Knowles and Gaudi and Anor
[2008] FamCA 436
•23 June 2008
FAMILY COURT OF AUSTRALIA
| KNOWLES & GAUDI AND ANOR | [2008] FamCA 436 |
| FAMILY LAW – PROPERTY – Transaction to defeat claims – Whether mortgage registered to husband’s mother was a sham |
| APPLICANT: | Ms Knowles |
| RESPONDENT: | Mr Gaudi |
| SECOND RESPONDENT: | Mrs Gaudi |
| FILE NUMBER: | MLF | 3755 | of | 2005 |
| DATE DELIVERED: | 23 June 2008 |
| PLACE DELIVERED: | Townsville |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Monteith J |
| HEARING DATE: | 5, 6, 7, 8, 9 & 12 May 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Smallwood |
| SOLICITOR FOR THE APPLICANT: | Pearsons Barristers and Solicitors Pty Ltd |
| COUNSEL FOR THE RESPONDENT: | Mr Hoult |
| SOLICITOR FOR THE RESPONDENT: | Lampe Family Lawyers |
| COUNSEL FOR THE SECOND RESPONDENT: | Mr Werner |
| SOLICITOR FOR THE SECOND RESPONDENT: | Dellios, West & Co. |
Orders
The property known as and situated at M more particularly described in Certificate of Title Volume … Folio … be sold forthwith, with the wife to have sole conduct of the sale (“the sale of [M property]”).
The Court declares that the second mortgage expressed to be in favour of the husband’s parents registered on the title to the M property secures payment to the second respondent in the sum of:
(a) $150,000, plus
(b)interest calculated from 10 February 2006 at the rates prescribed from time to time by the Penalty Interest Rates etc 1983 (Vic).
The wife engage a real estate agent (“the agent”) to effect the sale as soon as practicable, on such terms and conditions as the agent recommends, at a reserve price of $480,000 or such other reserve as the President of the Real Estate Institute of Victoria recommends in writing.
The husband and the second respondent sign all documents and do all things necessary to facilitate and conclude the sale, including a discharge of the second mortgage in registrable form upon the request of the wife or the agent.
Should the husband or the second respondent fail to sign any document referred to in paragraph (4) hereof within two (2) days of the request of the wife or the agent, then a Registrar of the Family Court of Australia, Melbourne Registry, be and is hereby authorised and directed to sign any such document on behalf of the husband and/or the second respondent
The proceeds of sale of M property (after payment of all expenses of and incidental to the sale) be applied as follows:
(a)In payment of all amounts secured by the registered first mortgage in favour of St George Bank Limited;
(b)In payment to the second respondent of the aggregate of the following amounts:
(i)$150,000, plus
(ii)$39,211.50 being interest calculated at penalty rates from 10 February 2006 to 5 May 2008, plus
(iii)$49.2813 per day for each day thereafter to the date of payment
(c)$5,536 to the wife (being repayment of the amount incurred by her to obtain a certificate of occupancy for M property).
(d)So much of the proceeds to the wife as necessary to result in her receiving 80 percent of the asset pool calculated in accordance with the List of Assets and Liabilities marked “A” and annexed to these orders (such list having been agreed between the parties save for the liability to the second respondent which pursuant to paragraphs (2) and (6) of these orders have now been declared owing and quantified).
(e)The residue to the husband subject to paragraph (7) hereof.
Prior to the payment to the husband of any sum pursuant to paragraph 6(e) hereof the sums of:-
(a)$21,000 arrears of spousal maintenance owing to the wife as at 3 May 2008; and
(b)$3,400 being amounts outstanding and owing to the wife pursuant to costs orders made in her favour;
be deducted from any such amount and paid to the wife.
The husband be solely responsible for any capital gains tax assessed as a result of the sale of M property and shall indemnify the wife and hold her harmless with respect to same.
Pending settlement of the sale of M property the husband be entitled to receive all rental from the property and shall make all mortgage payments due pursuant to the first mortgage to St George Bank Limited as and when they fall due and pay all rates and outgoings on the property as and when they are incurred.
The proceeds of sale of the former matrimonial home, being $345,106, currently held in trust on behalf of the husband and wife be forthwith paid to the wife for her sole benefit.
The husband deliver all personal photographs and effects of the wife in his possession, together with all photographs of the children of the parties within seven (7) days to the office of the wife’s solicitors, Messrs Pearsons, for the wife’s retention.
Paragraph 5 of the husband’s Amended Response filed 5 December 2007 is dismissed.
Each party retain any superannuation to which they are or may become entitled for their sole benefit.
Unless otherwise specified, each party to retain for their sole use and benefit all chattels, money, cars and property currently in their respective possession.
General liberty to apply.
“A”
List of Assets and Liabilities
Cash (sale proceeds of S property)
$345,106.00
M property value
$480,000.00
Superannuation husband
$38,000.00
Water and rates arrears
$4,817.00
Interim Distribution
$50,000.00
Harley Motorcycle
$8,900.00
Withdrawn Superannuation
$8,000.00
Cash in home
$32,000.00
Total
$966,823.00
Less Liabilities:
First Mortgage
$230,000.00
Certificate of Occupancy Cost
$5,536.00
Net Total
$731,287.00
WIFE PROPOSES DIVISION AS FOLLOWS:-
Wife to receive 80% : $585,029.00
Husband to receive 20% : $146,257.00
The wife should also receive $5,536.00 being debt repayment for certificate of occupancy, in addition to her percentage entitlement, which has already been factored into the asset pool calculation.
The wife should also receive, from the husband’s share, $24,400.00, being arrears of spousal maintenance of $21000, and costs of $3,400.00 outstanding pursuant to costs orders made.
Total due to wife $614,965.00
The wife has received already $25,000.00 interim payment, and $2,000.00 cash taken by her at separation.
Total due to wife after adjustments re receipts $587,965.00
The husband has received already $25,000.00 interim payment, $8,900.00 for the Harley, $8,000.00 superannuation, $4,817.00 in rates he failed to pay, and which have now been paid out of sale proceeds, $38,000.00 in superannuation, and $30,000.00 in cash.
IT IS NOTED that publication of this judgment under the pseudonym Knowles and Gaudi is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT TOWNSVILLE |
FILE NUMBER: MLF 3755 of 2005
| Ms Knowles |
Applicant
And
| Mr Gaudi |
Respondent
And
Mrs Gaudi
Second Respondent
REASONS FOR JUDGMENT
Introduction
This was the hearing of an amended Application for Final Orders filed by the wife on 29 October 2007, in which the wife sought orders to the effect that:
1.1 The Court determine the pool of assets owned or controlled by the parties including some identified premature distributions, add backs, liabilities or interests;
1.2 The second mortgage dated 20 September 1991 over what became identified as the M property in favour of the husband’s deceased father and surviving mother be set aside pursuant to the provisions of s 106B(1) of the Family Law Act;
1.3 That if the mortgage was not set aside under s 106B(1) that pursuant to s 90AE(1)(c) of the Family Law Act, the husband’s mother substitute the husband as the person solely liable for any debt due under the mortgage;
1.4 Pursuant to s 90AE(2) of the Family Law Act, the husband’s mother permit the M property to be sold without regard to any alleged debt due to her under the said mortgage;
1.5 Alternatively, the alleged debt to the husband’s mother be disregarded by the Court;
1.6 Pursuant to s 79 of the Family Law Act the husband do all acts and things as may be necessary to cause a payment equivalent to 80 percent of the pool of assets to be made to the wife;
1.7 That from the husband’s share of the division of property, he pay the wife:
1.7.1arrears of maintenance of $200 per week calculated from 24 April 2006 up to the date of final order;
1.7.2costs of $1750 pursuant to an earlier court order;
1.7.3costs of $1320 pursuant to an earlier court order
1.8 The husband pay the wife lump sum maintenance;
1.9 The wife retain the use of a 2001 Holden Commodore;
1.10 The husband retain the use of a Harley motor cycle;
1.11 That the husband make available to the wife certain photographs etc;
1.12 Orders in effect allowing each party to the exclusion of the other to retain all other property and superannuation etc in their name or possession;
1.13 The husband pay the wife’s costs;
1.14 The husband’s mother pay the wife’s costs of the proceedings relating to the second mortgage;
1.15 Pursuant to s 116(1)(B) of the Child Support (Assessment) Act the wife sought a Departure Application;
1.16 That there be an order departing from the Child Support Assessment dated 7 June 2007;
1.17 That the husband pay child support for the children calculated on an annual income of $36,920;
1.18 That the husband pay child support in the form of a lump sum.
I have set out the orders sought by the wife in her amended Application because by the end of the trial she had abandoned her applications that I have identified as being 1.2, 1.3, 1.8, 1.10, 1.15, 1.16, 1.17 and 1.18.
The wife’s counsel abandoned 1.2 as it was clearly, on the facts of the case, unarguable as a matter of law. 1.3 was abandoned because it was a nonsense. That is because the mortgagor is and always was the husband. 1.8 was abandoned on the basis that on the evidence before me, there was no evidence that would support an order for lump sum maintenance. 1.10 was abandoned because the Harley motorcycle had been sold by the husband for $8900 and was treated as an add-back in the property pool. 1.15, 1.16, 1.17 and 1.18 were abandoned for the same reasons as 1.8 was abandoned, namely, on the evidence, they were untenable.
The husband in his amended Response of 5 December 2007 sought orders to the effect:
4.1That the net proceeds from the S property (which was the former matrimonial home and which had been sold and the net proceeds of sale being $345,106 being held in trust for the husband and wife) be divided:
(a)in payment of arrears of school fees;
(b)$15,000 into a joint interest bearing trust account for children’s school fees and expenses;
(c)divided 65 percent to the wife and 35 percent to the husband.
4.2That the M property be sold.
4.3That the proceeds be divided:
(a) In payment of all expenses incidental to the sale;
(b) To pay the sum required to discharge the mortgage to the husband’s mother;
(c) To pay any Capital Gains Tax;
(d) 65 percent to the wife and 35 percent to the husband.
4.4Alternatively, that the husband keep the M property and indemnify the wife against all liabilities and pay her $44,191.
4.5That paragraph 1 of the orders made on 24 April 2006 by Justice Watt including any arrears accumulated thereunder be discharged. (This was an order for the payment of spousal maintenance which as at 3 May was $21,000 in arrears).
4.6The husband be reimbursed for amounts paid by him with respect to repairs of Unit 1 of the M property. (The M property consisted of three units and he was living in Unit 1 and had spent money on it to make it, according to his evidence, liveable for him.)
4.7That the wife pay the husband’s costs.
4.8Such further orders as the court deems appropriate.
The order that had been sought with respect to arrears of school fees and a Trust Account for the children were not pursued. The evidence was that the husband had come to an agreement with the Catholic School that the children attended whereby he paid a minimal amount for the children’s education and that all arrears had been forgiven.
With respect to the M property being kept by the husband, it became clear on the evidence that that was untenable and it was not pursued by his Counsel.
With respect to the application to discharge the order made by Justice Watt on 24 April 2006, the evidence did not support any such application and the husband’s Counsel invited me, in final submissions, to dismiss that application which I shall do.
The husband’s mother was joined as a Second Respondent and in her amended Response filed on 16 November 2007, she sought dismissal of the wife’s application insofar as it related to her, and a declaration that the Registered Second Mortgage in her favour was valid and enforceable and in the event that the Court ordered the sale of the property, the amount secured by the Second Mortgage including interest be paid to her from the proceeds of sale prior to any distribution to the husband or wife.
At the conclusion of the trial, Counsel for the Second Respondent handed up Minutes of Proposed Orders sought by the Second Respondent which I have adopted in part in my orders.
For convenience, I set out the Minutes of Orders sought by the Second Respondent hereunder:
“1.The Wife’s application against the Second Respondent is dismissed.
2.A declaration that the second mortgage expressed to be in favour of [the husband’s parents] registered on the title to the property at [M], more particularly described in Certificate of Title Volume […] Folio […] secures payment to the Second Respondent in the sum of:
a)$150,000, plus
b)Interest calculated from 10 February 2006 at the rates prescribed from time to time by the Penalty Interest Rates Act 1983 (Vic.)
3.In the event that the Court orders that the property be sold, an order that the proceeds of sale be applied as follows:
(a)In payment of all amounts secured by the first registered mortgage in favour of St George Bank Limited.
(b)In payment to the Second Respondent of the aggregate of the following amounts:
(i)$150,000, plus
(ii)$39,211.50 being interest calculated at penalty rates from 10 February 2006 to 5 May 2008; plus
(iii)$49.2813 per day for each day thereafter to the date of payment
(c)The balance between the Husband and Wife as ordered by the Court
4. The Wife pay the costs of the Second Respondent.”
THE EVIDENCE
The wife, a female friend of the wife, the husband, the husband’s mother and the solicitor for the wife were all called to give evidence.
I will deal with their evidence in more detail later in my Reasons, but for present purposes, it is sufficient to say that I found the husband not to be a witness of truth. As his Counsel conceded in addresses, he was not a good witness and his credit was in tatters by the end of the case.
Likewise, the husband’s mother was not a good witness. She gave her evidence through an interpreter but it was clear to me that she had little or no real knowledge of the matters in question in this case.
I found the wife to be an honest witness but she laboured under the distinct disadvantage of being illiterate. Moreover, I formed the distinct view, that the husband often deliberately kept her in the dark.
I think for the purpose of resolving the issues in this case, it is helpful, at this time for me to set out a chronology. Not all of these things are perfectly clear from the evidence. Some dates are set out in documents, some were given by different witnesses at different times and not all were agreed. However, doing the best I can on the evidence before me, I find the chronological facts as follows:
March 1933 Husband’s father born
Nov 1936 Husband’s mother born
1957Husband’s father and mother marry
1958Husband’s twin sister and brother born (D and R)
Aug 1953 Husband born
1973 Husband’s sister, L, born
1969/70Husband’s father and Mr A commenced a trucking business in partnership
Sep 1972 Wife born
1973The two trucks in the trucking business were destroyed by fire
1973/4Husband’s father borrows money to purchase a truck and rents another truck. He employs a driver called J, not the Mr A referred to earlier.
1977/8The driver J resigns and the husband’s brother, R, is employed as a second driver
March 1977 E and Co Pty Ltd registered
02.03.77Husband’s father appointed a director of that company
02.03.77Husband’s mother appointed a director and secretary of that company
16.03.79The name of the company changed to E Pty Ltd
1990Husband and wife commence cohabitation
1990 (approx) Husband’s brother R breaks his leg and the husband resigns employment from the Bank and is employed in R’s place as the second driver.
14.01.90Husband appointed a director and secretary of the company
14.01.90Husband’s mother resigns as director and secretary of the company
1990Husband receives two shares in the company and the husband’s father holds two shares out of the issued shares of $4, a nominal value of $1 a share
12.12.90Husband becomes registered proprietor of the M property – Certificate of Title Volume … Folio … – for a purchase price of $110,000 with a deposit of $45,000 and the balance borrowed from St George Bank on the security of a mortgage
20.09.91Mortgage given over the M property by the husband to his parents to secure an advance of $150,000
21.10.91The said mortgage is registered on the title
24.08.94A variation of priority of mortgage is executed
29.04.98Husband’s father resigns as director of the company
Oct 2001Husband and wife marry
16.12.01Husband receives the further 2 shares in the company thereby holding the total of 4 issued shares
09.02.06Husband’s parents call up the loan with penalty interest
Oct 2006Husband’s father dies intestate
PRINCIPLES APPLICABLE TO THE MATTERS BEFORE THE COURT
The provisions of s79 of the Family Law Act define the Court’s power and obligations in determining applications for property settlement. The Court has a discretion to make orders altering the interests of parties in property, provided the Court is satisfied that such orders are appropriate, just and equitable.
The Court is obliged by the provisions of s79(4) to take into account the following matters:
a)the financial and non-financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them (sub-paragraphs (a) and (b));
b)the contribution made by a party to the marriage to the welfare of the family, including any contribution made in the capacity of homemaker or parent (sub-paragraph (c));
c)the effect of any proposed order upon the earning capacity of either party to the marriage (sub-paragraph (d));
d)the matters referred to in s75(2) so far as they are relevant (sub-paragraph (e));
e)any other order made under the Act affecting a party to a marriage or a child of the marriage (sub-paragraph (f));
f)any child support payable (sub-paragraph (g)).
Accordingly, in assessing the entitlement of each of the parties to property settlement, there is both a retrospective element relating to the contributions of each of the parties and a prospective element relating to matters referred to in s75(2).
According to guidelines established through a series of leading decisions, the Court should determine the following matters on the evidence, that is:-
· Firstly, the Court must determine the assets, liabilities and financial resources of the parties to the marriage.
· Secondly, the Court must consider all relevant contributions of each of the parties and, where possible, the Court should assign an entitlement of each of the parties arising as a result of those contributions.
· Thirdly, the Court should then consider the prospective components of the claims of each of the parties arising as a result of the provisions of s75(2). The Court should then identify what alteration, if any, should be made to the entitlement of each of the parties earlier assessed on account of contributions as is deemed necessary having regard to the s75(2) factors.
· Fourthly, having determined and considered the entitlement of each of the parties to property settlement, the Court should consider whether there is, in addition, any entitlement to spousal maintenance, either periodic or lump sum, in accordance with the provisions of ss72 and 74 of the Family Law Act.
THE INCOME, PROPERTY, FINANCIAL RESOURCES AND LIABILITIES OF THE PARTIES
The parties have reached agreement in relation to the value and extent of their property, financial resources and liabilities save for the question of the second mortgage.
I set out hereunder the assets and liabilities agreed except for the second mortgage of $150,000 plus interest.
“Assets and Liabilities according to Wife
Assets and liabilities according to wife, and agreed, except for husband and 2nd respondent’s assertion that 2nd mortgage of $150000 plus interest should be deducted.
Cash (sale proceeds of [S property])
$345,106.00
[M property] value
$480,000.00
Superannuation husband
$38,000.00
Water and rates arrears
$4,817.00
Interim Distribution
$50,000.00
Harley Motorcycle
$8,900.00
Withdrawn Superannuation
$8,000.00
Cash in home
$32,000.00
Total
$966,823.00
Less Liabilities:
First Mortgage
$230,000.00
Certificate of Occupancy Cost
$5,536.00
Net Total
$731,287.00
The wife also provided proposed division of the assets on the basis that I was to find that there was no liability to the second respondent under the said mortgage, which also set out the matters in agreement with respect to the Certificate of Occupancy, arrears of spousal maintenance, arrears of costs, interim payments received by the wife and by the husband and some add-backs relating to payments received by the husband. I set that out hereunder:
“WIFE PROPOSES DIVISION AS FOLLOWS:-
Wife to receive 80% : $585,029.00
Husband to receive 20% : $146,257.00
The wife should also receive $5,536.00 being debt repayment for certificate of occupancy, in addition to her percentage entitlement, which has already been factored into the asset pool calculation.
The wife should also receive, from the husband’s share, $24,400.00, being arrears of spousal maintenance of $21000, and costs of $3,400.00 outstanding pursuant to costs orders made.
Total due to wife $614,965.00
The wife has received already $25,000.00 interim payment, and $2,000.00 cash taken by her at separation.
Total due to wife after adjustments re receipts $587,965.00
The husband has received already $25,000.00 interim payment, $8,900.00 for the Harley, $8,000.00 superannuation, $4,817.00 in rates he failed to pay, and which have now been paid out of sale proceeds, $38,000.00 in superannuation, and $30,000.00 in cash.”
So it can be seen that the real question in issue between the parties in relation to the asset pool related to the validity and enforceability of the second mortgage.
The second mortgage was Exhibit SG1 to the affidavit of the husband’s mother, the second respondent, filed 14 September 2007.
The mortgage was over the land being described in Certificate of Title Volume … Folio … which was already subject to a Registered Mortgage to a bank. The mortgagor was the husband and the mortgagees were the husband’s parents. The advance was for $150,000 with a due date to be mutually arranged between the parties and no interest for the term of the mortgage but if the principal not repaid when demanded, penalty interest will be charged at the current interest rate. Its commencing date was 20 September 1991 and it was signed by the husband and his parents.
In Exhibit SG3 to the second respondent’s affidavit, there was a Variation of Priority dated 24 August 1994 and signed by the husband’s parents and the St George Bank.
The original mortgage given by the husband to his parents shows the Australian and New Zealand Savings Bank Limited as being the first Registered Mortgagee whereas the Variation of Priority shows the first Registered Mortgagee to be the St George Bank Limited. It was never made clear to me how this had come about nor do I think that it matters. The question of the amount owing to the First Mortgagee was never in issue between the parties. What was in issue was the second mortgage to the husband’s parents.
As it is the husband’s mother who seeks to enforce the mortgage, I will go to her evidence first.
Her evidence in chief is set out in her affidavit filed 14 September 2007 and for my purposes, it is sufficient for me to set out the following paragraphs of her affidavit:
“9.My husband and [Mr A] ran the trucking business together successfully for the first three years or thereabouts. Among other smaller contracts, they had a three year contract with a business in […] which sold sheep skins. The trucks were always stored overnight at this firm’s warehouse.
10.One night in August 1973 (at the time I was in hospital expecting to give birth to [L]) a fire broke out in the warehouse. Both trucks were destroyed. We had no insurance policy to cover them.
11.Following the fire, [Mr A] told my husband that he no longer wanted to be involved in the trucking business. Not wishing to lose his contracts, my husband borrowed against our family home which was then at [D], to purchase one truck and to rent another. I do not recall the cost. My husband drove one of the trucks. He employed another driver, also by the name of [J] (I do not recall his surname) to drive the other truck. [J] worked for my husband for about four years. After that he resigned and my son, [R], took over the job as the other driver.
12.[R] worked as a driver for the business until he broke his leg in a motorcycle accident. At that point, [the husband] left his employment with the [Bank] and took over [R’s] role as the second driver. He was around 27-28 years old at the time.
13.In early 1977, my husband commenced running the business through a company [E] & Co Pty Ltd. Now produced and shown to me and marked with the letters “SG-2” is a true copy of a search of that company.
14.I recall it was my husband’s long term intention that, after he was too old to drive, [R] would take over the trucking business. However, [R] did not wish to pay any money for it. This was not acceptable either to my husband or to me.
15.[The husband] and my husband subsequently began discussions about the prospect of [the husband] taking over the business. It was apparent, at around this time, that the effects of Parkinsons disease were gradually reducing my husband’s ability to meet the physical demands of running the business. I do not know when he was first diagnosed with Parkinson’s disease but it was around this time that he first told me about it. He went into hospital and for years afterwards he took medication because of it.
16.I had no involvement in the negotiations between my husband and [the husband] regarding the terms of the transfer of the business. I was aware they agreed on a purchase price of $150,000. I do not know on what basis that figure was calculated. I was aware that it was agreed between them that payment would be deferred to a later date but I do not know what date was agreed. I do not know whether there was any agreement between them that interest would be payable. What I do know, however, is that my husband and I were not letting [the husband] take the business as a gift. We had three other children who we were obliged to treat equally and we were in no position to make gifts of that magnitude to all of them. It is true we did not need the money immediately and, as long as [the husband] appeared to be succeeding in life, we were happy to defer payment. But our position was clear. The business had contracts on foot and owned two trucks. It had a substantial value as a business and we intended to be paid for it. To date, neither my husband nor I received any payment for the business.
17.I am not aware of the circumstances in which the business came to a close. I was informed at the time that the contracts expired and [the husband] subsequently sold the trucks. I do not know what price he received for them.
…
22.I refer to paragraph 39(d) of [the wife’s] affidavit sworn 19 June 2007. I assume by reference to a “caveat” [the wife] is referred to the Mortgage. To the extent that [the wife] states or invites any inference that my husband and I entered into the Mortgage to secure a fictitious debt, that inference is false. It is true that the mortgage was entered into without any advance of liquid funds. The Mortgage was entered into in consideration of [the husband] taking a transfer of the trucking business.
23.On 24 August 1994, my Husband and I signed document [sic] entitled “Variation of Priority of Mortgages or Charges Section 75B of the Transfer of Land Act 1958”. Now produced and shown to me and marked with the letters “SG-3” is a true copy of that document. I confirm one of the signatures on the document is mine. I signed this document at [the husband’s] request. To the best of my recollection, it was at the time [the husband] was proposing to demolish the existing house and construct units on the [M] property. I was aware at the time of signing that the effect of the document was to entitle St George Bank to priority of payment ahead of my husband and I if the [M] Property were sold.
…
24.In early 2006, after I became aware that [the wife] was seeking a property settlement with [the husband] and that the [M] Property was likely to be sold, I instructed my solicitor, Mr Peter Lamers, to take whatever steps were necessary to recover the $150,000 secured by the Mortgage. On my instructions, Mr Lamers sent a letter of demand to [the husband] dated 9 February 2006. Now produced and shown to me and marked with the letters “SG-4” is a true copy of that document.”
SG-4 which is exhibited to the Second Respondent’s affidavit is a copy of a letter sent by Cain and Lamers addressed to the husband and dated 9 February 2006 calling up the advance of $150,000 and advising that penalty interest would be charged from that date until settlement.
Under cross examination, she said that she signed the mortgage at a firm of solicitors and she did not know what she was signing. She said she never talked about business with her son nor did she ask any questions. She said her husband had done all the business and she was just the mother. She denied that there had been any conversation between her, her son or her husband about protecting assets of the son by way of the mortgage document.
She said that she sent the letter to the son, that is the letter calling up the loan, after she got a letter from the solicitors for the wife.
That was clearly wrong because the letter which is Exhibit SG4 to her affidavit is dated 9 February 2006 and the first letter sent by the wife’s solicitors to the Second Respondent, which became Exhibit G in these proceedings was dated 6 July 2006.
She said that she and her husband went on the pension and that she did not know whether the $150,000 loan was disclosed to Centrelink. She said she signed the application for the pension but she did not read it. She said she went on the pension about 1991 and she did a review application after her husband’s death and she did not disclose on her review application the $150,000 debt. She then in my view deliberately lied by saying that when she filled the form in, everyone was happy. The husband and the wife were still together and that is why she did not disclose it. That was plainly a lie because the husband and the wife had separated before her husband’s death.
With respect to her son R, who was not called as a witness, she said that he left the business because he had hurt himself, that she got on very well with R, but that R never owned one of the trucks used in the business.
With respect to repayment, she said that her son owed her $150,000 and she expected him to pay interest. She said she did not know how much and she does not know anything about interest. She said the reason she was seeking repayment of the debt was because the wife might get some of it. She said that the husband told her that he would prefer not to sell and she would not make him sell the units to pay her, but if the units were sold, she wanted her money.
The husband’s evidence in chief on this matter is set out in his affidavits filed 11 September 2007 and 10 April 2008.
I set out the relevant paragraphs of the affidavit of 11 September 2007 hereunder:
“8.On the 21st October 1991 a mortgage was registered over the property in favour of my parents, […] and […], in consideration for a transfer of their trucking business to me as will be outlined further in my Affidavit. In 1996 or thereabouts the Wife and I decided to build two units on the [M] property. We took out a further loan from the ANZ Bank in order to finance the building of those units and that was secured over the property. The ANZ Bank would not advance the funds unless they were registered as first mortgagees and my parents agreed to give them priority with respect to the mortgages.
…
12.In 1990 as will be set out hereunder I negotiated a transfer of the trucking business operated by my father and which was operated through a company known as [E] Pty. Ltd.
…
16.I ceased operating the business in the year 2000 or thereabouts when the existing contract had expired. I was not sorry that the business finished. I sold the trucks and applied all of the proceeds towards retirement of debt.
…
32.I refer to sub paragraph 39 (b) of the wife’s affidavit and say as follows:
(a)I am not aware of a Caveat secured over the property by my parents. There is a mortgage in favour of my parents secured over the property. That mortgage secures a debt that I still owe in the sum of $150,000. My father died in 2006 and the debt is now owed to my mother [the second respondent].
(b)The debt represents the purchase price of a trucking business which was owned by my parents and operated by the Company known as [E] Pty Ltd.
(c)During 1990 and 1991 my father indicated to me that he wished to sell the trucking business. At the time I was employed by him as a driver. My father was getting older and was suffering from Parkinson’s Disease and his health was deteriorating and that was the reason he wanted to get out of the business.
(d)My father told me he wanted to sell the business for the sum of $150,000. I considered that to be a very low price. At the time the business was operating 2 trucks. One of the trucks was fully paid off and the other truck had a minimal amount (approximately $2,000-$3,000) owing on it. There was also a contract with a company known as […] (they exported sheep skins). There was approximately 5 years left on the contract with [the sheep skin company]. My father had been driving for [the sheep skin company] for many years and I was confident that the contract would be extended beyond the 5 years anyway. The owners of [the sheep skin company] knew me and I got on well with them.
(e)The contract provided a very good gross income for the company at the time. I made enquiries with the bank to see if I could borrow that amount to pay my father. The bank advised me that they would not lend me the sum required.
(f)I am not aware of any valuation of the business at the time but from my knowledge of the value of the trucks and the operation of the business I considered it to be a good (low) price and my father had told me that this was the price that he wanted to achieve on the open market.
(g)As I couldn’t borrow the $150,000 to buy the business I proposed to my father that he transfer the business to me in return for a mortgage over my property at [M] in the sum of $150,000. My father agreed to this proposal. It was never intended that the business would be by way of a gift. It was agreed that eventually the $150,000 would be repaid. For one reasons [sic] or another it took some time (October 1991) for the mortgage to be registered.
(h)I don’t recall us agreeing on a date for repayment of the $150,000. I do recall however that it was agreed between us verbally that the money would be repayable at call. It was agreed between us verbally that whenever my father needed or wanted the money repaid that he would simply ask for same and I would either try and borrow the money if I was able to or sell the property in order to pay him. Interest was to be payable from the date of demand if I didn’t repay on demand. This term was verbal and written (on the mortgage).
(i)I had many conversations with my father over the years with respect to that debt. It was always acknowledged that the principal sum of $150,000 remained as a debt and that it would be repayable one day. My father made comments to me indicating that one day he and my mother would require the funds and also made it clear to me that it would not be fair on my siblings if the debt was not repaid. My father would say to me on numerous occasions words to the effect “You are not my only child”, when discussing the debt. He clearly indicated to me that the debt had to be repair and I accepted that.
(j)That at the time that the transaction was entered into I had commenced a relationship with the wife, although in that early period of our relationship we were living together “on and off”. However, at all stages my wife was aware of the debt and that it was repayable. We had many conversations about it over the years. The wife is well aware that this is not a fictitious debt and that it was always intended to be repaid and that both my parents always expected it to be repaid and my mother still expects it to be repaid. The mortgage was never intended to defeat any claim by the wife. Our relationship with in its infancy. We weren’t married and had no children then. It never occurred to me anyway that we would one day have a property dispute or that the wife would dispute the debt. My father and I never discussed the wife when agreeing to the transfer of the business and the mortgage back [sic] and had no reason to do so.
(k)When I took over the business I discussed interest payments to my father. I pointed out to him that if I had borrowed the money from the bank I would have had to pay interest on the debt. He indicated that he didn’t require payment of interest during the term of the loan (ie until he made demand for payment of the $150,000) but would be happy if I paid for some of his expenses in lieu of interest. I continued to pay for some of his expenses over the years. The payments that I made were well below commercial rates of interest (in the early years of the loan commercial rates were at about 17% per annum). I have not continued with those payments and this concerns me.
(l)Because I was taking over the business I became a Director and Shareholder of [E] Pty Ltd which is the company incorporated by my father. I believe that he incorporated that company in 1977 or thereabouts. My mother was also an office holder in the company. She resigned her position in 1991. My father remained as a Director of the company until 1998. He did so because at the time I took over the business there was a requirement for companies to have more than one office holder.
(m)My parents assistance in transferring the business in this fashion greatly assisted us and we would not have the assets we have now without it (and in particular the proceeds of the [S]property).”
The relevant paragraphs of the affidavit filed 10 April 2008 are also set out hereunder:
“2.(f)That in relation to paragraph 7, I say that the wife was aware of the sum of $150,000 being owed to my parents secured by a mortgage over the property at [M]. I deny that I told the wife that the mortgage was a ruse, used to cover the risk of losing the units in the event of financial problems. I say that the wife was aware of the loan from my parents in the sum of $150,000 and for her to say otherwise is untrue.
(g)That in relation to paragraph 8 I say that I do not recall saying to [Ms T] that a mortgage placed over her home prior to entering into a domestic relationship with her partner may assist her financially should the relationship fail and I deny the implication that the mortgage in favour of my parents is a sham, solely registered in October 1991 to minimise my net worth. The mortgage was registered in favour of my parents was raised to secure repayment to them of the sum of $150,000 being the value of parent’s [sic] trucking business known as [E] Pty Ltd which was transferred to me at an agreed price of $150,000. As I was unable to raise finance the mortgage in favour of my parents was registered over [M property] to secure their interest.”
Under cross examination, he said he originally had worked as a driver for his father earning $200-$300 per week, and that he then bought the business from his father and took a wage of from $300-$350 per week. He said there were no records. He said that the company was earning $170,000 gross takings but there were no records of that. He said that there was an accountant who acted for the company who was still his accountant, Mr L. He said he has no idea what the net profit of the company was and that the company never paid any dividends.
He said that he became a shareholder on 14 January 1990. There was no written contract of the sale, that the firm of Cain and Lamers, Solicitors were the lawyers who acted with respect to the sale. He said there was no discussion with respect to capital gains tax.
He said there was no valuation of the company before he bought the company, but that R had wanted the company but did not want to pay for it. He said when he purchased the business, there were two trucks and that R, his brother, never owned a truck.
With respect to the M property which has the three units built on it, he said he would like to stay in one of the units and that he did not want to sell them. He had earlier given evidence that he moved in to Unit 1 in August 2007. He said that if he was allowed to retain the units, he would pay his mother in two or three years time. There was absolutely no evidence that would allow me to find that he would have the capacity to do so.
He said the mortgage was dated 20 September 1991 and he purchased the property in 1990 for $110,000, borrowing $40,000-$50,000 from the ANZ Bank. He said he had saved the deposit of $45,000.
He said that he sold the Ford truck for $20,000, the Kenwood for $8,000 and that he lost his contract with the contractor and so closed down the business.
Cross examined by the barrister for the Second Respondent, he said that his father had advertised the business for sale for $150,000 for six to eight weeks, but he could not remember whether his father got any offers.
He then gave some rather confusing evidence about the trucks, the net effect being that the trucks were owned by the company and that R, his brother, never owned one. He said that the wife’s evidence about the Scanier truck being owned by R was a lie.
He said R lives in Melbourne and it is to be noted that R was never called and no explanation for the failure to call him was given.
He said the wife was lying in paragraph 39(d) of her trial affidavit and also Ms T, the wife’s friend, was lying. He said he first told the wife about the mortgage in 1993 and then a little later said that he first told her in 1996 and that she was very angry.
At best, his evidence was full of inconsistencies.
The wife’s evidence is contained in paragraph 39 of her trial affidavit filed on 20 June 2007. I set it out hereunder:
“39.DEBTS AT SEPARATION:
(a)At the time of separation the only debt that I was aware of was the mortgage to the bank secured against the units in [M].
(b)That with respect to the alleged debt owing to the husband’s parents, I say that I am not aware as to why that Caveat has been lodged. There was no debt owing to the husband’s parents. The Husband’s parents had a trucking business. They owned various trucks and employed drivers to drive them. The drivers included their son [R] and [the husband]. The husband’s father who has now passed away became too old to do the driving however initially when the business started, he did drive. He then suffered from Parkinsons Disease and stopped driving. Eventually, the two sons, being the husband [and] his brother [R] took over the business. [R] was responsible for most of the driving and although [the husband] did some of the driving he also did most of the bookwork. Both of the boys owned their trucks. [The husband’s] father who originally started the business had an old Leyland truck which he had had for a very long time and it was certainly too old to be used and was not of any value. [The husband] and [R] then had an argument and so [R] left the business leaving [the husband] with the business. [The husband] was the only one operating the business and being responsible for it. He was receiving the income. He was doing some contracting work.
(c)That at no stage have we ever borrowed money from the husband’s parents save and except for a sum of approximately $9,000.00 or $10,000.00 at one stage to buy verticals in the home. This was money that the husband’s parents did not want to have in the bank as they were on a pension and we used the money to put verticals in our home. When [J Pty Ltd] was sold that money was paid back to them in cash.
(d)That I say that the husband has fabricated together with his parents the caveat secured against the [M] property. The husband has told me as well as many others that the caveat was placed on the home so that in the event that anything would happen, they would receive that sum, the caveat was secured for of [sic] approximately $150,000.00, which is what the husband told me. He told me that it meant that if ever the units had to be sold for any reason, either because of the truck business or any other work that he was involved in, then his parents would get back the first $150,000.00 and give it back to me. He in fact told my friend [Ms T], that she should consider doing it, because she would then be covered and not stand to lose a property. He was very proud of these “arrangements” that he had come up with. It has always been very clear to me that he has never owed the money to his parents as no money was every [sic] received from them and I say that this is a complete fabrication.”
In her updated trial affidavit filed 9 April 2008, the wife revisited these matters and I set out hereunder her updated evidence:
“5.That I refer to paragraph 39(c) of my trial Affidavit sworn 19 June and filed 20 June 2007 and I say further that I was involved in and partook in conversations about a loan in the sum of $9,000 or $10,000 from the husband’s parents regarding verticals which were purchased for our home. The conversation took place between the husband, myself and his parents whereby we all agreed to the loan being provided. The husband and I agreed to pay back that loan in cash when our business [J Pty Ltd] was sold, at which time we were able to do so. The husband made no request of me at that time at all to repay any other money to his parents. The husband did not mention or refer to any other debt to his parents at all.
6.That I refer to paragraph 39(b) of my trial Affidavit sworn 19 June and filed on 20 June 2007 and I say that the word “caveat” should read “mortgage” when used in that paragraph.
7.That in or about the time that we operated [J Pty Ltd] the husband told me that a mortgage was on our units to his parents to secure $150,000. He told me that this was in the event that we were at risk of losing the units as a result of financial problems. The husband told me that his parents would then give back the $150,000 to him. I was not involved in any discussion or request for a loan of $150,000 from the husband’s parents, either with the husband or with his parents. I never agreed to such a loan being advanced to us. I have no knowledge of any money or benefit instead of money being advanced by them to us or either of us by his parents. No request for payment of this alleged loan secured by the mortgage against the units has ever been made during the marriage with the husband. No suggestion of any such debt being owed was ever made by any person until these proceedings commenced. I cannot read and have never read the mortgage document the husband seeks to rely upon. A Title Search conducted on my behalf has revealed a change in the priority of the mortgages affected in 1996. In 1996 we borrowed money from the ANZ bank secured against the units by way of mortgage. At that time the previous mortgage to the husband’s parents was moved to second priority. I had no knowledge of this dealing and there was no discussion with me at that time about any matter concerning any alleged loan to his parents.
8.That I was present during a conversation with my friend [Ms T] and the husband when the husband suggested to [Ms T] that she have a mortgage placed over her home prior to entering a domestic relationship with her partner and that she do so to avoid risk in the event that he made a claim against her property. This was so that there would be an initial debt owing to a third person which could then be repaid to her if her defacto partner tried to make a claim, thus reducing the amount of ownership in her home.”
The wife was cross examined by Counsel for the husband and said that when she commenced living with him, he was driving a truck – a semi-trailer. He had his father’s orange truck first and then bought a Kenwood. She said he ceased driving trucks when they bought J Pty Ltd, a business that was sold just prior to separation. She said he sold the truck in 2000 but she does not know how much he sold it for and she did not know whether he owed any money on the truck. She said that when the husband’s father became sick, the husband took over driving trucks for his dad which was the orange truck. She said the husband’s father had two trucks and there was a contract with a company to transport sheep skins. She said that the husbnad had done the same job as his father. She said that the husband took over his father’s business. She said she first found out about the mortgage to her parents-in-law when the husband and wife owned J Pty Ltd. She said that an accident had occurred to one of the children at J Pty Ltd and that the husband had told her that the mortgage protected them to some extent from law suit and that she believed the husband. She said that the truck business had been given to the husband.
Under cross examination by Counsel for the Second Respondent, she said her only knowledge about the trucking business was from what the husband had told her. She said he took over the business from his parents and he did not pay any money to his parents. She said that the husband’s brother, R, drove a truck owned by R and that R was doing similar work to the husband transporting sheep skins. She said the husband ran the business. She said that the husband did not tell her that the mortgage was to secure payment for the trucking business.
The wife’s friend, Ms T, gave evidence in chief by affidavit filed 5 September 2007 in which she deposed as follows:
“7.That during the time the husband and wife were together the husband spoke to me about my building of a home with my current partner. My current partner had nothing at the time I was building the house and I had $60,000 and the husband in these proceedings, [Mr Gaudi], told me that to take out a second mortgage in the name of somebody I trusted, such as my sister to put her on as a second mortgagee for the sum of $60,000 so that if I separated from my current partner my sister would get back that money and was guaranteed to get back that money and then my sister could give it back to me.
8.[The husband] thought this was a great idea and he told me that it meant that I would not have to try to prove that the money actually existed, nor would my sister have to show that she lent me the money. He also advised me that if my sister did have to demonstrate where the money came from she could say that she lent it to me in “bits and pieces”.”
She was cross examined by Counsel for the husband and confirmed the conversation that she had deposed to in her affidavit. I have no hesitation in accepting her evidence.
The submissions by the wife’s Counsel with respect to the mortgage debt were that it was a sham transaction and should be set aside and alternatively, that if I came to the conclusion that the debt was unlikely to be called up, then I could use s 90AE in aid of the wife.
Counsel on behalf of the Second Respondent submitted that unless I set aside the mortgage as a sham, s 90AE does not allow me to make any order depriving his client of her rights under the mortgage. He submitted that it was plain from the Explanatory Memorandum, paragraph 149 and from ss 90AE(3)(b), (3)(d), (4)(e) and (4)(f) that it was the intention of the legislature that bona fide third party creditors be repaid. In addition, he relied on s 90AK requiring “just terms”.
Counsel on behalf of the husband adopted the submissions on behalf of the Second Respondent with respect to these matters and did not add anything.
It is convenient to start an examination of these principles by reference to Ascot Investments Pty Ltd and Harper and Anor 148 CLR 337.
This was a decision of the High Court in which Gibbs J wrote the leading judgment. At pages 354-5, his Honour said:
“The authorities to which I have referred establish that in some circumstances the Family Court has power to make an order or injunction which is directed to a third party or which will indirectly affect the position of a third party. They do not establish that any such order may be made if its effect will be to deprive a third party of an existing right or to impose on a third party a duty which the party would not otherwise be liable to perform. The general words of ss. 80 and 114 must be understood in the context of the Act, which confers jurisdiction on the Family Court in matrimonial causes and associated matters, and in that context it would be unreasonable to impute to the Parliament an intention to give power to the Family Court to extinguish the rights, and enlarge the obligations, of third parties, in the absence of clear and unambiguous words. It can be safely assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform. It is one thing to order a party to a marriage to do whatever is within his power to comply with an order of the court, even if what he does may have some effect on the position of third parties, but it is quite another to order third parties to do what they are not legally bound to do. If the sections had been intended to prejudice the interests of third parties in this way, it would have been necessary to consider their constitutional validity.
The position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations under the Act. Sham transactions may always be disregarded. Similarly, if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.
Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third party in the property, nor the existence of conditions or convenants that limit the rights of the party who owns it. To take two obvious examples, the Family Court could not compel a husband to assign to his wife a lease without obtaining the necessary consent of the lessor, and could not order the transfer to a wife of land owned by a husband free of mortgage, when in fact the land was mortgaged to a third party. Thus, in the present case, the Court must deal with the husband’s shares in Ascot Investments as they in fact are, that is, as shares in a company whose memorandum and articles contain a restriction on transfer.”
It is necessary now to consider how the Courts have approached and defined the concept of sham transactions. Lockhart J, in Sharrment Pty Ltd and Ors v Official Trustee in Bankruptcy 1998 18 FCR 449 at pp 453-454 traces the history of the word “sham”. This is picked up in Richard Walter Pty Limited v Federal Commissioner of Taxation 33 ATR 97 where Hill J said at 109-110 as follows:
“The judgment of Lockhart J in Sharrment traces the history of the use of the word “sham” and the judicial meaning of the word as enunciated in various cases. At FCR 454 his Honour seeks to define the word “sham” as follows:
A “sham” is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that it is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.
The concept of sham was discussed in somewhat similar terms by Diplock LJ in Snook in a passage cited by Lockhart J (at FCR 453-4) where his Lordship said:
I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities … that for acts or documents to be a “sham”, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. [Emphasis added.]
I have set out the quotation from Snook having regard to a submissions made by counsel for Richard Walter that a transaction could not be a sham unless there was shown to be some other real transaction for which the sham transaction was a disguise. While that will ordinarily be the case it is not invariably so. A transaction may, as the passage cited from Snook recognises, be found to be a sham where there is no real underlying transaction at all. Without in any way derogating from the views expressed by Lockhart J in Sharrment, I would prefer to define a transaction as being a sham transaction where it involves:
A common intention between the parties to the apparent transaction that it be a disguise for some other and real transaction or for no transaction at all.
In so doing I give effect to the words emphasised in the passage from Diplock LJ. For example, parties might bring into existence a document described as a mortgage which records an advance by a lender to a borrower of a sum of money and the obligation of the borrower to repay it. The document may be a disguise in the sense that while on its face it appears to be a mortgage securing an obligation to repay, there is no real transaction at all behind it for which the document will be a disguise. Such would commonly be the case where the so called mortgage is brought into existence as part of a “money laundering” exercise to enable a fraudulent explanation to be given as to how certain funds came into the hands of the person described as the mortgagor.
However, in a case such as the present where there have been real payments made by bills of exchange in the form of cheques cleared through the banking accounts of the parties and recorded as loans in relevant books of account, the transactions involving the bills of exchange can clearly not be a disguise for something which is not a transaction at all. Rather, for there to be a sham there will need, in such a case, to be a common intention of both the apparent lender and the apparent borrower, that the transaction which they have purported to have entered into disguises some real transaction.”
The concept of sham transactions or transactions intended to defeat the wife’s anticipated property orders were considered by Carmody J in Hinde and Hinde and Anor 208 Fam CA24.
His Honour said at page 6, paras 33 – 37, the following:
“33.The main contested issues are whether the sponsorship deal was (a) a bona fide commercial transaction or a “sham”; or (b) intended to defeat the wife’s anticipated property orders or had that practical effect; and (c) the second respondent had (i) notice; (ii) provided adequate consideration; and/or (iii) is otherwise entitled to the protection offered by s 106B(3).
34.Thus the elements of intention, effect, knowledge, value and notice all are of major significance to the outcome.
35.The applicant bears the onus of proof in this regard. There is no legal (as distinct from evidentiary) obligation on the defending party in family proceedings to disprove an allegation. Section 140 of the Evidence Act 1995 (Cth) prescribes the standard of proof in civil proceedings including those conducted in this court. It provides that the court must find the case of a party (with the onus of proof usually being on the alleging party) proved if it is satisfied that the case has been proved on the balance of probabilities. There are degrees of probability but, when the law talks about “the balance of probabilities”, it envisages a level of confidence to the point that the court can be reasonably satisfied that the alleged facts in issue is more likely than not. Subs 140(2) then goes on to say that together with any other relevant matter it may take into account when deciding whether subs 140(1) is satisfied if it is to take into account the (a) nature of the cause of action or defence; and (b) the nature of the subject matter of the proceedings; and (c) the gravity of the matters alleged.
36.Sub-section 140 (2) introduces notions of weight and variability similar to those nominated by Dixon J in his famous dictum in Briginshaw v Briginshaw where his Honour described proof as being the feeling of actual persuasion of the occurrence of a disputed event or the existence of a contested fact and noted that at common law it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the decision maker which:
“…is not a state of mind…attained or established independently of the nature and consequence of the fact or facts to proved [sic].. The seriousness of an allegation made, the inherent unlikelihood of a occurrence of a given description or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal.”
37.Thus, Dixon J concluded inexact proofs, indefinite testimony, indirect inference or equivocal hypothesis will not do.”
Consequently, the question is “Has the wife proved to my reasonable satisfaction that the mortgage is a sham?”
It is clear on the evidence and even admitted by the wife that the husband took over the business from his father. The Company Search of E Pty Ltd being the ASIC Current and Historical Company Extract which is Exhibit SG2 to the Second Respondent’s affidavit shows that the husband became a director of the company and received two shares being half the issued capital in the company on 14 January 1990 at which time the Second Respondent resigned as a Director and Secretary. It is true that the husband’s deceased father did not resign as a Director until 1998 and that the husband did not receive the further two shares in the company until 16 December 2001. The explanation for the deceased father remaining a Director is given by the fact that pursuant to former Regulation 64 of Table A, a company in general meeting was able to specify the Director share qualification and if no share qualification was fixed, the Directors are required to hold one share.
It is true that the husband did not become the registered proprietor of the M property, over which the mortgage was given, until 12 December 1990 and that the mortgage was not given until 20 September 1991 and registered until 21 October 1991.
Further, neither the husband’s brother R or the accountant or the solicitors were called to give evidence and I am entitled, by reason of Jones v Dunkel having regard to the fact that their absence was not explained, that their evidence would not have helped the husband. However, I am not permitted to infer that the untendered evidence would, in fact, have been damaging to the party not calling it.
Although I accept the wife as a truthful witness and, as I have already said, regard the husband and his mother as generally unreliable, I am nevertheless unable to be satisfied that this second registered mortgage is a sham.
Although the Second Respondent gave evidence that the husband had told her that he would prefer not to sell the M property and that she would not make him sell the units so as to enable him to be able to pay her, she did give evidence that if the units were sold, she wanted her money.
There is no credible evidence which would enable me to find that the Second Respondent’s debt would be able to be paid by the husband save from out of the proceeds of the sale of the M property.
Counsel for the wife submitted that if I came to the conclusion that the debt was unlikely to be required to be paid by the Second Respondent, then I could either ignore it or rely upon s 90AE of the Family Law Act 1975.
The first submission relates to a decision of the Full Court of the Family Court in Biltoft and Biltoft 1995 FLC 92-614. This was a decision of Nicholson CJ, Ellis and Buckley JJ. At page 82,124 in their joint Judgment, the Court said:
“A general practice has developed over the years that, in relation to applications pursuant to the provisions of s. 79, the Court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities. In the case of encumbered assets, the value thereof is ascertained by deducting the amount of the secured liability from the gross value of the asset. See, Ascot Investments Pty Ltd v. Harper & Anor (1981) 148 CLR 337 where Gibbs J. (as he then was) pointed out at p 355 that the Court “must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or convenants that limit the rights of the party who owns it”. Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities. See Prince and Prince; General Credits Australia Limited (Intervenor); A-G for the State of Queensland (Intervening); A-G for the Commonwealth of Australia (Intervening) (1984) FLC 91-501.”
Then a little later in the Judgment, their Honours said at page 82,127-8 as follows:
“Notwithstanding the general practice which has developed, the Court has indicated that it may properly determine not to take into account or to discount the value of an unsecured liability in certain circumstances. Such liabilities would include but are not limited to a liability which is vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred.
…
In relation to unsecured liabilities, we would with respect agree with the observation of Nygh J. in Af Petersens and Af Petersens (supra) at p 76,669:-
‘Nor, as had been pointed out earlier, is there anything in the decision of the High Court in Ascot Investments Pty Ltd v Harper and Harper to suggest that this Court cannot make an order dividing the assets of the parties because such a division might hamper a third party in his or her chances of recovery of a debt.”
Further, we are of the view that the diminution of the assets of a party to a marriage as a result of an order of the Family Court does not affect the right of an unsecured creditor to apply to a Court for an order which will then justify execution against the unencumbered assets of that party. As Elliott J. said in Hannah and Hannah; Tozer and Tozer (1989)FLC 92-052 AT P 77,59:-
“The Family Law Act has been in operation now for nigh on 15 years – long enough for those in business or finance to realise that the property of persons with whom they deal may be the subject of competing claims under the [Family Law] Act by a spouse, or perhaps a child of the marriage. If they thus advance money or supply good without security, then the choice – and the risk – is theirs”.”
…
Thus, although there is a general rule as set out in Prince and Prince (supra) and Rowell and Rowell (supra), the rule is not absolute, is not prescribed by the statute and there are a number of well recognised exceptions to some of which we have already referred. There is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to the Court making an order under s. 79, nor is there a rule of priority as between a creditor claimant and a spouse. Those rights, however, cannot be ignored. They must be recognised, taken into account and balanced against the rights of the spouse. That was the approach adopted by the trial Judge. In this case, there are uncertainties surrounding the debt, including the reluctance of Mr Horrocks to negotiate as to an amount, to institute proceedings for its recovery or to seek a stay of the proceedings in this Court. These factors must form part of the balancing equation.”
It is clear from a careful reading of this Judgment that the Court was being careful to distinguish between secured and unsecured liabilities.
In this case, I having found that the registered second mortgage is not a sham, the Second Respondent is a secured creditor with a second mortgage registered over the title of the M property. In my view, nothing said in Biltoft would enable me to ignore it.
As for the operation of s 90AE, I set out hereunder its terms:
“90AE Court may make an order under section 79 binding a third party
(1)In proceedings under section 79, the court may make any of the following orders:
(a) an order directed to a creditor of the parties to the marriage to substitute one party for both parties in relation to the debt owed to the creditor;
(b) an order directed to a creditor of one party to a marriage to substitute the other party, or both parties, to the marriage for that party in relation to the debt owed to the creditor;
(c) an order directed to a creditor of the parties to the marriage that the parties be liable for a different proportion of the debt owed to the creditor than the proportion the parties are liable to before the order is made;
(d) an order directed to a director of a company or to a company to register a transfer of shares from one party to the marriage to the other party.
(2)In proceedings under section 79, the court may make any other order that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.
(3)The court may only make an order under subsection (1) or (2) if:
(a) the making of the order is reasonably necessary or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order concerns a debt of a party to the marriage – it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full; and
(c)the third party has been accorded procedural fairness in relation to the making of the order; and
(d)the court is satisfied that, in all the circumstances, it is just and equitable to make the order; and
(e)the court is satisfied that the order takes into account the matters mentioned in subsection (4).
(4)The matters are as follows:
(a)the taxation effect (if any) of the order on the parties to the marriage;
(b)the taxation effect (if any) of the order on the third party;
(c)the social security effect (if any) of the order on the parties to the marriage;
(d)the third party’s administrative costs in relation to the order;
(e) if the order concerns a debt of a party to the marriage – the capacity of a party to the marriage to repay the debt after the order is made;
Note:See paragraph (3)(b) for requirements for making the order in these circumstances.
Example:The capacity of a party to the marriage to repay the debt would be affected by that party’s ability to repay the debt without undue hardship.
(f) the economic, legal or other capacity of the third party to comply with the order;
Example: The legal capacity of the third party to comply with the order could be affected by the terms of a trust deed. However, after taking the third party’s legal capacity into account, the court may make the order despite the terms of the trust deed. If the court does so, the order will have effect despite those terms (see section 90AC).
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order, the third party raises any other matters – those matters;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
It is also necessary to set out s 90AK which I do so hereunder:
“90AK Acquisition of property
(1) The court must not make an order or grant an injunction in accordance with this Part if the order or injunction would:
(a) result in the acquisition of property from a person otherwise than on just terms; and
(b) be invalid because of paragraph 51(xxxi) of the Constitution.
(2) In this section:
acquisition of property has the same meaning as in paragraph 51(xxxi) of the Constitution.
Just terms has the same meaning as in paragraph 51(xxxi) of the Constitution.
It is also necessary to refer to the Explanatory Memorandum and in particular, paragraph 149, which I set out hereunder:
“149. The provision is intended to apply only to the procedural rights of the third party it is not intended to extinguish or modify the underlaying substantive property rights of third parties. The order can only be made if it is reasonably necessary or appropriate to effect the division of property between the parties and the third party must be provided with procedural fairness. The order also cannot be made if it is unlikely that the result of the order would be a debt not being paid in full.”
The sections were considered in H and H (2006) Fam CA 167 by O’Ryan J in a Judgment delivered on 14 March 2006 which largely deals with the constitutionality of these provisions and also in a memorandum in relation to an appeal heard by Kay J in a matter of C and C Appeal No SA71 of 2006 dated 16 April 2007.
Having regard to paragraph 149 of the Explanatory Memorandum and in addition to the specific provisions of s 90AE(3)(b) and (4)(e) and the provisions of s 90AK, I do not consider it possible, as a matter of law, to make any orders under s 90AE which would assist the wife.
Consequently, I propose to make the declaration sought by the Second Respondent with respect to the second mortgage.
CONTRIBUTIONS
Counsel for the wife argues that I should assess contributions as being equal up to the point of separation.
Counsel for the husband submits that I should assess contributions as 55 percent/ 45 percent in the husband’s favour. He did not address me on post-separation contributions. It seems that his argument for weighting the contributions in the husband’s favour rested upon the fact that the husband gave evidence that he had saved $45,000 prior to the relationship commencing and that that was used as the deposit for the M property.
The evidence establishes that the husband and wife commenced cohabitation in 1990 and that the M property was purchased in that year. It was purchased for $110,000 with a deposit of $45,000, the balance being borrowed.
M property was the principal place of family residence from 1990 to 1998.
The parties had three children, a daughter, born in February 1993 (now 15½), a second daughter, born in December 1995 (now 12½) and a third daughter, born in January 1999 (now 9½).
On the evidence, the wife was the principal homemaker and parent. The development of the M property into units was a joint effort on the part of the husband and wife and they borrowed further funds from the bank to complete two further units on that property.
They purchased S property, which is the property that has been sold and the proceeds of sale are held in trust. It was purchased without a loan in 1998 and a house was built on it, the husband being the owner builder. The parties borrowed $100,000 to build the house. That borrowing by way of mortgage was transferred to the M property.
The trucking business, which the husband operated, was wound down in 2000 and they then purchased a business for $150,000 called J Pty Ltd. Both parents worked in that business and it was sold shortly before separation for approximately what it cost them.
In addition, the wife worked from home providing beauty services, earning on her evidence somewhere between $100 and $150 per week, whereas the husband said she worked 20 hours per week and saved about $20,000.
On all of the evidence, I am satisfied that up to the point of separation, contributions should be assessed as being equal.
Counsel on behalf of the wife, however, submits that there should be a loading in favour of the wife with respect to post-separation contributions.
She submits that there was an overwhelming contribution by the wife after separation. She submits that on the evidence, the wife single-handedly cared for the family and it is clear on the evidence that that is so.
On the husband’s own evidence, he absented himself completely from the family for at least a year. The wife had to emotionally care for the children, one of whom has a significant learning difficulty, and the husband has on the evidence since separation, hardly made any contribution whatsoever. The wife has supported the children financially because the husband has paid minimal child support and then claimed $110 of the wife’s pension after orders were made by Kay J giving him some time with the children.
I find that the husband has made post-separation contributions by the wife as difficult as possible.
The wife moved out of the former matrimonial home at S, and in spite of orders for its sale, he was determined to continue to live there and live there for free, not paying for the rates or water and that the wife had to organise the works for a Certificate of Occupancy and borrow the money to have the works completed while the husband continued to live there rent-free, in spite of the consent orders for its sale.
He paid his solicitors, according to him, in cash $5,700 to Lewenbergs, $3,000 to Lander and Rogers and this was at a time when he was telling the Court that he had no cash and was unable to provide any assistance to the wife including the completion of the works to obtain a Certificate of Occupancy for S property.
He had free accommodation at S property, without paying any of the expenses and then on the sale of the S property, he moved in to the M property, Unit 1, spent $5,000 doing it up to his satisfaction and has continued to live there in spite of an order that M property be sold. He has lived there for free and continued to do so taking the rents from the other two units.
The parties have been separated for four years.
I simply do not know what would have happened to the children without the wife’s support.
The husband failed to pay any spousal maintenance as ordered by Watt J on 24 April 2006 and at the date of the trial $21,000 was outstanding. That order was made 18 months after separation and there had been no support paid to her prior to the order. He has never paid any spousal maintenance. He did not pay any of the costs orders made against him.
In the extraordinary circumstances of this case, I consider that it is appropriate for a 10 percent adjustment in favour of the wife for post-separation contributions.
SECTION 75(2) FACTORS
It is unnecessary for me to consider the factors set out in s 75(2) of the Family Law Act as Counsel for the husband and wife agree that I should allow a 20 percent adjustment in the wife’s favour.
CONCLUSION
Consequently, I consider that it is just and equitable that I make the orders that I set out hereunder:
Orders
(1)The property known as and situated at M, more particularly described in Certificate of Title Volume … Folio … be sold forthwith, with the wife to have sole conduct of the sale (“the sale of [M property]”).
(2)The Court declares that the second mortgage expressed to be in favour of the husband’s parents registered on the title to the M property secures payment to the second respondent in the sum of:
(a) $150,000, plus
(b)interest calculated from 10 February 2006 at the rates prescribed from time to time by the Penalty Interest Rates etc 1983 (Vic).
(3)The wife engage a real estate agent (“the agent”) to effect the sale as soon as practicable, on such terms and conditions as the agent recommends, at a reserve price of $480,000 or such other reserve as the President of the Real Estate Institute of Victoria recommends in writing.
(4)The husband and the second respondent sign all documents and do all things necessary to facilitate and conclude the sale, including a discharge of the second mortgage in registrable form upon the request of the wife or the agent.
(5)Should the husband or the second respondent fail to sign any document referred to in paragraph (4) hereof within two (2) days of the request of the wife or the agent, then a Registrar of the Family Court of Australia, Melbourne Registry, be and is hereby authorised and directed to sign any such document on behalf of the husband and/or the second respondent.
(6)The proceeds of sale of M property (after payment of all expenses of and incidental to the sale) be applied as follows:
(a)In payment of all amounts secured by the registered first mortgage in favour of St George Bank Limited;
(b)In payment to the second respondent of the aggregate of the following amounts:
(i)$150,000, plus
(ii)$39,211.50 being interest calculated at penalty rates from 10 February 2006 to 5 May 2008, plus
(iii)$49.2813 per day for each day thereafter to the date of payment.
(c)$5,536 to the wife (being repayment of the amount incurred by her to obtain a certificate of occupancy for M property).
(d)So much of the proceeds to the wife as necessary to result in her receiving 80 percent of the asset pool calculated in accordance with the List of Assets and Liabilities marked “A” and annexed to these orders (such list having been agreed between the parties save for the liability to the second respondent which pursuant to paragraphs (2) and (6) of these orders have now been declared owing and quantified).
(e)The residue to the husband subject to paragraph (7) hereof.
(7)Prior to the payment to the husband of any sum pursuant to paragraph 6(e) hereof the sums of:-
(a)$21,000 arrears of spousal maintenance owing to the wife as at 3 May 2008; and
(b)$3,400 being amounts outstanding and owing to the wife pursuant to costs orders made in her favour;
be deducted from any such amount and paid to the wife.
(8)The husband be solely responsible for any capital gains tax assessed as a result of the sale of M property and shall indemnify the wife and hold her harmless with respect to same.
(9)Pending settlement of the sale of M property the husband be entitled to receive all rental from the property and shall make all mortgage payments due pursuant to the first mortgage to St George Bank Limited as and when they fall due and pay all rates and outgoings on the property as and when they are incurred.
(10)The proceeds of sale of the former matrimonial home, being $345,106, currently held in trust on behalf of the husband and wife be forthwith paid to the wife for her sole benefit.
(11)The husband deliver all personal photographs and effects of the wife in his possession, together with all photographs of the children of the parties within seven (7) days to the office of the wife’s solicitors, Messrs Pearsons, for the wife’s retention.
(12)Paragraph 5 of the husband’s Amended Response filed 5 December 2007 is dismissed.
(13)Each party retain any superannuation to which they are or may become entitled for their sole benefit.
(14)Unless otherwise specified, each party to retain for their sole use and benefit all chattels, money, cars and property currently in their respective possession.
(15)General liberty to apply.
I certify that the preceding one hundred and five (105) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Monteith.
Associate:
Date:
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
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Property Law
Legal Concepts
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Costs
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Damages
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Injunction
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Jurisdiction
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Remedies
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Res Judicata