Marshman and Marshman (No.2)

[2016] FCCA 1178

FEDERAL CIRCUIT COURT OF AUSTRALIA

MARSHMAN & MARSHMAN (No.2) [2016] FCCA 1178

Catchwords:
FAMILY LAW – Costs application following property proceedings where findings of non-disclosure made – principles to be applied – where unresolved issues about form of final orders.

Legislation:

Family Law Act 1975, s.117

Federal Circuit Court Rules 2001, r.16.05(2)(e)

Cases cited:

Briese & Briese (1986) FLC 91-713
Brown v Brown [1998] FamCA 115

Greedy & Greedy (1982) FLC 91-250

In the Marriage of Hickey [2003] FamCA 395
Luciano & Luciano [2000] FamCA 401
Oriolo & Oriolo (1985) FLC 91-653
Penfold v Penfold [1980] HCA 4

Applicant: MS MARSHMAN

Respondent: MR MARSHMAN

File Number: WOC 188 of 2014

Judgment of: Judge Altobelli

Hearing date: 16 February 2016

Date of Last Submission: 22 April 2016

Delivered at: Wollongong

Delivered on: 7 June 2016

REPRESENTATION

Solicitors for the Applicant: Helen Volk Lawyers

Solicitors for the Respondent: Phelps Reid Lawyers

ORDERS

THE COURT ORDERS THAT:

1. From the date of the Orders the Husband and the Wife will be responsible for any outgoings including loan repayments associated with the properties referred to in these Orders that is not met by the rental income in shares as follows:

   (a)The Husband – 40%; and

   (b)The Wife – 60%.

2. That the parties do all things necessary and sign all necessary documents to cause the sale of the following properties (“the Investment Properties”) to be sold by private treaty at the soonest possible time, for the best price reasonably attainable and failing agreement between the parties to be determined by the proper officer of the Real Estate Institute or its equivalent in the State in which the relevant property is located or his nominee:

   (a)Property M, in the Northern Territory (title reference Vol (omitted) Folio (omitted)) (“the Property M property”);

   (b)Property B, in the Northern Territory (title reference Vol (omitted) Folio (omitted)) (“the Property B property”);

   (c)Property P, in the Northern Territory (title reference Vol (omitted) Folio (omitted)) (“the Property P property”);

   (d)“Property G1”, Property G1, in the State of Queensland (title reference Lot (omitted)) (“the Property G property”);

   (e)“Property G2”, Property G2, in the State of Queensland (title reference Lot (omitted)) (“the Property G2 property”);

   (f)Property L, in the State of Queensland (title reference Lot (omitted)) (“the Property L property”);

   and that the proceeds of the said sale be disbursed as follows:

   (g)In payment of agent’s commission and advertising expenses and legal expenses of the sale(s);

   (h)In payment of any monies due and owing to the mortgagee, (omitted) Bank, account numbers (omitted), (omitted), (omitted), (omitted), (omitted) and (omitted);

   (i)The amount then remaining into Heard McEwan Legal Trust Account, for distribution in accordance with the provisions of these Orders.

3. That upon the sale of the last of the Investment Properties, that both parties forthwith do all things necessary to attend upon (omitted) Accountants (“the accountants”) for the purpose of calculating their capital gains tax liability arising by reason of the sale of the Investment Properties only and shall forthwith serve upon the solicitor for the other party a copy of the assessment of such liability.

4. Following the assessment of each party’s capital gains tax liability pursuant to the preceding Order, both parties shall do all things necessary and sign all necessary documents to authorise Heard McEwan Legal:

   (a)To pay to the Australian Taxation Office on behalf of the Husband, the sum necessary to discharge any Capital Gains liability of the Husband arising from the sale of the Investment Properties only as determined by the accountants; and

   (b)To pay to the Australian Taxation Office on behalf of the Wife, the sum necessary to discharge any Capital Gains liability of the Wife arising from the sale of the Investment Properties only as determined by the accountants;

   (c)To pay any amount due to Heard McEwan Legal for the fees reasonably incurred by the parties arising from their compliance with these Orders; and

   (d)Within 42 days of the last payment made pursuant to Orders 4(a)-(c) above subject to the provisions of Order 5, to pay the balance then remaining as to 60% to the Wife and 40% to the Husband.

5. That the Wife be at liberty to authorise Heard McEwan Legal to pay to the husband such amount as is necessary to meet the payment referred to in Order 7, from the amount due to her pursuant to Order 4(d).

6. That contemporaneously with the payment made pursuant to Order 4(d) and Order 7, the Husband shall do all things and sign all documents necessary to transfer to the Wife all his right, title and interest in the following:

   (a)The property at Property D being the whole of the land comprised in Folio Identifier (omitted) (“the Property D”);

   (b)His interest in the parcel of 1152 jointly owned shares in (omitted);

   (c)His interest in the parcel of 101 jointly owned shares in (omitted) Shares;

   (d)His interest in the parcel of 333 jointly owned fully paid stapled units in (omitted) Shares;

   (e)His interest in the parcel of 84 jointly owned shares in (omitted) Shares.

7. Contemporaneously with the transfer referred to in Order 6, the Wife pay the Husband the sum of $305,676.60 (less any amount already paid to the Husband pursuant to Order 5).

8. That except as otherwise provided in these Orders, the Wife retain all other assets in her sole name or possession and remain liable for all amounts owing in her sole name.

9. That contemporaneously with the transfer referred to in Order 6, and subject to the Husband’s compliance with Order 10, the Husband be declared to be the sole owner of the following:

   (a)The catamaran “(omitted)”;

   (b)Subaru (omitted) motor vehicle registration number (omitted) in his sole name (“the Subaru motor vehicle”);

   (c)(omitted) Motor Bike in his sole name;

   (d)Jet Ski and Trailer in his sole name; and

   (e)Any other assets and liabilities including shares, motor vehicles, monies or credit in any bank account and household contents standing to his own name, possession or control.

10. Contemporaneously with the transfer referred to in Order 6, that the Husband do all things necessary to repay to (omitted) Bank the amount outstanding for loan account number (omitted) in the names of the Husband and the Wife secured by mortgage against the Property D property and do all things necessary to release the Wife from any liability therefor and release the Property D property as security for such loan and for this purpose the Wife will execute any documents required to give effect to this order.

11. That the payments due to the Husband pursuant to Orders 4(d) and 7  be charged with the payment of the Wife’s costs pursuant to any order made by this Honourable Court.

12. Forthwith the Husband and the Wife will do all things necessary to do as follows:

    (a)Open a joint rental account in the names of the Husband and the Wife requiring joint signatures (“the rental account”);

    (b)The Wife to do all things necessary to transfer to the rental account any rental income from the properties in her possession or control.

    (c)To cause all rental income from the properties to be deposited into the rental account; and

    (d)To cause all (omitted) Bank loan repayments associated with the properties and other expenses associated with the properties to be deducted from the rental account.

13. If upon the final implementation of these Orders there is a surplus in the rental account, the amount is to be divided as to 60 percent to the Wife and the balance to the Husband.

14. That these orders operate as the authority of Heard McEwan Lawyers to deduct from the Husband’s share and pay to the Wife any amount due to her to by any costs order made by this Court.

15. If either party refuses, fails or neglects to execute any document necessary to put these Orders into effect within fourteen (14) days of being requested to do and any such refusal, failure or neglect is proved by affidavits filed and served by or on behalf of the party alleging this, the Registrar of the Family Court at Wollongong be and is hereby appointed pursuant to Section 106A of the Family Law Act 1975 to execute such document in the name of such party.

16. The Husband pay to the Wife 80 per cent of her costs of the proceedings calculated on a party/party basis as agreed or as assessed.

17. By consent, the Wife’s Superannuation Entitlements expressed on the balance sheet at page 27 of the Reasons for Judgment be substituted with the following:

    84.(omitted) Super  Accumulation             $17,118.76

    85.(omitted) Super   Deferred benefit         $84,866.73

    86.(omitted) Super  $21,732.33

    86A(omitted) Super                        Accumulation fund $420.16

18. By consent, the liability identified at items 71 and 72 on the balance sheet on page 27 of the Reasons for Judgment be deleted for the reasons set out at paragraph 25 of the Reasons for Judgment pursuant to rule 16.05(2)(e) of the Federal Circuit Court Rules.

19. By consent:

    (a)The Court allocates, as required by section 90MT(4) of the Family Law Act 1975 a base amount of $264,850.40 to Ms Marshman out of the interest of Mr Marshman in the (omitted) Super Account (“the fund”);

    (b)In accordance with section 90MT(1)(a) of the Family Law Act, the Court:

    (i)Creates an entitlement on the part of the Wife, Ms Marshman, to be paid the amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001; and

    (ii)Makes a corresponding reduction in the entitlement to the Husband or such other person to whom a splittable payment may be made would have had in the fund but for these Orders;

    (c)Whenever the Trustee of the fund makes a splittable payment out of the Husband’s interest in the fund, the Trustee of the fund shall do all such acts and things and sign all such documents as may be necessary to pay the entitlement created in Order 4(b) of these Orders in accordance with the requirements of the Family Law Act 1975 and the Family Law (Superannuation) Regulations 2001;

    (d)These Orders have effect from the operative time and the operative time is 4 days after the service of a certified copy of the sealed copy of these orders on the Trustee;

    (e)The Husband shall do all things necessary including but not limited to, exercising his request pursuant to Regulation 7A.05 of the Superannuation Industry (Supervision) Regulations 1994 for the creation of a new interest in the Wife’s name Ms Marshman, in the fund with the value of the transferable benefits calculated in accordance with Regulations 7A(11) of the Superannuation Industry (Supervision) Regulations 1994.

THE COURT NOTES THAT:

A.For the purposes of calculating the distribution of the non-superannuation assets of the relationship prior to the payment pursuant to Order 7:

(ii)the Wife’s assets and liabilities excluding the Investment Properties totals $957,372.00; and

(iii)the Husband’s assets and liabilities excluding the Investment Properties totals $128,787.00.

IT IS NOTED that publication of this judgment under the pseudonym Marshman & Marshman (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT WOLLONGONG

WOC 188 of 2014

MS MARSHMAN

Applicant

And

MR MARSHMAN

Respondent

REASONS FOR JUDGMENT

1. These Reasons for Judgment explain the Order for costs made in this matter and the Final Orders made.

2. On 20 November 2015, I made Orders and published Reasons for Judgement in this matter. It was heard before me on 16 and 17 April 2015 and then 10 August 2015. The last submission was received by me on 11 October 2015. It was a complex property matter. It was so complex for example, that it was necessary for me to ask the parties to submit an agreed Minute of Order reflecting and implementing my Reasons for Judgment. Such is the complexity of the matter and such is the poor relationship between the litigants that even that has not been achieved.

3. Background matters are adequately set out in my Reasons for Judgment.

4. Relevantly, in the present context from paragraph 20 onwards of the Reasons for Judgment, I found that the Husband’s evidence about his financial affairs was unsatisfactory. My Reasons in that regard are set out at length and do not need to be repeated.

5. What is also relevant however, are the findings I made in relation to the balance sheet. The parties jointly contended for a balance sheet consisting of 95 items. The balance sheet that I found however and used for the purposes of the property settlement consisted of 40 items. One of the complaints that the Husband makes in the costs application is that much time was taken up dealing with the Wife’s contentions in relation to the balance sheet that would not ultimately be borne out. The Wife replies that many if not all of her contentions were necessitated by the Husband’s non-compliance.

6. By way of an Application in a Case filed 17 December 2015, the Wife seeks an Order that the Husband pay her costs. Her application is supported by her Affidavit sworn 17 December 2015.

7. By way of a Response to an Application in a Case filed 29 February 2016, the Husband asks the Court to dismiss the Wife’s application as well as Order her to pay his costs relating to the present application. His application is supported by an extensive Affidavit affirmed 23 February 2016.  

8. I made directions for the filing of written submissions in relation to costs. The Wife’s submissions were received 10 March 2016, the Husband’s submissions received on 23 March 2016 and the Wife’s submissions in reply were received on 22 April 2016.

The applicable law

1. The applicable law is s.117 of the Family Law Act 1975 (hereafter referred to as ‘the Act’):

   (1)  Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 118, each party to proceedings under this Act shall bear his or her own costs.

   (2)  If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.

   (2A)  In considering what order (if any) should be made under subsection (2), the court shall have regard to:

   (a)  the financial circumstances of each of the parties to the proceedings;

   (b)  whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

   (c)  the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

   (d)  whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

   (e)  whether any party to the proceedings has been wholly unsuccessful in the proceedings;

   (f)  whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

   (g)  such other matters as the court considers relevant.           

2. In cases such as Greedy & Greedy (1982) FLC 91-250 and Oriolo & Oriolo (1985) FLC 91-653, the Full Court discussed the issue of costs being awarded where a party wrongfully fails to disclose his or financial circumstances or causes to be put into issue unnecessarily details of his or her financial circumstances. The Full Court in Oriolo & Oriolo cited the judgment of Smithers J in the case of Briese & Briese (1986) FLC 91-713 where he said:

   ...the need for each party to understand the financial position of the other party is at the very heart of cases concerning property and maintenance. Unless each party adopts a positive approach in this regard delays will ensue with the consequent escalation of legal, accounting and other expenses, always assuming that a party has the strength to continue the struggle for information and understanding…

3. Smithers J went on to state at page 80,256:

   ...the fact that in the present case it is not a question of ultimate  non-disclosure  of matters relevant to the orders made, but is of a different nature being relevant to delay and expense, does not in my view prevent the principle being applicable here as to the matter of  costs . There is an obligation on each party to act so as to provide a basis upon which the two of them are in a position to resolve the case by agreement, or proceed to a hearing as expeditiously as may reasonably be done.

4. An award of costs based upon the conduct of one of the parties must bear some relation to the conduct of the proceedings by the parties [see Greedy & Greedy (1982) FLC 91-250].

5. The authorities make clear that the weight to be attached to any of the considerations is s.117(2A) is wholly discretionary. As Kay J said in Brown v Brown [1998] FamCA 115; (1998) FLC 92-822 at 85,347:

   In many cases there will be an outstanding feature ...that makes an order for  costs  appropriate, a feature which so dominates the scene that it can outweigh any of the other s.117(2A) considerations.

6. Again, in Luciano & Luciano [2000] FamCA 401, the Court stated:

   If there is non-disclosure in the relevant sense, then the failure to disclose undermines the whole process of adjudication of the proceedings in relation to financial matters.

7. The High Court in Penfold v Penfold [1980] HCA 4; (1980) 144 CLR 311 has said that the wording of s.117 does not create an onus on either of the parties. Further, it is for the Court to consider, having regard to the matters in s.117(2A) of the Act whether in a particular case to exercise the discretion to order costs or not to order costs.

8. In Luciano & Luciano [2000] FamCA 401, O’Ryan J provided the following summary, at [373], of principles from the non-disclosure cases:

   ·In proceedings in the family law Courts in relation to financial matters there is an obligation of each party to make a full and frank disclosure of his/her financial circumstances and all matters relevant thereto;

   ·The obligation arises because of the necessity for the Court in such proceedings to consider all aspects of the financial circumstances of each party;

   ·The obligation is not created by the rules or practice of the Court and the rules simply set out the procedure by which that obligation may be fulfilled;

   ·If there is a deficiency in the practice adopted for the purpose of making such a disclosure mere compliance with the requirements of the relevant rule, if deficient, is not enough;

   ·If there is  non-disclosure , in the relevant sense, then the failure to disclose undermines the whole process of adjudication of the proceedings in relation to financial matters;

   ·A finding of non-disclosure may, in appropriate cases, depending upon the circumstances, result in the other party being granted, without more, the relief sought.

9. There is also the decision In the Marriage of Hickey [2003] FamCA 395 at [40] where the Full Court said:

   ... each party to the proceedings has an obligation to make a full and frank disclosure of his/her financial circumstances and all matters relevant thereto. (Emphasis added)

The submissions

1. In the Wife’s submission, her main complaint seems to be the difficulty and expense to which she was put in order to investigate the financial affairs of the Husband. She relies very much on the findings that the Court made in relation to the Husband’s non-disclosure. The Wife contends that in effect, the Husbands non-disclosure was not just a feature of the pre-trial negotiations but the trial itself and thus made it difficult if not impossible for her to negotiate a settlement with the Husband. The Court believes that whilst it is accepted that he made numerous settlement offers the underlying issue of non-disclosure made it impossible for her to seriously have regard to the same.

1. In the Husband’s submissions he acknowledged the Court’s findings about his non-disclosure. He submits that there were a number of aspects relating to the Wife’s evidence where she was, at the very least recalcitrant. He complains that he made numerous offers for settlement which were not replied to. At least one of these offers of settlement if accepted would have resulted in a better outcome up for the Wife. He submits that when all matters are considered, the general rule should be applied i.e. each party should pay their own costs.

Discussion

1. The Act requires consideration of the financial circumstances of each of the parties to the proceedings. From an income perspective the Husband is clearly in a better financial position. It is clear that both parties have incurred very significant legal costs during the course of these proceedings. However, they each will receive substantial assets as a result of the Orders the Court has made. The financial circumstances of the parties is a matter equivocal to the issue of costs.

2. Neither party is in receipt of a grant of legal aid.

3. Both parties make allegations against the other about their conduct in relation to the proceedings. Both make allegations of non-disclosure about each other. The Court has made clear findings about the Husband’s non-disclosure. There is evidence before the Court to suggest that he was the recalcitrant one from an early stage of the proceedings. He adopted an uncooperative, obstructive approach to disclosing important matters which had the effect of “poisoning the well” so that all water drawn from that well was tainted by his nondisclosure. Is it any wonder that the Wife did not trust him, was put to significant expense and would not engage in settlement discussions? There is no question in the Court’s mind that the Husband’s conduct contributed to the length and complexity of the proceedings.

4. However, the Wife does not escape criticism in this regard. A significant part of the trial was devoted to add-back issues which she had raised mostly without success. It could not to be said however that her culpability was comparable to his. The Court does not even except that there is a relevant nexus between the add-back issues and the non-disclosure of the Husband. As it turns out this does not mean that the Wife should not receive the benefit of a costs Order but the costs Order but should be abated somewhat because of her contribution to the complexity of the final hearing.

5. It could not be said in any meaningful sense that the proceedings were necessitated by the failure of a party to comply with previous Orders.

6. Despite the assertions made by each party but the outcome of this case does not do lend itself to an analysis that is consistent with one party having been successful or unsuccessful.

7. Whilst there is an argument that the Husband made offers of settlement  with which the Wife declined to engage she can hardly be criticised for this in circumstances where the Husband “poisoned the well” because of his nondisclosure.

Deliberation

1. The authorities referred to above emphasise the importance of adequate disclosure in property proceedings before the family law Courts. The authorities clearly suggest the appropriateness of costs Orders in cases where findings of nondisclosure are made. In this case a costs order is appropriate but it will be limited to 80 per cent of the Wife’s costs as agreed or as assessed. The rebate of 20 per cent reflects what the Court considers to have been unnecessary time and therefore, cost spent on add-back issues at the final hearing.

2. The Court records that it had considered applying the Schedule of Costs found in the Federal Circuit Court Rules 2001. However, the complexity of the case, the fact that Counsel were quite appropriately engaged and the length of the hearing all suggest that the Schedule is not appropriate for a matter such as this one. This means that regrettably unless the parties can agree something that history indicates is unlikely costs will need to be assessed in the usual manner.

Settling of Final Orders

1. As mentioned earlier in these reasons the Final Orders to be made remain outstanding. The parties have managed to resolve some outstanding issues in Consent Orders I am asked to make. They have corrected issues about the value of the Wife’s superannuation entitlements and about certain liabilities as referred to in the balance sheet. They have agreed to the order for a superannuation split in the Wife’s favour from the Husband’s superannuation fund. They have agreed in effect to a new balance sheet. They have not agreed however as to the actual Orders to be made in order to implement my reasons for judgment.

2. The Court identifies the following relevant documents:

   ·Exhibit A – Minutes of Consent Orders

   ·Exhibit B – Agreed Balance Sheet

   ·Exhibit C – Husband’s Amended Minute of Order sought

   ·Exhibit D – Minutes of Order proposed by the Wife dated 1  March 2016

3. There are some fundamental differences of approach in the Orders.

4. The Husband proposes that the Wife pay to the Husband $305,676.60 within 60 days in return for which he will transfer to her the home at Property D, the (omitted) shares and the (omitted) Shares and he will repay the (omitted) bank loan over Property D. The (omitted) account in joint names is to be closed with the money transferred to the Wife. She would be able to remain living in the Property D property until payment provided she pays all the outgoings. If she cannot pay him out however he would pay her $594,324.40 and she would then transfer the property to him. The Husband proposes that the investment properties be sold with the sale proceeds used to discharge mortgages, pay expenses of the sale, pay capital gains tax and then effect a 60/40 split as per the Orders.

5. The Wife proposes the sale of the investment properties and the division of net sale proceeds which would on completion of those sales occur contemporaneously with the transfer of Property D, that she would then pay to the Husband $305,676.60 in return for a transfer of that home.

6. Because of the number of investment properties it is likely that the sale will take some time. When the matter was mentioned before me I was informed that the properties had in fact been on the market for some time.  There was a sense of almost pessimism about the prospect of timely sales.

7. It is clear that the Husband still would like to retain Property D. However, the Court has already ruled on that at paragraph 76 of the Reasons for Judgment. It is not unreasonable for the Wife to rely on the sale proceeds of other assets in order to fund any payment to the Husband in order for her to retain the Property D property.

8. The other fundamental difference between the Orders relates to the proportion in which each party shall be responsible for outgoings including loan repayments associated with properties which are not met from rental income. The Husband says as he has been awarded 40 per cent of these assets he should only meet 40 per cent of the balance of the outgoings. The Wife says it should be 50 per cent. The Husband’s approach is logical, the Wife’s is not.

9. The remaining differences between the proposed Orders did not appear to be significant.

10. The Court prefers the Minute prepared by the Wife as more closely reflecting its intentions particularly as regards the ownership of Property D. The following changes to the Wife’s minute however are necessary:

    ·Orders 1 – 4 are reflected in a separate Consent Order and do not need to be made.

    ·Order 5 is to be replaced by Order 24 of the Husband’s Minute. This Order deals with the allocation of the responsibility for net outgoings.

    ·Order 6(i) will not be made – the account in question was found by the Court to be an account in credit not debit. This is referred to in exhibit B, the agreed balance sheet.

    ·Orders 15 and 16 in the Wife’s Minute deals with costs. It is appropriate given the Orders the Court will make in that regard.

11. It is worth considering, however, matters covered in the Husband’s Orders but not in the Wife’s Orders. The default provision at Order 31 is useful and will be included but the reference will be to the Registrar of the Federal Circuit Court of Australia at Wollongong.  As the implementation of the Orders may be protracted, the Court sees benefit in making Order 13 in the Husband’s Orders dealing with a joint account to be used as the single repository of all income and the source of all payments relating to the parties properties. One can understand any concerns the Husband has in this regard given that the account currently used for that is in the Wife’s name alone. Of course, should there be a surplus in that account by the time of the final implementation of these Orders it is to be divided 60/40 in the Wife’s favour.

12. Orders will be made to reflect these reasons for judgment.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Judge Altobelli

Date:  7 June 2016