Lowrence and Lowrence

[2008] FamCA 1018

FAMILY COURT OF AUSTRALIA

LOWRENCE & LOWRENCE [2008] FamCA 1018

FAMILY LAW – PROPERTY SETTLEMENT—Assets $17m divided equally—issue Husband’s self managed super fund—issue revaluation adjustment dividends—other assets not subject to update valuation—not allow selective updating of assets —stock and property market falls—vehicle now not wanted by Wife added to property pool—issue holiday home and third party—holiday home never held exclusively by husband and wife—no trespass on right of third party—cash adjustment to wife—no provision of interest provided timetable is met

APPLICANT: Ms Lowrence

RESPONDENT: Mr Lowrence

FILE NUMBER: BRC 7083 of 2007

DATE DELIVERED: 7 October 2008

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Barry J

HEARING DATE: 7 October 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr R Galloway

SOLICITORS FOR THE APPLICANT: Dixie Ann Middleton & Associates

COUNSEL FOR THE RESPONDENT: Mr Baston of Counsel

SOLICITORS FOR THE RESPONDENT: Habermann & Associates

Orders

No Orders to issue.

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

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC7083 of 2007

MS LOWRENCE

Applicant

And

MR LOWRENCE

Respondent

REASONS FOR JUDGMENT

1. This matter was set down to proceed on property settlement issues today and the following two days.  The parties have largely agreed on orders that should be made.  There remains a limited number of issues which I am asked to determine. 

2. The assets involved are approximately $17 million.  It is common ground that the assets will be divided equally.  Under the proposals as contained in the draft orders put forward by the husband, the wife would receive the former matrimonial home at R which is valued at about $700,000 and on the calculations made, she would receive cash payments over a period of time of $7.5 million.

3. The wife seeks orders different to those sought by the husband.  She seeks an adjustment on account of three factors which are of a relatively minor nature - and the fourth factor involves receiving a particular piece of real estate.

4. The first of the issues was the husband's superannuation which was re-valued, as I understand it, to 30 June 2008.  The accountants agreed that the superannuation interests had increased by $18,800 approximately over the period from the date of the last valuation.  The wife sought that the property pool be adjusted to reflect this increase and the effect of this is she will then receive an additional $9,472.

5. The calculations were not disputed.  The husband does not dispute the fact that the adjustment should be made.  I am at something of a loss to understand why it was necessary for either counsel to make submissions, however, I have understood the position and the figure can be adjusted upwards to $9472.

6. I note in passing that the wife originally sought 100 per cent of the husband's superannuation fund.  It is common ground it is a self-managed superannuation fund and it has assets of about $600,000 in it.  The wife says that she does not have a self-managed superannuation fund and her fund is only worth about $30,000.

7. This position of the wife was maintained until relatively recently.  In paragraph 7 of her case outline document filed on 3 October she says:

   “The husband has accumulated during the marriage, a superannuation entitlement in a self‑managed fund as at 30 June 2008 having a current value of $644,843.23, whereas the wife's superannuation entitlement in Colonial First State as at 18 July 2008 has a current value of $15,596.  Taking into account superannuation rules and the ages of the parties, both of whom are 54, the wife cannot accumulate a superannuation entitlement equivalent to that of the husband by the age of 60 when each would become eligible to a tax free income stream from the entitlement which each has been able to accumulate by that date.  When considering issues of justice and equity, there is a need to consider the need to place each party in a similar position in regards to superannuation.”

8. If that was the wife's position it is difficult to understand why for so long she sought 100 per cent of the husband's superannuation.

   RECORDED : NOT TRANSCRIBED

9. The second matter raised involves a $60,743 adjustment in the wife's favour. This is a result of a deemed dividend revaluation adjustment being updated from 31 July to 30 September for the parties' corporate entities.

10. I have had one of my staff extract the valuation dates of the numerous items of property that have been valued and which form the pool of $17 million.  The valuation of $1.8 million for the Y property was done in October 2007.  The property at S, $3.75 million was valued in October 2007.  The property at E, $1.94 million, October 2007 and so it goes on.  The majority of them relate to October/November 2007, others dated back to June 2007.

11. The reasons the deemed dividends have been calculated to 31 July was that was the date that the matter was last mentioned before me in the form of a compliance check/directions hearing so that I could be satisfied all matters were ready for trial.  I note that on that occasion counsel for the husband said:

    "The stated accountant’s agreement is that they had met over a period of eight to 12 months, they have agreed on a methodology and a basis for evaluation and have agreed on the valuation sums, that is, the outcome, save for issues of adjustment, so the position between them is such that we anticipate within a short period of time an agreed balance sheet with one or two items that may need agitation and they will be just strictly limited to items of small compass, not materially affecting the pool.  Your Honour will appreciate that in doing this over the last eight to 10 months that considerable expense in updating has taken place.  My client is very much aware of that and no doubt the wife is and we want to avoid having to update figures yet again.”

12. There were some other submissions made and I observed the reports; a snapshot of the parties' finances is taken at a given date and if it be 1 July 2008 or 30 June 2008, whatever date is taken, and the parties say, well they are the assets, they are the valuations and there is division in specie using those but the parties know that they will end up, say, the market is dropping, they may become reduced in value in the meantime, we cannot keep re-ordering reports so we will lock in the reports first.  That is what I was saying before I set the matter down for trial.

13. In circumstances where other assets have not been subjected to an updated valuation I am not minded to allow a selective updating of a particular asset, particularly where it reflects income rather than a capital base.  It is a notorious fact that the stock market has fallen significantly in the last six months, the real property market has also fallen.  I will not allow the adjustment as sought.  As I have said, it smacks of a selective re-adjustment of one item.  It is not to say that in exceptional circumstances I will never allow updated valuation evidence to be advanced, if for example, a comparable sale that had not previously been canvassed was brought to everyone's attention.

14. The third item in dispute is the wife's four-wheel drive motor vehicle.  It is not clear to me how long she has had the use of this vehicle but I had the impression she has driven it for quite a few years.  It is owned by one of the companies.  The wife says she does not want it now.  The vehicle is valued at $33,000, she is content to have $16,500 revalue added to the property pool.  The husband's attitude is he does not care.  In the circumstances I will allow the adjustment of $16,500 without further comment.

15. The major difference between the orders advanced by the husband and those now advanced by the wife relate to whether there should be a transfer of the property at T1 from Lowrence Holdings Pty Ltd to the wife.  There are a number of relevant properties in T.  One of the companies owns T2 property, nothing greatly turns on that, no orders are sought about it.  I am informed that it is used for the purpose of company employees, whether as a reward system or simply accommodating them is not clear.  The subject property is at T1, it is owned by the company Lowrence Holdings.  It has been the residence of the husband since separation just over two years ago.  He has not been in occupation in recent times as renovations have been carried out.

16. T3 property was owned by the wife's grandfather and has been in the family’s hands for some 80 years she says.  It is currently owned by her sister.  T4 property is also owned by one of the companies, it is on two titles and the husband says that his business partner Mr W is building a house, he has had plans drawn up and that block effectively is his, he will end up occupying one strata title unit and presumably will sell the other strata title unit in the fullness of time.  There was no challenge to that evidence by the husband.

17. T5 property was acquired in 1995 in the name of the corporate entity, Lowrence Corp Pty Ltd.  It was used as a holiday home by the Lowrence family and the W family in recent years.  For reasons that are not apparently clear but do not appear greatly relevant, the property was transferred from Lowrence Corp to Lowrence Holdings at some point in time.  Of that company the husband holds a 50 per cent interest, the wife 25 per cent and Mr W, the husband's long-standing business partner, 25 per cent.

18. I am satisfied Mr W has been accorded procedural fairness as the husband's business partner.  It would be difficult for him not to be aware of the nature of these proceedings but in any event there is affidavit material and an acknowledgement of service by him that he is aware of the type of orders the wife is seeking.

19. At paragraphs 27 and 28 of her affidavit filed on 3 October the wife deposes as follows:

    "27.  The property at [T1] was purchased in 1995 by [Lowrence Corp] Pty Ltd for $270,000 as a holiday home for both our family and [Mr W’s] family.  My sister lives two doors down from that house and we became aware that the property was for sale while we were staying with her for holidays.  It was natural that this house be purchased when it became available.  I hold 25 per cent of the shareholdings in [Lowrence Holdings] Pty Ltd, [the husband] holds 50 per cent and our business partner, Ross [Mr W], holds 25 per cent.  This company is the current registered proprietor of this property.  The property provides security for various borrowings from the National Australia Bank by various of our entities.

    28.  My grandfather had purchased the property at [T3], now owned by my sister, approximately 80 years ago when he came over from Scotland.  The stretch of beach reminded him of his home in Scotland.  Throughout my childhood and continuing through my adult life I have spent almost all of my holidays down at [T].  It has been a major part of my life and that of my extended family.  I introduced my sons and [the husband] to the same lifestyle and my sons were able to grow up playing with their cousins throughout their holidays at the beach.  We have continued this practice to the current day subject to the commitments of the adult children who continue to make the effort to holiday together whenever possible.  [T] has been the glue that has bound our extended family together over decades.  I am therefore emotionally committed to being able to retain the property in [T] so that I can grow old with my sister nearby, watching our children and grandchildren live out their lives.”

20. I pause to observe that nobody is saying she cannot retain a property in T.  The husband says he has been living in this one for two years and he would like to keep it.  The wife deposes, at paragraph 30:

    "I understand that [the husband] for a time lived there when not travelling for business or pleasure, however a white ant problem has been discovered and he is now renting other premises at the coast while major renovation work has been carried out at [T1 property] to repair the damage and otherwise improve the property.  If I were able to retain [T1 property], [the husband] could continue to rent."

    RECORDED : NOT TRANSCRIBED

21. It is common ground that the property is worth $1.3 million and that the transfer by the company to the wife would incur a tax liability of $305,000.  The wife says she will indemnify the company for any tax liability so keen is she to acquire this property.

22. Under the terms of the orders the wife retains the former matrimonial home at R.  The husband says he has been in occupation of T1 property for two years and is currently carrying out renovations.  In the course of brief evidence the husband said there were two houses for sale and three units for sale in the same street.

23. Mr W, aware of the proceedings and the orders sought, has not entered into the picture.  I think he is a very sensible man.  Counsel for the husband submitted that he needed to be joined as a party before any orders could be made affecting him.  I reject that submission.  The wife is not required to go to the expense of joining Mr W as a party.  It is sufficient that he is made aware of the orders that have been sought in relation to transfers of various properties.

24. In the brief time available I have had the opportunity to look up some cases in relation to s 90AE which deals with third parties either as creditors or debtors.  In the matter of Hunt & Hunt 36 FLR at p 95, O'Ryan J said:

    "The power and discretion of the Court is carefully controlled and confined.  The requirement in s 90A3(a) and see the identical requirement in 90AF3(a), that the making of the order be reasonably necessary or reasonably appropriate and adapted to effect a division of property between the parties to the marriage, in and of itself ensures that far from the discretion being unlimited or unrestricted, it is carefully linked and certainly sufficiently connected to the subject matter of marriage and matrimonial causes.  In particular it is bound up in or at least sufficiently connected to the central area of the marriage power, namely the effecting of a division of property between the parties to the marriage." 

25. The husband says he could pay the wife in cash.  He says the holiday home they shared for a period of 13 years is not such that it leads to the emotional attachment the wife purports to attribute to the property.  He is, in effect, saying it is in the company's asset base, why should that position be disturbed simply because the wife has an emotional attachment.  She has a home to live in, she can acquire another property in the same street.

26. As a result of the orders to be made which are not challenged, the husband will acquire the wife's interest in all of the corporate entities.  I assume thereafter that for Lowrence Holdings the husband will have 75 per cent of the shareholding and Mr W 25 per cent. 

27. I note a judgment of Cronin J in the matter of Christie & Christie (2007) FamLR 181 decided in February last year, his Honour said, dealing with s 90AF which is in very similar terms:

    "Section 90AF2 widens the scope of the provisions so that in the s 114 proceedings the Court may direct "a party to do a thing in relation to the property of the party to a marriage.”

    He then quotes O'Ryan J from the decision that I have just quoted from  where he observed:

    "Section 90AE2 is read in conjunction with 90AE3, section 79 and Part 8AA generally.  It is clear that what is contemplated is not some arbitrary invasion of the rights of the third party but an alteration of those rights where they are sufficiently connected to the division of property between parties to a marriage.”

28. I take into account the following matters in the exercise of my discretion: the subject property has always been held as part of the corporate structure.  The company itself is a third party although one could argue that the corporate veil could be penetrated, notwithstanding the 25 per cent shareholding by Mr W.  At all times Mr W has had more than just a notional interest in this property, he has had a very real interest in it in terms of sharing it with his family.  He has a 25 per cent interest in the company which is the registered proprietor. 

29. The subject property has never been held exclusively by the parties.  The subject property has not been held for a particularly long time as an interest of the parties.  The husband has been using the property as his permanent abode and as I understand his evidence, intends to continue to reside there once the renovations have been carried out and the white ants problem resolved.

30. To accede to the wife's request means effectively she ends up with two properties, R property and a holiday home at T1 and the husband does not have any property that he can immediately occupy.  As I understand the property at T5 is used.  I do not know the nature of that property but it is used for employees.  The property at T4 is, the husband has readily acknowledged and it is not challenged, the property to be given to Mr W.

31. Before trespassing on the rights of third parties I would need to be satisfied that the making of the order is reasonably necessary to effect a division of property between the parties to the marriage.  That is exactly what Parliament has told me to consider.  In the alternative, I have to be satisfied that the making of such an order is reasonably appropriate and adapted to effect a division of property as between the husband and wife.

32. I am satisfied that as a 25 per cent shareholder and a director of the company Lowrence Holdings, the rights of Mr W would be significantly impacted.  The orders sought are not sufficiently connected to the division of assets between the parties that the property has to be transferred.  A similar result can be obtained in justice and equity by making a cash adjustment whereby the wife could acquire another property in the same street.  For the reasons given I will not make the transfer order as sought by the wife. 

33. I turn to the remaining issues.  The wife says that she wants security over the assets until the deferred payments have been made.  Counsel for the husband did not address me on this issue.  The security, as I understand, is that the wife says she does not intend to transfer the shares until the husband has paid up all of the moneys proposed in his draft orders.

    RECORDED : NOT TRANSCRIBED

34. The draft order provides for the payment of $7.515 million which would be adjusted in accordance with these Reasons but the payment is deferred in the following way: on or before 1 February 2009 the sum of $2 million, on or before 1 July 2009 a further sum of $2 million, and on or before 1 December 2009 the balance of $3.515 million.

35. I am satisfied the husband has to liquidate assets in order to be able to make these payments and he will have to liquidate assets in a down market or conjecturing it will still be a down market in 12 months' time, the alternative is he will have to go out in a very tight market and borrow money. 

36. The view that I take on the interpretation of the orders, if the husband is in any way late with any of the payments then interest as provided for in the Rules will automatically operate and that is a very punitive rate, it is in excess of 10 per cent.

37. If the payments are late there could be a trigger clause that certain properties are to be forthwith sold, however, where there is a scheme for deferred payment it is not normal in my experience if the scheme is to be implemented, for interest to accrue because as the husband points out, he is going to be incurring expenses in one way or another in liquidating assets or having to borrow those funds.

38. The view that I have taken is that where the wife says he can raise $7.5 million in 45 days, that is a totally unreasonable period; that the period put forward by the husband is reasonable.  I gave consideration to how the wife is going to survive between now and 1 February but she still has access to a considerable sum of money as a result of an inheritance she received from her mother's estate which has not been brought into account as an asset and that was by agreement of the parties.

1. So for those reasons I will not be requiring provision of interest, providing that timetable is met.

   RECORDED : NOT TRANSCRIBED

I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Barry

Associate: 

Date:  7 October 2008