEVENTH RESPONDENT: Mr Z
EIGHTH RESPONDENT: B Ltd
FILE NUMBER: SYF 2903 of 2003
DATE DELIVERED: 25 May 2007
PLACE DELIVERED: Sydney
JUDGMENT OF: O'Ryan J
HEARING DATE: 29 March, 20 April, 9 May and 21 May 2007 REPRESENTATION
COUNSEL FOR THE APPLICANT: Mr Richardson of Senior Counsel and Mr Gould of Counsel
SOLICITOR FOR THE APPLICANT: Michael Conley Lawyers
COUNSEL FOR THE RESPONDENT: Mr Murphy of Senior Counsel and Mr Kearney of Counsel
SOLICITOR FOR THE RESPONDENT: Barkus Edwards Doolan
COUNSEL FOR THE EIGHTH RESPONDENT: Mr Harper of Senior Counsel
SOLICITOR FOR THE EIGHTH RESPONDENT: John S Wenden Orders
1.The Husband pay into the trust account of the Wife’s Solicitors, Messrs Michael Conley Solicitors, of …, the sum of $1,100,000 such sum to be paid as follows:
1.1 by 4.00 pm on 20 June 2007 the amount of $550,000.
1.2 by 4.00 pm on 28 July 2007 the amount of $550,000.
2The determination as to whether the sum referred to in Order 1 hereof be treated as part of the Wife’s entitlement to property settlement, the provision of maintenance for the Wife, or in payment by the Husband of the costs of and incidental to these proceedings, be reserved to the trial judge at the final hearing of these proceedings.
3Any monies received by or on behalf of the Wife pursuant to Order 1 hereof be utilised on account of the Wife’s costs in prosecuting her claims in these proceedings, including costs (outstanding and future) in relation to solicitors, counsel, accountants, valuers, and other legal costs and disbursements including process servers fees and conduct money.
4.The Wife shall account at the final hearing for monies so received and disbursed.
FAMILY COURT OF AUSTRALIA AT SYDNEY FILE NUMBER: SYF 2903 of 2003
Mrs Kendling Applicant
And
Mr Kendling Respondent
And
T Pty Ltd Second Respondent
And
Jeremy Kendling Third Respondent
And
Penelope Kendling Fourth Respondent
And
L Pty Ltd Fifth Respondent
And
A Pty Ltd Sixth Respondent
And
Mr Z Seventh Respondent
And
B Ltd Eighth Respondent
REASONS FOR JUDGMENT
Introduction
1.Before me for hearing is an application by the Wife, for payment of an amount of $1,230,000 to defray her costs of and incidental to pending proceedings for final orders. The costs proceedings were commenced by application filed on 2 March 2007.
2.Originally the Wife sought the following:
1. THAT the Husband shall cause to be paid into the trust account of the Wife’s Solicitors, Messrs. Michael Conley Solicitors, of […], (“the Wife’s Solicitors”), the sum of $1,185,000 within twenty eight (28) days of the date of these Orders.
2. THAT in the alternative to Order 1 hereof, an Order that within twenty eight (28) days of the date of these Orders, the Husband shall do all acts, and things, and sign all documents necessary, and pass all resolutions necessary to cause [B] Limited or such other entity as the Husband may nominate to transfer into the trust account of the Wife’s Solicitors the sum of $1,185,000.
3. THAT the determination as to whether the sum referred to in Order 1 hereof be treated as part of the Wife’s entitlement to Property Settlement, the provision of maintenance for the Wife, or in payment by the Husband of the costs of and incidental to these proceedings, be reserved to the trial judge at the final hearing of these proceedings.
4. THAT any monies received by or on behalf of the Wife pursuant to the foregoing Orders (including the proceeds of sale of any property that may be transferred to her, or funds borrowed, or security of such property, but excluding any capitalised interest) shall be utilised on account of the Wife’s costs in prosecuting her claims in these proceedings, including costs (outstanding and future) in relation to Solicitors, Counsel, Accountants, Valuers, and other legal costs and disbursements including process servers fees and conduct money.
5. THAT the Wife shall account at the final hearing for monies so received and disbursed.
6. THAT the Husband pay the Wife’s costs of and incidental to this Application.
7. THAT the Wife’s Application for Interim Costs be expedited.
3.The hearing commenced on 27 March 2007. On 20 April 2007 a minute was filed on behalf of the Wife and she now seeks the following:
1. Order that the husband and [B] Ltd shall jointly and severely pay to the trust account of the wife’s solicitors, Messrs Michael Conley Lawyers, the sum of $1,230,000 (“the lump sum”), such sum to be paid within 28 days.
2. That pending delivery of judgment and thereafter pending payment of the lump sum the husband and [B] Ltd are each restrained from doing any act or thing to cause or permit any funds sourced from [B] Ltd or [T] Pty Ltd from being paid or applied in satisfaction or partial satisfaction of legal costs of the husband in relation to these proceedings or in payment of any disbursement (including but not limited counsel’s fees and valuation fees) in any way related to the case of the husband.
4.The Husband is Mr Kendling and he seeks that the Wife’s application be dismissed. The current proceedings were summarised in the following way by senior counsel for the Husband:
1.The present application seeks provision of $1,185,000 to the Wife from either of the Husband, [B] Ltd or such other entity as the Husband may nominate, to be applied to:
“the Wife’s costs in prosecuting her claims in these proceedings, including costs (outstanding and future) in relation to solicitors, counsel, accountants, valuers, and other legal costs and disbursements including process servers fees and conduct money”.
2.The Wife seeks that such provision be “treated as part of the Wife’s entitlement to property settlement, the provision of maintenance for the Wife, or in payment by the Husband of the costs of and incidental to these proceedings”, the ultimate characterisation of the payment being reserved to the trial Judge. The Wife has failed to respond to the Husband’s request to specify the basis upon which such provision is to be sought.
3.The Husband opposes the orders sought by the Wife and, in summary, contends that there is no warrant for the granting of the relief having regard to:
3.1 the claim as advanced by the Wife;
3.2 the substantive dispute between the Husband and Wife;
3.3 the financial circumstances of each of the Husband and Wife; and,
3.4 discretionary considerations.
5.There are pending proceedings for parenting orders and settlement of property. The proceedings were commenced by application filed by the Husband on 28 November 2005. I will hereafter set out the final orders sought by each party. In the written outline of argument of the Husband it was submitted that:
11.In the present proceedings there is a substantial dispute between the parties as to the nature and value of the assets to be considered in the property proceedings. The Husband contending that there are net assets available of approximately $1.8M and the Wife variously contending for assets in excess of $100M. This position is reflected in Reasons for Judgment delivered on 11 October 2006, where O’Ryan J found (paragraph 114) that “as a preliminary view I am of the opinion that in the property proceedings the significant issue will probably be as to the extent and value of the wealth of the parties”.
12.The competing applications of the parties are consequently vastly differing as to outcome:
12.1the Wife seeking an adjustment in ‘global’ terms of not less than $50M in her favour (apparently equating to approximately 50%); and,
12.2the Husband seeking orders that would effect no adjustment to the present financial position of the parties.
What I said on 11 October 2006 as to the significant issue remains my view, but it is no longer simply a “preliminary view”. I note that the Husband now contends that there are property interests of a value in excess of $40,000,000.
6.The Husband was born on … December 1932 and the Wife was born on …February 1968. The parties were married on 6 September 1995 and first separated in about February 2003. They reconciled in May 2003. The Wife contends that the parties finally separated in September 2004 and the Husband contends that it was in April 2005. The parties were divorced on 13 September 2006.
7.There are two children of the marriage; David born on … September 1996 and Marc born on … January 1999.
8.The Wife has a child from a previous marriage JH who was born on … May 1988. The Husband has four children from previous marriages; Francis Kendling born on … April 1958, Michael Kendling born on … June 1962, Jeremy Kendling born on … October 1976 and Penelope Kendling born on … September 1978.
9.There are a number of respondents. The Second Respondent is T Pty Ltd. The Third Respondent is Jeremy Kendling who is the Husband’s son from a previous marriage. The Fourth Respondent is Penelope Kendling who is the Husband’s daughter from a previous marriage. The Fifth Respondent is L Pty Ltd. The Sixth Respondent is A Pty Ltd. The Seventh Respondent is Mr Z. The Eighth Respondent is B Ltd.
10.In the property proceedings the Wife contends that the matrimonial asset pool is very significant and includes interests in businesses, companies, real estate, artwork, furniture and personalty. The Wife contends that the parties own assets of considerable value, however their financial affairs are complex. The Wife contends that she is unable to determine the asset pool although the value is probably in excess of $100 million. In a recent financial statement the Husband contended that, subject to the value of shares in B Ltd, he has assets of a net value of $257,063. However as I have noted above, he now contends that there are property interests of a value in excess of $40,000,000.
11.On 4 October 2006 a response objecting to jurisdiction was filed on behalf of the Third, Fourth and Fifth Respondents. It is contended that the Wife’s claims against the Third, Fourth and Fifth Respondents set out in paragraphs 1, 2, 3, 4, 6, 8, 10, 11, 13, 14, 15, 16, 17 and 31 and the Wife’s amended response filed on 19 May 2006 be dismissed because the Family Court lacks jurisdiction to make the orders, the Wife’s claims have no or no reasonable prospect of success and that the orders sought against the Third, Fourth and Fifth Respondents are “grounded upon laws of the Commonwealth that are invalid and unconstitutional”.
12.The Wife contended, and I accept, that since the proceedings were commenced on 28 November 2005 the matter has been in court on not less than 14 days with respect to residence, contact, financial and/or maintenance issues as well challenges to subpoena issued on behalf of the Wife. The proceedings have been before the court on numerous occasions and this is evidenced from the history provided by the Wife. As well, I have no doubt that an enormous volume of correspondence has passed between the Wife’s lawyers and the lawyers for a number of parties and others.
13.The Wife has incurred very significant legal costs and disbursements. She paid $122,055.29 to her previous solicitors, Etheringtons, Solicitors. The Wife paid $336,888.69 to her current solicitors with respect to costs and expenses in relation to the proceedings in this Court. The Wife contends that she has incurred fees and expenses that remain outstanding of $378,415.68 with respect to the proceedings in the Family Court. As well, she owes an amount of $78,389.49 to her solicitor with respect to the proceedings in the Supreme Court. According to the Wife’s costs memorandum (Exhibit A), she has fees incurred to the first day of trial of $862,076. The memorandum reveals work in progress not yet billed for the period to 26 March 2007 of $36,000 which does not include the fees of senior counsel or an accountant. The Wife has paid $546,943 and there is currently an amount of $13,550 held in trust by the Wife’s solicitor. The estimated costs of the trial are $9,790 per day including fees of senior counsel of $7,700 per day.
14.There were difficulties in ascertaining the costs of the Husband. According to the first costs memorandum of the Husband (Exhibit B), he incurred costs and disbursements rendered up to 27 March 2007 of $370,837.77 and had paid $346,425.97. He had outstanding costs as at 27 March 2007 of $24,411.80 as well as unbilled work in progress and disbursements estimated at $50,000. The estimated future costs and disbursements of the hearing of the applications for parenting orders was $75,000. According to the memorandum, it was not possible to estimate the quantum of the future costs and disbursements of the property proceedings. According to the memorandum in order to pay the amount of $346,425.97 the Husband borrowed against his loan account with B Ltd. On 27 March 2007 I received two costs memorandums from the Husband. The first memorandum did not identify the source from which the Husband obtained the funds to pay costs. The second memorandum did identify the source. Then when the hearing resumed on 20 April 2007, I was handed a further “Notice as to Costs” dated 19 April 2007 in which it was stated that the costs and disbursements rendered up to the date of the Notice were $666,439.60 as opposed to the amount of $370,837.77 referred to in the first costs memorandum of 27 March 2007. The costs memorandum of 19 April 2007 also revealed that the Husband had paid $585,403.52, not $346,425.97. It also revealed costs and disbursements outstanding as at the date of the Notice of a total of $81,036.08. It revealed work in progress and disbursements to be billed up to and including the interim hearing estimated at $45,000. It maintained the estimate of $75,000 with respect to the costs and disbursements of the five day parenting hearing. However, it identified an estimated amount of $130,000 for future costs and disbursements of the property proceedings. Thus according to the Notice, the Husband’s estimate of the further costs was $205,000. The Notice advised that the costs paid were sourced by the Husband borrowing funds from his loan account with B Ltd. On 19 April 2007 the Husband swore an affidavit in which, amongst other things, he sought to give evidence in relation to various documents that had been tendered on behalf of the Wife on 29 March 2007. The Husband said that his solicitors estimated he would require an amount of about $320,000 to pay for his legal costs to the conclusion of the parenting and property proceedings. This is different from the estimate in the Notice. The Husband said “I am unable to draw upon my loan account with [B Ltd] any further, the amount now advanced almost equal to the valuation of the property which is held by the company as security for that loan”. The Husband went on to say that he is employed as the managing director of B Ltd to manage its affairs and that he “will” receive an annual income of $240,000 in addition to the provision of a motor vehicle and that he intends to meet the payment of his legal costs from his income. Then during the course of the hearing I was informed by senior counsel for the Husband that in fact in relation to the outstanding costs and disbursements contended for as at 19 April 2007 of $81,036.08, an amount of $18,000 was received and receipted by the Husband’s solicitors on 20 April 2007 and a cheque for the balance being $63,036 “is in the post but has not as yet been receipted”. Senior counsel for the Husband conceded that the errors made in the costs memorandums were unfortunate, particularly in the context of this case.
15.Looking at the costs memorandum on the basis that the Husband has paid a total of $666,439.60, the estimate of future costs of both the parenting and property proceedings including the trial of both proceedings is a total of $205,000. However, in his affidavit of 19 April 2007 the Husband contended that his solicitors estimated that he would require an amount of about $320,000 to pay his legal costs to the conclusion of the proceedings. This is a difference of $115,000. On the basis that the applications for final orders proceed to a final hearing, the costs of the Husband will probably be well in excess of $1,000,000 and this estimate does not include the costs of B Ltd and T Pty Ltd.
16.I recently received a costs memorandum from T Pty Ltd dated 2 May 2007 and it discloses costs rendered of $74,248.70, costs paid of $44,164.40 and estimated future costs of $130,000. The estimated combined costs of the Husband and B Ltd are in excess of $1,200,000. Subject to submissions, given what has now been revealed I will probably require costs memorandums from all parties.
17.The hearing proceeded before me in a truncated way in that there was no oral examination of the parties or any witnesses. There are a number of significant issues that at this stage I am unable to resolve and they will be dealt with at the hearing of the applications for final orders. The volume of material I had before me was very significant and I will refer to some of it; for example the Husband swore an affidavit on 20 March 2007 comprising 25 pages, however the exhibits to the affidavit comprise 469 pages. There are 38 exhibits. On behalf of the Wife evidence was given by her solicitor Mr Michael Conley and her forensic accountant Mr V. I also had the benefit of comprehensive written outlines of arguments on behalf of each party and they included chronologies. I will refer to what was said in the chronologies although I accept that some of what was said may have to be the subject of further evidence.
18.Because of the quantum of the Wife’s claim and the issues I have to address I propose to set out a great deal of the relevant background. I am also going to include what I said in a judgment delivered on 11 October 2006. However, I emphasise that what I will identify is probably far from comprehensive about what has happened and the material that will be relevant at the hearing of the applications for final orders. I repeat that there are a number of significant issues about which at this stage I cannot make any concluded findings. For example, I am of the view that the credit of the parties and various witnesses will be an important issue, but at this stage there has been no cross examination of any witness.
Background
19.There are a number of entities relevant to these proceedings however in the current proceedings the important entities identified are B Ltd, T Pty Ltd and W Pty Ltd. I am satisfied that these companies form part of what is called the B Group.
20.There are also a number of relevant individuals who I shall refer to and who I expect will give evidence at the hearing of the applications for final orders and be cross examined. They include Mr M who is an accountant and the auditor of various companies and Mr Z who is a solicitor.
21.T Pty Ltd was incorporated in New South Wales on 5 February 1971. The Husband was appointed a director on 5 February 1971. The Husband contends that the registered shareholders and directors are his children Jeremy Kendling and Penelope Kendling. Further, that Penelope Kendling holds one “A” class share and each of Penelope Kendling and Jeremy Kendling hold 25,000 “B” class shares. However, Penelope Kendling and Jeremy Kendling acknowledge that 50 per cent of the “B” class shares are held in trust for the two children of the marriage. Then in submissions I received in earlier proceedings it was stated that the directors are Jeremy Kendling, Penelope Kendling and Mr Z. Further, that Penelope Kendling holds one “A” class share and each of Penelope Kendling and Jeremy Kendling hold 12,500 “B” class shares. It was contended that Mr Z holds 25,000 “B” class shares on trust for the two children of the marriage. It will be necessary to obtain some history of this company and its financial affairs. Mr V attached to his affidavit of 30 March 2006 a report of 21 December 2005 prepared by E & Associates Limited and this raises a number of questions.
22.B Ltd was incorporated in New South Wales on 3 March 1983 and the Husband was appointed a director on 5 March 1983 and he remains a director. The other current director is Mr S who was born in the Netherlands in 1946 and presently resides in New South Wales. There are 40,500,005 ordinary fully paid issued shares. There are 763 redeemable preference shares and 22,837,611 “premiums received on redeemable preference shares”. The ordinary shares participate in dividends and the proceeds on winding up of the company in proportion to the number of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. The redeemable preference shareholders are not entitled to vote, nor do they participate in any dividend entitlements payable by the company. In notes to a financial statement, the Husband contended that the nature of the share structure is that residential units on real estate property owned by B Ltd are occupied by retirees and upon termination of occupancy redemptions payments are required to be made to the occupants.
23.B Ltd conducts a residential accommodation facility on real estate which it owns. In a valuation report of B Ltd prepared by Mr G of P Chartered Accountants in August 2006 it was said that B Ltd is an Australian public company that owns and operates the B Facility at S in New South Wales and that the company was incorporated on 3 March 1983. In a valuation report dated 14 June 2006, Mr N of N Partners said that B Facility is a residential accommodation facility providing self care villas, apartments and serviced apartments/hostels in the first two levels, whilst the third level is the high level support unit within the facility which has separate ownership. All the improvements are situated on a large site of approximately 17 hectares which has been acquired and consolidated since the early 1980s. Mr N said that the first stage of construction of the complex commenced in 1983 followed by a series of building stages in each year during 1984 to 1989, in 1992 and 1993. The development has resulted in … together with recreational facilities and an additional site being Lot 12 having … villas/units built in 2001. Mr G said that the business “is owned and managed by [the husband]” and the residential accommodation facility comprises … villas and … apartments which are leased on 50 year terms but otherwise terminating on death or vacation of the premises by the occupant. A premium is paid by occupants in return for the issue of redeemable preference shares and the right to occupy a residence. Upon termination of the lease through death or vacation of premises a redemption sum is payable to the redeemable preference shareholders in accordance with the Articles of Association of the company. The Husband contends that the value of redemption amounts owing to redeemable preference shareholders as at 30 June 2006 was $64,046,105.
24.The Husband contends that as the managing director of B Ltd he was responsible for the establishment of the residential accommodation facilty and has had primary responsibility for the operation of the business over the past 24 years. He contended that over that time he developed considerable experience in the business of residential accommodation and that B Facility was, and for many years remained, a viable residential accommodation operation.
25.In his affidavit of 20 March 2007 the Husband purported to reply to an earlier affidavit of Mr V of 1 March 2007. In so doing, the Husband contended that B Ltd provides contract services to T Pty Ltd by way of project management and construction of development projects. The basis of the contractual services is that B Ltd carries out and is responsible for design costs, council applications, building approvals and permits and provides the project management with construction services and is paid on conclusion and sale of each project. The Husband contended that this arrangement has operated satisfactorily to the benefit of B Ltd over a number of years. Also in the affidavit he said that B Ltd is the project manager and construction company for a development being conducted by T Pty Ltd in R. He went on to say that T Pty Ltd and B Ltd “are not group entities” and that T Pty Ltd is not controlled by him, nor is he a director or shareholder of the company. He could not recall signing a letter dated 22 March 2004 in relation to a change of borrowing entities but said that he may have done so on the advice of an accountant. He said that he does not know and cannot admit how the two companies are treated by Members Equity Bank and that the role of B Ltd in relation to the R project is solely as project manager of the construction company and that he has been informed it is being financed by the National Australia Bank. He went on to say that he was unable to respond to a number of allegations made by Mr V in respect of T Pty Ltd as he is not a shareholder or director of the company. He did not say, as he did later, and perhaps because of evidence that was tendered on behalf of the Wife on 27 March 2007, that he is a consultant to T Pty Ltd.
26.The Wife has always contended, and still maintains, that the Husband is the owner of the B Group and during the hearing on 29 March 2007 the Wife put before me a deal of evidence which she relies upon to support this contention. As seen, the Husband denies that there is a “group”. Then before the hearing resumed on 20 April 2007 the Husband swore an affidavit on 19 April 2007 and what he endeavoured to do, as he stated, was respond to and answer specific documents which were tendered on behalf of the Wife on 29 March 2007. In any event, in the affidavit the Husband said that B Ltd and T Pty Ltd have a long commercial association primarily as a result of his relationship to the directors of T Pty Ltd. He said that he is the sole director of B Ltd and makes decisions in respect of the company’s activities. He said that he has been involved with the company since its inception and that he conducts a residential accommodation facility on real estate owned by the company comprising … villas and apartments. He said that these are leased on 50 year terms which terminate on the death of the lessee or vacancy of the premises. He was responsible for the establishment of the residential accommodation facility and he has had “the primary operation for the establishment” of the business over the past 24 years and he has developed considerable expertise in the business. He went on to say that T Pty Ltd is engaged in the same industry; that is, the development and operation of residential accommodation facilities and the like. He contended that his children Jeremy Kendling and Penelope Kendling have sought his advice regarding various matters relating to T Pty Ltd and its various businesses such as the P Business, the D Business and the ML Facility. He said that he has at all times been willing to provide that advice and assist and support them in the operation of the company’s various businesses and he has encouraged and supported them in their operation of their company and their various businesses. It is necessary to compare the above with what the Husband said in his affidavit of 20 March 2007.
27.It is apparent to me from the history of the litigation and in particular on occasions when the matter has been before me that, prima facie there may have been attempts by the Husband and others to demonstrate that there is no relevant relationship between B Ltd and T Pty Ltd. There has been almost indignation on behalf of those interested in T Pty Ltd and others that they are involved in the proceedings. In his 19 April 2007 affidavit the Husband continued that there was a long history of a commercial relationship between B Ltd and T Pty Ltd. He gave, as an example, that in 1992 B Ltd constructed the P Business …. Further, that in 2001 B Ltd constructed the D Business … and in 2002 the ML Facility …. The Husband contended that these businesses were owned and operated by T Pty Ltd. He said that in 2006 B Ltd also constructed and managed for T Pty Ltd the building of a project at H Drive. He also said that B Ltd is currently the project manager for developments to be undertaken by T Pty Ltd at R and Q and that both of these developments are awaiting council approval.
28.The Husband said that the relationship between B Ltd and T Pty Ltd is continuous, going back many years. B Ltd first engaged in construction for T Pty Ltd in 1992. He said that B Ltd received an account from T Pty Ltd dated 6 June 2005 for services “during the three previous financial years”. The tax invoice was recorded in the financial accounts of B Ltd. I will come back to this invoice. He also said that the companies have a history of providing security for loans provided by the other and that in most circumstances this has necessitated that he, as a director of B Ltd, provide a personal guarantee for loans and borrowings obtained by T Pty Ltd.
29.In his 19 April 2007 affidavit the Husband also said that subsequent to his resignation as a director of T Pty Ltd “I was appointed as consultant for [T] Pty Ltd”. All of the above evidence in the 19 April 2007 affidavit was given because of the evidence given on behalf of the Wife on the first day of the hearing.
30.Senior counsel for the Wife raised a number of concerns about the administration and governance of B Ltd. Senior counsel for B Ltd in both his written and oral submissions went to some lengths to point out that the redeemable preference shareholders of B Ltd are not in some esoteric category and that they are “real people with a real interest in the capital of [B] Ltd”. He submitted that “the central thrust of what we argue in relation to the redeemable and preference shareholders is that they have very real and significant rights, both by reason of the constitution of B and under the Corporations Act, which they at any time might want to or be in a position to explore which might result in some kind of claim being made against the husband as a director”. As I indicated in discussion, consideration may have to be given to whether or not notice of these proceedings is given to the Australian Securities and Investments Commission and others.
31.In his affidavit sworn on 19 April 2007 the Husband said that on 15 July 1989 he transferred the majority of his shares in T Pty Ltd to each of Jeremy Kendling and Penelope Kendling. At this time Jeremy Kendling was aged 12 years and Penelope Kendling was aged 10 years. However, in this affidavit the Husband said that at the commencement of the parties’ relationship he held one share in the company which he subsequently transferred to Penelope Kendling. In an affidavit sworn on 19 May 2006 the Wife contended that T Pty Ltd is the alter ego of the Husband and she provided particulars which she contended support this allegation. The evidence prima facie supports an argument that the Husband has controlled and still controls T Pty Ltd. The issue is how this company should be treated for the purposes of the property settlement proceedings. On one view, it is a financial resource of the Husband and the issue is whether it is more than that.
32.In 1972 the Husband married his second wife.
33.On 26 January 1989 the Husband’s second wife ceased to be a director of T Pty Ltd.
34.The Husband ceased to be a director of T Pty Ltd on 26 April 1990.
35.The Husband contended that in the early 1990’s he purchased an apartment in Germany for approximately $90,000.
36.W Pty Ltd was incorporated in New South Wales on 27 November 1991. The Wife is the sole director of this company and it appears to be agreed that she holds all of the issued capital.
37.On 10 February 1992 the Husband was appointed a director of W Pty Ltd. He is no longer a director.
38.According to the chronology of the Wife, the annual return of T Pty Ltd for 1992 disclosed 50,000 issued ordinary shares held as to 25,000 by Mr M (not beneficially held) and 25,000 by Ms D (not beneficially held).
39.According to the chronology of the Wife, the Husband was appointed a director of T Pty Ltd on 16 July 1992.
40.The parties met in 1994 and were married in 1995. The parties lived together for some months before they were married.
41.The Husband contends that at the commencement of cohabitation he owned the following:
·40,500,005 shares in B Ltd
·Property in G
·Furniture and household effects
·An apartment in Germany
·The issued shares of W Pty Ltd
42.There may be an issue as to the extent and value of the Husband’s assets at the commencement of the relationship. He may have had a share in T Pty Ltd. He may have had shares in other companies that are not identified. Amongst other things, it will be necessary to obtain a copy of the Husband’s income tax return and the financial statements of all relevant entities for the year ended 30 June 1994. On behalf of the Husband it was submitted that at the commencement of the relationship he owned essentially the same assets as he did at separation and presently.
43.The child David was born in September 1996.
44.The Husband ceased to be a director of W Pty Ltd on 9 December 1996.
45.The Husband contends that in the year ended 30 June 1997 B Ltd first advanced monies to T Pty Ltd being $10,000,000 for a term of 10 years. The relationship between B Ltd and T Pty Ltd is a relevant issue. Mr V said that as at 30 June 2003 B Ltd had advanced $20,900,000 to T Pty Ltd.
46.According to the chronology of the Wife, the annual return of T Pty Ltd for 1997 disclosed that there were 50,000 issued ordinary shares held as to 25,000 by Mr M (not beneficially held) and 25,000 by Penelope Kendling (not beneficially held).
47.The Husband contends that on 21 August 1997 B Ltd purchased two properties being T1 and T2 for $2,150,000. The properties were then consolidated and nine units were constructed. Construction was completed in October 2000 and the strata plan was registered in May 2001. To pay for the costs of purchase B Ltd borrowed funds from Members Equity Bank. The Husband contends that the security for the borrowing included a property owned by Jeremy Kendling at T3 as B Ltd did not have sufficient security. The Husband also contends that B Ltd agreed to sell the airspace of one of the units to each of Jeremy Kendling and Penelope Kendling and construct one unit for each of them. The Husband contends that the airspace was sold to Penelope Kendling for $240,000 and to Jeremy Kendling for $249,000 and the cost of constructing each unit was an estimated $250,000. Further, that Jeremy Kendling received Unit 1 and Penelope Kendling received Unit 2. These transactions will have to be investigated. Evidence will probably have to be given by Jeremy Kendling and Penelope Kendling.
48.According to the chronology of the Wife the annual return of T Pty Ltd for 1998 revealed 50,000 issued ordinary shares held as to 25,000 by Mr M (not beneficially held) and 25,000 by Penelope Kendling (beneficially held).
49.On 11 December 1998 B Ltd entered into a contract to purchase E1 (folio identifier …) for $1,200,000. The purchase was settled in January 2001. The Husband said that the property comprised a residential dwelling and an established service business. It is on this property that in January 2001 W Pty Ltd commenced to operate a service business. The land purchased by B Ltd adjoined the block of land purchased by T Pty Ltd in March 1999.
50.The child Marc was born in January 1999.
51.According to the chronology of the Wife, on 22 March 1999 T Pty Ltd purchased land at E2 (described in Folio Identifier …) for $1,300,000.
52.According to the chronology of the Wife, the annual return of T Pty Ltd for 1999 revealed 50,000 issued ordinary shares held as to 25,000 by Mr M (not beneficially held) and 25,000 by Penelope Kendling (not beneficially held).
53.The Husband contends that in November 1999 he purchased a property in the Netherlands for AUD1,700,000. In order to pay the price the Husband drew down amounts from his loan account with B Ltd. The Husband contends that it was his intention to reside in Europe and sell the property at G. The Husband contends that in 2001 he retained K Builders to renovate the property in the Netherlands. The Wife contends that extensive renovations were made to the property over a three year period. The parties also acquired a great deal of furnishings and artwork. As well, in the Netherlands the parties had a BMW motor vehicle and a Mercedes Benz motor vehicle. It will be seen shortly that the Husband contends he sold the property to A Pty Ltd.
54.The Wife was appointed a director of W Pty Ltd on 30 June 2000. The Husband contends that in 2000 he transferred all his shares in W Pty Ltd to the Wife. There was put in evidence (Exhibit G) a copy of a letter dated 20 November 2000 signed by the Husband in which he stated “[W] is an integrated part of B Ltd and T Pty Ltd, is locally owned and managed by the same people”. As I have already said I accept that these companies form part of the B Group.
55.According to the chronology of the Wife, the annual return of T Pty Ltd for 2000 revealed 50,000 issued ordinary shares held as to 25,000 by Jeremy Kendling (beneficially held) and 25,000 by Penelope Kendling (beneficially held).
56.In late 2000 and early 2001 during the Christmas holiday period the parties renovated the business and premises at E1 that was owned by B Ltd. The property is now registered in the name of T Pty Ltd. Since January 2001 W Pty Ltd has owned and operated the service business known as the EC and N Business and the Wife has managed the business. The service business adjoins a residential accommodation facility which is also located on E1 property.
57.The Husband contends that in 2000 W Pty Ltd acquired and thereafter commenced to operate a service business at E for $600,000.
58.By a transfer stamped on 19 April 2001 B Ltd acquired land described in Folio Identifier … for a consideration of $1,200,000 (Exhibit C). By an undated transfer stamped on 19 April 2001 B Ltd transferred this property to T Pty Ltd for a consideration of $155,250 (Exhibit C). Senior counsel for the Wife submitted that these transactions are relevant and I agree. In summary, B Pty Ltd purchased a property for $1,200,000 and then by an undated transfer, but upon which stamp duty was paid three months later, transferred it to T Pty Ltd for $155,000. At the relevant time B Pty Ltd was controlled by the Husband. It will be necessary to ascertain how it could be a prudent decision for the directors of B Ltd to acquire this asset for $1,200,000 and then dispose of it three months later for less than 10 per cent of that price. It is a property on which there is a substantial property development.
59.The Husband contends that on 1 December 2001 B Ltd resolved to vary the terms of the advance of $10,000,000 made to T Pty Ltd in 1997 to include that the term of ten years would run from 21 December 2001.
60.By transfer dated 15 March 2002 B Ltd transferred land described in … to Penelope Kendling for a consideration of $240,000 (Exhibit D). Penelope Kendling sold this property in January 2003 for $1,950,000. Given what the Husband said in his April 2007 affidavit this may be the airspace of one of the units at T being Unit 2. Senior counsel for the Wife submitted that the transfer was signed by Mr M on behalf of B Ltd. Mr M is the auditor of the company but has never been a director. This will have to be explained. In any event, I would expect that Mr M will be an important witness. He will be required to explain a number of transactions including his dealings with Mr V.
61.By transfer dated 15 March 2002 B Ltd transferred land described in Folio Identifier … to Jeremy Kendling for a consideration of $249,000 (Exhibit E). Jeremy Kendling later sold the property for $1,750,000. Given what the Husband said in his April 2007 affidavit, this may be the airspace of one of the units at T being Unit 1. This will have to be investigated.
62.By transfer dated 15 March 2002 B Ltd transferred land described in Folio Identifier … to the child Marc Kendling for a consideration of $249,000 (Exhibit N). B Ltd also transferred land described in Folio Identifier … to the child David Kendling for a consideration of $248,500 (Exhibit N). The Husband contends that on 15 March 2002 B Ltd transferred T4 property to the child Marc for $2,250,000 and T5 property to the child David for $630,000. The transfers identified may not relate to these properties. These transactions will have to be investigated.
63.According to the chronology of the Wife, on 31 March 2002 T Pty Ltd issued an additional 50,000 shares. However the lodgement form failed to identify to whom the shares were issued. Prior to the issue, 25,000 shares were held by Jeremy Kendling and 25,000 shares were held by Penelope Kendling.
64.According to the chronology of the Wife, on 8 April 2002 T Pty Ltd paid $28,682 for travel by the parties and their children.
65.The Husband contends that on 14 April 2002 B Ltd resolved to enter into a mortgage over real estate owned by T Pty Ltd securing advances which were then $13,000,000. This will have to be investigated, amongst other things, because of the Husband’s contentions about the transactions between what he at first contended were unrelated corporations and the submissions put to me by senior counsel for B Ltd about the rights and interests of the redeemable preference shareholders of this company. At some point Mr Harper may have to be more explicit about his role and in particular the source of his instructions.
66.There was put into evidence documents produced by a motor vehicle dealership called TT relating to the purchase in May 2002 by T Pty Ltd of a prestige motor vehicle for a price of $629,664. The vehicle was registered in the name of T Pty Ltd. By letter dated 2 May 2002 the Husband as a director of T Pty Ltd advised TT that they were authorised to register the vehicle in the name of T Pty Ltd. Elsewhere in the documents the Husband was identified as “customer name”. It also appears that in relation to such vehicles a plaque is placed on the vehicle by the manufacturer on which is identified the name of the owner. In a “new car order form” the Husband’s name was identified as the name to appear on the plaque. I would understand that at this time the Husband was not a shareholder of T Pty Ltd.
67.The Husband signed a statement of assets and liabilities on 5 May 2002 (Exhibit S) in which he stated that he had assets of a value of $44,750,000 the majority of which was shares in “[B]” and a liability of $400,000. The statement was provided to Members Equity Bank. In his affidavit of 20 March 2007 in the part where the Husband responded to what Mr V had said in an affidavit of 1 March 2007, the Husband expressly denied having ever provided or made to Members Equity Bank any “assertion… as to the value of my shareholding”. In his affidavit of 19 April 2007 the Husband said that he does not recall preparing the documents, however he said that it is a document “I prepared or caused to be prepared on my behalf”.
68.The Husband contends that on 27 June 2002 he ceased to be a director of T Pty Ltd. According to the chronology of the Wife, the Husband ceased to a director of T Pty Ltd on this day. Various documents put into evidence on behalf of the Wife, including on the first day of the current hearing, prima facie establish the Husband’s ongoing control and authority in relation to the affairs of T Pty Ltd even after June 2002. In the Husband’s April 2007 affidavit in reply, he said that subsequent to his resignation as a director he was “appointed as a consultant”. This was the first time, namely in April 2007 that he identified this role and occupation in relation to this company and it was probably because of the evidence that was put before me on 29 March 2007. For a period of time after proceedings were commenced it was contended by the Husband and others that the affairs of T Pty Ltd were irrelevant to the proceedings in this Court. This contention has been the subject of extensive litigation. So far as the future is concerned, I am satisfied that prima facie it has been established that the affairs of T Pty Ltd are relevant to the financial circumstances of the Husband and in my view this is now conceded by the Husband in his April 2007 affidavit.
69.According to the chronology of the Wife, the annual return of T Pty Ltd for 2002 revealed that there were 100,000 issued ordinary shares held as to 25,000 by Jeremy Kendling (beneficially held), 25,000 by Penelope Kendling (beneficially held), 25,000 by the child Marc (beneficially held) and 25,000 by the child David (beneficially held).
70.According to the chronology of the Wife, on 27 August 2002 T Pty Ltd paid $29,320 in respect of travel by the parties and the children.
71.By transfer dated 31 January 2003 Penelope Kendling transferred land described in Folio Identifier … to Mr C for a consideration of $1,950,000. This was the property she acquired less than 12 months before from B Ltd for $240,000.
72.The parties first separated in about February 2003. Proceedings were then commenced in the Family Court when an application was filed by the Husband on 21 March 2003. The proceedings were discontinued after the parties reconciled.
73.After the parties separated in 2003 the Wife became aware that it was contended by the Husband and others that there was a sum of $1,300,000 owing by W Pty Ltd to B Ltd. The demand by B Ltd, which was signed by Mr Z, was made on 27 March 2003. It was contended in the demand that it related to monies paid by B Ltd on behalf of W Pty Ltd with respect to a purchase, renovation and setting up costs of the service business. The Wife contends that she does not know what the monies relate to. She became aware of the liability when she received a letter from her then solicitor who was also the solicitor for B Ltd, demanding repayment of the amount. When the parties reconciled in May 2003 the Wife received no further demand for the monies until after the parties last separated. The Wife’s accountant is currently investigating the origin of the purported loan. As well, her solicitors have sought details relating to the liability and the Wife annexed to her affidavit a copy of a letter dated 19 September 2006 from her solicitors to B Ltd and a copy of a letter dated 10 October 2006 from her solicitors to John Wenden, Solicitor. It will be seen shortly that it is contended that the loan has now been assigned to T Pty Ltd. All of these matters will have to be investigated.
74.A Pty Ltd was registered in New South Wales on … March 2003. There are 10,000 issued ordinary shares and according to a search attached to an affidavit of the Wife of 19 May 2006 the registered holder is Mr P. The Wife contends that Mr P is an acquaintance of the Husband and that J Company was, or is, engaged by B Ltd in relation to a development site in G.
75.According to the chronology of the Wife, on 4 April 2003 it was disclosed that a further ordinary share in T Pty Ltd was issued to the Husband on 31 March 2002.
76.According to the chronology of the Wife, on 17 April 2003 T Pty Ltd lodged a notification with the Australian Securities and Investments Commission in which it was stated that 10 million shares were issued on 11 November 2002. T Pty Ltd filed a further amendment to the 2002 annual return stating that the shareholding should have been listed as being held as to 25,000 by Jeremy Kendling (beneficially held), 25,000 by Penelope Kendling (beneficially held), 25,000 by Marc Kendling (beneficially held), 25,000 by David Kendling (beneficially held), 5,000,001 held by the Husband and 5,000,000 held by the Wife (not beneficially held).
77.The Wife contended that in April 2003 a transfer was lodged with the Land Register Service and Public Registers in the Netherlands evidencing the transfer of the property in the Netherlands to A Pty Ltd for a purchase price of €1,050,000. In his affidavit of 20 March 2007 the Husband contended that as a result of difficulties in the marriage from 2002 to April 2003 he sold the home in the Netherlands to A Pty Ltd which was a company owned by a business acquaintance, Mr PS, who had originally come from the M area in Holland. I assume that Mr P and Mr PS are the same person. The Husband contended that it was agreed that as part of the consideration A Pty Ltd would pay off three mortgages totalling €313,000 to O Company and that Mr PS would take over a liability to K in the sum of €760,000 and the transaction was completed in April 2003. In summary, the Husband contended that the property was sold for a total of €1,050,000. However, the Husband also said that Mr PS informed him that he had acquired the property to retire at M “but in the meantime has permitted me to use the property when I visit Holland when it is available”. In a letter dated 13 September 2006 Slade Manwaring, Solicitors on behalf of A Pty Ltd set out how the alleged sale was concluded and I have no doubt that the transaction will have to be investigated and primary records provided corroborating the contentions. It is instructive to read the correspondence that passed between the Wife’s lawyers and Slade Manwaring Solicitors. Evidence may have to be given by Mr P or Mr PS.
78.Further to the issue about the property in the Netherlands there was put into evidence correspondence in relation to an agreement that the parties previously made of financial matters in dispute. I allowed this material to be put before me for a number of reasons. In a letter dated 25 February 2005 written and signed by the Husband he said that he agreed for the Wife to have access to the home in the Netherlands for a three week period in any one year until the children have left college with a month’s notice in advance. He went on to say that if the Wife wanted to request further periods to access the home at times when it was not otherwise occupied, then “I will favourably consider a request.” This is the property the Husband alleges he sold in April 2003.
79.There was put in evidence a copy of a facsimile dated 10 April 2003 from Westpac Bank to the Husband titled “Termination of Term Deposits”. The author of the document confirmed that a total of $835,000 was withdrawn from certain accounts on 9 April 2003 and deposited to the account of P Pty Ltd. As well, the author confirmed that on 10 April 2003 the total of $2,094,723.33 withdrawn from two term deposits would be credited to an account in the name of Penelope Kendling. There was also included a document prepared by the Husband in which he gave instructions in relation to the various transactions identified (Exhibit F).
80.According to the chronology of the Wife, on 15 May 2003 T Pty Ltd reversed the amendment to the 2002 annual return and recorded accordingly the shareholding held as to 25,000 by Jeremy Kendling (beneficially held), 25,000 by Penelope Kendling (beneficially held), 25,000 by the child Marc (beneficially held), 25,000 by the child David (beneficially held) and 1 share held by the Husband.
81.The parties reconciled in about May 2003.
82.Senior counsel for the Wife made a number of submissions about loan accounts in the names of the two children of the marriage. In the financial accounts of B Ltd for the year ended 30 June 2003 under "Unsecured interest bearing liabilities of the company" there was listed; first, a loan account indebtedness to the child David Kendling of $128,000 and second, a loan account indebtedness to the child Marc Kendling of $1,750,000. By 30 June 2004 both of those loan accounts disappeared. There are two home units which have been the subject of an order pursuant to the Conveyancing Act1919 (NSW) which referred trusteeship to the Husband and the Wife, one being a commercial unit, the other being a residential unit, that are owned by the two boys. The Wife does not know where the amount of $1,750,000 or the $128,000 came from and on a number of occasions her advisers have invited/requested explanation. Senior counsel for the Wife identified some correspondence that was received the day before the hearing commenced and I am satisfied that not only was there a delay in providing a response, but that no explanation has yet been given. These matters will have to be inquired into.
83.The Husband contends that in perhaps August 2003 B Ltd sold E3 property to T Pty Ltd for $940,000. He contends that the price was paid by four payments between 15 August 2003 and 1 March 2004. He attached to his April 2007 affidavit a copy of the transfer which is undated. However, the consideration stated in the transfer is $155,250, not $940,000. On 19 April 2001 stamp duty of $2 was paid. On 17 February 2006 stamp duty of $37,790 was paid on a dutiable amount of $940,000. This transaction will have to be investigated.
84.By a transfer stamped on 15 August 2003 Jeremy Kendling transferred land described in Folio Identifier … to Mr HC and Ms MC for a consideration of $1,750,000. Given what the Husband said in his April 2007 affidavit, this may be the sale of the T Unit 1 property said to be owned by Jeremy Kendling. The Husband contends that the net proceeds of sale, namely $1,014,607.44, were paid to Members Equity Bank to reduce the loan of B Ltd. This will have to be investigated.
85.According to the chronology of the Wife, on 11 September 2003 the 2002 annual return of T Pty Ltd was further amended to list the shareholding as to 25,000 held by Penelope Kendling, 25,000 held by Jeremy Kendling and one held by the Husband.
86.According to the chronology of the Wife, on 18 October 2003 the shares in T Pty Ltd were “split” into “A” and “B” class shares.
87.According to the chronology of the Wife, on 27 October 2003 the Husband may have transferred shares in T Pty Ltd to Mr Z.
88.In November 2003 orders were made in the Supreme Court of New South Wales with respect to the appointment of trustees for the child Marc relating to T4 property and the child David relating to T5 property. In the summary of argument filed on behalf of the Husband, it was contended that the Husband and Wife jointly applied to the Supreme Court of New South Wales for an order pursuant to the Minors (Property and Contracts) Act 1970 (NSW) approving a lease of the real property registered in the name of the child David. It was also contended that in November 2003 the Husband and Wife jointly applied to the Supreme Court and obtained an order appointing each of them a trustee pursuant to s 151C of the Conveyancing Act in respect of real property registered in the name of each child.
89.There is a significant issue about the extent and value of what the Husband contends are the financial circumstances of the children. On behalf of the Wife it was submitted that the strata unit transferred to the child David is a commercial premises shop. One of the matters that has been the subject of requests on behalf of the Wife relates to the rent being received from the shop by the child David. No mention of the rent was made in the Husband’s financial statement. In his first financial statement of 6 April 2006 he said that the child David had an average weekly income of $10,000. In his financial statement of 20 March 2007 the Husband said that he does not know what income his children have. I have some difficulty with this evidence and it will have to be inquired into. The Husband contends that he has a nil tax assessment although the children are with him for a small part of the time and as a result he sought and obtained an assessment of child support against the Wife based upon her taxable income of $70,000. The Husband also gave evidence about arrears of child support that are presently outstanding to him. Prima facie this a very unusual situation and I find difficult to understand. Senior counsel for the Wife submitted, and I agree, that orders will have to be made that require the Husband and others to provide all of the relevant information about the income received for these children and other matters. The Husband may also have to make a more comprehensive disclosure to the Child Support Agency. The reasons for this are many but include that he now contends that he has an income of $240,000 per annum.
90.In a development application form dated 30 December 2003 lodged with W Shire Council on behalf of T Pty Ltd as applicant, that part of the document titled “signature of owner(s)” was signed by the Husband. The Husband may now contend that he did so as the “consultant”. The application related to a resort facility in TE and the total project value was stated to be $93,380,000 excluding the value of the land. An application for approval was lodged with G Shire Council in respect of property at GM on behalf of T Pty Ltd and was also signed by the Husband as the “owner”.
91.In January 2004 the Husband and the Wife purchased in joint names a property in MX called “[RI]”. In order to pay the price they obtained a mortgage loan for $2,000,000 from Westpac Bank secured on the title of the property. B Ltd provided a debt and interest guarantee. The Wife contends that from the time of purchase B Ltd paid all monthly mortgage payments on behalf of the parties in respect of the Westpac Bank loan.
92.An overdraft request dated 15 March 2004 was produced by Westpac Bank in relation to an account in the name of B Ltd. The request was stated to incorporate reduction “for [T] Pty Ltd”. This document also referred to “Group” debts and stated that “[The husband] will transfer between entities as required”. There was also a notice of authority produced by the G branch of Westpac Bank in which the customer was identified as T Pty Ltd and was signed by the Husband as managing director. In another document produced by Westpac Bank the customer was identified as T Pty Ltd and the “decision maker” identified as the Husband. There is a significant amount of evidence that prima facie corroborates that the Husband has been the decision maker for T Pty Ltd and in control.
93.According to the chronology of the Wife on 1 March 2005 T (No 3) Pty Limited paid an invoice for $34,132 relating to travel by the parties and their children and also the Wife’s child Bernard.
94.In a letter dated 22 March 2004 signed by the Husband addressed to Members Equity Pty Ltd he stated “Please change borrowing identity from [T] Pty Ltd to [B]. It is beneficial from advice of [B M and Co] to do so”.
95.The Wife contends the parties finally separated in September 2004. There will be an issue about when the parties finally separated because the Husband contends that it was in April 2005. There is evidence that prima facie suggests that the Wife’s version may be preferred.
96.The Husband contends that on 1 October 2004 the directors of B Ltd resolved to extend its first mortgage over the real estate of T Pty Ltd by $2,000,000.
97.In a letter dated 6 December 2004 written by the Husband to Mr Z he referred to discussions he had with the Wife and confirmed an agreement made between the parties (Exhibit H). As part of the agreement, the Wife would have transferred to her the service business site owned by T Pty Ltd.
98.There was put into evidence a copy of a cheque produced by Westpac Bank dated 31 January 2005 for $400,000 drawn on an account of T Pty Ltd and the cheque was signed by the Husband. There were in fact a number of cheques put into evidence relating to this account, all of which were signed by the Husband.
99.Mr V contends that the financial statements for B Ltd for 1999, 2000, 2001, 2002 and 2003 were lodged with the Australian Securities and Investment Commission on 22 February 2005. The financial statements for 2004 were lodged on 24 March 2005.
100.There was put into evidence correspondence dated 25 February and 3 March 2005 in relation to agreements the parties had reached.
101.A document was produced by Westpac Bank titled “Foreign Currency Accounts – Requisition for Account” that related to an account in the name of T Pty Ltd and in that part of the document titled “customer’s name” the Husband was identified and it was signed by him on 31 March 2005.
102.In about March 2005 a contract for sale of the service business site was entered into between W Pty Ltd as purchaser and T Pty Ltd as vendor. In that same month stamp duty was paid on the contract. The Wife contended that the Husband then requested that the Wife sign certain documents which included a transfer of the kindergarten site. The issue will have to be addressed at the hearing of the applications for final orders, however W Pty Ltd has commenced proceedings in the Supreme Court of New South Wales against T Pty Ltd seeking, amongst other things, a declaration that T Pty Ltd holds the kindergarten site on trust for W Pty Ltd and that the site be transferred by T Pty Ltd to W Pty Ltd.
103.In March/April 2005 there was correspondence between solicitors in relation to artwork and furnishings.
104.The Husband contends that the parties finally separated in April 2005.
105.There was put in evidence (Exhibit J) a tax invoice dated 6 June 2005 which purported to have been sent by T Pty Ltd to B Ltd. In the invoice it was stated that it was for fees for providing subcontract labour services including supervision and on costs to building sites at T2 and T6 during the financial years ended 30 June 2003 to 2005, for the provision of maintenance, on costs for the ten year period ended 30 June 2005, staffing for the ten year period ended 30 June 2005 and finally, for supervision for the ten year period ended 30 June 2005. The amount charged in the invoice was $12,650,000, being a fee of $11,500,000 plus GST of $1,150,000.
106.A number of submissions were made about this post separation transaction and it will have to be investigated and dealt with at the hearing of the applications for final orders. Mr V has been attempting to investigate these transactions. Senior counsel for the Wife submitted that Mr V gave evidence about his pursuit of particulars of this $11,500,000 charge raised by T Pty Ltd to B Ltd and satisfied in the 30 June 2005 accounts. The document was transmitted to the Wife’s lawyers at 11:12 pm on 28 March 2007. The reference on the facsimile transmission to “[JH]” is to B M and Co, the accountants and auditors for B Ltd, and was provided to finally answer the inquiry. It purports in June 2005 to raise a series of charges, in one line each, for a period of services relating to a period of a decade before. It was submitted that it is a simple and short document that moves $12,500,000 out of a company in which the equity is 100 per cent owned by the Husband and $11,500,000 ends up in a company in which he contends he owns nothing.
107.On behalf of the Wife it was submitted that there are a number of discrepancies in the case put forward by the Husband. It was submitted that there is a “huge case to be explored in relation” to T Pty Ltd and prima facie I agree. All of the current activities of T Pty Ltd, being undertakings of a development nature, appear to be funded in a rather unusual way by B Ltd. It was submitted that when I consider a valuation by Mr G which I will shortly deal with (bearing in mind this is the valuer coming from the Husband's side, the valuer who has access to everybody to get the information), he talks of the things that Mr V contends are very strange. It was submitted that it is not conventional accounting practice that B Ltd is paying for work in progress of T Pty Ltd’s expenses and does not raise the existence of a debt, but rather brings those expenses into account in recording for its own purposes significant trading losses. Mr G in his valuation remarked upon the same transactions and in effect said he had made further inquiries and he might have to revisit this topic. Senior counsel for the Wife submitted that by the 6 June 2005 invoice in one fell swoop, in an invoice of three or four lines, it purported to bring to account financial transactions between the two entities in the 10 preceding years. The effect was to move a huge amount of money from one company to the other. Senior counsel submitted that these things will be matters for explanation, but they are clearly matters that will be complicated and expensive to explore, particularly in the face of the resistance that T Pty Ltd has shown in the course of these proceedings. Prima facie there is merit in what was submitted.
108.On 24 June 2005 Mr Z was appointed the trustee of the Marc Trust and the David Trust. He succeeded the Husband as trustee. Mr Z has been the Husband’s solicitor for a number of years.
109.There will be an issue about the reliability of various financial statements of relevant entities and this will require considerable investigation and evidence from a number of sources. I will briefly summarise the submissions of senior counsel for the Wife. There was put into evidence (Exhibit L) a copy of the annual return of B Ltd for 30 June 2005 submitted to the Australian Securities and Investments Commission which had attached to it a set of accounts with an audit certificate unqualified but signed by Mr M. Mr M as the auditor signed off on a balance sheet for a net equity of $55,596,466 for 2005 and a net equity of $184,158,071 for 2004. There is a note that the loans to T Pty Ltd are repayable at call. In the notes to the 2005 accounts it was said that the estimate of amounts of contingent liabilities due to the holders of redeemable preference shareholders was $65,528,753 and this was not provided for in the accounts. There was also put into evidence documents produced on subpoena by Members Equity Bank (Exhibit M) being a balance sheet and profit and loss account of B Ltd for 30 June 2005 together with summary of balance sheets attached and also a profit and loss account for the 2006 year. It was submitted that there are some stark contrasts with the accounts presently before me. The balance sheet revealed net assets of $215,438,305 as at 30 June 2005, subject to ongoing redemption rights of occupants. In the Husband’s affidavit of March 2007 he exhibited accounts for B Ltd (exhibit JK10) and these appear to be consistent with what was submitted to the Australian Securities and Investments Commission. However, the exhibit attached to the affidavit also disclosed trading activities of B Ltd for 30 June 2006 being a loss for the financial year of $10,743,900. However, in the accounts produced to Members Equity Bank for the same period being 30 June 2006 there is a profit of $2,624,853 disclosed. There was also put into evidence a copy of a letter addressed to the National Australia Bank that was signed by the Husband in which he stated that financial statements for the year ended 30 June 2005 provided to the bank “are true and correct”. As I have said, there will be issues in relation to the reliability and correctness of various financial statements, particularly those in relation to periods after the parties separated.
110.The Husband contends that financial statements of W Pty Ltd for the year ended 30 June 2005 disclose a gross income of $1,101,963 and a profit of $189,691.
111.In July 2005 a mortgage was granted by T Pty Ltd to Industry Funds Management (Nominees 2) Pty Ltd securing an advance of $30,500,000 and it is guaranteed by the Husband.
112.On 7 July 2005 a letter was written by Gadens Lawyers to Members Equity Bank in which the borrower was identified as T Pty Ltd. The correspondence related to loan agreements for a total of $30,500,000 dated 26 June 2005 and secured by first mortgage over D Business and ML Facility at E2 and Q. There was also a cross guarantee and indemnity by the Husband and B Ltd and an unlimited guarantee by T (No. 3) Pty Ltd and T (No. 5) Pty Ltd. In the letter the author referred to a search from the Australian Securities and Investments Commission of T Pty Ltd which disclosed the directors as the Husband, Penelope Kendling and Jeremy Kendling and the shareholders as being Penelope Kendling as to one “A” class share and 12,500 “B” class shares, Jeremy Kendling as to 12,500 “B” class shares and the Husband as to 25,000 “B” class shares. This will require explanation at the final hearing. In any event, on behalf of the Wife it was submitted that Gadens Lawyers, acting for T Pty Ltd, on instructions from the company, made to Members Equity Bank a very different representation as to the ownership of the shares in T Pty Ltd than what has been made on any other record produced in these proceedings.
113.In his affidavit of 20 March 2007 the Husband contended that on 27 July 2005 in anticipation of a property settlement with the Wife he borrowed $500,000 from B Ltd and lent it to the Wife. The Wife received the amount of $500,000 and then lent this amount to W Pty Ltd. The monies were thereafter used to finalise the purchase of a block of land at PP which had a development application approved for a service facility. In order to complete the purchase, an amount was borrowed from Westpac Bank secured by mortgage over the property. In the result W Pty Ltd owes $500,000 to the Wife, less such amounts as have been repaid being a total of $54,283. The Wife contends that W Pty Ltd is unable to provide any further repayment of the loan. In any event in his affidavit of 19 April 2007 the Husband said that on 1 July 2005 he paid $500,000 to the Wife which she deposited in an account on 8 July 2005 on the understanding that he and the Wife had reached an agreement and that to pay the funds he made a drawing on his loan account with B Ltd. He has described the payment as “partial property settlement” and “possible property settlement”.
114.On 6 August 2005 the wife commenced to reside in the home “[RI]” in MX on a full time basis.
115.The Wife contends that on 27 September 2005 the Husband arranged for a holiday for the Wife and the children in Malaysia and Hong Kong for eight days. He paid the costs of $29,475. It will be dealt with at the hearing of the applications for final orders, however the Wife contends that during the relationship the parties travelled extensively.
116.The Wife contends that on 31 October 2005 the Husband threatened to evict her from the service business.
117.The Husband contends that in November 2005 the Wife excluded him from the home in MX.
118.On 15 November 2005 the solicitors for the Husband wrote to the solicitors for the Wife and advised that the Husband had instructed his accountants to gather together the information which would enable him to make a full and frank disclosure of his financial circumstances to the Wife with a view to a settlement of the financial issues and that he anticipated this would probably take a week or so to do.
119.On 17 November 2005 the solicitors for the Husband wrote to the solicitors for the Wife and said that the Husband had sought financial statements and been informed that having regard to advice received from the valuers, auditors and accountants, and the intervening Christmas holidays, he would not be able to receive that information to enable him to make a complete disclosure until approximately the end of January 2006. It was contended that the Husband estimated it would take him approximately 14 days from receipt of the information to finalise the disclosure. There was no attempt to identify the valuers, auditors and accountants. There also does not appear to have been difficulties in providing comprehensive and reliable information to lending institutions.
120.On 22 November 2005 the solicitors for the Wife wrote to the solicitors for the Husband, referring to the letters of 15 and 17 November 2005, and contended that the Husband’s inability to be in a position to make a full and frank disclosure as to his financial circumstances until the middle of February 2006 was an unacceptable delay and requested that the Husband adhere to his own proposal for disclosure to be provided within a week. Prima facie, this contention and request was not unreasonable, amongst other things, given the ability of the Husband to provide information to lending institutions.
121.On 28 November 2005 an application was filed on behalf of the Husband in which he sought parenting orders. On the same day the Husband filed an application in a case seeking interim parenting orders. These applications initiated proceedings before this Court.
122.The Husband swore an affidavit on 28 November 2005. In this affidavit the Husband said, referring to when the Wife was with the children in Malaysia and Hong Kong in September 2005, that “I was in Germany on business”. In the same affidavit he also said “I work as a consultant for several large health services and residential accommodation facilities of 1,000 residents which I established and built”. The Wife contended that she was unaware of the Husband’s overseas business interests and that he has not disclosed any such interests in the proceedings in this Court.
123.On 29 November 2005 the Wife filed a response to an application in a case seeking injunctions in relation to the removal of the children from the jurisdiction. On 14 December 2005 a further response was filed on behalf of the Wife in which she sought interim parenting orders and also injunctions. On 14 December 2005 interim parenting orders were made by a Registrar.
124.In December 2005 T Pty Ltd served on W Pty Ltd a notice to quit the property at E1 on which two service businesses are conducted. In December 2005 proceedings were commenced in the Supreme Court of New South Wales between W Pty Ltd and T Pty Ltd in which W Pty Ltd is seeking to prevent T Pty Ltd from evicting W Pty Ltd from the property.
125.By letter dated 19 December 2005 Westpac Bank advised the Wife that B Ltd was no longer in a position to make repayments in relation to a mortgage secured on the title of the property at MX jointly owned by the parties. There was put into evidence a letter dated 19 December 2005 signed by the Husband addressed to Westpac Bank. The letter is said to be “Re payment [R property] approximately $40,000 month”. In the letter the Husband said “Please do not take further funds from [B Ltd] each month from now. Should that not be undertaken I need to close the [B Ltd] account to enforce it. Please advise the legal division of this decision and will await their answer of foreclosure”. In his affidavit sworn on 20 March 2007 the Husband said:
As from November 2005 I was excluded from “[RI]” and since then [the wife] has had sole occupation and possession of that property for use by herself. … Up until January 2006 [B] Limited continued to pay mortgage payments to Westpac Banking Corporation in the sum of approximately $30,000 per month as guarantor under that mortgage. Those payments were debited against the loan of myself and [the wife] secured by way of second mortgage over that property. In January 2006 [B] Limited ceased making payments and Westpac Banking Corporation has now threatened to call up the mortgage loan on “[RI]”. I have made representations to Westpac Banking Corporation which has agreed to forbear default action at the present time until December 2007. The mortgage debt continues to escalate at the rate of about $2,000 per week.
On behalf of the Wife it was submitted that the Husband contended that he had been persisting in making representations to Westpac Bank to try and ensure that the bank did not sell up the MX property from which he had been excluded and the Wife was living in. However when the letter the Husband wrote to the bank is considered and what the Husband said about not making payments and looking forward to the advice of the bank legal team as to foreclosure, a reasonable inference to draw is that the Husband was inviting the bank to “sell it up and kick her out”. This will have to be investigated. Prima facie an inference that could be drawn is that the letter written by Westpac Bank to the Wife was written because of what the Husband had said to the bank. There are contradictions between what the Husband said in his affidavit of 20 March 2007, what he said in the letter to the bank of 19 December 2006 and what he said in his affidavit of 19 April 2007. The resolution of this issue could be significant to the findings made in relation to other issues. It may be an important credit issue. It may also be relevant in the parenting proceedings.
126.The Wife contends that in December 2005 the Husband ceased paying rates and other outgoings including telephone and electricity in relation to “[RI]” in MX. This will be related to the mortgage payment issue. In any event, in his affidavit of 20 March 2007 the Husband said “I have continued to pay rates and outgoings on “[RI]”.
127.The Wife contends that on 22 December 2005 she was advised by the Child Support Agency that she had a child support liability to the husband of $831.33 per month. The Wife contends that on the same day the Husband arranged a trip for himself and the children to Hamilton Island at a cost of $8,666.
128.The Wife contends that on 4 January 2006 she was advised by the Child Support Agency that the Husband had a nil liability to pay her child support.
129.In early 2006 the Wife ceased to engage the services of a gardener for the home in MX because of a lack of funds.
130.The Wife contends that in January 2006 the Husband engaged the services of seven private investigators for the period from December 2005 until January 2006 working from midday until midnight most days and averaging two or three operatives at a time. The Wife contends that the Husband caused the private investigators to follow her and the children and also enter upon premises where she and the children were residing. The private investigators were employed by YS Pty Ltd. Senior counsel for the Wife told me that in the interim parenting proceedings there were nine affidavits put on by various investigators.
131.Between 5 January 2006 and 7 July 2006 the Husband paid $69,679.65 to YS Pty Ltd by cheques drawn on an account in the name of B Ltd. In his affidavit of 20 March 2007 the Husband revealed that he paid a total of $140,665 to “Investigators”. A document provided on 20 April 2007 revealed as a disbursement a payment of $59,000 to YS Pty Ltd. The issue was raised as to the difference between the amount of $140,665 and the amount of $59,000 paid to investigators to obtain evidence for use in the parenting proceedings. Senior counsel for the Husband then took instructions and later told me that the amount of $141,000 was “in error” and included total security expenses for real property owned by the parties not related to the proceedings. I am not sure I understand what this means. In any event, according to the annexure to the affidavit of 20 March 2007 it purported to be a “summary report on loan account activity” of the Husband of B Ltd. This will have to be investigated.
257.The Wife contends that Mr I agreed to lend her a further sum of $50,000 to provide to Mr Conley in accordance with the agreement on condition that she seek as part of her application a sum sufficient to reimburse him for the monies initially lent by him to her plus the amount of $50,000 lent to her on 1 March 2007. The Wife contended that Mr I has advised her that he is not in a position to provide her with any further funding.
258.The Wife contends, and I accept, that if she is unsuccessful then she will be unable to pay her legal expenses and will not have the benefit of legal representation in the proceedings either in this Court or in the Supreme Court. If this happened, then I have no doubt that the Wife would be severely prejudiced.
There was put into evidence a report dated 5 February 2007 prepared by Members Equity Bank titled “Credit Risk Committee Meeting”. This is an important document and I have no doubt that at the final hearing in the absence of admissions it will be examined and considered. In the document it was recorded that the committee resolved to approve a reduced credit exposure to the B Group to the amount of $42,000,000. The exposure was $49,000,000. It was stated that the approval was sought to reduce credit facilities from $49,000,000 to $42,000,000, being a reduction of $7,000,000. The reduction in credit facilities resulted from the receipt of part of the proceeds of sale of P Business owned by T Pty Ltd which had been sold to PL Group for $11,000,000. It was stated that the Husband as the principal director was seeking Members Equity Bank’s approval to accept $7,000,000 from the proceeds of sale which would be applied to permanent debt reduction and that the balance of the sale price, namely $4,000,000, would be used in “group related activities”. In the document reference was made to the “[B] Group” and T Pty Ltd was described as a “Group borrowing entity”. It was stated that the Husband, as a director of T Pty Ltd, was seeking the Bank’s agreement to accept the sum of $7,000,000 from the proceeds of sale to be applied to permanent debt reduction and if approved the total business loans would be reduced from $49,000,000 to $42,000,000. The document is instructive for a number of reasons including because it goes on to provide a summary of the Group’s business and property assets. The B Group has been a client of Members Equity Bank since 1996 when an original facility of $9,000,000 was approved. The B Group has two core operating activities being residential accommodation and property development. The B Group’s “business and property assets” were recorded as follows:
Entity Asset Value
·B Ltd B Facility 49,000,000
·B Ltd G2 10,000,000
·B Ltd P Business 10,000,000
·T Pty Ltd D Business 14,000,000
·T Pty Ltd MN Parade Development Site 12,000,000
·T Pty Ltd Q, Westside 20,000,000
·T Pty Ltd Q, Eastside 20,000,000
·T Pty Ltd R Development Site 15,000,000
A description was also given of each of the above assets. It was said that the B Facility, P Business and more recently the D Business and ML Facilities, are the core operating activities of the Group providing stable and consistent operating cash flow. It was said that the primary borrowing entity, namely B Ltd, and “associated company”, namely T Pty Ltd, “are the two group entities managed by [the husband], a successful residential accommodation operator and real estate developer”. I note that it was also said that there are a number of matters under consideration by the Husband including the sale of B Facility and other residential facilities. For reasons I will hereafter give, an inference that could be drawn is that without any notice to the Wife and/or those advising her or for that matter the Court, the Husband was withdrawing the B Group from one of the two core operating activities being residential accommodation and that hereafter it will concentrate on property development. This will have to be investigated.
260.The Husband exhibited to his affidavit of 20 March 2007 a child support assessment he received from the Child Support Agency dated 12 February 2007. The assessment specifies that the Husband’s child support income amount is $0 and the Wife’s child support income amount is $76,552. In my opinion, it will be necessary to obtain from the Child Support Agency the application for child support. In his affidavit the Husband contends that he estimates that the arrears owing to him of child support are approximately $10,000 but he has not taken any action to collect those arrears. I note, however, that in the documents which purport to identify his assets he discloses as an asset an amount of $10,000 he contends is owed to him by the Wife.
261.On 1 March 2007 Mr I lent $50,000 to the Wife to enable her to pay her solicitors.
262.Mr V swore an affidavit on 1 March 2007 in which, amongst other things, he gave evidence about difficulties in obtaining information and what information is outstanding. He also gave evidence about what he has to do and his estimate of the costs which he said may be around $40,000 plus GST and that it does not include other tasks he identified. He also set out orders he suggested be made to enable him to undertake his task. I am of the view that, for appropriate reasons, the costs of Mr V may exceed $40,000. Mr V swore a second affidavit on 1 March 2007 and what he said is very instructive as to the issues involved.
263.Mr Conley swore an affidavit on 1 March 2007 and he gave evidence about costs including demonstrating how the amount of $1,185,000 was made up.
264.On 2 March 2007 the Wife filed an application which commenced the current proceedings. On 2 March 2007 the following orders were made
1. The hearing of the application in a case filed on behalf of the Wife on 2 March 2007 re costs be expedited.
2. The Respondent Husband file and serve by 4.00 pm on 16 March 2007 a response to the application in a case referred to in the preceding Order together with any affidavits of evidence in chief in support of that response.
3. The hearing referred to in Order 1 be listed for two hours only before me if available and if unavailable Justice Moore. [Before O’Ryan J at 2.15 pm on Thursday 29 March 2007.]
4. Each of the parties are to lodge with my Associate or the Associate to the trial Judge not less than 48 hours prior to the said hearing a written outline of argument.
5. Each of the parties are to lodge with my Associate or the Associate to the trial Judge not less than 48 hours prior to the hearing a costs memorandum in accordance with the Family Law Rules.
6. That [T] Pty Ltd authorise and instruct [Mr M] to respond promptly to any enquiries by [Mr V] as to the financial affairs of [T] Pty Ltd relevant, directly or indirectly, to the ascertainment of the value of that company and the shares therein or relevant to any dealings between [T] Pty Ltd and [B] Ltd or the Husband or any parties associated with those persons, and to make himself available for meetings with [Mr V] and (if he wishes to attend) [Mr KV] to provide any explanations or clarifications of information sought by [Mr V].
7. That [Mr M] make himself available for a meeting with [Mr V] and [Mr KV] (if he wishes to attend) no later than Friday, 9 March 2007 to review the enquiries so far made by [Mr V] and the responses thereto in connection with the valuations of [B] Ltd and [T] Pty Ltd and dealings between those companies and any information relevant to the determination of the extent and value of the financial circumstances of the parties both direct and indirect.
8. That thereafter [Mr M] make himself available for meetings with [Mr V] on 48 hours notice to provide any further explanations and clarifications sought or documents sought, or otherwise that [Mr M] provide any documents reasonably sought or such information and documentation as [Mr V] may reasonably request to enable him to meet his instructions within 48 hours of any request to do so.
9. [Mr M] be granted liberty to apply to seek a variation or discharge of the preceding Orders on giving not less than 48 hours notice to the Court and the parties.
10. The Wife cause to be delivered to [P Chartered Accountants] such of the documents in her possession or control in respect of [W] Pty Ltd that are referred to in a letter dated 10 January 2007 a copy of which is attached to a Minute of Directions/Order Sought By Applicant Husband also dated 2 March 2007 and initialled by me (copy attached).
11. The Wife is to notify in writing by 5.00 pm on 9 March 2007 the solicitors for the Husband which of the documents identified in the annexure referred to in the preceding order do not exist.
12. The Husband and the Wife file and serve all evidence of valuation of [B] Ltd, the Husband’s shares therein, [T] Pty Ltd and [W] Pty Ltd by 4.00 pm on 20 April 2007.
13. Each of the Husband and the Wife file and serve by 4.00 pm on 16 March 2007 an up to date form 13 financial statement.
265.The Wife swore an affidavit on 2 March 2007.
266.On 2 March 2007 there was discussion about the Wife’s application for costs and in particular that the order sought by the Husband by way of property settlement would result in the Wife receiving an unencumbered property worth $4,500,000. There was discussion about the consequences for the Wife in her costs application given what the Husband sought by way of property settlement having regard to what was said by Nygh J in Poletti v Poletti ( 2 March 1990) and on appeal [(1990) 15 Fam LR 794]. In other words, there may not be an issue.
267.In accordance with the orders I made on 2 March 2007 on 8 March 2007, Mr V contacted Mr M to arrange a meeting. Mr V contends that Mr M advised him that he was not permitted to liaise directly to Mr V. Despite there being no order requiring that the solicitors be present, the Wife contends that T Pty Ltd required that a solicitor be present at any meeting between the accountants and that such meetings be taped.
268.The Wife swore a financial statement on 21 March 2007. The Wife contends that she has a total weekly income of $1,910 which includes a salary of $1,710. The Wife contends that she has total personal expenditure of $4,798 per week which includes tax of $520 and superannuation contributions of $153. The Wife contends she has the following assets:
$
·“[RI]” in MX (half share) 1,875,000
·Land at BY 5,000
·Bank account 570
·Shares in W Pty Ltd nil
·Jewellery nil
·Loan to W Pty Ltd 1,599,094
The Wife contends she has the following liabilities:
$
·Mortgage (half share) 648,930
·Mortgage nk
·SF Company 173,104
·Mr I 241,564
·GE credit line 1,850
·Legal fees 371,044
The first mortgage is to Westpac Bank and is secured on the title of the “[RI]” property. The Wife contends that no payments have been made since December 2005. The second mortgage is the amount the Husband contends is owed by the parties to B Ltd about which there is an issue.
269.The Wife paid the school fees for the children for term 1 of the 2007 school year.
270.On 13 March 2007 B Ltd entered into a contract to sell the property on which the P Business is situated for $4,500,000. The Husband said “I understand” that the P Business, which he contends is owned by T Pty Ltd, was sold for $6,500.000. He went on to say that on completion of the sale the proceeds would be paid to Members Equity Bank to reduce a loan facility of $14,500,000 to $10,000,000. As well, B Ltd has a debt to the National Bank for $2,400,000.
271.The Husband swore an affidavit on 20 March 2007 in which he contended he owns the following property:
$
·G Property 2,200,000
·Apartment in Germany 130,000
·Half interest in “[RI]”, MX 2,250,000
·Shares in B Ltd yet to be quantified -
·Debt owing by Wife for outstanding child support 10,000
·Debt owing by Wife 500,000
As to liabilities the Husband contended that he had the following:
·Mortgage secured over “[RI]” (one half) 648,930
·Loan account with [B] Ltd 2,849,286
·One half of debt to [B] Ltd secured
by mortgage over “[RI]” 1,523,240
In the affidavit the Husband said that other than as he set out he has “no other assets or liabilities other than ongoing monthly accounts”. He persisted with the contention that he had no idea of the value of the shares in B Ltd.
272.In his affidavit of 20 March 2007 the Husband gave no evidence about any negotiations to sell the B Facility.
273.The Husband swore a further financial statement on 21 March 2007. He gave his occupation as company director and identified B Ltd as his employer. He did not say that he is also a consultant. He contends that he resides in BD in rural New South Wales. He disclosed nil income. As to his personal expenditure he disclosed the following:
$
·Rates and unit levies 200
·Westpac Bank overdraft loan repayment 24
·Food 600
·Household supplies 50
·House repairs 100
·Electricity 110
·Motor vehicle, petrol and tyres 370
·Clothing and shoes 70
·Children’s activities 400
·Child minding 500
·Medical, dental and optical 100
·Entertainment and hobbies 100
·Holidays 550
·Education expenses 1,000
·Chemist and pharmaceutical 15
·Gardening/lawn mowing/pool 500
·House cleaning 50
·Repairs of furnishings and appliances 50
·Dry cleaning 10
·Books and magazines 30
·Gifts 50
·Hairdressing and toiletries 20
·Rent 600
Total $5,275
He contends that he is not presently in receipt of any income from his employer B Ltd, however as a director he receives benefits in the form of a maintained motor vehicle and private telephone use. He said that otherwise his weekly expenditure is drawn against his capital loan account with B Ltd. Thus according to the Husband, he is able to draw $274,300 per annum against his loan account with B Ltd to pay his living expenses. As seen above, according to the costs memorandum he has drawn in excess of $600,000 against the loan account to pay his legal costs. The Husband did not say that there was any limit or ceiling to his making drawings from his loan account.
As to his property he disclosed the following:
$
·“[RI]”, R 2,250,000
·G property 2,200,000
·Apartment in Germany 130,000
·Shares, B Ltd Not known
·Household contents 50,000
Total $4,630,000
Prima facie, and subject to evidence, I have some difficulty accepting what he said as to the value of his shares in B Ltd given the August 2006 report of Mr G that the shares had a nil value. No explanation was given by the Husband as to why in March 2007, given the valuation he obtained in August 2006, he was contending that he did not know the value of the shares. On one view he did know the value of his shares, namely a nil value. In November 2005 the Husband said that he would make a full disclosure and yet in March 2007 he contended that he could not provide a valuation of his significant asset. It may be that the March 2007 position was because he knew that the August 2006 valuation of P Chartered Accountants was wrong and that the shares did have a significant value as represented on 7 April 2006. It may be because he realised that the outcome of the valuation was that he was contending that the company was insolvent and that, as senior counsel for B Ltd recently pointed out, there may be very significant consequences if this were so, including with the Australian Securities and Investments Commission given the interests of the redeemable preference shareholders.
Then as to liabilities the Husband disclosed the following:
$
·Home mortgage nil
·Other mortgages 2,172,170
·Loan from Westpac Bank 15,000
·Debit loan account with B Ltd 2,185,767
Total $4,372,937
In his financial statement of 6 April 2006 the Husband contended that his debt to B Ltd was $1,832,338 and that as at 21 March 2007 it was $2,185,767, being a difference of $353,429. In his affidavit of 20 March 2007 he contends that his loan account with B Ltd was $2,849,286. There is no doubt that there will have to be examination of the relevant primary records of all drawings by the Husband because when I reflect on what the Husband said as to his costs paid and other expenses paid, prima facie, I have some concerns about the reliability of the amount of $353,429 drawn between 6 April 2006 and 21 March 2007 unless perhaps he had paid costs of approximately $300,000 between November 2005 and April 2006.
274.In that part of his financial statement in which the Husband was required to identify any property disposed of in 12 months before separation and since separation he disclosed an amount of $500,000 said to have been paid by way of partial property settlement to the Wife. This is the amount in respect of which Mr Z may be required to give some explanation about.
275.In notes to the financial statement the Husband said that B Ltd is a public company in which he owns 40,500,005 fully paid ordinary shares. He contends that the nature of the share structure is that residential units on the real estate property owned by B Ltd are occupied by retirees and upon termination of occupancy redemptions payments are required to be made to the occupants. He said this before. He contends that it is presently not possible to quantify the company’s potential liability in respect of redemption payments and a formal valuation will need to be obtained as to the value of the business conducted by the company as a going concern. He said this before. Further, he has previously quantified the amount to be paid in respect of redemption payments. He also contends that the value of his shares as a part shareholder have to be further discounted given the risk on realisation. He said this before. He contended that his shareholding was presently being valued by P Chartered Accountants and was therefore yet to be fully quantified and that the valuations were to be exchanged on 19 April 2007. In August 2006 he obtained a valuation from P Chartered Accountants and I have already remarked on this evidence.
276.In his financial statement the Husband also contends that he and the Wife owe an amount of $1,297,860 to Westpac Bank secured by mortgage over the MX property, and that there is also an unregistered mortgage to B Ltd of $3,046,480. All of these alleged debts have to be investigated.
277.In summary, when an analysis is done of the financial statements and other evidence, in my view prima facie there is support for the Wife’s contention that there is an issue as to whether or not the Husband has made a full and frank disclosure of his financial circumstances and whether in the conduct of the proceedings there has been obfuscation by the Husband and others.
278.Mr V swore a further affidavit on 27 March 2007 and he gave evidence about, amongst other things, what transpired as regards the provision of information by Mr M following the orders of 2 March 2007. What Mr V said will have to be inquired into and adjudicated upon, however if what he says is ultimately established then it is of concern. Mr V concluded that Mr M has demonstrated no intention of providing full and detailed explanations, if any explanations, of most of the matters Mr V raised with Mr M. This is a serious allegation against Mr M which if substantiated may have significant and serious consequences for both Mr M and the Husband.
279.On 28 March 2007 being the day before the hearing of the Wife’s costs application the Husband filed an amended reply in which he sought the following:
NOTATIONS
1. The following definitions are noted for the purposes of these Orders:
A.11."[German] apartment” means the bedsitter apartment situated at […], Germany of which the husband is the owner and which is subject to a protected tenancy;
A.12."[W]" means the company [W Pty Limited ACN […] of which the wife is the sole director and shareholder;
A.13."[B Facility]" means the company [B] Limited ACN […] of which the husband is a director and in which the husband holds 40,500,005 fully paid ordinary shares;
A.14."[B Facility] loan" means the loan secured under unregistered mortgage to [B] Limited, secured upon the title to the [RI] property as second mortgage;
A.15."[G] property" means the property situated at and known as [G] in the State of New South Wales being the whole of the land contained in Folio Identifier […] together with the improvements, fixtures and fittings erected on and attached to it, of which the husband is the registered proprietor;
A.16."[G property] loan" means the loan secured under mortgage registered number U548514 to Westpac Banking Corporation and secured upon the title to the [G] property;
A.17."[G property] furniture and effects" means the furniture and household effects located at the [G] property and owned by the husband;
A.18."[RI] property" means the property situated at and known as “[RI]” [MX] in the State of New South Wales being the whole of the land contained in Folio Identifier […] together with the improvements, fixtures and fittings erected on and attached to it, of which the husband and wife are the joint registered proprietors;
A.19."[RI] furniture and effects" means the household furniture and effects at the [RI] property owned by the husband but excluding the artworks and large screen TV at that property which is the property of [B].
A.20."Westpac home loan" means the loan secured under mortgage registered number […] to Westpac Banking Corporation, secured upon the title to the [RI] property.
THE HUSBAND SEEKS AN ORDER UNDER SECTION 79 OF THE FAMILY LAW ACT, 1975, IN TERMS OF THE FOLLOWING PARAGRAPHS 2 TO 7 AND FURTHER ORDERS IN TERMS OF PARAGRAPHS 1 AND 8 TO 10 FOLLOWING THAT:
1. That the Orders sought in paragraphs 1 to 15 of annexure A under the heading Property in the Response to an Application for Final Orders filed on 10 March 2006 by the wife be refused and that the Response in respect of all Orders sought under the heading Property be dismissed.
2. That the parties forthwith do all acts and things and execute all documents necessary to effect a sale of the [RI] property for the best price reasonably obtainable as set out in the following manner:
list the [RI] property for sale by public auction within thirty two (32) days of the date of this Order with such agent as the parties may agree to appoint and in default of agreement as to agent within fourteen (14) days of the date of this Order with such agent as the President of the NSW Division of the Australian Property Institute (Inc) shall appoint ("the agent") and the costs of and incidental to such appointment to be borne equally by the parties as and when same fall due;
the reserve price for the purpose of such auction shall be such price as may be mutually agreed upon by the parties or, in the absence of agreement reached within fourteen (14) days prior to the date of the auction sale, the reserve price shall be the price nominated as the fair market value thereof by a valuer appointed by the President for the time being of the NSW Division of the Australian Property Institute (Inc) Incorporated ("the valuer") and the costs of and incidental to such appointment and valuation to be borne equally by the parties as and when same fall due;
the valuer shall, if requested by either the husband or the wife at a date three (3) calendar months after the date upon which the [RI] property is first listed pursuant to paragraph 2.1 and thereafter at three (3) calendar monthly intervals until the [RI] property is sold, nominate an updated sale price;
the parties shall each co-operate in every way with the agent including (without limiting the generality of the foregoing):
making the key available to the agent;
allowing inspection of the [RI] property at all reasonable times requested by the agent;
doing or saying nothing to hinder or prevent a sale being effected;
ensuring the [RI] property including the grounds are in a neat and clean condition at the time of inspection by the agent and prospective purchasers; and
signing all documents requested by the agent in relation to the listing for sale of the [RI] property except a contract or agreement for sale which has not been authorised by the parties' solicitors.
in the event the bidding at the auction does not reach the reserve price the parties or such of them as attends the auction may negotiate with the highest bidders or any other interested person and effect a sale of the [RI] property at a price which is not more than 10% below the reserve price, or at such other price as the parties agree upon in writing;
if the [RI] property remains unsold, the parties shall do all acts and things and sign all documents necessary to immediately relist the [RI] property for sale by public auction again, on a date nominated by the agent and at such auction there shall be no reserve price unless otherwise agreed by the parties in writing;
the parties shall instruct such solicitor as they agree upon to have the conduct of the sale on behalf of both parties or, in the absence of agreement reached within fourteen (14) days of this Order shall instruct such solicitor as may be appointed by the President for the time being of the Law Society Of New South Wales ("the solicitor") the costs of and incidental to such appointment to be borne equally by the parties as and when same fall due;
the parties shall each execute a contract for sale in the form prepared by the solicitor having the conduct of the sale at the sale price;
neither party may confer on any agent without the consent of the other party any right to any sole or exclusive agency in respect of the [RI] property or to any commission;
the party not in possession shall be entitled upon reasonable notice once per fortnight to enter and view the state of repair of the [RI] property.
3. In the event that the [RI] property is sold in accordance with paragraph 2, then on settlement of the sale of the [RI] property, the proceeds of sale be paid in the following manner and priority:
all costs and expenses of sale including legal costs and disbursements, agents' commission, valuers' fees, and auction expenses;
the amounts required to pay all municipal and water rates outstanding with respect to the [RI] property;
repayment of all monies owing under the Westpac home loan;
all monies owing under the [B Facility] loan;
the balance, if any, to the husband.
4. The wife may continue to occupy the [RI] property until completion of the sale of the [RI] property, and shall be responsible for and pay all the outgoings, telephone, gas and electricity accounts in relation to the [RI] property provided that she shall vacate possession of the [RI] property not less than seven (7) days prior to the date fixed for completion of contract for sale of the [RI] property.
5. Except as specifically provided for by this Order to the contrary, as against the husband, the wife is the sole owner of and the husband has no interest in:
the wife’s shareholding in W;
all other personal property (including choses in action) of whatsoever nature and kind in the possession of the wife at the date of the making of this Order.
6. Except as specifically provided for by this Order to the contrary, as against the wife, the husband is the sole owner of and the wife has no interest in:
the [G] property;
the [G property] furniture and effects;
the [German] apartment;
the husband’s shareholding in [B Facility];
all other personal property (including choses in action) of whatsoever nature and kind in the possession of the husband at the date of the making of this Order.
7. Both parties do all acts and things and execute all documents, authorities and writings as are necessary to give effect to all or any of this Order.
8. Except as specifically provided for by this Order to the contrary:
the husband indemnify the wife from and in respect of all actions, claims, suits and demands as may be made against the wife in relation to all liabilities in the name of the husband;
the wife indemnify the husband from and in respect of all actions, claims, suits and demands as may be made against the husband in relation to all liabilities in the name of the wife.
9. Except as specifically provided for by this Order to the contrary, each of the husband and the wife release the other from all debts owing from one to the other.
Other Orders
10. In the event that either party refuses or neglects to execute any deed or instrument necessary to give effect to these Orders then the Registrar of the court be appointed pursuant to Section 106A of the Family Law Act, 1975 to execute such deed or instrument in the name of the defaulting party and to do all acts and things necessary to give validity and operation to the deed or instrument.
11. Each party have leave to apply further in respect of the implementation of any of these Orders on seven (7) days' notice to the other party.
12. The wife pay the husband's costs of and incidental to these proceedings.
As senior counsel for the Wife pointed out, until 28 March 2007 the Husband sought by way of final orders that there be transferred to the Wife his interest in the MX property, which he estimated as having a value of $4,500,000, and that he be obliged to cause that property to become unencumbered. However that position changed as of 28 March 2007, being the day before the commencement of the current hearing, and the effect of what the Husband sought was that, subject to some indemnities, the Wife would receive no further adjustment from the Husband. It may be that the explanation is self evident, however no explanation was given by senior counsel for the Husband as to why this amendment was made. This may have to be considered. Senior counsel for the Wife submitted that, in all the circumstances, it may be a reasonable inference to draw that the significant amendment was made by the Husband because of what was said by Nygh J in Poletti (supra) and the discussion that took place before me on 2 March 2007 when the application by the Wife was made. If this is the explanation then it may have to be accounted for amongst other things because of the enormous cost of the litigation.
280.Prior to the hearing on 29 March 2007 I received a written outline of argument on behalf of the of the Husband. It was submitted that the Husband contends that the parties have assets of a net value of approximately $1.8M and that this amount is calculated as follows:
Assets $ $
·[G property] (h) - 2,200,000
·Apartment in Germany (h) - 130,000
·“[RI]”, MX (h/w) 3,750,000 4,500,000
·Land at BY (w) 5,000 5,000
·B Ltd – 40,500,005 ordinary shares (h) - -
·W Pty Ltd – 3 ordinary shares (all issued capital) (w) - -
·W Pty Ltd – loan account 1,599,094 1,599,094
·Westpac account (w) 570 570
·Debt owed by Wife to Husband for outstanding child support (h) - 10,000
·Debt owed by Wife to Husband (h) - 500,000
·Household contents (h/w) - 50,000
·Jewellery (w) - NK
Total 8,994,664
Liabilities
·Westpac mortgage – “[RI]” (h/w) 1,297,860 1,297,860
·B Ltd – loan account secured by mortgage
Over the G property to Westpac (h) - 2,849,286
·B Ltd – debt of Husband and Wife secured by
Second mortgage over “[RI]” (h/w) nk 3,046,480
·Debt to Mr I (w) 241,564 -
·Debt to SF Company (w) 173,104 -
·GR Company (w) 1,850 -
·Westpac personal loan (h) - 15,000
Total 7,208,626
Balance $1,786,038
281.The hearing commenced on 29 March 2007 but did not conclude on that day. I then made the following orders:
1. The hearing is adjourned to a date to be fixed. [12 noon on 20 April 2007]
2. The Husband file and serve by 4.00 pm on 5 April 2007 a valuation of [B] Ltd.
282.On 5 April 2007 an affidavit was sworn by Mr X who is a registered real estate valuer. He attached to his affidavit a valuation report of:
$
·S1 property 4,500,000
·G2 property 4,150,000
·S property 53,000,000
283.On 5 April 2007 an affidavit was sworn by Mr G from P Chartered Accountants. It was not prepared by Mr KV who Mr V had identified as the Husband’s valuer. In any event, Mr G gave a valuation of the Husband’s shareholding in B Ltd as at 30 June 2006. He contended that the valuation is based on the net realisable value method as the business has incurred trading losses over recent years and has provided projections indicating future trading losses. It will be recalled that Mr V has been trying to get information about the losses. In any event, Mr G arrived at a value of $483,131. He referred to information he relied upon in preparing his report and it included various discussions with Mr M. It will be recalled that Mr V said that he had enormous difficulties obtaining information from Mr G and in fact when he met Mr M face to face on 8 March 2007 all the lawyers were present and a transcript was made of everything that was said.
284.In his affidavit Mr G said that the financial position of B Ltd as at 30 June 2006 is as follows:
$
Total assets76,816,031
Total liabilities (16,572,689)
Net assets$60,243,342
The above was after allowance for the market valuation of real estate undertaken by Mr X. Mr G then considered the redemption calculations of redeemable preference shares of $64,046,105. This was the figure the Husband had disclosed some considerable time before notwithstanding what he said in subsequent evidence. Mr G then undertook what he called a reconstructed balance sheet and arrived at:
$
·Total assets 81,125,498
·Total liabilities (80,642,367)
·
·Total equity $ 483,131
Hence the valuation of the Husband’s shares at $483,131. Mr G based his valuation on the inclusion of Mr X’s land value of B Facility at $53,000,000. Mr G included in the total liabilities the amount of $64,046,105 in respect of the redeemable preference shares. I have no doubt that this report will be the subject of further investigation. It is different from the valuations the Wife had previously received from the Husband in which it was contended that the company was insolvent and unable to trade.
285.On behalf of the Wife it was submitted that if I take the Husband's evidence given on 19 April 2007 about the sale of the B Facility and consider the evidence of Mr G and the evidence of Mr X, one might assume there was a fair degree of discomfort because they each repeatedly refer to their instructions resulting in a valuation on a basis that is somewhat contrary to how this enterprise would ordinarily be valued.
286.Then on 19 April 2007 the Husband swore an affidavit, parts of which I have already identified. However, there was an important piece of evidence given and it appears in paragraphs 55 to 60 of the affidavit. I will not repeat all of what was said. However the Husband contended that he had effectively negotiated a sale of the residential accommodation facility operated by B Ltd to the purchaser of the P Business. Pausing there, it will be recalled that in March 2007, before the commencement of the hearing, B Ltd sold the property on which the P Business is situated for $4,500,000 and T Pty Ltd sold the business for $6,500,000. This is the amount of $11,000,000 referred to in the Members Equity Bank material of February 2007.
287.When the hearing resumed on 20 April 2007 I was informed by senior counsel for the Wife that by letter of 18 April 2007 the Wife’s solicitors were told that a sale had been negotiated of B Facility and that no contract had been committed to. In the letter it was said that B Ltd would remain responsible to the redeemable preference shareholders for about $65,000,000 for the next 15 years. A copy of the letter is attached to an affidavit of the Wife of 2 May 2007. Then at about 6:00 pm on 19 April 2007 the Wife’s solicitors were served by facsimile with a copy of an affidavit of the Husband in which statements similar to that in the letter of 18 April 2007 were made, excepting that the reverse proposition was put about the preference shareholders; that is, it was said the purchaser will be responsible for and will indemnify B Ltd as to redeemable preference shareholders for the next 15 years until the last redeemable preference shareholder is paid out. On the morning of 20 April 2007 senior counsel for the Husband advised senior counsel for the Wife that the letter, which is inconsistent with the affidavit, was wrong. Senior counsel for the Husband also told senior counsel for the Wife that there have been further developments and that firm instructions were being obtained from the Husband about developments. Senior counsel for the Husband then told me that subsequent to the affidavit being sworn at around about 8.00 pm on 19 April 2007 there were further negotiations with respect to the proposed sale deposed to and that there had been some further matters of agreement and matters of discussion relevant to that proposed sale. Senior counsel told me that he had his solicitor obtain specific written instructions about those matters. Senior counsel then said that his solicitor had obtained the instructions and he wanted an opportunity to read them. He said “I want to make sure that my client is completely precise about the instructions that he gives me and signs those instructions and gives them to me in my presence before I tell your Honour what those instructions are.” I then adjourned and when the hearing resumed senior counsel for the Wife said that he had been provided with a document headed "Instructions". Senior counsel for the Wife said that he did not propose doing anything with it and that it was ambiguous, inconsistent and defied providing an ability to simply and clearly understand what the transaction was about. Nothing further happened. A copy of the written instructions of the Husband is now attached to the affidavit of the Wife sworn on 2 May 2007.
288.In his 19 April 2007 affidavit the Husband said that he had agreed with the prospective purchaser not to disclose its name. The Husband attached a copy of the first page of the contract with the same purchaser dated 13 March 2007 in respect of the sale of the P Business, but did not identify the purchaser and I will infer that this was deliberate. At the time I was of the view that the purchaser would have to be identified and speculated that the purchaser was probably PL Group being the entity identified in the documents of Members Equity Bank.
289.I was also of the view that when consideration was given to what is in the documents produced by Members Equity Bank and the evidence of the Husband about the P Business being sold and that now the B Facility was being sold, an inference that could be drawn was that one of the two core operating activities of the B Group being residential accommodation was in the process of being sold and that hereafter the B Group may concentrate on property development. As I previously said, this will have to be investigated.
290.The issue that then arose was the consequence of this recent evidence of the Husband. It is clear on the authorities that evidence of a prospective sale is admissible and relevant. The Husband contended that he had “had discussions for 6 months” which takes it back to at least November 2006. At no time prior to 19 April 2007 did the Husband disclose these negotiations. They are not referred to in the reports of Mr G and thus I assume that he had no knowledge of the negotiations when he did his report. I also assume that the lawyers and others had no prior knowledge of what was happening. I make this assumption because given the evidence that has put before the Court, the lawyers and others may be in a difficult position if they did know about the negotiations. As I said, the evidence of negotiations is extremely relevant and thus I assume that no professional involved in the proceedings before me being lawyers and or accountants were privy to, or had any knowledge of, the negotiations given what was being said and represented in the proceedings. However that said, I infer that some warning about what was happening may have been given from some sources such as the material from Members Equity Bank and this may have to be investigated.
291.In his 19 April 2007 affidavit the Husband made no attempt to amend the valuation of Mr G and nor was any effort made by the Husband’s lawyers including senior counsel to demonstrate to me what the effect may be of the prospective sale on the financial circumstances of the Husband.
292.Senior counsel for the Wife submitted that on the basis of the Husband's affidavit, I would take out the $53,000,000 and substitute it for $39,000,00 on the basis that the purchaser would be responsible for paying out the $65,000,000. In a very unsophisticated way, the net of those adjustments would see Mr G’s valuation adjusted to about $50,000,000 equity in B Ltd.
293.Senior counsel for the Wife also made submissions about what he described as the ”miracles” that could have occurred to enable negotiations for that sale to be underway at the time that the valuations of Mr G and Mr X were being served upon the Wife's representatives and that this demonstrates how difficult the Wife’s task in this case is. It was submitted that in the period the sale was being negotiated the Husband was putting forward valuations of nil or half a million dollars for B Ltd. It also coincided with the time when, two days before the hearing commenced, the Husband amended his response for reasons that in the face of the disclosure of the sale negotiations can only be regarded as tactical for the present proceedings to change from a position where he was conceding an entitlement to the Wife of $4,500,000 to a position that she receive nothing. It was submitted that with those negotiations going on in the background it could quite fairly be assumed that that step was taken simply to avoid a Poletti argument; that is, the Husband already conceded an entitlement far in excess of what was been sought on an interim basis. Senior counsel for the Wife submitted that it is hoped that when the Husband’s lawyers filed the amended response they had no knowledge of the negotiations that were happening for the sale.
294.I obtained a transcript of the hearing on 2 April 2007. In his submissions senior counsel for the Husband said that the real difficulty confronting the Wife, “the real gravamen of this application”, that will trouble me is that if the Wife is to succeed there must be a pool which she can identify from which any such money, either as sought or at all, can be paid. I am not going to set out all of what was said, but will endeavour to summarise the discussion I had with senior counsel for the Husband. I said that I had analysed for the purpose of these proceedings the financial statements and that I add to that evidence the evidence of Mr G. I then asked senior counsel what do I then do in adding to that, even in a contingent way, what may be the outcome of the sale. The response was that it is by no means clear what ultimately would be the value of the shares in B Ltd when the full details of the contract of sale are known. I then said that even in a rudimentary way it must be possible to guesstimate and senior counsel replied “Yes, but there is also the profound difficulty of what the shares are worth if it's assumed that the money can't be got out of [B Ltd] because of obligations owed to deemed third parties who hold preference shares within that corporation”. I then put to senior counsel that he must have some idea of the value based on that evidence and his response was “I'm not in a position to say what the valuation evidence of P Chartered Accountants will be in the light of what the overall terms of the contract are, including one of which, but only one of which, is the proceeds being of $39 million apparently being paid into that corporation”. Pausing there, at this time I assumed that the Husband abandoned the valuation of Mr G of April 2007 just as he abandoned the valuation of August 2006. However, because of what was further put to me, which I will shortly identify, this was not entirely clear.
295.I then asked senior counsel for the Husband if he agreed with the interpretation of senior counsel for the Wife that the interests of the redeemable preference shares, at least subject to contract, are assumed by the purchaser. Senior counsel for the Husband replied that he was not sure that it could be expressed in that way because on the basis of the evidence the Husband would retain the shares in B Ltd and the directorship of that entity. The Husband would continue to maintain an obligation to repay the redemptions as and when they fall due in respect of which he would be indemnified by the purchaser. Senior counsel said that the obligation to the redeemable preference shareholders remains on the face of the evidence that of the Husband and the Husband would contend that there is therefore some risk associated with this prospective contract because, for example, in the event that the purchaser may become insolvent. I said that there would have to be more valuation evidence in the event that this transaction proceeded and this was agreed. I said that I had to take at least certain prima facie positions in order to make an adjudication of the issues before me. I said that prima facie, looking at paragraph 59 of the Husband’s affidavit, B Ltd sells its tangible assets, its shareholders remain the Husband and redeemable preference shareholders, but in terms of its balance sheet it has, subject to the circumstances of the prospective purchaser, an indemnity in respect of its obligation to the redeemable preference shareholders and this was accepted by senior counsel for the Husband. The following then appears:
HIS HONOUR: Which would [sic] prima facie, subject to value, may have a significant bearing on its net asset position.
MR MURPHY: On the face of the evidence before your Honour I can't contend to the contrary.
HIS HONOUR: Thank you.
296.In my view, the Husband and his lawyers left me in the position where I had to try and work out what the consequence of this new evidence may be. There was no valuation evidence from Mr V. Thus I had to start with the evidence of Mr G. There was no attempt to identify what assets were included in the “business” which is being sold. However, in discussion with senior counsel for the Husband my impression was that it may include the property, plant and equipment which is valued by Mr G at $53,550,889. According, to the Husband the purchaser would also indemnify the company for the next 15 years or until the last redeemable preference shareholder is paid out. The prospective purchaser would indemnify B Ltd in respect of the liability to the redeemable preference shareholders which Mr G assessed at $64,046,105.
297.On 20 April 2007 I made the following orders:
1. Grant to the parties and their legal and accounting representatives leave to inspect documents produced to the Court in response to subpoena by [HN] and [AM], Sydney and subject to any objection by the person or entity producing the documents, the documents produced by [TL] Co.
IT IS FURTHER ORDERED:
2. Order in the terms of paragraph B of the said Undertaking (Exhibit AK) namely that by 5.00 pm on 24 April 2007 the Husband discloses the name and identifying details of the proposed purchaser.
3. Until 11.00 am on Thursday 26 April 2007 upon receipt of the balance of the amount referred to in paragraph 3 of the notice as to cost dated 19 April 2007 Barkus Edwards Doolan, Solicitors, be restrained from applying such funds when received in the payment of any outstanding costs and disbursements.
4. Pending the delivery of judgment the Husband and [B] Ltd are each restrained from doing any act or thing to cause or permit any funds sourced from [B] Ltd or [T] Pty Ltd from being paid or applied in satisfaction or partial satisfaction of the legal costs of the Husband in relation to these proceedings or in payment of any disbursement including but not limited to counsel’s fees and valuation fees in any way related to the case of the Husband.
5. It be NOTED that it is not intended by the preceding Order to restrain the payment from those sources of the costs of [B] Ltd.
6.All parties be granted liberty to apply by arrangement with my Associate.
7.The matter is adjourned to 10.00 am on 26 April 2007.
The Husband also gave an undertaking in relation to the provision of copies of documents relating to the proposed sale.
298.It will be seen shortly that on 8 May 2007 an application was filed by the Wife seeking to adduce further evidence and the Wife swore an affidavit on 2 May 2007 and Mr V swore an affidavit on 7 May 2007.
299.On 24 April 2007 the solicitors for the Husband provided to the Wife’s solicitors copies of documents pursuant to the undertaking given on 20 April 2007. The Wife’s solicitors and Mr V then reviewed the documents.
300.On 26 April 2007 the Wife’s solicitors wrote to the Husband’s solicitors and the solicitors for B Ltd seeking further explanations. By letter dated 27 April 2007 the solicitors for B Ltd responded to the letter of 26 April 2007. On 30 April 2007 the Wife’s solicitors wrote to the solicitors for B Ltd and sought further clarification and on the same day it was responded to by the solicitors for the company.
301.On 1 May 2007 a contract for sale was entered into between B Ltd as vendor and APC Ltd (ACN […]) in its capacity as responsible entity of the P Property Trust as purchaser. A copy of the contract is annexed to an affidavit of Mr V of 7 May 2007.
302.In an affidavit of Mr G of 16 May 2007 it was disclosed that on 1 May 2007 the solicitors for the Husband gave written instructions to Mr G to undertake a review of his valuation of the Husband’s shares in B Ltd given the proposal to enter into a contract for the sale of the B Ltd real estate and business for $39,000,000, subject to certain conditions.
303.The Wife swore an affidavit on 2 May 2007 and she endeavoured to demonstrate what the effect of the sale would be if there was incorporated into the valuation of Mr G the proposed sale price and the following is the calculation:
$
·P Chartered Accountants valuation April 2007 481,131
·Exclude liability to redeemable preference shareholders 64,048,105
·Exclude Mr X valuation on B Ltd (53,000,000)
·Add sale price B Ltd (39,000,000)
Estimated net sale proceeds for Residential Accommodation Facility $50,529,236
The Wife contended that it was her understanding that the estimated proceeds of sale will comprise not only the amount of $39,000,000 but also a second component based on the market value of vacant villas which, as set out in correspondence, is estimated at around $24,500,000. Further it is her understanding that some allowance must be made for payout to redeemable preference shares as units have been redeemed after 30 June 2006. The Wife contended that allowing for the amounts referred to, Mr G’s valuation of B Ltd should be further adjusted as follows:
$
·The value as above 50,529,236
·Estimated proceeds of sale of vacant units 24,542,000
·Allow for payouts to redeemable preference shareholders say (3,455,000).
Net $71,616,236
The Wife contended, however, that the resulting value takes no account of any adjustments relating to work in progress, write offs and trading losses said to be incurred by B Ltd or other issues relating to the company’s financial position including dealings with the associated parties.
304.In his affidavit of 7 May 2007 Mr V referred to the documents relating to the sale provided by the Husband’s solicitors and the subsequent correspondence between the solicitors for the Wife and the solicitors for the Husband and the solicitors for B Ltd. He said that he understands the effect of the documents is:
·The contracts for the sale of the business and the property known as the B were exchanged on 1 May 2007.
·The purchase price is $39,000,000.
·In addition, or on or before completion, B Ltd would receive a further amount calculated at 72.1% of the market value of vacant villas.
·The amount of the second component to be assured by B Ltd is estimated at around $24.5 million.
·The purchaser will indemnify B Ltd in respect of all claims by general preference shareholders in respect of amounts payable on redemption of those shares arising after completion. This obligation is to be secured by bank guarantee to be maintained at the level of $5,000,000.
·In terms of the contract, completion is to occur on 30 October 2007. However the purchaser has agreed to endeavour to settle the matter by 31 August 2007 or the date on which the P Business (sold recently to the same purchaser) places a transfer to the purchaser if this date is later than 31 August 2007.
·A deposit of $2,000,000 has been received on account of the sale.
·The documents reflect the sale of B on substantially the same terms as those set out in the wife’s affidavit except that there is now a deposit of $2,000,000 instead of $1 and completion may be brought forward.
Mr V said that if loan adjustments on sale which he identified were incorporated into the valuation report of 5 April 2007 of Mr G and assuming that Mr G would not make any further alterations to the valuation, then the value of B Ltd would be as follows:
$
·P Chartered Accountants valuation April 2007 481,131
·Exclude liability to redeemable preference shareholders 64,048,105
·Exclude Mr X valuation of B Limited (53,000,000)
·Add sale price B per contract 39,000,000
·Estimated proceeds of sale of vacant units 24,542,000
·Allow for payouts to redeem preference shareholders say 3,455,000)
Adjusted valuation $71,616,236
305.On 8 May 2007 an application was filed on behalf of the Wife in which she sought the following:
1.That the wife be granted leave to adduce further evidence in respect of her application for interim costs filed 2 March 2007 as detailed in her affidavit sworn 2 May 2007 and the affidavit of [Mr V] sworn 7 May 2007.
2.That all parties lodge with the Court and serve on all relevant parties any written submissions on which they intend to rely in respect of the evidence referred to in order 1 within 48 hours from the date of filing this Application in a Case.
3.That any submissions in reply be lodged with the Court and served on all related parties within 24 hours of orders to be complied with.
4.That this application be listed on short notice.
306.On 9 May 2007 I made the following orders:
1. Grant leave to the wife to re-open.
2. Grant leave to the wife to rely on her affidavit sworn on 2 May 2007 and the affidavit sworn by [Mr V] on 7 May 2007.
3. List the matter for further hearing at 4:00 pm on 21 May 2007.
4. The husband file and serve by 4:00 pm on 16 May 2007 a further valuation of [B] Limited.
5. The husband provide to the solicitors for the wife by 4:00 pm on Friday, 11 May 2007 the documents identified in a facsimile transmission dated 30 April 2007 written by the solicitors for the wife to the solicitors for the husband which is marked as Exhibit “AK”.
6. The husband file and serve by 4:00 pm on 17 May 2007 a further amended application.
307.On 16 May 2007 an affidavit was sworn by Mr G and he attached to his affidavit a valuation report dated 16 May 2007. Mr G said that the net equity of B Ltd in accordance with his valuation of 5 April 2007 amounted to $483,131. He then adjusted the net equity position to take account of the proposed contract of sale as follows:
$
·P Chartered Accountants valuation April 2007 481,131
·Exclude Mr X valuation of B Limited (53,000,000)
·Add liability to redeemable preference shareholders 64,046,105
11,529,236
·Add consideration for acquisition per contract 39,000,000
·Add value of receipt from issue of redeemable preference shares 21,000,000
$71,529,236
This is consistent with what Mr V did in his affidavit of 7 May 2007 although he arrived at a value of $71,616,236.
However, Mr G said that having established the value of the asset backing of the company he had to have regard to the attribution of that value to the shares of the company. I am not going to repeat all of what he said in relation to the discount for lack of marketability and a discount having regard to credit risk of the indemnity/preference share reimbursement, however he said that that he was instructed to assume that there will exist a risk that the indemnity/preference share reimbursement may not be forthcoming. He said that in summary, the value of the assets of the company being $71,529,236 should be discounted as follows to determine the value of the shares owned by the Husband:
$
·Net asset value of B Ltd 71,529,236
·Discount for lack of marketability 21,458,771
·Discount for credit risk 7,152,923
Balance $42,917,542
Mr G said that in his opinion, based on the net realisable value of assets and subject to assumptions made on the proposed sale, the fair market value for 100% of the ordinary shares in B Ltd as at 30 June 2006 adjusted for the proposed sale is $42,917,542.
308.There remain significant issues in relation to the value of the Husband’s shares in B Ltd and I have already identified some of the issues. There may now also be issues about the discount for lack of marketability and the discount for credit risk. I note that in further written submissions dated 21 May 2007 on behalf of B Ltd it was submitted that as a result of the sale there is no prospect of B Ltd issuing any further shares to effectuate a redemption of redeemable preference shares after April 2007. Prior to the sale, the practice was to redeem preference shares upon the death of a preference shareholder and to issue fresh redeemable preference shares to a new residence. It was submitted that this will no longer happen and that accordingly profits will be the only source of funds for redemptions. It was submitted that the only profits will be in, and from, the retained cash from the proceeds of sale. It was submitted that the quantum of the proceeds of sale is likely to be about $60,000,000 and the value of the redeemable preference shares is in excess of $64,000,000. It was submitted that therefore the proceeds of sale will not cover the full liability for redemptions and that the proceeds will have to be invested and the income used in part to fund redemptions. However, I also note that it was stated that the position of B Ltd is protected “to the extent of $5,000,000 each year” by the purchasers indemnity and the existence of the indemnity
309.If the net assets of the parties are taken to be as set in the outline of argument filed on behalf of the Husband and allowance is made for what Mr V contends may be an approach to the valuation of B Ltd, then the position may be as follows:
Assets $
·G Property (h) 2,200,000
·Apartment in Germany (h) 130,000
·“[RI]”, MX (h/w) 4,500,000
·Land at BY (w) 5,000
·B Ltd – 40,500,005 ordinary shares (h) 71,616,236
·W Pty Ltd – 3 ordinary shares (all issued capital) (w) nk
·W Pty Ltd – loan account 1,599,094
·Westpac account (w) 570
·Debt owed by Wife to Husband for outstanding child support (h) 10,000
·Debt owed by Wife to Husband (h) 500,000
·Household contents (h/w) 50,000
·Jewellery (w) nk
Total 80,610,900
Liabilities
·Westpac mortgage – “[RI]” (h/w) 1,297,860
·B Ltd – loan account secured by mortgage - 2,849,286
·B Ltd – secured by Second mortgage “[RI]” (h/w) 3,046,480
·Debt to Mr I (w) 241,564
·Debt to SF Company (w) 173,104
·GR Company (w) 1,850
·Westpac personal loan (h) 15,000
Total (7,625,144)
Balance $72,985,756
The Wife contends that the net assets are of a value significantly greater than $72,985,756.
310.If the net assets of the parties are taken to be as set out in the outline of argument filed on behalf of the Husband and allowance is made for what Mr G contends is the value of the Husband’s shares in B Ltd then the Husband now contends that the position is as follows:
Assets $
·G property (h) 2,200,000
·Apartment in Germany (h) 130,000
·“[RI]”, MX (h/w) 4,500,000
·Land at BY (w) 5,000
·B Ltd – 40,500,005 ordinary shares (h) 42,917,542
·W Pty Ltd – 3 ordinary shares (all issued capital) (w) nk
·W Pty Ltd – loan account 1,599,094
·Westpac account (w) 570
·Debt owed by Wife to Husband for outstanding child support (h) 10,000
·Debt owed by Wife to Husband (h) 500,000
·Household contents (h/w) 50,000
·Jewellery (w) nk
Total 51,912,206
Liabilities
·Westpac mortgage – “[RI]” (h/w) 1,297,860
·B Ltd – loan account secured by mortgage - 2,849,286
·B Ltd – secured by Second mortgage “[RI]” (h/w) 3,046,480
·Debt to Mr I (w) 241,564
·Debt to SF Company (w) 173,104
·GR Company (w) 1,850
·Westpac personal loan (h) 15,000
Total (7,625,144)
Balance $44,287,062
The amount of $44,287,062 is subject to the value of the Wife’s shares in W Pty Ltd. The value now asserted by the Husband is more consistent with the representation he made to the court in April 2006. As well, the Husband contends that the amounts owed to Mr I, SF Company and GR Company should be excluded.
311.On 18 May 2007 a further amended reply was filed on behalf of the Husband and he now seeks the following orders:
ANNEXURE “A”
NOTATIONS
1. The following definitions are noted for the purposes of these Orders:
A.1."[German] apartment” means the bedsitter apartment situated at […] Germany of which the husband is the owner and which is subject to a protected tenancy;
A.2."[W]" means the company [W] Pty Limited ACN […] of which the wife is the sole director and shareholder;
A.3."[B Facility]" means the company [B] Limited ACN […] of which the husband is a director and in which the husband holds 40,500,005 fully paid ordinary shares;
A.4."[B Facility] loan" means the loan secured under unregistered mortgage to [B] Limited, secured upon the title to the [RI] property as second mortgage;
A.5."[G property]" means the property situated at and known as [G property]in the State of New South Wales being the whole of the land contained in Folio Identifier […] together with the improvements, fixtures and fittings erected on and attached to it, of which the husband is the registered proprietor;
A.6."[G property] loan" means the loan secured under mortgage registered number […] to Westpac Banking Corporation and secured upon the title to the [G] property;
A.7."[G property] furniture and effects" means the furniture and household effects located at the [G] property and owned by the husband;
A.8."[RI] property" means the property situated at and known as “[RI]” [MX] in the State of New South Wales being the whole of the land contained in Folio Identifier […] together with the improvements, fixtures and fittings erected on and attached to it, of which the husband and wife are the joint registered proprietors;
A.9."[RI] furniture and effects" means the household furniture and effects at the [RI] property owned by the husband but excluding the artworks and large screen TV at that property which is the property of [B Facility].
A.10"Westpac home loan" means the loan secured under mortgage registered number […] to Westpac Banking Corporation, secured upon the title to the [RI] property.
THE HUSBAND SEEKS AN ORDER UNDER SECTION 79 OF THE FAMILY LAW ACT, 1975, IN TERMS OF THE FOLLOWING PARAGRAPHS 2 TO 10 AND FURTHER ORDERS IN TERMS OF PARAGRAPHS 1 AND 11 TO 13 FOLLOWING THAT:
1. That the Orders sought in paragraphs 1 to 15 of annexure A under the heading Property in the Response to an Application for Final Orders filed on 10 March 2006 by the wife be refused and that the Response in respect of all Orders sought under the heading Property be dismissed.
2. That the husband within 3 months of the date of the making of this order do all acts and things and execute all documents necessary to::
2.1Transfer to the wife all his right, title and interest in the [RI] property free from all encumbrances;
2.2Simultaneously with the transfer of his interest in the [RI] property to the wife cause both the [RI] property and the wife to be released as the security for and from liability in respect of all monies owing under the Westpac home loan and under the [B Facility] loan;
2.3Transfer to the wife all his right, title and interest in the [RI] furniture and effects;
2.4Pay or cause to be paid to the wife an amount equal to 20% of the net asset pool of the parties as determined by this Honourable Court less the net value of all other assets retained by or transferred to the wife pursuant to this order;
3. That the wife may continue to occupy the [RI] property until the transfer to her of the husband’s interest in the [RI] property pursuant to this order but shall be responsible for and shall pay all outgoings including but not limited to statutory rates and charges and land tax, telephone, gas and electricity accounts in relation to the [RI] property up to the date of transfer of the husband’s interest in the [RI] property to her.
4. That within 14 days of the date of this Order the wife transfer and assign to the husband any and all interests she has with [B Ltd], including the loan account in the name of the wife.
5. Except as specifically provided for by this Order to the contrary, as against the husband, the wife is the sole owner of and the husband has no interest in:
5.1the wife’s shareholding in [W];
5.2all other personal property (including choses in action) of whatsoever nature and kind in the possession of the wife at the date of the making of this Order.
6. Except as specifically provided for by this Order to the contrary, as against the wife, the husband is the sole owner of and the wife has no interest in:
6.1the [G] property;
6.2the [G property] furniture and effects;
6.3the [German] apartment;
6.4the husband’s shareholding in [B Facility];
6.5all other personal property (including choses in action) of whatsoever nature and kind in the possession of the husband at the date of the making of this Order.
7. Both parties do all acts and things and execute all documents, authorities and writings as are necessary to give effect to all or any of this Order.
8. That as and from the date of this Order, the wife shall indemnify and keep the husband indemnified in relation to any action, claim or demand made against the husband by any person, corporation or entity by reason of the husband having any interest in [W].
9. Except as specifically provided for by this Order to the contrary:
9.1the husband indemnify the wife from and in respect of all actions, claims, suits and demands as may be made against the wife in relation to all liabilities in the name of the husband;
9.2the wife indemnify the husband from and in respect of all actions, claims, suits and demands as may be made against the husband in relation to all liabilities in the name of the wife.
10. Except as specifically provided for by this Order to the contrary, each of the husband and the wife release the other from all debts owing from one to the other.
Other Orders
11. In the event that either party refuses or neglects to execute any deed or instrument necessary to give effect to these Orders then the Registrar of the court be appointed pursuant to Section 106A of the Family Law Act, 1975 to execute such deed or instrument in the name of the defaulting party and to do all acts and things necessary to give validity and operation to the deed or instrument.
12. Each party have leave to apply further in respect of the implementation of any of these Orders on seven (7) days' notice to the other party.
13. The wife pay the husband's costs of and incidental to these proceedings.
ANNEXURE “B”
NOTATIONS
1. The following definitions are noted for the purposes of these Orders:
A.1. "[German] apartment” means the bedsitter apartment situated at […], Germany of which the husband is the owner and which is subject to a protected tenancy;
A.2. "[W]" means the company [W] Pty Limited ACN […] of which the wife is the sole director and shareholder;
A.3. "[B Facility]" means the company [B] Limited ACN […] of which the husband is a director and in which the husband holds 40,500,005 fully paid ordinary shares;
A.4. "[B Facility] loan" means the loan secured under unregistered mortgage to [B] Limited, secured upon the title to the [RI] property as second mortgage;
A.5. "[G] property" means the property situated at and known as [G property] in the State of New South Wales being the whole of the land contained in Folio Identifier […] together with the improvements, fixtures and fittings erected on and attached to it, of which the husband is the registered proprietor;
A.6. "[G property] loan" means the loan secured under mortgage registered number […] to Westpac Banking Corporation and secured upon the title to the [G] property;
A.7. "[G property] furniture and effects" means the furniture and household effects located at the [G] property and owned by the husband;
A.8. "[RI] property" means the property situated at and known as “[RI]” [MX] in the State of New South Wales being the whole of the land contained in Folio Identifier […] together with the improvements, fixtures and fittings erected on and attached to it, of which the husband and wife are the joint registered proprietors;
A.9. "[RI] furniture and effects" means the household furniture and effects at the [RI] property owned by the husband but excluding the artworks and large screen TV at that property which is the property of [B Facility].
A.10. "Westpac home loan" means the loan secured under mortgage registered number […] to Westpac Banking Corporation, secured upon the title to the [RI] property.
THE HUSBAND SEEKS AN ORDER UNDER SECTION 79 OF THE FAMILY LAW ACT, 1975, IN TERMS OF THE FOLLOWING PARAGRAPHS 2 TO 10 AND FURTHER ORDERS IN TERMS OF PARAGRAPHS 1 AND 11 TO 13 FOLLOWING THAT:
1. That the Orders sought in paragraphs 1 to 15 of annexure A under the heading Property in the Response to an Application for Final Orders filed on 10 March 2006 by the wife be refused and that the Response in respect of all Orders sought under the heading Property be dismissed.
2. That the husband within 3 months of the date of the making of this order do all acts and things and execute all documents necessary to:
2.1transfer to the wife all his right, title and interest in the [RI] property free from all encumbrances;
2.2simultaneously with the transfer of his interest in the [RI] property to the wife cause both the [RI] property and the wife to be released as the security for and from liability in respect of all monies owing under the Westpac home loan and under the [B Facility] loan;
2.3transfer to the wife all his right, title and interest in the [RI] furniture and effects;
2.4pay or cause to be paid to the wife an amount equal to 20% of the net asset pool of the parties as determined by this Honourable Court less the net value of all other assets retained by or transferred to the wife pursuant to this order.
3. That the wife may continue to occupy the [RI] property until the transfer to her of the husband’s interest in the [RI] property pursuant to this order but shall be responsible for and shall pay all outgoings including but not limited to statutory rates and charges and land tax, telephone, gas and electricity accounts in relation to the [RI] property up to the date of transfer of the husband’s interest in the [RI] property to her.
4. That within 14 days of the date of this Order the wife transfer and assign to the husband any and all interests she has with [B Facility], including the loan account in the name of the wife.
5. Except as specifically provided for by this Order to the contrary, as against the husband, the wife is the sole owner of and the husband has no interest in:
5.1the wife’s shareholding in [W];
5.2all other personal property (including choses in action) of whatsoever nature and kind in the possession of the wife at the date of the making of this Order.
6. Except as specifically provided for by this Order to the contrary, as against the wife, the husband is the sole owner of and the wife has no interest in:
6.1the [G] property;
6.2the [G property] furniture and effects;
6.3the [German] apartment;
6.4the husband’s shareholding in [B Facility];
6.5all other personal property (including choses in action) of whatsoever nature and kind in the possession of the husband at the date of the making of this Order.
7. Both parties do all acts and things and execute all documents, authorities and writings as are necessary to give effect to all or any of this Order.
8. That as and from the date of this Order, the wife shall indemnify and keep the husband indemnified in relation to any action, claim or demand made against the husband by any person, corporation or entity by reason of the husband having any interest in [W].
9. Except as specifically provided for by this Order to the contrary:
9.1the husband indemnify the wife from and in respect of all actions, claims, suits and demands as may be made against the wife in relation to all liabilities in the name of the husband;
9.2the wife indemnify the husband from and in respect of all actions, claims, suits and demands as may be made against the husband in relation to all liabilities in the name of the wife.
10. Except as specifically provided for by this Order to the contrary, each of the husband and the wife release the other from all debts owing from one to the other.
Other Orders
11. In the event that either party refuses or neglects to execute any deed or instrument necessary to give effect to these Orders then the Registrar of the court be appointed pursuant to Section 106A of the Family Law Act, 1975 to execute such deed or instrument in the name of the defaulting party and to do all acts and things necessary to give validity and operation to the deed or instrument.
12. Each party have leave to apply further in respect of the implementation of any of these Orders on seven (7) days' notice to the other party.
13. The wife pay the husband's costs of and incidental to these proceedings.
312.The Husband proposes that the Wife will receive a property settlement of a value of $8,857,412.40. The Wife contends that the value of the net assets of the parties is significantly greater than $44,287,062.
313.According to the evidence of Mr Conley the amount of $1,185,000 was made up as follows:
1. Repayment of monies to SF Company plus interest $133,104
2. Payment of outstanding council fees $22,748
3. Payment of outstanding solicitor’s fees plus interest $339,147
4. Payment of outstanding fees to Y Company $31,350
5. Estimated fees of parenting proceedings $88,850
6. Estimated fees in respect to property proceedings $325,736
7. Monies to be paid to Mr I $234,000
The amount is now greater.
314.Mr Conley said that as from 10 January 2007 he no longer has instructions in respect of the Supreme Court proceedings between W Pty Limited and T Pty Ltd.
Relevant principles
Introduction
315.I am going to deal with this application pursuant to s 117 of the Family Law Act 1975 (Cth). In this case s 117 as a source of power is conceded by the Husband and some authorities were identified in his written outline of argument: see also Poletti (supra) and Luadaka v Luadaka (1998) FLC 92-830 at 85,502.
316.Section 117(1) provides that subject to s 117(2) and s 117AA and s 118, each party to proceedings under the Act shall bear his or her own costs.
317.Section 117(2) provides that if in proceedings under the Act, I am of opinion that there are circumstances that justify me in doing so, I may, subject to sub sections (2A), (4) and (5) and the applicable Rules of Court, make such order as to costs whether by way of interlocutory order or otherwise, as I consider just.
318.Section 117(2A) provides that in considering what order (if any) should be made under s 117(2), I shall have regard to the matters set out in paras (a) to (g). In Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania) v Fish and Another (2005) 33 Fam LR 123 the Full Court said:
The financial circumstances of each of the parties to the proceedings is the first mentioned factor. Nowhere in subsection 2(A) or elsewhere in section 117, is there any prescription that more than one factor must be present before an order for costs is made nor of comparative weight of the factors set out in subsection 2(A). As a consequence, there is nothing to prevent any factor being the sole foundation for an order for costs.
Costs of pending litigation
319.There are a number of reported cases going back over many years that deal with the jurisdiction and power to make an order that one party pay a sum to the other party to enable them to defray his/her costs of pending proceedings and the circumstances in which such an order may be made. On one view of the case law, the jurisprudence in this area may have moved on particularly given the way the case law in the context of s 79 proceedings now deals with costs paid. As well, from time to time various cases have identified considerations that may be relevant. In Zschokke v Zschokke (1996) FLC 92-693 the Full Court did not disapprove of five considerations that the trial judge had identified having regard to what Nygh J said in Poletti, namely: a complexity in the financial affairs of the respondent; the need for an expert investigation into the financial affairs of the respondent; the position of considerable financial strength held by the respondent; the capacity on the part of the respondent to meet his/her own ongoing litigation costs and an inability on the part of the applicant to meet his/her ongoing litigation costs from his/her own income, assets or financial resources. In fact at 83,218-219 the Full Court expressly approved as relevant the last three matters. Although they were in a different context I am of the view, depending on the circumstances, that the matters identified by the Full Court in Luadaka (supra) at 85,507 may be relevant.
320.What is important is that the decision to orders costs is discretionary both as to whether to make an order and as to the amount. I must however be satisfied that there are justifying circumstances.
321.I am also of the view that an application for what I will call a pending litigation funding costs order may, depending on the circumstances, include a claim for amounts already paid by the applicant from any source, be it borrowings or the realisation of assets. This was conceded in the outline of argument on behalf of the Husband. The definition of “costs” in family law proceedings is found in the dictionary of the Family Court Rules 2004. I observe that there is no definition of costs in section 4 of the Family Law Act, however the Rules define costs as: “… an amount paid or to be paid for work done by a lawyer, and includes expenses.” (emphasis mine)
Relevant factors
322.In my opinion, the amount of costs sought by the Wife is probably not controversial when consideration is given to, amongst other things, the costs of the Husband and B Ltd. As yet I do not know, but may ultimately ascertain, the costs of T Pty Ltd and others.
323.The Husband appears to have absolute and unfettered ability to access all relevant documentation and information. It is apparent from the history of the litigation which I have outlined above that the Wife and those advising her do not have the same capacity. The Wife and those advising her do not have the same knowledge and documents and prima facie they have experienced difficulties in obtaining information and documentation. It follows that the Wife’s costs may be greater because of her need and the need of those advising her to get the relevant information and documentation. Further, it is apparent from what I have said that there are a considerable number of matters that will require further investigation. In summary, in my view there is at least a possibility that the Wife’s costs may be greater than Mr Conley has estimated.
324.On 20 April 2007 senior counsel for the Husband conceded that there is a serious case to be tried. He said that senior counsel for the Wife was correct when he submitted that as a result of the evidence before me and the documents that were tendered, not only is there a serious case to be tried, but that I cannot make findings with respect to the issues potentially raised by that evidence and those documents because of the nature of these proceedings. I agree.
325.Senior counsel for the Husband further submitted that it is necessary for me to make findings to found the relief that the Wife seeks. In particular, I need to make findings that any amount that I might otherwise be persuaded to order to the Wife by way of interim costs or partial property settlement, however so expressed, is reversible in the sense that expression is used by the Full Court in Zschokke (supra) at 83,217. This submission was made before the evidence of the sale of the B Ltd assets and the further amended reply of the Husband filed on 18 May 2007.
326.Senior counsel for the Husband then said that in that respect, the Husband contends credibly on a prima facie basis because of the P Chartered Accountants valuation that has been filed on his behalf, it may well be that if he is ultimately successful at trial in resisting the application of the Wife, that the Wife will end up with less than that which she now seeks by way of costs. This submission assumed that the Husband would persist in maintaining that the value of his shares in B Ltd was $481,131 notwithstanding the attempts to ascertain the effect on the value having regard to the evidence of 19 April 2007. This submission was made after the evidence of the sale of B Ltd assets but before the most recent valuation of Mr G and the further amended reply of the Husband filed on 18 May 2007.
327.I assume that given what is now the Husband’s case that a number of the submissions made on his behalf are now withdrawn.
328.I am required to consider the financial circumstances of each of the parties to the proceedings. This is the significant issue in the property proceedings.
329.As to the Wife she has an income of $1,910 per week and total personal expenditure of $4,798. Her expenses include tax of $520 per week. The Wife contends that she has property interests of a gross value of $3,479,664. He assets include her half share of “[RI]” at $1,875,000 in which she lives and her loan to W Pty Ltd of $1,599,094, but does not include a value for her shares in that company. She contends that the company is unable to provide any further repayment of her loan. Prima facie, I accept that the Wife is unable to obtain repayment of this loan and there probably are difficulties in her obtaining funds by reason of her ownership of the company given a number of issues. There is litigation in the Supreme Court between W Pty Ltd and T Pty Ltd the outcome of which may have an effect on the value of W Pty Ltd and the recoverability of the loan. As well, the Wife contends that B Ltd has a caveat on the title of property at PP owned by W Pty Ltd. The Wife has total liabilities of $1,436,492. In summary, I accept that the Wife does not have sufficient resources to enable her to pay the costs outlined by Mr Conley.
330.On behalf of the Husband a number of submissions were made about his financial situation. It was submitted that the Husband has no capacity to meet the payment sought by the Wife, the Husband’s financial statement disclosing the limited nature of his presently available resources and the escalating debts incurred to meet the living expenses of the parties, maintenance of the properties and his own legal costs and disbursements. Again, this submission was made before the most recent valuation of Mr G and the further amended reply of the Husband filed on 18 May 2007.
331.On behalf of the Husband it was submitted that it is not possible on an interim basis to resolve the significant and substantial dispute between the parties as to the available net assets. I accept that I cannot make any findings as to the full extent and value of the financial circumstances of the parties. Further, that such difficulty is exacerbated in circumstances where it appears that the relief sought by the Wife is predicated upon the Wife successfully obtaining the relief sought by her against the Second to Eighth Respondents, which relief remains the subject at this time of preliminary issues as to jurisdiction (at least insofar as the Third to Fifth Respondents are concerned). Again, this submission was made before the most recent valuation of Mr G and the further amended reply of the Husband filed on 18 May 2007.
332.In my view, it follows from what is now the Husband’s case that a number of the above submissions are no longer relevant. However, I accept that at this stage it is not possible to determine the Wife’s contentions in respect of the extent and value of the financial circumstances of the Husband even excluding her relief sought against the Second to Eighth Respondents. Further, that no finding can be made at this stage in relation to the Wife’s relief sought against the Second to Eighth Respondents. However, in my view, prima facie a problem is, and has been since November 2005, attempting to define/ascertain what the Husband contends to be the extent and value of his financial circumstances.
333.I will summarise some of what I have already said. In May 2002 the Husband contended he has assets of a net value of $44,750,000. In November 2005 the Husband’s solicitors advised the Wife’s solicitors that the Husband would make a full and frank disclosure in seven days. On 6 April 2006 the Husband swore a financial statement and contended he had no income but expenses of $4,455 or $231,660 per annum which he paid by drawings on a loan account already in debit. Subject to the value of his shares in B Ltd, he disclosed assets of a gross value of $4,680,000 and liabilities of $3,848,796. Thus subject to the share value, he contended that he had net assets of $831,204. On 7 April 2006 through his counsel the Husband represented to the Court that his shares are worth $20,000,000. On 11 April 2006 the Husband filed his property application and proposed that the Wife receive the MX property unencumbered. Thus he was proposing that he would provide the Wife with in excess of $4,500,000 of his assets. Then in August 2006 he provided a valuation of his shares at nil. Then on 2 March 2007 the Wife filed the present application. On 20 March 2007 the Husband swore an affidavit in which he contended that he had assets of a gross value of $5,090,000 and liabilities of $5,021,456. He had no income. Then on the same day, namely 20 March 2007, the Husband swore a financial statement and he disclosed weekly expenditure of $5,275 or $274,300 per annum. He persisted that he has no income. In the financial statement the Husband disclosed assets of a gross value of $4,630,000 and liabilities of $4,372,937. Thus according to this document he had assets of a net value of $257,063. In both his affidavit of 20 March 2007 and his financial statement of 20 March 2007 the Husband put no value on his shares. Then on 28 March 2007 the Husband filed an amended application and sought that he give nothing to the Wife. In fact he proposed that the home at MX be sold and the Wife receive nothing from the proceeds of sale. Then on 29 March 2007 the Husband contended that the parties have assets of a net value of $1,786,038. This value put no value on the Husband’s shares. Then on 5 April 2007 Mr G provided a value of the Husband’s shares of $483,131 and, taking the amounts in the outline of argument of the Husband, this meant that the Husband contended that there are assets of a net value of $2,269,169. Then on 19 April 2007 the Husband swore an affidavit and he disclosed that he is receiving an income of $240,000 per annum from B Ltd and is a consultant to T Pty Ltd. Then at the hearing on 20 April 2007 senior counsel for the Wife demonstrated that as a result of evidence from the Husband on 19 April 2007, the Husband’s shares may be worth $50,000,000. Then on 2 May 2007 the Wife gave evidence that the shares may be worth $71,616,236. On 7 May 2007 Mr V gave evidence that the shares may be worth $71,616,236. Then on 8 May 2007 on the application of the Husband I made an order that he provide what would be the third valuation of his shares in B Ltd. Thus according to the Husband in summary, as at 8 May 2007 he was contending that he was unable to make a full and frank disclosure of his financial circumstances. Then on 16 May 2007 Mr G valued the Husband’s shares at $42,917,542 and this had the consequence that the Husband was contending that, subject to the value of the Wife’s shares in W Pty Ltd, the parties have assets of a net value of $44,287,062. Then on 18 May 2007 the Husband filed a further amended reply and in summary he proposes that the Wife will receive a property settlement of not less than $8,857,412.40.
334.Although I am unable to reach any concluded view as to the extent and value of the financial circumstances of the parties and whether either of them has deliberately failed to make such a disclosure, I have no doubt, accepting the Husband’s evidence, that he has considerable assets available to him.
335.I am also satisfied that prima facie, the Husband has considerable resources available and an example is as follows. Senior counsel for the Wife submitted that during the hearing on 20 April 2007 in relation to what the Husband said in his affidavit of 19 April 2007, senior counsel for the Husband used the term "salary" and "director's fees" interchangeably and senior counsel for the Wife said that if it is a salary, then the Husband will be obliged by law to take out a PAYG tax and it follows that if this happens then it is extremely difficult to see how the Husband could meet the expenses he consistently has contended he has of approximately $250,000 per annum, let alone also pay from this source his legal costs. The explanation becomes even more difficult if I made a “dollar for dollar” order. As senior counsel for the Wife submitted, what the Husband has done prima facie demonstrates just how arbitrary his arrangement with B Ltd is and how much he is the “dictator” of financial arrangements between that company and himself. He decided to pay himself a salary of $240,000 and the question that arises is why not pay himself a greater amount. He could perhaps issue B Ltd with an invoice for directors’ fees for 10 years. He may also be able to make a charge to T Pty Ltd for his services as a “consultant”. As I understand it, the trusts for the children of the marriage whose assets are shares in T Pty Ltd are worth tens of millions of dollars. I bear in mind what Nygh J said in Poletti invoking J v J [1955] P 215 namely that I can look not merely at the actual assets available but also to the resources on which a party can call. Prima facie, I accept that in this case the resources the Husband can call through B Ltd and perhaps T Pty Ltd as a consultant are extensive and flexible and significantly more than any the Wife can call upon.
336.I am required to consider whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party. Neither party is in receipt of a grant of legal aid.
337.I am required to consider the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters.
338.At this stage I cannot make any concluded findings in relation to the Wife’s contentions that the Husband has failed to make a full and frank disclosure of his financial circumstances and that the Husband, and perhaps some of those advising him, have obfuscated and taken steps to make the task of the Wife and those advising her more arduous and expensive. However, prima facie it is apparent that the Wife and those advising her have, for reasons yet to be explored, had difficulties in obtaining information and documentation.
339.I am required to consider whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court. This is not relevant.
340.I am required to consider whether any party to the proceedings has been wholly unsuccessful in the proceedings. This is not relevant.
341.I am required to consider whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer. This is not relevant.
342.I am required to consider such other matters as I consider relevant.
343.I am of the opinion that subject to the ultimate findings as to the assets of the parties the Wife has a prima facie claim to a reasonable property settlement amongst other things given her contributions. I also have no doubt that her claim is made bona fide. These matters are also acknowledged by the further amended reply of the Husband filed on 18 May 2007.
344.I am of the view that the issues in this case as to the financial affairs of the Husband are extremely complex and that in relation to his financial affairs there are also serious issues to be tried in relation to the relevance of the financial circumstances of the Second to Eighth respondents.
345.I have no doubt the Wife has a need for an expert investigation into the financial affairs of the Husband and the Second to Eighth respondents and that she requires the advise and assistance of lawyers and other professionals.
346.I am satisfied that the Wife does not have the capacity to meet her own ongoing litigation costs from her own income, assets or financial resources
347.A number of matters were submitted on behalf of the Husband and I will not repeat all of what was put. Some of what was put was repetitive. Some of what was submitted in my opinion has no foundation whatsoever, for example the submission that there is a “lack of a prima facie case in support of the sweeping contentions advanced by the Wife as to the value of net assets”. I am of the opinion that the opposite is the case. There is prima facie evidence that supports the Wife’s contentions and I also note the concession made by senior counsel for the Husband on the second day of the hearing that there are serious issues to be tried, referring to the significant issue, namely, the extent and value of the financial circumstances of the parties.
348.It was submitted that a proportion of the past costs relate to the proceedings before the Supreme Court and the Wife is seeking payment for the purpose of securing continuing representation in both the proceedings in this Court and the proceedings in the Supreme Court. There may be some merit in this submission although I hasten to add that I am of the view that there is probably a relationship of the Supreme Court proceedings and the breakdown of the marriage and to the proceedings in this Court.
349.It was submitted that the funds are intended to be applied by the Wife in the pursuit of issues in the proceedings for which no prima facie case has been made out – for example, the claim against the Sixth respondent, A Pty Ltd and the claim in respect of the property in the name of the children, in circumstances where the Wife was party to proceedings in the Supreme Court resulting in her appointment as a trustee on behalf of the children in respect of such property. Again this can be dealt with at the final hearing.
Conclusion
350.I have no doubt that what I have said above is not exhaustive or perhaps even accurate of all relevant facts and as I have identified there are a significant number of matters that have to be investigated. However, I am satisfied that the Wife has established justifying circumstances and that an order should be made.
351.In the circumstances of this case it would be unjust and oppressive if an order was not made. In my view, from the Wife’s perspective it would stifle her ability to conduct the litigation. The Wife has anticipated costs including what she has already paid of $1,230,000. If I exclude the amount of $78,389.49, which the Wife contends she owes in relation to the Supreme Court proceedings, the balance is $1,151,610.51. It may be that of the amounts paid some of what was paid related to the proceedings in the Supreme Court. What I do know is that the Husband and B Pty Ltd have anticipated total costs of the proceedings in this Court in excess of $1,200,000. Consistent with the submissions as to a “dollar for dollar” order, I can also infer that the Wife will have the equivalent, if not greater costs. In all the circumstances an order that I consider just is that the Husband pay $1,100,000.
352.I will give the Husband the opportunity to organise his affairs such that the funds can be paid and thus will order that the amount be paid in two instalments. I am satisfied that the amount I am persuaded to order to the Wife is reversible given the property settlement the Husband proposes the Wife will receive.
I certify that the preceding 352 paragraphs are
a true copy of the reasons for judgment
of the Honourable Justice O’Ryan………………………………………………………..
Associate:
Date: 25 May 2007IT IS NOTED that this judgment for all publication and reporting purposes be referred to as KENDLING & KENDLING
Key Legal Topics
Areas of Law
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Family Law
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Commercial Law
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Equity & Trusts
Legal Concepts
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Costs
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Jurisdiction
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Injunction
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Discovery
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Fiduciary Duty
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