Mackerith and Mackerith

[2018] FCCA 3853

FEDERAL CIRCUIT COURT OF AUSTRALIA

MACKERITH & MACKERITH [2018] FCCA 3853

Catchwords:
FAMILY LAW – Property – mortgage default - agreed sale of matrimonial home – husband objects to sale of investment property – husband unemployed with debts and no substantial assets – sale ordered.

Legislation:

Family Law Act 1975 (Cth), s.79

Cases cited:

Gabel v Yardley (2008) 221 FLR 270; [2008] FamCAFC 162
Strahan v Strahan (Interim Property Orders) (2009) 241 FLR 1; [2009] FamCAFC 166
Waugh v Waugh (2000) 158 FLR 152; [2000] FamCA 1183

Applicant: MS MACKERITH

Respondent: MR MACKERITH

File Number: SYC 395 of 2018

Judgment of: Judge B Smith

Hearing date: 30 October 2018

Date of Last Submission: 30 October 2018

Delivered at: Sydney

Delivered on: 14 November 2018

REPRESENTATION

Counsel for the Applicant: Ms Holmes

Solicitors for the Applicant: MCW Lawyers

Solicitors for the Respondent: Crawford Ryan Lawyers

ORDERS

1. That within fourteen (14) days the parties do all acts and things and sign all documents necessary to place the property known as and situated at Property A, New South Wales (“the home”) being the whole of the land contained in Folio Identifier … on the market for sale in accordance with the following conditions of sale:

   (i)That the parties sign all selling authorities as may be necessary to enable the home to be listed for sale with a licensed real estate agent or agents as agreed between the parties and in default of agreement as appointed by Australian Property Institute (NSW) Division or its then present equivalent for such purpose.

   (ii)That the parties instruct a solicitor/conveyancer to have the carriage of the sale of the home being such solicitor as agreed between the parties and in default of agreement such solicitor to be appointed by the President of the NSW Law Society.

   (iii)That the parties list the home at such price as the parties shall agree and failing agreement then at such price as may be determined by a valuer appointed by the President for the time being of the Australian Property Institute (NSW) Division or his nominee or its then present equivalent for such purpose.

   (iv)If Contracts of Sale of the home by private treaty have not been exchanged within three (3) months from the date the home was placed on the market for sale then the parties will cause the home to be listed for sale by way of public auction within four (4) months from the date that the home was placed on the market for sale.

   (v)If listed for sale by way of public auction, a reserve price shall be fixed by agreement between the parties, and failing agreement the reserve price will be determined by a valuer appointed by the parties, or failing agreement, appointed by the President for the time being of the Australian Property Institute (NSW) Division or his nominee, or its then present equivalent, upon the written request of either party.

   (vi)The parties will attend the said auction (“the first auction”) of the home and in the event that the said reserve price of the home is not reached, the parties will negotiate with any bidder present at the first auction and will accept any offer made by such bidder which is no more than 5% below the reserve price unless otherwise agreed by both parties. If Contracts of Sale of the home are not exchanged as aforesaid within fourteen (14) days of the first auction taking place then the parties will cause a second auction (“the second auction”) to be conducted no later than one month from the date of the first auction and for the purposes of the second auction, the reserve price will be 5% below the reserve price of the first auction and in the event that the said reserve price of the home is not reached, the parties will negotiate with any bidder present at the second auction and will accept any offer made by such bidder which is no more than 5% below the said reserve price unless otherwise agreed by both parties.

   (vii)In the event that the home is not sold at either the first or second auction the parties will do all acts and things and sign all documents necessary to cause further auctions to be conducted on the same terms as referred to in Order 1.6 until such time as the home is sold.

   (viii)In the event that the home is to be sold by auction then each of the parties will, upon demand, pay in equal shares the auction advertising expenses. In the event that either party should fail to do so, then the auction expenses shall be deducted from the defaulting party’s entitlement from the proceeds of the sale of the home.

2. That upon completion of the sale of the home the Husband and the Wife do all acts and things and sign all documents necessary to distribute the proceeds of sale as follows:

   (i)To pay out and discharge the mortgage secured against the home with the Westpac Banking Corporation (mortgage no. …); and

   (ii)To pay all real estate agent’s costs, commissions, legal expenses and any other expenses of the sale.

   (iii)The remainder to be held in the trust account of MCW Lawyers, or a controlled monies account.

3. That within fourteen (14) days the parties do all acts and things and sign all documents necessary to place the property known as and situated at Property B, New South Wales (“the factory”) being the whole of the land contained in Folio Identifier … on the market for sale in accordance with the following conditions of sale:

   (i)That the parties sign all selling authorities as may be necessary to enable the factory to be listed for sale with a licensed real estate agent or agents as agreed between the parties and in default of agreement as appointed by Australian Property Institute (NSW) Division or its then present equivalent for such purpose.

   (ii)That the parties instruct a solicitor/conveyancer to have the carriage of the sale of the factory being such solicitor as agreed between the parties and in default of agreement such solicitor to be appointed by the President of the NSW Law Society.

   (iii)That the parties list the factory at such price as the parties shall agree and failing agreement then at such price as may be determined by a valuer appointed by the President for the time being of the Australian Property Institute (NSW) Division or his nominee or its then present equivalent for such purpose.

   (iv)If Contracts of Sale of the factory by private treaty have not been exchanged within three (3) months from the date the factory was placed on the market for sale then the parties will cause the factory to be listed for sale by way of public auction within four (4) months from the date that the factory was placed on the market for sale.

   (v)If listed for sale by way of public auction, a reserve price shall be fixed by agreement between the parties, and failing agreement the reserve price will be determined by a valuer appointed by the parties, or failing agreement, appointed by the President for the time being of the Australian Property Institute (NSW) Division or his nominee, or its then present equivalent, upon the written request of either party.

   (vi)The parties will attend the said auction (“the first auction”) of the factory and in the event that the said reserve price of the factory is not reached, the parties will negotiate with any bidder present at the first auction and will accept any offer made by such bidder which is no more than 5% below the reserve price unless otherwise agreed by both parties. If Contracts of Sale of the factory are not exchanged as aforesaid within fourteen (14) days of the first auction taking place then the parties will cause a second auction (“the second auction”) to be conducted no later than one month from the date of the first auction and for the purposes of the second auction, the reserve price will be 5% below the reserve price of the first auction and in the event that the said reserve price of the factory is not reached, the parties will negotiate with any bidder present at the second auction and will accept any offer made by such bidder which is no more than 5% below the said reserve price unless otherwise agreed by both parties.

   (vii)In the event that the factory is not sold at either the first or second auction the parties will do all acts and things and sign all documents necessary to cause further auctions to be conducted on the same terms as referred to in Order 3.6 until such time as the factory is sold.

   (viii)In the event that the factory is to be sold by auction then each of the parties will, upon demand, pay in equal shares the auction advertising expenses. In the event that either party should fail to do so, then the auction expenses shall be deducted from the defaulting party’s entitlement from the proceeds of the sale of the factory.

4. That upon completion of the sale of the factory the Husband and the Wife do all acts and things and sign all documents necessary to distribute the proceeds of sale as follows:

   (i)To pay all real estate agent’s costs, commission, legal expenses, capital gains tax liability and any other expenses of the sale;

   (ii)To pay any outstanding GST; and

   (iii)The balance to be held in the trust account of MCW Lawyers, or a controlled monies account.

5. Each party is to be paid an equal sum from the residue of the proceeds of the sale of the home and the factory up to the amount of $50,000.

6. Each party to pay their own costs of the application. 

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYC 395 of 2018

MS MACKERITH

Applicant

And

MR MACKERITH

Respondent

REASONS FOR JUDGMENT

1. This is an oral judgment in an application in a case in a property matter pursuant to the Family Law Act 1975 (Cth). Time has not permitted a written judgment and the matter needs to be decided.

2. The matter came before the Court by way of application in a case filed by the wife.  The first orders sought related to the sale of the property of Property A, New South Wales, then the matrimonial home or former matrimonial home, which has been referred to variously as “Property A” or the “matrimonial home”.  It was agreed that the matrimonial home at Property A should be sold. 

3. The specific orders sought by the husband varied slightly from those of the wife in that the husband sought specific people to be appointed, such as [Real Estate Agent] at Suburb K and the Suburb K Conveyancing, whereas the wife’s orders were in a more general form requiring agreement or default appointment.  There is not much between them, but it seems that a more general form of orders would be more appropriate and, on that basis, I made orders in accordance with orders 1, 1.1 to 1.8 in the wife’s application in a case. 

4. In respect of the Property A home, there is a mortgage to the Westpac Banking Corporation.  That needs to be discharged, the financial difficulties of the parties being the reason for the sale and the reason for the issue about the sale of the second property.  The wife seeks that the mortgage be discharged and that is also agreed, so I will make orders 2 and 2.1.  I also make orders 2.2 to pay all real estate agent’s costs, commissions, legal expenses and other expenses of the sale. 

5. The wife also sought a distribution to her of $50,000.  I will not deal with that at the moment and I will deal with it when I consider the distributions the husband also sought in his ultimate orders. 

6. While I am dealing with the Property A Home, by his response the husband at order 3 sought that the wife, who currently has the use and occupation of the matrimonial home, afford him such access as was necessary to attend to do work required to present the matrimonial home in the best manner as property for sale, provided such access take place between 8 am and 6 pm and that the wife reimburse the husband for one half of any expenditure made by him upon the home. 

7. That is not consented to for a number of reasons, including the fact that there is an Apprehended Family Violence Order.  The question of family violence was not argued before me.  However, as a general principle, the Court is required to be cautious when such orders are in place.  Although one might think it would be to the benefit of both parties, when the husband was both willing and able, to undertake such work, in the absence of consent by the wife and in the context of allegations which are untested – and I do not find that anything has been made out – in the context of such allegations and this interim application it seems to me that it would not be appropriate without having a detailed consideration of the family violence order to make the order sought by the husband and I will not make that order. 

8. This brings us to the real issue that was argued before the Court.  The parties also own, in addition to the Property A matrimonial home, the factory unit at unit Property B, which is referred to variously as the factory unit, the investment property and the Property B property. 

9. The wife, by her orders 3 and 4 in the application in a case, seeks orders that the Property B property be sold. 

10. The husband, by his response and in argument before the Court argued that the sale of the Property A property and the payment of the mortgage of that property would take financial stress off the parties.  Access by the parties to equity from the Property A property, which may or may not come to him, meant he should be afforded the opportunity to retain the Property B property as an investment property for his future. 

11. The wife queried, prior to the matter coming before me, the practicality of that proposal on the basis that she asserted that the husband did not have the financial capacity to retain the Property A property after consideration of all matters including paying her what would be required to be paid on an alteration of property interests application on a proper basis.

12. I note that, obviously, in considering an interim application, the Court is required to be very cautious not to make orders that may impede the ability of the Court to make appropriate orders on a final basis and that is, as I understand it, part of the wife’s case.

13. The matter came before her Honour Judge Boyle on 4 October 2018 in preparation for the interim hearing and at that time her Honour made order 2:

    That within 7 days from the day of these Orders the husband shall file an Affidavit setting out his capacity to borrow funds to acquire the wife’s interests in the Property B factory unit.

14. That was intended and taken by the husband to encompass all the various issues around the ability of the parties to resolve the matter, eventually, on a final basis whereby he would be in a position to retain the Property B property whilst providing, if and as required, some payment to the wife to finalise the property issues between them, assuming that some s.79 adjustment was or may be required.

15. One of the confounding issues, of course, is that despite much evidence being placed before me which was not strictly relevant to the current question, it is clear that there are disputes about contributions which may make that final question difficult to determine.  For example, in the husband’s affidavit of 25 October at paragraph 30 he notes that in his view between 28 January 2013 and 16 February 2017 his mother gifted the family $112,000 approximately, and that the wife does not admit this contribution from his family in the conduct of the proceedings.

16. I raise that just as one example of the fact that it is not clear what the final outcome of the property proceedings may be.  There are disputed facts concerning, in that example, a significant sum and that does go to the fact that the Court must be cautions in orders to be made. 

17. The husband filed, pursuant to the orders of her Honour Judge Boyle, an affidavit of 9 October 2018 and a more detailed affidavit of 25 October 2018 which addressed the direction that her Honour had set out in Order 2 of her orders and provided the information about these issues.

18. I will not go through all of the material, nor do I think I need to cover all of the arguments that were made.  That transcript of argument should be read together with this judgment if necessary and I will focus on what seemed to me to be the key issues.

19. The key issue as defined by the wife, and I think accepted as the critical issue by the husband, is set out by the case outline of the wife prepared by Mr Livingstone of counsel who appeared; that was aide-mémoire 1 and I also had aide-mémoire 2 which was the husband’s outline of case.  The wife’s case, in a very succinct fashion, submitted:

    This application in a case has been brought by the wife in circumstances where the parties have defaulted on their loans from Westpac and where the wife seeks that the properties be sold in order to facilitate a sale and avoid a forced sale. The wife’s case is that her orders sought will thus preserve the net assets whereas the husband is placing [her financial positon] at risk by not paying his share of the repayments. 

    The husband’s affidavit [evidence] rather than placing before the court clear and documented evidence that he can obtain the necessary finance contains vague assertions such as that he has discussed the matter with a finance broker and the with (sic) members of his family. The [wife] having established that the loan agreement has been breached (ie, that the asset is at risk of [a bank sale]) and that she has a serious issue to be tried (having regard to her contributions and the duration of the marriage) has established that this is an appropriate case under s79 and or s 114 to [consider making] the order she seeks…

20. Mr Livingstone cited Gabel v Yardley (2008) 221 FLR 270; [2008] FamCAFC 162, Strahan v Strahan (Interim Property Orders) (2009) 241 FLR 1; [2009] FamCAFC 166 and Waugh v Waugh (2000) 158 FLR 152; [2000] FamCA 1183. I think that summarises the wife’s case, although it was argued more extensively.

21. I now go to the evidence. The evidence in the affidavits of 9 October and 25 October overlap substantially.  I will be referring to the 25 October affidavit, unless I say otherwise.  That contains most of the material and it is easier to deal with the latest affidavit.  The essence of the husband’s case is that, at paragraph 2:

    I do not oppose the sale of [the former matrimonial home], but I wish to be able to retain the Property B factory unit.

22. Generally the Court would seek to accommodate that wish, if it was feasible or if it appeared to be feasible. 

23. Now, when we are dealing with the Property A matrimonial home, in his affidavit of 9 October, he estimated Property A to be worth $1.1 million and Property B to be worth $600,000 and noted that, at that time, the home loan over Property A was approximately $370,000 and the property investment account which was used, as I understand it, to purchase the factory unit but which was secured in the usual way over both the factory unit and the matrimonial home and will need to be paid out on the sale of the matrimonial home was said to be $274,000.

24. He also, in that affidavit, referred to having personal debts of approximately $117,000.  I was a little unclear, since these are referred to as personal debts, whether it is been suggested that they are his personal debts or they are personal rather than real estate related debts, and there may be some argument about that between the parties, but that is (approximately) $117,000, including $59,000 (approximately) for a Motor Vehicle which I understand is worth about $35,000 now. 

25. In his 25 October affidavit, the values were very similar, but not quite the same.

26. In the later affidavit, he says that he has made inquiries with agents and he estimated the family home at $1.2 million and the factory unit at $635,000, so at approximately $135,000 more in total, that is at paragraphs 31 and 32.  The loans are said to be, in paragraphs 7 and 8, $280,000 for the loan account and $376,000, so there are slight differences.  Obviously the valuations are estimates and those, I understand it – the more current loan figures – come from the documents.  At that stage, paragraph 10 says “personal debts,” and that refers now to $118,000, again including $59,000 for the Motor Vehicle, $20,000 for a MasterCard, $27,000 for a flexi loan, $4,900 for a Visa card and a debt of $6,540, which I understand relates to income derived from the Property B factory unit.

1. So we have this situation where the wife says she cannot afford these mortgages and the parties agree the family home should be sold, and the question is what the husband’s capacity to take over Property B is in such a way that it will not lead to the fire sale of the Property B property and will not prejudice the capacity of the court or the parties on a final basis.

2. In respect of the husband’s capacity, at paragraph 16 of his second affidavit he said:

   At the time of our separation I had become unemployed from my employment as a [occupation].  I have been in the [employment] industry essentially since I left school and have no other work experience.

3. Paragraph 17 says he “was suffering depression at the time that the marriage ended”, “was unable to work”, “sought treatment” and “whilst there has been some improvement, the current medical advice that I have received is that I am not currently fit to return to full-time employment”.  This is followed up – and I understand it to have been the case since he says they separated in about February 2017 – by paragraph 18 which says:

   This situation was exacerbated when I suffered an injury in a fall in mid-July 2018 when I fractured two ribs and punctured a lung.  I was in the Intensive Care Unit of Region 1 Area Hospital for approximately 10 days and spent in excess of 3 weeks hospitalised.  I have not yet fully recovered from my injuries in that I suffer pain and restrictions in movement around the areas where the surgeons operated on me.

4. As I understand the evidence, the husband has no personal exertion income.  He is still suffering from depression and is unable to work on that basis and he also may still have some physical injuries, so he is not currently able to work.  His only income is the $400 a week which is his share of the Property B income.  He was living with his mother.  Once his mother sold her property, I was advised from the Bar table that he now lives with a sister and he is “couch-surfing”, which I understand to be moving from friend to friend to stay for short periods of time whilst he does not have his own accommodation.  I also note in that context that there seem to be, on top of that, personal debts of $118,000 approximately. 

5. Now, in terms of his capacity to finance this transaction whereby he would take Property B, there is evidence in both affidavits about his mother.  She has sold her family home which he was living in for approximately $990,000.  $605,000 was used to acquire Aged Care accommodation. The husband’s sisters and he have been appointed attorneys, and I assume it is an enduring power of attorney, as I was told that his mother may no longer be competent to enter into a loan transaction with him.

6. His evidence in his first affidavit was:

   There is a sum of $360,000 remaining from the sale proceeds of my mother’s house, and it is proposed that my mother lend to me the sum of $115,000 at an interest rate of 3.5%.  This is less than the current interest rate being charged by Westpac Bank.

7. It continues:

   I have made contact with Mr R, Mortgage Broker, with respect to my capacity to borrow additional funds to that borrowed from my mother and I have been informed that I can borrow money based on the income derived from the factory unit which is currently approximately $3,600 per month, which would be sufficient to service both loans. 

   I would propose entering into a loan agreement with my mother.

   I would accordingly seek on a final basis that the Property B factory unit be transferred to me on the basis that I will make a payment to Ms Mackerith in addition to her receiving the net proceeds of the sale of Property A, after the payment for the loan secured upon the property and the other debt.

8. In his second affidavit he effectively repeats that, or substantially repeats that at paragraphs 33 and 34.  He says at paragraph 35:

   I would, until such time as I am able to sufficiently recover my health, rely upon the income from the factory unit to support myself.

9. He also points to the fact, in paragraph 36, that the sale of the Property B factory unit will likely attract a capital gains liability which is said to have been estimated by his accounts, as I understand it, to be between $70,000 and $80,000, so that it would be in the interest of both parties for Property B not to be sold. 

10. In response to all of that, the wife effectively repeated her written submission that the possibility of a loan from his mother is not a loan from his mother, and that it is only $115,000 and by itself, she says, is unlikely to be adequate.  That is not something I can rule on, but I must be cautious.  She says that there is no evidence that the mortgage broker can actually get him a loan, and in effect, that in the current climate, contrary to the position two years ago, a person with no personal exertion income who is psychologically and physically unable to work at the moment and does not know when he will be able to return to work, who has no other collateral, is unlikely to be able to get a loan, and that, in effect, the evidentiary onus was upon the husband, also in accordance with the orders of Judge Boyle but in any event even if such orders had not been made, to show, the parties being in default, that it is feasible and will not result in the forced sale of the property and is unlikely to adversely affect the ability of the court to make a property alteration at the end. 

11. Whilst I have some sympathy for the husband’s position, the evidence really does not sustain an argument sufficient to persuade me that the property should not be sold. 

12. It is very unfortunate the he is not currently able to work because of his psychological and physical injuries, but in that context, it is difficult to see that he will be able to obtain a loan, particularly in the current climate where, I think the court can take note, finance and loans are much, much tighter than they have been for a considerable period of time. 

13. Weighed against that is the fact that a sale now will avoid a fire sale.  The wife says that she is willing to accept the cost of the CGT payment.  I can understand that she might have thought otherwise, but that is the view she takes in those circumstances.  It seems appropriate to me that there should be a sale.  I note in this context also that this is not a case where the wife is saying, e.g. “well, we have got financial difficulties.  Let me keep the family home, but we will sell the unit that you want.” 

14. The case from the wife is consistent that the financial difficulties from the parties are such that both properties, including the home she might otherwise have wanted to keep, must be sold. 

15. I make orders in accordance with this Judgment.

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Judge B Smith.

Date: 21 December 2018