KUAY-HOA & HOA AND ORS

[2014] FamCA 140

FAMILY COURT OF AUSTRALIA

KUAY-HOA & HOA AND ORS [2014] FamCA 140

FAMILY LAW – ORDERS – Enforcement – Alteration of orders after an auction.

Family Law Act 1975 (Cth)

Radacini & Radacini (1983) FLC 91-312

APPLICANT WIFE: Ms Kuay-Hoa

RESPONDENT HUSBAND: Mr Hoa

2^nd RESPONDENT: B Pty Ltd

3^RD RESPONDENT: Mr C

4^TH RESPONDENT  Ms D

FILE NUMBER: MLC 931 Of 2007

DATE DELIVERED: 19 February 2014

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 19 February 2014

REPRESENTATION

COUNSEL FOR THE 2^ND

RESPONDENT:

Mr Moffatt

SOLICITOR FOR THE 

2^ND RESPONDENT:

Mills Oakley Lawyers

COUNSEL FOR THE 

APPLICANT WIFE:

Mr Renwick

SOLICITOR FOR THE 

APPLICANT WIFE:

Kennedy Guy

Orders

1. That paragraph 12 of the orders made on 16 September 2011 are varied and replaced by the following order:

   Mr J, the liquidator of the 2^nd respondent B Pty Ltd do all things necessary to obtain an estimate of the capital gains tax payable with respect to the land at F Street, Suburb K and upon notification of the estimate, the applicant’s solicitor release that amount to the liquidator and the applicant and her solicitor are thereafter released from any further liability or obligation pursuant to the orders with respect to the capital gains tax on the sale of F Street, Suburb K save and except that in the event that the relevant Australian Taxation Office assessment finds that the liability it greater than the estimate, the applicant pay the difference to the liquidator within seven (7) days of receiving notice from the liquidator and in the event that the relevant tax assessment finds that the liability is less than the estimate, the liquidator will pay to the applicant the surplus within seven (7) days of receiving notice of that from the Australian Taxation Office.

2. That paragraph 11(a) of the order made on 16 September 2011 be varied as follows to read:

   (a)    To pay the following:

   i.The costs of advertising;

   ii.Aldgate Lawyers the sum of $45,000;

   iii.Wisewould Mahony Lawyers the sum of $64,833.07;

   iv.The solicitor’s costs of acting in a trust transfer and sale.

3. That the application filed 4 July 2013 and the response to it filed 8 August 2013 are both dismissed.

4. That the reasons this day be transcribed and be made available to the parties.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Kuay-Hoa & Hoa and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 937 of 2007

Ms Kuay-Hoa

Applicant Wife

And

Mr Hoa

Respondent Husband

And

B Pty Ltd

2^nd Respondent

And

Ms C

3^rd Respondent

And

Ms D

4^th Respondent

REASONS FOR JUDGMENT

1. By an application filed on 4 July 2013, to which a response was filed on 8 August 2013, this matter came back before the Court for what can really only be described as the alteration and/or variation of orders that were made by Bennett J on 16 September 2011.  Those orders were the finalisation of a property dispute, and it would seem that, in addition to the husband and the wife, there were other parties, including a company, B Proprietary Limited, which at that time seemed to have been a corporate vehicle controlled by one or other of the husband and the wife, and possibly some other relative of either of them. 

2. None of those matters are really of any major concern.  The problem now is that B Proprietary Limited has gone into liquidation.  That brings in the application by the liquidator of the company to ensure that the orders that her Honour made are implemented. 

3. The unusual feature of this particular hearing is that neither the husband or the third or fourth respondents have attended.  An attempt was made to serve the third respondent, the fourth respondent, and the husband, unsuccessfully, and that appears to have been because the husband had left the address at which B Proprietary Limited was also operating from.  That inability to serve the husband, at least, is borne out by the fact that the Court also sent documents to that address, and they have been returned unclaimed. 

4. The husband, in the substantive proceedings that culminated in the orders of September 2011, had filed a Notice of Address for Service.  That address for service showed the address to which I have just made reference, but he also included in his Notice of Address for Service an email address.  An examination of the file shows that there has been no subsequent Notice of Address for Service filed.  Mr Renwick, on behalf of the wife, says that an affidavit has been filed, which I have now read, by an employee of his firm, indicating that documents were sent to the old address, but also to the email address. 

5. One way or the other, the husband has not attended today.  One might have some disquiet about that but her Honour made orders in September 2011 which effectively entitled the husband to some money arising out of the property settlement, and he seems not the slightest bit interested, not only in the proceedings before me, but also in getting hold of his money, if any. 

6. The other unusual feature of that conduct is that, on the basis of what would have happened had certain steps not been taken by the wife, the husband would have received less than what is now probably most likely to be the outcome in his favour.  I say that because the evidence points to the fact that, subsequent to her Honour’s orders, some land was sold by auction but, for reasons which remain unclear, the wife quibbled with the sale price and ultimately refused to comply with what was obviously the terms of the contractual arrangement at the auction. 

7. The upshot of that was that Supreme Court proceedings were then commenced and, it seems, settled, but the wife got control of the property again and sold it for $300,000 more than what had been achieved at the original auction.  Having regard to the fact that the orders of the Court on 16 September 2011 divided the proceeds after the various costs of sale on a percentage basis, the obvious conclusion is that the husband is benefiting more than what he would have otherwise benefited had the wife not taken the steps that she had, and hence my reference to his bizarre conduct.

8. In relation to the application which is brought by the liquidator of B Proprietary Limited, it is conceded by counsel for the liquidator that service has not been effected on the respondents for the reasons already set out.  An oral application has been now made to waive service.  Having regard to the matters I have just mentioned, there is no other logical way to serve the husband and/or the other parties and, on that basis, there is no prejudice to them by me proceeding in their absence, having regard to the fact that, as far as the liquidator is concerned, they have no real interest in the outcome of that particular application.  Indeed, the very fact that the company has gone into liquidation puts matters beyond their control.

9. The dilemma here seems to me to be that the land to which everybody has been referring which was sold in Suburb K was actually owned by the company.  For reasons that remain a little unclear – and I say that because I have not had the benefit of reading a very comprehensive judgment by Bennett J – her Honour made an order appointing the wife as the trustee for the sale, and required the husband, in his capacity as a director and/or shareholder, as well as in his personal capacity, to transfer the property to the wife for that purpose. 

10. What is not clear from the order is as to what was to happen to the proceeds – that is, were they, in fact, money that belonged to the company?  If so, they would have been added to the balance sheet and the land itself would have been removed.  Having regard to the fact that the company has gone into liquidation, the proceeds would have filtered through ultimately to the shareholders after the payment of any expenses and liabilities. 

11. The alternative, obviously, is that her Honour intended the wife to be the trustee for the sale and the proceeds be put into the hands of the husband and the wife.  It is a little hard for me to conclude that that was the case, because it would not make a lot of sense.  The situation for the company would be very much different to that of the parties themselves as individuals.  The obvious problem that arises in taking that step of jumping straight to the parties’ interests, leaving aside any question of whether the company was holding the property on trust for the parties in any event, is the fact that there is a capital gains tax liability. 

12. The capital gains tax liability in the hands of the company may be very different in terms of quantum to that in the hands of the parties, depending on their respective financial positions.  Needless to say, the husband is not here to complain about the matter and, most importantly, is not complaining that he has not got his money. 

13. The two issues, therefore, that I have to deal with today are ensuring that the capital gains tax issue is sorted out as efficaciously as possible so that the company can then be properly liquidated and, if there are any amounts left over, then the normal position of the law will be applied, and the shareholders will ultimately be the beneficiaries.  Absent service on the parties to this litigation I would not normally be prepared to make orders, but in this case there seems to me to be no prejudice to anybody and, effectively, this is the only solution open to the parties and to the Court.

14. The dilemma in respect of that application is that it relied upon s 80 of the Family Law Act 1975 (Cth) for the power of the Court to make the order. I have some doubts as to whether that power exists in s 80 because it is not a stand-alone power. I do not need to trouble myself too much about that because the focus of the liquidator is not only on winding up his responsibilities in relation to the corporate entity, but also to sort out the Australian Taxation Office entitlements arising out of the capital gains provisions.

15. Her Honour contemplated all of that, specifically by making an allowance that money be set aside for that purpose. But then, in paragraph 18 of the orders, her Honour said that, in the event that that was not enough money, then whatever the shortfall was was to be divided between the husband and wife on a percentage basis.  On that basis there does not seem to me to be any logical reason why the orders sought, which were agreed between the liquidator and the wife, should not be made. 

16. The application of the liquidator sought to delete paragraph 12 of her Honour’s order.  That makes sense in this case because the order was directed in personam to the husband, and it related to property presumably of the company.  As the company is now in liquidation and the husband presumably was a director, he has no obligations and/or rights or responsibilities to be troubled about because they now fall to the liquidator.  The liquidator also sought a variation of paragraph 17 of her Honour’s orders, but the reality is that whatever needs to be done can be encapsulated in the minute that has been handed to me which is drawn quite precisely to enable the ultimate effect of her Honour’s orders to be implemented. 

17. I propose, therefore, to make orders in terms of paragraph 1(a) and 1(b) of the proposed minute.

RECORDED:   NOT TRANSCRIBED

1. That the minute has now been amended as a result of discussion, which effectively alters only paragraph 12 and the import of that is to give the liquidator the control to carry out his duties.  As I said earlier, it makes sense, therefore, to make the orders in that fashion to give effect to the orders of her Honour and there is no reason to otherwise be concerned about the basis of it.  The response to that application was brought by the wife and in essence, what she seeks is an order that is best described as seeking a declaration as to the meaning in paragraph 11A of her Honour’s orders as to the meaning of the words “cost of sale”. 

2. The difficulty arises out of the matters that I have earlier mentioned in relation to the wife not carrying out her contractual obligations under the auction.  Her actions ultimately benefited the parties because of the greater sale value.  To achieve that end, the wife ended up in Supreme Court litigation and as a consequence, has incurred significant costs.  Those costs amount to $45,000 for the lawyers who acted for the plaintiff in the proceedings and legal costs and disbursements for her own solicitors which amounted to $64,833.07.  In other words, pretty close to $110,000 has gone to achieve a benefit for the husband and the wife much greater than they would have otherwise received.

3. The dilemma, as I pointed out in discussion, was that s 79 is a power that the court can only exercise once.  Once it is exercised, it is exhausted.  The only way the substantive rights of parties can be altered once that order is made is either by the appeal process or under s 79A of the legislation.  No application was made on that basis and I can even see some difficulty as to how it would occur.  The authorities such as Ravasini & Ravasini (1983) FLC 91-312 describe the distinction between a machinery provision and a substantive right. The Full Court has said that the court has power to alter machinery provisions, providing that they are just that and not altering the substantive rights.

4. On one view, if I alter the order here on the basis that it is simply a machinery provision, then the husband ends up getting more than he would have otherwise got because of the fact that her Honour in her ultimate division decided to divide the net proceeds of sale on a percentage basis.  It seems to me, however, that this is a machinery provision that I can alter not by way of declaration, but by simply altering the order to set out precisely what amounts are to be paid out of the sale proceeds.  To some extent, that can be seen as a declaration of the meaning of the words “costs of sale”, but it would seem unfair to the wife if she had to carry from her share, all of those costs that she incurred so that the husband ultimately ended up getting more because he ends up with a percentage of the sale.

5. Any variation of substantive rights is beyond the power of the court.  In my view, however, this is an order that could not have been contemplated at the time, but it is very much an incident of the very sale itself.  I am, therefore, prepared to alter her Honour’s order to include as a deduction from the gross proceeds of sale the necessary costs associated with its completion and on that basis, I will include in the original orders, a variation so that from the net proceeds of sale, the sum of $45,000 is to be paid to Aldgate Lawyers and $64,833.07 to Wisewould Mahony Lawyers as the second payment.  The balance is to be otherwise divided between the parties in accordance with her Honour’s orders.

ORDERS DELIVERED

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 19 February 2014.

Associate: 

Date:  17 March 2014