McNaulty & McNaulty (No 3)
[2023] FedCFamC1F 468
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
McNaulty & McNaulty (No 3) [2023] FedCFamC1F 468
File number(s): BRC 14443 of 2022 Judgment of: BAUMANN J Date of judgment: 12 June 2023 Catchwords: FAMILY LAW – PROPERTY – Interim – Application for spouse maintenance by the wife – Where the wife has now remarried – Order made for a lump sum payment of $20,000 characterised as partial property settlement – Application by the wife for further litigation funding in the sum of $363,000 – Order made for the payment of litigation funding to the wife in the sum of $60,000 Legislation: Family Law Act 1975 (Cth) ss 72(1), 79, 82(4) Division: Division 1 First Instance Number of paragraphs: 31 Date of hearing: 24 May 2023 Place: Brisbane Counsel for the Applicant: Ms K McMillan KC Counsel for the Applicant: Mr R Cameron Solicitor for the Applicant: Peter J Sheehy Solicitor Counsel for the Respondent: Mr S Williams KC Solicitor for the Respondent: Hopgood Ganim Lawyers ORDERS
BRC 14443 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR McNAULTY
Applicant
AND: MS McNAULTY
Respondent
order made by:
BAUMANN J
DATE OF ORDER:
12 June 2023
THE COURT ORDERS:
1.That the parties provide an irrevocable authority to O Lawyers to pay within seven (7) days of this Order:
(a)$20,000 to the Respondent by way of partial property settlement; and
(b)$60,000 to the Respondent’s lawyers HopgoodGanim Lawyers to be held by them for payment of legal fees and disbursements incurred by the Respondent, being characterised as a partial property order for the purposes of litigation funding.
2.That the costs of the Application for Review and interim Application heard on 24 May 2023 are reserved.
3.That the Court certifies that it was reasonable to engage Senior Counsel.
4.That all parenting and financial applications are adjourned to 9.30am on 18 August 2023, with the parties to appear in person.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym McNaulty & McNaulty has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BAUMANN J
On 24 May 2023, the Court determined a Review Application filed by Mr McNaulty (who for these Reasons I shall described as “the husband”) in respect to parenting orders made by a Senior Judicial Registrar on 15 March 2023, opposed by Ms McNaulty (who for these Reasons I shall describe as “the wife”). I acknowledge the parties are now divorced, but at the commencement of proceedings the wife had not remarried.
Ex tempore Reasons were delivered and the parameters for parenting Orders made in this de novo hearing were given – essentially for the parties’ children X and Y to remain living with the husband on an interim basis.
Contested parenting proceedings (which at its core involve an application by the wife to relocate both children to the United States of America) and contested property proceedings have been listed for Final Hearing commencing on 30 October 2023.
Although, facilitated by directions made, it was the Court’s intention to determine a number of interim property issues also on 24 May 2023, as the matter required – but after sensible concessions made by Senior Counsel of the husband Ms McMillan of King’s Counsel and her junior Counsel Mr Cameron, and Senior Counsel for the wife Mr Williams of King’s Counsel, a number of orders identified in the parties’ completing applications were not pressed.
To provide some context, the husband and wife agree that there are funds exceeding $1.6 million currently held in trust, being the remaining nett proceeds of the sale of the former matrimonial home situated at Suburb E. Each party, before the interim hearing commenced identified how those funds should be distributed, inter alia:
(a)The husband proposed that the following distributions be made:
(i)$611,172.41 to the parties’ self-managed superannuation fund;
(ii)$18,221.50 for accounting fees;
(iii)$89,181.82 for the husband’s current tax liability;
(iv)$29,133.37 for the husband’s current integrated client account tax liability;
(v)$387,040 for a secured debt over land in F Town; and
(vi)$499,900 for various corporate liabilities.
All these distributions were opposed by the wife, as well as the husband’s further application for the sale of a water vessel and for additional funds to be paid to him from monies in trust. Considering the husband’s claims as set out above totalled $1,634.647, it was likely little residue of the trust funds would have existed if they were all paid.
(b)The wife proposed (as set out in her Response filed 17 May 2023) that the following distributions be made:
(i)$66,048 on account of her day to day living expenses;
(ii)$368,000 to be applied only on account of legal costs; and
(iii)$200,000 to be applied only on account of a liability owing to P Pty Ltd.
After some verbal exchanges with the Bench, and further contemplation by the parties, the husband did not press for any of the disbursements sought by him above, and the wife did not seek a disbursement in respect of the $200,000 sought to cover a potential claim for damages for breach of contract against her.
What remained for determination at this stage was the wife’s claim for a further payment by way of anticipated legal costs (opposed by the husband, although he would agree to a “dollar for dollar” order) and the wife’s claim for living expenses – said to be calculated at $2,752 for 24 weeks. In respect of that claim, and noting the wife remarried in mid-2023 which challenges the power to make any “spouse maintenance” order, the husband says the wife should receive $20,000.
I will provide some short contextual background before I indicate the reasons why I make the interim financial Orders at the commencement of these Reasons.
SHORT BACKGROUND
The parties commenced cohabitation in 1993; married in 2001 and final separation occurred in July 2021 when the parties were living in City B. After the time of separation, at least two significant financial transactions took place:
(a)In mid-2022, the parties entered into an agreement styled as a financial agreement which deals only with a property situated at Q Street, F Town owned by McNaulty Pty Ltd as Trustee of the McNaulty Unit Trust (“the F Town property”). The agreement provided for the wife to transfer to the husband units in the Unit Trust in exchange for a cash payment of $1,595,000 to be paid in two instalments, with the first payment of $500,000 to be paid in mid-2022. The husband has not paid the sums payable to the wife under the said agreement. The wife claims she relied upon the terms of the agreement and anticipated payments to her, when she purchased in her name a new apartment “off the plan”. When she was unable to complete her contract to purchase, the vendor in that transaction terminated the contract and has given notice to the wife of a claim for damages – which might have been able to be settled for a compromised sum of $200,000. The husband says that the F Town property has a value of $2.1 million and is security for loans – exceeding $2.9 million. Both asserted facts are not accepted by the wife. The husband has an application to be determined at the final hearing, that the financial agreement dated mid-2022 be set aside;
(b)Apart from the nett proceeds of sale of the former matrimonial home at Suburb E (which settled in late 2022) and which is the source of funds remaining in the trust account of O Lawyers, there is significant controversy about the existence and value of other assets, interests and valid liabilities. What however does not seem to be in dispute factually is that the historical source for the parties’ income and wealth (such as it remains), was a business entity R Pty Ltd, which commenced operations in Sydney in around 1995. However in late 2022, the husband incorporated a new corporate entity, S Pty Ltd and which has apparently been the beneficiary of the old business, including staff, plant and equipment and perhaps established customers. Senior Counsel for the wife, Mr Williams KC made written submissions about how this transaction, not yet fully explained, has resulted in the husband’s control of a new entity running the old business. At least some of the lack of clarity about this transaction caused the Court to not be persuaded that the husband’s application for $499,990 to be paid from the available trust funds to R Pty Ltd to discharge the debts and liabilities owed by that entity (which has ceased trading), as appropriate at this stage.
There are other curious transactions that need further context – as is likely to be available at a final hearing – relating to loans made and received by the husband, for example a loan of AUD $667,465.77 identified in a Loan Agreement dated late 2022. The document, tendered by Mr Williams KC, is more confusing the more you read it. The husband is identified as the “lender”, and a Mr T is identified as “the borrower”, however in the schedule to the Loan Agreement the lender is described as “[Mr U]”. The “loan” attracts interest at 7% per month. As a result of earlier directions, a single expert forensic accountant has been appointed to express some opinions about the value of the business and I anticipate the “transfer” of the businesses to S Pty Ltd.
THE TWO REMAINING APPLICATIONS TO BE DECIDED
The wife’s amended Response filed 1 March 2023 sought, inter alia, the husband pay the wife “periodic spouse maintenance in the sum of $2,752 per week”. No such order was made by the Senior Judicial Registrar on 15 March 2023, the Senior Judicial Registrar preferring rather to order that:
6.Within 24 hours of the date of the orders, the husband and wife provide an irrevocable authority to [O Lawyers] to pay $315,000 to the wife’s lawyers trust account with the classification of the payment to be determined by Trial Judge.
The Reasons of the Senior Judicial Registrar at paragraph 121 make it clear that the wife “should receive a further payment of $315,000 by way of partial property settlement”, although that is not what order 6 prescribes.
Nonetheless, where the wife confirms she remarried to Mr C in V State in mid-2023, any claim for “spouse maintenance” is now beyond jurisdiction as the husband no longer has a duty to “maintain” her (s 72(1) of the Family Law Act 1975 (Cth) (“the Act”)). If an order had been made (and in my view that would not be a proper construction of order 6 made by the Senior Judicial Registrar), then any order would cease to have effect upon the remarriage of the party (s 82(4) of the Act).
In oral submissions, Mr Cameron of Counsel indicated that the husband would not oppose the wife receiving $20,000 from the funds in trust for her personal use. As the power to order spouse maintenance cannot be enlivened, I propose to order the wife receive $20,000 by way of partial property settlement under s 79 of the Act.
APPLICATION FOR LITIGATION FUNDING ORDER
Since proceedings commenced, the wife has received at least:
(a)$655,000 from borrowings which she has utilised primarily to purchase a property in the name of her husband Mr C, in D State, United States of America;
(b)$125,000 from the monies in trust, under order 6 made 22 February 2023, to be paid to the wife’s lawyer’s trust account “towards the Respondent’s legal costs and outlays in these proceedings and the Respondent’s day to day living expenses, with the classification of payment to be determined by the trial Judge”; and
(c)The sum of $315,000 under the Order made 15 March 2023 as above.
Not unreasonably in my view, the husband submits that the wife’s most recent affidavit filed 15 May 2023 (at paragraph 49) demonstrates evidence “that she has engaged in cavalier spending” and has spent “very significant sums of money on what could only be described as personal discretionary items”,
The wife’s submissions for a further payment for legal costs funding at paragraph 27 can be distilled to the following contentions:
(a)The husband is meeting his legal fees from monies drawn from, or generated by, S Pty Ltd which, in truth, is reflective of the parties’ business (see Annexure 10 to the husband’s affidavit filed 27 April 2023);
(b)The parties’ divisible “property” is largely controlled by the husband and whilst the extent of the pool of interests is not conceded to be as low as the husband contends (being identified at paragraph 38 of the husband’s written submissions), it involves some complex forensic and legal issues that need independent investigation, with the wife being put to expense in attempting to remedy the husband’s alleged non-disclosure so as to establish the parties’ true interests.
(c)There can be no justification for the wife having to repeatedly approach the husband or the Court for further litigation funding. The sum now sought by the wife does not require the liquidation of any asset but only access to the funds held in trust; and
(d)The wife is unemployed and has no means by which to fund the litigation, with her current solicitors and the Counsel she seeks to retain not being prepared to accept instructions on a deferred payment basis.
In summary, the wife contends that the husband has accessed and will continue to access, in an unfettered way, all the benefits available from the S Pty Ltd business to meet his living expenses and legal costs.
Many of the transactions he has engaged in require further clarification, but the Court is not currently persuaded the business is worth as little to the husband as he asserts being the nett assets in an unaudited balance sheet at 18 April 2023 of $148,774. The husband further contends, in any event, this asset is offset by a liability to the Australian Tax Office of $151,422.
DISCUSSION
At paragraph 49 of her affidavit filed 17 May 2023, the wife sets out how she used and applied funds of $1,090,000, being:
(a)$440,000 towards the purchase of the property in the United States of America (now registered in the name of Mr C);
(b)$35,000 to repay credit cards;
(c)$62,000 for flights for herself and the children (and accommodation) including between Australia and the United States of America;
(d)$32,000 on high-end shopping including handbags and clothing;
(e)$81,000 “on my legal fees and other day to day living expenses”
(f)$25,800 for securing current City B accommodation;
(g)$5,000 towards purchase of furniture;
(h)$13,000 for a motor vehicle;
(i)$38,200 towards electricity, internet and mobile phone expenses “and costs of the United States property”;
(j)$9,037 to G School;
(k)$7,150 towards an immigration lawyer;
(l)$43,000 in repayment of loans (not otherwise particularised);
(m)$25,000 in relation to further airfares including to the United States of America;
(n)$30,000 towards the purchase of “toiletries and clothing for myself and the children”;
(o)$28,922 remaining in bank account at 17 May 2023;
(p)$171,300 towards legal fees; and
(q)Balance of $43,591 on “day to day living expenses, including food, medical expenses and children’s activities”.
On this evidence, leaving aside the first payment from borrowings agreed between the parties of $650,000, of the sum of $440,000 paid to the wife under Court Orders, well less than 50% has been expended on legal fees.
In the light of those past decisions by the wife, the claim for a further payment, at this time, of $363,000 must be considered.
In that regard I adopt as accurate the short distillation of the relevant legal principles set out in the wife’s written submissions at paragraph 26.
The evidence of the wife’s solicitor Sasha Sarai in the affidavit filed 17 May 2023 gives details of the policy her partnership adopts and fee rates under the attached costs agreement (accepted by the wife on 15 September 2021).
Ms Sarai’s evidence says:
(a)$46,986 is held in trust on account of counsel’s fees of $29,700, with the remaining sum of $17,286 held on account of costs and outlays; and
(b)the further costs associated with the current application detailed at paragraph 10 (not including costs frozen for Counsel) were estimated at $40,000.
This matter will return to my list for a further Case Management Hearing on 18 August 2023 at 9.30am, by which time I expect to have available a family report from Ms W in the parenting dispute. With a trial set to commence on 30 October 2023, and after further discovery and, hopefully, single expert opinions as necessary have been procured (noting the Orders of the Senior Judicial Registrar at orders 1 to 5 made 22 February 2023), on that date I will be in a better position to consider whether the costs estimates of between $253,000 to $341,000 to proceed to a final hearing, given by the wife’s solicitors in their Costs Notice dated 22 May 2023, is a reasonable estimate.
CONCLUSION
When the wife has chosen to use funds available for legal costs as a result of Court Orders for personal expenditure, I regard it as just and equitable to be cautious about the funds she may need to retain her preferred solicitors and counsel. Although I did not decide (and was not pressed to do so), which of the alleged debts the parties individually said should be paid from the trust funds have priority (or are even genuine), I do not ignore the asserted liabilities.
The funds in trust will meet a number of already agreed future expenses including airfares for the children; forensic accountant and other expert witness fees and any obligations under this Order.
I am, on the current evidence, comfortably satisfied that the husband, with access to the business income now generated by S Pty Ltd, can meet his legal expenses without access to the trust funds. The wife cannot do so. Allowing for the $440,000 already received by the wife under Court Orders, I am satisfied it is just and equitable for a further payment to the wife’s solicitors of $60,000 to be made. Although I do not say that will necessarily enable all the additional fees incurred to 18 August 2023 to be met, I expect, if required to consider a further application for litigation funding, after that date, the Court will be in a much better position to know the pool of interests (including the business S Pty Ltd) and valuations of the F Town land. I would also expect, through the process of discovery and reflection, the genuineness and enforceability of many of the alleged third party liabilities might be clarified. At the moment, my view is some of the claims have a hint of unreasonableness (for example the demand for repayment of over $3 million for a debt originally said to be in the vicinity of $600,000).
Although Senior Counsel for the wife, Mr Williams KC, gently admonished the Court in observing (if all the asserted debts were genuine and enforceable) these parties could be facing personal bankruptcy, one thing is certain –they each have an interest in ensuring they have some nett property interests to divide rather, than appears in some ways from the untested evidence, making future decision which could reduce and diminish the pool of interests available for alteration under s 79. I am reasonably satisfied that these further payments totalling $80,000 will not restrict the Court ultimately making just and equitable orders after a marriage of nearly 30 years.
For the reasons given, I make the orders which appear the commencement of these Reasons.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Baumann. Associate:
Dated: 12 June 2023
0
0
0