Oldham & Krantz (No 2)
[2024] FedCFamC1A 238
•16 December 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Oldham & Krantz (No 2) [2024] FedCFamC1A 238
Appeal from: Oldham & Krantz (No 2) [2024] FedCFamC1F 347 Appeal number: NAA 152 of 2024 File number: MLC 8578 of 2019 Judgment of: AUSTIN, HARPER & HARTNETT JJ Date of judgment: 16 December 2024 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Appeal from property settlement orders – Where the appellant has a shareholding in a corporation – Where the primary judge erred at law by fixing the parties with joint and several liability for a tax debt owed by the corporation – Where the tax debt is an exclusive liability of the corporation – Appeal allowed – Re-exercise of discretion – Self-represented parties – No application for costs. Legislation: Family Law Act 1975 (Cth) Pt VIIIAB, ss 90SM, 90SF Cases cited: Biltoft & Biltoft (1995) FLC 92-614; [1995] FamCA 45
Pavlic & Pavlic (2023) FLC 94-139; [2023] FedCFamC1A 54
Puddy & Grossvardand Anor (2010) FLC 93-432; [2010] FamCAFC 54
Trustee for the Bankrupt Estate of Lasic v Lasic (2009) FLC 93-402; [2009] FamCAFC 64
Number of paragraphs: 42 Date of hearing: 10 December 2024 Place: Melbourne The Appellant: Litigant in person (via videolink) The Respondent: Litigant in person ORDERS
NAA 152 of 2024
MLC 8578 of 2019FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MR OLDHAM
Appellant
AND: MS KRANTZ
Respondent
ORDER MADE BY:
AUSTIN, HARPER & HARTNETT JJ
DATE OF ORDER:
16 DECEMBER 2024
THE COURT ORDERS THAT:
1.The appeal is allowed.
2.The Notice of Contention filed on 18 July 2024 is dismissed.
3.The orders made on 23 May 2024 are set aside and, in lieu thereof, the following orders are made pursuant to Pt VIIIAB of the Family Law Act 1975 (Cth) to finally determine the parties’ financial relationships.
4.The parties shall forthwith do all acts and things necessary to:
(a)cause the payment to the appellant of $63,000 from the monies held on trust for the parties by N Lawyers and then the payment of the remaining balance to the parties in equal shares; and
(b)cause the credit balance in the joint K bank account to be divided equally between the parties and then the closure of the account.
5.The appellant is declared the sole owner of:
(a)the money received by him pursuant to Order 4 (subject to compliance with Order 6);
(b)the proceeds derived by him from the sale of motor vehicles (agreed to be $60,000);
(c)his shareholding in E Pty Limited; and
(d)the furniture and the paintings formerly situated at C Street, Suburb D, Victoria which remain in the respondent’s possession, which she must surrender to the appellant within seven days hereof.
6.The appellant shall apply the money received by him pursuant to Order 4 to satisfy his liabilities to the following third parties in priority:
(a)first, M Pty Ltd in the sum of $130,000, pursuant to Order 1.1(a) made on 7 March 2024; and
(b)secondly, the liquidators of Q Pty Ltd (in liquidation) in the sum of $72,278.91 plus accrued interest, pursuant to Order 1.1(b) made on 7 March 2024.
7.The appellant shall indemnify the respondent and keep her indemnified against any liability to him or any third party arising from:
(a)her former directorship of or shareholding in E Pty Limited;
(b)her debit loan accounts with E Pty Limited;
(c)his liability to M Pty Ltd;
(d)his liability to the liquidators of Q Pty Ltd (in liquidation).
8.The respondent is declared the sole owner of:
(a)the money received by her pursuant to Order 4 (subject to compliance with Order 9);
(b)her motor vehicle; and
(c)her watch.
9.The respondent shall apply the money received by her pursuant to Order 4 to satisfy her liability to N Lawyers in the sum of $116,807.76 (or such lesser sum agreed or assessed by the registrar), pursuant to Order 2 made on 25 March 2024.
10.The respondent shall indemnify the appellant and keep him indemnified against any liability to her or any third party arising from her liability to N Lawyers.
11.Otherwise, each party shall be the sole legal and beneficial owner (as between them) of all other assets in their respective possession as at the date of these orders, for which purpose bank accounts are deemed to be in the possession of the person named as the account holder and superannuation entitlements are deemed to be in the possession of the worker.
12.In the event of either party refusing or neglecting to sign within seven days of a written request to do so any document necessary to implement the terms of these orders, the registrar of the Federal Circuit and Family Court of Australia (Division 1) at Melbourne is empowered to execute such documents on behalf of the parties pursuant to s 106A of the Family Law Act 1975 (Cth).
13.The registrar shall forthwith furnish copies of these orders to:
(a)M Pty Ltd;
(b)the liquidators of Q Pty Ltd (in liquidation); and
(c)N Lawyers.
14.Any and all other outstanding applications are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Oldham & Krantz has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
AUSTIN, HARPER & HARTNETT JJ:
This appeal lies from property settlement orders made on 23 May 2024 under Pt VIIIAB of the Family Law Act 1975 (Cth) (“the Act”) by a judge of the Federal Circuit and Family Court of Australia (Division 1).
For the following reasons, the appeal must be allowed and the respondent’s Notice of Contention dismissed.
BACKGROUND
The parties commenced a de facto relationship in or about 2011, which ended in May 2019.
The appellant commenced proceedings seeking financial relief under Pt VIIIAB of the Act some months later in August 2019. The progress of the proceedings to trial in March 2024 was slow due to multiple “interlocutory skirmishes” and the parties’ “ongoing non-compliance” with procedural orders (at [7]). By the time of trial, both parties were without legal representation and the primary judge found the case was “woefully under-prepared” and in a “deplorable state” (at [7] and [20]). The parties nevertheless maintained they were ready and wanted to proceed with the hearing, which his Honour did, realising jurisdiction was regularly invoked (at [24]) and an adjournment was unlikely to improve the parties’ state of readiness.
First and foremost, the suites of orders proposed by the parties were, in the main, unintelligible or incompetent and most of the evidence they adduced was in inadmissible form. There were also complications affecting the joinder and participation of sundry parties.
In late 2023, the appellant applied to join two of the respondent’s relatives as parties to the proceedings on the alleged premise that the respondent enjoyed an equitable interest in foreign real property they owned, but the joinder application was dismissed by the primary judge several weeks ahead of the trial (at [13]–[17]). The respondent’s interest in the foreign property, which was both indistinct and unvalued, was instead taken into account as her financial resource rather than as her asset (at [44]–[47] and [64]).
The appellant’s new partner was joined to the proceeding as the second respondent, but she did not attend the trial in March 2024 and so was removed as a party (at [9]–[10]).
Numerous other parties intervened in the proceedings at various points seeking the recovery of debts owed to them by either the appellant or the respondent, but orders were consensually made for their debts to be paid from the funds available to the parties, meaning they did not participate in the trial (at [8], [11], [12] and [65]).
One asset of interest in the proceeding was the appellant’s shareholding in a corporation, used as the vehicle to conduct a small business. The single expert valued the corporation at nil, even allowing for it having an asset in the form of debts owed to it by the parties in the total sum of $610,000. However, the corporation’s debts to a bank ($532,000) and the Australian Taxation Office ($153,000) exceeded the value of its assets and rendered it worthless (at [33]–[36]).
The corporation’s bank loan was formerly secured by mortgage registered over a parcel of real estate owned jointly by the parties, which had been sold and yielded net proceeds of $175,200 by the time of trial (at [31]). To enable the sale of the property to be completed, the secured bank loan was discharged from the sale proceeds (at [76]), which means the corporation was relieved of the bank debt and its true value was therefore around $409,000 instead of nil (at [37]–[39]), provided the parties were able to repay the corporation their debts of $610,000.
As the primary judge correctly observed, if the corporation valuation depended upon the enforceability of the debts owed to it by the parties as an asset, it meant the parties had additional personal debts of $610,000 to meet. On the other hand, if the debts they owed the corporation were unrecoverable and hence ignored as their personal liabilities, then the value of the corporation reverted to nil (at [40]). His Honour determined to ignore the debts owed by the parties to the corporation, relieving them of that liability because they had no demonstrated capacity to pay, and to treat the corporation as being of no value (at [61]).
As it transpired, the parties’ assets were collectively valued at $291,200 (at [31] and [52]) and their personal debts totalled $133,000 (at [53]). However, his Honour counted the corporation’s tax debt as a personal debt of the parties, quantifying it at $170,628 (at [61]), relying upon that historical value within the single expert report (at [55]). By taking the corporation tax debt into account, the parties’ debts then exceeded the value of their assets (at [61]).
Although the primary judge found the proceeding to be “nugatory” on account of there being no net assets to usefully divide between the parties (at [66]), his Honour still found the parties’ contributions to have been equal (at [78]) and the evidence did not require any adjustment to their contribution-based entitlements under s 90SM(4)(e) and s 90SF(3) of the Act (at [83]).
The primary judge therefore ordered the parties to use the net proceeds of sale realised on the sale of their property ($175,200) and their joint bank savings ($40,000) to pay the corporation’s tax debt, together with any additional penalties and interest (at [86]). Any residual balance was to be divided equally between the parties and used by them to discharge their individual debts to the interveners (at [86]). The orders thereby exhausted the parties’ assets, leaving them with nothing but personal chattels.
THE APPEAL
Regrettably, the appeal was as poorly prepared as the trial, though no disrespect is intended. Again, neither party was legally represented, which obviously made things difficult for them.
The grounds of appeal were mainly bare complaints of legal, factual, and discretionary error, not illuminated by the appellant’s Summary of Argument. We will explain why the pleaded grounds have no merit, but first it is necessary to explain the legal error which does necessitate the appeal being allowed.
Legal error
His Honour erred at law by fixing the parties with joint and several legal liability for a debt which was not their own. They could never have assumed any derivative liability for the tax debt owed by the corporation.
In respect of that tax debt, the primary judge said:
55.…Although that is a debt, in the first instance, of the company, rather than of the applicant and/or the respondent, in his valuation report, the single expert opines that “the business has significant financial risk, with liabilities exceeding assets by $135k” and (as noted above) that the company, in fact, may not be a going concern.
(Emphasis added)
However, the corporation’s tax debt could never be the parties’ debt in any circumstances. It was and would remain the exclusive liability of the corporation.
The primary judge cited numerous past decisions as authority for the desirability of the Court ensuring the revenue laws of the Commonwealth are not mischievously evaded (at [56]–[58]), about which proposition there could be no quarrel, but such an admirable objective must be distinguished from fixing parties with legal liability for the debts of third parties which could never be attributed to them at law.
We do not understand any of the numerous decisions cited by the primary judge as purporting to say that is possible. While there is no doubt the Court has power to order parties to discharge a debt owed by one or both of them to a third party, equally, there can be no doubt the Court is not empowered to order the parties to pay a debt owed by one third party (in this instance, the corporation) to a second third party (in this instance, the Australian Taxation Office).
The primary judge regarded the recent decision of the Full Court in Pavlic & Pavlic (2023) FLC 94-139 as being distinguishable “in the circumstances of this case” (at [60]), but without explaining why or how. We are unable to appreciate how it could be distinguished as the primary judge there similarly conflated the liabilities of the parties with the liability of a corporation they controlled, about which the Full Court plurality said:
17.First, the whole of the corporate tax debt was transposed to the table of the parties’ assets and liabilities as a joint liability (at [89]), even though neither party bore any personal legal liability for it. There was no conceivable basis upon which the wife, as merely a shareholder in the corporation, could bear liability for its tax debt or any penalty associated with its non-payment. It is possible that, as the sole director, the husband could be penalised for any failure by the corporation to remit assessed tax on time, but that is different from derivative liability for the corporate tax debt, neither of which form of liability was mentioned before the primary judge. It is quite unclear why the parties wanted the corporate tax debt included among their personal debts.
18.Secondly, while the primary judge determined that the husband would only bear personal responsibility for any residual portion of the corporation’s liabilities left unsatisfied by the proceeds realised on the sale of corporation assets (at [3], [64] and [65]), his Honour brought the whole of the corporate tax debt to account in the table of the parties’ liabilities.
19.Thirdly, while the primary judge explained why the parties’ shareholdings in the corporation were not included within the table of their assets (at [65]), no explanation was given for why the parties’ shareholder debit loan accounts with the corporation, totalling $268,000 (at [63]), were not included within the table of their personal liabilities.
20.Each of those errors or omissions distorted the identification and calculation of the value of the parties’ net assets and superannuation at $3,361,303 (at [89] and [156]), from which figure the primary judge subsequently worked to apportion assets and liabilities between them.
(Emphasis added)
Just the same in this instance, the parties’ fixation with personal liability for the corporation’s tax debt deprived them of cash of not less than $170,628, which they could otherwise then use to discharge their personal debts to the interveners. The corporation must bear liability for its own debt, whatever consequences that might hold for its solvency.
This legal error cannot be redressed by the respondent’s Notice of Contention, which pleaded:
1.There are no funds available, after payment of liabilities, for distribution between the parties.
2.None of the grounds of appeal in the appellant’s notice of appeal will increase the quantum of the asset pool, nor decrease the liabilities such that there will be any change in the ultimate position that there will be no funds available for distribution between the parties after payment of liabilities.
If the parties are relieved of the burden of the corporation’s tax debt, the value of their assets exceeds the value of their personal liabilities and some modest surplus funds will be available for distribution between them, albeit that the surplus will then be applied to the payment of other personal debts.
During the hearing, in the event appealable error being detected, both parties expressed their preference for this Court to re-exercise discretion under Pt VIIIAB of the Act rather than remit the cause for re-hearing. We will therefore re-exercise discretion and make fresh orders based upon the primary judge’s undisturbed findings of their equal contributions, with there being no need for any adjustment under s 90SM(4)(e) and s 90SF(3) of the Act.
Ground 5
This ground alleges the denial of natural justice, but it is not addressed at all in the appellant’s Summary of Argument. The ground is rejected.
Grounds 1(d) and 1(e)
These two grounds collectively make three allegations of error by the primary judge: first, by “not joining overseas parties”; secondly, by not finding “the [overseas] properties were controlled by the [respondent]”; and thirdly, by “treating the overseas properties as a financial resource”.
The first complaint is rejected. The appellant’s application to join the respondent’s foreign relatives as parties to the proceedings was dismissed for numerous reasons. Interlocutory orders were made consensually in February 2022 for the parties to acquire valuation evidence in respect of the foreign property, but the parties ignored the orders (at [13]–[16]). The appellant did not make the joinder application until December 2023 (at [17]) and, when it was entertained in March 2024, the non-compliance with the earlier orders, the lack of any evidence about the enforceability of Australian orders over the foreign property, and the likely loss of the trial date militated against the joinder of the third parties (at [17]).
The second and third complaints are also rejected. There was no evidence adduced at the trial to establish either the nature of the respondent’s interest in the foreign property or the value of her interest in it (at [44]–[45]). The appellant alleged in his affidavit making international financial transfers to the respondent’s relatives in his expectation the money was being put to use in land development, however, given he conceded the foreign property was registered in the names of the respondent’s relatives, it was impossible for the primary judge to find the respondent “controlled” the property. Absent any evidence which enabled the primary judge to find the respondent enjoyed some form of proprietary interest in the foreign property, the only way it could have been taken into account was as a financial resource available to the respondent. The foreign property would otherwise have been completely ignored.
As countervailing financial resources, the primary judge took into account both the respondent’s ill-defined interest in the foreign property and the appellant’s ability to continue using the corporation as the vehicle to run the small business (at [82]).
Grounds 1(c) and 3
These grounds both allege incorrect findings, but the only factual finding identified was that the orders “would not have any effect on the earning capacity of the parties”.
The appellant failed to identify where in the reasons for judgment such a finding was made but, even if it was, the appellant failed to explain how the finding was erroneously made.
Grounds 1(a), 1(b), 1(f), 2 and 4
These grounds all complain of discretionary errors in the form of failing to take material considerations into account and by either giving too much or too little weight to some aspects of the evidence. However, such generic allegations were not specifically elucidated, save in one respect.
It was contended the primary judge failed to take into account orders made by a registrar earlier in the proceedings – in particular, those made on 3 December 2021 – which interlocutory orders gave the appellant administrative control over the corporation (and its small business) and required the respondent to indemnify him against any mortgage default between December 2019 and December 2021. In fact, his Honour did specifically refer to those orders and explained both the manner of their operation and the lack of evidence to usefully apply them (at [49]), so the complaint is misconceived.
RE-EXERCISE OF DISCRETION
The appellant’s assets are: one-half of the net sale proceeds of the jointly owned real property ($87,600), one-half of the joint savings ($20,000), the corporation (nil), and the proceeds from the sale of his car ($60,000), totalling $167,600. Excluding any personal liability for the corporation’s tax debt and ignoring the debts he individually owes to interveners, his debts total $120,000, so the net value of his property is $47,600.
The respondent’s assets are: one-half of the net sale proceeds of the jointly owned real property ($87,600), one-half of the joint savings ($20,000), a car ($6,000), and a watch ($10,000), totalling $123,600. Again, excluding any personal liability for the corporation’s tax debt and ignoring the debt she individually owes to interveners, her debts total $13,000, so the net value of her property is $110,600.
The primary judge determined to ignore the parties’ individual debts totalling $120,000 and $13,000 respectively (at [63]–[64]), but we will not do so. We take the parties’ financial circumstances as we find it to be on the evidence. Neither the evidence nor their submissions justified the disregard of their personal debts in the adjustment process according to accepted principles by reason of them being vague, uncertain, unlikely to be enforced or unreasonably incurred (Biltoft & Biltoft (1995) FLC 92-614 at 82,124–82,128).
The primary judge found the parties’ property interests should be equally divided. To equalise their property interests, the appellant must first receive $63,000 from the net sale proceeds of the jointly owned real property, with the balance of those proceeds to be divided equally, and the joint savings then divided equally. The money received by the parties must be applied by them to meet their personal debts in satisfaction of past consent orders made against them in favour of the interveners on 7 March 2024 and 25 March 2024. Those particular debts are borne by the parties individually from their share of the divided property, as they agreed it was just and equitable to do so (Puddy & Grossvard (2010) FLC 93-432 at [62] and [101]–[111]; Trustee for the Bankrupt Estate of Lasic v Lasic (2009) FLC 93-402 at [198]–[200]).
Otherwise, the appellant must indemnify the respondent against any liability associated with the corporation, the parties must indemnify the other against their personal debts, and the parties will keep their personal chattels.
DISPOSITION
The appeal is allowed, the orders made on 23 May 2024 are set aside, and substitute orders as described above are made.
The parties were self-represented and no costs orders were sought.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Austin, Harper & Hartnett. Associate:
Dated: 16 December 2024
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