Marello and Marello (No 2)
[2011] FamCA 799
•18 October 2011
FAMILY COURT OF AUSTRALIA
| MARELLO & MARELLO (NO 2) | [2011] FamCA 799 |
| FAMILY LAW - PROPERTY – INTERIM PROPERTY ORDER – Approach to application to discharge interim undertaking in a financial case – Relevance of mutual undertakings to discretion to discharge – Grounds for discharge and proof of injustice |
| Family Law Act 1975 (Cth) |
| Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 Alford v Ebbage [2003] 1 Qd R 343 AMP Investments Pty Ltd v Trade Practices Commission (1983) 49 ALR 475 Mitty v Mitty & Ors (2010) 45 Fam LR 20 Penfold & Penfold (1980) 144 CLR 311 |
| APPLICANT: | Mr Marello |
| RESPONDENT: | Ms Marello |
| FILE NUMBER: | BRC | 11438 | of | 2010 |
| DATE DELIVERED: | 18 October 2011 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Kent J |
| HEARING DATE: | 8 August 2011 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms J Hogan |
| SOLICITOR FOR THE APPLICANT: | Hopgood Ganim |
| COUNSEL FOR THE RESPONDENT: | Mr T North SC |
| SOLICITOR FOR THE RESPONDENT: | Murdoch Lawyers |
Orders
The Husband’s Application in a Case filed 4 July 2011 is dismissed.
The Husband pay the Wife’s costs of and incidental to the application on a party and party basis in a sum agreed or, failing agreement, to be taxed.
Within thirty (30) days, the Wife remedy her breach of her undertaking in the amount admitted by her (if she has not already so done) and the issue of quantum of the breach otherwise be reserved to the trial of the substantive proceedings.
IT IS NOTED that publication of this judgment under the pseudonym Marello & Marello (No 2) is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 11438 of 2010
| Ms Marello |
Applicant
And
| Mr Marello |
Respondent
REASONS FOR JUDGMENT
Introduction
This interlocutory dispute revolves around the mutual undertakings given by both the Applicant, Ms Marello (“the Wife”), and the Respondent, Mr Marello (“the Husband”), at the commencement of the substantive proceedings for final financial orders.
In those undertakings, namely one filed on 21 January 2011 (the “Wife’s undertaking”) and one filed on 6 December 2010 (the “Husband’s undertaking”), each party made a series of commitments in relation to their interlinked financial situations, “pending a final property division order”. Those commitments include to not substantially alter the position of companies of which they were both directors or trustees; to provide information to each other about their personal and their companies’ and trusts’ financial circumstances; and to ensure the availability of funds for the maintenance of the Wife, the children and the family home, pending a final property division order.
The Husband now seeks the release of certain aspects of both undertakings in order to refinance two loans; sell a Landrover motor vehicle and to remove the Wife’s access to a joint credit card account. He also claims monies from the Wife in respect of withdrawals from the joint credit card account which both parties agree exceeded the limit set out in the undertakings.
The Wife opposes the Husband’s proposed Orders, and seeks instead that the undertakings be maintained in their present form or, should the Husband’s application in that respect be granted, that an Order be made in her favour for interim spousal maintenance; child support in excess of the administratively assessed amount and ‘dollar for dollar’ payment of her legal costs by the Husband. The Wife also seeks her costs of and incidental to this application.
Given the subject matter of the dispute I permitted the application of each party to cross-examine the other at the hearing.
Background to the Dispute
The Husband is a specialist healthcare provider who was born in 1970, and is thus 41 years of age. The Wife, a senior public official, is also 41 years of age, having been born in 1970. It is not contested that the parties married in 1998 and finally separated on 14 September 2010. Three children were produced as a result of the parties’ relationship, but, to the credit of both parties, no children’s issues are currently the subject of this or any other proceeding.
The Wife filed an application for final property orders on 6 December 2010. On the same date, the Husband filed an undertaking which contained the following:
I undertake to the Court, that pending a final property division Order:
(a)That, as director of [T Pty Ltd] as trustee for the [Marello Family Trust], I will not:
(i)sell, transfer or dispose of any Trust assets worth more than $1,000;
(ii)purchase or acquire any Trust property for more than $5,000;
(iii)borrow or make borrowings on behalf of the Trust in excess of $1,000;
(iv)expend funds on behalf of the Trust in excess of $5,000 on any transaction (save for reasonable expenses related to the operation of the [healthcare] practice, and periodic loan payments required by St George in respect of loan account number […111]); or
(v)cause any distribution or allocation from the Trust;
without the prior consent of the co-director, [Ms Marello].
(b)That as trustee of the [Marello] Family Superannuation Fund, I will not:
(i)sell, transfer or dispose of any Fund assets worth more than $5,000;
(ii)purchase or acquire any property on behalf of the Fund, for more than $5,000;
(iii)borrow or make borrowings on behalf of the Fund in excess of $1,000;
(iv)expend funds on behalf of the Fund in excess of $5,000 on any transaction; or
(v)cause any distribution or allocation from the Fund;
without the prior consent of the co-trustee, [Ms Marello].
(c)That as director of [Marello Healthcare Pty Ltd] as trustee for the [Marello Healthcare Group], I will not:
(i)sell, transfer or dispose of any Trust property worth more than $5,000;
(ii)purchase or acquire any property on behalf of the Trust for more than $5,000;
(iii)borrow or make borrowings on behalf of the Trust in excess of $5,000;
(iv)expend funds on behalf of the Trust in excess of $5,000 on any transaction (save for reasonable expenses related to the operation of the [healthcare] practice, and periodic loan payments required by St George in respect of loan account number […897], and Mercedes vehicle lease payments, and the Landrover vehicle lease payments);
without the prior consent of the Trust appointer, [Ms Marello].
(d)That as director of [Marello Healthcare Pty Ltd] as trustee for the [Marello Healthcare Group], I will:
(i)Provide to [Ms Marello], a quarterly report (commencing with a report as at 30 June 2010), detailing the income, expenses, loans and allocations and distributions of the Trust;
(ii)Continue to make allocations and distributions from the Trust in the manner in which the Trust has previously been conducted, including, only making allocations and distributions into CBA account numbers […083] and […439]
(e)That I will continue to allow [Ms Marello] access to all information in relation to CBA account numbers […083] and […439] (including transaction and statement information available via the internet) and with my prior consent ability to withdraw funds from the CBA accounts.
(f)That I will ensure that [Ms Marello] has continuing access to use of the NAB Credit Cards, and that the monthly debit by [Ms Marello] to the NAB credit cards be paid from the CBA Accounts for an amount not in excess of $5,000.00 per month, without prior consent.
(g)That I will not make drawings in excess of $5,000 against loan facility numbers […111], […503], and […303], without the prior consent of [Ms Marello].
(h)That I will not make drawings against loan facility number […113] without the prior consent of [Ms Marello].
And I agree to be bound by this undertaking until excused by the Court.
The Wife filed an undertaking to similar effect on 21 January 2011, which stated the following:
I undertake to the Court, that pending a final property division Order:
(a)That, as director of [T Pty Ltd] as trustee for the [Marello Family Trust], I will not:
(i)sell, transfer or dispose of any Trust assets worth more than $1,000;
(ii)purchase or acquire any Trust property for more than $5,000;
(iii)borrow or make borrowings on behalf of the Trust in excess of $1,000;
(iv)expend funds on behalf of the Trust in excess of $5,000 on any transaction (save for reasonable expenses related to the operation of the [healthcare] practice, and periodic loan payments required by St George in respect of loan account number […111]); or
(v)cause any distribution or allocation from the Trust;
without the prior consent of the co-director, [Mr Marello].
(b)That as trustee of the [Marello Family Superannuation Fund], I will not:
(i)sell, transfer or dispose of any Fund assets worth more than $5,000;
(ii)purchase or acquire any property on behalf of the Fund, for more than $5,000;
(iii)borrow or make borrowings on behalf of the Fund in excess of $1,000;
(iv)expend funds on behalf of the Fund in excess of $5,000 on any transaction; or
(v)cause any distribution or allocation from the Fund;
without the prior consent of the co-trustee, [Mr Marello].
(c)That I will not exercise any of my powers or authorities as appointor of the [Marello Healthcare Group] without the prior consent of [Mr Marello].
(d)That I will not sell, transfer, further encumber or otherwise deal with the property situate (sic) at [B Street, Brisbane Suburb 1] (save for necessary management of the rental tenancy), without the prior consent of [Mr Marello].
(e)That I will not make drawings in excess of $5,000 against loan facility numbers […111], […503], and […303], without the prior consent of [Mr Marello].
(f)That I will not make drawings against loan facility number […113], without the prior consent of Mr Marello].
(g)That I will provide [Mr Marello] with a copy of all rental agreements for each tenant from time to time of the property at [B Street, Brisbane Suburb 1].
(h)That I will continue to deposit all of my income to Westpac Account no. […853] and allow [Mr Marello] access only to all information in relation to the said account (including transaction and statement information available via the internet).
(i)That unless I have first obtained the consent of [Mr Marello], I will only credit expenses totalling up to $5,000 per calender (sic) month to the NAB linked credit cards Visa […965] and Amex […232] (Nab Credit Card), and my use of the NAB linked credit cards will be limited for expenses for household utilities (except for rates and insurances which will be paid direct by [Mr Marello]) groceries, medical expenses for myself and the children, petrol and incidental personal expenses.
And I agree to be bound by this undertaking until excused by the Court.
These undertakings appear to have operated successfully until the trigger point for the Husband’s request to discharge certain provisions of the above undertakings, which appears to have been primarily twofold (despite the several justifications put forward by the Husband): first, the inability of the Husband to obtain the Wife’s consent (as required by the undertakings) for the refinancing of two matured loan contracts related to the Husband’s healthcare practice, and second, the Wife’s exceeding of the NAB linked credit card expenditure limits imposed by the undertakings.
In respect of the two loan contracts, it appears that the Husband has, in compliance with the Husband’s undertaking, requested the Wife’s consent to refinance those loans through correspondence between his and the Wife’s lawyers, commencing, the Husband deposes in his affidavit filed 4 July 2011, with a letter from his solicitors dated 9 June 2011. The Husband further deposes in the same affidavit that despite that request, “The wife has not provided her unqualified consent to refinance the Contracts. Failure to refinance those liabilities will place those loans in default.”
The Wife contests the details of the Husband’s version of events, deposing in her affidavit filed 29 July 2011:
…The letter of 9 June 2011 (which is annexed to the husband’s affidavit) did not make any mention of the refinance of the [healthcare] equipment.
15. On Thursday 16 June 2011, the Husband’s new lawyers, Hopgood Ganim, wrote to my lawyers informing me for the first time, “the leases for the [healthcare] practice are to mature on 6 July 2011”. The letter further provided:
Our client is currently making enquiries as to finance options and we will provide copies of quotes received for your client’s consideration in due course. In the meantime we would ask that you confirm that in principle your client consents to the refinance of these contracts on suitable terms and we look forward to receipt of your client’s consent in writing at your earliest convenience.
16. On Tuesday 21 June 2011, my solicitors, Murdoch Lawyers responded to the husband’s lawyers, Hopgood Ganim. That response provided, inter alia:
Our client is agreeable, in principle, to the appropriate refinancing of the lease obligations.
Our client’s final consent is subject and conditional upon:
(a) disclosure of the full and complete lease agreements which are due to expire (these were requested by letter of 11 May and prior correspondence, but we have not received a response or the documents);
(b) provision of the correct enclosures that were listed in your letter of 16 June;
(c) the disclosure of the full and complete documentation with the refinance proposal;
(d) our client being satisfied that the refinance conditions are on similar and/or favourable terms to the existing finance arrangement.
We ask that these documents be provided to our office in a single bundle for our client’s consideration.
17. On Friday 24 June 2011, I left Australia and travelled with our children to the United States for a three week holiday. …
18. On Friday 24 June 2011 the husband’s lawyers, Hopgood Ganim, sent correspondence to my solicitors, Murdoch Lawyers, which provided inter alia:
Despite your client being overseas we see no reason why that should delay her response to these matters.
We confirm that your client in principal [sic] is agreeable to the refinance of the [healthcare] practice. Please find enclosed the following documents for your client’s consideration:
1.Copy lease agreements as follows:
a.24 July 2008 […219 T Pty Ltd ATFT Marello Family Trust]; and
b.24 July 2008 […218 T Pty Ltd];
2.Correspondence from [Company 1] to [T Pty Ltd] dated 8 June 2011 – maturity of contract […218];
3.Correspondence from [Company 1] to [T Pty Ltd] dated 8 June 2008 – maturity of contract […219]; and
4.Copy refinance proposal
…
19. The ‘refinance proposal’ which was enclosed with the letter from Hopgood Ganim and to which the Husband sought my unqualified consent, was an e-mail from a company called ‘[Company 2]’. I did not have any prior knowledge of the company ‘[Company 2]’. The existing financier was a company called ‘[Company 1]’. …
20. The refinance proposal did not have any details of any of the contractual terms for the loan or refinance proposal I did not feel comfortable providing unqualified consent to a financial transaction of such magnitude without having any idea of the actual terms of the financial arrangement.
21. On 29 June 2011 my solicitors, Murdoch Lawyers, sent correspondence to the husband’s solicitors, Hopgood Ganim, requesting the full lease terms to enable me to consider the proposal. …
22. On 4 July 2011, and without any response to my enquiry, the Husband filed the current Application in a Case.
23. On 7 July 2011, the husband’s solicitors, Hopgood Ganim, sent a letter dated 6 July by email to my solicitors, Murdoch Lawyers. It provided inter alia:
We confirm that the documentation provided to you is the entirety of the contracts between our client and [Company 1].
In respect of the refinance proposal our client has not received a more formal offer to refinance but will provide by way of disclosure any further documentation received from him for your client’s consideration.
…
The Husband does not, in his submissions filed 22 August 2011, dispute the version of events posited by the Wife above. Nonetheless, it appears that it was this lack of “unqualified consent”, in combination with an alleged breach of the Wife’s spending limit for the NAB linked credit cards, which triggered these proceedings.
In relation to that breach, the Wife does not dispute, in her written submissions filed 31 August 2011, that she has, albeit not to the extent alleged by the husband, exceeded the limit set by the undertakings on her purchases using those cards.
The Parties’ Positions
On 4 July 2011, the Husband filed an Application in a Case seeking to discharge paragraphs (a) and (c)(iv) (as they relate to the Landrover only) and (f) of the Husband’s undertaking, and paragraphs (a) and (i) of the Wife’s undertaking. This would have the effect of allowing the Husband to unilaterally refinance the two loan contracts mentioned above, sell the Landrover and prevent the Wife having access to the NAB linked credit cards mentioned above. The Husband also further seeks that the Wife repay the sum of $6,252.00 which he alleges she has withdrawn from the NAB linked credit card account in excess of the amount agreed in the undertakings and, further, that an injunction issue restraining her from continuing to use those credit cards.
The Husband’s proposal for the Court to discharge those obligations under the undertakings appears to be based upon the justification that this Court may exercise its discretion to make just and equitable property orders between the parties. Unlike the Wife (whose position is detailed below), the Husband contends that there is no threshold requirement which must first be satisfied before the Court can exercise this discretion. Instead, the Husband submits such an exercise of discretion is warranted on the following bases (as detailed in his affidavit filed 4 July 2011 and submissions filed 29 July 2011):
a)That the Wife has not provided her “unqualified consent” to the refinancing by T Pty Ltd of two loan contracts;
b)that the Husband signed the relevant undertaking at an emotional time when he was still hopeful of a reconciliation;
c)that the Husband believed at the time that the cost of running the household was approximately $5,000.00 per month and had not properly assessed the Wife’s or his own expenditure and his ability to comply with the undertaking’s requirements;
d)that the Husband’s income has reduced significantly over the three months to June 2011;
e)that the Wife has breached aspects of her undertaking in exceeding the $5,000 per month restriction on her incurring of NAB linked credit card expenses; and
f)that the Husband can no longer, post-separation, claim the lease repayments for the Landrover vehicle as a tax deduction for his healthcare practice.
The Wife seeks, via her Response to an Application in a Case filed 29 July 2011 and her submissions filed 31 August 2011, that the Husband’s application be dismissed. In the alternative, the Wife seeks Orders for:
a)Spousal maintenance in the amount of $273.17 per week;
b)Continued payment by the Husband of the Landrover’s loan repayments;
c)Payment by the Husband of the MBF health premiums for the Wife and the three children of the marriage;
d)That there be a departure from the existing Administrative Assessment of the Husband’s child support payments such that they instead amount to $285.66 per child per week;
e)That the Husband pay to the Wife’s solicitors the same amount as he pays to his own solicitors for legal fees (a “dollar for dollar” order);
f)That the Husband pay the Wife’s costs of and incidental to this application.
The Wife specifically contends that a discharge of the paragraphs of the undertakings as requested by the Husband does not meet a ‘threshold’ for amendment of an undertaking as it does not satisfy the requirement set out in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at [177]-[178] that, “A further order will be appropriate whenever, inter alia, new facts come into existence or are discovered which render its enforcement unjust…” It is the Wife’s contention that none of the bases put forward by the Husband (as detailed above) satisfy this test.
Applicable Law and Principles
At this point, it is apposite to consider the legal principles which apply to the approach of the Court when a party seeks to be released from an interlocutory undertaking.
As set out in the Mother’s written submissions filed 31 August 2011, the leading authority is Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (supra). In that case, the High Court held at 177-178 that the proper approach to a question of discharging an interlocutory undertaking is as follows:
…Considerable argument was directed to the question whether a court has power, otherwise than in the case of mistake operative at the time of giving it to release a party from an undertaking, at least in the absence of the consent of the other party. But in our opinion a court undoubtedly has such a power. Just as an interlocutory injunction continues “until further order”, so must an interlocutory order based on an undertaking. A court must remain in control of its interlocutory orders. A further order will be appropriate whenever, inter alia, new facts come into existence or are discovered which render its enforcement unjust: cf. Woods v Sheriff of Queensland; Hutchinson v Nominal Defendant; Chanel Ltd v F.W. Woolworth & Co Ltd. Of course, the changed circumstances must be established by evidence: Cutler v Wandsworth Stadium Ltd.
(footnotes omitted, emphasis added)
This approach (albeit in the context of an appeal against a decision to discharge an interim undertaking) has been followed as recently as 2010 by the Full Court of this Court in Mitty v Mitty & Ors (2010) 45 Fam LR 20.
Although the authority of this decision itself is not contested by the Husband, it is contended in submissions on his behalf that any inference that this case imposes some sort of “threshold” test would be incorrect. Instead, the Husband submits that this case simply reflects the Court’s broader discretion to make Orders which are, “…just and equitable as between the parties… ”
Adam P Brown (supra) has been applied and discussed in numerous subsequent authorities including, for example, in AMP Investments Pty Ltd v Trade Practices Commission (1983) 49 ALR 475 (Full Court of the Federal Court), referred to in the written submissions on behalf of the respondent Wife, and in Alford v Ebbage [2003] 1 Qd R 343 (Queensland Court of Appeal).
As is recorded in paragraph 7 of the written submissions on behalf of the Wife, in AMP Investments Pty Ltd v Trade Practices Commission (supra), Smithers J said the following at 489:
Reliance was placed by the FLC on the provision in the undertakings that they were to operate ‘until further order’. The observations of Buckley LJ in Chanel Ltd v F.W. Woolworth and Co Ltd [1981] 1 WLR 485 at 493 are in point. His Lordship said:
In my judgment, an order or an undertaking to the court expressed to be until further order by implication gives a right to the party bound by the order or undertaking to apply to the court to have the order or undertaking discharged or modified if good grounds for doing so are shown. Such an application is not an application to set aside or modify any contract implicit in the order or undertaking. It is an application in accordance with such contract, being an exercise of a right reserved by the contract to the party bound the terms of the order or undertaking.
Even in interlocutory matters a party cannot fight over again a battle which has already been fought unless there has been some significant change in circumstances, or the party has become aware of facts which eh could not reasonably have known or found out, in time for the first encounter.
Accordingly, the application by FLC which was heard on 17 August 1983 was authorised by the terms of its undertaking, even if there were elements of contract in the arrangements under which it and AMP’s reciprocal undertaking was given. But on the question of whether the application should be granted, the circumstance that there was such an element of contract would be relevant. The weight to be given to that element would depend upon circumstances, in particular, what each party had gained from the contract or arrangement and what each party had suffered thereby. Inevitably, on considerations of justice, the relief of the suffering of one or some of the parties while one or others continue to suffer would be unfavourably regarded, and, in most cases, one would think, decisive. To justify the release of a party, circumstances such as those referred to by Buckley LJ in the observations last sighted would be necessary…
In the same case, Fitzgerald J said the following at 509-518:
Northrop J was spared the need to consider these and all other various matters which would no doubt have been ventilated through the ingenuity of counsel for the different parties. The parties struck a bargain. Cross-undertakings were given. It was mutually agreed, in effect, that until the determination of the TPC action or further order neither takeover bid would proceed. It was not for the court on the current application for release to review the outcome of the proceedings on 23 May or to reconsider, de novo, the balance of convenience between the parties and perhaps the public shareholders. What was done on 23 May stands as at the starting point and its correctness is not in question. Nonetheless, there was undoubtedly power to grant the application for a release of the undertakings and indeed, other considerations aside, that power was by the words ‘or further order’ implicitly reserved by the undertakings themselves: Chanel Ltd v F.W. Woolworth and Co Ltd … However, it does not seem that such a qualification in the undertaking was essential, the undertakings were interlocutory and remained under the control of the court…
…
Order 35, rule r7(2)(c), now permits this court in its original jurisdiction to vary or set aside an interlocutory order ‘if it thinks fit’. It is unnecessary to consider whether that rule affects any significant departure from the previous position. I doubt whether it does. The discretion vested by the rule in the court plainly cannot be exercised arbitrarily. Without seeking to express an exhaustive statement of the circumstances which might be appropriate for consideration in the exercise of the discretion, it seems safe to assume that they will generally be those described in Adam P Brown Male Fashions Pty Ltd supra. Whether or not ‘new facts’ in the sense there referred to are always necessary under O.35, r7(2)(c), the parties seeking the discharge or modification of an interlocutory order will have the onus of establishing that enforcement of the order is unjust. In the absence of ‘new facts’, it will not ordinarily be unjust to insist that a party abides by an order made or an undertaking given. Even where ‘new facts’ can be pointed to, justice may require that the order or undertaking be adhered to; for example, if any alternative course would be productive of injustice to the other parties. In the event that, whichever course is followed, there will be detriment to one party or another, the court’s task will not involve a mere reassessment of the balance of convenience. The onus will remain on the party seeking to have the existing order set aside or varied. Even if the possibility be acknowledged, that despite a lack of ‘new facts’, substantial detriment which an order is causing one party may constitute injustice in the absence of some detriment to the other party from the variation or alteration of the order, in a contest in which, whichever course is followed, there will be detriment to one or other party (and this case provides a striking example of such a contest), an absence of ‘new facts’ will usually be of critical significance and will generally be decisive that justice requires that the order be permitted to stand.
Jenkinson J similarly held at 525-526:
The undertakings were given and accepted by Northrop J ‘until further order’. Release from such an undertaking may be justified by the occurrence, or by the discovery, of circumstances which, at the time the undertaking was given, were not in contemplation or were not accorded the significance they later assumed, if the justice of the case requires release…
By reference to the High Court authority and those authorities where it has been discussed and applied, the following propositions emerge to guide this Court’s approach where, in a financial case in this Court, a party seeks the discharge or modification of an undertaking given at an interlocutory stage of the proceedings:
a)Interlocutory undertakings, as with interlocutory injunctions, remain under the control of the Court. Undoubtedly, the Court retains power to release a party from an undertaking. However the Court has a discretion, and any elements of mutuality or contract in the giving of the undertaking are relevant to the exercise of discretion as to whether or not to grant a release.
b)Where an undertaking was given as a product of an agreement between the parties, including where cross-undertakings were given at an interlocutory stage as part of the parties’ mutual agreement to a course of conduct pending determination the proceedings, that outcome stands as the starting point, and its correctness is not in question. It is not for the Court to review or to reconsider, de novo, the balance of convenience between the parties or the merits of that outcome.
c)The party seeking discharge or modification carries an onus. The onus is not simply to establish that the discharge or modification would be just. The onus is to establish (from the starting point that the correctness of the undertaking when given is assumed) that continued enforcement of the undertaking would be unjust in the circumstances of the case.
d)Without being exhaustive, to discharge that onus, the party must ordinarily establish a ground for the exercise of that discretion and, having established such a ground, demonstrate that its existence renders continued enforcement of the undertaking unjust. Thus, ordinarily, a party must establish:
i)the existence of material facts which the party could not reasonably have known or found out about at the time of giving the undertaking; or
ii)the occurrence, or discovery, of circumstances which, at the time the undertaking was given, were not reasonably in contemplation or were, reasonably, not accorded the significance they later assumed; or
iii)some significant change in circumstances;
which renders enforcement of the undertaking unjust. Thus, for example, even where new facts or a significant change in circumstances can be established, the justice of the case may result in the conclusion that continued adherence to the undertaking is not unjust in the circumstances of the case.
In considering the justice of the case where, as here, mutual undertakings have been given in the context of, and in contemplation of, proceedings for final property orders pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”), it seems to me that there exists an important point of distinction between a case such as this and the authorities to which reference has been made, which deal with interlocutory undertakings in what may be conveniently described as a commercial law setting.
In many commercial law instances, it can be readily envisaged that, notwithstanding that interlocutory injunctions or undertakings are usually reciprocated by an undertaking as to damages, there will be many instances where not all or every aspect of detriment suffered by the party bound until trial will be revisited or addressed in the final relief available at trial. In the law of damages, as but one example, principles applicable to proof and certainty of loss; remoteness of damage; and pure economic loss claims may produce such a result.
In contrast, here the proper application of s 79 of the Act mandates (by subsection (4)) that at trial the Court take into account the entirety of the subject matter of the parties’ respective undertakings in framing appropriate property orders which are just and equitable. That is, all contributions (including those post-separation), whether financial or non-financial, direct or indirect, up until trial, must be assessed. Thus, at a trial of the substantive proceedings the Husband will be at liberty to rely upon the subject matter of his undertaking in the contributions-based assessment. The consideration of the justice of the case where a party seeks a discharge of an interlocutory undertaking proceeds in this context.
The submissions on behalf of the Husband appear to assume that there is no threshold for the exercise of the discretion and that the Court, not having previously been asked to determine the issue, engages in a reconsideration of the merits or the position of the parties at the time the undertakings were entered into and if, as a result of such reconsideration, the Court concludes that the undertakings are not just and equitable, release follows. However, for the reasons set out above, I do not accept this is the approach that ought be adopted. To adopt that approach would be to undermine the efficacy of accepting an interim undertaking or mutual undertakings to firmly bind the parties to a course of action until the trial, done in an effort to obviate the risk and expense associated with litigating a potentially wide variety of issues. If parties were readily able to enter into undertakings but subsequently depart from an agreed course of action by having the Court consider whether an earlier interlocutory agreement was just and equitable, without demonstration of injustice, that would simply encourage exactly the litigation that undertakings of this type are intended to avoid.
The fact that, as set out in the Husband’s submissions, “…the current Application is the first occasion upon which the Court [in this matter] has been asked to undertake any determination of the matters in issue between the parties,” is not, for the reasons identified, especially relevant. The fact that these particular parties are yet to make a plethora of applications in this matter does not alter the fact that it is a basic legal principle that parties should not readily be permitted to resile from an undertaking made, especially where elements of mutuality and contract exist. Consequently, allowing an application on the basis that a mere re-exercise of discretion is required would, regardless of the history of this particular matter, undermine the certainty the undertakings in this case were intended to ensure.
Consequently, if the Husband is to succeed, he must establish a relevant ground and, further, demonstrate that its existence renders enforcement of the undertakings unjust in the circumstances of the case.
Is the Adam P Brown Test Satisfied?
In his submissions filed 22 August 2011, the Husband sets out the facts which, he alleges, would render a continued enforcement of the undertakings unjust:
a)The Husband’s signing of the undertaking at an emotional time when he was still hopeful of a reconciliation;
b)The Husband’s belief at the time of signing the Husband’s undertaking that the cost of running the household was approximately $5,000.00 per month and the fact that the Husband had not properly assessed the Wife’s or his own expenditure and his ability to comply with the undertaking’s requirements;
c)The “significant reduction” in the Husband’s income in the three months to June 2011 when compared with his income in the three months to June 2010 (approximately 24% reduction), which affects his ability to comply with the undertakings;
d)The Wife’s breaching of the undertaking by exceeding the $5,000 per month restriction on her incurring of NAB linked credit card expenses; and
e)The Husband’s receipt of advice following the signing of the undertaking that he can no longer, post-separation, claim the lease repayments for the Landrover vehicle as a tax deduction for his healthcare practice.
Another factor, the Wife’s refusal to give “unconditional consent” to the refinancing of the two loans supporting the Husband’s healthcare practice, also appears to be a major driving factor in these proceedings; however, it is not specifically cited by the Husband as a factor justifying the discharge of the relevant obligations under the undertakings. However, in the interests of completeness, this factor will also be considered below.
It is convenient to deal with each of these grounds in turn in assessing whether or not they constitute a ground for discharge.
“An emotional time” when the Husband was “hopeful of reconciliation”
The first problem with this contention is that little detail about this ground is provided by the Husband either in his submissions or in his affidavit material. Some detail is set out in the Husband’s affidavit filed 4 August 2011; however, all that it evidences is that, as with many parties to family law proceedings, the Husband was emotional and hopeful of reconciliation at the time of separation and the signing of the undertakings. The Husband provides no evidence that the Wife in any way offered reconciliation in exchange for his signing of the undertakings, or that the Wife in any way misrepresented the undertakings’ contents to induce the Husband to sign.
Consequently, it appears to me that this factor, of itself, cannot justify discharging the obligations under the undertaking sought by the Husband. The fact that the Husband was emotional at around the time of his separation from the Wife and that he hoped to reconcile with her is not a new revelation for either party, in particular for the Husband. Also, the fact that the Husband is now less positive about the prospects of reconciliation cannot warrant altering such an undertaking, as to decide otherwise would be to put in jeopardy every such undertaking on the whim of the (as in most matters in this Court, constantly varying) emotional state of one of the parties.
It must be noted with respect to this and indeed each of the grounds contended for by the Husband, that at all relevant times, including the time of signing of the undertaking and during the negotiations of its terms over a significant period of time, the Husband was legally represented. It is implicit in his evidence that he had available to him at all material times, the facility of expert accounting advice if he chose to access that advice. The Husband is an obviously intelligent and well-educated professional. Negotiation of the terms of the subject undertakings included the Husband seeking amendments to the terms.
Even if it be accepted that the Husband was emotional and hopeful of a reconciliation at the time of entering into the undertaking, there is no evidence before me that the Husband did not achieve his objective. That is, whilst it is true that the parties have not in fact reconciled, it may well be that by entering into the undertaking, the Husband thought he would maximise the prospects of reconciliation and it may well be that he achieved that objective, albeit that whilst the prospect was maximised, it did not ultimately come to pass.
I do not accept this as a relevant ground nor that it constitutes a basis for exercising the discretion.
Husband’s belief re household costs and his ability to pay
The Husband provides further detail of this ground in his affidavit filed 4 July 2011. In that document, he deposes that at the time of signing the undertaking:
…I had not investigated nor had there been any advice given to me by my then solicitor in relation to the following:
(a)My wife’s income and expenditure;
(b)The reasonable needs of the children;
(c)My income and expenditure; and
(d)My capacity to comply with undertakings.
This contention must be divided into two parts – the fact that the Husband failed to investigate these matters and second, that he did not receive legal advice on these matters.
Regarding the former, it is difficult to see how this amounts to a “new fact” which would render enforcement of the undertakings unjust. In his oral evidence, the Husband accepted that he had been legally advised as to the meaning and effect of the terms of the undertaking being made by him. Consequently, it can be thus inferred that the Husband understood the amounts to be paid by him and the reasons why he was paying such amounts (namely to support the Wife and his three children until the matter was finalised at trial). The fact that, in light of the significant sums involved, the Husband allegedly failed to investigate whether the amounts negotiated to be paid bore any resemblance to the true costs involved or whether he himself was able to pay those amounts is, even accepting that it is so, entirely the product of the Husband’s own failure to make himself aware of such facts rather than a “new fact”. To decide to the contrary would permit parties to effectively reserve their ability to discharge an undertaking at any point in time by wilfully failing to investigate such obvious matters as those detailed by the Husband above and then to claim later, at a point in time which suits them, that they have belatedly decided to investigate such matters.
In relation to the latter contention, the Husband does not provide any further explanation of this alleged lack of information and advice in any of the five affidavits he has filed in his case or in his written submissions. The Wife, in her affidavit filed 29 July 2011, deposes that:
7. At all relevant times, including at the time of signing his undertaking and during negotiations as to the terms of the undertaking, the husband was legally represented by Trent Waller, solicitor, of Carne Reidy Herd Lawyers.
8. Prior to signing the complementary undertakings, the terms were negotiated at length between the legal representatives over the course of three (3) months as follows: …
The Husband does not dispute in his affidavit material that he was, at all times, legally represented during the subject negotiations. There is also no dispute that the negotiations involved the Husband requesting numerous amendments to the Wife’s proposed undertaking before a final draft was agreed upon. In that context, it would be extraordinary if the Husband’s solicitors did not advise the Husband to satisfy himself as to whether this was a realistic amount and whether he could in fact pay that amount on an ongoing basis. In any event, even should such advice not have been given to the Husband, I find that such information was really a matter of common sense which was so obviously relevant to the negotiation of the undertaking that if the Husband failed to make such investigations or to enquire of his legal advisors about these issues, that is not a matter the Husband can now rely upon.
The only explanation by the Husband appears to have been that he thought there was significant potential for imminent reconciliation between the parties, and thus, it must be assumed, that the undertaking would have little impact as it would not need to be complied with for an extended period. This cannot form the basis of a successful argument to discharge a binding undertaking given in light of legal advice, as to do so would undermine, as outlined above, the very certainty the document was intended to engender.
The “significant reduction” in the Husband’s income
The Husband’s affidavit of 4 August 2011 details the following reductions in his income:
(a)Reduction in income from seminars in six months to June 2011; and
(b)Reduction in total practice income as follows:
(i)Current practice income is “down by at least 10%” due to events including the January 2011 floods
(ii)There has been a 24% reduction in fees earned in the June quarter of 2011 when compared with the June quarter of 2010
In relation to the first reduction (i.e. in seminar income), the Husband alleges a significant decrease in annual income (per calendar year) from this source, with the seminars producing only $63,818.42 in the first six months of 2011 (which one can extrapolate to $127,636.84 for the entire calendar year), compared with $276,241.35 in 2010. This does, prima facie, appear to be a significant reduction in income which could impact upon the Husband’s ability to satisfy his obligations under the undertakings. However, in his August affidavit, the Husband deposed that:
19. A significant event occurred in July 2010. All Australian [specified healthcare practitioners] had to start doing compulsory Continuing Education (CPD), as a part of their Registration Requirements. As soon as this became mandatory, a multitude of new CPD providers appeared to compete for the new “market” of [specified healthcare practitioners] seeking CPD. We noticed an immediate impact on our businesses.
(emphasis added)
Given that the Husband did not sign his version of the undertaking until 16 November 2010, that gives him approximately four months in which he, as he deposes, knew there would be an (I infer, negative) “impact” on his seminar business. Consequently, any reduction in such seminar income can hardly be claimed by the Husband to be a “new fact” upon which he can rely as rendering enforcement of the undertakings unjust.
Turning to the second alleged reduction (i.e. in practice income), I find it difficult to assess this given what appears to be the Husband’s selective provision of figures. In his affidavit evidence, the Husband chooses to only provide supporting evidence for this claimed reduction in practice income in relation to a particular part of the financial year (namely the June quarter of the 2010 and 2011 financial years). The income of the practice over several entire financial years, which would be relevant to assessing an alleged reduction, is not outlined by the Husband in support of his argument, and an inference could be made from that exclusion that such a long-term view would not support his case. This is compounded by the fact that the Husband deposes in his August affidavit that, “My 2011 income has been affected by the flood disaster in January.” This would seem to indicate that the alleged reductions are due to a one-off incident which will not continue to significantly impact upon the practice’s income into the future. The Husband does, however, depose in that same affidavit that there has been a reduction of 24% in the June quarter income which he contends is unrelated to the January floods, and indicates that this is the beginning of a trend towards decreased practice income by that percentage. However, given that two paragraphs earlier in the same document he states that his current practice income is down by only 10%, a decrease of 24% seems to be an unreliable prediction of any likely future reduction in practice income.
However, even if this Court did accept that the Husband’s practice income had decreased, this does not directly affect the funds available to him on a yearly basis (the essential factor in consideration of an argument that the Husband can no longer afford the payments required in the undertakings) due to the complex corporate and trust structures regulating his financial affairs.
A better means of assessing the funds available to the Husband is, as the Wife’s submissions suggest, to look at the total income of the entire financial group governing the Husband’s financial affairs. The Wife’s submissions filed 31 August 2011, note that the group’s income for the 2010 financial year was $495,440.00, $157,664.00 of which was distributed to the Husband as his personal income. Those submissions further record that the group’s income for the 2011 financial year was $498,316.00 and that in that financial year, “…there were no, or no significant distributions, being made to the wife/children as had previously been the case; …” The Husband has not filed any evidence to contradict the Wife’s evidence on that point.
This would seem to indicate not only that the total funds available through the group (despite the alleged decrease in practice income) to the Husband have not decreased, and have in fact increased, but that the Husband will now be personally receiving a much larger portion of those funds. Despite the concomitant increase in tax liability which I assume may accompany such an outcome, I find that the Husband has not demonstrated such a significant change in his financial position so as to warrant discharge of the undertakings based upon an inability to pay.
The Wife’s breach of the undertaking
Both parties agree in their material that the Wife has exceeded (although the extent is contested) the $5,000.00 limit placed by the undertakings on the Wife’s permissible NAB credit card expenditure. The parties both attach bank records to support their claims, but do not indicate exactly which transactions are purported to be by the Wife, making it difficult to either consider or resolve this factual dispute. Nonetheless, I find that some breach did occur of between $1,662.33 (on the Wife’s case) and $6,252.00 (on the Husband’s case).
However, in the context of the incomes involved in this case, neither of those amounts is so significant as to warrant a discharge of the undertaking on the basis that continuing to require the Husband to meet his commitments in the face of a breach of that extent by the Wife would be unjust, particularly in the face of the Wife’s stated commitment to underspend $1,662.33 over the following two months in order to negate what she alleges is the overspent amount.
However, as the Wife admits to drawing $1,662.33 in excess of the limit set by the undertaking, I have made an Order requiring that the Wife remedy that breach. As to the balance of the Husband’s claim in this regard (he alleges the Wife exceeded the limit by a further $4,589.67, totalling $6,252.00), which is disputed by the Wife, that issue will be reserved to trial as I do not propose, on an interlocutory application, to undertake a reconciliation of bank statements and other documents to determine that issue at present.
The Landrover no longer being a tax deduction
The Husband deposes in his affidavit filed 4 July 2011 that:
…I have been informed by my accountant that since separation the Landrover motor vehicle is no longer a legitimate business expense and as such I will be responsible on a personal basis of repayments for that vehicle of $1,703.49 per month commencing 1 July 2011.
The Husband states that this can, of itself, amount to a “new fact” rendering ongoing enforcement of the undertakings unjust.
However, I do not accept that this alleged change in the tax deductibility of the Landrover is not something that the Husband, given his legal representation and access to taxation advice over the lengthy period of negotiations, did not have the opportunity to consider prior to signing his undertaking. This appears even more unlikely given the Husband’s oral evidence before me.
The Husband, in his oral evidence, stated that prior to the signing of the undertakings, the Landrover vehicle was used for business meetings approximately once a fortnight and by the Wife for running errands for the business at approximately the same frequency. Query, then, the extent of the legitimate tax deductibility of the repayments. I infer that it was that sporadic business use of the vehicle which rendered some tax deduction available for the Husband’s healthcare practice.
The Husband would have this Court accept that he did not realise that in providing the vehicle to the Wife for her sole, and more importantly, personal, use (thus ending any business use of that vehicle) there would be an alteration to its tax deductible status. Certainly, on the Husband’s evidence, his accountant allegedly did not advise him of this change in the vehicle’s status for tax purposes until after the signing of the undertakings; however, I find it highly unlikely that this is something the Husband did not himself realise during the pre-signature negotiations. After all, it is only logical that a company will only pay for vehicles actually used to benefit the company in some way, and not for the personal use of one of its employee’s separated spouses. In any event, even if all the Husband asserts is accepted, all that is established is that this intelligent, tertiary-qualified professional person with legal advice and accounting/taxation advice readily available to him did not act reasonably in discovering a fact he could have readily discovered.
Even if I had been satisfied that this ought be considered a “new fact” in the Adam P Brown (supra) sense, it can hardly be said that the imposition of an additional $393.00 per week, in the context of the income of the Husband, causes “injustice” to the point that the undertaking should be discharged, particularly in the context of the 2010-2011 financial year income of the Marello Group and the ending of distributions of income through that Group to the Wife and children, as referred to above.
Wife’s alleged failure to provide “unqualified consent” to refinancing
As detailed above, the Husband does not directly rely upon this ground as a basis for his application to discharge certain provisions of the undertakings. However, as it is clearly an important motivating factor in his application, it will be considered in the interests of completeness.
The background to this aspect of the dispute between the parties is set out in paragraphs 10 and 11 above, which detail the relevant exchanges between the parties on this issue.
The source of the parties’ dispute is the provision in the undertakings that both parties must consent to any major decisions affecting T Pty Ltd, a company of which the parties are co-directors and which is the corporate trustee of the Marello Family Trust. This provision became problematic in July 2011 when loan agreements to which T Pty Ltd is a party matured and the borrowings needed to be refinanced, a decision which, given the provision in the undertaking referred to above, could only be made with the consent of both parties.
The Husband complains that the Wife has failed to give her “unqualified” consent to this refinancing of the loan agreements. However, the evidence before me establishes only that, as a director of the corporate trustee, the Wife has sought to be fully informed as to the terms upon which the proposed refinancing is to be provided.
As is clear from the letter from the Wife’s solicitors dated 21 June 2011, the Wife sought full and complete disclosure of the terms and conditions of the financing arrangements. That is against the background that the Wife had expressed agreement in principle to the refinancing. On 29 June 2011, the Wife, by her solicitors, requested the full lease terms to enable her to consider the proposal. However, without having provided a response to that request, on 4 July 2011, the current Application in a Case was filed by the Husband. It was the Husband’s position at that time that he had not received, “…a more formal offer to refinance…”, but suggested this would be subsequently provided as part of disclosure.
It seems to me that the Husband could not reasonably expect his separated spouse and co-director to give unqualified consent to a transaction about which she was not fully informed as to the terms and conditions. It was open to the Husband to obtain these terms and conditions or, at the least, to not insist upon the Wife’s consent until the full terms and conditions had been provided to the Wife.
In my view, there is considerable substance in the submission on behalf of the Wife that, “The difficulty is not that the Wife has failed to give ‘unqualified’ consent, but rather that the Husband has thus far failed to give his co-director of the trustee company sufficient information upon which she can determine whether to give her consent.”
In these circumstances, this does not provide a ground for discharge of the undertakings as sought for by the Husband.
Costs
In his Application in a Case, the Husband sought an Order that the Wife pay his costs of and incidental to the application. However, paragraphs 58 and 59 of the written submissions made on behalf of the Husband appear to urge application of s 117(1) of the Act that each party to proceedings under the Act shall bear his or her own costs.
The position urged in paragraph 59 of the Husband’s written submissions appears to include that because the Wife is a professional person in secure employment who earns substantial income as a qualified professional, there ought be no order for costs in her favour and that s 117(1) should instead apply.
However, s 117(1) is expressly made subject to subsection (2). That subsection provides that the Court may, subject to further subsections, make such order as to costs as the Court considers just. It is well-settled that the Court has a wide discretion as to costs under this provision: Penfold & Penfold (1980) 144 CLR 311.
Relevantly, the considerations in subsection (2A) of s 117 of the Act include (e), whether any party to the proceedings has been wholly unsuccessful in the proceedings, as has occurred with the Husband’s applications in this case.
In my view, in circumstances where this is an interlocutory application in a financial case in which the Husband has been wholly unsuccessful; and having regard to each of the relevant considerations in subsection (2A), in particular the fact that the Husband is in financial circumstances to meet an Order for costs, there ought be an order for costs in favour of the Wife and I so order.
Conclusion
I find that the Husband has failed to discharge the onus he bears to establish any sufficient ground upon which the undertakings ought be discharged as proposed in his application, and I therefore dismiss the Husband’s application.
This renders nugatory any need to consider the alternative applications advanced by the Wife in the event that the Husband was released from the undertakings as he sought, and the Husband’s response to those alternative applications.
I make the Orders as set out at the commencement of these Reasons for Judgment.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 18 October 2011.
Associate:
Date: 18 October 2011
19
2
1