Markell & Markell & Anor
[2015] FamCA 623
•30 July 2015
FAMILY COURT OF AUSTRALIA
| MARKELL & MARKELL & ANOR | [2015] FamCA 623 |
| FAMILY LAW – PROPERTY – Interim – Husband’s application for litigation funding – Where the husband is incarcerated for murder in a NSW prison and seeks interim property orders to obtain funds for legal costs to pursue an appeal in his criminal proceedings and to fund legal costs of these proceedings – Where the law firm which represented the husband in his criminal law proceedings is an intervener, seeking to obtain funds attributable to unpaid fees as a creditor of the husband – Where the wife and intervener oppose any interim property orders – Husband’s legal capacity to appear in these proceedings in circumstances where he is incarcerated – Where the amount owing by the husband to the intervener is disputed – Where the husband has not particularised any current or prospective legal fees attributable to his criminal law appeal or these proceedings – Where an order in terms of the husband’s application for litigation funding would not be just and equitable – Application dismissed. |
| Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth) Family Law Act 1975 (Cth) Felons (Civil Proceedings) Act 1981 (NSW) Public Trustee Act 1978 (Qld) NSW Trustee and Guardian Act 2009 |
| ASIC v Rich (2003) 31 Fam LR 667 Australian Securities & Investments Commission v Forge (2003) 133 FCR 487 Re BM2008 Pty Ltd (in liq) (2010) 244 FLR 17 Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171 Strahan & Strahan (Interim property orders) (2011) FLC 93-466 |
| APPLICANT: | Ms Markell |
| RESPONDENT: | Mr Markell |
| INTERVENER: | B Lawyers (ACN …) |
| FILE NUMBER: | BRC | 6823 | of | 2012 |
| DATE DELIVERED: | 30 July 2015 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Kent J |
| HEARING DATE: | 7 November 2014 |
REPRESENTATION
| SOLICITOR FOR THE APPLICANT: | Rhonda Sheehy & Associates |
| FOR THE RESPONDENT: | In person (by telephone) |
| COUNSEL FOR THE INTERVENER: | Ms Wardle |
| SOLICITOR FOR THE INTERVENER: | Sydney Criminal Lawyers |
Orders
It is ordered that:
The Applications in a Case filed by the Respondent Husband on 11 November 2013 and 23 January 2014 respectively be dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Markell & Markell & Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 6823 of 2012
| Ms Markell |
Applicant
And
| Mr Markell |
Respondent
And
B Lawyers (ACN …)
Intervener
REASONS FOR JUDGMENT
In March 2014, Mr Markell (“the husband”) who is the respondent in these substantive property settlement proceedings instituted by Ms Markell (“the wife”) was convicted of the murder, in 2012, of one Ms C.
In 2014, the husband was sentenced to a term of imprisonment of 29 years, with a non-parole period of 22 years commencing from February 2013. The husband is first eligible for parole in February 2035, with the balance of the term expiring in 2042. The husband is currently incarcerated in prison in New South Wales. The husband has instituted an appeal in respect of his conviction and sentence.
The husband was represented in his criminal proceedings by B Lawyers (ACN …) (“the intervener”). On 8 September 2014 the intervener filed a Notice of Intervention in these proceedings and supporting affidavit material based upon a claim by the intervener that $168,375.00 plus interest is owing by the husband to the intervener for legal costs and outlays in respect of the husband’s criminal trial. The intervener claims, as a creditor of the husband with respect to its debt, that its debt ought be paid from any property of the husband which the Court ultimately determines consequent upon the making of final property settlement orders; or at least that its interest as a creditor of the husband be taken into account in the final property orders which are made.
The husband acknowledges a debt to the intervener, but only to the extent of about $88,000.00 (with interest) and otherwise disputes the intervener’s claim. The dispute as between the intervener and the husband as to the amount of the intervener’s claim has yet to be concluded by any judgment obtained by the intervener against the husband. On the evidence of the intervener the husband did not, within time, dispute the claim for costs made by the intervener pursuant to relevant New South Wales legislation governing legal costs.
Pre-dating the husband’s conviction and sentence he had filed two Applications in a Case in these proceedings on 11 November 2013 and 23 January 2014 respectively. Whilst the orders then sought by the husband included the husband seeking transfers of property and rearrangement of debts as between the parties, on the hearing of these applications the husband’s position crystallised into him seeking litigation funding.
Whilst various estimates and amounts were claimed by the husband, in the end his claim is for $25,000.00 which he asserted to be the amount necessary to fund his legal costs of pursuing an appeal in his criminal matter; and $25,000.00 to fund his legal costs for these proceedings.
The applications as framed by the husband (and as modified as referred to) were pursued as partial property settlement orders pursuant to ss 79 and 80 of the Family Law Act 1975 (Cth) (“the Act”).
The intervener opposed the husband being provided with the benefit of any partial property settlement order as sought on the basis that the intervener’s claim to its debt might thereby be prejudiced. That is, if the husband were to be provided with the litigation funding sought, that his residual entitlement to property settlement in the final determination of these proceedings might be insufficient to meet the claim or debt advanced by the intervener.
The wife also opposes any interim property orders being made on a similar basis. It appeared to be the wife’s position ultimately that rather than the husband being provided with interim litigation funding, the substantive property settlement proceedings ought be given some priority in terms of listing for a final trial. That is, that the substantive property settlement orders ought be determined without further liabilities being incurred in circumstances where the only source of funding of the kind sought by the husband presently available would see an increase of loan facilities available to the parties or either of them to the extent of any amount advanced.
The essential contention of the wife is that interim property orders as sought by the husband would put at risk the capacity of the Court to ultimately determine just and equitable orders and adjust for interim property orders now made.
History and background to the husband’s applications
The husband and wife married in 1996 and separated on a final basis on 9 January 2012. Their marriage produced three daughters now aged between 16 and 12 namely, D born in 1999 who is currently 16 years of age; E born in 2000 who is now 14 years of age; and F born in 2003 who is currently 12 years of age. The children have remained in the care of the wife since separation and have had minimal time or communication with the husband. The children live with the wife in Queensland whilst the husband is incarcerated in New South Wales.
By virtue of the husband’s criminal charge, conviction and incarceration it appears that the financial and emotional responsibility for raising the three children has since fallen entirely upon the wife. The wife has not received any child support from the husband from about the beginning of 2014 and prior to that she deposes to having received approximately $40.00 per month.[1]
[1] Wife’s affidavit filed 20 October 2014 at paragraph 4.
What may become a significant feature at the trial of these proceedings is the fact that the youngest child suffers from an intellectual impairment and will need assistance for the rest of her life. In her affidavit filed 20 October 2014 the wife deposes at paragraph 5:
The child, [F], currently eleven years of age suffers from an intellectual impairment. She receives educational assistance at [G Town] Primary School. Her curriculum is modified to suit her mental capacity. Whilst she is in Grade Six, she currently functions at Grade Three/Four level. She will always need guidance and support in life and I anticipate that she will be residing with me on a full time basis through her adult life. It is envisaged that she will be able to work and personally function in society, but only at a very basic level and then with support and guidance.
Parties’ assets, liabilities and financial resources
The following cannot be taken as firm conclusions or concluded findings reached by the Court as to the value of the parties’ assets, liabilities and financial resources, as that will be the task the Court performs in determining final property settlement orders following a trial.
There are yet to be formal valuations of any items of property not agreed by the parties and it is clear on the material that there are disputes as between the parties on various items. For example, there is a dispute concerning the wife’s jewellery and furniture and contents, and significant issues about notional
add-backs including for legal fees to be agitated at a final trial.
Thus, the following is no more than a matter of what has been gleaned from the current state of evidence in a provisional sense as to what estimates of value ought be considered in respect of the main assets of the parties or either of them for the purpose of determining the present applications.
Obviously, with the inclusion of other items as determined at a trial the relevant “pool” of assets may be significantly different or need significant adjustment as compared to what is now recorded. Moreover, there are likely to be significant issues about “add-backs” particularly with respect to legal fees which, for present purposes, cannot be determined as they are the subject of disputed issues of fact.
The following estimated values for major assets or items are extracted from the material of each party adopting, conservatively, the lowest estimate by either party in each case. That these values might be fundamentally different to the values the Court ultimately concludes at a final trial with the benefit of further and updated evidence ought be obvious.
Asset Ownership Estimated
ValueH Street, G Town (former matrimonial home) Joint $1,300,000.00 I Street, G Town Husband $ 550,000.00 J Street, G Town Husband $ 257,500.00 Total $2,107,500.00
In material filed by the husband he points out that over a lengthy sale period the above figure for the J Street property was the only written offer received. That simply serves as one example as to why all of the figures must be taken as provisional.
With respect to liabilities referable to the above assets there are secured loans owing by the parties or either of them to Westpac Banking Corporation (“Westpac Bank”) referable to the above items of real property with the balances of those loan accounts being accounted for as follows:
Westpac Bank loan number … $ 109,000.00
Westpac Bank loan number … $ 600,000.00
Westpac Bank loan number … $ 300,000.00
Total Westpac Bank loans $1,009,000.00
It would seem that on the affidavit evidence of the husband’s sister, Ms K, that the husband has accrued liabilities to Ms K and her husband in the order of $110,000.00 mainly referable to the husband’s legal fees for his criminal proceedings and financial support provided to the husband after he was charged. Obviously, the wife will have an argument concerning any account being taken of these expenses or loans in the determination of final property orders insofar as she is concerned. That is, the wife will contend that these are not liabilities which should be brought to account in the division of the available property of the parties. Nevertheless, the reality of the husband’s situation is that he has these liabilities.
It therefore seems that the husband has accrued unsecured liabilities of between about $200,000.00 (Ms K’s debts and the amount of debt the husband admits is owing to the intervener) or about $280,000.00 plus interest (if the intervener’s debt in full as claimed is correct).
In the substantive property proceedings the wife seeks to retain the former matrimonial home subject to the first of the above loans in the amount of $109,000.00. Obviously enough, the total amounts of the other Westpac Bank debts at $900,000.00 exceed by a margin of $92,500.00 the estimated gross value of the other two investment properties.
The husband holds a superannuation interest known as MLC Wrap Super and a statement for the husband’s interest in that fund as at 16 July 2014 provides a gross withdrawal value for that interest of $194,041.60.
The wife also has a Sunsuper accumulation superannuation interest having a value of about $22,800.00.
Obviously, at a final property trial of these proceedings issues concerning
add-backs will focus also upon amounts expended by each party on legal fees. In the case of the wife her legal fees of these proceedings, and in the case of the husband his legal fees both for these proceedings and for his criminal proceedings.
In terms of the parties’ current respective positions, injunctions previously granted have removed the husband’s capacity to deal with any of the banking accounts.
The husband has not worked in employment since about mid-2012 when he was charged and the wife’s employment appears to be limited to her earning about $10,000.00 gross.
There are estimates provided as to the rental income that can be obtained from the existing real properties. There is a granny flat attached to the former matrimonial home and the gross rent for that property is estimated at about $10,000.00 per annum. The per annum rentals for I Street and J Street are estimated at $29,000.00 and $20,000.00 respectively so that the total rental income on these estimates would be in the order of $59,000.00 gross per annum.
At an average interest rate of 4.88 per cent (the rate applicable at the time of the hearing), the interest on the total amount of the current loans would be in the order of about $50,000.00, so that provided the properties can be tenanted at these estimated rates, it is possible that the current rate of interest can be matched by rental income, at least in gross terms, but of course this depends upon full and uninterrupted occupancy and no significant expenses.
Of course the husband has made no significant contribution from employment earnings since mid-2012 and if his appeal against his conviction and sentence is unsuccessful, he will remain in prison for the remainder of his notional working life, even if he secures parole at the earliest possible date of February 2035. The husband is currently 47 years old and will be 67 years old in February 2035.
In broad terms and as will be further discussed, the wife contends for property orders which would reflect that the husband has no greater entitlement than 25 per cent or thereabouts to the overall “pool” including both
non-superannuation assets and superannuation, and perhaps less than that.
As will be discussed below, each of the parties has already received the sum of $50,000.00 pursuant to orders made for partial property settlement which is to be brought to account in the final determination.
History of these proceedings
It was in July 2012 that the husband was charged with murder by the New South Wales police.
Shortly thereafter, in August 2012 the parties entered into interim financial orders by consent made in the then Federal Magistrates Court which provided, in summary, that the parties be restrained by injunction from dealing with various assets in which they have an interest (either jointly or individually) including (then) four real properties, two motor vehicles and joint bank accounts; that the wife be appointed as the sole trustee of those assets and that she exercise the role and function of trustee in accordance with paragraph 4 of those orders; that the parties instruct Westpac Bank to remove the husband as a signatory to their joint accounts and remove any internet or telephone access he may have to those accounts; that the wife have sole right to use and occupy the former matrimonial home and the parties’ motor vehicles; that there be liberty to apply in relation to the operation of the orders and that costs be reserved.
On 21 December 2012 Federal Magistrate Purdon-Sully (as her Honour then was) ordered, inter alia, that the proceedings be transferred to this Court and that the husband and wife both receive $50,000.00 either by way of partial property settlement or to be characterised at trial, to be paid from the redraw facility attached to the joint Westpac Bank account ending ...
On 11 November 2013 the husband filed an Application in a Case which sought orders that he receive $100,000.00 by way of partial property settlement; that he purchase “or take over” the two properties held in his name, that is, the J Street and the I Street property, which form part of the asset pool; and that the husband receive a weekly allowance of $300.00 for living expenses to be paid out of jointly held funds.
On 23 January 2014 the husband filed another Application in a Case seeking further financial orders that would allow him to fund his defence in the criminal proceedings at the trial stage. Pursuant to that application the husband sought orders that he be able to fund his defence from joint funds and that he be able to draw up to $185,000.00 and that such payment would not be “taken into account in any settlement figure, or be a part of any settlement figure”.
Both applications came before Registrar Brooks for a directions hearing on 2 July 2014. Obviously, that was subsequent to the husband’s criminal trial, conviction, sentence hearing and sentence. On that occasion, an order was made by consent that all outstanding parenting applications be dismissed. Further orders were made for the filing of trial materials including that the parties jointly prepare and file a joint balance sheet and that by 5 September 2014 each party file a proposed minute of orders sought and a list of documents to be relied upon at the interim hearing. A notation appears on those orders which reads, “[t]he Husband has filed an appeal in the NSW Supreme Court against his conviction and sentence of 29 years and anticipates the appeal being finalised in late 2014 or early 2015.”
On 24 September 2014 Registrar Spink made various orders, in particular, order 1 reads:
It appears that the interim applications between the parties have settled. However there remains an issue between the Intervener and the Husband in relation to any proposed settlement.
To that end orders were made for the intervener to file and serve any material for the interim hearing by 2 October 2014 and the husband was to file and serve any material in response by 10 October 2014. It was also ordered that the matter be listed for further directions before Registrar Brooks on 29 October 2014 at 2.00 pm. The parties also consented to an order that the sum of $20,000.00 be released to the wife from the Rocket Investment Loan Account ending … forthwith to pay outstanding bills. I note that the account number referenced in those orders mistakenly refers to a wrong account number.
On 13 October 2014 the matter came before me for a duty hearing. On that occasion the solicitor for the wife, Ms Sheehy, indicated to the Court that the wife had withdrawn her consent to the interim orders referred to. On that occasion, I adjourned the hearing of the husband’s Applications in a Case for hearing on 24 October 2014 to enable the parties to file updated materials to be relied upon.
On 24 October 2014 I adjourned the hearing of the husband’s Applications in a Case for further hearing on 7 November 2014 to enable the husband and the wife to serve upon Westpac Bank their respective applications for orders sought and material filed in support of those orders as well as a copy of the orders I made on that date.
The husband’s conviction and legal capacity
The husband pleaded not guilty to the charge of murder and he was subsequently convicted of murder in 2014 (following a trial held in February 2014). Following a three day sentencing hearing, the Supreme Court of New South Wales Judge sentenced the husband to imprisonment for 29 years comprised of a non-parole period of 22 years commencing in February 2013 and expiring in February 2035, with a balance of term of 7 years expiring in February 2042. He is first eligible for parole in February 2035.
The husband has filed an appeal against his conviction and sentence and the husband asserts that he needs $25,000.00 to fund the legal costs of his appeal. That assertion is not supported by any corroborative evidence provided by any lawyer.
I note in passing that in contrast to the position in Queensland, given the provisions of the Public Trustee Act 1978 (Qld) (“the Public Trustee Act”), it does not appear that by virtue of his incarceration in New South Wales for an offence of this type the husband lacks legal capacity.
At the hearing on 13 October 2014, I raised this issue with counsel for the intervener and the solicitor for the wife that by virtue of his incarceration in New South Wales for an offence of this type, the husband may be precluded from appearing in these proceedings on his own behalf (as is the case in Queensland) without the leave or consent of the Public Trustee. On that occasion I ordered that the wife file and serve an affidavit evidencing whether the Public Trustee in Queensland has any relevant interest relating to the management of the husband’s financial affairs given his incarceration and that the real property the subject of these proceedings is located in Queensland. I also made an order that the intervener file and serve an affidavit establishing that the husband does have capacity to participate in these proceedings while he is incarcerated in New South Wales, and whether the Public Trustee in Queensland or the Public Trustee in New South Wales have any role in these proceedings in relation to the parties’ real property situated in Queensland.
In Queensland, Part 7 of the Public Trustee Act governs the administration of property of prisoners. Section 90 of the Public Trustee Act specifies to who that part shall apply which includes any prisoner who has been convicted of any indictable offence and is undergoing a sentence of imprisonment for life or a term exceeding three years. Section 91 provides “[e]xcept as otherwise provided in this part the public trustee shall, without further or other order or authority, be the manager of the estate of every prisoner to whom this part applies.” Further, s 95 of the Public Trustee Act specifies restrictions on property dealings or proceedings, that is, while the public trustee is manager of the prisoner’s estate a prisoner is incapable, except with the public trustee’s written consent, of: alienating or charging any property or of making any contract; and of bringing or defending any action of a property nature or for the recovery of any debt or damage.
In contrast the legislation governing the NSW Trustee and Guardian, that is, the NSW Trustee and Guardian Act 2009, does not appear to address the management of property of prisoners or their legal capacity.
The only legislation in New South Wales which appears to be relevant to this issue, that is the husband’s capacity to participate in these proceedings while he is incarcerated in New South Wales, appears to be the Felons (Civil Proceedings) Act 1981 (NSW) ( “Felons (Civil Proceedings) Act”).
Pursuant to s 4 of the Felons (Civil Proceedings) Act a person who is in custody as a result of being convicted of a serious indictable offence may not institute any civil proceedings in any court except by the leave of that court. The remaining provisions in the act are silent as to proceedings that are already on foot when the person is incarcerated, as is the position here. However, I note the long title of that act specifies “[a]n Act to provide that a person convicted of, or found to have committed, a felony shall not be incapable of instituting and maintaining civil proceedings in any court” and there are provisions in the act reflecting that objective.
Taken from paragraph 10 of the affidavit of Mr L filed on 23 October 2014 in the intervener’s case, the Public Trustee (NSW) took no interest or role in these proceedings despite that being agitated at an earlier stage of the proceedings.
It thus seems that neither the Public Trustee in New South Wales nor the Public Trustee in Queensland seeks to participate in these proceedings or to be heard with respect to them or in respect of the administration of the affairs of the husband or his capacity to himself engage in these proceedings. It is not apparent from any relevant New South Wales legislation that the husband lacks legal capacity by reason of his conviction.
On 5 November 2014 the wife’s solicitor, Ms Sheehy, filed an affidavit annexing correspondence from the Official Solicitor to the Public Trustee of Queensland responding to Ms Sheehy’s enquiries as to whether the Public Trustee held any interest in these proceedings. By their letter dated 23 October 2014 the Official Solicitor on behalf of the Public Trustee of Queensland wrote:
My client has instructed me that he holds no interest in the Family Court proceedings initiated by your client.
My client does not believe that he is the manager of [Mr Markell’s] estate pursuant to Part 7 of the Public Trustee Act 1978 (Qld) as [Mr Markell] is in New South Wales and my client has no jurisdiction in relation to such prisoners.
Claim by intervener
B Lawyers (ACN …) is the intervener in the proceedings on the basis of its claim as a creditor arising out of its representation of the husband in his criminal trial.
On the evidence the husband spent $70,000.00 on those criminal proceedings, comprising two electronic transfers in the sum of $50,000.00 and $20,000.00, being a portion of monies deposited to the court for the husband’s bail which funds were forfeited upon the husband’s incarceration. The husband asserts that the majority of those funds were provided by his sister but conclusions on that must await the final trial.
There is a dispute as to the amount owing to the intervener. On the husband’s version, the amount owed is about $87,000.00 with interest. The intervener claims there is a debt of $168,375.00 plus interest which continues to accrue until payment.
There is yet to be any determination by judgment of the amount or debt owed by the husband for these legal fees.
There is no definition of “creditor” for the purpose of s 79 proceedings under the Act.
However, “creditor” is defined in the Act for the purpose of s 79A proceedings (see s 4A(2) of the Act). That definition (along with other provisions) was introduced[2] in response to the decision of ASIC v Rich (2003) 31 Fam LR 667 where it was found that the Australian Securities and Investments Commissioner had no standing to apply to set aside a financial agreement, as it was not a party to the marriage and there were no pending or completed proceedings under the Act. It was clear, however, that the agreement was an attempt to put assets out of the reach of third party creditors.
[2] Family Law Amendment Act 2003 (Cth), see sections 4 (definition of “matrimonial cause”), 4A, 90K.
The term “creditor” is used in the widest sense in s 411(1) of the Corporations Act 2001 (Cth) (“Corporations Act”).[3] It embraces all persons who would be entitled to be admitted to proof if a company were being wound up.[4] Such creditors include those who have unliquidated claims in tort, as well as those whose claims are merely prospective or contingent.[5]
[3] Re Midland Coal, Coke & Iron Co [1895] 1 Ch 267; Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171; Re Waymouth Guarantee & Discount Co Ltd (1974) 10 SASR 407; Smith v Carr (1993) 60 SASR 346.
[4] Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171; Re Huon Valley Springs Pty Ltd (1986) 10 ACLR 883; Re Australian Co-op Foods Ltd (2001) 186 ALR 21.
[5] Re RL Child & Co Pty Ltd (1986) 5 NSWLR 693; 10 ACLR 673; 4 ACLC 312.
In Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171, in respect of the approval by the court of a scheme of arrangement under s 315 of the Companies (New South Wales) Code it was held that a “creditor” includes all persons having pecuniary claims against the company which would be entitled to be admitted to proof if the company were wound up.
In Australian Securities & Investments Commission v Forge (2003) 133 FCR 487 the Full Court of the Federal Court discussed the limitations following from the definition of “… a creditor who has obtained against the debtor a final judgment or final order …” as it is referred to in s 40(1)(g) of the Bankruptcy Act 1966 (Cth). The court there held that s 40(1)(g) of the Bankruptcy Act 1966 (Cth), does not indicate a legislative intention that the general description “a creditor who has obtained against the debtor a final judgment or final order” is subject to any limitation. As such, the section is not limited to a case where a bankruptcy notice is founded upon a judgment debt that could be proved in a bankruptcy. Conduct encompassed by the section prima facie is any act that demonstrates insolvency even though obtained against a final judgment or final order in respect of a debt not provable in bankruptcy.
In Re BM2008 Pty Ltd (in liq) (2010) 244 FLR 17 Davies J discussed the meaning of a “creditor” for the purposes of s 493A of the Corporations Act. Section 493A provided that a transfer of shares in a company that is made after the passing of a resolution for the voluntary winding up of the company is void unless the liquidator or the court gave consent to the transfer if it is satisfied that it is in the best interests of the company’s creditors. At [15] and [16] therein, her Honour opines:
The word “creditor” is not defined in the [Corporations] Act. Its ordinary and natural meaning includes:
Someone to whom money is due.[6]
In its ordinary and natural sense, the expression “creditors” would include shareholders as the surplus belongs to them and the liquidator must distribute the surplus to them. They are persons “to whom money is due”.
[6] Macquarie Dictionary (4th ed, 2005) 342; see also Shorter Oxford English Dictionary (6th ed, 2007) 555: “A person to whom a debt is owing.”
I am satisfied that for the purposes of this application, particularly in light of the husband’s admission as to the amount of the debt he says he owes the intervener, the intervener can be taken to be a “creditor” for the purposes of the Act even though the total amount of the debt is disputed and the intervener has yet to obtain a judgment for the debt claimed.
Position of Westpac Bank
On 24 October 2014 I made orders for the service upon the Westpac Bank of relevant material in this case out of concerns that as the major creditor of the parties, the Westpac Bank may wish to be heard both in respect of the interim applications and the substantive proceedings.
The response of the Westpac Bank is attached to the affidavit of the wife’s solicitor Ms Sheehy filed on 5 November 2014. That affidavit also includes the response Ms Sheehy received from the Public Trustee of Queensland confirming that the Public Trustee has no interest in participating in the proceedings.
The substantive response from the Westpac Bank is to the effect that the Bank will only consider any rearrangements of credit facilities and transfers of property and the like upon a formal application being made in the usual course supported by relevant financial data.
Relevantly though, the correspondence received from the Westpac Bank indicates that the parties may be permitted to access the jointly held re-draw facility with respect to what has been referred to in these proceedings as the Rocket Investment Loan Account number … referred to above. This facility is a $350,000.00 facility secured upon the former matrimonial home drawn down to the amount of $109,000.00 so there is about $241,000.00 available on that loan facility.
The Westpac Bank confirms in its correspondence that “funds are available” in that loan account and that “provided both account holders consent to the release of funds Westpac may facilitate this request.”
That information was provided by Westpac Bank notwithstanding that Westpac Bank is apparently aware of the husband’s criminal conviction and sentence.
Principles to be applied
The principles applicable to partial property settlement orders, including when such orders are sought to fund the subject litigation in this Court as well as other instances, are outlined in some detail, by reference to authority, in the judgment of the plurality (Boland and O’Ryan JJ) and of Thackray J in Strahan & Strahan (Interim property orders) (2011) FLC 93-466 (“Strahan’s Case”).
On this application and in the circumstances of this case what must be balanced, on the one hand, is the consideration that it is generally in the interests of both parties for there to be a single exercise of the discretion under s 79 of the Act by way of final orders as against, on the other hand, consideration of whether an interim property order is necessary to avoid injustice.
As to the first consideration, it is well recognised that interim orders have the potential to limit the type and extent of just and equitable orders that can ultimately be made by way of final orders. Thus an interim order is not made simply because it may be seen to be within the range of what the applicant for the order will ultimately receive by way of final property orders. However, the consideration as to interim orders avoiding injustice will outweigh that first consideration in many if not most cases provided that two other, overlapping, conditions can be seen to be fulfilled.
The first condition is that consideration of an application of the provisions in s 79, albeit within the limited scope in which that consideration and application is possible on an interim hearing, must yield the conclusion that it would be just and equitable, and appropriate, to make the interim property order sought.
The second condition has been described as the “adjustment issue” or
“claw-back issue”. That is, would the order give the applicant more than the applicant would be indubitably entitled to on a final hearing? Alternatively expressed, would it give the applicant so much that it could not be appropriately adjusted for on a final hearing?
On the consideration concerning avoiding injustice, it is the husband’s contention that he ought be provided with funding so as to pursue his criminal appeal. An obvious evidentiary difficulty is that the husband simply asserts that $25,000.00 would be the appropriate sum but provides no evidentiary basis for the calculation of that sum. That is, there is no estimate of legal costs provided from a lawyer in relation to the costs of a solicitor and/or barrister pursuing the determination of the husband’s appeal.
Much the same can be said with respect to the husband’s claim of $25,000.00 for legal fees to pursue these proceedings. That is, there is no evidence in the husband’s case to corroborate the amount claimed.
However, even if it be accepted that the husband establishes that this is, using the language in Strahan’s Case as to the “first step”, a “proper case” or that there are “appropriate circumstances” for an interim property order to be made, there are some significant considerations with respect to the other conditions that must be fulfilled in exercising the discretion in favour of making an order.
In the circumstances of this case, given the interests of the intervener as a creditor of the husband, it is implicit from the terms of s 79(10) that consideration must be given to any adverse effect upon the creditor’s capacity to recover the debt claimed from the husband if an interim order is now made.
The essential question in this case is whether the further joint borrowing by the parties of $50,000.00 (and borrowing the amount is the option advanced) with that sum to be made available to the husband as part property settlement, is reversible in effect in terms of the ultimate property orders to be made and otherwise does not impinge upon the legitimate interests of either the wife or the intervener.
A relevant consideration is that all of the borrowings have to be serviced currently from any rental income received in respect of the properties. Already outlined above are the estimates or figures for rentals as compared with the amount of interest on the existing loans. As was emphasised on behalf of the wife she does not have, from her current level of earnings income, any realistic prospect of servicing borrowings as well as providing for the needs for herself and the children of the marriage unassisted by the husband.
As is made clear in Strahan’s Case some consideration needs to be given to the s 79 considerations that will ultimately be considered at a final trial in determining the legitimacy of an interim property order. As is also recognised in Strahan’s Case there are significant limitations in undertaking that task at an interim stage where the evidence is incomplete and, more particularly, is untested in the manner in which it will be tested at a trial.
The husband claims a superior initial capital contribution by him when the parties married in 1996. He asserts the contribution of initial capital by him of about $160,000.00 and suggests this was not matched by any like contribution by the wife. The husband also points to an inheritance he received of $40,000.00 which he says he contributed to the marriage.
Whilst the wife seemingly accepts the husband owned real property when the parties commenced cohabitation, it does not seem that she accepts the amount or value of initial capital contribution claimed by the husband; referring to the feature that the figure used by the husband is the sale price for the property some six years after the parties had commenced cohabitation, so there is obviously a disputed issue of fact which only a trial can resolve about that issue. The wife seems to accept that the husband did receive the inheritance amount referred to and applied it to the marriage.
The husband emphasises that during the relationship he not only earned significant employment income but he also devoted significant efforts in buying, improving and selling real property so as to accumulate significant profits or capital gains.
However, it seems the wife also worked full-time from the commencement of the relationship until the birth of the parties’ first child in 1998 and thereafter the wife undertook a primary parenting and homemaking role throughout the relationship. It was a relationship spanning some 16 years until final separation and one which produced three children as earlier referred to.
Significantly, the husband ceased his employment in about mid-2012 when he was charged and has not worked since. He has obviously not contributed employment income since then, and in the circumstances of his incarceration, has not made any substantial contribution by way of child support or by way of non-financial contribution to the welfare of the family since then, outside of his notional share of modest capital the wife has had the use of post-separation. Moreover, significant expenditure has been incurred with respect to the husband’s criminal conduct.
Clearly in the substantive proceedings a very significant question will be the assessment of contributions up until trial (given the husband’s prevailing circumstances since mid-2012) and, if the husband is likely to remain incarcerated until at least 2035 (if his appeal is unsuccessful), the appropriate adjustment to be made in the wife’s favour for s 75(2) factors, having regard to the overall quantum of the parties’ property interests in net terms.
As already noted, the wife has had the ongoing, virtually sole, responsibility for the children since separation and more particularly since the husband was charged. The youngest child, now aged 12 years, seemingly has significant health difficulties. On the wife’s case this may result in that child’s reliance upon the wife continuing well into the child’s adulthood whilst at the same time the husband remains incarcerated and unable to contribute either financially or non-financially.
Taken from the wife’s Further Amended Initiating Application filed 20 October 2014, the orders sought by the wife would see, inter alia, the husband retaining his superannuation; and receiving or retaining the investment properties but with the responsibility for the debts upon those properties; and a payment of $230,000.00. In other words, in broad terms, using the above estimated figures the husband would receive or retain non-superannuation assets and cash worth a combined total of approximately $1,037,500.00 with liabilities of about $900,000.00, a net non-superannuation position of about $137,500.00. In addition he would retain his superannuation worth about $195,000.00.
Undoubtedly the wife’s proposed orders as framed are predicated upon the wife achieving her ambition of retaining the former matrimonial home with some debt attached. Like any party to litigation of this type, the wife is entitled to seek orders for retention of specific property, rather than its sale, and obviously the former matrimonial home provides continuation for the wife and the children of living in their current home and maintaining their living circumstances.
Whether the Westpac Bank would ultimately permit the refinancing that would be involved to achieve such orders, excluding any possible recourse by way of security to the former matrimonial home, is an unknown quantity.
As is emphasised in Strahan’s Case, the assessment of any prospective outcome of substantive property settlement proceedings at an interim stage is necessarily curtailed and limited by reason of the evidence being incomplete and that a trial is necessary to resolve disputed issues of fact and to test all relevant evidence so that concluded findings can be reached to support the property settlement orders that are ultimately made.
Subject to that significant qualification, whatever may be the ultimate conclusion following a trial it cannot be concluded at this stage that the outcome the wife contends for is obviously outside the range of legitimate outcomes that may ultimately be determined or that the orders she seeks, as framed, could not be considered.
On such an outcome the husband would not retain, in net terms, any significant non-superannuation assets. That is, the assets he would receive, even including the $230,000.00 payment would be largely equated with the amount of debts secured on the assets he would assume or retain sole responsibility for. His superannuation of about $195,000.00 would be retained by him over and above that, but it is superannuation not cash or property readily realisable.
It must be emphasised that the above estimated figures assume retention of the real properties. Obviously, if a sale or sales of property are ultimately necessary to achieve property settlement, the equity of the parties diminishes by the extent of realisation costs incurred in respect of such sale or sales. On the estimated values capital losses would crystallise upon the sale of either investment property. Delays in achieving sale are another potential cost or expense factor.
Necessarily there must be some significant doubt about the prospect of the Westpac Bank allowing, or approving, the husband retaining or assuming sole responsibility if his present circumstances remain unchanged, to be solely responsible for about $900,000.00 in debts supported by assets worth somewhat less than that.
Conclusions
Reference has already been made to the evidentiary deficiencies in the husband’s evidence as to establishing the accuracy or appropriateness of the amounts of legal fees he seeks. Obviously, the husband bears the onus of proof on his application.
That aspect aside, even if it be accepted that the husband legitimately seeks to fund his criminal appeal and his costs of the substantive proceedings, such that this is otherwise a “proper” or “appropriate” case for an interim property order, I am not persuaded that the husband demonstrates that the other conditions outlined for a favourable exercise of discretion are met.
In particular, I am not persuaded, having regard to the wife’s case and the final orders that she seeks, that provision now of a further $50,000.00 to the husband sourced by further borrowings of the parties is, in all the circumstances of this case, an appropriate or just and equitable order within the meaning of s 79.
I am particularly concerned as to the “adjustment issue” or “claw-back issue” already referred to, for reasons already outlined.
The husband holds a superannuation interest worth about $200,000.00 which is a significant component or proportion of net property interests that will be considered in the final property orders to be made. Whilst it will be open for the Court to make a “splitting order” with respect to the husband’s superannuation, that will not produce cash or its equivalent to the wife in circumstances where she has a legitimate claim to retain non-superannuation assets, in particular the former matrimonial home. The husband’s future needs, if he remains incarcerated, will be met by the State. As already noted, the husband on his current sentencing will be 67 years of age when he is first eligible for release from prison.
The husband has existing liabilities to his sister of about $110,000.00 and if the intervener’s claimed amount is correct then, with interest, the amount owing to the intervener would exceed $170,000.00. The husband has previously received $50,000.00 by way of partial property settlement to be brought to account. There is no current equity, it seems, in the investment properties in the husband’s ownership which he apparently seeks to retain (in fact there is an excess of debt over value of $92,500.00). If the husband retains his superannuation that is worth about $195,000.00.
In other words, if an additional $50,000.00 is borrowed by the parties for the husband’s benefit/expenditure then it would seem that the husband has to achieve a very significantly better outcome, from his point of view, by way of final orders, than is currently contended for by the wife, to meet his liabilities, including the existing liability to the intervener.
It may be that the husband ultimately proves, at a final trial, that he is entitled to a significantly better outcome but that is not a conclusion that can be reached at this interim stage. The focus must be upon the risks of prejudice or potential prejudice to the wife and/or the intervener.
The parties have substantial borrowings with the Westpac Bank. Precisely how those debts to the Westpac Bank will ultimately be dealt with is a question not readily answered at this interim stage. Certainly the prospect of property sales cannot be excluded and if that occurs obviously there will be realisation costs that have to be brought to account.
On the wife’s proposed orders, if the husband is to retain the investment properties, the husband will require the cash component or a cash component to have any prospect of taking over sole responsibility for the liabilities attached to the two investment properties. Again, on the wife’s proposed orders she will have to assume some liability for existing debt and as well have the capacity to raise a cash component, if she is to retain the former matrimonial home.
Obviously the “adjustment issue” potentially affects also the prospects of the intervener recovering or having the capacity to recover from the husband its existing debt whatever the true amount of that debt is ultimately determined to be.
For these reasons I am not persuaded that an interim property order as sought by the husband ought be made at this stage and his applications will be dismissed.
I record in passing that there was no evidence before me as to whether or not the husband, in his current circumstances, is able to access any part of his superannuation via the so-called “hardship” provisions in the superannuation legislation. It may be that it is possible for the husband to access some of his superannuation given his current circumstances in which, under his current sentence, he will not be eligible to re-enter the workforce until well after the eligible age for accessing his superannuation. None of this is to suggest that the husband should assume that the wife or the intervener or indeed the Court will support him accessing his superannuation between now and the trial, but obviously somewhat different considerations may apply to permitting the husband to convert superannuation or part of it into available cash; as compared with partial property orders that could only be funded by the parties incurring yet further borrowings.
For these reasons I make the orders set out at the commencement of these Reasons.
I certify that the preceding one hundred and eleven (111) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 30 July 2015.
Associate:
Date: 30 July 2015
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