Kruger and Kruger (No. 4)

[2008] FamCA 1053

FAMILY COURT OF AUSTRALIA

KRUGER & KRUGER (NO. 4) [2008] FamCA 1053

FAMILY LAW – SUPLEMENTARY REASONS for Judgment subsequent to further submissions as to the form of orders appropriate to give effect to the Judgment of 27 June 2008 – Consideration of treatment of CGT and other discrete issues in relation to the distribution of assets

Family Law Act 1975 (Cth) s 79

APPLICANT: Ms Kruger

RESPONDENT: Mr Kruger

FILE NUMBER: PAC 174 of 2007

DATE DELIVERED: 27 November 2008

PLACE DELIVERED: Parramatta

JUDGMENT OF: COLEMAN J

HEARING DATE: 20, 21 & 22 May 2008 and 24 October 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr de Robillard

SOLICITOR FOR THE APPLICANT: Kent Attorneys

COUNSEL FOR THE RESPONDENT:

Mr Dubler SC

Mr Combe

SOLICITOR FOR THE RESPONDENT: Macquarie Partnership

Orders

1. That on or before 31 December 2008 the wife do all acts and things and execute all deeds, documents, instruments and writings necessary to cause Residential Facility One to be transferred and assigned to the husband or a corporation or other entity nominated by him for that purpose, together with all relevant licenses, permits and approvals with respect to the said facility.

2. That upon compliance with Order 1 hereof, the husband transfer to the wife or her nominee his shareholding in Company One Pty Ltd and resign as a director of Company One Pty Ltd.

3. That upon compliance with Order 1 hereof, the husband transfer and assign to the wife or her nominee any entitlements he has in or with respect to Company One Pty Ltd howsoever arising provided that the wife shall indemnify the husband and forever keep him indemnified with respect to any liabilities of the husband to or in respect of Company One Pty Ltd, subject only to the potential for Capital Gains Tax liability of Company One Pty Ltd arising from the transfer of Residential Facility One.

4. That, as and from the date of compliance of Order 1 hereof, the husband indemnify the wife and forever keep her indemnified with respect to any liabilities of Residential Facility One.

5. That pursuant to sections 79 and 80 of the Family Law Act 1975 (Cth), the husband execute a deed under the terms of the Kruger Family Trust whereby he renounce his position as a discretionary beneficiary of the Kruger Family Trust and also renounces his power of appointment and nominate the wife as a successor appointor under the Kruger Family Trust and deliver the executed deed to the wife.

6. That the husband, the wife and Miss X Kruger do all acts and things and execute all deeds, documents, instruments and writings necessary to cause Superannuation Fund One to sell to the husband or an entity nominated by him for that purpose the plant and equipment of Residential Facility One at and for the book value of such plant and equipment, being the sum of $17 003.

7. That, upon compliance with Order 1 hereof, the husband shall execute transfers of his units in the Unit Trust One and Unit Trust Two in favour of the wife or her nominee, and deliver such transfers to the wife.

8. That, upon compliance with Order 1 hereof, the husband shall execute a transfer of his shares in Company Two Pty Ltd to the wife or her nominee and deliver such share transfer to the wife.

9. That, upon compliance with Order 1 hereof, the husband shall deliver up to the wife a signed resignation of his position as director of Company Two Pty Ltd.

10.That, upon compliance with these orders, the wife shall indemnify the husband and forever keep him indemnified with respect to any liabilities of the husband to or in respect of Company Two Pty Ltd.

11.That the husband assign to the wife absolutely and beneficially all his entitlement, howsoever arising, in or with respect to the Kruger Family Trust, Unit Trust One and Unit Trust Two provided that the wife shall indemnify the husband and forever keep him indemnified with respect to any liability of the husband to or in respect of the Kruger Family Trust, Unit Trust One and/or Unit Trust Two.

12.That, in the event that the transfer by Company One Pty Ltd to the husband or an entity on his behalf of Residential Facility One generates a Capital Gains Tax Liability on the part of Company One Pty Ltd, the husband shall indemnify the wife as to 50 percent of such liability and the husband and wife shall indemnify each other as to 50 percent of that liability once such liability has been determined and levied by the Australian Taxation Office.

13.That, the wife indemnify the husband with respect to any Capital Gains Tax arising in the event of the wife disposing of Residential Facility Two subsequent to the implementation of these orders and the husband indemnify the wife with respect to any Capital Gains Tax liability arising as a result of the disposition by the husband of Residential Facility One subsequent to the implementation of these orders.

14.That, subject to these orders, the wife transfer and assign to the husband absolutely and beneficially all interests, entitlements or claims which, but for these orders, she may have with respect to Residential Facility One provided that, subject to these orders, the husband shall indemnify the wife and forever keep her indemnified with respect to any liability, entitlement or claim, which, but for these orders, Residential Facility One may have against the wife.

15.That, subject to these orders, the husband transfer and assign to the wife absolutely and beneficially all interests, entitlements or claims which, but for these orders, he may have with respect to Residential Facility Two provided that, subject to these orders, the wife shall indemnify the husband and forever keep him indemnified with respect to any liability, entitlement or claim, which, but for these orders, Residential Facility Two may have against the husband.

16.That, upon compliance with Order 1 hereof, the husband shall deliver to the wife a duly executed resignation as trustee of Superannuation Fund One provided that the wife shall indemnify the husband with respect to any liability of the husband to or with respect to the Superannuation Fund One

17.That the wife retain absolutely and beneficially the properties known as and situate at:

Property Q

Property R

Property S

Property T

Property U

Property V

Property W

Property AA

or the proceeds of sale of such properties provided that the wife indemnify the husband and forever keep him indemnified with respect to all liabilities, secured and unsecured, and including any CGT liability of the wife arising from the realisation of any of the said properties.

18.That the husband retain absolutely and beneficially the properties known as and situate at:

Property H

Property I

Property J

Property K

Property L

Property M

Property G

Property N

Property O

Property P

Property F

or the proceeds of sale of such properties provided that the husband indemnify the wife and forever keep her indemnified with respect to all liabilities, secured and unsecured, and including any CGT liability of the husband arising from the realisation of any of the said properties.

19.That, on or before 31 December 2008, the husband do all acts and things and execute all deeds, documents, instruments and writings necessary to cause to be transferred to the wife absolutely and beneficially the whole of his right title and interest in the property Property D provided that, subject to the provisions of these orders with respect to St George Bank, the wife shall thereafter indemnify the husband and forever keep him indemnified with respect to all liabilities in relation to the said property.

20.That, on or before 31 December 2008, the parties do all acts and things and execute all deeds, documents, instruments and writings necessary to cause their timeshare interests at Timeshare Three and Timeshare Four to be sold and cause the proceeds of such sales to be divided as to 52 percent to the wife and as to 48 percent to the husband.

21.That, on or before 31 December 2008, the wife do all acts and things and execute all deeds, documents, instruments and writings necessary to cause to be transferred to the husband absolutely and beneficially the whole of her right, title and interest in the timeshare interests of the parties at Timeshare One and Timeshare Two provided that the husband indemnify the wife and forever keep her indemnified with respect to such interests.

22.That, on or before 31 December 2008, the wife do all acts and things and execute all deeds, documents, instruments and writings necessary to cause to be transferred to the husband the whole of her right, title and interest in the properties Property A and Property B provided that, subject to the provisions of these orders with respect to St George Bank, the husband indemnify the wife and forever keep her indemnified with respect to all liabilities in relation to the said properties.

23.That the wife indemnify the husband as to 75 percent and the husband indemnify the wife as to 25 percent of the indebtedness to St George Bank with respect to Residential Facility two, the properties E1, E2 and E3, Residential Facility One and the jointly owned properties of the parties referred to in these orders.

24.That the parties shall do all such acts and take all such steps as are necessary to cause the St George Bank to be repaid its total debt in the proportions referred to in Order 22 hereof on or before 31 December 2008.

25.That costs be reserved.

26.That within 21 days either party file and serve written submissions in support of any application for costs of the proceedings and, within 14 days thereafter any submissions in reply to such submissions be filed and served.

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

FAMILY COURT OF AUSTRALIA AT PARRAMATTA

FILE NUMBER: PAC174/2007

MS KRUGER

Applicant

And

MR KRUGER

Respondent

FURTHER SUPPLEMENTARY

REASONS FOR JUDGMENT (NO. 4)

Introduction

1. On 11 November 2008, the Court published a supplementary judgment in this matter. In accordance with such supplementary judgment, the parties have made further submissions the husband has responded to the issue in respect of which further submissions were invited, the wife has responded to that and other issues.

2. It was submitted on behalf of the husband, by reference to Mr PL’s affidavit, that “[Company One] Pty Ltd will not incur a CGT liability under any Court order for a transfer of [Residential Facility One] to the Husband’s new company established for that purpose”. [Husband’s submission as to the supplementary judgment of the Court dated 11 November 2008, para 3, page 1].

3. It was further submitted that CGT would become payable “if and when the new company established by the Husband disposes of [Residential Facility One]”. The basis of such liability was then detailed. [Husband’s submission as to the supplementary judgment of the Court dated 11 November 2008, para 3, page 2]. It was thus submitted that:

   4.As a consequence of these considerations, the Husband respectfully submits that the factoring in of notional or future CGT liabilities for [Company One] Pty Ltd by the Court is appropriate if it is payable. However, as it is not payable due to the marriage breakdown provisions of the Income Tax Assessment Act, no account should be taken of this notional liability and no order is required that any possible liability be equally borne by the Wife and Husband. The need for a future liability being paid equally by the parties is negated by the fact that any CGT liability will be incurred by the new company established by the Husband only if it disposes of [Residential Facility One]. [Husband’s submission as to the supplementary judgment of the Court dated 11 November 2008, para 4, page 2].

4. On behalf of the wife it was submitted that the status of Mr PL’s evidence was challenged. In relation to such evidence, Mr PL’s expertise was questioned, as was whether Mr PL’s affidavit was formally part of the evidence before the Court.

5. So far as the substance of Mr PL’s evidence was concerned, it was submitted by learned Counsel for the wife that the CGT rollover provisions of the Income Tax Act were not necessarily as broad as Mr PL asserted in his evidence. It was thus submitted that:

   [C]areful consideration should be given to the form and content of the affidavits purportedly sworn by Mr. [PL] and filed in these proceedings – at least in relation to receipt of the affidavits in lieu of ‘expert evidence’ in relation to CGT implications. [Wife’s Additional Submissions in Reply to Husband’s Submission as to Supplementary Judgment of the Court dated 11 November, 2008, para 1.12, page 2].

6. It was further submitted that if Mr PL’s affidavit did form part of the evidence before the Court, before reliance could be placed on it, the wife would have the opportunity to adduce further evidence.

7. The position of the Court in relation to this matter can be briefly stated, although the Court endeavoured in its supplementary judgment of 11 November 2008 to articulate its reasoning with respect to CGT in relation to the transfer of Residential Facility One.

8. The Court understands that, if the wife were to realise Residential Facility Two, contrary to the spirit of her evidence at trial and the submissions made by both learned Counsel who have addressed the issue on her behalf, there would be, to put it broadly, CGT implications.

9. Similarly, were the entity by which the husband acquires Residential Facility One to sell it, contrary to the spirit of the evidence given by the husband at trial and the submissions made by his learned Counsel in relation to the topic, that transaction would have CGT implications. No question of “factoring in” any CGT implications of either of those realisations would be appropriate, or even sought by either party.

10. What the Court has sought to do, for reasons which it endeavoured to explain in the supplementary judgment of 11 November 2008, was to protect the interests of the wife as to 50 percent of any CGT imposed on the transfer of Residential Facility One from Company One Pty Ltd to or on behalf of the husband, if such a liability arose. Given the possible magnitude of such CGT, having regard to Mr PL’s evidence only for the purpose of indicating the possible magnitude of such liability, to allow the whole of such burden, if it materialised, to allow such burden to rest with the wife would be unjust and would distort the substance of the Court’s conclusion that the parties should share their net assets as to 52 percent to the wife and as to 48 percent to the husband. If it does not arise, the issue dissolves.

11. As noted in the supplementary judgment of 11 November 2008, had such a liability been established, quantified and imposed, it would have been deducted at the balance sheet stage of the Court’s determination in the substantive proceedings, and for the purpose of the calculations appearing in the judgment of 11 November 2008. The effect of so doing would be that the parties would have borne that liability equally, thereby preserving the overall division of their assets which the Court concluded to be just and equitable.

12. Ultimately, and largely for reasons asserted on behalf of the wife by her learned Counsel, the Court is not able to determine whether CGT will or will not arise as a consequence of the transfer of Residential Facility One from Company One Pty Ltd to the husband or, as is apparently intended, a corporation on his behalf.

13. If Mr PL is correct, and no CGT would thereby be generated, the prospect of each party paying 50 percent of such CGT will not materialise. If, as appears to be submitted on behalf of the wife, the transfer would attract CGT, then the parties should pay one half each of such CGT.

14. Inferentially at least, learned Senior Counsel for the wife, sensibly, does not appear to challenge these two propositions. It would be extraordinary if he did not accept that the husband should pay one half of any CGT arising from the transfer of Residential Facility One by the wife’s interests to the husband’s interests. As noted earlier, learned Senior Counsel for the husband submitted that “factoring in of notional or future CGT liabilities for Company One Pty Ltd by the Court is appropriate if it is payable” (emphasis added). [Husband’s submission as to the supplementary judgment of the Court dated 11 November 2008, par 4, page 2].

15. In the circumstances, to make an order that, if and when CGT is levied on the transfer by Company One Pty Ltd to the entity nominated by the husband for that purpose of Residential Facility One, the parties, upon such liability being determined by the Taxation Office, indemnify each other as to 50 percent of such liability, neither party could complain. The parties could complain even less if, as has been submitted on behalf of the husband, no such liability will arise by virtue of the transfer of Residential Facility One.

16. The submissions of Counsel for the husband seek an order with respect to St George Bank in the following terms:

    [T]he parties shall do all such acts and take all such steps as are necessary to cause the St George Bank to be repaid its total debt in the proportion of 75% by the Wife and 25% by the Husband on or by 30 November 2008, including, if necessary making, available or paying over their superannuation entitlements, selling or mortgaging any or all of the properties which may be available to each of them either individually or jointly or through members of the [Kruger] Group of companies such as joining in the sale of the [E] properties adjacent to [Residential Facility Two].” [Husband’s submission as to the supplementary judgment of the Court dated 11 November 2008, para 6, page 3].

17. By her learned Counsel, the wife “strongly” opposed paragraph 6 of the orders, inter alia on the basis that implementation of the orders would be “impossible” and “unfairly penalise the wife”, in part for reasons relating to receipt of her superannuation entitlements and the sale of real estate. It was, sensibly, conceded by learned Counsel for the wife that it was “in both parties’ interest to refinance the St George loans as soon as possible”. [Wife’s Additional Submissions in Reply to Husband’s Submission as to Supplementary Judgment of the Court dated 11 November, 2008, para 2, page 3].

18. With respect to the submission of learned Senior Counsel for the husband, notwithstanding the desirability, in numerous respects, of finalising the parties’ financial dealings with each other, no order made by this Court specifying 30 November 2008, or necessarily any other date, would necessarily either be capable of being complied with by the parties or able to in any way bind the hand of St George Bank.

19. Objectively, and notwithstanding that any order may not be capable of being complied with, through no fault of either party, an order that the parties do all acts and things and take all such steps as are reasonably necessary and within their capacity to cause St George Bank to be repaid etc by 31 December 2008 would appear to be more realistic and fairer to the wife, it being remembered that the husband can now access his substantial superannuation entitlements, whereas the wife cannot until 31 December 2008. The Court accordingly proposes making an order in the terms indicated.

20. Under the heading “Need for interim arrangements concerning [Residential Facility One]”, learned Counsel for the wife made a series of submissions with respect to the desirability of “appointing a notional transfer date in relation to [Residential Facility One]”. A number of submissions in support of making the order as at 30 June 2008 were suggested. Other interim arrangements were also suggested. [Wife’s Additional Submissions in Reply to Husband’s Submission as to Supplementary Judgment of the Court dated 11 November, 2008, paras 3-5, pages 3-4].

1. Given that the Court will order that the orders made this day be implemented by 31 December 2008, the need for orders imposing “interim arrangements” would appear to dissolve. It needs to be recognised by the parties however that no orders which this Court could make would necessarily successfully anticipate and address all the minor administrative and other issues which could arise in the course of implementing the Court’s orders. It is to be hoped that the parties use the very considerable skills and common sense which have enabled them to accumulate the valuable assets with which the proceedings in this Court have been concerned to resolve these minor matters, rather than, in the potentially cost ineffective manner, return repeatedly to the Court. In any event, final orders having been made this day, the Court’s powers to entertain such disputes are significantly curtailed.

2. Further submissions were made the effect of which was to provide the wife with an option to purchase the husband’s interests should he “form the intention to divest himself, whether directly or indirectly, of any interest in [Residential Facility One] over the next three years”. [Wife’s Additional Submissions in Reply to Husband’s Submission as to Supplementary Judgment of the Court dated 11 November, 2008, paras 6 & 7, page 4].

3. As the transcript of the trial would reveal, that issue was then never raised. If the husband did propose to dispose of the facility, that would be a matter which could and would be sorted out in the market place. To seek to raise that issue now, in the context of implementation of the Court’s orders would not be just or equitable. Moreover, contrary to the clear intention of the legislation, such orders would enmesh the parties’ financial relations, potentially for years. Such an outcome would not be in the best interests of either party. Objectively, it is unlikely that, if he sought to dispose of Residential Facility One, the husband would not first afford the wife the opportunity to acquire it, if only on the basis that so doing may attract a premium which an arm’s length buyer would not match.

4. It was ultimately submitted on behalf of the wife:

   [T]hat the parties should be provided with a final opportunity to agitate any outstanding issues (some of which have been highlighted recently) prior to final orders being made. [Wife’s Additional Submissions in Reply to Husband’s Submission as to Supplementary Judgment of the Court dated 11 November, 2008, para 8, page 4].

5. The Court does not propose further prolonging this matter. With all due respect to learned Counsel for the wife, who was not her Counsel at trial, there is a fine, but discernable line between implementation of the Court’s orders and the re-opening of the case. As the correspondence between attorneys and the course of the case subsequent to the substantive judgment of 27 June 2008 confirms, issues arise, and will continue to arise, until the Court makes its orders and the parties then either get on with the business of complying with those orders or exercise their rights of challenge in the Full Court.

6. There is substance however in the submission on behalf of the wife that a date should be set with respect to the transfer of Residential Facility One although, realistically, once title passes from Company One Pty Ltd to the entity nominated by the husband for that purpose, Company One Pty Ltd and the wife would have no legal entitlement to Residential Facility One or any of the licenses or other formal aspects of the running of the residential facility. Conversely, the liability of the wife would be extinguished as and from that time. The orders will provide 31 December 2008 as the date for those purposes.

7. It remains to consider the wife’s claim with respect to leave entitlements. The submissions of learned Counsel for the husband in relation to this issue are, in the Court’s view, irresistible.

8. The Court’s substantive judgment of 27 June 2008 makes no reference to this topic. The Notice of Appeal filed on behalf of the wife in response to the Court’s substantive judgment does not raise the topic.

9. No submission to which the Court has been referred suggests that there was evidence before the Court in relation to the matters now sought to be raised on behalf of the wife. Moreover, as learned Counsel for the husband pointed out, the question of “leave entitlements” was by no means necessarily confined to the wife. Objectively, having regard to the evidence at trial, even if the wife had a theoretical or actual legal entitlement to leave of the quantum now asserted on her behalf, that would not have led to an automatic adjustment in her favour, and to suggest that it could or would have been is, with respect, naive. Objectively, if the wife were to have a long leave adjustment quantified or otherwise, so would the husband. To the extent that such adjustment was more favourable to one party than the other that would be likely to lead to further adjustments.

10. Realistically, having regard to the Court’s substantive judgment, all that the introduction of leave entitlements, quantified or otherwise, would have done is to necessitate the Court adding perhaps a paragraph to its substantive Reasons for Judgment. The outcome of the case would not have changed having regard to the evidence adduced before the Court at trial. With respect to learned Counsel for the wife, quite apart from matters referred to earlier, this submission overlooks the reality that the proceedings which the Court has heard and determined involve alteration of interests in property, rather than simply recognising and enforcing obligations which exist between the parties and/or entities created or controlled by them. To the extent that the wife has a legal entitlement to long leave, it is to Company One Pty Ltd that she should look to receive that entitlement, as was submitted by learned Counsel for the husband.

11. Having regard to the foregoing, the Court will, contemporaneously with this further supplementary judgment, make orders finalising the matter, at least at first instance.

I certify that the preceding thirty one (31) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman

Associate:

Date:  27 November 2008