King and King (No. 2)

[2009] FamCA 693

FAMILY COURT OF AUSTRALIA

KING & KING (NO. 2) [2009] FamCA 693

FAMILY LAW - PROPERTY - Interim applications - Wife is seeking interim orders permitting her to utilise evidence filed in the proceedings, and documents produced on subpoena, to solicit further technical advice from other professional advisors - Husband is seeking a certificate pursuant to s 128 of the Evidence Act and a Barro order

Family Law Act 1975 (Cth)
Evidence Act 1995 (Cth) s 128

Barro and Barro (1983) FLC 91-300
Luadaka and Luadaka (1998) FLC 92-830
Zschokke and Zschokke (1996) FLC 92-693

APPLICANT: Ms King

RESPONDENT: Mr King

INDEPENDENT CHILDREN’S LAWYER: Independent Children’s Lawyer

FILE NUMBER: MLC 7073 of 2008

DATE DELIVERED: 31 July 2009

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Justice Austin

HEARING DATE: 27 July 2009

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Stoikovska

SOLICITOR FOR THE APPLICANT: Berry Family Law

COUNSEL FOR THE RESPONDENT: Mr O’Shannessy

SOLICITOR FOR THE RESPONDENT: Maria Barbayannis & Co

COUNSEL FOR THE INDEPENDENT CHILDREN’S LAWYER Ms Walters

SOLICITOR FOR THE INDEPENDENT CHILDREN’S LAWYER Lampe Family Lawyers

Orders

1. Subject to compliance with Order 2 hereof, leave is granted to the wife to provide copies of the following documents to Herbert Geer Solicitors of 385 Bourke Street, Melbourne, Victoria:

   (a)       All documents filed with the court in these proceedings, including but not restricted to Applications, Responses, statements of financial circumstances, and Affidavits;

   (b)       All documents produced to the court on subpoena by Mr L of L & Co Accountants;

   (c)       All documents produced to the court on subpoena by H Insolvency Services;

   (d)       All documents produced to the court on subpoena by the Victorian and New South Wales Police Services;

   (e)       All documents produced to the court on subpoena by banking and financial institutions with which the husband and wife have operated banking accounts, either individually, jointly, or in the corporate name of S Pty Ltd;

   (f)       All documents produced to the court on subpoena, or alternatively to the wife or her solicitors, by T Accountants;

   (g)       All other documents and records in the possession of the wife or her solicitors which are common to the parties in the proceedings.

2. Leave is granted pursuant to Order 1 hereof for the purpose of the wife soliciting from Herbert Geer Solicitors advice in relation to the wife’s rights, liabilities, and interests, including but not limited to her prospective dealings with the Australian Taxation Office, Australian Securities and Investments Commission, Australian Federal Police, and State Police Services, and the potential institution of civil proceedings by or against her.

3. A certificate is granted to the husband pursuant to section 128 of the Evidence Act1995 (Cth) pertaining to the evidence given by the husband in his affidavit sworn and filed on 27 July 2009, and the evidence yet to be given in these proceedings by the husband, concerning the financial transactions related to the operation of the business known as “[S Shop]” and/or “[S] Pty Ltd” for the period between 1 January 2001 and 28 February 2008.

4. Order 4 made by the Federal Magistrates Court at Melbourne on 15 September 2008 is varied so as to permit the wife to extend the Commonwealth Bank loan secured by mortgage over the parcels of real property at M and W by the sum of $20,000, subject to her compliance with Order 5 hereof.

5. Within 14 days of the date of these orders the wife shall do all things and sign all documents as may be necessary so as to extend the Commonwealth Bank loan secured by mortgage over the parcels of real property at M and W by the sum of $20,000, and to cause that sum to be paid to the solicitors for the husband to be held on his behalf for use by the husband in payment of his legal fees incidental to these proceedings.

6. The husband and his solicitors shall utilise the funds received from the wife pursuant to Order 5 hereof only for payment of fees incurred in the retainer of counsel to appear for the husband at the final hearing in these proceedings.

7. The payment of funds by the wife in favour of the husband pursuant to Order 5 hereof is to be taken into account at the final hearing of these proceedings.

8. Liberty to apply to argue the question of costs, such liberty to be exercised within 7 days of the date of these orders.

IT IS NOTED

A.That the husband abandons his intended oral application for interim parenting orders as a consequence of the agreement reached between the parties and the Independent Children’s Lawyer recorded in the document entitled Notation (Exhibit A), which notes that both parents will attend intake interviews with Community West when requested to do so by Community West with the understanding that the commencement of time between the father and children is yet to be determined.

IT IS NOTED that publication of this judgment under the pseudonym King and 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

And

Independent Children’s Lawyer

REASONS FOR JUDGMENT

Introduction

1. Pending before the court for determination were two unresolved interim applications brought by the parties, namely:

   1.Orders 2 and 3 proposed by the husband in his Response filed on 22 June 2003.  The husband’s application for those two orders remained live as a consequence of Order 4 made by Cronin J on 25 June 2009.

   2.The orders proposed by the wife in her Application filed on 20 July 2009.

2. When the matter came on for hearing on Monday 27 July 2009 the husband agitated for the determination of the following further oral applications:

   3.The grant of a certificate to the husband pursuant to section 128 of the Evidence Act 1995 (Cth) in respect of evidence he intended to elicit in the proceedings, including that evidence contained within an unsworn affidavit, which the husband intended to swear and file in court that day, should such a certificate be granted.

   4.An application by the husband for the children to spend time with him on a supervised basis.

Husband’s application for interim parenting orders

1. Counsel appearing for the parties, together with the Independent Children’s Lawyer, requested that this application stand in the list pending their discussions concerning a resolution.  Shortly thereafter the parties and the Independent Children’s Lawyer returned to the court with a written notation signed by them, which was tendered and marked Exhibit “A”.

2. As a consequence of agreement as to the terms of that notation the husband abandoned his oral application for further interim parenting orders.

Application of the Wife filed 20 July 2009, and the Husband’s application for a certificate under s 128 of the Evidence Act

1. Ultimately, the husband did not seek to be heard in opposition to orders being made in accordance with Orders 1 and 2 posited in the wife’s Application filed on 20 July 2009. The husband’s position in that regard followed from him resiling from a claim for legal professional privilege in respect of evidence proffered by the wife, in expectation that he would be granted a certificate pursuant to s 128 of the Evidence Act. The reciprocal position of the wife was that she did not oppose the grant of the certificate in favour of the husband if she could succeed with her Application.

2. As a consequence of agreement between the parties, leave was granted to the wife to file in court and read the evidence of Mr DH contained within his affidavit sworn on 24 July 2009, and similarly, leave was granted to the husband to file in court and read in evidence the material deposed to by him in his two affidavits sworn on 24 and 27 July 2009.

3. The orders that I intend to make will reflect the agreement reached between the parties about the evidence to be adduced by the them, the protection afforded to the husband by a certificate under s 128 of the Evidence Act, and the freedom of the wife to furnish her chosen legal advisors with affidavit evidence filed in these proceedings together with copies of documents produced on subpoena.

Husband’s Response filed 22 June 2009

1. Orders 2 and 3 sought by the husband in his Response filed on 22 June 2009 purport to be an application for security for costs.  In fact, that was not so.  The husband’s counsel indicated in argument that the husband’s application was properly categorised as an application for a Barro order (see Barro and Barro (1983) FLC 91-300; Zschokke and Zschokke (1996) FLC 92-693). Although there is an element of similarity, an interim costs order in the nature of a Barro order is to be conceptually distinguished from an order for security for costs (see Luadaka and Luadaka (1998) FLC 92-830).

2. In support of his application for those orders the husband relied upon the following evidence:

   1.Husband’s Affidavit filed in the Federal Magistrates Court on 31 October 2008;

   2.Paragraphs 15 and 29 to 35 inclusive of his affidavit filed in the Federal Magistrates Court on 7 April 2009;

   3.Husband’s Affidavit filed on 22 June 2009;

   4.Affidavit of Maria Barbayannis filed on 22 June 2009;

   5.Affidavit of the husband sworn on 24 July 2009, and filed in court on 27 July 2009;

   6.Affidavit of the husband sworn and filed in court on 27 July 2009.

3. The wife read only the evidence of Mr DH contained within his affidavit sworn on 24 July 2009 and filed in court on 27 July 2009 in her opposition to the husband’s application.

4. On 13 May 2009 Dessau J heard a contested application between the parties in which the wife sought a similar Barro order to that now being sought by the husband.  The wife was successful in her application resulting in orders being made on that date by Dessau J.

5. During submissions, counsel for the husband submitted, in part, that the wife’s successful application for a similar order some months ago would be one reason why the court would look favourably upon the husband’s current application.  I reject that submission.  I accept the submission of the wife’s counsel that the wife’s application was formerly determined by Dessau J on its merits, and that so must the application now being made by the husband. 

6. Before turning to consider the merits of the husband’s Application, I should record that the husband submitted through his counsel that he was now seeking Barro orders in slightly different terms from those contained within his Response filed on 22 June 2009.

7. In lieu of Orders 2 and 3 sought in that Response, the husband sought orders to the following effect:

   1.That paragraph 4 of the orders of the Federal Magistrates Court made at Melbourne on 15 September 2008 be varied to allow the wife to extend the mortgage facility encumbering W property and M property, to provide to the wife the sum of $100,000, such sum to be provided to the husband’s solicitors Maria Barbayannis & Co and applied as follows:

   a)the sum of $30,000 to repay the debts set out in paragraph 33 of the husband’s affidavit filed 22 June 2009;

   b)the balance applied as may be necessary to the costs and expenses to be incurred by the husband in the proceedings;

   2.That the $100,000 provided to the husband by the wife shall be characterised by the trial Judge.

8. The terminology of those proposed orders is intended to replicate the terminology of the orders made by Dessau J in favour of the wife on 13 May 2009.

9. It is plain from the affidavit material filed by the parties that there is considerable factual disparity between them concerning the financial transactions that occurred, during their co-habitation and following their separation, with respect to the conduct of a shop business, which is notionally the property of a corporate entity S Pty Ltd.  No application was made by either party to cross-examine any witness in the proceedings and so, by reason of the manner in which the interim hearing was conducted, I am unable to make any findings of fact about those disputed financial transactions and the respective reliability of the parties’ evidence.  The analysis of the evidence and its application to relevant legal principles necessarily suffers to that extent.

10. The authorities have established that numerous criteria must be addressed in order to determine whether a Barro order ought to be made. Those criteria include the alleged position of comparative financial strength on the part of the respondent, the respondent’s capacity to meet his or her own litigation expenses, the inability of the applicant to meet his or her litigation expenses, the complexity of the financial affairs of the parties, and the need for expert investigation into those affairs.

11. The husband’s application was resisted by the wife, both as to the making of an order in favour of the husband at all, and in the alternative, as to its quantum.

12. Regrettably, there was no agreement between the parties as to the balance sheet upon which the parties’ respective property adjustment claims will eventually be litigated.

13. 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

14. 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.

15. 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.

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

17. 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.

18. 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.

19. In summary, the case mounted for the wife in opposition to the husband’s application was that the husband had already had the benefit of very substantial funds siphoned from the family business, the expenditure of which had not been properly explained by the husband, and with the yet to be determined taxation liability looming over the parties there was a substantial prospect that there would be very little net property to divide between them. In those circumstances she submitted that it would be inequitable for the husband to receive any further funds at this interlocutory stage.

20. By contrast, the husband asserted that he had conservatively estimated the net matrimonial assets based upon valuations drawn from the wife’s own evidence, and that the sum of $100,000 that he sought to be allocated to him in the form of a Barro order would constitute only slightly in excess of 10% of the pool of property calculated in that conservative manner. 

21. The husband contended that the funds sought by him were readily available.  Presently, the M and W parcels of real property are owned in the wife’s sole name and encumbered by mortgage to the Commonwealth Bank.  The current mortgaged loan balance is approximately $542,000.  However, it was conceded by the wife that she had already obtained the mortgagee’s approval to extend the loan by a further $400,000.  I was informed by the wife’s counsel that, of that $400,000, the sum of $100,000 had already been advanced to the wife to satisfy the terms of the Barro order made by Dessau J in favour of the wife on 13 May 2009.  It was common ground therefore that the wife still had immediate access to a further $300,000 from the mortgagee which was yet to be drawn down.

22. Of course, drawing down a further $100,000 would increase the interest repayments due on the loan balance. The husband’s proposed solution in relation to that impost was that the wife ought bear the expense of meeting those extra interest payments pending the final hearing, or alternatively, a small portion of the funds paid to the husband under the auspices of the Barro order ought be quarantined to meet the interest referable to the amount by which the loan was increased to meet the terms of the Barro order.

23. Having summarised the position of the parties, I turn to consider the evidence in light of the established legal principles.

24. The financial circumstances of the parties are complex and intricate.  That is beyond argument.  The wife has sought interlocutory orders permitting her to utilise evidence filed in the proceedings, and documents produced on subpoena, to solicit further technical advice from other professional advisors.  It would be unsurprising for the husband to wish to take a similar course.

25. 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.

1. The financial position of the husband is much less clear.  He asserts that he is in receipt of a Centrelink benefit as his only form of income.  The wife does not deny that he receives such a benefit, but she harbours considerable doubt that he is properly entitled to it.  The wife contends that the husband has failed to properly explain the manner of his expenditure of the vast amount of funds drawn by him from their business in the closing years of their co-habitation.  The wife contemplates that the husband has not properly disclosed the extent of the assets and financial resources which remain within his control.

2. I have considered the evidence adduced by the parties, and ultimately I cannot be satisfied that the husband has fully and properly explained the expenditure of funds that he undoubtedly received and controlled. The husband is the applicant seeking the Barro orders in his favour.  He consequently bears an onus of demonstrating the existence of circumstances warranting the making of such orders.  I am not satisfied that he has properly discharged that onus in order to justify the payment of monies to him, at least in the sum that he seeks.  I cannot reliably conclude that he is without the necessary assets to properly conduct his case.  I remain concerned that if orders are made in the terms sought by the husband there is a real risk that, come the final hearing, the payment now of $100,000 to the husband will result in his overpayment of assets from the available matrimonial pool and that the wife will be unable to recoup her share from him.

3. In addition, the husband has conducted his case on the basis that the funds sought by him are not to be allocated in their entirety to the conduct of this litigation on his behalf.  Of the total sum of $100,000 sought by him, he wishes to allocate $30,000 to the repayment of debts he alleges that he owes to friends and associates.  The repayment of such debts does not properly fall within the embrace of Barro orders.

4. The husband adduced evidence through the affidavit of his solicitor, Ms Barbayannis, that the residual sum of $70,000 would be allocated by him to the payment of legal costs and disbursements.  Of that sum, the amount of $19,800 is earmarked as the quantum of fees that would likely be payable by the husband for his representation by counsel at the final hearing.  For abundant caution I am prepared to exercise discretion to make a Barro order in favour of the husband requiring the wife’s payment to the husband’s solicitors of $20,000 which sum must be allocated by the husband to the payment of his counsel.  The allocation of that lesser sum balances satisfactorily the competing interests of the husband to be properly represented at trial and the risk to the wife of the husband being paid too great a sum at this interlocutory stage which will preclude her ultimate recovery of funds from the husband should the balance sheet ultimately be settled in the manner that she contemplates.

5. I am comforted by the fact that, if the balance sheet at final hearing is constructed consistently with the evidence asserted by the husband in these interim proceedings, and if his submissions as to contributions are accepted, he has the prospect of achieving property adjustment orders that would ensure his recovery of assets of sufficient value to cover the legal costs and disbursements that he would likely incur with his solicitors in the course of the proceedings.

Costs

1. In her Application filed on 20 July 2009 the wife sought an order for costs against the husband.  She was ultimately successful in her Application.  Although the husband finally agreed to the orders sought by the wife, that agreement was not forthcoming until the day of hearing.

2. In the Response filed by the husband on 22 June 2009 seeking Barro orders, the husband also sought costs against the wife.  The wife strenuously resisted the making of any Barro order in favour of the husband.  The husband has been successful in securing an order in his favour, albeit at a significantly reduced figure from that proposed by him.

3. Both parties have enjoyed a measure of success in the pursuit of their interlocutory applications.

4. Neither party is in receipt of a grant of legal aid.

5. Neither party could be regarded as having misconducted themselves, at least in the context of the manner in which they pursued their own and resisted the other’s interim applications. 

6. None of the interlocutory applications were necessitated by reason of a failure to comply with previous orders.

7. Having regard to the provisions of section 117 of the Family Law Act, I am not persuaded at this point to depart from the orthodox order that each party shall bear his and her own costs of the interlocutory proceedings.

8. My preliminary views about the manner of disposition of the competing costs applications have been formed without the benefit of any argument from the parties. I will give the parties liberty to re-list the matter before me to argue the question of costs if either is dissatisfied with the preliminary views I have expressed.

9. The orders are as set out herein.

I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Austin

Associate: 

Date:  31 July 2009