Medlow and Medlow (No 2)
[2014] FamCA 530
•18 July 2014
FAMILY COURT OF AUSTRALIA
| MEDLOW & MEDLOW (NO 2) | [2014] FamCA 530 |
| FAMILY LAW – PROPERTY – Interim – Where the applicant husband sought an interim property order for a disbursement of $2.9 million – Where the husband is engaged in other litigation and sought funds to be applied to such litigation and for other purposes – Where the respondent wife opposed the application – Where the wife claimed the husband failed to make full and frank disclosure – Whether just and equitable in the circumstances of the case to make an order for the interim distribution of funds – Where an interim distribution of funds is conservatively within the ambit of the parties’ likely entitlements under s 79 – Where the husband’s application is granted – Where the wife sought an order for interim costs – Where interim costs granted to the wife. Family Law Act 1975 (Cth) s 79 Bevan & Bevan (2013) FLC 93-545 |
| APPLICANT: | Mr Medlow |
| RESPONDENT: | Ms Medlow |
| FILE NUMBER: | SYC | 7742 | of | 2010 |
| DATE DELIVERED: | 18 July 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Loughnan J |
| HEARING DATE: | 15 July 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Gould |
| SOLICITOR FOR THE APPLICANT: | Watts McCray Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Sirtes SC |
| SOLICITOR FOR THE RESPONDENT: | Barkus Doolan |
Orders
Orders and notations are made in terms of paragraphs 2, 4, 5 & 6 of the Application in a Case filed by the husband on 30 June 2014, as follows:
2.The court NOTES:
2.1That on 10 June 2014 the property situated at and known as B Street, Suburb C was sold for the amount of $37,000,000, with settlement of the sale of this property expected to occur on 9 September 2014.
2.2That the Husband intends to procure from Medlow Pty Ltd and/or nominee of the directors of Medlow Pty Ltd a loan in the amount of $1,250,000, on the basis of interest being charged at a rate of 7.5 per cent per annum ("the loan");
2.3That the loan is proposed on the basis of the principal plus interest being discharged from the proceeds of the sale of the property situated at and known as B Street, Suburb C; upon settlement;
2.4That the loan is intended to be applied in the manner and for the purposes provided for in the Orders made by Justice Loughnan dated 8 April 2014, pending settlement of the sale of the B Street, Suburb C property.
4.That the Husband and Wife shall do all acts and things and sign all documents to ensure that the sum of $1,250,000 from the loan is paid into the trust account of Watts McCray Lawyers and such funds shall be invested in a controlled monies investment account for that purpose until applied in accordance with these Orders ("The Trust Monies").
5.Unless otherwise agreed in writing by the Husband and Wife, the Trust monies shall be applied in accordance with paragraph 5 of the Orders dated 8 April 2014.
6.That upon settlement of the sale of B Street, Suburb C, on or about 9 September 2014, the proceeds of the sale of the B Street, Suburb C property be paid and/or applied in the following manner and priority:
6.1The amount required to discharge the loan secured by the second mortgage referred to in order 3 herein provided to the Husband by Medlow Pty Ltd and/or nominee of the directors of Medlow Pty Ltd;
6.2All costs and expenses of the sale including legal costs and disbursements for the conveyance, agents' commission, and valuers' fees;
6.3The amounts required to pay all municipal and water rates outstanding with respect to the property;
6.4Per Paragraphs 5 and 6 of the Orders dated 8 April 2014, in the further amount of $1,650,000, which further sum is intended to represent the balance of the moneys required and anticipated in those orders dated 8 April 2014;
6.5With the balance (of an amount of not less than $15,500,000) to be held in an interest bearing account in the names of the parties, in compliance with paragraph 1(c) of the Orders made in the Supreme Court proceedings being Case Number … between Medlow Pty Ltd and D Pty Ltd, such funds not to be disbursed except by further Order of the court.
Notwithstanding the above orders the husband and wife shall do all things and sign all documents necessary to authorise a payment from the funds the sum of $173,188.39 to the trust account of the solicitors for the wife by way of interim costs.
Otherwise the Court refuses to make orders at this time in accordance with the husband’s Application in a Case and the Response to an Application in a Case filed on behalf of the wife on 14 July 2014.
Leave is granted to the parties to restore the proceedings to the list in relation to the Application or Response or otherwise on giving the Court and each other at least 48 hours prior written notice.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Medlow & Medlow (No 2) 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 SYDNEY |
FILE NUMBER: SYC 7742 of 2010
| Mr Medlow |
Applicant
And
| Ms Medlow |
Respondent
REASONS FOR JUDGMENT
These are proceedings for interlocutory orders, including orders for interim property settlement and mandatory injunctions, in the context of substantive proceedings for settlement of property between husband and wife. The presentation of these reasons was necessarily constrained by the time frame within which they had to be prepared.
As to the background to the proceedings, the proceedings for settlement of property were commenced in 2010. The parties commenced cohabitation in 1990, married in 1992 and separated in December 2008. They have two children; Mr E who is now 21 years of age and F who is 16 years of age. The husband also has four adult children from an earlier marriage. At the commencement of cohabitation the wife was 22 years of age and had no significant property. The husband was 42 years of age and even after achieving a settlement of property with his first wife, had accumulated substantial wealth.
In addition to these proceedings the husband is involved in other litigation as follows:
a)The husband faces trial for murder. His trial will commence next month and is listed for 16 weeks (“the “criminal proceedings”).
b)A company associated with the husband is engaged in Supreme Court proceedings with persons or entities associated with Mr G (“the G litigation”). Those proceedings were commenced in 2009 in the Federal Court of Australia and were later transferred to the Supreme Court of New South Wales. In those proceedings the husband sought to recover in excess of $8 million from Mr G and his estate. There are a number of counterclaims in those proceedings. On 21 February 2011 orders were made in those proceedings, staying the proceedings pending the determination of the criminal proceedings, on condition that the husband retains in Australia, assets up to the unencumbered value of $15.5 million.
c)A company associated with the husband is engaged in proceedings in the Supreme Court of New South Wales with a company associated with Mr H Medlow, the husband’s brother (“the Medlow litigation”). On 14 March 2014 an injunction was granted by this Court to restrain the husband from causing or allowing his company to settle that litigation. Those proceedings relate to the joint interests of those companies in significant holdings of land at Suburb I and Suburb J on the outskirts of Sydney.
This matter comes before the Court on the husband’s Application in a Case which was filed 30 June 2014. In essence the husband seeks permission to borrow $1.25 million from his brother, in order to pay certain expenses. The permission is needed because the proposed lender requires that the debt be secured against a jointly owned property. The husband also seeks permission to repay that borrowing and to pay certain other expenses out of a further $1.65 million to be quarantined from the proceeds of sale of a property which will settle on or about 10 September 2014. In the latter regard the husband’s evidence is that settlement will occur on or about 10 September 2014 but he seeks a notation that settlement is expected to occur on 9 September. Although puzzling, I do not see that distinction as a matter of significance.
By her Response filed 14 July 2014 the wife opposes the husband’s application but in the alternative, seeks various orders in relation to the application of the borrowed funds and in relation to the disbursement of the proceeds of sale of that property, including that a substantial part of those proceeds be paid to her.
On 14 January 2011 orders were made in these proceedings in terms sought by the wife, whereby the husband was restrained in relation to his conduct or dealings with a number of companies and trusts. In effect the husband’s management of the affairs of those entities was restricted and certain disclosure obligations were imposed on him.
On 16 March 2011 further interim orders were made in these proceedings, by consent, including: an order that the husband pay to the wife by way of interim spousal maintenance $324,000 per year; certain expenses in relation to the property at B Street, Suburb C (“the Suburb C property”); certain expenses in relation to a jointly owned property at K Town in Country L; adult child maintenance and child-support departure for the parties’ children. In those orders the parties asked the Court to note that they were cooperating in the sale of that property and of 2 B Street Suburb C and they provided for the disbursement of the proceeds of sale of those properties.
The sale of 2 B Street Suburb C settled on or about 30 January 2014 and that reduced a National Australia Bank facility secured on the properties of about $5.6 million.
Importantly, on 8 April 2014 orders were made in terms agreed between the parties to facilitate a borrowing which would establish a fund of $2.9 million to meet certain urgent expenses of the parties including provision in excess of $1 million for the legal fees of the husband in the criminal proceedings.
The borrowing was to be undertaken by refinancing a debt secured on the Suburb C property. The orders provided the wife with the opportunity to borrow the necessary funds and if that was not done then the parties were to join in a nominated borrowing. After the April orders were made but before they were complied with, the Suburb C property was sold for $37 million. The existing mortgage of $6 million was discharged from the deposit paid by the purchasers. Settlement of the sale is due to occur on 10 September 2014.
The husband brought these proceedings because he claims that some of the expenses for which the $2.9 million component of the borrowing was required, must be met prior to the Suburb C property settlement.
There is a significant dispute between the parties as to the nature of these proceedings. The husband would have it that the orders he seeks, simply facilitate the agreement reflected in the orders of 8 April 2014. It is submitted on his behalf that he continues to seek that $2.9 million be applied to certain expenses. Because the Suburb C property has sold it is no longer necessary to fully refinance that property in order to raise the required funds. However, he needs more than $1 million prior to the settlement date (on or about 10 September 2014). The husband has arranged to borrow $1.25 million from his brother on conditions that include that the loan carries interest at the rate of 7.5 per cent per annum, that it is secured over the Suburb C property and that it is repaid on the sale of that property.
It is the wife’s case that her consent to the orders of 8 April 2014 was falsely obtained. In particular the wife asserts that it was not explained to her that $15.5 million from the net proceeds of sale of the Suburb C property would in effect be frozen to meet the obligations of the husband under the 2011 order made in the G litigation. In addition, the wife asserts that the husband has failed to account for substantial funds to which he has had exclusive access, including substantial funds over recent months. To be fair it is clear that the wife had those concerns long before 8 April 2014. For that reason and because she contends that some of the payments he intends to make out of the borrowing are not payable and are not owing by the husband personally or in any event are payments to which she should not be required to contribute, she opposes his application. In the event that the court does not dismiss the husband’s application, the wife opposes the application of joint funds to certain debts, seeks a payment to her for interim costs and asks that the balance of the net proceeds be also paid to her. In any event she submits that she should not be required to agree to security being given over the Suburb C property in the terms proposed. In the latter regard complaint is made about the wording of the proposed loan agreement between the husband and his brother, both as to minor clerical matters and substantive provisions and in respect of the mortgage document. In effect the submission made was that the loan agreement and mortgage documents should be drafted to the wife’s satisfaction or to the independent satisfaction of the court.
As to the relevant head of jurisdiction, it seems to be agreed that the proposed orders invoke section 79 of the Family Law Act 1975 (Cth) (“the Act”). It is submitted on behalf of the husband that that was substantially the character of the orders made on 8 April 2014. It is submitted on behalf of the wife that the character of those orders owed more to the court’s power in relation to spousal maintenance and/or injunctions and in particular injunctions for the preservation of property.
As I indicated to counsel in the course of submissions it is not necessary to resolve the dispute in relation to the April orders. It is not in doubt that those orders can be changed and it is not in doubt that change is required. Events have overtaken the April orders, the Suburb C property is the subject of a contract for sale and the existing mortgage to the National Australia Bank has been paid out. Neither party presses for the April orders to be enforced as they were originally framed.
By their agreement in April, the parties authorised the creation of a fund of $2.9 million to meet certain expenses. The husband’s case about the disbursement of that fund is encapsulated in paragraphs 48 & 49 of his affidavit sworn 30 June 2014 as follows
48.I also seek that the funds realised from the loan from [Mr H Medlow] be used in the manner envisaged in the 8 April 2014 orders, and for the purposes of the expenses envisaged in those orders.
49.I also seek that those expenses envisaged in the 8 April 2014 orders, to the extent that such expenses cannot be met from the monies advanced by [Mr H Medlow], be met from the proceeds of the sale of the property at [B Street, Suburb C] (estimated to be in the further amount of $1,650,000, being the balance from the $2,900,000 previously anticipated, after exhausting the ‘bridging loan’ of $1,250,000) and applied In the manner envisaged in those Orders. I seek that the balance of those funds be left in a controlled monies investment account such that I am able to continue to comply with the ‘[G Orders]’ until I am in a position to take those ‘[G proceedings]’ to finality.
The difficulty with that evidence is that whatever was envisaged, the orders of 8 April 2014 do not fully catalogue the expenses to be met out of the fund. The orders facilitate the borrowing of up to $9.5 million. It seems likely that the parties intended that $8.5 million would be the amount borrowed and that the interest on the borrowed funds would be capitalised. Order 4 provides for the borrowed funds to be applied first to the fees associated with the borrowing, noting that 12 months interest on the proposed loan would be capitalised. Second, the fund would be used to discharge the existing mortgage in the sum of approximately $5.6 million. Finally, the balance of the fund, noted to be “in the sum of approximately $2,900,000” was to be paid to the trust account of the husband’s solicitors in the name of Medlow Pty Ltd “to be invested in a controlled monies account until applied in accordance with these orders”. As to the application of the fund, Order 5 commences:
5.Unless otherwise agreed in writing by the husband and the wife, the trust monies shall be applied as follows:
The order goes on to nominate, in summary:
a)Tax invoices issued in relation to the husband’s pending criminal proceedings;
b)Save for a nominated exclusion, tax invoices issued in relation to the Medlow litigation;
c)The husband’s obligations to the wife and children under the orders of 16 March 2011;
d)The husband’s living expenses at the rate of $4,000 a week, paid quarterly in advance; and
e)Finally, the fund was to be applied to “such other amounts as are agreed to in writing between the husband and the wife.”
If the parties envisaged what other expenses might be paid from the fund they did not express that in the terms of the April orders. I was not taken, in the course of submissions, to evidence elsewhere of such an agreement.
The approach to interim property proceedings
In Harris and Harris (1993) FLC 92‑378 (“Harris”) the Full Court considered an appeal against an interim or partial order for settlement of property. It concluded that there was no doubt that the Court had power to make such an order but said, among other things:
(1)The exercise of the power should be confined to cases where the circumstances presented at that time are compelling. As a generality, the interests of the parties and the Court are better served by there being one final hearing of s. 79 proceedings. However, circumstances may arise before there can be a final hearing which dictate that some part of the property of the parties should be the subject of orders. A common example is where both parties agree to the disposal of some assets pending the trial. However, we do not consider that it is confined to cases where the parties consent. Urgent situations may arise where it is necessary to exercise this power if injustice is to be avoided. Examples include cases where it is necessary to do so to avoid an asset being eroded or lost in the intervening period, and cases (beyond the maintenance power) where an order in favour of one party is necessary to preserve or obtain a home for or is otherwise necessary for the welfare of the children.
….
(2)It is an exercise of the s. 79 power. Consequently it must be performed within those parameters. Since it is not the final hearing the Judge is unlikely to have the final findings, but the exercise must fall within that general framework and the material available at that time.
(3)Of necessity it is likely to be a somewhat imprecise exercise. Consequently, it must be exercised conservatively and the Judge must be satisfied that the remaining property will be adequate to meet the legitimate expectations of both parties at the final hearing, or that the order which is contemplated is capable of being reversed or adjusted if it is subsequently considered necessary to do so. It is for this reason that we doubt whether the distinction which Nygh J drew between interim and partial orders is necessary or desirable.
In Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466; [2009] FamCAFC 166 (“Strahan”) Boland and O’Ryan JJ prepared a joint judgment. Although Thackray J gave separate reasons, he substantially agreed with the joint judgment. In the joint judgment Boland and O’Ryan JJ proposed that the process of considering an application for interim property settlement could be undertaken in two stages. They said:
118.…
Thus the first step is to resolve whether to exercise the power before a final hearing and if it is resolved to do so then the second step involves the exercise of that power.
As to the circumstances that would justify an interim order, the Full Court rejected the contention from Harris that the Court must find compelling circumstances. The joint judgment contained the following:
132.In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. It is not necessary to establish compelling circumstances. All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after a final hearing.
There was no argument by the Full Court in Strahan about an order for interim property relying on s 79. Similarly, the third of the Harris elements found favour in Strahan. In the joint judgment of Boland and O’Ryan JJ they said:
136.As to the third matter identified at 79,930 by the Full Court in Harris, in discussion before us it was described as the “adjustment issue” or “claw-back issue”. It was submitted by senior counsel for the Wife that it is relevant to consider whether an order would give the applicant “more than they would be indubitably entitled to on a final hearing” or alternatively “would it give them so much that it could not be adjusted on a final hearing?” As we have observed the Full Court in Zschokke at 83,220-221 stressed the importance of consideration of the “adjustment issue” if the power in s 80(1)(h) of the Act is being exercised. We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. As Finn J said at [126] the interim order must be “capable of alteration at any time prior to, or as part of, the final exercise of the s 79 power”.
In the circumstances before me there is no controversy about there being circumstances that would ordinarily warrant the application of joint funds to certain expenses. Whether crafted in the form of conditions to an injunction aimed at the preservation of property or as an exercise of interim property settlement, the orders of 8 April 2014 were made by consent. Indeed, albeit not the relevant test, as to securing the husband’s legal representation, it is my understanding that the parties are agreed that there are compelling reasons for interim orders.
As to the s 79 cases, each of the parties have given some evidence going to their property settlement case and by way of submissions, some indication of the arguments they will put at a final hearing.
Section 79 of the Act relevantly provides:
FAMILY LAW ACT 1975 - SECTION 79
Alteration of property interests
(1)In property settlement proceedings, the court may make such order as it considers appropriate:
(a) in the case of proceedings with respect to the property of the parties to the marriage or either of them - altering the interests of the parties to the marriage in the property; or
….
including:
(c) an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i)either or both of the parties to the marriage; …
….
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
….
(2) The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
The application of s 79 has been the subject of extensive judicial interpretation and comment. In Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143 (“Hickey”) the Full Court said:
39.The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s.79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss.79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s.79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case: Lee Steere and Lee Steere (1985) FLC 91-626; Ferraro and Ferraro (1993) FLC 92-335; Davut and Raif (1994) FLC 92-503; Prpic and Prpic (1995) FLC 92-574; Clauson and Clauson (1995) FLC 92-595; Townsend and Townsend (1995) FLC 92-569; Biltoft and Biltoft (1995) FLC 92-614; McLay and McLay (1996) FLC 92-667; JEJ and DDF (2001) FLC 93-075 and Phillips and Phillips (2002) FLC 93-104.
In Hickey the Court was not asked to separately address whether an order should be made at all. Similarly, that issue has not been formally raised in these proceedings.
As was observed in Stanford v Stanford (2012) (2012) 247 CLR 108 the requirement for the Court to consider whether an order should be made is often readily satisfied. Here, after a long marriage, the parties’ relationship has broken down. The relevant assets are variously held and several substantial assets are held by others or the subject of claims or potential claims by others. Importantly, both parties have invoked s 79.
On the balance of probabilities it will be just and equitable that the parties have relief under s 79.
As to what the particular relief is likely to be, it is extremely difficult to say. As was noted in Harris, this aspect of the task is necessarily imprecise.
Although there is no mention of steps or stages in s 79, let alone of the sequence set out in a) – d) below, the Full Court has recommended a stepped approach to the determination of property settlement proceedings, even if only to illuminate the path to the ultimate result.[1]
[1] Norman & Norman [2010] FamCAFC 66 at [60]; Bevan & Bevan [2013] FLC 93-545
An acceptable approach would be to:
a)Make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing;
b)Identify and assess the contributions of the parties within the meaning of ss 79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties;
c)Identify and assess the relevant matters referred to in ss 79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s 79(4)(e), the matters referred to in s 75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties; and
d)Consider the effect of those findings and determinations and resolve what orders are just and equitable in all the circumstances of the case.
Obviously, those steps will be undertaken at the final hearing. Importantly, because of the other litigation, it is impossible to predict when that hearing will take place.
In considering the cases to be made, I can only make an assessment based on the facts and assertions made today.
The indication from the parties’ evidence to date is that there is likely to be some controversy about the relevant pool of assets. The husband contends that the pool has a value of the order of $59 million[2]. That pool is said to be made up as follows:
[2] Outline of Argument of the Husband dated 9 July 2014.
Asset
Value
B Street (Joint) (net after use of $6M deposit to pay out NAB)
31,000,000
Country L property (not known but at least) 6,000,000 Personal effects (joint) 1,365,000 Jewellery (wife) 100,000 Horses (Husband) 200,000 Motor vehicles (husband and wife) 290,000 Super fund (with certain caveats) $2,250,000 Suburb J 17,500,000 Suburb I (50 per cent) (owned by Mr M Medlow) 0 Total $58,705,000.00
The wife contends[3] that as at 30 June 2010 the total value of the matrimonial assets was $107,408,945. She asserts that on a worst-case basis the current value of the matrimonial assets is $39,490,000. The wife does not identify in her response how that sum is calculated but at paragraph 24 of the response she refers to “the only assets available to meet” her claim as being:
·The Country L property at $3,200,000;
·Suburb J valued at $17,500,000; and
·The proceeds of sale of the Suburb C property at $15,500,000.
[3] Wife’s Response to Application for Interim Property Settlement dated 14 July 2014.
Those total $36,200,000. I take that those assets make up the bulk of her $39,490,000 pool.
The property is valued at the time a decision is made. If there is a contested hearing then the relevant values are those at that time of the hearing. These proceedings are not at the stage of a final hearing. I do not know what value the pool of property will be found to have. The parties propose a very substantial range of values. Those calculations do not contemplate a change in the zoning in Western Sydney, for example. That could cause the Suburb I and Suburb J properties to be worth more like $400 million, than $40 million. In that regard I refer to the valuation evidence mentioned in my reasons for judgment published on 14 March 2014 and take judicial notice that government approval has recently been given to the establishment of a second Sydney airport in that area of Western Sydney.
If the husband is right in his argument, the wife’s claim is not threatened by the disbursement of $2.9 million by him, whether that sum is applied to the purposes he identifies or for any other purpose.
The real controversy is identified in the wife’s case. As I have indicated the wife points to a proper outcome for her being an award calculated at 35 per cent of the parties’ assets but importantly the assets as she asserts they existed and were valued in 2010. If such an outcome is considered achievable on the balance of probabilities and if the current pool is inadequate or barely adequate to support such an outcome then the orders sought by the husband could not be undone on a final basis. In those circumstances the orders should not be made.
As to whether the scenario identified by the wife is reasonably probable, it must be examined. The first thing to say is that it is not more probable than not that the ultimate property division between the parties will be based on the pool as it was valued in 2010. For obvious reasons in most cases the assets are identified and valued as at the date of hearing. Although in somewhat inconsistent terms the Full Court[4] has supported the inclusion in a pool of assets identified for the purposes of s 79 assets that no longer exist and the exclusion of liabilities that do exist at the date of hearing.
[4] In the Marriage of Omacini (2005) FLC 93-218 and Chorn v Hopkins (2004) FLC 93-204.
I assume that the wife proposes to rely on assets as they existed and were valued in 2010 by arguing that the difference between those assets and the current assets be added-back.
In other cases the Court has included assets in the pool of relevant assets and liabilities even though they no longer exist. The same logic has been applied to the exclusion from the relevant list of liabilities, debts that do exist at the date of the hearing. In the Marriage of Omacini (2005) FLC 93-218, 33 Fam LR 134 (“Omacini”) the Full Court noted:
30.To date, three clear categories of cases have emerged where the Court has determined that it is appropriate to notionally add back to the pool of assets, that is, assets that no longer exist. They are:
(a)Where the parties have expended money on legal fees. In DJM and JLM (1998) FLC 92-816 the Full Court said at 85,262:
“11.6 For reasons set out in Farnell, s 117 provides that each party to proceedings under the Family Law Act shall bear their own costs unless the Court otherwise orders. Failing to add back monies expended by parties on costs frequently has the effect of defeating the policy of s 117 by permitting the pool of available assets for distribution between the parties to be diminished by any monies that either of the parties have managed to spend on their costs up to the date of trial. We are of the view that the normal approach ought be to add costs already paid back into the pool. Whilst there may be cases where that approach is inappropriate, the reasons why it is not taken ought normally be spelt out.”
(b)Where there has been a premature distribution of matrimonial assets. In Townsend and Townsend (1995) FLC 92-569 Nicholson CJ as he then was with whom Fogarty and Jordan JJ agreed, said at 81,654:
“In my view, what occurred in this case, as I said during the course of argument was, in fact, a premature distribution of a proportion of the matrimonial assets. What the husband did was to distribute to himself an asset in which the wife had a legitimate interest. In such circumstances I consider that it would be unjust in the extreme to simply treat such conduct by the husband as a matter to which regard should be had under section 75(2). It seems to me that the husband has had the benefit of that money. Had he retained, for example, the taxi licence instead of selling it, that would have been brought into account as an item of property which would have been dealt with in the same way as the remaining items of property in this case. Accordingly, I am of the view that the correct way in which to deal with the husband’s receipt of those moneys is to bring them into the pool of assets on a notional basis and make a distribution accordingly.”
(c)In the circumstances outlined by Baker J in Kowaliw and Kowaliw (1981) FLC 91-092 at 76,644:
“As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a)where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b)where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec.75(2)(o) to applications for settlement of property instituted under the provisions of sec.79.”
31.As the Full Court said in Browne and Green (1999) FLC 92-873 at 86,360:
“44.We agree with her Honour that the principles stated by Baker J in Kowaliw certainly do not constitute any form of fixed code. They are no more than guidelines for use in the exercise of the discretionary jurisdiction conferred by s 79 of the Family Law Act 1975. Nevertheless, they have over the considerable period of time since they were enunciated, become a well accepted guideline in this jurisdiction – a guideline the use of which assists in the achievement of the important goal of consistency within the jurisdiction.”
A problem of the add-back approach is that it can make the process of changing the interests of the parties in property, distorted and artificial. The greater the value of the notional assets and ignored liabilities, the greater the distortion and artificiality. There has been judicial comment[5] suggesting that a future Full Court may express a different view to the views summarised in Omacini (above) or for that matter, to the approach taken in Chorn & Hopkins (2004) FLC 93-204. Notwithstanding that comment, as far as I am aware the Full Court has not reversed the earlier authorities. Despite the comments in Bevan and in other cases[6] the Full Court has not purported to exclude the add-back approach. The Full Court has recently cited Cerini & Cerini [1998] FamCA 143 wherein it was noted that “add backs” are the “…exception rather than the rule…”.
[5] See comment in the Full Court reasons in Bevan and Bevan[2013] FLC 93-545; [2013] FamCAFC 116 – Finn J at para 160 and a more oblique reference at para 79 of the joint judgment of the Chief Justice and Thackray J.
[6] See Chapman & Chapman [2014] FamCAFC 91.
Whatever might be said about the current state of authority on the topic, it is neither compulsory nor prohibited to include assets that no longer exist or exclude current liabilities, when settling the relevant pool of assets in s 79 proceedings.
It comes to this, because they are the exception rather than the rule it is not more probable than not, that the Court in these proceedings will allow add-backs to the pool of assets. Similarly, it is not probable that the trial judge will, for some other reason, find that the relevant date for identifying or valuing any assets, let alone all assets, should be 2010. It is not likely that the pool will be found to be the 2010 pool identified by the wife.
I understood learned counsel for one of the parties to submit, without complaint from the other party’s counsel, to the effect that given the size of the pool it is unlikely that there would be a significant adjustment by reason of s 79(4)(d) – (g), to the outcome found appropriate based on contributions.
As to contributions –the marriage involved cohabitation of over 18 years. The parties raised two boys. The husband came into the marriage with significant wealth. Each of the parties had remunerative employment. In the wife’s case she retrained as a professional and worked in that capacity for a period. The husband’s commercial and property dealings have been the foundation of the parties’ wealth. The wife will argue that she performed various roles in relation to some of those entities and activities and that she supported the husband, including support during periods of psychological breakdown suffered by him.
As to the parties’ claims, reference is made in the wife’s case to a claim for 50 per cent of the parties’ assets. However in the response dated 14 July 2014 prepared by the wife’s counsel there is the following proposition:
23.If, adopting a conservative approach, the wife is entitled to 35 per cent of the matrimonial pool she could, on the basis that the matrimonial pool was worth $107,400,000 be entitled to $37,590,000.
The wife’s argument apparently runs that the wife might be put to seeking to recover an entitlement calculated on the 2010 pool from the much diminished pool remaining now. On the basis of those calculations the wife contends that a further distribution of $2.9 million to the husband will jeopardise her claim and should be rejected.
In the outline of argument prepared by learned senior counsel for the husband, dated 9 July 2014, where the husband estimates the pool at $58,705,000, the following proposition is put:
7.2There can be no doubt that the husband was a wealthy man aged 41 years at the commencement of cohabitation (see the S 87 deed of 12 March 1990 with his former wife (H 1st Aff – annex A) and at that time the wife was 22 years of age and had no assets.
After 18 years of cohabitation, during which the wife had only limited involvement in the business and was assisted by paid staff in the home and with the children (housekeepers, personal assistants and gardeners), it is utterly inconceivable that the wife’s entitlement could be anywhere remotely close to the 50/50 division she claims, but even if that were her entitlement the provision of the $2.9M to the husband does not put the wife’s entitlement at risk. The husband seeks and 80/20 division and that will be seen (on the material currently available) to be more consistent with authority.
If, as the wife argues in another context, the pool is more like $39 million, a $2.9 million payment will not jeopardise her claim to 35 per cent of that pool.
Next, the wife’s case relies on the proposition that the $15.5 million that the husband is required to retain within Australia under the terms of the G litigation orders, will be lost. There is no foundation for a finding that that outcome is more probable than not. Elsewhere the wife complains that she was not informed that retained funds should those making up the net sale proceeds of the Suburb C property. Paradoxically, at the same time, the wife seeks to impugn the value of the only other assets which could secure the obligation under the G litigation orders. The argument presumably runs that the most reliable assets should be earmarked for her claims and the obligation under the G orders can be secured against less reliable assets.
If the wife is correct and the retained $15.5 million is lost, prima facie that will reduce the pool and therefore, her entitlement. In turn that will reduce the likelihood that the disbursement of $2.9 million will threaten that entitlement.
In a similar vein the wife’s calculations assume that her arguments in relation to the 50 per cent interest in the Suburb I property held in the name of an entity associated with the husband’s adult son Mr M Medlow, will not find favour. Perhaps it might be said that she is in a good position to make that assessment but she has not resiled from that argument. Quite the contrary. The wife has noted that the status of that interest changed in the husband’s material and has indicated that she will argue that the interest is matrimonial property.
Presumably going to her claims about the value of the pool in respect of which the parties contributions were made, are the wife’s arguments about non-disclosure. Her affidavits contain assertion after assertion in respect of non-disclosure by the husband. In many instances the husband has joined issue. I am not in a position to make findings on those disputed issues of fact in interim proceedings where the relevant evidence was not tested.
It is apparent that the wife’s claims rely on her assertions that the husband has diverted, hidden or wasted assets. The wife refers to the disposition of $16 million in favour of Mr N or an entity associated with him. The wife refers to what she identified as the potential losses and foolhardy nature of the G litigation; her abiding suspicions in relation to the bona fides of the Medlow litigation and the various proposals and apparent disputes and compromises between the husband and his brother, up to and including the offer of a loan of $1.25 million, which is the subject of these proceedings. It is variously asserted by the wife that the husband has had access to something like $25 million over recent years and has failed to account for all but about $900,000 of that fund. The wife expresses her fears, based on conversations she reports, that those funds have not been lost but that they have been hidden.
Of course it is possible that some or all of the wife’s fears are correct. The question is, is that sufficient for a finding on the basis of which the husband’s application should be dismissed. In my view it is not.
I propose to grant the husband’s application. There are reasons, including compelling reasons for the husband to have immediate access to funds. He has a case to make under s 79 that exceeds $2.9 million by a significant margin. On the balance of probabilities, the disbursement of $2.9 million will not threaten the wife’s claim.
The orders sought by the husband in his application filed 30 June 2014 are expressed as follows:
3.That leave be granted for short service of this Application in accordance with paragraph 9 of the Orders made by Justice Loughnan on 8 April 2014.
4.The court NOTES:
2.1That on 10 June 2014 the property situated at and known as [B Street, Suburb C] was sold for the amount of $37,000,000, with settlement of the sale of this property expected to occur on 9 September 2014.
2.2That the Husband intends to procure from [Medlow Pty Ltd] and/or nominee of the directors of [Medlow Pty Ltd] a loan in the amount of $1,250,000, on the basis of interest being charged at a rate of 7.5 per cent per annum ("the loan");
2.3That the loan is proposed on the basis of the principal plus interest being discharged from the proceeds of the sale of the property situated at and known as [B Street, Suburb C]; upon settlement;
2.4That the loan is intended to be applied in the manner and for the purposes provided for in the Orders made by Justice Loughnan dated 8 April 2014, pending settlement of the sale of the [B Street, Suburb C] property.
3.That the Wife both personally, and by her attorneys, shall be restrained and an injunction granted from doing any act or thing which would preclude the loan being provided by way of registered second mortgage and the Husband and the wife shall forthwith do all acts and things and execute all documents necessary to obtain the consent of the existing mortgagees, [Mr & Ms O], in order for [Medlow Pty Ltd] and/or nominee of the directors of [Medlow Pty Ltd] to register a second mortgage and execute all documents required by [Medlow Pty Ltd] and/or nominee of the directors of [Medlow Pty Ltd] necessary for it to secure its interests by way of second mortgage.
4.That the Husband and Wife shall do all acts and things and sign all documents to ensure that the sum of $1,250,000 from the loan is paid into the trust account of Watts McCray Lawyers and such funds shall be invested in a controlled monies investment account for that purpose until applied in accordance with these Orders ("The Trust Monies").
5.Unless otherwise agreed in writing by the Husband and Wife, the Trust monies shall be applied in accordance with paragraph 5 of the Orders dated 8 April 2014.
6.That upon settlement of the sale of [B Street, Suburb C], on or about 9 September 2014, the proceeds of the sale of the [B Street, Suburb C] property be paid and/or applied in the following manner and priority:
6.1The amount required to discharge the loan secured by the second mortgage referred to in order 3 herein provided to the Husband by [Medlow Pty Ltd] and/or nominee of the directors of [Medlow Pty Ltd];
6.2All costs and expenses of the sale including legal costs and disbursements for the conveyance, agents' commission, and valuers' fees;
6.3The amounts required to pay all municipal and water rates outstanding with respect to the property;
6.4Per Paragraphs 5 and 6 of the Orders dated 8 April 2014, in the further amount of $1,650,000, which further sum is intended to represent the balance of the moneys required and anticipated in those orders dated 8 April 2014;
6.5With the balance (of an amount of not less than $15,500,000) to be held in an interest bearing account in the names of the parties, in compliance with paragraph 1(c) of the Orders made in the Supreme Court proceedings being Case Number 2011/18119 between [Medlow Pty Ltd] and [D Pty Ltd], such funds not to be disbursed except by further Order of the court.
7That in the event either party refuses or neglects to execute any deed, document or instrument necessary to give effect to all or any of these orders, then the Registrar of the Court shall be appointed pursuant to Section 106A of the Family Law Act to execute such deed, document or instrument in the name of the said party and do all acts and things necessary to give validity and operation to the deed, document or instrument upon the Registrar being provided with verification of such refusal or failure by way of affidavit.
8.That the Wife pay the Husband's costs of and incidental to this Application on an indemnity basis.
It can be seen that the husband has adopted the operative provisions of the orders agreed to on 8 April 2014. I will make the orders in the form sought. Beyond the specified payments, order 5 required the parties’ agreement to further disbursements. Based on the evidence of the parties before me, it seems likely that they will not be able to agree on many of the expenses to which the husband seeks to apply the $2.9 million fund.
Although the issue does not immediately arise it may be of assistance to the parties for me to canvas the possible outcome of a dispute arising in respect of the further expenses to which the fund will be applied. Importantly, it is not necessary in making an order for interim property settlement for the court to limit the purposes for which the settlement will be applied. As is apparent from the discussion above, the nature of the relief means that the husband is seeking access to his own funds. In this case the husband has identified certain ways in which he intends to apply the funds. The wife agrees, albeit as a fall-back position, to some of those disbursements. Where she does not agree I am not in a position and may never be in a position short of a final trial, to make a considered finding about the necessity or propriety of the particular expenses. There is no process available to a court short of the making of considered findings. Courts should not act capriciously or arbitrarily.
An option in respect of the payments to which the wife has expressed unqualified opposition, would be to make directions to attempt to resolve the issue about those particular payments. There are a number of problems with that course and if that approach is necessary on an interlocutory basis, it may be more practicable for the appointment of an assessor or even a receiver to undertake that task. As has been submitted in the husband’s case, he is soon to commence a 16 week murder trial. In my view it is not practicable for those processes to be undertaken now. As I have noted, despite the fact that they previously agreed to establish a fund of $2.9 million to service expenses, because of the breakdown of the agreement reflected in the terms of the orders of 8 April 2014, I could not be confident that the parties will be able to agree on the expenses that are not specifically identified in those orders.
It seems to me that a principled approach, in the event that there is further controversy between the parties about the disbursement of the fund of $2.9 million might be to allow the husband to disburse the fund as he thinks fit and neither require nor prohibit the husband in relation to those payments.
Orders could be made to require that the husband account to the wife for the disbursements he makes from the fund. In that way evidence would be available in the event that there are to be arguments either by the husband that the character of some of the payments should be changed to the payment of matrimonial debts or by the wife, seeking that the payments be added back.
There remains a controversy in relation to the form of the agreement to be entered into between the husband and his brother, which in turn will have an impact on the wife through the security to be given for the resultant debt over matrimonial funds. As I expressed to the parties in the course of submissions, it seems to me to be highly undesirable for the court to be placed in a position of attempting to draft the necessary documents. I will order that the parties settle the terms of the agreement in so far as that is practicable and give the parties leave to bring the matter back in that regard. It is important to note that unlike the agreements proposed in the April orders, which were to be in place for up to 12 months, it is likely that this agreement will apply for about 8 weeks. As to the potential harm done to the wife by the agreement, through its impact on the pool of assets, I note, as was submitted on behalf of the husband, that the proposed interest rate of 7.5 per cent per annum is substantially lower than the rates applicable to facilities previously proposed by the wife.
As it is not possible to require the wife to sign the drafted documents now, I will not make an order in terms of the order sought at paragraph 3 of the husband’s application. Such an order or an order in related terms may be appropriate at another time.
Of course it may not be possible to resolve the wife’s concerns. The agreement in question is not an agreement between the parties. It is an agreement between the husband and his brother. Evidence was earlier given to me that there is an ambivalent relationship between the brothers and what appears to be a poisonous relationship between Mr H Medlow and the wife.
I should say that at the conclusion of submissions, without conclusively presuming on the outcome of my determination, I invited the parties to join issue and seek to compromise the wife’s concerns about the documents. It may be that in the days since the hearing those discussions have borne fruit.
The parties should be mindful that if a s 106B order is warranted and if the court considers that it would not be appropriate to put a Registrar of the Court in a position of executing a contested or disputed document, the section would permit another person, such as the husband, to be appointed to execute the relevant documents in the name of the wife.
In the event that her primary application was not granted the wife herself seeks an order for interim costs in the sum of $173,188.39. Her claim for $173,188.39 is apparently based, not on an estimate of her likely costs but on a calculation of the difference between what she has spent and the husband has spent from a certain source, on legal fees. The evidence is that the wife has applied $120,000 from the joint American Express card to her costs, while the husband paid $293,188.39 to his lawyers from that source.
Although the wife only owes her solicitors $7,534.45 in costs, there are the costs of work in progress of the order of $20,000. There is little doubt that the wife will incur substantial fees in the future. Importantly, I am satisfied that if the wife is paid $173,188.39 that will not exceed her property settlement entitlement, nor will it jeopardise the husband’s claim for settlement of property. Although less compelling there is the appearance that such a payment will demonstrate a more even handed approach to the support from matrimonial funds of the respective parties’ legal costs. I will make the order.
In order to avoid further satellite litigation I will authorise the parties to draw that sum, if necessary, from the proceeds of sale of the Suburb C property in addition to the $2.9 million that is to be applied to repay Mr H Medlow and to the other purposes identified by the husband.
Lastly, the wife seeks that the balance of the net proceeds of the Suburb C sale be paid to her. No justification was advanced for such an order. The balance of the proceeds will be held as the parties agreed in April with any further disbursements to be by written agreement or further order of the Court.
Conclusion
The husband seeks orders for interim property settlement. Within the parameters of the known facts I am satisfied that, notwithstanding the priority to be given to a single final property settlement, an order for interim property settlement is warranted. On that same basis I am satisfied that the claims of the parties for an interim distribution of funds for particular purposes to be conservatively within the ambit of their likely entitlements under s 79. I am satisfied that those claims can be met on an interim basis without risking the need for the payments to be later set aside or clawed back.
Given the complexity of the parties’ affairs and the urgency of the need for certain funds I will give the parties leave to bring the matter back before the Court on short notice.
I certify that the preceding seventy seven (77) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Loughnan delivered on 18 July 2014.
Associate:
Date: 18 July 2014
Key Legal Topics
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Family Law
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Civil Procedure
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Costs
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Jurisdiction
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Remedies
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Procedural Fairness
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