O’Malley and O’Malley (No 2)

[2008] FamCA 247

FAMILY COURT OF AUSTRALIA

O’MALLEY & O’MALLEY (NO. 2) [2008] FamCA 247

FAMILY LAW  -  PROPERTY  -  interim orders -  part property orders – significant debt.

Family Law Act 1975 s 106A, Div.12A
Family Law Rules 2004 Rules 15.52(2)(e),(f),(g), 15.54, 13.22

HUSBAND: Mr O’Malley

WIFE: Mrs O’Malley

FILE NUMBER: MLF 2831 of 2006

DATE DELIVERED: 31 January 2008

PLACE DELIVERED: Melbourne

JUDGMENT OF: Brown J

HEARING DATE: 31 January, 2008

REPRESENTATION

COUNSEL FOR THE HUSBAND: Ms. L. Colla

SOLICITOR FOR THE HUSBAND: Kennedy Wisewoulds

COUNSEL FOR THE WIFE: Mr. A. Strum

SOLICITOR FOR THE WIFE: Taussig Cherrie & Associates

Orders

1. That the husband and wife forthwith do all necessary acts and sign all necessary documents to place on the market for sale the following properties :

   (a)Units …, R Street, C (“[R] Street”);

   (b)Number … A Street, C;

   (c)Number … H Street, C (“[H] Street”);  and

   (d)Flats … G Street, C;

   (collectively called “the properties”).

1. That by way of consequential arrangements to effect the sale of the properties, and in the absence of agreement between the parties to the contrary :

   (a)the properties shall be listed for sale by a licensed real estate agent who is also a sworn valuer appointed by the parties or, failing agreement, appointed by the then President of the Real Estate Institute of Victoria (“the agent”);

   (b)the properties shall be listed for sale by public auction within 90 days or such earlier time as may be recommended by the agent;

   (c)the reserve price shall be as agreed between the parties and if there is no agreement, shall be as advised by the agent;  and

   (d)the properties shall be sold on an unconditional Real Estate Institute of Victoria contract of sale providing for settlement within 90 days or such earlier period as recommended by the agent.

1. That the proceeds of sale of the properties be applied as follows :

   (a)to pay the costs and expenses of sale, including legal costs;

   (b)to discharge all liabilities encumbering the properties, including all overdrafts and guarantees, to the National Australia Bank;

   (c)the balance to be placed in trust in an interest bearing account in the joint names of the parties and disbursed as follows :

   (i)to pay the costs referred to in paragraph (10) hereof; 

   (ii)to pay capital gains tax assessed in respect of the sale of the properties and for this purpose the sum calculated pursuant to paragraph (4) hereof be retained and disbursed only for that purpose, until such time as all capital gains tax assessable in respect of the sales has been paid;  and

   (iii)as ordered by the Court or with the consent in writing of the parties. 

1. That the parties forthwith engage an accountant to calculate the capital gains tax likely to be assessed in respect of the sale of each of the properties described in paragraph (1) hereof, and such calculation be made as soon as practicable after the sale of the properties, and the costs of such calculation be borne equally between the parties. 

1. That the parties co-operate and confer for the purpose of agreeing on a person to be appointed as a single expert witness to value the husband’s business and to provide a report by 30 May, 2008 of the then value of the business and the operation of the business since 1 July, 2003 to date, and without limiting the generality of this order, to consider contracts entered into (oral and written) and work undertaken (billed or not billed).

1. That if the parties are unable to agree on the identity of a single expert witness to value the husband’s business and report as provided in paragraph (5) hereof, within 21 days hereof, then :

   (a)within a further 14 days the husband provide to the wife a written list of the names and proposed fees of three suitable experts who have consented to provide a report;

   (b)within a further seven days thereafter the wife advise the husband in writing :

   (i)if the wife agrees to the appointment of one of the experts named by the husband, the name of that person;  or

   (ii)a list of the names and proposed fees of three alternative suitable experts who have consented to provide a report;

   (c)within a further seven days thereafter, the husband must advise the wife in writing :

   (i)if the husband agrees to the appointment of one of the experts named by the wife, the name of that person;  or

   (ii)that agreement is unable to be reached in relation to whom should be appointed as the single expert witness. 

1. That the parties have liberty to apply, if they are unable to agree on the identity of a single expert witness to value the husband’s business, upon giving seven days notice, and if a party seeks that the court determine who the single expert witness should be, each party must provide evidence going to the matters in Rules 15.52(2)(e), (f) and (g) of the Family Law Rules 2004 (“the Rules”) in relation to the person that he or she seeks to be appointed by the court as the single expert witness.

1. That within 21 days from this date the parties confer for the purpose of drafting a joint letter of instructions (complying with Rule 15.54 of the Rules) to the expert appointed to value the husband’s business and each party has permission to provide additional written instructions to the expert PROVIDED THAT such instructions comply with Rule 15.54 and a copy is immediately provided to the other party.

1. That as soon as practicable the husband and wife do all acts and things necessary to jointly appoint an agreed valuer as a single expert witness to prepare a retrospective valuation report as to :

   (a)the value of R Street as at 30 November, 1991;  and

   (b)the value of H Street as at the date of the gift of it to the husband by his mother;  (and in the event there is no documentary proof of the date of the gift and the parties are unable to agree on it, as at 1 December, 2003);

   PROVIDED THAT

   (c)if the parties are unable to agree upon a valuer within 21 days hereof, the agent appointed pursuant to paragraph (2) hereof be appointed as the single expert witness to prepare the valuations;  and

   (d)all necessary inspections be completed prior to the sale of the respective properties. 

1. That the costs of the valuations and reports to be prepared pursuant to paragraphs (5) and (9) hereof be paid initially from the sum held in trust pursuant to paragraph (3)(c) hereof, and be in the final discretion of the trial judge. 

1. That within two months hereof each of the parties prepare a list of documents in accordance with Rule 13.22 of the Family Law Rules 2004 and indicate where and when the documents may be inspected and the documents be made available for inspection within a further two weeks or such other period as is agreed between the parties.

1. That the form 2 filed on 11 January, 2008 and the form 2A filed on 30 January, 2008 be otherwise dismissed. 

1. That all extant applications for final orders be fixed for trial on 5 November, 2008 and the matter be list for further directions at 9:30 am. on 7 August, 2008. 

1. That the costs of 23 January, 2008 and this day, and the costs of the financial applications determined this day, be reserved. 

1. That the hearing date of 11 February, 2008 be vacated. 

1. That the reasons for judgment this day be transcribed and copies made available to the parties. 

1. That pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of counsel.

IT IS NOTED that publication of this judgment under the pseudonym O’Malley & O’Malley is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 2831 of 2006

MR O’MALLEY

Husband

And

MRS O’MALLEY

Wife

REASONS FOR JUDGMENT

1. Before the court is an application, filed by the wife on 11 January, 2008 in which she seeks the sale of four pieces of real property owned (under various names) by the parties and that the proceeds of sale of the real properties be disbursed to discharge all secured debt of the parties, including commercial debt.

1. In response the husband filed a response yesterday in which he seeks the sale of two of the properties only and that the proceeds be used to retire certain secured debt (being debt specifically referrable to those properties) and commercial debt relating to business ventures.  On his own figures, which I will come to in a moment, that would not release enough money to touch the mortgage over the former matrimonial home and it is not part of his proposal at this stage that that mortgage be discharged or reduced.

1. In the course of submissions his counsel has also asked the court to consider allowing the proceeds of the sales to be used to discharge credit cards debts, in the event there were sufficient funds to do that.  On his submission there is some $39,000 of credit card debt and it is his evidence that some $37,000 of that accrued prior to the parties' separation.

1. By way of background, the wife is 49 and the husband is 46.  They married in November 1991, separated under the one roof in 2004 and separated physically when the husband left the former matrimonial home at C pursuant to an interim ex parte intervention order.  In due course a final intervention order was made, with the husband’s consent and a denial of liability.  That was in June 2006.

1. The parties have one son, who is 11.  He is about to start year 6 in C and earlier today they resolved outstanding applications for parenting orders in relation to the child.  In broad terms, the outcome is that the child will spend five nights a fortnight with his father during school terms, and time during holiday times and on other special occasions.  He will otherwise live with the wife.

1. The parties did have interests in five parcels of real property but one, in G Street, has already been sold and the proceeds disbursed.  The wife received some $18,105, the husband $5,000 and the Australian Tax Office was paid a sum due.  As I read the material it was the pressing ATO debt that necessitated the sale of that property.  In addition to the former matrimonial home, the parties have properties in R Street, H Street and G Street, C. 

1. Proceedings commenced in this court when the husband filed an application seeking final property and parenting orders on 29 September 2006.  At that time he sought to retain the former matrimonial home, together with the two properties in G Street, one of which has since been sold.

1. There have been earlier interlocutory proceedings between the parties.  The wife bought an application in November 2006 seeking interim spousal maintenance, and orders that the husband pay a number of outgoings, including the mortgage over the former matrimonial home, utilities and car expenses.  She also sought asset preservation injunctions and orders directed to an accounting in respect of the business conducted by the husband throughout the parties' marriage.  The husband is a tradesman and conducted the business through M Pty Ltd, which is also the trustee of the family trust.

1. The wife's evidence is that in the five years leading up to separation the family were taking about $115,000 per annum from the business.  They had a very lovely home, which each seek to retain, and a very comfortable lifestyle.

1. Registrar FitzGibbon heard the application for interim spousal maintenance on 7 March, 2007 and delivered a judgment in which, it must be said, he made critical findings about the husband’s credit and the lack of proper financial disclosure.  The registrar ordered the payment of spousal maintenance.

1. It then becoming apparent that there had not been full compliance with orders made by consent on 7 December 2006, Registrar FitzGibbon made further orders, which included an enforcement provision. If the husband did not comply, a share portfolio in the husband's name, valued at some $30,000, was to be sold. There being continuing non compliance, that portfolio was sold although not until a registrar, authorised under s.106A of the Family Law Act 1975, signed the transfer documents, in the name of the husband.

1. While I have not heard directly from either of the parties, the material makes it clear that significant levels of distrust and unhappiness remain.  The parties’ actual separation occurred quite some time ago but there is very little common ground.  I commend counsel for doing their best to stick to evidence which is properly admissible and submissions directly relevant to the proceedings.  It is easy for less experienced practitioners to unintentionally raise the temperature of a dispute such as this. 

1. The evidence of the parties' financial positions is set out in a number of documents, including the affidavits each of them has relied on.  The mother relied on affidavits of 22 November 2006, 16 February 2007, 7 March 2007 and 20 March 2007.  The father relied on affidavits of 7 December 2006, 5 March 2007 and 30 January 2008.  Each of them swore financial statements early in the proceedings.  A financial questionnaire was filled in by the husband when this matter was first listed.  The children's aspects proceeded under the less adversarial procedures of Div.12A and the parties subsequently agreed that financial matters could be dealt with pursuant to that division, too.

2. In the father's initial financial statement he disclosed an income of $159 per week and expenses of $765 per week, including a non-deductable mortgage component of $115 per week.  It has been pointed out that there was no disclosure in that document of any money in a bank account.  Evidence produced in the course of proceedings before the senior registrar revealed an account, opened by the husband in about September 2006, in which there was then a little over $27,000. 

1. More financial material (in the sense of updating that financial statement) was provided by the husband in his financial questionnaire, particularly on page 3, which asks whether there has been any change in information provided in a financial statement.  The husband listed a number of matters there.  As the case has progressed, it is clear that not all changes were included.  For example, the husband seems to have taken the view that a motor car, acquired by lease fairly recently, should be seen as a business asset and taken into account in some other place than a list of his assets.  Those are matters that will have to be determined in due course.

1. The parties have both effectively expended the capital sums they received from the sale of the one real property last year.  Only a little over $10,000 remains of the $30,000, which came from the forced sale of the husband's share portfolio.  When the case was before me last week, I understood the husband's position to be that he sought that no real properties be sold and that, instead, there be a refinancing of the parties’ debt.  That may have been a misunderstanding on my part and he may always have sought the sale of two of the properties.  That has certainly been canvassed in correspondence between the parties.

   17.      The refinancing envisaged by the husband (whether of all or part of the debt) was to be done through a finance company called C Company.  It is apparent there was some discussion with NAB about the calling in of debts.  Reference has been made to annexure D17 of the wife's most recent affidavit, which is a letter from the husband's solicitors to the wife's solicitors, and includes a fax dated 10 November from an employee of NAB, Ms. J, confirming the outstanding amounts on a number of the commercial accounts.  In response to that fax of 10 November, the husband's solicitor wrote to Ms J, proposing some alternative loan structures and saying that before any finance could be formally approved, NAB would need to indicate whether it was prepared to resolve matters on the basis of a reduction of debt of $552,000 and whether the bank would consent to the proposed course.

1. In a letter dated 13 December, the husband's solicitor advised that, based on the information in an email dated 12 December, the National Australia Bank had, in principal, expressed agreement to the husband's refinancing proposal, provided it took place within the next 60 days.  Somewhat ironically, given what has happened, the letter noted the concern of the wife that the NAB could sell the properties on a "fire-sale basis";  the husband’s solicitor “respectfully submitted” that there was no imminent risk of that, because of the filing of an appearance in Supreme Court proceedings initiated by the bank. 

1. As was made clear in the course of submissions, the Supreme Court proceedings were issued by NAB on 9 November.  In evidence are copies of two writs.  They are annexed to the wife's affidavit.  One names both the husband and wife as the defendants and seeks possession of the former matrimonial home.  The other names only the wife as defendant and seeks possession of the property in G Street.  It is probable, from submissions made on behalf of the husband, that there is at least one other writ, naming him as the defendant and seeking possession of other properties.  The wife has entered an appearance or appearances.  I am told the husband has filed a defence, although the document itself is not in evidence.

1. In essence, the wife's submission is that the court has a history of assertions by the husband of his intention to comply with orders and a history of actual non‑compliance.  He denies some of the allegations of noncompliance.  For example, it is put on his behalf that he has been making the mortgage payments and a document produced shows payments being made on the mortgage over the former matrimonial home.  It is supposition, but reasonably informed supposition, that the source of those funds is rental receipts in respect of the investment properties.  On his behalf it is put that he feels he is not being listened to in the proceedings; that he wants to retain the former matrimonial home, as does the wife; that if his proposal were adopted, it would free up the rental income to make the payments on the former matrimonial home;  that that property would thus be safe from the bank;  and, commercial debt having been retired, he would be in a better situation to successfully conduct his business.

1. It must be said that the husband has been his own worst enemy.  The material that he has put before the court mixes what might be said to be good points with points that are clearly not good. In his most recent affidavit, sworn only yesterday, he deposed that he no longer proposes refinancing through C Company “because the wife had not agreed”.  The parties are at court today precisely because they were unable to agree on what should happen to their property, pending trial.  There was nothing to stop the husband seeking the order his counsel foreshadowed last week, being an order allowing him to refinance, whether through C Company or another financial body.

1. In final submissions, his counsel, without express instructions, made what I accept was a pragmatic submission.  She suggested the court could give the husband an opportunity to refinance and make orders now for the sale of the two properties that both parties want sold.  Only if the refinancing did not occur would the other properties need to be sold.  It would be difficult for the court to make those orders, when only yesterday the husband swore that he did not propose proceeding with the C Company refinancing, and there is no evidence before the court of any other proposal to refinance.

1. The aide memoire, helpfully prepared by his counsel, shows (even on her figures) a potential shortfall in dealing with the debt which he seeks to have retired.  There are inconsistencies in the husband’s evidence as to whether the real properties have increased or decreased in value since earlier valuations and it is impossible for the court to know what the properties in R Street and H Street would bring,

1. On her figures, and making some provision for expenses and capital gains tax on the two properties, there would be a shortfall of about $72,500, which it is put, might be covered by increases in property values from March 2006, when valuations were undertaken.  As I said, the figures provided by the husband would not provide much comfort there.  The figures are done - it is really the only way they can be done - on most recent rental figures provided by the agent.  They do not, of course, make any provision for tax.  They do not make any provision for unexpected expenses.

1. There is no doubt on the evidence that the husband failed to comply with aspects of the orders made on 7 December 2006, and did not comply with the order to sign documents to achieve the sale of his shares.  It does not do the husband any credit for him to say that he breached an order to pay rates because it is not possible to make rate payments on a property that is registered in the wife's name.  This court regularly makes orders to that effect and many people in the room may have experience of paying rates for family members or others, by devices as simple as Bpay. 

1. The Full Court has used words like "compelling" to describe the circumstances in which an order will be made because it is necessary to preserve assets to allow the payment of maintenance or other commitments.  What is proposed by the wife would relieve the husband from the obligation of meeting mortgage and other payments which, on his own evidence, he has little capacity to pay.  It would free up income to support himself, in circumstances where, on his own evidence, he has an income of under $200 a week. 

2. On the husband’s own evidence, it is hard to see how he can be keeping afloat.  He cannot put evidence forward for one purpose (for example, to demonstrate a lack of capacity to pay maintenance) and not expect it to be relied on for other purposes.

1. The husband submitted that the other two properties should be preserved because he would like to maintain the potential to take one or both of them as part of his property entitlement, in addition to the former matrimonial home.  It is not for this court to make an assessment of the likely outcome of the competing applications for final orders;  a trial is too far away and there is much contested evidence.  There are arguments about the assets each brought to the marriage, and who has made what financial and non-financial contributions since.  But what is being talked about is retiring debt, and the question is how much of the debt should be retired now.  At some point the debt must be paid. 

1. Particularly, when litigation is conducted under Div.12A, the court needs to ensure that evidence focuses on matters genuinely in dispute between the parties and to make orders directed to saving cost, where that is appropriate.  It is important to limit the number of applications, particularly in a case in which there is already considerable litigation history.  In my judgment, the proposal of the husband leaves wide open the potential, indeed the likelihood, of further applications having to be made.

1. I am satisfied that orders as sought by the wife need to be made. 

2. I do propose to order that the parties forthwith do all acts and things necessary to put the four named properties on the market and that the proceeds be applied to discharge all of the secured debts, including the overdraft and guarantees to the National Australia Bank.  An amount will be set aside for capital gains tax, and the balance will be held in trust in an interest bearing account in the joint names of the parties, pending final hearing, or the agreement of the parties in writing.

1. I will make orders for the conduct of the sale.  It will be necessary, once the properties are sold, to calculate the capital gains tax, and there will be an order to that effect.  There also needs to be orders for the valuation of the husband’s business and for valuation of R Street at 30 November, 1991 and H Street as at the date of its gift to the husband by his mother.

1. The hearing date of 11 February will be vacated.  I will tentatively list the trial to commence on 5 November, 2008.  I make it clear that the date may be changed, to take into account other court commitments as well as the actual readiness of the case for trial.

1. I will reserve costs of 23 January, 2008 and today.

I certify that the preceding
paragraphs
are a true copy of the reasons for
judgment herein of the
Honourable Justice Brown AM.

Dated the           day of            2008.

…………………………………………
Associate.