NARKOVIC & SOTOS

[2017] FamCA 280

FAMILY COURT OF AUSTRALIA

NARKOVIC & SOTOS [2017] FamCA 280

FAMILY LAW – PROPERTY – Where the husband filed an Initiating Application seeking that consent orders be set aside pursuant to s 79A of the Family Law Act 1975 (Cth) – Where the wife filed an Application in a Case for summary dismissal of the husband’s Application – Where the wife sought security for costs in the alternative - Where there was no reasonable likelihood of success of the 79A application – Where the Initiating Application is dismissed summarily – If the Initiating Application were not dismissed an order for security for costs would be made.

Family Law Act 1975 (Cth) s 117
Family Law Rules 2004 (Cth) 10.12, 19.05

Lindon v The Commonwealth of Australia (No 2) (1996) 70 ALJR 541
Barker v Barker (2007) 36 Fam LR 650
La Rocca (1991) FLC 92-222

Luadaka & Luadaka (1998) FLC 92-830

APPLICANT: Ms Narkovic

RESPONDENT: Mr Sotos

FILE NUMBER: BRC 6085 of 2010

DATE DELIVERED: 10 May 2017

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Carew J

HEARING DATE: 8 May 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Matthews QC

SOLICITOR FOR THE APPLICANT: Whitehead Crowther Lawyers

COUNSEL FOR THE RESPONDENT: Mr Page QC

SOLICITOR FOR THE RESPONDENT: Mills Oakley

Order

1. The Application filed 23 December 2016 to set aside the Order made on 10 May 2011 is dismissed.

2. In the event that the parties are unable to agree in writing within 21 days of today what costs Order, if any, might be made regarding the costs of and incidental to the said Application:

   (a)       Each party file within a further 14 days written submissions in respect of that issue; and

   (b)       Unless either party otherwise therein contends to the contrary, that issue be determined in chambers without the necessity of further appearance by either party.

3. In the event that the parties reach agreement in writing on the issue of costs, they be at liberty to file jointly, minutes of consent via e-mail to the Associate to Justice Carew.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Narkovic & Sotos has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 6085  of 2010

Ms Narkovic

Applicant

And

Mr Sotos

Respondent

REASONS FOR JUDGMENT

1. Ms Narkovic (“the wife”) and Mr Sotos (“the husband”) were a married couple who finalised their property settlement on 10 May 2011 by consenting to an order made that day (“the consent order”).

2. On 23 December 2016 the husband commenced proceedings to set aside the consent order pursuant to s 79A of the Family Law Act 1975 (Cth) (“the Act”).

3. On 31 January 2017 the wife filed an Application in a Case seeking to have the s 79A proceedings summarily dismissed or, if unsuccessful, security for costs. It is the latter Application before me for determination and, if the summary dismissal application is successful, it will finalise the proceedings.

brief background facts

1. The parties married in 1997 and divorced in 2011.

2. The husband returned to his home country of America in 2011 where he remains. He did not personally attend the hearing on 8 May 2017.

3. During their marriage, the husband and wife jointly operated a business known as ‘B Business’ (“the business”) via a company owned and controlled by them called ‘C Pty Ltd’ (“the company”).

4. The consent order provided for the wife to retain the former matrimonial home, businesses known as ‘B Business’ and ‘D Business’[1], personal effects and superannuation and for the husband to retain personal effects, superannuation and a cash payment of $125,000. The overall position was intended to be an equal division with the wife retaining net assets of $60,000 plus superannuation of $59,800 and the husband retaining net assets of $111,000 plus superannuation of $11,400.

   [1] Both incorrectly referred to as Pty Ltd companies

5. The cash payment payable by the wife to the husband was to be made in two tranches. The first tranche of $10,000 was to be paid within seven days of the order and the balance within thirty days of the husband transferring his interest in the former matrimonial home to the wife.

6. The wife has paid the $10,000 sum. The parties are in dispute as to whether the entire balance has been paid,[2] but the husband concedes, that as he has not transferred his interest in the property to the wife, the time for payment has not arisen pursuant to the order.

   [2] The husband concedes receiving $67,173 from the wife pursuant to the order

7. Prior to the consent order the parties placed the company into administration.

8. According to the information supplied by the parties to the administrator on 8 April 2011 the company had no assets and unsecured creditors of over $900,000.

9. On 10 May 2011 the wife entered into a Deed of Company Arrangement with the administrator of the company pursuant to which she agreed to pay $45,000 in eighteen tranches of $2,500 over eighteen months.

principles applicable to a summary dismissal application

1. An application to dismiss a proceeding summarily is rarely acceded to and granted only in the circumstances set out in Rule 10.12 of the Family Law Rules 2004 (Cth) (“the Rules”), relevantly for current purposes, where there is no reasonable likelihood of success, and in considering such an application regard should only be had to the material relied upon by the husband and any other material that is uncontentious.[3]   

   [3]Lindon v The Commonwealth of Australia (No 2) (1996) 70 ALJR 541

the grounds relied upon by the husband to set aside or vary the consent order

1. The grounds for the husband’s s 79A application are set out in a document filed 21 March 2017 and stated to be as follows:

   a)Failure to disclose relevant information, namely:

   i)Sale of assets of the business known as ‘[B Business]’ without the husband’s knowledge or consent from [C] Pty Ltd (an entity controlled by both parties) to [E] Pty Ltd (an entity controlled by the wife) for $242,000 prior to the execution of the consent orders; and

   ii)A ‘concern’ that the sale was uncommercial because unencumbered assets were transferred to a related creditor ([E] Pty Ltd) for no consideration other than an assignment of various unsecured finance agreements;

   b)Impracticable for orders to be carried out in that dates prescribed for compliance have passed.

2. A third ground for setting aside the consent order, namely, ‘default’ was not pressed given the concession made by Mr Page QC that time for payment pursuant to the order had not arisen as the husband had not transferred his interest in the former matrimonial home to the wife.

what would the husband have to establish in order to succeed in his application to set aside/vary the consent order

1. Section 79A relevantly provides:

   (1)Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:

   (a)there has been a miscarriage of justice by reason of … suppression of evidence (including failure to disclose relevant information), …; or

   (b)in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or

…

the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.

1. In order to succeed in the substantive application the husband would have to establish three things:[4]

   a)That there was a failure to disclose relevant information;

   b)That the failure amounts to a miscarriage of justice related to the ‘integrity of the judicial process’; and

   c)That the Court should exercise its discretion and set aside or vary the order and make another order pursuant to s 79 of the Act.

   [4]Barker v Barker (2007) 36 Fam LR 650 (and the cases therein referred to)

2. Failure to reflect a fair settlement is not, of itself, a basis to set aside or vary an order.[5]

   [5] ibid

Information allegedly not disclosed

1. The husband in his affidavit filed 23 December 2016 states that at the time of negotiating his matrimonial property settlement he was of the understanding that the “Business was in dire financial circumstances” and complains that the wife failed to disclose:

   a)The Contract for Sale of ‘the business’ to E Pty Ltd (a company owned by the wife);  and

   b)A valuation of ‘the business’ dated 8 December 2010 valuing it at $202,815.

2. The husband further states that had he known of the sale of ‘the business’ or the valuation of ‘the business’ he would not have agreed to the consent order. The husband does not state why he would not have agreed to the consent order or what difference that information would have made to the outcome. He alludes to the possibility that the ‘business’ was not in dire financial circumstances but no basis for that possibility is identified in his material nor in the submissions made on his behalf.

3. I observe that the Contract for Sale is not a sale of ‘the business’ but rather the ‘plant and equipment’ and the valuation is described as an ‘auction realisation’ of the ‘items listed’ at $202,815 or alternatively ‘the going concern value in-situ of the items’ at $317,545.

4. In his affidavit filed 21 April 2017 the husband raises two other complaints upon which it seems his s 79A application relies, namely:

   c)His not having knowledge at the time of the consent order that ‘the [German] motor vehicle registration number …’ was an asset of the company because it had been in the possession and control of the wife’s father; and

   d)An alleged failure to have received any remuneration as a director and any share of alleged profits of an entity, F Pty Ltd (in which he has been a director and shareholder with the wife’s father and brother-in-law since 2007).

Non contentious matters

1. It is common ground that at a time prior to the consent order:

   a)The parties were jointly involved in the business owned by the company;

   b)The parties were joint directors and shareholders of the company;

   c)The husband attended to the day to day running of the business and the wife attended to the books;

   d)The company owned plant and equipment including motor vehicles;

   e)The company was placed into voluntary administration by the parties;

   f)On 8 April 2011 the parties jointly signed a document entitled ‘Director’s Statement of Company’s Business, Property, Affairs and Financial Circumstances as at 1 April 2011’ pursuant to s 438B(2) of the Corporations Act 2001 (Cth) (“the statement”);

   g)The statement sets out that the company had ‘nil’ assets[6] and unsecured creditors of $970,051.42 including monies owing to ‘E Trust’ of $240,982.37, to the wife of $326,588.46 and to the Australian Taxation Office of $391,909.80;

   h)The Application for Consent Orders was completed by the parties without the assistance of legal representatives;

   i)In that Application the parties incorrectly referred to their business as ‘B Pty Ltd’ rather than by its business name ‘B Business’ and attributed a value of $20,000 to it;

   j)The wife was operating a business known as D Business from premises at G Street, Suburb H to which the parties attributed a nil value;

   k)Under the consent order the wife was to retain the B business and the D business; and

   l)The Contract for Sale between the company and E Pty Ltd as trustee for E Trust states that it is a contract for the sale of plant and equipment for $242,000 less payouts of $327,139. Pursuant to the Contract the wife assumed responsibility for the liabilities secured on the plant and equipment.

   [6] ‘Notes’ to the statement instruct that “any of the Schedules which do not apply to the company must be marked “Nil”

Discussion

1. For the purposes of this hearing I accept that the husband did not see the Contract of Sale disposing of the plant and equipment or the valuation prior to the consent order. However, he did have knowledge or ought to have knowledge of three relevant facts. Firstly, that the business owned plant and equipment because he was involved in the day to day operation of the business and was a director and shareholder of the company. Secondly, he knew as at 8 April 2011 that the owner of the business, the company, had nil assets. Thirdly, the husband knew the wife was conducting a business known as D Business at the premises at Suburb H because it is referred to in the Application for Consent Orders signed by the husband. Accordingly, the only rational conclusion is that the husband knew that the plant and equipment had been disposed of as at 8 April 2011.

2. Further, the failure to disclose the Contract for Sale and the valuation could not support a finding that there had been a miscarriage of justice because it would not have made any difference to the outcome. The unsecured debt to the Australian Taxation Office alone exceeded the highest valuation figure. Thus even if an independent third party had purchased the plant and equipment, it would not have increased the pool of assets available for the parties to divide.

3. To the extent the husband says he did not know the German motor vehicle was an asset of the business, he was at all relevant times, a director and shareholder and the information was within his knowledge prior to the consent order. Nothing in his material nor submitted on his behalf identifies what difference this knowledge would or could have made to the outcome.  

4. The relevance of the husband’s interest in F Pty Ltd eludes me. No submission was made about it either in writing or orally and I note that in the 2011 financial year the F Trust for which F Pty Ltd is the trustee made a loss of $342,878 and had net assets of $(572,967.33).

5. Mr Page QC articulated the issues for determination as follows:

   There are three issues. Whether the husband knew of this contract and secondly, whether he should have known or it can be implied from his conduct that he knew and thirdly, whether it would make any difference in the division of property between the parties in any case.  That is not an issue that can be determined upon this summary hearing.

6. No submission was made in support of the final contention. For instance it was not submitted that any further evidence would be required. Given the extensive material relied upon by the husband I cannot envisage what further material the husband would wish to put before the Court.

7. Finally, the husband argues that it is impracticable for the order to be carried out because “the dates prescribed in the Consent Orders for compliance have passed”. Reference is made to paragraphs 4 and 5 of the document filed on 21 March 2017. It may be that the reference should have been to paragraph 6 of that document but either way I am not satisfied that a finding could be made that it is impracticable for the order to be carried out.[7]

   [7] See La Rocca (1991) FLC 92-222

8. Accordingly, I find that there is no reasonable prospect of the husband’s Application to set aside the consent order succeeding and I propose to summarily dismiss the husband’s application filed 23 December 2016.

security for costs in the alternative

1. In the event I am wrong in dismissing the husband’s substantive application summarily I turn to consider the application for security for costs.

2. An application for security for costs is made pursuant to s 117(2) of the Act and represents a departure from the usual legislative requirement in the Act that each party shall bear his or her own costs.

3. Rule 19.05 of the Rules sets out the matters that a court may consider:

   (a)the applicant's financial means;

   (b)the prospects of success or merits of the application;

   (c)the genuineness of the application;

   (d)whether the applicant's lack of financial means was caused by the respondent's conduct;

   (e)whether an order for security for costs would be oppressive or would stifle the case;

   (f)whether the case involves a matter of public importance;

   (g)whether a party has an order, in the same or another case (including a case in another court), against the other party for costs that remains unpaid;

   (h)whether the applicant ordinarily resides outside Australia;

   (i)the likely costs of the case;

   (j)whether the applicant is a corporation;

   (k)whether a party is receiving legal aid.[8]

   [8] See also Luadaka & Luadaka (1998) FLC 92-830

4. The wife is a company director operating the business D Business. The husband is employed in the building trade. I have found that there is no reasonable prospect of the husband succeeding in his application to have the order set aside. There is no suggestion that the application for security for costs is not genuine. The security for costs sought is in the sum of $42,595 plus GST. No submission was made on behalf of the husband that the sum sought was other than reasonable. The husband is resident in America and has no property in Australia other than his legal interest in the former matrimonial home for which the wife submits he has been paid his beneficial interest in accordance with the consent order. There is certainly a risk that the wife would be unable to recover her costs.

5. Accordingly, but for the fact that I propose to dismiss the husband’s application summarily, I would order the husband to pay security for costs in the sum of $42,595.

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carew delivered on 10 May 2017.

Associate: 

Date:  10 May 2017