King and King

[2011] FamCA 21

FAMILY COURT OF AUSTRALIA

KING & KING [2011] FamCA 21

FAMILY LAW – PROPERTY – Set aside transactions

Family Law Act 1975 (Cth)

Strahan and Strahan [2009] FamCAFC 166

APPLICANT: Ms King

RESPONDENT: Mr King

INTERVENOR: Ms RY

FILE NUMBER: MLC 7073 of 2008

DATE DELIVERED: 13 January 2011

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: THE HONOURABLE JUSTICE CRONIN

HEARING DATE: 6 DECEMBER 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: DR INGLEBY

SOLICITOR FOR THE APPLICANT: BERRY FAMILY LAW

COUNSEL FOR THE RESPONDENT: MR DAVIS

SOLICITOR FOR THE RESPONDENT: BARBAYANNIS LAWYERS

THE INTERVENOR: IN PERSON

Orders

1. That by 4.00pm on 23 December 2010, RY attend upon the Lebanese Consulate-General at 117 Wellington Street, St Kilda with the necessary documents provided by the solicitors for the husband or the wife to transfer into the name of the husband and the wife as joint proprietors plots Nos 5 and 27 of the property in Lebanon.

2. That a copy of these orders be served upon the said Lebanese Consultate-General by the solicitors for the wife.

3. That the order made on 14 July 2010 restraining the husband Mr King from leaving Australia is discharged AND IT IS REQUESTED that the Australian Federal Police give effect to this order which permits the said Mr King to depart the Commonwealth of Australia.

4. That the amended application in a case filed by the wife on 27 July 2010 and the response thereto filed by the husband on 1 September 2010 are otherwise dismissed.

IT IS CERTIFIED:

1. That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend.

AND THE COURT NOTES

A.For the purposes of the Australian Federal Police it is noted that the orders restraining RY born … 1977 (also known as …) remain in force.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 7073 of 2008

MS KING

Applicant

And

MR KING

Respondent

REASONS FOR JUDGMENT

1. The applications of both parties before me arise out of a transaction in Lebanon in about July 2009 which can be succinctly described as a transfer by the husband of his interest in real property in Lebanon to the third party to these proceedings.  In submissions, counsel for the husband described his client’s actions in leaving Australia to go to Lebanon around that time as foolish.  I agree. Importantly, that foolishness unleashed a series of applications culminating in the matters I heard on 6 December 2010. 

2. Much emotional energy and significant financial resources have been expended in this case which is still a long way from conclusion yet it has all of the hallmarks of an impending financial disaster for the parties. 

3. The husband is Mr King (“the husband”).  The wife is Ms King (“the wife”).  The third party is RY (“the third party”).

4. The husband described the third party as his “second wife (pursuant to a religious ceremony)”.  That relationship is currently unclear with counsel for the wife asserting that the third party arrived at court with the husband and even during the proceedings when requested to advise her position, she gave the appearance of looking to the husband for guidance.  Whatever the nature of that relationship, there have been intervention order proceedings between them.  The status of those proceedings currently remains unclear.

5. Further, the third party appears to speak little or no English and was assisted by an interpreter.  To compound matters, the third party against whom specific orders were sought in July 2010, has not participated in the sense of filing documents.  She failed to appear in September 2010 but did so in October 2010 under threat of having a warrant issued for her arrest.  She appeared before me unrepresented and sought no orders.  Through her interpreter, the third party said she had been to a lawyer but that person wanted $10,000.  Her only other contribution to the proceedings when asked whether she would attend upon a consular official to sign documents to transfer the Lebanese property back to either the wife and/or the husband and wife was to ask about her “rights” in relation to the property.  In a confusing statement from the bar table, the third party made reference to paying the husband money. 

6. Because the orders I propose to make do not prejudice the third party’s rights, I do not propose to consider her position further.  It is also important to note that orders have already been made for the transaction involving the husband and the third party, to be set aside. 

7. The emotional fog in this case needs to be blown away to enable the specific applications to be determined on the evidence relied upon by the parties.  That is the background to these reasons. 

8. On 27 July 2010, the wife filed her application seeking a raft of orders.  Those orders can be categorised into three groups.  The first relates to the third party signing all documents and doing all things required to transfer two properties in Lebanon to the wife as trustee for and on behalf of the husband and wife for the purposes of sale.  Counsel for the wife said that what was necessary to give effect to the transfer was for the wife to attend upon a consulate official to witness the necessary documentation. 

9. The second group of orders flows on from the first.  The wife sought orders that the Lebanese property be sold.

10. The third group of orders flowed on from the second.  On the basis of the sale being successful, the wife sought $250,000 be released.  $200,000 of that sum was to go towards legal costs associated with the proceedings in the Supreme Court of Victoria to which I shall later refer and a further $50,000 for proceedings in this Court.

11. On 1 September 2010, the husband filed a response.  His orders sought to dismiss the application of the wife.  He opposed the sale of the Lebanese property and the further payment of any money to the wife. 

12. On 14 July 2010, orders were made on an ex parte basis restraining the husband and the third party from leaving Australia.  The husband’s application on 1 September 2010 sought a discharge of the orders such that he would be able to leave Australia. 

13. In March 2009, Walters FM made orders restraining the husband from leaving Australia but those orders were discharged a week later.  Orders were then made of an injunctive nature preventing the disposal of property. 

14. In an affidavit filed 27 October 2009 and relied upon by the wife, a lawyer in Lebanon Mr Gilbert Abi Abboud described the transaction in relation to the Lebanese property as follows.  He said that the husband sold the 1200 shares he owned in the plots to the third party by granting her a proxy authorising her to buy his shares.  The third party then using the proxy, bought the 1200 shares for the equivalent of US$6666.

15. It is not clear who previously owned the land and whether it was simply the interest of the husband that was sold leaving the interest of the wife extant.

16. On 7 December 2009, by consent of the husband and the wife, orders were made setting aside the transactions in Lebanon to which I have referred.  It is important to note that no reference was made in the order to it being brought to the attention of the third party.  No indication was given that the third party had been put on notice of the proposed orders.  That seems to have been on the basis that the Court was told that the husband left a power of attorney with the third party by virtue of which, the various transactions occurred.  The husband alleged that he did not know that the third party had used the power of attorney.  Accordingly, a s 106B order was made on the basis that it did not affect any rights of the third party because she was simply acting in an unauthorised way as an agent of the husband.

17. Thus it will be seen that the various transactions were set aside in December 2009.

18. On 17 September 2010, Mushin J made orders requiring the third party to give effect to the orders of 7 December 2009.  Hence, the current application to which the husband at least consents on the basis that the third party had not given effect to the orders made in December 2009. 

19. The affidavit material upon which the wife relied was the application filed 27 July 2010, the wife’s affidavit filed 13 July 2010, the affidavit of the wife’s solicitor filed 13 July 2010 and an affidavit by Mr G, chartered accountant filed 5 October 2010.  She also relied upon the affidavit of Mr Abboud to which I have referred. 

20. The husband relied on his response filed 1 September 2010, his affidavit filed the same day and two affidavits he filed on 11 November 2009 and 25 November 2009 respectively.

21. In the course of submissions, Dr Ingleby as counsel for the wife also relied upon a judgment of Dessau J published 13 May 2009 and orders thereunder.  I have read her Honour’s reasons and the subsequent reasons of Austin J delivered 31 July 2009.

22. All of this material has been carefully considered and there is every reason to make an order requiring the third party to implement the orders of December 2009.  Having said that, there is insufficient evidence for me to be able to find that the wife has satisfied me on the balance of probabilities that it is appropriate or proper to make the orders in respect of the sale of the Lebanese property and the consequent disposal of the proceeds as she sought.  I say that notwithstanding significant reservations about the conduct of the husband both prior to separation and in Lebanon.  However the evidence of the wife does not reach the requisite standard to enable me to make the orders she otherwise seeks.

23. On 13 May 2009, Dessau J made orders allowing the wife to obtain an extension of a mortgage for litigation funding purposes.

24. Dessau J in a published judgment said:

    4.I have before me today the wife's Application filed 15 April 2009.  In it she seeks a variation of an order made in the Federal Magistrates Court on 15 September 2008.  It is the order contained in paragraph 4 of those orders, which was a general restraint against both parties from accessing any of the major assets.  She wants that injunction varied to allow her to extend the mortgage which exists over two properties, to release $100,000 to her to pay various legal fees.

    …

    9.In any event, I am satisfied that in this case there has potentially been a change of circumstances since the order was made.  Dr Ingleby's client alleges that since the order was made she has ascertained that the husband had effectively siphoned off $1 million into a separate account and that she, as a director of the company, is now left trying to sort out the tax consequences, and something like $60,000 of the $100,000 sought is to enable her to clarify that aspect, it being essential to the proper running of the business, but also essential to the proper running of this case, to know the commitments of the parties. 

    …

    11.It is Dr Ingleby's next argument for the wife though that really has the substance in this case.  It is not necessary at this stage to go through the figures, because there is a concession by Mr Nicholson for the husband that makes this aspect quite easy.  It can be summarised as follows.  Even putting the husband's case at its highest, the assets in this case will be sufficient so that if the wife were to have access now to $100,000 of the parties' funds, on any view it would not represent more than 25% of the parties' assets. 

    12.It is inarguable that the wife will receive at least that share on a property hearing, Mr Nicholson rightly concedes that.  Accordingly, I am satisfied that it is appropriate for her to receive that now for legal fees.  I am satisfied that there is sufficient complexity in this and that the legal issues are such, that money should be unlocked for her to look after the tax issues as well as her family law issues, which will include an expensive valuation of the business.  The trial Judge can determine how this payment is to be treated.

25. A further application was made to Austin J as a result of which his Honour delivered published reasons on 31 July 2009.  His Honour said:

    10.The husband submitted that the balance sheet would comprise the following at the very least:

    Real Property at M  $810,000

    Real Property at W         $485,000

    Shop business land and building   $890,000

    Land in Lebanon  $200,000

    Wife’s Barro Order  $100,000

    4WD Motor Vehicle   $20,000

    -------------

    Sub-total$2,505,000

    CBA Mortgage M property   $370,000

    CBA Mortgage W property  $172,000

    Wife’s Barro debt  $100,000

    S Land Mortgage  $465,000

    S Shop loan$180,000

    Potential Tax Liability   $350,000

    ------------

    Sub-Total$1,537,000

    Net$968,000

    21.There were essentially two points of dispute about the constituent elements and valuations comprised in the pool of assets as contended for by the husband.

    22.Firstly, the wife submitted that there would be a very substantial add-back to the assets in the form of monies withdrawn by the husband from the shop business and deposited into an ANZ account controlled by him. That add-back could conceivably be as large as $1 million.

    23.Secondly, the wife asserted that the potential tax liability of the parties may be significantly greater than the $350,000 allowed by the husband.

    24.As for the potential add-back, the parties were in agreement that, during the period between 2005 and February 2008, the husband took cash approximating $1 million from the shop business and deposited those withdrawals to an ANZ Bank account controlled by him.  The aspect of dispute between the parties was the extent to which the wife was privy to such transactions and her acquiescence to them.  On the husband’s version, the wife was fully cognisant of the transactions, and that the monies moved by him to the ANZ account were largely used by him unremarkably in the sustenance of the family and their day to day activities.  That was the subject of vehement dispute by the wife.  She contended that she was ignorant of the transactions.  The husband contended that none, or very little, of that amount would ultimately be added back to the pool of assets.  Conversely, the wife asserted that all, or most, of that amount would be added back.  As I have already remarked, the manner in which the hearing was conducted would not permit me to draw any firm conclusion either way at this interlocutory stage.

    25.In respect of the potential liability of the parties to the Australian Taxation Office, there is considerable uncertainty as to the quantum of that ultimate liability.  The parties agree that there will indeed ultimately be a tax debt due by them or their family company to the Australian Taxation Office, which will affect the value of the matrimonial pool of property, but the quantum of the liability is indeterminate. The husband contends that the wife has already filed in the proceedings an affidavit by the parties’ former accountant, Mr L, estimating the future tax debt at $350,000 exclusive of penalties.  However, the affidavit of Mr DH filed in the interim proceedings by the wife contained evidence by way of an annexure that the relevant tax liability could even be as high as $1,170,000, inclusive of penalties and interest.  Self evidently, if the prospective tax liability was anything approaching that magnitude the matrimonial pool of property would have a very little net worth.

    …

    32.Although it is presently difficult to be comfortably satisfied as to the wife’s present financial circumstances, it could not be asserted that she is impecunious.  Two encumbered parcels of real property are currently owned in her sole name.  She is the sole director and shareholder of the family company which controls the shop business, and the real property from which that business operates.  In recent times, the wife has voluntarily entered into financial agreements to secure her use of two expensive European motor vehicles.  She has available to her a residual loan facility of $300,000.  She has deposed to an income from the shop business of approximately $6,000 per month, together with payments received by her from her adult children approximating $2,000 per week.

26. The wife is seeking a further distribution of funds.  Dr Ingleby described the application as the Court exercising the power under s 79 relying upon the facts considered and accepted by Dessau J in 2009 or alternatively an application under s 117 of the Act relying upon various material to which I have referred.

27. Leaving aside the power to make the order, Dr Ingleby sought to lift the injunction of Walters FM in the same way that Dessau J had done in May 2009.

28. The wife’s evidence is complex.  She asserted that prior to separation, the husband who was an employee of the corporate entity of the parties had misappropriated significant sums of money at a time when the accountants for the business either knew or should have known that the actions of the husband were contrary to the interests of the corporate entity and hence of the wife as the director and shareholder.  The various transactions alleged include significant tax evasion.  All of that has been brought to the attention of the relevant authorities.  That however gave rise to the complaint of the husband that the various current actions of the wife were unnecessary. 

29. When the wife ascertained that these transactions occurred on the professional watch of the company accountants, she instituted proceedings in the Supreme Court of Victoria claiming damages in tort for losses to the extent of approximately $800,000.  The material filed by the wife discloses a statement of claim endorsed by Simon Wilson QC.  Although no documents were provided, it seemed common ground between counsel that a defence has been lodged by the accountants who in turn, have joined the husband as a party.  No copy of his defence was provided either. 

30. The wife and her solicitor said that the anticipated costs of the Supreme Court proceedings are likely to be up to $200,000.  The advice of that expense came from solicitors Herbert Geer. 

31. Furthermore, the wife and her solicitor indicated there was still considerable investigation to be undertaken in the family law proceedings and hence a further $50,000 “may be required” in those proceedings. 

32. The wife relied upon an affidavit of Mr G.  He is a chartered accountant with many years experience.  He was engaged by the wife to investigate the various transactions that occurred prior to separation in the parties’ business.  He gave evidence about his investigations and discussions with the Australian Taxation Office.  He said that he had advised the wife that an approach should be made to the Taxation Office to inform them that previous taxation returns contained errors and amended returns would be submitted once the investigations were completed. 

33. Mr G said that the matters with the Taxation Office had become “convoluted” because the Supreme Court proceedings would affect whatever returns were to be filed.  He said that that depended on whether the Court determined that the husband’s “defalcation” was in his capacity as an employee which in turn created the possibility of claiming the deduction for theft by an employee.  The taxation returns in question related to the period 2003 to 2008.  Mr G was unable to quantify the possible taxation ramifications. 

34. Two observations need to be made.  The first is that it is not clear what the foundation is for the assertion about the husband’s “defalcation”.  Whilst there may be a view held under the Corporations Act, the criminal law and industrial law about the actions of employees, it must also be remembered here that we are dealing with a business run by the parties to a marriage under a corporate structure.  It may very well be that the husband’s “defalcation” is in reality, his own money.

1. The second point is that the taxation ramifications are not just dependent upon the Supreme Court proceedings but also what determination may be made in this Court as to the entitlements of the parties. 

2. The various pending actions make the determination of the property of the parties difficult to identify and assess.  That is a critical question in relation to the issue of whether interim distributions should be made to the parties under s 79 of the Act but it is also relevant under s 117 because the Court is obliged to take into consideration the financial circumstances of each of the parties. 

3. In respect of the property of the parties, there is no agreement as to quantum.  In her evidence, the wife assessed a variety of assets as having values which she approximated.  No indication was given as to how she determined those figures.  An example was to the business premises which she said she believed to have a value of $890,000.  More specifically, she was able to refer to liabilities.  Even on her figures, there is an equity of less than $1 million. 

4. The husband significantly disagrees with the wife.  His values put the net equity between the parties at $2.3 million.  His estimates also have no evidentiary foundation.  The husband’s figures were set out in a document that was used for a conciliation conference. 

5. One very significant distinction between the parties lies in the valuation of the Lebanese property.  In her evidence, the wife said that she thought it was worth $300,000.  Mr Abboud in his evidence estimated the property to be worth more than US$150,000 but he too gave no foundation for that belief and I take into account that he is a lawyer not a valuer.

6. The stark contrast between the parties lies in the fact that the wife claimed that she needed the property in Lebanon to be sold to enable the funding of the litigation.  The husband’s position was simple.  He said he wanted to retain the property but in any event, there was ample other areas from which the wife could draw to fund the litigation albeit he was critical of her undertaking the litigation in the first place.

7. Counsel for the wife argued that the husband could hardly complain about the sale of the Lebanese property having regard to the fact that he had given it away to the third party.  I could not draw that inference because the evidence of the wife is that the third party used the power of attorney given to her by the husband.  The husband’s evidence was that the third party used the power of attorney without his knowledge. 

8. Counsel for the husband was also very critical of the wife for embarking upon the litigation in circumstances where there could have been a simple wastage argument conducted in this Court.  Having regard to the vague nature of the allegations of the wife and the uncertainties surrounding just who knew what, I could not make any findings in relation to the question of who might ultimately be responsible for monies that were taken and whether funds should be placed back into a pool of assets.  Even if there is some argument about “add-backs”, there is the question of where those funds now lie (if they still exist) and whether an adjustment is to be made under s 75(2)(o). 

9. In Strahan and Strahan [2009] FamCAFC 166, the Full Court said that when exercising the s 79 power in an interim hearing, the Court had to be conscious of the fact that the power had to be performed within the parameters of s 79. The Court had to rely on the material available at that time. In a separate judgment, Thackray J said:

   226.In my view, the two step approach advocated by senior counsel for the Wife aptly encapsulates the way the Court should approach an application for interim property settlement.  The Court must first identify circumstances that make it appropriate to give consideration to exercising its power to make an interim order.  It is at this stage that the Court has regard to the policy consideration that it is generally in the interest of the parties and the Court for there to be only one exercise of the s 79 power.  However, once the Court has determined that the interests of justice require it to exercise the power, the conditions on which the power is to be exercised are governed only by the obligation to make an order that is “appropriate” and to ensure that the proposed order is “just and equitable” by reference to the matters set out in s 79(4).  

   227.I accept the submission of senior counsel for the Wife that in applications designed to secure funds for legal costs it is appropriate for the Court to give consideration to whether the claim for costs is “genuine” – i.e. that a party is not bringing an interim application on a pretext.  However, once the Court is satisfied the claim is genuine, it should not “take a narrow view of the costs budget”.  I also agree that “it is dangerous for the Court to put itself in the solicitor’s chair [especially in a case where] there are 182 boxes of materials to go through”. 

   228.Finally, I accept the submission of senior counsel for the Wife that it is not appropriate to seek to control the extraordinary level of costs incurred in this litigation by denying only one of the parties access to funds.  In this regard it is important to keep in mind that the wife is proposing to spend funds that the husband acknowledges are hers.  In my view, that is her prerogative – and a matter between her and her legal advisors.

10. Having regard to the vague nature of the evidence in this case and the vast distinction between the positions of the parties as to the assets that they own, I am not at all comfortable about making any findings in respect of the various components required in s 79.  Most importantly, I cannot find circumstances which might enable me to say that it is appropriate to exercise the power in this case to make an interim order.  The underlying difficulty however is that whatever order is pursued, s 79(2) requires the Court only to make an order where it is just and equitable to do so.  The evidence in this case is so controversial that I could not make that finding.

11. In respect of the question of costs, counsel for the husband argued that the wife had had significant distributions to her already including those of the orders by Dessau J and Austin J and no justification had been made out for further distributions having regard to what had already been taken.  Counsel for the husband argued that the wife was in control of all of the assets but most importantly, the business.  The claim in the Supreme Court drawn by senior counsel seems to suggest that the business had a gross turnover of between $800,000 and $900,000 per quarter.  No details were given as to the net position but it is not at all clear to me just what funds the wife has at her disposal.  No evidence was given as to how the wife’s financial position was such that she could not afford to use the income of the business to pursue what is apparently genuinely argued as a business defalcation by the husband.  No indication was given as to how the wife was managing to retain the other asset including the former matrimonial home.  As will be seen from the matters above, the wife has had an opportunity previously to extend the mortgage facilities.  Counsel for the wife argued that there was limited equity on the wife’s evidence in the properties and if that was so, it would make it difficult for extended borrowings let alone servicing of those borrowings.  That however depends upon what valuations one relies and as I pointed out earlier, the evidence is unsatisfactory in relation to the valuations. 

12. Accordingly, I do not know the financial circumstances of the parties.

13. In the circumstances, the wife’s application for the sale of the properties and the disbursement of the funds as she pursued them, must fail.

14. The husband also sought orders that any restrictions relating to his passport be removed.  Counsel for the husband argued that there was no basis for the restriction to remain having regard to the orders relating to the setting aside of the Lebanese transactions.

15. The wife pointed to the orders of Walters FM made on 30 March 2009 but those orders were altered a week later allowing the husband to leave Australia upon giving the wife the appropriate notice of intention to travel.  Orders were made by me on 7 December 2009 allowing that travel and I note the husband’s return.  However, the wife argued that when he did return, he did not return his passport to the Melbourne registry of the Court.  In support of retaining the injunctive order, the wife said that there was a high likelihood that the husband would ensure that the third party returned to Lebanon.  The third party however is restrained from leaving Australia and there is no application before me to remove that restraint.  The wife’s position was that she would be significantly prejudiced but having regard to the matters to which I have referred above, I find that argument has little merit.

16. There seems to me to be no basis for the husband to be retained in Australia if the wife is control of all of the assets save for those in Lebanon.  Even on the wife’s case, the property in Lebanon is worth $300,000 and there is a pool on her version of something like $960,000 and she is pursuing the company’s accountants for $800,000. 

17. Freedom of movement in Australia is a constitutional right.  Courts have expressed caution about making orders precluding parties from leaving Australia.  That is particularly so where cultural issues and identity would normally entitle parties to return to their former homeland and mix with family.  Restrictions apply normally where children’s interests are at stake or there is a prospect that someone will report orders of the Court relating to financial issues.  Neither of those situations applies here. 

18. In those circumstances, the injunction precluding the husband from leaving Australia and the requirements for the retention of his passport must be discharged. 

I certify that the preceding Fifty Two (52) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 13 January 2011.

Associate: 

Date:  13 January 2011