LENNAN & LENNAN (No.2)

[2018] FCCA 3132

FEDERAL CIRCUIT COURT OF AUSTRALIA

LENNAN & LENNAN (No.2) [2018] FCCA 3132

Catchwords:
FAMILY LAW – Property – 12 year marriage – where exact property pool is unknown due to husband’s failure to comply with disclosure obligations – where adverse inference drawn against husband – substantial property adjustment order  in favour of wife.

Legislation:

Family Law Act 1975 (Cth), ss.75(2), 79(4), 106A, 106B

Cases cited:

Harris v Dewell [2018] FamCAFC 94

Stanford v Stanford [2012] 247 CLR 108

Applicant: MS LENNAN

Respondent: MR LENNAN

File Number: BRC 5361 of 2017

Judgment of: Judge Egan

Hearing date: 20 September 2018

Date of Last Submission: 5 October 2018

Delivered at: Brisbane

Delivered on: 5 November 2018

REPRESENTATION

Counsel for the Applicant: Ms Cullen

Solicitors for the Applicant: Rhonda Sheehy & Associates

Respondent: Self represented

THE COURT ORDERS ON A FINAL BASIS THAT:

1. As and by way of property adjustment orders:

   (a)The wife be paid the whole of the balance net proceeds of sale, if any, from the sale proceeds of the former matrimonial home situated at Property A in the State of Queensland, such monies to be paid to the Trust Account of Rhonda Sheehy & Associates after payment of the jointly owned/operated business credit card held with Bank 1, the wife’s personal credit card held with Bank 2, all superannuation entitlements owed to the former business staff of Business 1, all monies due and owing to the Australian Taxation Office, and the outstanding school fees for the child [X] (“the child”);

   (b)That pursuant to section 106B of the Family Law Act 1975 (Cth), the trust or other instrument executed for the purpose of the establishment of The [X] Discretionary Trust be set aside, and that the wife be paid 50% of the value of the assets (whether liquid or capital) of the Trust, with the nett balance to be paid to the husband

   (c)The parties be solely entitled, to the exclusion of the other, to all other property (including superannuation entitlements) and resources in the possession or control of such party, including liabilities attached thereto and any liabilities in their name as at the date hereof, and each is to indemnify the other party against any responsibility therefor.

2. The husband’s Response and any Amended Response be dismissed.

3. In the event that either party refuses or neglects to sign (within forty-eight (48) hours of a written request to do so) any documents, or do any act necessary to effect the terms of these Orders, the Registrar of the Federal Circuit Court of Australia is hereby appointed pursuant to the provisions of section 106A of the Family Law Act 1975 (Cth) to execute such documents on behalf of the defaulting party.

4. The husband pay the wife’s costs of the proceedings before Her Honour Judge Spelleken on 20 June 2018, such costs to be fixed in the amount of $4,290.00.

IT IS NOTED that publication of this judgment under the pseudonym Lennan & Lennan (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRC 5361 of 2017

MS LENNAN

Applicant

And

MR LENNAN

Respondent

REASONS FOR JUDGMENT

Introduction

1. These proceedings were commenced on 31 May 2017 by way of an Initiating Application filed by the wife. The wife’s Initiating Application sought property orders following the breakdown of the marriage between herself and the Respondent. Her Further Amended Initiating Application filed on 30 August 2018 seeks orders that:

   a)The wife be paid the whole of the balance net proceeds of sale, if any, from the sale proceeds of the former matrimonial home situated at Property A in the State of Queensland, after payment of some joint debts (which are dealt with below).

   b)The [X] Discretionary Trust be set aside and the wife be paid 70% of the assets of the Trust with the balance to the husband.

   c)The husband’s response and any amended response be forthwith dismissed.

   d)The parties be solely entitled to the exclusion of the other to all other property and resources in the possession of such party, including liabilities attached thereto or any liabilities in their name as at the date hereof, and indemnifies the other party against any responsibility therefor.

2. The Respondent filed a Response on 9 May 2018. That Response lacks clarity, however, doing the best one can, the husband has outlined two sets of orders in the alternative, the first being:

   a)The husband pay the wife 30% of the value of the matrimonial home and business and the wife be jointly responsible for all debts including repairs, rates and insurance costs.

   b)The parties to retain their respective vehicles and superannuation and the husband is to retain his Business 2.

   The alternative orders sought by the husband are that:

   a)The matrimonial home be sold and the husband be paid 80% of the net proceeds of that sale and the wife be paid the balance.

   b)The parties to retain the remainder of their property in their possession and control including the wife retaining her Motor Vehicle 1, the husband retaining his Motor Vehicle 2, each party to retain their respective Superannuation funds and the husband to retain his Business 2.

Background

1. The wife is currently 63 years of age and in excellent health, save that she suffers chronic asthma for which she is medicated. The husband is 59 years of age and suffers from obesity, chronic heart disease, diabetes and gout.

2. The parties commenced a de facto relationship in 1999 and married on 2004. At the commencement of cohabitation, each party owned a property; the husband owned a property at Suburb D and the wife owned a property at Property E. Upon the commencement of cohabitation, the parties resided in the wife’s Property E property and rented out the Property D property.

3. In 2001, the Property E and Property D properties were refinanced to enable the parties to jointly purchase an established business then known as “Business 2” for $180,000. In 2008 this business had a name change and was registered as “Business 2”.

4. The parties had a period of separation lasting two years from 2005 – 2007. The reason for that separation is in dispute, but such dispute is not relevant to the determination of the subject proceedings.  The parties rekindled their relationship in 2007, when they purchased the former matrimonial home situated at Property A. They utilised both the Suburb D and Suburb E properties as security for the loan required to purchase the Property A property. Upon moving into the Property A property, the parties rented the Property E property to one of the wife’s children from a prior marriage.

5. In 2010, the wife sold the Property E property for $420,000 netting approximately $175,000. The entirety of that sum was paid to the Australian Taxation Department to settle tax debts of the jointly owned business.

6. During the course of the marriage the parties operated the business “Business 1” and an associated company called “Business 1”. The businesses were poorly managed and supervised, leading to the sale of one business for the sum of approximately $100,000 on or about 24 August 2018. The proceeds of sale were used to partly pay off business debts. Each of the Applicant and the Respondent have criticised the other for the failure of the efficient running of the businesses. It is likely that such failure is to be attributed to both of them.

7. The parties finally separated on 28 August 2011.The marriage was one of 12 years.

8. After separation, the parties continued to operate the businesses. Assets were bought and sold without any real business plan in mind. A Motor Vehicle 3 purchased before separation was sold by the Respondent in or about 2014 for a sum of approximately $18,000. The wife believes that the proceeds of such sale, or part thereof, were injected back into one of the businesses operated by the parties. A Motor Vehicle 4 was similarly purchased but the husband has maintained ownership of same to the best of the wife’s knowledge. The difficulty in making findings in this matter is largely due to the fact that the husband has failed to comply with his disclosure obligations. Though it was suggested to counsel for the Applicant that the trial be adjourned for the purpose of the husband providing full and proper disclosure, that course was resisted. The task of making findings has, therefore, been rendered far more difficult. It is a task which, nonetheless, has to occur because, in the Court’s view, little benefit would inure should such detailed disclosure be required. The husband is self-represented and does not appreciate his disclosure obligations. For example, in his hand-written affidavit sworn on 8 May 2018, the husband, when addressing disclosure in relation to the sale of the Suburb D property, swore as follows:

   I did sell my house at Suburb D. Date I cannot rember.

   I did pay tax bills and others that I will look up in near futre.

9. The husband sold his Suburb D property in about 2013/2014, the amount of the proceeds from such sale not having been disclosed by the husband, and being unknown to the wife.

10. The wife has three older children from a prior marriage, and there is one child of the relationship who is 18 years of age. Following separation, the husband paid no child support, and there was no application by the wife to the Child Support Agency for the payment of such child support.

11. Various lines of credit were set up by the parties during the course of the marriage. The wife has detailed in paragraph 28 of her affidavit filed on 30 August 2018 various withdrawals made by the husband from such lines of credit or other Bank 1 loan facilities unilaterally. The husband has failed to account for such withdrawals and must be taken to have had the benefit of them.

12. Shortly before trial on 20 September 2018, the former matrimonial property was listed for sale. The Applicant had been appointed trustee for sale and had effected a large number of necessary repairs, renovations and upgrades to the home so that it was in a fit state for listing. It is anticipated that the home will sell for the sum of approximately $760,000.00.

13. At a time unknown to the wife, the husband set up the [X] Discretionary Trust. It would appear that the husband did so with a view to concealing the payment of monies from the wife, rather than benefitting the one child of the marriage. The husband withdrew money in the amount of $67,000 from a self-managed superannuation fund at about the time that the Trust was established, however, the husband has not disclosed how he dealt with such money, or whether the money was ever going to be applied for the benefit of the child.

14. In paragraph 37 of her affidavit filed on 30 August 2018, the wife alleged that the husband failed to bank customers’ cheques made payable to Business 1. Annexure C to that affidavit is a Bank 2 statement for an account held in the name of “The [X] Family Discretionary Trust”. The wife has highlighted a number of cheque payments made into that account by customers of the company, the suggestion being that the husband has diverted company funds to the [X] Family Discretionary Trust account so as to hide funds. The husband has failed to address that issue, and an adverse inference is accordingly drawn against him, both in that regard, and generally. His protestations of ignorance about legal affairs are not borne out in circumstances where he has wilfully failed to comply with his disclosure obligations and where there is clear evidence of diversion of funds having been undertaken by him. Allegations supporting such finding were made by the wife in paragraphs 37-40 of her affidavit filed on 30 August 2018. In such circumstances, it is appropriate that an order be made pursuant to s 106B of the FLA settling aside the transaction/s which lead to the trust being set up, and that the trust’s asset value be distributed equally between the parties.  That order will likely result in the wife receiving the benefit of a distribution which she otherwise would have received, at least in part, had the husband complied with his disclosure obligations. 

Applicable law

1. When determining property proceedings, the High Court case of Stanford v Stanford [2012] 247 CLR 108 (“Stanford”) sets out a four-step approach. Those steps are as follows:

   a)Identify and value the net property of the parties

   b)Consider the contributions of the parties to that property

   c)Consider the factors contained in section 75(2) as allowed by section 79(4)(e)

   d)Consider whether the orders are just and equitable.

2. Leave was given at trial for the parties to tender further documentation, evidencing the value of assets or liabilities, by email. The wife, through her lawyers, provided further documents which are accepted by way of tender and marked as exhibits as follows:

   a)ATO client account for Business 1 P/L  Ex 1

   b)ATO tax account for Business 1 P/L  Ex 2

   c)ATO superannuation account for Business 1 P/L  Ex 3

   d)City Council rates arrears letter  Ex 4

   e)Bank 1 loan account statement  Ex 5

   f)Bank 1 line of credit  Ex 6

   g)Bank 1 line of credit  Ex 7

   h)Market appraisal for Property A property  Ex 8

   i)Bank 1 debit account statement  Ex 9

3. As at the date of hearing, the property pool consisted of the following:

ASSETS	POSSESSION	VALUE
Property A (Matrimonial Home)	Husband	$760,000.00
Suburb D Property Proceeds	Husband	Unknown
Plant and equipment remaining Business 1	Husband	$55,000.00
Plant and equipment remaining Business 2 including Motor Vehicle 5	Husband	Unknown
Plant and equipment remaining Business 3	Husband	Unknown
Motor vehicle 4	Husband	$16,000.00
Respondent’s inheritances from mother’s estate	Husband	Unknown
Artwork	Wife	$10,000.00
Monies taken from home  loan by Respondent –  1/6/17 – 26/9/18	Husband	$14,860.00s
Motor vehicle 1	Wife	$5,000.00
Super Fund A	Wife	$20,156.13
Super Fund B account	Wife	$32,525.39
Furniture/chattels taken by Husband	Husband	$5,000.00
Boat  (purchase price $69,000.00)	Husband	Unknown (Husband says sold for $3,000.00)
Go-carts (x3)	Husband	$10,000.00
[X] Discretionary Trust	Husband	Unknown
Lennan Super Fund Pty Ltd	Husband	$4,250.27
Shares	Husband	$11,491.27
TOTAL ASSETS		$947,283.06 (plus unknowns)
LIABILITIES
ATO liability for Business 1 as at 17/9/18		$104,315.90
ATO liability for Business 2 as at 6/9/18		$37,638.05
ATO superannuation guarantee liability for Business 1 as at 24/9/18		$74,332.66
City Council rates arrears as at 26/9/18		$4,635.23
Bank 1 Mortgage over matrimonial home		$108,452.65
Line of credit with Bank 1		$263,159.19
Line of credit with Bank 1		$39,198.89
Business credit card (Bank 1 – Joint names)		$22,778.11
Wife’s personal credit card Bank 2		$2,948.00
Costs of repairs to matrimonial home		$40,000.00
Further costs of repairs to matrimonial home		$4,100.00
School fees		$6,800.00
TOTAL LIABILITIES		$708,358.68
TOTAL NET VALUE		$238,924.38 plus unknown amounts

1. Of the assets listed above, assets of value retained by the husband but not valued either by him or the wife include:

   a)Business 2 plant and equipment including Motor vehicle 5.

   b)Plant and equipment of Business 3.

   c)Motor vehicle 4.

   d)Respondent’s inheritance from mother’s estate.

   e)The sum of $14,860 paid to husband from cash back facility attached to home loan.

   f)Respondent’s boat which is likely to have a value far greater than the $3,000 alleged by the husband to be its sale price.

   g)Monies standing to the credit of the [X] Discretionary Trust.

2. The Court is left in the position of being unable to quantify the exact value of the asset pool. That situation has been caused because of the conduct of the husband. Adverse inferences have been drawn against him in respect of the extent to which he has secreted monies away for his own benefit without having made appropriate disclosure.

Is it Just and Equitable to alter property interests?

1. In Stanford the majority held at [42]:

   In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship.  It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife.  No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship.  That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship.  And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end.  Hence it will be just and equitable that the court make a property settlement order.  What order, if any, should then be made is determined by applying s 79(4).

2. The court is satisfied that it is appropriate in this case to alter the property interests of the parties.

Contributions

1. Section 79(4) outlines the relevant factors to be considered when making such an alteration. Section 79(4) reads as follows:

   (4)  In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:

   (a)  the 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, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and

   (b)  the contribution (other than a 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, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and

   (c)  the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and

   (d)  the effect of any proposed order upon the earning capacity of either party to the marriage; and

   (e)  the matters referred to in subsection 75(2) so far as they are relevant; and

   (f)  any other order made under this Act affecting a party to the marriage or a child of the marriage; and

   (g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.

2. At the commencement of the relationship, it is agreed that the wife had the following assets:

Property at Suburb E	$154,000.00
Furniture and Chattels	$5,000.00
motor vehicle	$6,000.00
Superannuation	$5,000.00
SUB-TOTAL	$170,000.00
LESS LIABILITIES
Mortgage over property	$60,000.00
Bank card	$500.00
TOTAL	$109,500.00

1. The parties could not agree on the value of the property the husband brought to the relationship. The wife asserted he came in with $60,000 while the husband asserts he came in with $213,000.00. No finding is able to be made in relation to the husband’s assertion that he made a far greater monetary contribution than the wife to the marriage, however, to the extent that he has deliberately failed to make disclosure in the matter, the Court is unprepared to accept that he did.

Section 75(2) factors

1. One of the main considerations under section 79(4) and the third step in the process outlined in Stanford is the consideration of the section 75(2) factors. That sub-section reads as follows:

   (2)  The matters to be so taken into account are:

   a)  The age and state of health of each of the parties;

   b)   The income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;

   c)  Whether either party has the care or control of a child of the marriage who has not obtained the age of 18 years;

   d)   Commitments of each of the parties that are necessary to enable the parties to support:

   (i) himself or herself; and

   (ii) a child or another person that the party has a duty to maintain;

   e)  The responsibilities of either party to support any other person;

   f)    subject to subsection (3) the eligibility of either party for a pension, allowance or benefit under

   (i) any law of the Commonwealth, of a State or Territory or of any other country; or

   (ii) any superannuation fund or scheme, whether the fund or scheme was established or operates within or outside Australia;

   and the rate of any such pension, allowance or benefit being paid to either party;

   g)  Where the parties have separated or the marriage has been dissolved, a standard of living that in all the circumstances is reasonable;

   h)  The extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income;

   ha) the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant; and

   j)   The extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party;

   k)  The duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration;

   l)  The need to protect a party who wishes to continue that party’s role as a parent;

   m) If either party is cohabiting with another person – the financial circumstances relating to the cohabitation;

   (n)  the terms of any order made or proposed to be made under section 79 in relation to:

   (i) the property of the parties; or

   (ii)     vested bankruptcy property in relation to a bankrupt party;

   (naa)  the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:

   (i)  a party to the marriage; or

   (ii)  a person who is a party to a de facto relationship with a party to the marriage; or

   (iii)  the property of a person covered by subparagraph (iv) and of a person covered by subparagraph (ii), or of either of them; or

   (iv)  vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and

   na) Any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and

   o)  Any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and

   p)   the terms of any financial agreement that is binding on the parties.

2. The parties lead a chaotic financial life punctuated by the non-payment of tax liabilities.  The attendant interest penalties payable on outstanding tax liabilities was crippling.  Their joint resources were depleted to their mutual detriment.  Their ability to provide for their future needs has been stymied by their lack of attention to compliance with normal business practices.  They are equally to blame for such situation having arisen.

3. Given the lack of disclosure by the husband in this matter, it is particularly difficult to assess the actual percentage contributions which were made by each party. As already outlined above, the Court finds that the wife has made financial and non-financial contributions throughout the course of the marriage that warrants a property adjustment order being made in her favour.

4. Without further disclosure from the husband, the Court cannot form a view as to the extent, if any, of his financial contributions.

Orders proposed just and equitable

1. The last step of the process is to consider, in all of the circumstances, whether the proposed orders are just and equitable.

2. The wife seeks orders that she be paid the whole of the net proceeds of sale of the former matrimonial home situated at Property A. It is appropriate in the circumstances that such order be made.

3. The wife further seeks an order that the [X] Discretionary Trust be set aside and that the assets of the trust be split on a 70/30 % basis in her favour. In circumstances where the assets of such trust are unknown, it is considered appropriate that the wife be paid 50% of the value of the trust assets as at the date of the making of these orders.

4. It is appropriate that the husband’s response and amended response be dismissed, in that to the extent that the contents of same seek alternative orders, such orders are sought in relation to the same property as that referred to in the wife’s amended Initiating Application, and relevant findings in respect of such property have been made.

CONCLUSION

1. This is a case where the wife is entitled to a property adjustment order being made in her favour because of her financial and non-financial contributions made during the course of the marriage. Each of the husband and wife endeavoured to financially improve their lot with little reward forthcoming from their efforts.

2. In the case of Harris v Dewell (2018) FamCAFC 94 it was held:

   It seems to us that once it has been established that there has been a deliberate non-disclosure, which follows from His Honours findings in this case, the Court should not be unduly cautious about making findings in favour of the innocent party. To do otherwise might be thought to provide a charter for fraud in proceedings of this nature.

3. This case falls into the category of case as last referred to. It is appropriate, just and equitable, for orders to be made as referred to above.

COSTS

1. The Applicant wife makes an Application for costs in respect of the hearing before Her Honour Judge Spelleken on 20 June 2018. The husband was brought to account for failing to appear at a conciliation conference as ordered, and further for his having not filed a Response, an affidavit, or a financial statement as required by orders of the Court made on 7 August 2017. The husband further was in breach of orders made on 22 December 2017 relating to disclosure. The wife in her written submissions has set out a schedule whereby the sum of $4,290.00 has been claimed pursuant to the Federal Circuit Court Rules. It is appropriate that the husband be ordered to pay costs in such amount, and that such sum be deducted from any net proceeds of sale after the sale of the assets of the [X] Discretionary Trust.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Judge Egan

Date: 15 November 2018