PALLETT & PALLETT

[2015] FCCA 2745

FEDERAL CIRCUIT COURT OF AUSTRALIA

PALLETT & PALLETT [2015] FCCA 2745

Catchwords:
FAMILY LAW – Whether the original property orders should be set aside – whether the whole relationship between the parties is considered when determining if an adjustment is made to the original property orders – whether it is just and equitable to make a property adjustment order.

Legislation:

Family Law Act 1975 (Cth), ss.75(2), 79(4), 79A

Stanford v Stanford [2012] HCA 52

Applicant: MR PALLETT

Respondent: MS PALLETT

File Number: DGC 1589 of 2014

Judgment of: Judge Phipps

Hearing date: 2 June 2015

Date of Last Submission: 2 June 2015

Delivered at: Dandenong

Delivered on: 9 October 2015

REPRESENTATION

The Applicant: Appearing on their own behalf

Counsel for the Respondent: Mr Mcleod

Solicitors for the Respondent: Berger Kordos Lawyers

ORDERS

1. The initiating application filed 2 June 2014 is dismissed.

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT DANDENONG

DGC 1589 of 2014

MR PALLETT

Applicant

And

MS PALLETT

Respondent

REASONS FOR JUDGMENT

1. Following separation in 2002 final consent property orders were made between the husband and wife in the Family Court of Australia on 14 May 2003.  Subsequently the parties resumed a financial relationship if not a husband and wife relationship.  The parties were divorced on 16 August 2014.

2. The wife proposes that the husband’s application be dismissed.  The husband proposes an order that the wife pay him $720,000.

3. The wife’s approach to the case is that the consent orders made 14 May 2003 should be taken as the starting point and when that is done the husband’s application should be dismissed because it is not just and equitable in all the circumstances to make an order under s.79A of the Family Law Act 1975 (Cth).

4. The husband’s approach is that the whole of the relationship determines what order should be made.

5. The wife’s list of assets and liabilities at the time of the hearing is: 

Assets	Value
Property G	$ 1,010,000
(business omitted)	$    509,000
Liabilities
(omitted) Bank	$   765,000
Australian Taxation Office	$   207,000
Rent	$     52,000
Loan X (parties’ son)	$     48,000
Net value	$   447,000

1. The husband has a motor vehicle which he values at about $10,000 and a small amount in the bank.  These are insignificant.

2. The property at Property G is owned by the wife and (business omitted) is owned through a trust controlled by the wife of which she is the beneficiary. For the purposes of an application under s.79A it is her property. The values are agreed.

3. The bank debt, taxation debt and rent are not disputed.  The wife has been paying the taxation debt at $10,000 a month.  The husband disputes the debt to the parties’ son X.

4. At the time of the making of the orders on 14 May 2003 these were the assets and liabilities.

Asset	Value
Property G	$   450,000
Property T	$   230,000
Property H	$   280,000
Property M	$   110,000
Honda (omitted) motor vehicle	$     10,000
Toyota (omitted) motor vehicle	$     40,000
Cash at bank	$     12,500
(omitted business)	$   110,000
Furniture	$     10,000
Total Assets	$1,252,500
Liabilities
Mortgage Property G	$  130,000
Mortgage Property H	$  260,000
Mortgage Property T	$  230,000
Total Liabilities	$  620,000
Assets	$  632,500

1. The consent order made in the Family Court on 14 May 2003 provided the division of property as follows:

   a)The husband transferred to the wife his interest in:

   i)Property G and he discharged the mortgage so that the property was unencumbered;

   ii)Property H with the wife solely responsible for the mortgage;

   iii)The Honda (omitted) motor vehicle.

   b)The wife transferred to the husband her interest in:

   i)Property T and the husband refinanced the mortgage into his sole name;

   ii)Property M;

   iii)(omitted business).

   c)The husband retained his Toyota (omitted) motor vehicle and the cash savings.

2. The husband was self represented and said that the previous orders should be set aside. He said he had a barrister’s opinion that said this. He did not make this application in his initiating application or in his written proposal. Both parties were represented by lawyers when the order was made. Nothing in the evidence suggests any basis for considering setting aside the previous order. The husband’s proposal that he be paid $720,000 is calculated this way. He says he should receive half the increase in value of the former matrimonial home, the amount he says he put in from his mother’s estate and the amount he says he put in from the sale of one of the properties he received in the previous order. The net value of all property is now less $500,000. This illustrates the husband’s lack of understanding of the process to be followed in making a determination under s.79A.

3. The matters relevant to the history of the parties’ relationship, particularly their financial relationship, are uncontroversial.  The husband was born in (country omitted) on (omitted) 1954 and is aged 61.  The wife was born in (country omitted) on (omitted) 1958 and is aged 57.  They married in Australia on (omitted) 1979.  There are three children of the marriage who are now aged 35, 31 and 25.  Two of the children, Y aged 31 and Z aged 25 live with the mother.

4. In 1982 the parties purchased a block of land at Property G for approximately $25,000.  This was funded through savings and a home loan of approximately $16,000.  They then constructed a house funded partly through savings and a loan of $35,000.  They moved into the house in 1984.

5. The wife says she was primary carer for the children, not disputed by the husband.  The husband was employed.  The wife worked part-time and full-time between 1980 and 1994.  In 1994 the parties opened a (omitted) business in (omitted) called “(omitted business)”.  This was funded by a loan of $55,000 secured against the former matrimonial home.

6. In 1999 they purchased the store next door and expanded.  The additional purchase was funded by way of a loan secured against the former matrimonial home of $50,000.  Both parties worked in the business, the wife to the extent that she was able while caring for the children.

7. In 1999 the husband travelled to (country omitted).  He remained there for approximately one year and the wife continued to run the (omitted) business supported by family and friends.  The wife says that while he was in (country omitted) the husband opened a (business omitted) at a cost of approximately $210,000.  She says she does not know how he funded it.  She decided to sell the (business omitted) with the husband’s consent.  The business was sold in December 1990 for $150,000.

8. In January 2000 the husband returned to Australia and the parties resumed their relationship.  In early 2000 they purchased a (business omitted) in (omitted) called “(omitted business)”.  The cost was approximately $85,000 funded by a loan of $85,000 secured by a mortgage over the former matrimonial home.  They spent $25,000 making improvements and renovations funded by savings.

9. In 2000 the parties purchased the property at Property M for $110,000.  This was funded by the proceeds of sale of the (omitted business).

10. In 2001 they purchased the property at Property T for $230,000 funded by a bank loan of $230,000 secured over the former matrimonial home.  In 2002 they purchased Property H for approximately $280,000 funded by a loan of $260,000 secured against the former matrimonial home.

11. Separation occurred in 2002 followed by the order of 14 May 2003.  The order provided that the parties youngest son Y, 14 years old at the time, live with the wife and spend time with the husband as agreed.  On 4 April 2002 the parties entered into a private Child Support Agreement which provided for the husband to pay by way of child support for Y $600 each month.

12. Following this the wife continued to care for Y but had restricted income because she had no business assets.  She says the husband paid two months of child support payments only.

13. The wife says that she believes that in 2003 the husband sold the (omitted business) for approximately $90,000 and purchased another (business omitted) at (omitted) for approximately $60,000.  She says she does not know what happened to this business.  The husband does not own it.

14. In January 2004 the wife sold the Property H property for approximately $320,000 and after discharge of the mortgage and paying sale expenses she realised $40,000 net.  She says she used these monies to care for her family and pay for living expenses.

15. In May 2005 the eldest son X approached the wife explaining he was interested in opening a business.  He had discussed with the husband the possibility of opening a (omitted).  The husband and wife then borrowed $200,000 secured against the Property G property which had become solely owned by the wife and was unencumbered prior to the borrowing.

16. The Pallett Family Trust was set up by the husband and X in May 2005.  The husband was the Appointor and Guardian and principal beneficiary.  A Trustee Company (omitted) Pty Ltd was incorporated to act as the Corporate Trustee of the trust.

17. In the middle of 2005 the husband and X used the borrowings to set up a (business omitted) known as “(business omitted)” at (omitted).

18. The mother worked from 2003 until 2008 at (business omitted).  In addition she assisted in the (business omitted) at night, working up to 5 hours and closing the (business omitted).  She says she received no payment while the husband alleges that she controlled the money.

19. In November 2005 the husband set up a new business as sole proprietor at (omitted) known as “(business omitted)”.  This was three doors from (business omitted).  The wife says there was a dispute.  The husband denied that it was a competitor.  The setup costs were approximately $120,000 and funded in part with the remaining borrowing secured against the Property G property.

20. (business omitted) was sold in August 2008 for $43,000 and (business omitted) sold in 2010 for $150,000.  At that time $14,000 was owing on equipment leased by the business and was paid by the (business omitted) Trust subsequently set up.

21. (business omitted) Trust was established in October 2008.  (omitted business)  was incorporated to act as the Corporate Trustee of the (business omitted) Trust.  The husband was the Appointer and Guardian of the (business omitted) Trust.

22. In late 2008 (business omitted) Trust purchased the business known as “(business omitted)” at (omitted) for $970,000.  The purchase was funded, according to the wife, by a vendor’s loan of $770,000 and a loan in the joint names of the husband and wife from (omitted) Bank for $460,000. The husband says the bank loan was the larger loan.  $200,000 was applied to the purchase of (business omitted).  The wife says the remaining $260,000 was applied towards the purchase of land located at Property W which later became Property W registered in the names of the husband and the wife.  The property in Property T was sold in 2007 according to the wife for $330,000.  She says she does not know what happened to the proceeds.  The husband says it was sold in 2008 for approximately $380,000.  He says the proceeds of the sale were directed towards purchasing the property in Property W in 2008.

23. The (omitted business) business was according to the wife operated by her and the children with some assistance from the husband.

24. The debt for the purchase of (business omitted) Trust was refinanced by (omitted) bank and two facilities of $888,000 and $222,000 and later refinanced by (omitted) bank for $963,000.

25. In 2010 the business (business omitted) was sold. It was unsuccessful and was sold for $150,000 and the proceeds of sale used to pay off debts owned by the business.  There was a shortfall which was paid by (business omitted) Trust.  A loan account was set up in (business omitted) Trust to (business omitted) for $125,204.35 and subsequently in the name of Pallett Family Trust.  As at 30 June 2014 the amount was $175,005.

26. In 2008 the wife made improvements to the Property G property funded by a loan of $48,000 from the parties’ son X. The husband disputes the loan.

27. In January 2012 the husband commenced renting an apartment in (omitted).

28. In 2005 the husband, who says at that stage he was penniless, had nowhere to live and moved back into the Property G home.  The wife says the children told her that he had nowhere to live.  The wife says they lived separately while the husband says they resumed their relationship as husband and wife.

29. The husband obtained an intervention order against the wife on the 4 February 2012 and left the family home.  On 30 April 2012 he obtained an intervention order against the party’s daughter Z.

30. In September 2012 the property at Property W was sold for $340,000.  The wife says the proceeds were applied to discharging the loan to (omitted) Bank and (omitted) Bank.  The husband says some money was paid towards the tax debt which he thought at that stage was $80,000.  In terms of the position at separation it does not matter which occurred.  The current debt to the bank and the current debt to the Australian Taxation Office are known.

31. In late 2012 or early 2013 the husband set up a business at (omitted) known as “(business omitted)”.  The wife says the husband did not disclose to her that he was setting up the business and she does not know how it was funded.  She says he subsequently noted that the business was fitted out from approximately $80,000 with equipment leases of approximately $55,000.  The business ceased trading soon after.

32. In mid 2013 the husband told the wife he was struggling to meet his weekly payments and required somewhere to stay.  The wife let him move back to the Property G house to live in a shed.

33. In June 2013 the husband renounced his interest as beneficiary and resigned as Appointor of the Pallett Family Trust and the (business omitted) Trust and was succeeded by the wife.  He resigned as director and secretary of the ACN and (business omitted) company and transferred his shareholding in the companies to the wife.  The wife says the husband made it clear he no longer wanted to be part of the business of the various debts and liabilities owing as a result of the business.  He said he needed to resign from the business so that he could obtain government benefits such as Centrelink Payments and Rent Assistance.  The husband says the wife forced him into saying she wanted to solely own the business.

34. The husband acknowledges that the business was in financial trouble.  He says they had to sell the Property W property to pay money to the Australian Taxation Office otherwise the business would have been liquidated.

35. The husband says that the wife controlled the business here.  The wife’s explanation that the husband says he wanted to obtain Centrelink and Rent Assistance while he was in the business is plausible.  The probabilities of the situation favour the wife’s explanation that the husband wanted to be free of the business debts and able to obtain Social Security payments.  I find that the husband did want to leave the business for the reasons the wife says he gave.

36. The husband moved from the realist property in January 2014.

37. The husband calculated the $720,000 he says he should be paid by taking half the increase in value of the Property G house since the order in 2003, $250,000, $90,000 he says was a gift from his mother and $380,000 from the sale of the block of land in Property W.  There is no evidence about the $90,000 from his mother when the husband alleges it was received.  The husband says that the Property W block of land was purchased from the sale of the Property T property whereas the wife says the money was borrowed at the time the (business omitted) shop business was purchased.

38. The husband, when cross-examined, said that when he moved back into the Property G property in 2005 he had no assets.  The husband filed a brief affidavit with his Initiating Application.  This was brief to the extent that it did not mention the order made in 2003.  He did not cross examine the wife.

39. There are obviously many documents involved in the parties various purchases and sales and operations of business.  So far as the purchase of the Property W block of land is concerned there is one document from the (omitted) Bank which shows that at the time its loan was refinanced by (omitted) Bank it held a mortgage over the Property W property.  This is some indication that money from the (omitted) Bank was used to purchase that land.  What documents there are favour the wife’s version that the money was borrowed rather than obtained from sale of the Property T property.  If money was used from the sale of the Property T property the wife must have known.  Given the detail in her affidavits about other property transactions it is most unlikely that she would say she did not know what happened to the proceeds.  She says she does not know if there was a mortgage.

40. I find on the balance of probabilities that the money for the purchase of the Property W property was borrowed from the (omitted) Bank and not the proceeds of sale of the Property T property.

41. Consequently, the only basis for the husband assertion that he should be paid $720,000 is his claim that he should receive half the increase in value of the Property G property, an amount of $250,000.

42. There is an issue about whether the husband is working for wages.  Given the conclusion I have come to it is unnecessary to decide this issue.

43. In Stanford v Stanford [2012] HCA 52 the High Court set out three propositions in [36], [37], [38] and [40]:

    36.  The expression "”just and equitable" is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. It does not admit of exhaustive definition[21]. It is not possible to chart its metes and bounds. And while the power given by s 79 is not “to be exercised in accordance with fixed rules”[22], nevertheless, three fundamental propositions must not be obscured.

    37.  First, it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property. So much follows from the text of s 79(1)(a) itself, which refers to “altering the interests of the parties to the marriage in the property" (emphasis added). The question posed by s 79(2) is thus whether, having regard to those existing interests, the court is satisfied that it is just and equitable to make a property settlement order.

    38.  Second, although s 79 confers a broad power on a court exercising jurisdiction under the Act to make a property settlement order, it is not a power that is to be exercised according to an unguided judicial discretion. In Wirth v Wirth, Dixon CJ observed[23] that a power[24] to make such order with respect to property and costs “as [the judge] thinks fit", in any question between husband and wife as to the title to or possession of property, is a power which “tests upon the law and not upon judicial discretion". And as four members of this Court observed about proceedings for maintenance and property settlement orders in R v Watson; Ex parte Armstrong.  “The judge called upon to decide proceedings of that kind is not entitled to do what has been described as 'palm tree justice'. No doubt he is given a wide discretion, but he must exercise it in accordance with legal principles, including the principles which the Act itself lays down".

44. The property owned at the time of the hearing is described above.  The wife is the legal owner of the Property G property and the controller and beneficial owner of the (business omitted) Trust.  Therefore, she owns all of the matrimonial property.  She is responsible for all of the debts.

1. In practical terms the only asset is the equity in the Property G house.  Both parties acknowledge that they overpaid for the (business omitted) business.  Without the property at Property G there is no net value, only debts.  There is only net value because the property at Property G has increased in value by over $500,000.

2. The husband had three businesses, (business omitted), (business omitted) and (business omitted), which were a failure.  Money used for the first two businesses was borrowed against the Property G property and not paid back.  (business omitted) Trust paid the remaining debts.

3. In 2003, after the parties’ separation, they separated their financial interests.  They then resumed a relationship in 2005.  The wife worked in the (business omitted) business, and in (business omitted) first as an employee and then when it was acquired by the (business omitted) Trust.  The businesses the husband worked in were all unsuccessful and the evidence does not make it possible to determine what income he had.  At best as I can determine the probabilities are that the wife had the higher income following 2005.

4. The starting point in time in determining whether it is just and equitable to make any order is when the parties resumed their relationship.  At that time the wife was the sole owner of the Property G property.  The husband moved back to that home in 2005.  The wife had commenced working at (business omitted) in 2003 and worked there as an employee until 2008 when (business omitted) was purchased by the (business omitted) Trust.  The wife continued working there, according to the husband, controlling the business.  The wife worked in (business omitted) from when it commenced operating.

5. To determine whether it is just and equitable to make an order the next step is to consider whether the husband made any contributions as they are described in s.79(4). There is no evidence that the husband made any financial contribution to the running costs of the family home, such as rates and utilities insurance and maintenance. He asserts that he did but gives no detail. Given that he said he was penniless in 2005 and then the businesses he set up were unsuccessful, the inference I draw is that he did not. From 2005 the wife worked in the (business omitted) business, first as an employee and then as effectively one of the owners. She worked in the (business omitted). The probabilities are that it was the wife’s income that maintained the home, particularly contributions that come within the description of conservation or improvement of the property. I find that any financial contributions the husband made to the acquisition, conservation or improvement of the Property G property were minimal.

6. The husband asserts that he made non-financial contributions to the conservation and improvement of the home, but again it does not go beyond assertions.  They are not acknowledged by the wife.  Again I find that any non-financial contribution that the husband made was minimal.

7. Likewise, I find that any contribution the husband made as a homemaker was minimal. Overall, the contribution the husband made under the matters set out in s.79(4) (a) (b) & (c) was minimal.

8. The husband has no property and appears to be dependent upon social security payments.  As to work he says he volunteers with the (omitted) and that he is working in a (employer omitted) is that he can learn to (omitted).  He is not paid sometimes he is given a (omitted).

9. Under s.75(2) ages and state of health of the parties, their income earning potential and their property should be considered. Both are capable of working and both are. The husband says he is not earning income and that he has experience in the (omitted) industry.

10. The wife has the house and the (business omitted). She is responsible for the business, including its debts, the husband having transferred it to her so that he would be free of its debts and able to obtain Social Security payments. The business debts exceed the value by a substantial amount so its financial position is precarious. In these circumstances there is no basis for making an adjustment in the parties financial position by reason of the matters set out in s.75(2).

11. Given application of the provisions of s.79(4), which includes s.75(2), means no adjustment to the current ownership of the parties property, the husband’s application is to be dismissed. It is not just and equitable to make any order.

I certify that the preceding sixty four (64) paragraphs are a true copy of the reasons for judgment of Judge Phipps

Date:  9 October 2015