Lerrada & Wilkins (No. 3)

[2021] FamCA 467

FAMILY COURT OF AUSTRALIA

Lerrada & Wilkins (No. 3) [2021] FamCA 467

File number(s):	CAC 1831 of 2019
Judgment of:	GILL J
Date of judgment:	30 June 2021
Catchwords:	FAMILY LAW – PROPERTY – applications for the sale of properties owned by the parties – applications dismissed
Cases cited:	Yunghanns & Yunghanns (1999) 24 Fam LR 400
Number of paragraphs:	48
Date of hearing:	28 June 2021
Place:	Canberra
Counsel for the Applicant:	Dr Leslie
Solicitor for the Applicant:	Australian Family Lawyers
Solicitor for the Respondent:	Self-representing

ORDERS

CAC 1831 of 2019

BETWEEN:

MS LERRADA

Applicant

AND:

MS WILKINS

Respondent

ORDER MADE BY:	GILL J
DATE OF ORDER:	30 JUNE 2021

THE COURT ORDERS THAT:

1.The Amended Application in a Case filed by Ms Lerrada on 28 June 2021 is dismissed.

2.The Response to an Application in a Case filed by Ms Wilkins on 15 June 2021 is dismissed.

3.In furtherance (and not in reduction) of their duties of disclosure:

(a)Ms Wilkins shall immediately notify Ms Lerrada should she fail to comply with the terms set out by the Commonwealth Bank at Annexure H of her affidavit filed 28 June 2021;

(b)Each party shall immediately notify the other party on receipt of any notification by the Commonwealth Bank as to:

(i)The accumulation of further arrears;

(ii)The imposition of further conditions upon the loans;

(iii)The consideration by the bank of the exercise of a power of foreclosure.

4.The proceedings are otherwise transferred to the Registrar’s list pending further application or the listing of the matter for trial directions.

Note:   The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).

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

REASONS FOR JUDGMENT

GILL J

ORDERS SOUGHT

1. These proceedings commenced by means of an Application in a Case filed 1 June 2021 by Ms Lerrada seeking urgent orders for the sale of three properties owned variously by the parties at number 5, number 3 and number 7 C Street, Suburb D, in the Australian Capital Territory.  Ms Lerrada also sought ancillary orders as to dealing with the proceeds of such sale (including for each of the parties to receive 20 per cent of the net proceeds of the sales), and as to the mechanism for sale being through a real estate agent.

2. By her Response filed 15 June 2021 Ms Wilkins also sought orders for the sale of the properties or parts thereof, being the sale of the interests held by Ms Lerrada and Ms Wilkins of their interests in number 5 C Street, along with the sale of Ms Lerrada's interests in number 3 and number 7 C Street to the brother of Ms Wilkins, Mr G at the price set out in valuations previously obtained by the parties.  On the first return of the matter various directions were made to deal with disclosure issues, the filing of Financial Statements, and also with the provision of updated valuations for each of the properties (the parties having prepared valuations in March 2021 for the purposes of the conciliation conference) and directions were made permitting the parties to file particular material.

3. The allocated date for the hearing of the interim applications was 28 June 2021.  This date was assigned as Ms Wilkins, at the first directions of the matter, indicated the importance of dealing with the matter before the end of the financial year as she asserted that there were Capital Gains Tax implications should contracts be exchanged in the 2020/2021 financial year, as opposed to the 2021/2022 financial year.  Although she provided no direct evidence in respect of this she provided evidence suggesting that she did not derive a significant income in 2020/2021 but was likely, in part due to new employment obtained by her, to derive significant income in 2021/2022, leading to the potential for capital gains to be taxed at a higher rate if received pursuant to a contract exchanged after the expiry of the financial year.  No evidence was ultimately led by her as to the extent of any Capital Gains liabilities under either circumstances.

4. In accordance with the directions Ms Lerrada filed an affidavit annexing various disclosed documents pertinent to the application and caused to be filed an affidavit annexing both the March 2021 valuations for the properties and updated June 2021 valuations for the properties.  The June valuations for the properties indicated an increase in value from those obtained in the March valuations, approximating an increase in the total value of the properties of 5 per cent.

5. Subsequently, Ms Lerrada filed an Amended Application in a Case on 28 June 2021 which varied from her previous Application in a Case only to the extent that it incorporated, as the sale prices of the properties, the updated valuations.

6. No further Response to the Application in a Case was filed by Ms Wilkins, who filed an affidavit out of time and without leave.  The affidavit was not objected to by Ms Lerrada in order to ensure the proceedings were able to continue on the allocated day.

7. On the return of the matter for hearing Ms Wilkins indicated that she sought the orders primarily in accordance with her Response to an Application in a Case (although she orally intimated that the purchase price should be in accordance with the new valuation), or if her Response is not acceded to she sought that there be no orders made for the sale of the properties.

8. Orally Ms Wilkins sought to further extend her position and attempted to offer a suite of other potential dispositions in the case including a sole occupancy order being made in her favour, provisions for Ms Wilkins to manage various properties, and undefined orders relating to loans to be made to Ms Lerrada from Ms Wilkins’s relatives.  As these were not reflected in her Response and were raised at best in an affidavit filed by her on the day of the proceedings, Ms Wilkins was not permitted to orally extend her response to incorporate such other remedies on the basis that it would result in a failure to accord procedural fairness to Ms Lerrada.  Should such matters remain in issue following the delivery of judgment in this matter they will, undesirably, need to be the subject of further application.

9. The contest is then one between firstly an arm's length sale of the three properties based on the updated valuations, as pursued by Ms Lerrada, secondly, at the behest of Ms Wilkins, a non-arm's length sale to the brother of Ms Wilkins, potentially at the updated values (although this was somewhat unclear), or thirdly, at the behest of Ms Wilkins, that there be no order made for the sale of the properties.

10. It is convenient to deal firstly with the second of these options, being the non-arm's length sale proposed to the brother of Ms Wilkins as on the evidence provided and the submissions made by Ms Wilkins it is not a resolution that can stand even in the event that a sale is to take place.  The removal of this option simplifies the contest between the parties to an arm’s length sale, or to no sale.

11. The proposed sale to the brother is not an option available for a number of reasons. Firstly, there is insufficient positive evidence provided to the Court to establish that the purchase by the brother is practically available. 

12. While there is direct evidence that the brother is willing to make the purchase, the evidence does not go so far as to establish either that he has the means to do so, or that Ms Wilkins has the means to refinance to allow her to retain the interests she seeks to retain under such an arrangement.  The evidence established neither that Ms Wilkins nor her brother have such funds as may be required at their disposal, or that they have secured a loan facility or are even on the cusp of securing a loan facility that would enable such purchases to take place.

13. At best there was evidence led by Ms Wilkins that, should she comply with a repayment plan in respect of the properties for a period of six months, that consideration would be given to a refinance with a capitalisation of amounts currently unpaid but owing to the bank (to be identified further below).

14. Further, following the close of submissions Ms Wilkins made additional submissions to the Court suggesting that there should be an amendment to the orders that she sought such that the proposed purchase by her brother would be conditioned by a subject to finance clause.  The implication of this submission, which was drawn to Ms Wilkins’s attention at the time of her making it, was that it operated as a concession that her brother is not in a position to commit to the purchase at present, other than subject to finance.  This submission alone is sufficient to lead to such doubt as to the brother’s capacity to make the purchases as to leave this primary position on the part of Ms Wilkins as not established as a viable option for the sale of the properties should such be necessary.  Even if this were not the result of the submission, the absence of evidence both as to Ms Wilkins’s capacity and as to her brother’s capacity means that this is not an option appropriately the subject of injunctive orders for a sale.

15. As noted above, the issue then becomes one of whether an arm’s length sale should be mandated, or whether, at present, there should be no order for the sale of the properties.

    What are the circumstances relevant to the application for sale?

16. At present Ms Lerrada occupies the property at 3 C Street.  Ms Wilkins occupies a rental property.  They jointly share the care of the children.

17. Ms Lerrada has not paid the mortgage on the property that she occupies despite having occupied it since separation.  She asserts to the Court that she lacks the capacity to pay the mortgage on her part time income.

18. The properties at No 5 and No 7 have been managed by Ms Wilkins as Airbnb rentals and have derived incomes. Despite this, they have fallen into arrears, the loans not being met for a period of time.

19. In this context significant arrears and outstanding rates, land tax and other payments have accumulated in respect of the three properties.  The arrears in relation to the loans are jointly $71,543.13, the other outstanding expenses total $22,543.16.  These thereby total $94,086.29.

20. While it is possible to attribute the rates, land tax and other fees to each of the properties, the parties were unable to do so in respect of the various loans and arrears, due to the cross collateralisation of the loans.

21. The loans across the three properties appear to total $1,493,435.44, against a total estimated value (in accordance with the most recent valuations) of $2,320,000.

22. In this context Ms Lerrada seeks the sale of all three properties.  She asserts that this is necessary as the current circumstances are untenable, particularly given the accumulation of arrears, that there can be no confidence that the properties can be retained as they are accumulating arrears, and that they at risk of sale by the bank.  Ms Lerrada also seeks a partial property settlement from the proceeds, and that a payment be made to both herself and to Ms Wilkins.

23. Ms Lerrada’s concern as to the potential sale of the properties by the bank is supported not only by the fact of the accumulation of significant arrears, but also by correspondence from Ms Wilkins referred to in her affidavit of 26 May 2021 [7-8], dated 14 May 2021 which included the following statement:

    The bank has indicated their intention to promptly take enforcement action due to non-payment of the mortgages. The bank has advised us both that this will lead to additional further legal costs, as the bank will apply their own legal fees to our account.

24. These aspects of the evidence demonstrate grounds for significant concern that, unless there is some change in the circumstances of the parties, or the position of the bank, the properties are at risk of sale by the bank.

25. Ms Lerrada’s position is that the cross collateralisation of the properties means that they should all be sold, while Ms Wilkins asserts that the cross collateralisation could be unpicked in a manner that does not require the sale of all (if any) of the properties.  While there was evidence of the cross collateralisation, there was little if any evidence as to how the banks might treat such on the sale of one or two of the properties rather than all three.

26. As a consequence of the proposed sale of the properties, Ms Lerrada seeks a partial distribution of the proceeds of the sale to each of the parties.  She identifies, at [27], the need for such as emanating from the result of the sale being that she will need to acquire alternate accommodation.  While there is no need for a party to demonstrate a pressing need to justify a partial property distribution, it is legitimate to take into account the impetus put forward for the fragmentation of the exercise of the discretion. Well established case law supports the preference that there be a single exercise of the discretion at the final hearing of a matter.  Here the proposed need for a partial distribution only arises on the sale of the properties.

27. Against this, Ms Wilkins asserts that she will seek to retain the three properties on the final disposition of the matter.  Explaining her desire to do so, she points to her commitment to the local community where the properties are held, that she held one of the properties prior to the commencement of the relationship, and to her objective of securing circumstances of having her extended family living nearby, to the benefit of her children.  A sale of the properties at this stage will likely defeat such a claim in a manner unable to be reversed.  In that sense, the interim resolution pursued by Ms Lerrada will have a significant impact on the final disposition, regardless of the merits that then present themselves to the Court.

28. Ms Wilkins further asserts that, on the basis that she is committed to retaining the properties, that she will make the relevant mortgage payments in respect of the three properties. 

29. A significant issue then is the present risk to the properties, being a risk centred on potential action to be taken by the bank.  There are two components of that risk being firstly, the current position of the bank and secondly, the capacity of Ms Wilkins to comply with any conditions imposed by the bank to alleviate that risk.

30. The bank’s position is best understood firstly from correspondence from the bank to Ms Lerrada of 16 June 2021, at Annexure J of her affidavit of 24 June 2021.  This correspondence confirms the arrears on the loans (save for one that is solely in Ms Wilkins’s name), and is ambivalent about the potential consequences, other than to confirm that there is a current hardship deferral of payment in place until 8 September 2021, after which time there would be further consideration given by the bank dependent upon the circumstances, including whether the properties were then to be sold by the parties.

31. However, that position is modified by further correspondence from the bank.

32. The requirements Ms Wilkins must comply with in respect to the repayment plan are set out by the bank at Annexure H of her affidavit of 28 June 2021. The bank stated that monthly payments of $6,502 are required and that:

    If you maintain these repayments this will show 6 months serviceability for us to then consider the capitalisation of the arrears. Should you be able to afford an extra $400 per week to clearing arrears on the accounts you are welcome to increase your repayments and transfer these amounts yourself, however there is no obligation under this arrangement to do so if you cannot afford to. Should the arrangement not be able to be met please contact myself for adjustment of the arrangement.

33. Accordingly, it may be taken firstly that should the requirements be met, the properties are not at imminent risk of foreclosure and secondly that, even if the requirements were not accepted by Ms Wilkins, further negotiation with the bank is available.

34. Ms Wilkins responded to the bank that she accepted the terms.

35. Ms Wilkins asserts that she is paying, and is in a position to pay the necessary amounts in respect of the loans.

36. Ms Wilkins has now recommenced full time work in a business operated by her brother, providing an income far in excess of what she was previously receiving at the time that the properties fell into arrears.

37. At Annexure E of Ms Lerrada’s affidavit of 24 June 2021, payments may be seen on the home loans on 2 May 2021 and again on 28 May 2021.  Ms Wilkins submits that this shows that she has recommenced the payments of the loans.

38. Somewhat detracting from Ms Wilkins’s assertion as to her capacity to pay the loan amounts is her Financial Statement filed 23 June 2021, which shows a net deficit of approximately $500 between her weekly income and expenses.

39. This deficit, Ms Wilkins explains, flows from Ms Wilkins meeting the repayment plan stipulated by the bank (including an additional optional amount of $400 per week to further pay down the arrears).  The total monthly amount for these payments identified in the payment plan is $6,502, which appears to be consistent with the weekly estimate of $1,800 provided by Ms Wilkins.  

40. Ms Wilkins nominates a number of scenarios which would enable her to make good on any shortfall.  One would require Ms Lerrada to move out of the property that she currently occupies and to apply the rent from that property (E$900 - E$1,200 per week) to the loans.  No current sole occupancy application is on foot to support such an outcome.  Another proposal made by Ms Wilkins would be for Ms Wilkins to occupy the property currently occupied by Ms Lerrada (which would see Ms Wilkins not paying rent elsewhere at $610 per week, thus freeing that amount to make up the shortfall).  Again there is no sole occupancy application to support such an outcome.  A further option is for Ms Wilkins to move in with her brother temporarily in order to reduce her housing costs.  Further Ms Wilkins submitted that she would otherwise reduce her personal expenditure.

41. It appears to be the case that if Ms Lerrada was making payments toward the mortgage of the premises that she occupies there would be no shortfall, and there would be scope to pay down the arrears.  However, Ms Lerrada asserts that she is unable to do so, on her current part time employment.  It should be observed however that Ms Lerrada currently has an excess of income over expenses in excess of $100 per week, but makes no payment toward the mortgage despite this.

42. It may be observed that, in meeting payment for all three mortgages Ms Wilkins, depending upon her capacity to reduce her personal expenditure, faces a shortfall, without optionally repaying arrears, of approximately $100 per week.  She proposes a number of mechanisms to deal with this, but of those proposed, it is the option to move in with her brother that is available absent cooperation or contribution by Ms Lerrada.  What this means is that Ms Wilkins has the means to make the necessary repayments even without contribution by Ms Lerrada.

    Conclusion

43. Given the representation made by the bank as to what is required of Ms Wilkins, there is no immediate need to move to sale to effectively protect the pool of property, as pursued by Ms Lerrada.

44. This is a position that may change, dependent upon whether Ms Wilkins in fact continues to make the repayments.  Should the arrangement with the bank not be complied with, and should further arrears be accumulated, it might be thought that, dependent upon any other relevant circumstances, the balance shifts strongly toward the necessity to sell one or more of the properties to protect the pool.

1. However, to take such a step now effectively shuts Ms Wilkins out of the final result that she pursues in these proceedings.

2. The combination of these factors mean that it is not appropriate[1] to exercise the injunctive power to compel the sales, at least not at this stage.  Mechanisms are in place for the protection of the pool, and a forced sale will deprive Ms Wilkins of the potential fruit of her litigation.  However, if the position in respect of the protection of the pool worsens, that is likely a matter that will justify some, or all of the proposed sales despite the effect of such upon the case pursued by Ms Wilkins, as then the prospects of the retention of the properties would be demonstrably poor, and the attempt to further retain the properties comes at the expense of the diminishing of the pool of property, to the detriment of both parties.

   [1] Yunghanns & Yunghanns (1999) 24 Fam LR 400.

3. Accordingly, the appropriate disposition of the matter is to refuse Ms Lerrada’s Amended Application in a Case, and Ms Wilkins’s Response.

4. However, it is appropriate that further orders be made reinforcing the obligations of the parties in respect of disclosure, in particular in respect of ensuring that both parties are in a position to identify if the position worsens immediately and, if necessary, to make further application.

I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gill.

Associate:

Dated:       30 June 2021