Lukin and Lukin & Ors

[2020] FamCA 363

FAMILY COURT OF AUSTRALIA

LUKIN & LUKIN AND ORS [2020] FamCA 363

FAMILY LAW – PROPERTY – Interim – Where the former matrimonial home is mortgaged by the second and third respondents – Where the parties are in default of the mortgage – Where the second and third respondents seek possession of the property – Where they have complied with the obligations under the Real Property Act and Conveyancing Act – Order for the sale of the property – Order for discharge of the mortgage, and distribution to the parties as a partial property settlement – Where the husband has no capacity to pay spousal maintenance or to fund the wife’s litigation – Application for spousal maintenance and litigation funding dismissed.

Conveyancing Act 1919 (NSW) s. 111(2)
Family Law Act 1975 (Cth) ss. 72, 90AF, 117(2)
Family Law Rules 2004 (Cth) r. 20.24
Real Property Act 1900 (NSW) s. 57(2)(b)

Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161.

APPLICANT: Ms Lukin

1st RESPONDENT: Mr Lukin

2nd RESPONDENT: Mr B Lukin

3rd RESPONDENT: Ms C Lukin

4th RESPONDENT: Lukin Pty Ltd ACN …

5th RESPONDENT: D Pty Ltd ACN …

6th RESPONDENT: F Pty Ltd ACN …

FILE NUMBER: SYC 2288 of 2019

DATE DELIVERED: 14 May 2020

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Rees J

HEARING DATE: 11 May 2020

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Todd

SOLICITOR FOR THE APPLICANT: Uther Webster & Evans

COUNSEL FOR THE 1ST RESPONDENT: Mr Othen

SOLICITOR FOR THE 1ST RESPONDENT: Beswick Lynch Lawyers

COUNSEL FOR THE 2ND  AND 3RD

RESPONDENTS:

Mr Kearney SC with Mr Schonell

SOLICITOR FOR THE 2ND AND 3RD

RESPONDENTS:

Stanton & Stanton

4TH RESPONDENT: No appearance

5TH RESPONDENT: No appearance

6TH RESPONDENT: No appearance

Orders

IT IS ORDERED

1. That the wife’s application for interim spousal maintenance is dismissed.

2. That the wife’s application for litigation funding pursuant to section 117(2) of the Family Law Act 1975 (Cth) is dismissed.

3. That the husband and the wife forthwith do all acts and things required to sell the property at G Street, Suburb H and to pay the proceeds of sale in the following manner and priority:

   (a)In payment of the amount outstanding pursuant to Registered Mortgage …

   (b)       In payment of agents’ commission and legal costs of sale.

   (c)       In payment of rate adjustments in settlement.

   (d)       In payment of the sum of $300,000 to the wife.

   (e)       In payment of $200,000 to the husband.

   (f)In payment of the balance to a controlled monies account held jointly by the solicitor for the wife and the solicitor for the husband.

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

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

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 r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 2288 of 2019

Ms Lukin

Applicant

And

Mr Lukin
1^st Respondent

And

Mr B Lukin
2^nd Respondent

And

Ms C Lukin
3^rd Respondent

And

Lukin Pty Ltd ACN … 
4^th Respondent

And

D Pty Ltd ACN … 
5^th Respondent

And

F Pty Ltd ACN … 

6^th Respondent

REASONS FOR JUDGMENT

1. Ms Lukin (“the wife”) and Mr Lukin (“the husband”) married in 1990 and separated in December 2018. They have three children, triplets aged 22 years.

2. The husband and the wife own a property at G Street, Suburb H where the wife and two of their children currently live.

3. The Suburb H property is mortgaged to the husband’s parents (the second and third respondents) who seek possession of the property, claiming that the mortgage is in default.

4. In her substantive application, the Amended Initiating Application filed 17 May 2019, the wife, relevantly, seeks orders for the transfer of the Suburb H property to her free of encumbrance. She also seeks orders setting aside the transfer, in 2007, by the husband of two parcels of shares in entities controlled by the second and third respondents.

5. Other than the Suburb H property, neither the husband nor the wife has any substantial assets.

6. The proceedings before the Court for interim determination are the wife’s application for spousal maintenance and for litigation funding and the application of the second and third respondents for possession of the Suburb H property. The husband seeks the sale of the Suburb H property and the distribution of $200,000 to each of the husband and the wife by way of interim property settlement.

SPOUSAL MAINTENANCE

1. The wife has not worked since the triplets were born.

2. It is not suggested that she is likely to be able to support herself from employment.

3. Her only source of income is a Centrelink payment.

4. The husband in his response filed 21 May 2019, seeks orders for the sale of the Suburb H property and the division of the net proceeds of sale, after payment of the mortgage and selling expenses, as to 60 per cent to him and 40 per cent to the wife.

5. For the purpose of this application, the husband and the wife agree that the Suburb H property is worth $7,000,000. The amount outstanding under the mortgage is about $3,200,000. Therefore the equity in the property is about $3,700,000. However, the husband opposes the division of the proceeds in accordance with his substantive response and seeks an order for the sale of the property and the payment of $200,000 to each party by way of interim property settlement.

6. The husband makes the implicit concession that the amount of $200,000 would be required by the wife to pay her legal fees. In any event, it was not submitted that if the wife received $200,000 she would not be in need of maintenance.

7. The wife meets the threshold test in section 72 of the Family Law Act 1975 (Cth) (“the Act”).

8. The wife has expenses of $2,930.50 per week. There is no challenge to the reasonableness of those expenses.

9. The husband’s case is that he has no capacity to pay.

10. The husband, in his Financial Statement sworn 23 December 2019, deposes to an income of $2,066 per week from J Pty Limited, a company. The husband is the sole director of J Pty Limited and, I infer, beneficially owns its shares.

11. The husband deposed that J Pty Limited is in its “start up” phase and that the second and third respondents have advanced “at least $965,000” to J Pty Limited to fund its business.

12. There is no evidence that the husband has any other income or assets.

13. There is no dispute that, during the course of the marriage, the husband and the wife received generous funds from the second respondent. The second respondent deposed that between July 2008 and January 2019, he advanced, both personally and through corporate entities controlled by him (or him and the third respondent) a total of $12,733,314 in addition to the $3,000,000 secured by way of mortgage over the Suburb H property. Whether those advances should be characterised as gifts (as the wife contends) or loans (as the husband and the second respondent contend) is not relevant for the purpose of this determination.

14. The second respondent deposed that he has no intention of making any further advances to the husband or the wife.

15. I accept that the husband and the wife may have enjoyed a lavish lifestyle during their co-habitation, but the husband’s parents have no obligation to ensure that such a lifestyle continues.

16. The husband has also borrowed money from his brother to pay rent and legal fees but he has entered into a loan agreement to repay those funds from the proceeds of his property claim.

17. I am not satisfied that the husband has any capacity to pay spousal maintenance.

18. The wife’s application for spousal maintenance will be dismissed.

THE WIFE’S APPLICATION FOR LITIGATION FUNDING

1. Counsel for the wife conceded that there is no fund available from which her application for a payment of $300,000 can be satisfied.

2. Relying on the power of the Court to make orders “as to costs” in s. 117(2) of the Act, counsel for the wife submitted that such an order could be made in one of two ways:

   ·    The husband and the wife could borrow $300,000 by way of mortgage secured against the remaining equity in the Suburb H property; or

   ·    The Court could make what is usually referred to as a “dollar for dollar” order.

3. There is no dispute that there is power to make either order.

4. There is no evidence that the second and third respondents, who have a first registered mortgage, will consent to the property’s being further encumbered.

5. There is no evidence that any lending institution would consider lending money to the husband and the wife, having regard to their sworn evidence about their lack of income from which to make any repayments.

6. In relation to the proposed “dollar for dollar” order, the husband deposed that, since May 2019, he has borrowed $US194,000 from his brother “for my rent, living and legal expenses”.

7. There is no obvious fund in the possession or control of the husband from which he pays his legal expenses or from which a “dollar for dollar” order could be satisfied.

8. This is not a case where one party has control of the assets of the marriage and is using that control to fund his or her costs and “starve” the other of a fund from which to pay.

9. An order such as that sought by the wife is likely to have the effect that the husband’s family will refuse to fund him any further but is not likely to lead to a result that is just and equitable as between the husband and the wife.

SALE OF THE SUBURB H PROPERTY

1. By an Application in a Case filed 18 November 2019, the second and third respondents seek orders for possession of the Suburb H property “pursuant to Rule 20.24 of the Family Law Rules 2004 (Cth) in accordance with Registered Mortgage …” and leave to issue an enforcement warrant in respect of the property.

2. The husband seeks orders allowing the husband and the wife to sell Suburb H and to pay from the net proceeds the amount required to discharge the mortgage; the overdraft to K Bank; outstanding rates and $200,000 to each of the husband and the wife, the balance to be retained in a controlled monies account.

3. The wife opposes both applications.

4. She seeks orders by way of injunction in the following terms:

   5.That until further Order the Second and Third Respondents be restrained from enforcing the registered Mortgage Dealing Number … dated 1 October 2011 entered into by the Wife, the Husband and the Second and Third Respondents against [the property], or further encumbering that property other than for the purpose of complying with these Orders.

   6.That until further Order the Wife have immediate exclusive occupation of [the property] pending further Order.

   7.That until further Order the Husband be restrained by injunction from doing any act or thing that may interfere with the Wife’s use and exclusive occupation from the [property].

   8.That for the purpose of any payment to the Wife and her occupation of [the property], the Second and Third Respondents, pending further Order, be restrained by injunction from doing any act or thing or authorising any person to do any act or thing as to encumber [the property].

5. In her substantive application, the wife seeks, by way of final orders, a transfer to her of the Suburb H property free of encumbrance.

6. It is not in dispute that the second and third respondents are the mortgagees by virtue of a first registered mortgage. They assert that the balance now outstanding pursuant to the mortgage is $3,217,383.

7. The mortgage was executed by the husband and the wife on 10 October 2011 for a principal sum of $3,000,000. The date for repayment was 1 October 2016. The interest rate is expressed to be 6.5 per cent and payments of $50,000 are to be made quarterly and applied to reduction of principal and interest.

8. On 30 August 2016, the term of the mortgage was extended for a further five years.

9. The last quarterly payment was made in January 2017.

10. There has been no arrangement made by either the husband or the wife with the second and third respondents for further repayments.

11. The husband and the wife, in breach of their covenant, have not caused the property to be insured.

12. On 5 July 2019 the second and third respondents served a Notice of Default upon the husband and the wife.

13. The second and third respondents have caused a notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) and s. 111(2) of the Conveyancing Act 1919 (NSW) to issue.

14. The solicitors for the wife responded by asserting that any attempt to enforce the mortgage would be an abuse of process.

15. On 18 November 2019 the second and third respondents filed the present application in a case.

16. It is not in dispute that the husband and the wife have defaulted in compliance with the terms of the mortgage.

17. The wife has filed Points of Claim in which her case in relation to the mortgage is set out. She does not dispute the validity of the mortgage or seek to set it aside.

18. In submissions, counsel for the wife told the Court that the wife’s case was that the second and third respondents would never require the repayment of the mortgage and, therefore, it should not be enforced.

19. It is clear that there is no fund from which the wife can repay the mortgage.

20. In her Points of Claim she states:

    The Applicant seeks orders that she become the sole owner of [the property] free of mortgage, and that this is achieved by directing the [husband] to do all things and sign such authorities as are required by the Second and Third Respondents to discharge the mortgage secured over the title to [the property].

21. In so far as the wife seeks orders restraining the second and third respondents from enforcing their rights pursuant to the mortgage, the provisions of s90AF of the Act apply.

    90AF Court may make an order or injunction under section 114 binding a third part  

    (1)  In proceedings under section 114, the court may:

    (a) make an order restraining a person from repossessing property of a party to a marriage; or

    (b)  grant an injunction restraining a person from commencing legal proceedings against a party to a marriage.

    (2)  In proceedings under section 114, the court may make any other order, or grant any other injunction that:

    (a)  directs a third party to do a thing in relation to the property of a party to the marriage; or

    (b)  alters the rights, liabilities or property interests of a third party in relation to the marriage.

    (3)  The court may only make an order or grant an injunction under subsection (1) or (2) if:

    (a)  the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and

    (b)  if the order or injunction concerns a debt of a party to the marriage—it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full; and

    (c)  the third party has been accorded procedural fairness in relation to the making of the order or injunction; and

    (d)  for an injunction or order under subsection 114(1)—the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction; and

    (e)  for an injunction under subsection 114(3)—the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction; and

    (f)  the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).

    (4)  The matters are as follows:

    (a)  the taxation effect (if any) of the order or injunction on the parties to the marriage;

    (b)  the taxation effect (if any) of the order or injunction on the third party;

    (c)  the social security effect (if any) of the order or injunction on the parties to the marriage;

    (d)  the third party’s administrative costs in relation to the order or injunction;

    (e)  if the order or injunction concerns a debt of a party to the marriage—the capacity of a party to the marriage to repay the debt after the order is made or the injunction is granted;

    (f)  the economic, legal or other capacity of the third party to comply with the order or injunction;

    (g)  if, as a result of the third party being accorded procedural fairness in relation to the making of the order or the granting of the injunction, the third party raises any other matters—those matters;

    (h)  any other matter that the court considers relevant.

22. It is immediately apparent, from the narrative set out above, that to restrain the second and third respondents from enforcing their rights to take possession of the property and to sell it, would foreseeably result in their debt not being repaid.

23. Senior counsel for the second and third respondents referred to the decision of the High Court in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 where the Court, per Walsh J (with whom Barwick CJ agreed) held:

    13. A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court. (at p164)

    14. The rule, as it affects the exercise by a mortgagee of the power of sale, is stated in the following terms in Halsbury's Laws of England, 3rd ed., vol. 27, p. 301 :

    "The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has commenced a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee swears to be due to him, unless, on the terms of the mortgage, the claim is excessive."

    …

    15. In my opinion, the authorities which I have been able to examine establish that for the purposes of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due. (at p165)

    16. The benefit of having a security for a debt would be greatly diminished if the fact that a debtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until after the litigation of those claims had been completed. (at p165)

24. Barwick CJ stated:

    The case falls fairly, in my opinion, within the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage.

25. The wife has not demonstrated that there is a proper basis for restraining the second and third respondents from exercising their rights pursuant to their mortgage.

26. However, I propose to accede to the husband’s application and allow the parties an opportunity to sell the property themselves. Whilst that course may postpone the mortgagees’ right to recover, it will not affect the fact that their debt will be repaid. The wife can then remain in occupation until the settlement of the sale.

1. I do not propose to order that the proceeds of sale be applied other than to secured debts and an amount to each of the husband and the wife by way of partial property settlement.

2. As to the provision of a sum to each of the husband and the wife by way of partial property settlement, the husband seeks payment to each of them of $200,000. The wife seeks payment to her of $300,000.

3. The husband has already had access to substantial funds, albeit borrowed. In any event, it is his estimate that he requires $200,000. He will receive $200,000 from the proceeds of sale.

4. The wife’s estimate of the amount she will need to complete the matter exceeds the amount she seeks. She will receive $300,000 from the proceeds of sale.

I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 14 May 2020.

Associate: 

Date:  14/05/2020