Pavone and Pavone & Ors
[2015] FamCA 100
•26 February 2015
FAMILY COURT OF AUSTRALIA
| PAVONE & PAVONE AND ORS | [2015] FamCA 100 |
| FAMILY LAW – PRACTICE & PROCEDURE – Procedural fairness – Where the husband gave short notice of his inability to attend the trial – Where the husband was content for the trial to proceed in his absence and did not seek an adjournment – Where the trial proceeded – Where in the circumstances the husband was not denied procedural fairness FAMILY LAW – PROPERTY SETTLEMENT – Where the applicant wife and first respondent husband sought property settlement orders as between themselves – Where the spouses created two private corporations, a self-managed superannuation fund and a partnership; the two corporations being joined to these proceedings – Where substantial uncertainty remains about the current financial affairs of the spouses and the various entities they created – Where it is impossible to fairly adjust the spouses’ property interests in ignorance of the comparative values of their property interests – Where none of the spouses’ assets are jointly owned and they are not jointly indebted – Where, in the circumstances, it is not just and equitable to adjust the spouses’ property interests FAMILY LAW – PROPERTY SETTLEMENT – Spousal maintenance – Where refusal to make a property adjustment order does not preclude the court from making a spousal maintenance order – Husband to conditionally pay to the wife weekly spousal maintenance FAMILY LAW – PROPERTY SETTLEMENT – Third party orders – Where the Commissioner of Taxation intervened and sought to recover all outstanding assessed taxation liabilities due to him by all the parties – Where the intervener proposed that one of the spouses’ corporations should use its assets to pay the liabilities on behalf of all other parties, even though it has no liability of its own to the intervener – Where the rights of some other creditor of the corporation could be trammelled if such orders were made – Discussion of ss 79 and 90AE of the Family Law Act – Where, in the circumstances of this case, no orders are to be made under s 79, then no occasion arises to invoke s 90AE – Where, pursuant to s 78, it is declared that the spouses are indebted to the intervener and they are ordered to pay those debts |
| Corporations Act 2001 (Cth), ss 459A, 461, 1337C Family Law Act 1975 (Cth), ss 75, 78, 79, 81, 90AA, 90AE, 90AK Judiciary Act 1903 (Cth), s 79 Partnership Act 1892 (NSW), s 35 Supreme Court (Corporations) Rules 1999 (NSW), rr 1.3, 1.7, 2.2, 2.4, 2.6, 2.7, 2.13, 5.4, 5.5, 5.6 |
| AC and Ors v VC and Anor (2013) 49 Fam LR 276 Allesch v Maunz (2000) 203 CLR 172 Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs and mgrs appt)(in liq) [2009] VSCA 238 B Pty Ltd and Ors v K and Anor (2008) FLC 93-380 Balfour v Balfour [1919] 2 KB 571 Biltoft v Biltoft (1995) 19 Fam LR 82 Cohen v Cohen (1929) 42 CLR 91 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Henderson v Miles [2005] NSWSC 710 Jones v Padavatton [1969] 2 All ER 616 Magill v Magill (2006) 226 CLR 551 Matusewich v Matusewich (1978) 4 Fam LR 258 Ogilvie v Adams [1981] VR 1041 Stanfordv Stanford (2012) 247 CLR Taylor v Taylor (1979) 143 CLR 1 Young v Queensland Trustees Ltd (1956) 99 CLR 560 |
| APPLICANT: | Ms Pavone |
| FIRST RESPONDENT: | Mr Pavone |
| SECOND RESPONDENT: | B Pty Ltd |
| THIRD RESPONDENT: | Pavone Pty Ltd |
| INTERVENER: | Commissioner of Taxation |
| FILE NUMBER: | NCC | 1118 | of | 2012 |
| DATE DELIVERED: | 26 February 2015 |
| PLACE DELIVERED: | Newcastle |
| PLACE HEARD: | Newcastle |
| JUDGMENT OF: | Austin J |
| HEARING DATE: | 16 December 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | N/A |
| SOLICITOR FOR THE APPLICANT: | N/A |
| COUNSEL FOR THE 1ST RESPONDENT: | N/A |
| SOLICITOR FOR THE 1ST RESPONDENT: | N/A |
| COUNSEL FOR THE 2ND RESPONDENT: | N/A |
| SOLICITOR FOR THE 2ND RESPONDENT: | N/A |
| COUNSEL FOR THE 3RD RESPONDENT: | N/A |
| SOLICITOR FOR THE 3RD RESPONDENT: | N/A |
| COUNSEL FOR THE INTERVENER: | Ms Foda |
| SOLICITOR FOR THE INTERVENER: | ATO Legal Services Branch |
Orders
Order 2 made on 14 March 2013 is discharged.
The husband shall pay to the wife spousal maintenance of $800 per week on the following conditions:
(a)The first payment is due seven (7) days from the date of these orders.
(b)The wife shall forthwith notify the husband in writing of the banking account into which payments are to be made.
(c)The husband shall deposit the payments directly into that account.
(d)This order is discharged upon the occurrence of the last of the following events:
(i)Completion by Pavone Pty Ltd of the sale of the two parcels of real property known as 1 and 2 C Street, Suburb C;
(ii)Completion by the husband of the sale of the business known as “D Pty Ltd”;
(iii)Cessation of the husband’s conduct of the business known as “D Pty Ltd” and the termination of the husband’s use of the ABN associated with his conduct of that business.
Pursuant to s 78(1) of the Family Law Act it is declared that:
(a)The wife is indebted to the Commissioner of Taxation in the sum of $115,417.23.
(b)The husband is indebted to the Commissioner of Taxation in the sum of $196,491.01.
Pursuant to s 78(2) of the Family Law Act:
(a)The wife shall pay the amount due to the Commissioner of Taxation pursuant to Order 3(a) hereof within two months of the date of these orders.
(b)The husband shall pay the amount due to the Commissioner of Taxation pursuant to Order 3(b) hereof within two months of the date of these orders.
Costs are reserved for 28 days.
Any and all other outstanding applications are dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Pavone & Pavone and Ors 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 NEWCASTLE |
FILE NUMBER: NCC 1118 of 2012
| Ms Pavone |
Applicant
And
| Mr Pavone |
First Respondent
And
| B Pty Ltd |
Second Respondent
And
| Pavone Pty Ltd |
Third Respondent
And
| Commissioner of Taxation |
Intervener
REASONS FOR JUDGMENT
Introduction
These proceedings principally concern the determination of the respective applications of the applicant wife (“the wife”) and the respondent husband (“the husband”) for property settlement pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”).
Unfortunately, for much of the litigation, both spouses were without legal representation and neither understood the legal and financial complexity of the financial structures they created. Their lack of understanding translated into a lack of reliable evidence, which makes analysis and resolution of their affairs very difficult.
Their financial network involved two private corporations, a self-managed superannuation fund, and a partnership – all of which still exist and all of which were in gross default of prudential and regulatory obligations.
Taxation returns for the parties and the legal entities they control were not filed for most of the past decade. The Commissioner of Taxation (“the intervener”) therefore sought, and was granted, leave to intervene as a party to the proceedings in March 2013, so his claim for relief also requires consideration.
The parties’ two private corporations were also joined as parties to the proceedings. B Pty Ltd was joined in November 2013 and Pavone Pty Ltd was joined in July 2014, but they sought no orders.
The proceedings were eventually listed for final hearing in December 2014, but less than 24 hours before the trial was due to start the husband gave notice of his inability to attend the trial and assured both the Court and the other parties he was content for the trial to proceed in his absence, which it then did.
Procedural fairness
According to information provided by the husband, his inability to attend the trial was due to his attendance at the inter-state funeral of his late mother, but he did not seek an adjournment of the trial. In an exchange of emails on the day before the trial commenced, the husband relevantly said:[1]
I am happy lo [sic] leave to the pleasure of the Court any decisions to be made regarding the procedural aspects of the case.
My concern is that any remaining assets be realised to the maximum potential…
I have no particular further wishes as to the outcome.
I am not seeking an adjournment.
[1] Exhibit A
In the absence of any adjournment application by the husband and with both the wife and intervener desirous of the litigation being finalised, it was not for the Court to conjure a reason to adjourn the hearing. The final trial had already been aborted once before due to the parties’ failure to comply with procedural orders.[2] The hearing therefore proceeded at the mutual request of the wife and intervener and with the acquiescence of the husband.
[2] Order 1 and Notation A made on 15 October 2014
The husband was not denied procedural fairness in such circumstances. While it is a fundamental rule that parties are given the chance to be heard, it is not always necessary that parties actually be heard. Proceedings need not be indefinitely delayed merely because a party declines to appear (see Allesch v Maunz (2000) 203 CLR 172 at 182-186, 189-191; Taylor v Taylor (1979) 143 CLR 1 at 4). Even though the husband had good reason not to attend the hearing, if one accepts at face value the reason he offered, he was content for the hearing to proceed nonetheless.
The evidence
The wife relied upon:
(a)
Her four affidavits filed in these proceedings on 2 May 2012,
8 November 2012, 12 March 2013, and 10 December 2014; and
(b)Her financial statement filed on 10 December 2014.
Her cross-examination by the intervener was short and merely confirmed her lack of knowledge about the parties’ financial affairs.
The husband could not rely upon any evidence, since he was not available for cross-examination. He previously electronically filed an unsworn affidavit on 18 November 2014. Although the contents of the affidavit were not adopted as true and correct by him, either on oath or by affirmation, the wife invited the Court to take into account the admissions made by the husband within that document. Those parts of the document that were admissions were undoubtedly the husband’s admissions, because he filed the document through the Court’s internet portal. That document was tendered as an exhibit.[3]
[3] Exhibit B
The intervener relied upon the affidavit of Ms E, sworn on 10 December 2014 and filed in Court on 16 December 2014, which referred to earlier affidavits by the same deponent. Although not filed until the first day of final trial, the intervener informed the Court that copies of the sworn affidavit had been served upon both spouses on 11 December 2014 – one day later than ordered.[4] The default was relatively trivial, so leave was granted to file the affidavit in Court and for the intervener to rely upon its contents. The deponent was not required for cross-examination by the wife.
[4] Order 5 made on 19 November 2014
B Pty Ltd and Pavone Pty Ltd, the two other respondents, did not separately appear or adduce evidence in the proceedings. That is because only the spouses have proprietary interests in the shares of both corporations and each is now controlled exclusively by the husband as the sole director. So much was previously noted by the Court.[5]
[5] Notation A made on 3 July 2014
Background
Because of the paucity of relevant and probative evidence, relatively few factual findings are possible. In reliance upon the evidence of the wife and intervener, together with admissions made by the husband, the factual findings that can be made are as follows.
The spouses married in 1986, having commenced cohabitation about a year or so before.
At the commencement of their relationship, the wife owned assets and cash with a combined value of about $50,000, while the husband was liable for debts approximating $11,000.
During their cohabitation both spouses received lump sum compensation payments for injuries they sustained in accidents. There is some dispute about the amounts of compensation they each received and how the payments were apportioned between lump sums and periodic payments, but it is common ground the total amount of compensation contributed by the husband well exceeded the total amount contributed by the wife. The wife asserted she contributed at least $200,000 and deliberately chose not to refute the husband’s unsworn contention he contributed $500,000.[6] It is unnecessary to make precise findings about the quantum of the respective compensation payments. It is sufficient to note that the husband’s compensation well exceeded the wife’s.
[6] Exhibit B (page 2); Wife’s fourth affidavit (page 6)
The parties created or assumed an interest in the following legal entities, which were the conduits for the acquisition of interests in various assets:
(a)B Pty Ltd (“B”);
(b)Pavone Pty Ltd (“Pavone Pty Ltd”);
(c)The Pavone Superannuation Fund (“the Super Fund”); and
(d)Pavone partnership (“the partnership”).
The parties worked hard for their mutual advancement. They bought and sold real estate and their principal source of income was a business, in which they both worked for long hours over many years.
The spouses finally separated in November 2011, their relationship having subsisted for in excess of 25 years.
Regrettably, substantial uncertainty remains about the current state of the spouses’ financial affairs.
In respect of B Pty Ltd:
(a)The husband and wife have equal shareholdings;
(b)The husband is the sole director, since the wife resigned her directorship in March 2013;
(c)It owned real property at F Town, NSW, but that property was sold in November 2014 and the whole of the sale proceeds were applied in reduction of a bank debt secured by mortgage over the property;[7]
(d)It formerly owned a business known as “D Pty Ltd” (“the business”), which it conducted from premises owned by Pavone Pty Ltd, but after the wife resigned her directorship the husband unilaterally arranged for it to transfer the business to him in March 2013 and he has since conducted the business as a sole trader;[8]
(e)According to the husband’s admission, it otherwise owns some shares of minimal value in the public corporation IAG,[9] but now that it has divested itself of both the F Town property and the business, it is not known to have any other assets and its value is unknown.
[7] Exhibit F
[8] Exhibit B (paras 12-13)
[9] Exhibit B (pages 3-4)
In respect of Pavone Pty Ltd:
(a)The husband and wife have equal shareholdings;
(b)The husband is the sole director, since the wife resigned her directorship in March 2013; and
(c)It currently owns two adjoining parcels of real property at Suburb C, NSW from which premises B Pty Ltd did, and the husband still does, conduct the business.
The collective value of the Suburb C properties is unknown, but both spouses and the intervener want the properties sold and the proceeds of sale used to retire debt.
The spouses both believe that Pavone Pty Ltd was and is the trustee of the Super Fund, but they are in error. The spouses were installed as the trustees of the Super Fund when it was established by superannuation deed in January 2007,[10] since Pavone Pty Ltd was not even incorporated until October 2008.[11] When the Super Fund deed was amended in October 2008, the spouses were retained as the trustees and were not replaced by Pavone Pty Ltd.[12] There is no evidence of any further amendment to the Super Fund since then.
[10] Exhibit C (page 29)
[11] Wife’s second affidavit, Annexure A
[12] Exhibit D; Wife’s first affidavit, Annexure C
The wife sought advice from an accountant in August 2012 about the parties’ affairs,[13] but the advice she received about the Super Fund was incorrect.[14] According to the evidence in these proceedings, Pavone Pty Ltd was not and is not the “sole purpose trustee company” for the Super Fund.
[13] Wife’s second affidavit, para 34
[14] Wife’s second affidavit, Annexure G
It is impossible to discern the nature and current value of the parties’ superannuation interests held within the Super Fund. There are several reasons for that: it is unknown whether the Super Fund holds a beneficial proprietary interest in the Suburb C properties; it is unknown what other assets the Super Fund currently holds; and it is unknown in what proportions the parties’ individual superannuation interests are now segregated within the Super Fund.
The spouses were told by an accountant in February 2012 that the Suburb C properties were part of an “Instalment Warrant arrangement” with the Super Fund and so the “properties are shown [in the Super Fund financial statements] as assets of the Pavone Superannuation Fund”. Furthermore, they were informed that two loans, aggregating $500,000 in value, were due to the National Australia Bank (“NAB”) in respect of the properties.[15] The Super Fund’s 2009 financial statement was prepared by the accountant on the basis that the Super Fund held the beneficial proprietary interest in the Suburb C properties and was liable to the NAB for that debt. The parties’ superannuation interests were quantified separately and unequally on those assumptions.[16]
[15] Wife’s first affidavit, para 13, Annexure C
[16] Wife’s first affidavit, para 14, Annexure D
However, in the absence of comprehensive explanation by a suitably qualified expert about how the scheme described as an “Instalment Warrant arrangement” actually affects the parties’ legal and equitable property rights, the assumptions made by the spouses’ accountant cannot be unreservedly accepted as correct for present purposes. Importantly, the accountant’s view of the parties’ affairs is not shared by either the intervener or the NAB.
The intervener believes the Suburb C properties are owned legally and beneficially by Pavone Pty Ltd and does not accept the properties are beneficially held by the Super Fund. Significantly, the NAB clearly believes the loans approximating $500,000 are owed to it by Pavone Pty Ltd; not the Super Fund, nor the spouses as trustees of the Super Fund. The NAB notified the wife’s former solicitors of that fact by email in September 2012.[17]
[17] Wife’s second affidavit, paras 16-17, Annexure D
There is no doubt that Pavone Pty Ltd holds legal title in the Suburb C properties,[18] but since that corporation has no apparent connection to the Super Fund it is difficult to conceive how the Super Fund can hold any equitable interest in the properties. Only the spouses’ accountant believes the Super Fund holds such equitable interest, but that belief seems connected to the erroneous assumption that Pavone Pty Ltd is the trustee of the Super Fund. Even though the accountant’s opinion attracts scepticism, the existence of such opinion still foments uncertainty over whether the beneficial interest in the Suburb C properties rests with Pavone Pty Ltd or with the Super Fund.
[18] Wife’s second affidavit, Annexure B
The intervener suggested in written submissions that the spouses might be given more time to adduce evidence to clarify that uncertainty,[19] but that idea is rejected. Significantly, neither spouse submitted that they be given another opportunity to do so. In his email to the Court dated 2 February 2015, the husband did seek even more time than first allowed to address the intervener’s submissions, but he betrayed no understanding of the lacuna in the evidence about the beneficial ownership of the Suburb C properties. Based on the spouses’ many past protestations to the Court about their inability to procure legal representation, there was no realistic prospect of either of them obtaining any and without it neither had any realistic chance of securing and adducing the evidence necessary to eradicate the uncertainty. An adjournment would likely result in further delay without any material improvement of the evidence. The litigation has been live for years and needs to be finalised. That was the burning desire of all parties, but particularly of the wife. The litigation has already had a host of interlocutory Court events and one aborted final hearing.
[19] Written submissions filed 29/1/15, para 2
Both spouses believe the Suburb C properties have a maximum combined value of $1.4 million, though the wife anticipates they may sell for much less. Even allowing for the debt due to the NAB (approximating $500,000 or more) being secured against and payable from the sale proceeds of the Suburb C properties, the net equity in the properties makes a significant difference to the value of whichever of Pavone Pty Ltd or the Super Fund enjoys beneficial interest in the properties.
It is unknown what other assets are beneficially owned by the Super Fund. The Super Fund’s 2009 financial statement disclosed the existence of other assets in the form of cash worth approximately $100,000,[20] but there is little evidence about the asset position of the Super Fund over the last five years. The husband admitted the Super Fund has current cash of only $10,074.[21]
[20] Wife’s first affidavit, Annexure D
[21] Exhibit B, page 4
The wife believes she and the husband have superannuation interests of equal value in the Super Fund,[22] but that was not previously the case. In the Super Fund’s 2009 financial statement, the wife’s superannuation interest was valued at nearly double the husband’s.[23] In any event, neither spouse sought a superannuation splitting order in these proceedings.
[22] Wife’s financial statement, para 45
[23] Wife’s first affidavit, Annexure D
In respect of the partnership:
(a)The spouses are the partners, but it is unknown if their partnership shares are equal;
(b)It is unknown whether the partnership was established by deed, which has implications under the Partnership Act 1892 (NSW) for the manner of its future dissolution; and
(c)It is unknown what assets the partnership owns or what business it currently conducts and so the value of the partnership is unknown.
The wife was ignorant of most details about the parties’ financial affairs. She deposed simply “I was not involved in our financial management during the course of our relationship”.[24] That may be so, but there is no evidence she was installed as a director of two corporations, as a trustee of a self-managed superannuation fund, and as a partner in a commercial partnership without her knowledge or against her will. It is therefore unsurprising that the accountant, from whom she sought advice in August 2012, informed her it was unlikely she would be regarded as having discharged her prudential duties with reasonable care and it was only a matter of time before the intervener would take enforcement action in respect of outstanding taxation returns.[25]
[24] Wife’s third affidavit, para 5
[25] Wife’s second affidavit, para 34, Annexure G
The wife is now 68 years old and the husband is 58 years old.
The wife is emotionally fragile. She receives regular counselling from an experienced psychotherapist and is medicated with anti-depressants.
The husband continues to conduct the business as a sole trader and pays the wife $600 per week by way of spousal maintenance pursuant to an interim order made with his consent,[26] though the wife said she had not been paid in the weeks just preceding the hearing.
[26] Order 2 made on 14 March 2013
Existing assets
According to the evidence adduced, the wife currently has the following assets:
(a)European motor vehicle, which she estimates to be worth $4,000.[27]
The vehicle was previously disclosed as an asset of B Pty Ltd,[28] so there is some uncertainty as to whether it is really an asset of B Pty Ltd or the wife.
(b)Her 50 per cent shareholding in B Pty Ltd, the value of which is unknown.
(c)Her 50 per cent shareholding in Pavone Pty Ltd, the value of which is unknown.
(d)Unknown percentage share of the partnership, the value of which is unknown.
(e)Her superannuation interest held in the Super Fund, the value of which is unknown.
(f)Her superannuation interest held with AMP, the value of which approximates $23,493.[29]
[27] Wife’s financial statement, para 40
[28] Wife’s first affidavit, Annexure B
[29] Wife’s financial statement, para 45
The husband admitted his current ownership of the following assets:[30]
[30] Exhibit B
(a)4WD motor vehicle, which he estimates to be worth $15,000.
The vehicle was previously disclosed as an asset of B Pty Ltd,[31] so there is some uncertainty as to whether it is really an asset of B Pty Ltd or the husband.
(b)NIB shares, which he estimates to be worth $13,240.
(c)Cash reserves, which he estimates at $11,100.
(d)The business, which he estimates to be worth $250,000, including goodwill, though that value is likely unrealistically inflated for at least two reasons.
In December 2011, apparently on the husband’s instructions, an accountant prepared the 2010 financial statements for B Pty Ltd, which then owned and operated the business. The financial statements disclosed an annual loss of over $20,000.[32] The wife alleged the husband secretly withdrew undisclosed amounts of cash from the business, which would not be revealed by the financial statement, but regardless, the declared poor past annual financial result for the business hardly supports the opinion the husband now holds about its value.
The business certainly comprises tools of trade and stock, but probably very little goodwill, since the business may soon cease to exist once the Suburb C premises from which it operates are sold by Pavone Pty Ltd. There is no lease registered on the title of the Suburb C properties,[33] so the business has no security of tenure. Unless the new owner of the Suburb C properties grants a fresh lease over the premises to the husband or some prospective purchaser of the business it will have no goodwill flowing from its conduct as an ongoing operation in a known location. Its overall value may well be limited to its tools of trade and any stock that will not spoil.
(e)His 50 per cent shareholding in B Pty Ltd, the value of which is unknown.
(f)His 50 per cent shareholding in Pavone Pty Ltd, the value of which is unknown.
(g)Unknown percentage share of the partnership, the value of which is unknown.
(h)His superannuation interest held in the Super Fund, the value of which is unknown.
[31] Wife’s first affidavit, para 10(g), Annexure B
[32] Wife’s first affidavit, para 15, Annexure E
[33] Wife’s second affidavit, Annexure B
As would therefore be obvious, it is impossible to compare the overall value of the spouses’ property interests.
The intervener submitted the spouses’ property interests should be valued differently, but that submission was mistakenly predicated upon the assumption that the contents of the husband’s unsworn affidavit would be unconditionally accepted as correct.[34] It is not. The document purporting to be the husband’s affidavit was not evidence because it was not sworn or affirmed. The contents of that document are only useful in so far as he made admissions against his interest, because admissions are more likely to be reliable than his unsworn and untested assertions of fact and opinion.
[34] Written submissions filed 29/1/15, para 31
Existing liabilities
The wife owes the intervener $115,417.[35]
[35] Affidavit of Ms E, paras 11, 21(b)
The wife asserted, or at least implied, her additional contractual liability to family members for loans of $24,500,[36] but I do not accept that evidence.
[36] Wife’s financial statement, para 50
Of that amount, $20,000 was actually paid by the wife’s mother to B Pty Ltd, rather than the wife, over seven years ago. Even if it truly was a loan, it was a loan to B Pty Ltd, not the wife. Irrespective, the loan is now statute-barred and must therefore be ignored as a current liability (see Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566; Ogilvie v Adams [1981] VR 1041 at 1043, 1045).
The remainder sum of $4,500 is also ignored. Apart from being de minimus, there was insufficient evidence to establish that the wife and her relatives set out to create legal rights and obligations over such financial accommodation (see Balfour v Balfour [1919] 2 KB 571; Cohen v Cohen (1929) 42 CLR 91 at 96; Jones v Padavatton [1969] 2 All ER 616 at 620-621; Henderson v Miles [2005] NSWSC 710 at [19]-[24]; Magill v Magill (2006) 226 CLR 551 at 614; Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs and mgrs appt)(in liq) [2009] VSCA 238 at [60]; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 106). Even if they did, the Court has discretion to ignore the loan as a liability (see Biltoft v Biltoft (1995) 19 Fam LR 82 at 94).
The husband owes the intervener $196,491. It may be more because he has still not yet filed his taxation returns for the financial years ended 30 June 2013 and 2014.[37]
[37] Affidavit of Ms E, paras 7-10, 21(a)
The husband asserted his liability for a series of other debts,[38] but those assertions are not probative. They were not the subject of sworn evidence, nor were they admissions against his interest which could safely be accepted as correct.
[38] Exhibit B (page 3)
B owes the intervener $332,694. It may be more because its taxation return for the financial year ended 30 June 2011 was only recently filed and has not yet been assessed.[39] Now devoid of ownership of the F Town property and the business, the quantum of the liability due to the intervener probably renders B insolvent.
[39] Affidavit of Ms E, paras 13-17, 21(c)
The Super Fund owes the intervener $5,608. It may be more because it still has outstanding taxation and BAS returns due from 1 July 2013 forward.[40]
[40] Affidavit of Ms E, paras 18-19, 21(d)
The quantum of the debts owed individually or collectively to the NAB by the spouses and the legal entities they control are uncertain. The NAB debts were partially discharged by the proceeds of sale realised on the sale of the F Town property by B Pty Ltd. Some $974,250 was paid to the NAB on settlement of that sale,[41] though an amount of $1,094,482 was then owed,[42] so there was a shortfall of about $120,000.
[41] Exhibit F
[42] Exhibit G
The NAB’s remaining security is a mortgage registered over the real properties at Suburb C owned by Pavone Pty Ltd.[43] It seems the residue amount outstanding to the NAB approximates $500,000 to $550,000.[44] It remains unclear whether that amount includes or excludes the unpaid balance of the loan related to the F Town property.
[43] Wife’s second affidavit, Annexure B
[44] Wife’s first affidavit, Annexures C and D; Exhibit B (page 4); Exhibit G
The spouses and the intervener believe the proceeds from the intended sale of the Suburb C properties by Pavone Pty Ltd will be sufficient to discharge the remainder of the debt due to the NAB, leaving residue cash in the coffers of Pavone Pty Ltd. However, if the Suburb C properties are beneficially owned by the Super Fund then the residue cash should, of course, rest in the coffers of the Super Fund rather than Pavone Pty Ltd.
Section 79(2)
Orders under the Act altering the property interests of spouses may only be made if the Court is first satisfied, pursuant to s 79(2) of the Act, it is just and equitable to make such orders. It is necessary to begin that inquiry by identifying the existing legal and equitable property interests of the spouses. It must not be assumed the spouses’ rights to or interests in property are or should be different from those that then exist, or that a spouse has the right to have their property divided (see Stanfordv Stanford (2012) 247 CLR at 108 at
[37]-[40], [50]).
Although both spouses and the intervener conducted the proceedings on the common basis that an adjustment of property interests would be just and equitable, I am not so satisfied. I reject the intervener’s written submission that the threshold imposed by s 79(2) is “easily met” in the circumstances of this case because the spouses’ marriage has broken down.[45] There are numerous reasons for that conclusion.
[45] Written submissions filed 29/1/15, para 23
First, the values of the spouses’ individual property interests are unknown. It is impossible to fairly adjust their proprietary interests if one is ignorant of the comparative (even approximate) values of those interests.
Secondly, the values of their individual superannuation interests are unknown.
Thirdly, it is unclear whether Pavone Pty Ltd or the Super Fund holds the equitable interest in the valuable Suburb C properties, which makes a significant difference to either the value of the spouses’ equal shareholdings in Pavone Pty Ltd or their unequal superannuation interests in the Super Fund.
Fourthly, the spouses structured their financial affairs in a way that was intended to portray them as commercial partners as much as domestic partners. They hold individual shareholdings in two corporations, they have segregated superannuation interests in a self-managed super fund, and they are business partners in a commercial partnership.
Fifthly, there was no evidence of any intermingling of proprietary interests by the spouses. None of their assets are jointly owned and they are not apparently jointly indebted.
A countervailing consideration is the husband’s unilateral decision to cause B Pty Ltd to transfer the business to his sole ownership in March 2013, which transaction depleted B Pty Ltd’s assets and thereby diminished the value of the wife’s shareholding in that corporation. The value of the husband’s shareholding was equally diminished, but he acquired sole ownership of the business, which probably left him better off overall. However, the significance of those facts is ameliorated by other considerations.
An order was imposed contemporaneously in March 2013 compelling the husband to pay spousal maintenance to the wife. His payments of such spousal maintenance, in the agreed sum of $600 per week, were made by him from the income he derived through his continued operation of the business. The profit of the business was therefore shared between them, albeit perhaps not entirely equitably. Moreover, for reasons already discussed, the business probably has a heavily depreciated value and is not such a significant asset for the husband. The way in which the business was transferred to the husband also means he now bears sole liability for the substantial debts created by operation of the business since March 2013, which includes a debt to the intervener quantified at $123,012.[46] The husband even admitted that, as consideration for the transfer of the business to him, he assumed sole responsibility for all of B Pty Ltd’s pre-existing trading debt related to the business and, additionally, any debt due by the spouses to B Pty Ltd was forgiven.[47]
[46] Affidavit of Ms E, para 9
[47] Exhibit B (page 5)
Additionally, when the spouses’ superannuation interests were last valued several years ago, they ratified the wife’s interest at a value of around double the husband’s ($450,044 to $226,885).[48] Of course, that quantification depended upon assumptions that the Super Fund held beneficial title to the Suburb C properties and is liable for the NAB debt, which assumptions may not be correct. Irrespective, the parties expect the wife’s superannuation interest should be substantially superior in value to the husband’s.
[48] Wife’s first affidavit, Annexure D
The Act (s 81) enjoins the Court to make orders finally determining spouses’ financial entanglements, but there are caveats to that imperative. The duty does not extend to declaratory orders (s 78), the relevance of which to these proceedings is yet to be addressed, and additionally, the duty only extends so far as is practicable. Significantly, the spouses do not jointly own any asset and they are not jointly indebted. Their interests are wholly separate, albeit that they have discrete interests in two corporations and a partnership, though those interests are easily severed by liquidation of the corporations and dissolution of the partnership.
The disinclination to adjust the spouses’ property interests means they would retain their existing interests. Principally, they have:
(a)Equal shareholder interests in both B and Pavone Pty Ltd;
(b)Individual superannuation interests in the Super Fund, segregated in the unequal proportions they designated as proper in the exercise of their joint trusteeship of the Super Fund; and
(c)Separate partnership interests in the partnership, in the proportions they thought commercially appropriate.
Besides the business and its attendant debts, which the husband conceded were now his sole responsibility, the spouses’ other chattels and the wife’s separate AMP superannuation interest are of apparently comparable value.
As was expressly noted by the High Court in Stanford, the refusal to make a property adjustment order between spouses under Part VIII of the Act does not preclude the Court from making a spousal maintenance order between them under the same Part. In fact, the circumstances may make it particularly appropriate to do so. This is such a case.
Spousal maintenance
On 21 June 2012, the Court ordered the husband to make periodic payments to the wife, though the nature of the payments was not characterised specifically as spousal maintenance.[49] The wife complained the husband’s payments were irregular.[50]
[49] Order 3 made on 21 June 2012
[50] Wife’s second affidavit, paras 8-19
On 14 March 2013, with the husband’s consent, that earlier order was discharged and replaced with an order requiring the husband’s payment of spousal maintenance to the wife in the sum of $600 per week.[51] At trial the wife said in cross-examination the husband failed to comply with that order over the last couple of preceding weeks.
[51] Order 2 made on 14 March 2013
The wife has been in receipt of a pension since August 2012,[52] for which she qualifies by age, and which amounts to $438 per week.[53] Her receipt of that pension must be ignored in assessing her entitlement to spousal maintenance
(s 75(3)).
[52] Wife’s second affidavit, para 21
[53] Wife’s financial statement, para 12
The wife has no other source of income. I accept she suffers from health complications[54] which, apart from her age, probably preclude her from finding and holding gainful employment.
[54] Wife’s fourth affidavit, Annexures B and C
The wife declared average weekly expenses of $1,273,[55] but some of the declared expenses were of a nature or amount not reasonably necessary for her adequate support. Without any cross-examination on the issue, it is difficult to accurately quantify the wife’s reasonable weekly need for maintenance. She undoubtedly has a need and, by his consent to the past spousal maintenance order in March 2013, the husband conceded the wife’s need was at least
$600 per week. It would not likely have decreased since then, but by how much her need may have increased is a rather elastic concept.
[55] Wife’s financial statement, paras 21, 26, 60
The wife sought an increase of her spousal maintenance from $600 per week to $1,200 per week, at least up until sale of the business.[56] That figure was presumably chosen to correspond with her declared financial need.[57] Although not challenged about her computations, some of the asserted expenditure could not fairly be described as reasonably necessary for her support. The wife’s claims for some expenses are untenable (books and magazines ($34); gifts ($35); dog expenses ($30); tolls and fines ($30); other commitments ($13)) and some other claims are probably excessive (food (-$80); electricity (-$24); telephone (-$20); petrol (-$80); car maintenance (-$50)). Attempting to do justice on the available evidence, it is open to find that the wife’s current need approximates $800 per week.
[56] Amended Application filed 24/11/14, Order 5
[57] Wife’s financial statement, paras 19-33, 60
Attention then needs to turn to the husband’s capacity to pay. The husband’s retention of the business affords him a continuing stream of income. The evidence does not permit the attribution of any specific value to the stream, but it is not insignificant. The husband has been able to pay the existing spousal maintenance order of $600 per week. It is also likely, as the wife alleged, the husband did not declare all income received by him through the business. His declared income only resulted in total taxation of $73,479 over the decade between 2002 and 2012.[58] That relatively low amount of aggregated tax is difficult to reconcile with the husband’s belief the business is worth $250,000 to an unrelated purchaser.[59] He also admitted ownership of cash and shares in a public company collectively worth around $24,000. In all probability the husband has the capacity to pay an extra $200 per week in spousal maintenance to the wife, making a total of $800 each week.
[58] Affidavit of Ms E, para 7
[59] Exhibit B (page 3)
As the wife expressly accepted, it is only equitable to force the husband’s payment of spousal maintenance to her whilst ever he has the capacity to pay. He will probably cease to have such capacity, or at least a capacity quantified at $800 per week, once he loses the business. That will occur when either he sells the business (which seems unlikely on the available evidence) or when the Suburb C premises from which the business trades is sold (as all parties desire) and no lease for the business is renewed. If the Suburb C property is sold there are, of course, no guarantees the new owner would want to lease the premises to enable continued operation of the business at that location, either at all or on terms acceptable to the husband.
For that reason, the husband’s liability to the wife for spousal maintenance will be discharged upon the latter of several prospective events: the husband’s sale or discontinued operation of the business and completion by Pavone Pty Ltd of its intended sale of the Suburb C properties.
The terms of the order preclude the husband’s escape from liability to pay spousal maintenance by his voluntary closure of the business before sale of the premises from which it operates.
Relief for the intervener
The intervener sought in these proceedings to recover all outstanding assessed liabilities due to him by all of the parties. His remedial proposal was expressed thus:[60]
[the intervener] seeks the inclusion of the [Suburb C] properties and [the business] within the Husband’s and Wife’s combined property pool and then payment from the Husband’s and Wife’s pool of assets in respect of the outstanding taxation liabilities of the Husband, Wife, [the Super Fund] and [B Pty Ltd]. Specifically, [the intervener] seeks payment from the sale proceeds of the [Suburb C] properties and the business.
[60] Written submissions filed 29/1/15, para 13
Since the intervener asserted that the Suburb C properties were owned both legally and beneficially by Pavone Pty Ltd, the intervener therefore proposed that Pavone Pty Ltd use its assets to pay to the intervener the assessed taxation liabilities on behalf of all other parties to the proceedings (amounting to $650,210)[61] even though it has no liability of its own to the intervener.
[61] Affidavit of Ms E, para 21
To achieve that outcome the intervener sought orders compelling sale of the Suburb C properties and the business by auction and use of the sale proceeds to pay costs and expenses, the outstanding NAB debt, and the amounts owed by the spouses to the intervener.[62] Although the proposed order only referred to the tax debts of the spouses, the intervener’s submissions made clear the order was intended to also cover the tax debts of B Pty Ltd and the Super Fund. The intervener submitted that ss 79 and 90AE of the Act were the sources of power for orders of that sort.[63]
[62] Amended Response filed on 3/12/14
[63] Written submissions filed 29/1/15
The intervener correctly identified the sources of the Court’s discretionary power to order payment of debts due by the parties to the intervener, but failed to address the question of whether such power only exists when the Court is motivated to exercise its underlying discretionary power to make property adjustment orders under Part VIII of the Act. The intervener’s submissions were made upon the assumption that property adjustment orders would be made between the spouses, but ignored the scenario of the existence of power under Part VIIIAA of the Act when no property adjustment orders were to be made under Part VIII of the Act.[64]
[64] Written submissions filed on 29/1/15, para 1
Section 90AA of the Act relevantly provides:
The object of this Part [Part VIIIAA] is to allow the court, in relation to the property of a party to a marriage, to…make an order under section 79…that is directed to…a third party.
(emphasis added)
Since no orders are to be made in relation to the property of the spouses under
s 79 of the Act, it may be wondered whether power exists to nonetheless make orders under s 90AE of the Act forcing a third party (albeit one closely linked to the spouses) to pay extraneous liabilities of the spouses and another third party to the intervener. The Full Court has said not.
In B Pty Ltd and Ors v K and Anor (2008) FLC 93-380 the Full Court observed:
In our view, all that s 90AE(2)(b) does…is to enable the court to adjust the property interests of a third party for the purpose of effecting a division of the present property of the parties to the marriage, between those parties. (at [28])
(emphasis added)
…the Court may only make an order under s 90A(2) [sic] if the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage. (at [39])
(emphasis added)
Any order made pursuant to s 90AE(2)(b) must be for the purpose of effecting a division of property between the parties. (at [63])
(original emphasis)
Some years later, in AC and Ors v VC and Anor (2013) 49 Fam LR 276, the Full Court accepted the Attorney-General’s submissions about the validity and effect of Part VIIIAA of the Act. Although the discussion related specifically to s 90AF, the principles are identical in respect of s 90AE. The Full Court accepted:
… [s 90AE] empower[s] the Family Court to make ancillary orders that affect third parties, so long as any such order is reasonably necessary or reasonably appropriate and adapted towards effecting a division of property between the parties to the marriage. (at [71])
In particular, the power conferred by Pt VIIIAA can only be exercised in order to effect a division of the property of parties to a marriage, or to make orders ancillary to that division. (at [72], [86])
(emphasis added)
Since, in the circumstances of this case, no orders are to be made dividing the property of the spouses under s 79 of the Act, no occasion arises to invoke
s 90AE as the intervener desired.
Even if such power did exist, its exercise is both circumscribed (ss 90AE(3), 90AK) and discretionary (s 90AE(2)).
Since the spouses are the only shareholders of Pavone Pty Ltd and it acquired the Suburb C properties during the spouses’ marriage, the intervener submitted that s 90AE(2)(b) properly enabled the proposed orders.[65] I do not accept that submission. Contrary to the intervener’s entreaty, in the circumstances of this case, I would decline to exercise the power even if it exists in isolation from substantive property adjustment orders being made between the spouses.
[65] Written submissions filed 29/1/15, paras 19-20
The evidence does not permit any conclusion about the financial affairs of Pavone Pty Ltd. The precise amount of its liability to the NAB is unknown and the extent of its other assets and liabilities is unknown. The rights of some other creditor of the corporation could be trammelled if the orders proposed by the intervener were made.
Whatever the net value of Pavone Pty Ltd may be, upon its liquidation the spouses would share equally in any asset surplus, as the intervener submitted.[66] But I am not persuaded it would be just to use the spouses’ equal equity in the corporation to pay their disparate individual liabilities to the intervener, despite the intervener’s submissions to the contrary.[67] The husband owes the intervener over $80,000 more than the wife[68] and a significant proportion of the husband’s liability accrued as a consequence of the manner in which he unilaterally chose to conduct the business without recourse to the wife.[69] The wife had no control over the use of income received through the business after March 2013, which was the sole province of the husband.
[66] Written submissions filed 29/1/15, paras 32-38
[67] Written submissions filed 29/1/15, paras 39-62
[68] Affidavit of Ms E, para 21
[69] Affidavit of Ms E, para 9
In the absence of property settlement orders between the spouses it will be incumbent upon them to voluntarily separate their property interests by:
(a)The wind-up of B Pty Ltd under the Corporations Act and the application of any asset surplus towards the discharge of that corporation’s debt to the intervener;
(b)The implementation of their mutual intention to cause the sale of the Suburb C properties by Pavone Pty Ltd and use of the proceeds of sale to discharge the debts due to the NAB and any other creditors, after which Pavone Pty Ltd can be wound-up and the parties can use their equal shares of the net surplus to pay their own individual liabilities to the intervener;
(c)Dissolution of their partnership under the terms of the Partnership Act;
(d)Roll-out of their superannuation interests from the Super Fund to another superannuation fund or account of their choice and then termination of the Super Fund.
The wife (but no other party) sought an order compelling the spouses to cause both B Pty Ltd and Pavone Pty Ltd to be wound up,[70] but such an application compelling the spouses to act in a particular way is conceptually different from an actual application for a corporate wind-up order under the Corporations Act 2001 (Cth).
[70] Amended Application filed 24/11/14, Order 6
This Court has jurisdiction under the Corporations Act (s 1337C(1)) and is empowered to order a corporation be wound-up, but there are numerous grounds upon which such an order may be made (ss 459A, 461) and the Supreme Court (Corporations) Rules 1999 (NSW) (rr 1.3, 1.7, 2.2, 2.4, 2.6, 2.7, 2.13, 5.4, 5.5, 5.6) prescribe the procedural manner in which wind-up applications should be made and the evidence required in support of such applications. None of those statutory and regulatory requirements were addressed in these proceedings and so it is not feasible to order the wind-up of either B Pty Ltd or Pavone Pty Ltd.
Nor is it worthwhile making orders against the spouses in personam forcing them to wind-up either corporation in any of the ways contemplated by the Corporations Act (Parts 5.4, 5.4A, 5.5). Pavone Pty Ltd should not be wound-up until it has completed the sale of the Suburb C properties. As for B, which is probably now insolvent, it would be relatively easy for the intervener to wind it up following service of an unsatisfied statutory demand for payment of its outstanding taxation liabilities (Part 5.4).
It is permissible for this Court to make declarations about the debts due by the spouses to the intervener and to make consequential orders requiring the payment of such debts (s 78). Such orders convert the intervener’s evidence about the debts into prescriptive obligations in the nature of money judgments that may be enforced (see Matusewich v Matusewich (1978) 4 Fam LR 258 at 265-266). The orders permit the spouses two months within which to arrange their affairs and pay their debts to the intervener.
For completeness it should be observed that the spouses did not seek any order dissolving their partnership under the Partnership Act (s 35), which power this Court may wield (s 79 Judiciary Act 1903 (Cth)). Again, no evidence was addressed to the statutory considerations which are the premise for such an order.
It should not be for the Court to manufacture remedial orders which are uncontemplated by the parties. There is a limit to the orders that may be foisted without notice upon parties before the result is rendered procedurally unfair.
Costs
The husband sought an order that each party pay their own costs,[71] though it is unclear whether he contemplated an order in those terms would also apply to the intervener. The intervener proposed that his costs would be covered by the substantive orders made by the Court.[72] The issue of costs was not broached during the final hearing so costs are reserved for 28 days.
[71] Amended Response filed 15/12/14, Order 8
[72] Amended Response filed 3/12/14, Order 4(d)
I certify that the preceding one hundred and one (101) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Austin delivered on 26 February 2015
Associate:
Date: 26 February 2015
0
11
5