Moller and Whitman

[2015] FamCA 1078

FAMILY COURT OF AUSTRALIA

MOLLER & WHITMAN [2015] FamCA 1078

FAMILY LAW – PROPERTY – interim orders – where the husband seeks by way of interim property settlement orders for the sale of shares in the trustee company with the proceeds to be predominately used to fund the husband’s litigation – where the wife opposes the application on the basis that there is a risk of there being an inadequate sum against which to secure the payment of the settlement sum – where there are various tax liabilities and a potential negligence claim – where it is found to be reasonable that the husband would seek litigation funding and sufficient enough that he has litigation expenses which are due and owing – where there have previously been orders for interim property settlement where by the wife received monies for litigation funding – where it is reasonable that the husband should have his legal fees paid in a manner similar to the wife – where it is ordered that an amount be paid to the husband by way of interim property settlement with the order to be brought into account at trial.

Family Law Act 1975 (Cth) – s 80(1)(h), s 117(2)

Bing & Bing (2007) FLC 93-318
Harris & Harris (1993) FLC 93-378
Strahan & Strahan (2011) FLC 93-466
Zschokke & Zschokke (1996) FLC 92-693

APPLICANT: Ms Moller

RESPONDENT: Mr Whitman

FILE NUMBER: ADC 3641 of 2013

DATE DELIVERED: 4 December 2015

PLACE DELIVERED: Adelaide

PLACE HEARD: Adelaide

JUDGMENT OF: Berman J

HEARING DATE: 27 November 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mrs West

SOLICITOR FOR THE APPLICANT: Tindall Gask Bentley

COUNSEL FOR THE RESPONDENT: Mr McGinn

SOLICITOR FOR THE RESPONDENT: Mellor Olsson

Orders

1. That paragraphs 9, 10 and 11 of orders made on 4 November 2013 be varied such as is necessary to give effect to order 2 hereunder.

2. That by way of interim property settlement and conditional upon an indemnity being given to the parties by the proposed new trustee in respect of the parties debit loan accounts and any outstanding third party loan, the parties take all steps and sign all documents necessary to cause:

   (a)the shares in the trustee company known as B Pty Ltd (ACN …) (“the trustee company”) be transferred to Ms C (“Ms C”);

   (b)       the husband and the wife do resign as directors of the trustee company;

   (c)the husband do resign as appointor of the trust and Ms C and/her nominee to be made appointor of the trust;

   (d)the parties to be indemnified in relation to their respective debit loan accounts with the trust;

   (e)the parties to forfeit any current interest and forego all amounts, any future interest and any income or corpus of the trust.

   (f)Within thirty (30) days of the date hereof and in any event contemporaneously with the transfer of the shares in the trustee company and conditional upon Ms C providing an indemnity satisfactory to the parties, the sum of THREE HUNDRED AND EIGHTY FOUR THOUSAND DOLLARS TWO HUNDRED AND EIGHTY EIGHT DOLLARS ($384,288) be paid in compensation therefore by Ms C as follows:

   (i)an amount ONE HUNDRED AND EIGHT FOUR THOUSAND TWO HUNDRED AND EIGHTY EIGHT DOLLARS ($184,288) to the National Australia Bank as directed by the husband PROVIDED that the husband shall be restrained and an injunction granted restraining him from drawing down, utilising, withdrawing and in any way pledging those monies other than with the consent of the parties or order by the Court;

   (ii)an amount of TWO HUNDRED THOUSAND DOLLARS ($200,000) to Mellor Olsson Trust Account for and on behalf of the husband.

3. That the said amount of THREE HUNDRED AND EIGHTY FOUR THOUSAND DOLLARS TWO HUNDRED AND EIGHTY EIGHT DOLLARS ($384,288) paid to or for a benefit of the husband pursuant to these orders be brought into account in such manner as the Court may deem just and equitable at the trial in the proceedings for property settlement and spousal maintenance taking into account the current value of the B Family Trust at trial by an agreed valuation process, subsequent to the transaction referred to in 2(a) to 2(f) herein.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Moller & Whitman 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 ADELAIDE

FILE NUMBER: ADC 3641  of 2013

Ms Moller

Applicant

And

Mr Whitman

Respondent

REASONS FOR JUDGMENT

INTRODUCTION  

1. By Initiating Application filed 1 October 2013, Ms Moller (“the wife”) sought orders for property settlement and spousal maintenance.

2. At that time and relevant to the current application now before the Court, the wife sought to retain a property situate at D Street, E Town free of any mortgage liability, any money standing to her credit in any bank account, her clothing, personal effects, adornments and her superannuation.

3. In addition, she proposed a transfer to the husband of her interest in a number of properties (together with the secured mortgages) and relevant to the current application, she proposes to transfer her interest in various trust entities but in particular B Family Trust to the husband, resign as any trustee of the trusts and to relinquish any claim or entitlement including any debit or credit loan account to the husband or such other person as he may nominate.

4. It is also acknowledged by the wife that the husband will retain a condominium development in Country F.

5. By Amended Response filed 5 November 2014, Mr Whitman (“the husband”) seeks the dismissal of the wife’s application for spousal maintenance and by way of settlement of property proposes that the net assets of the parties (including items under the heading of “add backs”) be divided as to 60 per cent thereof to the husband and 40 per cent to the wife.

6. The proceedings had been listed for final hearing before a Judge of the Federal Circuit Court.  By order made on 5 December 2014, the proceedings were transferred to the Family Court of Australia for final hearing noting that the matter was likely to exceed five days in length.

7. On 30 October 2015, I ordered that all applications for final orders be adjourned for hearing before me on 29 February 2016.  The matter remains as listed and on 3 November 2015 orders were made by way of trial directions which required the applicant wife to file any amended application, affidavits of evidence in chief of all witnesses and a financial statement by 11 December 2015.

8. Agreement has been reached between counsel that subject to my leave the respondent husband has no objection to the wife seeking an extension of time to 23 December 2015.

9. The husband does not seek any extension of time in respect of the filing of his trial documents and accordingly I propose to order that time be extended for the wife to file her trial material to 4pm on 23 December 2015.

PROCEEDINGS

1. By Application in a Case filed 25 February 2015, the wife sought an order that the husband pay to her solicitors for and on her behalf the sum of $200,000.  There were alternative orders sought in the application, but the gravamen of the wife’s position was to secure litigation funding to enable the conduct of the proceedings.

2. The interim proceedings came before Thornton J on 29 June 2015 and ultimately were resolved by a detailed consent order.  The effect of the order was to enable the sale of real estate and the application of the proceeds of sale to be applied in reduction of outstanding bank liability.

3. Following the sale of a property at G Street, the wife was to receive 45 per cent of the net proceeds payable to her solicitors trust account.  In addition, she was to receive a further $40,000 from the husband’s share and the balance paid towards debt and overdraft reduction.

4. The orders provided for the sale of a property at H Town to be sold to Mr and Ms C.  The proposed purchasers are members of the husband’s family.

5. The husband filed an Application in a Case on 2 October 2015 seeking orders to discharge certain orders made 29 June 2015 and paragraphs 9, 10 and 11 of orders made on 4 November 2013.

6. For the purposes of this application, the focus is on paragraph 3 of the said application which seeks by way of interim property settlement orders that would enable the husband and require the wife to take all steps necessary to cause the shares in the trustee company known as B Pty Ltd (“B Investments”) as trustee for the B Family Trust (“B FT”) to be transferred to the husband’s daughter Ms C.  The anticipated transfer price was $345,000 and the husband proposed that $145,000 would be payable to the National Australia Bank to be held pending the final determination of the proceedings and a sum of $200,000 to be paid to his solicitors on account of legal fees both outstanding and anticipated to the conclusion of trial.

7. Whilst there were other orders sought, the parties were able to reach an agreement as set out in orders made 30 October 2015.

8. Those orders reflect that the anticipated sale of the H Town property to Ms C was not now to proceed.

9. It was also ordered that the husband cause the sum of $212,081 to be paid to the wife’s solicitors trust account being the satisfaction of earlier orders.  It is not controversial that some of that money has been used for personal expenses of the wife but that the majority of the sum is to pay outstanding and future legal fees, costs and disbursements.

10. Whilst there may be some aspects of the wife’s response filed 27 October 2015 outstanding, it is likely that there remains no matters to be agitated pending trial.

11. What has not been resolved and was adjourned for further hearing was the relief by way of interim property settlement sought by the husband as set out in paragraph 3 of his application filed 2 October 2015.

12. The application is supported by an affidavit of the husband filed 2 October 2015 and an affidavit of his solicitor filed 26 November 2015.  That affidavit annexes an amended annexure to the husband’s application in the following manner:

    (1)that the anticipated sale price to Ms C is now to be in the sum of $384,288.

    (2)that the disbursement of the proceeds of sale are as to $184,288 to NAB and $200,000 to the husband’s trust account.

13. In addition, the husband proposes that notwithstanding the proposed sale of the property at a fixed sum, there was no issue as to the Court hearing evidence that the underlying business and real estate forming the corpus of the B Trust may well be the subject of further or subsequent valuation should there be any argument by the wife that the sale is not arms-length and for true value.

14. Notwithstanding that the wife contemplates orders as set out in her initiating application that would have her interest in the B Trust (and the related trustee company) transfer to the husband, it is her position to oppose the husband’s application on an interim basis as distinct from the final orders sought.

HUSBAND’S ARGUMENT

1. By reference to his affidavit filed 2 October 2015, the husband submits that B FT was established on 3 June 1998.  The husband remains as the sole appointor of the trust.  Following orders made 29 June 2015, the wife ceased to be a director of the trustee company leaving the husband as the sole director but each party still retain one share.

2. The purpose of the trust was to own a commercial premise from which I Pty Ltd trading as I Rural conducts its business.  I Pty Ltd is the trustee of the I Unit Trust.  All of the units are owned by J Pty Ltd.  The husband and his daughter are the directors of J Pty Ltd, but the husband is the sole shareholder.

3. There is a complexity to the internal loan arrangements between the parties and the entities comprising B FT.  The husband says that it has always been his intention to transfer the business to Ms C on the basis that the liabilities of the parties are taken over by her and an amount by way of compensation is paid to represent the value of the trust and related entities as determined by the single expert in his valuation of February 2014.

4. It is argued that this amount was the basis for the suggested sale price as set out in the initial Application in a Case but has been the subject of upward amendment in the amended orders sought.

5. The purpose of the sale (other than to give effect to a long held consideration of succession to his daughter) was to put the husband in funds by way of partial settlement of property.  Those funds would then be utilised to enable the husband to pay out previously incurred legal fees and to provide some future security for anticipated fees likely to be incurred to the conclusion of the proceedings.

6. His affidavit reveals that as at October 2015, the unbilled work in progress is $147,000 with disbursements of $14,760.  Furthermore, there are unpaid counsel fees of about $42,500.  It is likely therefore that the sum sought by the husband by way of partial settlement of property will be disbursed almost entirely towards the payment of outstanding fees.

7. It is anticipated that the husband will continue to instruct his solicitors through to the conclusion of the proceedings and that there is no suggestion made by him or by his solicitors that they will cease to represent him if he is not able to make further payment.

8. By way of some further security for the wife, the husband proposes by the orders that he seeks that the balance of the compensation to be paid by his daughter will be quarantined pending final determination.

9. In summary, the husband submits that the wife has been put in a position where she is able to pay her legal fees and the husband seeks the same accommodation and position.  As a further justification for the proposed sale to his daughter, the husband sets out that the indemnity offered by her as part of the sale would be to the significant advantage of the parties.  The potential benefit to the parties is detailed at paragraphs 87 and 88 of the husband’s affidavit filed 2 October 2015.

WIFE’S ARGUMENT

1. By reference to her affidavit filed 27 October 2015, the wife argues that she has not been part of any discussion with Ms C in respect of the proposed sale of B FT.

2. Significantly, she says that there is uncertainty in the asset pool which has been potentially exacerbated by the ownership of the husband of a condominium in Country F which he values at $214,000.

3. The Australian based assets are the subject of bank debt and personal guarantee.  Additionally, a further complexity arises in respect of the potential tax liability on I estimated at $895,720, an amount for farm tax of $133,848 and the potential for damages and associated legal fees in respect of a claim and demand in the sum of $910,000 known as the K Claim.

4. At paragraph 129, the wife refers to the Schedule of Assets and Liabilities as set out in the husband’s affidavit filed 8 April 2015.  She notes that the net asset pool asserted by the husband to be $1,686,920 is almost $1,000,000 less than that as asserted by him in November 2014.

5. Whilst the wife does not consider that the valuation of Mr L at $341,788 (excluding paintings) is necessarily the current correct value, it is reasonable to assume that any change in the value will be modest.

6. The husband counters the wife’s argument that there should be an arms-length sale by relying upon the valuation of the single expert as a reasonable assessment of the value.  There is no objection by the wife to the husband retaining B FT at a figure that would ultimately be determined by a valuation process rather than a market sale.

7. The gravamen of the wife’s opposition is therefore not as to the price that is to be paid by the proposed purchaser, but rather, by the husband utilising the proceeds of sale for his legal fees, this may make it difficult for a settlement sum to be raised should that be required.

8. It must be remembered that even on the husband’s own application he seeks only to utilise only $200,000 of the proposed sale price of $384,288.  The balance is to be held pending final determination.

SCHEDULE OF ASSETS AND LIABILITIES

1. The only comprehensive reflection of the assets and liabilities of the parties is the Schedule comprising “IJW1” to the husband’s affidavit filed 10 April 2015.

2. On the husband’s case, the summary is that the total property of the parties including superannuation is $1,686,920.  On the basis that the wife is entitled to 45 per cent, her share would be $759,114.  Her subtotal pursuant to the Schedule is $738,837 and accordingly, the husband would need to pay the wife a further sum of $20,277.

3. That schedule is no longer accurate.  Some of the properties have been the subject of sale and it is proposed that B Pty Ltd now has a value attached to it of $384,288.  Furthermore, the wife acknowledges that she has received $212,081, a significant proportion of which has been paid for legal fees and therefore may well be the subject of an add back argument.  This would have the effect of placing more property in the wife’s ledger.

4. There is also inclusion by the husband of the various tax liabilities to which the parties may be liable and the K Claim.  There is acknowledged uncertainty as to the extent of the liability in respect of the K Claim and how any liability would be borne by the parties.  Similarly, the parties apparently are giving active consideration to crystalizing the taxation liability.  That has not yet occurred.  Even on the husband’s case, if the tax liability and the K Claim were significantly less, then the wife would receive a higher entitlement and the top up would be commensurately more.

5. The husband argues that the existence of his interest in the Country F condominium is still relatively modest and when the quarantined amount of $184,288 and the other property that the husband seeks to retain notwithstanding the cross securities are brought to account, the wife does not need to be concerned about an effective default provision should the husband fail to pay the settlement sum.

LITIGATION FUNDING/PARTIAL SETTLEMENT OF PROPERTY

1. The leading authority on the circumstances in which a Court will order an interim or partial property settlement to fund the costs of litigation of a party is the decision of the Full Court in Zschokke & Zschokke (1996) FLC 92-693.

2. The Full Court considered that there were four possible bases of power to make such an order:

   (1)an order pursuant to section 74 (the maintenance power);

   (2)an order pursuant to section 114 (the injunction power);

   (3)an order pursuant to section 117(2) (the costs power); and

   (4)an order pursuant to section 80(1)(h) (the Court general power to make an interim order with reference to section 79 of the Act.

3. It is likely that this exercises the power to make an order for the husband to receive funds for the costs of the proceedings should be considered pursuant to s 80(1)(h).  If the order is to be made pursuant to s 117(2) of the Act, then the Court must have regards to the matters set out in the section acknowledging that not all of the matters in the subsection would be relevant to the making of the power.  In this case however, it is likely that the sum sought by the husband namely $200,000, would not be in respect of future fees but rather, would be almost entirely disbursed in the payment of outstanding fees.

4. It is a reasonable summary of the decision of the Full Court in Zschokke that:

   The requirements of justice…must remain a “basic” condition in the making of [such an order].

5. In terms of interim payments, the proper question arises as to whether it is likely that the husband will receive sufficient in the final settlement of property to enable the interim payment to be taken into account.

6. The husband argues that he is not seeking an extra payment but rather, that his interest in the B FT would have been retained by him in any event and all he is doing is crystalizing that asset at a time prior to any settlement or final order being made.

1. Indeed, it is not even the argument of the wife that he would not be entitled to the money that he considers is properly represented by the value attributed to B FT.  Her argument is that the property may be needed to give effect to proper security for any settlement sum that the Court may order in favour of the wife.

2. On the husband’s case and by reference to the asset pool as he would understand it, there is no issue.  There is sufficient asset both in terms of the cash that he seeks to quarantine and the property that he seeks to retain in Australia to easily support and secure any settlement sum.  On his case, he considers that any settlement sum will be modest.

3. The wife however does not set out the orders she seeks in terms of any percentage adjustment, nor does she particularise any settlement sum that she considers should be paid to her together with the property that she seeks to retain.

4. At page 83,216 in considering whether to make an order pursuant to s 80(1)(h), the Full Court in Zschokke held:

   …[I]t would seem that regard should be had to the requirement in s 79 that the orders be just and equitable and this would require the Court to undertake at least some brief consideration of the matters in s 79(4) including those referred to in section 75(2). 

   If on a brief consideration of those matters, it seems likely to the Court that the party who is the applicant for the interim order for an advance of funds from the other party will be likely to receive by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made.

5. The Full Court in Zschokke identified three criteria relevant to the making of an order:

   ·whether one party was in a position of relative financial strength;

   ·the capacity of the other party to fund their own legal expenses;

   ·the inability of the applicant to fund their legal expenses.

6. In Harris & Harris (1993) FLC 93-378 the Court considered the Court’s power to make “interim” or “partial” orders. At 79,926 the Court considered the following to be important considerations:

   (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 dictates some of the part of the property of the parties should be the subject of orders…

   (2)It is an exercise of the s 79 power.  Consequently it must be fallen 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 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 expectation 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 of which Nygh J drew between interim and partial orders is necessary or desirable.

7. In Strahan & Strahan (2011) FLC 93-466 the Full Court partially overruled Harris and said [132]:

   …It is not necessary to establish compelling circumstances.  All that is required is in the circumstances it is appropriate to exercise the power.  In exercising the wide and unfetted 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.

8. Further, at [139] the Full Court observed:

   We also emphasise that in order to establish an appropriate case for an interim property settlement order more is required that the mere fact that upon a final hearing the applicant would receive the property being sought (or an amount in excess of the funds being sought) from the other party.

9. Thus, the following matters may be a relevant consideration:

   ·whether or not the applicant can meet the costs of their own legal expenses;

   ·          the extent of the evidence presented as to the likely costs of litigation; and

   ·the relative financial positions of the parties in order to ensure that there is a level playing field.

10. At [227] Thackaray J said:

    …it is appropriate for the Court to give consideration to whether the claim for costs is “genuine” – that is that a party is not bringing an interim application on a pretext.  However, once the Court is satisfied that the claim is genuine it should not “take a narrow view of the costs budget”.

11. In Bing & Bing (2007) FLC 93-318 the Court considered the proposition that the inability of a party to raise the capital sum as sought by the other party is:

    …a matter which may become relevant if and when the husband defaults in the order and an enforcement application is brought.  However, the question of enforcement of the order remains a separate question from the propriety of granting the order in the first place.

12. At [23] the following appears:

    The duty judge is often in an impossible position in cases of this nature.  The very issue that needs to be fully investigated namely the extent of the asset pool and the financial resources of the parties cannot be adequately investigated without the provision of appropriate funds.  The mere assertion that there are no immediately available funds to provide to the applicant to enable him or her to continue on with the proceedings cannot simply be accepted at face value.  If it is apparent that one of the parties controls a vast pool of assets (irrespective of whether those asses are readily capable of liquidation) then the Court has a broad enough discretion to enable an order to be made for the provision of funds by the holder of those assets to enable the other party to continue with the litigation.

13. It is not necessarily a situation where the husband’s solicitors have refused to act for him.  I accept however that they have not been paid since 2013 and a difficulty is that the focus is now upon preparation for trial, but also in respect of the very difficult and potentially complex consideration of the parties outstanding tax liabilities and the K debt.

14. It is reasonable in the circumstances that the husband would seek litigation funding.  It is not a matter that he must demonstrate that the circumstances are compelling, or even if his solicitors have indicated that they are not prepared to continue to represent him.  It is sufficient that he has litigation expenses which are due and owing.

15. It is also true that the wife considered important that her litigation expenses be paid and provided for.

16. Significant effort and strategy was adopted by the parties in order to achieve the sum that the wife acknowledges that she has received.

17. It was not argued by the wife that the husband will not be entitled to receive property that would be sufficient to cover the sum of $200,000 that he seeks to apply to his legal fees.  The issue is not one of entitlement, it is whether if an order is made requiring the husband to pay a significant settlement sum in favour of the wife there will be sufficient asset for that to occur.  It is therefore a security argument rather than one that is to be based on entitlement.

CONCLUSION

1. I consider that each case must be considered on its merits and in the circumstances of this case where the parties are soon to reach trial, if an order is to be made it must be capable of meaningful outcome as opposed to a fruitless exercise.

2. If the sale of B FT to Ms C does not proceed, then the parties will not be in any different position than is presently the case.  Again, it is acknowledged by the wife that irrespective of the orders she seeks, the husband will inevitably retain B FT.

3. At this stage there is no indication of the orders that the wife seeks, but it is not suggested that the injunction restraining the sale or disposal of B FT would remain after final orders are made.

4. I am also satisfied that whilst there may be some dispute as to the value of B FT, it is not a dispute that can only be addressed by the arms-length sale of the entity.  That was not contemplated by the wife in any order that she seeks and she properly admits that it is an interest of the husband that he is entitled to retain in any event.

5. The risk to the wife of there being an inadequate sum against which to secure the payment of the settlement sum is reduced by the retention by the husband of $184,288 in the NAB.

6. The focus is therefore upon the sum of $200,000 that the husband seeks to pay to his solicitors.

7. There is no issue in respect of the itemisation or identification of the legal fees, costs and disbursements into the future.  I accept that almost the entirety of the proposed sum will be disbursed on fees billed and outstanding rather than fees anticipated into the future.

8. Greater clarity in respect of the wife’s consideration of the assets and liabilities of the parties together with the orders that she seeks would have been of assistance. Whilst I accept there must be inherent inaccuracies in the property pool as promoted by the husband, I nonetheless consider that the prejudice to the wife is limited to a consideration of her ability to put in place an adequate or appropriate default provision rather than any argument that the husband is receiving something to which he would not be entitled.  In summary, the husband is doing no more than disposing of an interest that the wife acknowledges will always remain on his side of the ledger.

9. It is reasonable that the husband should have his legal fees paid in a manner not dissimilar to the wife.  There is no reason why the husband’s solicitors should be treated differently to the wife’s solicitors in circumstances where there is likely to be a need for legal services to be provided competently and expeditiously.

10. The overarching consideration of the Full Court in Strahan is to entitle parties to progress their affairs with equanimity.

11. I consider that in all the circumstances it is appropriate to make orders in terms of the husband’s application.

I certify that the preceding seventy nine (79) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 4 December 2015.

Associate: 

Date:   4 December 2015