Picote and Destin

[2007] FamCA 1011

FAMILY COURT OF AUSTRALIA

PICOTE & DESTIN [2007] FamCA 1011

FAMILY LAW - PROPERTY - whether any assets available - alleged misappropriation during marriage - inadequacy of evidence - financial disclosure - application dismissed

Family Law Act 1975 (Cth), s.79, s.75(2)

Weir and Weir (1993) FLC 92-338

HUSBAND: Mr Picote

WIFE: Ms Destin

FILE NUMBER: MLF 3129 of 2005

DATE DELIVERED: 3 September, 2007

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Brown J

HEARING DATE: 18, 19, 20, 21 June, 2007

REPRESENTATION

COUNSEL FOR THE HUSBAND: Mr. Weil

SOLICITOR FOR THE HUSBAND: T.I.A. Forbes & Henry

COUNSEL FOR THE WIFE: Ms. Smallwood

SOLICITOR FOR THE WIFE: David Gibbs & Associates

Orders

1. That the application for final property orders filed by the husband on 21 December, 2004 be dismissed.

1. That if a party seeks to make an application for costs, he or she file a written submission in support of such application on or before 28 September, 2007, and :

   (a)any response to such a submission be filed and served on or before 12 October, 2007;  and

   (b)any reply to any submission filed in response be filed and served on or before 26 October, 2007.

1. That any submission filed pursuant to paragraph (2) hereof have endorsed on the coversheet the date on which it was served on the other party.

1. That within 48 hours of filing a submission pursuant to paragraph (2) hereof a copy of it be emailed to the associate to the Honourable Justice Brown at … .

1. That all extant applications (save applications for costs) be otherwise dismissed. 

1. That these proceedings be removed from the List of matters awaiting finalisation.

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

IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Brown delivered this day will for all publication and reporting purposes be referred to as Picote & Destin.

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF  3129  of 2005

Mr Picote

Husband

and

Ms Destin

Wife

REASONS FOR JUDGMENT

APPLICATIONS

1. Ms Destin and Mr Picote began to live together in 1998, when she was 36 and he 37. They married in January 2000. They could not agree on the date on which they finally separated but it was probably in early September 2003, after at least one earlier separation and reconciliation. The husband filed an application for final property orders on 21 December 2004 in which he sought that the property of the parties be divided equally, the wife pay him $167,250 forthwith, and the wife pay his costs. In a response filed on 24 February 2005, the wife sought that his application be dismissed and that he pay her costs. The court is asked to determine the competing applications and decide what orders, if any, should be made pursuant to s 79 of the Family Law Act 1975.

LEGAL PRINCIPLES

1. The approach to the exercise of the discretion under s 79 is well established. It is appropriate for the judge to identify the assets to be divided between the parties, identify the liabilities to be taken into account and then to determine the manner in which the assets ought to be divided, having regard to the respective contributions of the parties. It must then determine whether further adjustments should be made having regard s 75(2) considerations, and consider whether the outcome is just and equitable.

1. The primary issue in the case is whether there is an asset pool available for division.  Although the husband cannot identify any specific assets, it was his submission that by tracking the course of financial dealings, the court could find that the wife must have undisclosed assets, or have had the benefit of undisclosed assets since separation.  To this end his counsel relied on an alleged failure to disclose financial transactions and personal financial circumstances, submitting that this failure allowed the court to make a finding that the wife had significant undisclosed assets.  In that submission he referred to no authority and stated the principle in very broad terms.  Given its centrality to the issues before the court, it needs to be restated.

1. In Weir and Weir (1993) FLC 92-338 the Full Court considered a case in which one of the issues to be determined concerned an allegation by the wife that the husband had concealed income from a business and had applied it for his own use. The wife’s accountant had discovered what he considered to be discrepancies in the accounts of the business and the wife argued that these discrepancies should have led the trial judge to have brought into account a sum representing sales not recorded in the books of the business. The parties had separated in 1986 and it is apparent from the Full Court judgment that the discrepancies related to financial dealings by the husband after separation.

1. In some respects the facts in that case are analogous with those in this case.  A number of discrepancies were identified by an accountant in the course of valuing a business.  A full audit of the business had not been undertaken.  The evidence established facts (that is, apparent financial discrepancies) which required explanation and counsel for the wife submitted that no satisfactory explanation had been forthcoming from the husband.  The husband had offered a partial explanation and had been able to demonstrate the validity of his contentions in a number of instances. 

1. While the Full Court upheld the appeal in that case, it did so on the basis of evidence additional to that of the husband (which it described as “quite damaging evidence”) relating to the husband’s financial practices.  At 79,593, the Full Court held that it would have been clearly open to the trial judge to conclude that the husband had offered a partial explanation which, when coupled with the incomplete nature of the financial investigation, would have been sufficient to support a finding in his favour.

1. At 79,593, the Full Court set out the general principle as follows:

   This Court has pointed out in a line of cases leading up to the recent decision of the Full Court in Black and Kellner (1992) FLC 92-287, that it is the duty of a party involved in property proceedings in this jurisdiction to make a full disclosure of their financial affairs. See also Giunti and Giunti (1986) FLC 91-759, and Mezzacappa and Mezzacappa (1987) 11 Fam LR 957: (1987) FLC 91-853. It is clear enough from his Honour’s findings in the present case that the husband had not done so and had in fact pocketed the proceeds of a substantial number of cash sales. It is obvious that in most cases of this nature it is difficult enough for the other party to establish that fact let alone establish the quantum of what has been taken.

   It seems to us that once it has been established that there has been a deliberate non-disclosure, which follows from his Honour’s findings in this case, then the Court should not be unduly cautious about making findings in favour of the innocent party.  To do otherwise might be thought to provide a charter for fraud in proceedings of this nature.

   It is true that in the case of Monte and Monte (1986) FLC 91-757, the Full Court said that to found jurisdiction under s. 79 in relation to property other than that which had been identified, the trial judge was obliged to make a finding as to the existence and value of other undisclosed property, even though the unsatisfactory nature of the evidence made it necessary to express that finding in the most general terms both as to identity and value.

   We confess to some difficulty with this proposition.  We should have thought that the Court’s jurisdiction to make an order going beyond the identified property arises once there is sufficient evidence to support a finding that the party has not made a full disclosure of his or her assets.

   The difficulty then arises as to what order should be made.  However, we are troubled by the proposition which seems to arise from Monte and Monte that if a party is either cunning enough or vague enough to cover his or her tracks sufficiently to prevent a Court making a finding as to the amount that has not been disclosed, then the other party fails.  We do not believe this to be the law and in so far as the decision in Monte and Monte supports such a proposition, we do not believe that it should be followed.

EVIDENCE

1. Findings are made on the balance of probabilities having regard to the evidence and my observations of the demeanour of witnesses.  In what follows, statements of fact constitute findings of fact.

1. The husband relied upon affidavits filed by him on 21 December 2004 and 14 February 2007, and a financial statement filed on 14 February 2007.  With leave, he called two additional witnesses.  A proof of evidence of each was supplied to counsel for the wife; the truth of each was sworn to by the witness.  The first was VB, a friend of the wife, who was involved in various financial transactions with the parties.  At that time she was known as VK.  To avoid confusion (particularly as she now shares a surname with another witness) I will refer to her as V.  The second was Ms JB, who worked for a period in the trades business conducted (through various entities) by the husband and his brother L for many years.  The two women are now sisters-in-law; that is, their husbands (who have the surname B) are brothers. 

1. The wife relied on affidavits filed by her on 24 February 2005 and 17 November 2006 and a statement of financial circumstances filed 17 November 2006.

1. The court is asked to make sense of a conflict suffused with enormous hostility and bitterly disputed competing narratives.  The facts tell a sorry tale of a short marriage in the course of which the parties, and members of the husband’s family, endeavoured to protect assets from a pending bankruptcy, defraud some creditors (by going behind the trustee in bankruptcy to pay out other creditors in full) and to arrange their financial affairs to benefit family members, with scant regard for the obligations of the various individuals or corporate entities involved.  It is also, I am satisfied, a tale of financial mismanagement and incompetence from beginning to end and it is a tale which demonstrates the inadequacy of bankruptcy laws ostensibly designed to protect creditors. 

1. As this judgment will reveal, the evidence of the parties was often inconsistent, fragmented and partial.  The husband conceded that he brought the proceedings at the urging of family members.  He had nothing to do with the exercise which resulted in 33 copy cheques drawn on the trades business account being tendered as alleged proof of the wife’s misappropriation of business funds.  He could not say if they were illustrative of a course of conduct, or constituted the whole of the evidence of it. 

1. There are handwritten notations on many of the copy cheques, apparently referrable to the relevant cheque butt entry.  In general, the details reflected the relevant cheque butt, although not necessarily the complete entry on the cheque butt.  For example, the hand-written notation of the butt entry on cheque 761 is “W… $1300”.  The butt itself records “P… W…” (written in blue ink, as is the date and amount of the cheque) but across it is written, in black ink, on the diagonal, “W…”.  For a number of cheques, the butt itself is blank, recording no payee, and, sometimes, neither payee nor date.  Some of the copy cheques carry a second notation, apparently relating to the ascertained payee or the purpose for which the cheque was drawn.  For example, cheque number 1573 is for $1,091.55:  the copy cheque bears the payee “OS”;  the butt is blank;  the handwritten entry is “cheque drawn for OP Petty Cash reimbursement”.  The butt of cheque 1699, cleared for $4,000, is blank but the unknown hand has recorded “K…”. 

1. Thirteen of the copy cheques carry another notation, being handwritten numbers prefaced by G…, in apparently different writing to the notations which relate to the butt entries, or the use to which the cheque was put.  The numbers are, variously, G… …7, G… …6 and G… …3.  These may be referrable to later accounting entries. 

1. None of the handwritten notations on the copy cheques was made by Ms JB or the wife.  The husband had no idea of their origins save that in one answer (in response to a question about the notation on cheque 549) he said :  “T wrote it.  She lives in Carrum”.  The sense of his answer was that T was the person who wrote “agent for PL property purchase” on the copy cheque, but he may have meant T had something to do with the purchase itself. 

1. If some or all of the handwriting is that of T, I can say nothing about her.  She was not called.  Nor was Ms O, who worked in the office of the business in the period leading up to the bankruptcy and for a period after it.  Nor was the husband’s sister-in-law, Ms FP, who was involved with book-keeping until the brothers became bankrupt in October 2001 and who, the wife deposed, was aware of a number of financial transactions, including a transfer of $10,000 from the business account in September 2003.  After the wife’s departure, Ms FP was appointed director and secretary of the company which conducted the trades business. 

1. The husband’s brother, L, was not called.  He was responsible for preparing quotes for the business.  I cannot say whether L could have shed light on the notations or the way cheques were used in the business.

1. In my judgment the failure to call the author or authors of the handwritten notations was a significant failure.  As will become clear in this judgment, a few (including that on cheque 1573) tend to corroborate the wife’s evidence of unusual business practices.  I draw the inference that calling the author or authors would not have assisted the husband’s case.

1. I cannot say who prepared the list headed “Cash Disbursement Journal” which is part of annexure PMP 5 to the husband’s second affidavit.  The cash disbursement journal was not in evidence. 

1. At times the husband appeared to say that he had not even read the notations on the copy cheques, although at other times his evidence was consistent with him having done so.  He had no personal knowledge of how the trades business operated financially, retreating, whenever pressed, to saying he worked in the factory, not in the office.  He played no apparent role in any of the purchases or sales of real estate during the parties’ marriage although he deposed in his first affidavit to consenting to the acquisition of two investment units, and to the wife’s arrangement with V to purchase a property in C.

1. Reference will be made to a number of companies.  The first, referred to as GV Pty. Ltd. or GV (Australia) Pty. Ltd. was registered on 28 March, 2001 and thereafter conducted the trades business known as OP operated by the husband and his brother, L.  The second, OS Pty. Ltd. was registered on 29 October, 2001, twelve days after the husband and his brother were declared bankrupt and it became the registered proprietor of a number of pieces of real estate.  The third, OP Pty. Ltd., is noted on cheques drawn on the GV (Australia) Pty. Ltd. account, and is referred to in paragraph 32 of these reasons.

1. It was common ground that, during the marriage, sums were due to NAB in respect of mortgages over the matrimonial home, two investment units and a property in E Street.  The husband gave no sense that he had ever put his mind to the question of the source of funds to pay those mortgages.  When it was put to him that, on occasions, the wife used funds in OS’s account to pay wages and other debts of the trades business, his response was that OS had no money, a simplistic assertion and one not said to be based on any analysis of such OS bank statements as were tendered. 

1. The wife’s evidence was of chaotic and inept book-keeping and financial management.  On her account, an explanation for some transactions was the necessity to disguise them, examples being payments to pre-bankruptcy creditors of the full amounts due to them, and payments to make up the brothers’ wages to pre-bankruptcy levels.  Her explanation for other transactions could be summarised as incompetence and desperation, as she tried to keep the business afloat.  On her own account she was as careless and haphazard in her financial dealings after separation as she was before, losing money on a real property purchase and a very short-lived business.  Like the husband, she often answered a question by saying she did not know, could not recall or could not explain.

1. The husband’s animosity towards the wife was manifest in his demeanour.  He sneered and laughed in a derisory way and I have little confidence in his capacity for objective recollection.  From his perspective, before and after bankruptcy, the trades business was owned by family, regardless of its formal corporate structure.  It was conducted for the benefit of family.  Family members had convinced him to take proceedings after convincing him that he (and possibly they) had been cheated.  None of those family members gave evidence.  GV Pty Ltd (which conducted the trades business) was not joined as a party although the cheques allegedly misappropriated by the wife were cheques drawn on it.

1. When the parties met, the husband had accumulated savings of around $130,000.  Less than ten years later, he has nothing.  For that he blames the wife, and his hostility towards her is explicable in those terms.

1. The wife presented as having a greater capacity for logical thought than the husband but she was as bitter as he was angry.  She was clearly frustrated by the proceedings and by the allegations of misappropriation but lacked any insight into the role she played in the parties’ financial decline, particularly after separation.  For her it seemed sufficient to shrug off imprudent or irresponsible financial dealings, a fatalistic approach in which an acceptance of responsibility had no part.

ORDERS SOUGHT

1. When the case was opened I understood counsel for the husband to be seeking a finding that the relevant property available for distribution (whether in specie or notionally in the wife’s hands) totalled some $381,900.  Of this, $281,900 was characterised as unaccounted proceeds from the sale of real estate.  The remaining $100,000 was said to represent funds misappropriated by the wife to her own use during the marriage and just after separation.  It was alleged that she signed cheques drawn on the GV account made payable to third parties, who had nothing to do with the trades business, or to herself, to OS and to cash, and personally had the benefit of those funds. 

1. This characterisation of his case was consistent with paragraph 5 of the husband’s second affidavit and with the exhibit to that affidavit marked RMP7, which is a table setting out how the figure of $381,900 was reached.  It being clear that this was a case in which a party sought to trace funds through business and corporate transactions, I made it clear to counsel that it would be necessary to reduce the evidence on which he relied to tabular form.  I am grateful to his instructing solicitor, who subsequently produced two documents which were admitted into evidence. 

1. The first was designed to summarise all relevant information in respect of the 33 cheques tendered as exhibit H3, being (in effect) a note of the information on the cheque butt and the related cheque.  However, this list contains details of 40 cheques, of which seven were not included in exhibit H3, and in respect of which neither the husband nor wife gave evidence.  She also prepared a list of cheque butts for the period 13 September 2001 to 24 October 2003 on which the payee was recorded as “wages”. 

1. In the course of his final submission, counsel for the husband produced a document which is annexed to these reasons, ostensibly setting out the evidence on which he relied to advance his submission that the husband should be paid the sum of $168,000.  At that point he made it clear that his client no longer sought to be repaid any part of the $100,000 allegedly misappropriated by the wife from GV; it was put that all the evidence in relation to those transactions went to her credit.  On the figures advanced in the husband’s second affidavit, including exhibit RMP7, and the document tendered in final submissions, I cannot say how a figure of $168,000 was reached.  Nor could counsel for the husband.  I can say that it was meant to represent one half of the matrimonial assets available (notionally or otherwise) for distribution, as counsel for the husband made it clear that was his client’s position, notwithstanding the evidence of the husband’s substantial initial contribution and the brevity of the marriage.

1. The wife’s position was constant throughout the trial.  From her perspective, the husband’s application was a form of harassment, and should be dismissed with costs.

CHRONOLOGY

1. The husband is a tradesman who, since he was about 25, has operated a trades business.  His brother, L, operated it with him.  For some time, possibly from the outset, it was known as OP.  There is reference in the evidence to a company called OP Pty Ltd.  Copy cheques in evidence, drawn on NAB account …, carry that company name and the ACN … on their face.  Notwithstanding that, the account against which these cheques were drawn is in the name of GV (Australia) Pty Ltd, trading as OP, and the ACN on the cheques is that of GV.  The parties purchased a property in GV Road, …, in late 1998 and it is probable that street name provided the inspiration for the name of a company which was registered on 28 March 2001, some months prior to the brothers’ bankruptcy.  It is unlikely OP Pty Ltd has ever existed.   

1. Soon after the parties met in 1998, they bought a house at GV Road, ….  The wife has a daughter, C, from an earlier relationship, born in 1991.  The husband, wife and C moved to the GV Road property.  

1. In his first affidavit the husband deposed that he purchased the home for $175,000, contributing $125,000 cash and borrowing $60,000 from NAB.  He then deposed that he “sold my home” in 2000, after it became clear the trades business was in considerable debt.  In her first affidavit the wife deposed that the house was purchased in joint names, not by the husband alone, and transferred into her name in June 2001.  It was only in his second affidavit, sworn more than two years later, that the husband deposed that the GV property had been registered in the joint names of the parties.  The wife’s evidence was that she put in $15,000 from cash savings, a proposition the husband denied and for which there was no corroborating evidence.

1. What is clear is that the parties together bought this property for the price the husband recalled, being $175,000, and registered it in their joint names.  I accept the husband’s evidence that he put in $125,000, being the bulk of money saved since he was a young boy.  The rest was borrowed from NAB, and his recollection of $60,000 is probably correct.  In 2001, with bankruptcy imminent, the husband and wife transferred the property to the wife alone, the consideration being “natural love and affection”.  The transfer was stamped on 28 June 2001.  The wife’s evidence was of re-mortgaging the property to the Bendigo Bank in November 2001, borrowing (she thought) $85,000.  That may well have occurred.

1. Save for his evidence that it became clear in 2000 that the trades business was in considerable debt and that “in about October 2001 I was declared bankrupt”, the husband adduced no evidence whatsoever of his bankruptcy.  The evidence satisfies me that the petition was filed by the Australian Taxation Office, in respect of a considerable debt owed to it.  The husband’s evidence was that he had no idea of the full amount of the debt and no idea what creditors were to be paid.  That is probably correct and indicative of his lack of engagement with his own financial affairs.  Whilst I cannot say what figure was in the petition, I can say that the sale of a vehicle for $100,000 was not sufficient to stave it off, and the machinations the family went through are indicative of them believing significant sums to be at stake.  It is probable at least some part of the ATO debt related to unpaid group tax.

1. The husband and his brother were declared bankrupt on 17 October 2001.  Twelve days later, OS Pty. Ltd. was registered.  The husband deposed that he and the wife established it, that the sole shareholder was their friend V and that the wife was appointed the director and secretary.  Evidence of its office holders is complicated by the fact that when OS was placed in liquidation in 2005, the liquidator reported (in his final report dated 8 November 2006) that the wife was appointed director of OS on 28 February 2003. 

1. Having transferred it into the wife’s name alone, to protect it from creditors, the property in GV Road was sold.  In his first affidavit, the husband deposed to receiving approximately $220,000 net from the proceeds.  It is probable the property was sold for $285,000.  No documents relating to that sale were tendered.  There was no evidence of the actual amount owing on the mortgage when it was discharged and I am unable to say with certainty whether the mortgage was then with NAB (being the original mortgage of $60,000) and/or Bendigo Bank (being a re-financed mortgage of $85,000).  I have no doubt that the figure of $220,000 advanced by the husband as the net proceeds was computed rather than recalled.  That is, from the net proceeds a mortgage of around $60,000 and some selling expenses were deducted, leaving the figure of $220,000.  The tracing exercise relied on by counsel for the husband was premised on net proceeds of $220,000 but I am unable to say what figure was available to the parties after the sale of GV Road. 

1. Keeping the creditors at bay, OS then bought a property at PL, for $345,000.  The transfer is dated 9 April 2002 and stamp duty of $16,360 was paid on 24 May 2002.  By a Deed of Trust dated 22 March 2002, OS declared that it held that property in trust for the wife.  The deed notes that a contract note for the purchase of the property was dated 26 January 2002.  Pursuant to it, the wife indemnified the trustee in respect of all liability under a mortgage to NAB.

1. The declaration of trust was prepared by a solicitor.  The tendered copy carries the company seal of OS (affixed by V as director) and the signature of the wife.  No stamp duty is recorded on this copy.  A declaration of trust is dutiable; were this deed stamped now the rate would be $2,560 plus 6% of the dutiable value in excess of $115,000, being the same rate applicable to a transfer of real property.  If stamp duty were paid, I cannot specify the source of funds.

1. In his first affidavit the husband deposed that a mortgage of approximately $150,000 completed the purchase of the PL property.  It is likely this figure, too, was computed.  The purchase price was $345,000; with stamp duty on the transfer to OS, it rose to $361,360.  Other acquisition costs considered by the husband (for example, registration, legal fees, adjustments) would have added to this figure.  If one takes off the $220,000 he calculated as available from the sale of GV Road, a figure of a bit below $150,000 would be reached.

1. Whilst the court could not be satisfied beyond doubt that that was how the husband got to the figure of $150,000, it can be satisfied that the evidence discloses that the NAB mortgage at the time of acquisition of the PL property was $180,000, not $150,000.  This suggests that the amount available from the sale of GV Road was less than the husband asserted.  His evidence was clear; the whole of the proceeds of GV Road went into the PL property.  Given the purchase price and the stamp duty paid, and allowing for additional costs as described earlier, there would have been no need for a mortgage of $180,000 if $220,000 had been available.  It is probable the sum available was at least $30,000 less than the husband recalled, which accounts for the $30,000 discrepancy between the figure he believed was borrowed and the actual figure.

1. GV Pty Ltd was created to ensure the trades business was able to continue after bankruptcy.  The husband’s evidence was that it was set up on “the recommendation of my trustee in bankruptcy and my accountant”, to purchase the business.  Tendered documents show it was registered on 28 March 2001.  In his first affidavit the husband deposed that the business “was sold as market value to my sister.  Since that time I have continued to work in the business as an employee.”  In fact (and as deposed in his second affidavit) GV borrowed $30,000 from the husband’s cousin, Mr P, and bought the business from the trustee.  In his second affidavit the husband conceded that he could not remember if any money were borrowed to pay back his cousin.  The wife’s evidence was of later borrowing $40,000, of which $30,000 went to repay Mr P, and I find that to be more probable than not.  The husband adduced no evidence of a continuing debt to Mr P.

1. In his second affidavit the husband deposed to his recollection of the corporate arrangement viz-a-viz GV and the business, as follows:

   My sister was meant to be a director and shareholder with my sister-in-law Ms FP but somehow the Respondent Wife was registered on the company without our knowledge or consent.  To the best of my knowledge and belief a sum of $130,000 or any other sum was negotiated for the transfer of the shares as the business was not worth any money as it had more debts than assets.

2. Dealing initially with the first part of this evidence, I am satisfied the husband’s recollection was wrong.  It is probable his sister was registered as the initial director and secretary but, after some five months, sought to be relieved from that role.  Copies of ASIC searches tendered paint a confusing picture.  A document filed by electronic lodgement on 9 October 2002 records that Ms H (the husband’s sister) ceased to hold office as the director and secretary on 8 October 2002; the husband’s sister-in-law, Ms FP, was appointed to both roles as from that date.  The document was submitted by Ms FP and dated 8 October 2002.  A second electronic lodgement, dated 28 November 2002, notes that Ms H ceased to hold office as secretary and director on 27 November 2002 and that the wife was appointed to both offices on that day.  That document was prepared by the wife, and is dated 28 November 2002. 

1. There are then two documents signed by Mr G (an accountant engaged by the business), one dated 2 April 2003 and the other 15 July 2003.  These are forms providing information supplementary to a previously lodged document.  The first notes that Ms FP resigned as director and secretary “as previously advised on forms 304 and 207, electronically lodged on 9/10/02”.  The supplementary information in the second is that Ms FP resigned as director and secretary of GV “effective 5 December 2002”. 

1. As the husband and his brother were undischarged bankrupts, the wife was authorised to sign cheques drawn on the GV account. 

1. What is clear is that these machinations had little, if anything, to do with what occurred at the business.  The husband’s brother continued to do the quotes, and trades work.  The husband continued to work in the factory.  They drew as wages the sums authorised by the trustee and, it is probable, made up the difference between those sums and the money they used to take from the business, in cash.  Trade suppliers who were deemed essential were paid out the full sum due on their original invoices, invoices which had formed part of the bankruptcy accounts.  That is, having received however many cents in the dollar as were available to unsecured creditors, some of those creditors were then paid the whole of the balance.  The husband made it clear that this was what usually occurred in such circumstances. 

1. Certain words used by witnesses (and counsel in the course of questions) need to be considered against this context.  For example, many questions related to “cash”.  Sometimes this referred to cash as opposed to a cheque: for example, there was evidence of staff being paid in cash, and of cheques being cashed.  Sometimes “cash” was used to mean sums which were not invoiced (that is, part of the cash economy) or money paid for which there would be no record available to either the trustee in bankruptcy or the ATO: for example, cash paid to the husband and his brother to make up their pay to pre-bankruptcy levels.  Neither counsel nor the witnesses were always careful in their use of these terms: a cash job could be one in which it was anticipated that cash would be brought in (and thus immediately available, rather than waiting for an insurance cheque to clear) or it could mean a job which was never going to be invoiced, forming part of the black economy.

1. Cross-examination about payments made to suppliers after bankruptcy, for pre-bankruptcy debts, was bedevilled by this lack of clarity.  The husband insisted that no suppliers were paid without an invoice.  He readily conceded that essential suppliers were paid out the balance of pre-bankruptcy debts, to ensure they continued to supply the business.  In those circumstances, there would have been no fresh invoice against which to credit a post-bankruptcy payment, as the original invoice was with the trustee-in-bankruptcy, and to prefer one creditor over another would be to commit an offence.  Funds paid to those pre-bankruptcy creditors could not be properly characterised as such in any accounts.  Whilst in theory a pre-bankruptcy creditor could have presented an invoice for the balance of the debt, to be paid post-bankruptcy, it is highly improbable that would be done, leaving an easy paper-trail for prosecution.  The husband is no doubt right to say purchases were always invoiced but wrong in assuming another invoice would have been prepared to match under the table payments to selected creditors. 

1. I cannot say what the husband meant by the second sentence quoted in paragraph 44 of this judgment.  The word “not” may have been omitted before “negotiated” but that does not render it explicable as the wife’s evidence from the outset was of borrowing $30,000 (not $130,000) from the husband’s cousin to fund the purchase by GV from the trustee and I have no doubt that occurred.  Indeed, earlier in the paragraph from which the quote in paragraph 44 of this judgment is taken, the husband deposed to the company (GV) paying $30,000 for the business, using money advanced by Mr. P. 

1. In mid-2003, less than two years into his bankruptcy, the husband and wife decided to buy a couple of investment properties.  These were fully financed and registered in the name of OS.  One, F1 property, was purchased for $230,000.  The second, F2 property, was purchased for $157,000.  The husband’s evidence was that collateral security was provided by the home at PL and a property at E Street.

1. The wife’s account in her first affidavit of the transaction involving E Street was as follows:

   My friend, [V], needed to buy a house and could not do it on her own.  We agreed that I would assist her with the purchase.  I contributed $17,000 towards it and then after it settled paid $400 per month towards the mortgage.  The agreement that [V] and I had was that ultimately when the property sold I would receive half of the net proceeds.  Eventually she decided to buy me out and gave me $32,000.  My husband did not make any contribution either physical or financial to this property.

2. In the proof of evidence she signed on 18 June 2007 (which she adopted on oath during the trial) V referred to this, as follows:

   In about September 2001 [the wife] and I purchased a property at [E Street].  We both contributed $10,000 on the basis that either of us could call for an equal share of the equity in the property.  The property was registered in my name alone.  Shortly after [the husband] and [the wife] separated in about August 2003, [the wife] requested that I pay her out her share, which I did in the sum of $33,000 by one bank cheque.

1. In his second affidavit, the husband denied that he had made no financial contribution to E Street.  By then he was apparently aware that the property had been purchased for $142,000 and that a loan of $128,250 was secured against it.  Adding stamp duty and other costs, he computed that “a bit less than $20,000 would have been needed to purchase this property” and, on the basis that V and the wife (or, the wife and he) paid for it equally “we would have contributed approximately $10,000 towards this purchase”.  He went on to say: “I would estimate that the property would have an approximate value of $200,000 at the time of the sale and accept this would have been roughly the amount the respondent wife received.”  That sentence makes little sense as the property was not sold by V (or V and the wife).  He may have meant to refer to an increase in the property’s value and/or his understanding of how the $33,000 was fixed.  His evidence did not extend to recalling the source of the $10,000 they “would have contributed”, or the source of the monthly mortgage payments made by the wife.

1. This purchase was yet another attempt to maximise financial advantage by a deception, in this case by obtaining a first-home-buyer’s grant which would not have been available had the beneficial ownership of the property been known.  The wife and husband had both owned real property, and V was eligible for a grant.  A deposit was paid on the property in July 2001 and V moved in in September 2001.  On 22 March 2002 a deed of trust was signed by V and the wife.  The document bears the same date, and is very similar in form, to the deed of trust made by OS and the wife in respect of the PL Property.  It carries the same solicitor’s name.  Neither the wife nor V could give a cogent explanation for why the deed of trust was prepared so many months after settlement.  It noted that V and the wife had jointly borrowed $128,000 from L Finance, and V had borrowed an additional sum of $14,000 from that company.  Both loans were secured by first mortgage over the property.  The deed noted that V held the property in trust for herself and the wife as tenants-in-common in equal shares.  V was to keep the property insured and pay all rates, taxes and like outgoings.  The wife was to pay $400 per calendar month towards the mortgage payments and V was to be responsible for the balance.  The deed provided that in the event the property was sold, the net proceeds would be divided equally between the parties, subject to V repaying the additional loan out of her share of the proceeds.

1. Although V referred to contributions of $10,000 each in her proof of evidence, her oral evidence was different, she saying that she and the wife both put in $14,000.  She said she provided $7,000, paid to her as a first-home-owner’s grant, and then put in another $7,000 by way of work and/or outfitting the property. 

1. The wife’s evidence was that she had put $10,000 deposit on a block of land at H, prior to its release.  When it was released quite some time later, she decided not to proceed with the purchase.  It was at that time she told V that she had $17,000 which she could put down as a deposit, so V and her daughter could have a house to live in.  I find that version more probable than that advanced by V, either in her affidavit or in her oral evidence, and place no weight on V’s oral evidence that the wife told her, just prior to paying the deposit, that the money came from the husband.  V agreed that the wife paid $400 per month towards the mortgage, at least until 10 months prior to the eventual sale of the property.  The husband evinced no interest in the source of the funds to meet the mortgage payments.

1. I add that when the husband was cross-examined about his evidence that joint savings went into E Street, he retreated into agreeing that the wife had sold land to fund the deposit, and saying “I wouldn’t know”.

1. Receipts from Stockdale and Leggo show that a $500 deposit was paid on 4 July 2001 and the evidence was that each of the women paid half of that sum.  Another $13,750 was paid on 10 July 2001, $3,500 by cheque and $10,250 in cash.  V agreed that she was with the wife when that money was paid, and that all of it was provided by the wife.

1. Although the husband deposed (in his first affidavit) that “[The wife] demanded re-payment of the loan”, that was not Vs evidence.  In her proof of evidence she said that the wife requested that she pay her out after she had separated from the husband.  Her oral evidence was that their dealings then were amicable, as had been their previous dealings. 

1. The husband maintained his position that V held a half interest in this property in trust for him and the wife but I am confident that was not V’s understanding when she went into the transaction.  The $33,000 was paid to the wife, not to the wife and husband, and there was no evidence that V ever discussed the post-separation transaction with the husband.  She was called by him and gave no evidence to suggest the deed of trust was not a correct statement of intention at the time.  That deed, too, would have been dutiable.

1. The wife’s evidence was that she banked the $33,000 “within weeks” in OS’s NAB account.  She said the funds were used to make mortgage payments on the two investments units and PL, and to outfit a unit for her after separation, once PL was sold.  The evidence was that one of the investment units was never let and the other was let for a maximum period of two months, at $200 per week.  Thus, for the whole of the period between purchase and sale, the wife had to find funds to pay mortgage instalments on the investment unit and PL, and to pay her share of the mortgage on E Street.

1. The parties probably finally separated in early September 2003.  In her first affidavit, the wife deposed to them separating in September 2002, which cannot be correct.  That was in response to the husband’s first affidavit, in which he swore that they separated in August 2003, when he moved to the F2 unit for a couple of nights, and then to his mother’s home.  In his second affidavit the husband deposed that he and the wife did separate in September 2002 for several weeks, but then reconciled.  To support his contention that their final separation was in August 2003, he referred to the wife’s application for an intervention order, filed 5 September 2003, in which (he deposed) she claimed they had separated six weeks earlier;  the application is annexure RMP-1 to his second affidavit. 

1. Whilst it may not be of great moment, it should be said that the husband’s evidence of the claim (that they separated six weeks earlier) was a misstatement of the statement of complaint, which said:

   I decided the marriage had broken down irretrievably about six weeks ago and asked him to leave.  He has gone to live with his mother but he continually comes back around to the former matrimonial home uninvited and won’t leave when I ask him to.  He is quite often verbally abusive and harasses me into letting him stay.  The last incident was last evening when he stayed against my wishes.
   About two months ago he belted, kicked and punched my daughter’s little Maltese pub in front of her.
   I now seek to restrain him from coming near my home.

1. In his affidavit the husband denied the allegations and said that her application for an intervention order “was for property purposes only”.  I am unsure what he meant by that;  it may be that he alleged she filed the intervention order for a tactical reason.  It is apparent the wife was still living in the PL property on 5 September, 2003.

1. An ASIC search notes that Ms FP replaced the wife as director and secretary of GV.  This was advised on 19 September, 2003 but was retrospective to 1 September, 2003;  it is probable this was done after separation but back-dated for a period.

1. In addition to the allegedly misappropriated 33 cheques, the husband alleged the wife had misappropriated additional funds by way of a bank transfer from the trades business account of $10,000 on 25 September, 2003.  The wife’s evidence was that the husband and Ms FP knew about that transfer and agreed to it;  her evidence was that these funds were used to pay mortgage obligations, through OS.

1. The husband deposed that at or around the date of separation the wife wrote him a note, which is annexed as RMP-4 to his affidavit sworn on 19 January, 2007.  It is undated.  In it the wife sought that the husband pay her $145,000 by the following Friday “at the latest”.  The letter sets out the following calculation :

   Value of house          $430,000

   Loan  -$170,000     NAB

   $260,000

   [Husband]                  $130,000  [Wife]            $130,000

   +  15,000
     $145,000

2. I cannot say what the $15,000 relates to.  The balance of the letter moves between expressions of regret at the way the marriage ended and distress at alleged conduct of the husband.  It was clearly written at a time that she was still in the home.

1. The husband’s evidence was that after separation the PL property and the two units were put on the market by the wife, and sold.  He provided no explanation for his passivity.  It is true that all properties were registered in the name of OS, a company controlled by the wife.  However, he could have made application to the court (as he did in December 2004), seeking that she be restrained from dealing with alleged matrimonial assets or taken other steps.  There was no evidence that he ever sought to discuss these sales with the wife or anyone else involved in them, such as an agent; on the other hand, it was not his case that she sold them surreptitiously or secretly.  It is probable that, as with all their financial dealings and, probably, all financial dealings of the business, he simply left it up to others.

1. The PL property was sold for $410,000, and settled on 15 January 2004.  The statement of account prepared by the conveyancer showed $355,191.05 as “handed” to NAB.  In addition to adjustments, conveyancing fees and a cheque to White Cleland, the statement shows $20,500 as an amount held by the real estate agent (to be accounted to the wife after settlement) and $30,000 “to be banked into your ANZ account”.

1. The settlement statement at the foot of the statement of adjustments shows that the deposit paid by the purchaser was $20,500, being the amount held by the real estate agent.  One can assume that the commission and costs of the sale would have to come from that sum.  The wife was unable to say what amount she received from the agent (in respect of the deposit funds).

1. The sum of $178,032 paid into the mortgage account in respect of the PL property on 15 January 2004 suggests that the bulk of the original mortgage of $180,000 remained due when the property was sold.  As the PL property provided security for the two fully mortgaged investment properties, it is reasonable to assume that at least part of the balance of the sum paid to NAB at settlement (some $177,159) was applied by the bank towards those, and other, borrowings of OS and the wife.  By then these included the $40,000 borrowed after the bankruptcy, of which $30,000 went to Mr P.  The wife’s evidence was that the net proceeds of this sale were $50,000, less the agent’s commission on the sale.

1. After separation, the F2 unit was sold for $156,000; the statement of account prepared by the conveyancer is dated 3 February 2004.  Save for adjustments and agent’s commission the whole of the proceeds went to NAB in two tranches: the balance of the deposit of $11,305.60 was sent to NAB, and the balance paid at settlement, of $139,810.52, also went to NAB.

1. The loss made by the parties on this investment was not insignificant.  It was sold for $1,000 less than the purchase price but to that must be added the acquisition costs (including stamp duty, conveyancing fees and other disbursements), the sale costs (including commission and conveyancing fees), outgoings for the period it was retained (including body corporate fees, land tax and rates (all of which are referred to on the adjustment statement)) and all costs associated with the borrowings, including the mortgage payments themselves.  Only one of the units was ever rented, and that was for only two months, at a rental of $200 per week.  Whether this unit or the F1 unit, the rent would have hardly made a dent in the mortgage obligations.  No document sets out the specific sum due on the mortgage over this property at settlement.  Funds from the sale of PL (which was settled on 15 January 2004) may have been credited to the F2 mortgage account or against other debts of OS or the wife. 

1. The second investment unit, F1, was sold for $235,000, and settled on or about 25 March 2004.  The settlement statement shows $211,297.75 paid to NAB.  After adjustments and conveyancing charges it notes an amount of $24,500 held by the real estate agents, being the deposit paid by the purchasers.  The wife was unable to say what she did with the balance of funds available from the real estate agent, presumably after their commission and costs of sale had been deducted.

1. The wife tendered statements for OS’s NAB account 54 139 0400 for the period 22 January 2004 to 21 December 2004.  The sales of PL and the investment units all settled in the first quarter of 2004.  The wife’s evidence was that a deposit of $10,476 on 28 January was probably “from deposits”; I assume she meant deposits paid by purchasers.  The whole of the deposit on F2 ($11,305.60) went to NAB.  The $10,476 could have been the balance of the deposit on PL, as the settlement statement, dated 15 January 2004, referred to funds with the agent to be accounted for to the wife after settlement.

1. The wife’s evidence was that a debit on 9 February 2004 of $28,500 probably represented the deposit paid by her on S property, a property bought by OS in early 2004.

1. A credit of $30,000, by cheque deposit on 18 February 2004, probably was “to do with the sale of the properties”; $30,000 is the figure shown on the settlement statement for PL “to be banked into your ANZ account”.  The husband submitted that this proved the existence of other accounts owned or used by the wife, which the wife denied.  The transfers into and out of the OS account are consistent with the wife’s evidence; her dealings may have been chaotic but if she were trying to hide funds in that way at that time it is improbable she would have used the OS account as she did.  The probabilities support a finding this $30,000 came from PL.

1. On 23 February 2004 $24,200 was drawn from the OS account.  The wife agreed this was spent by her on a car.

1. On 18 March 2004, $17,033.10 was credited to the account.  Another $6,300 was transferred to the account on 19 March 2004 “. . . from […] …as requested”.  Again, the wife’s evidence was that this had something to do with the real estate transaction, and the latter probably came from the agent.  A potential source for the $17,033.10 is the F1 property deposit; although the settlement was a few days later the purchasers could have authorised its release, and the full deposit was $24,500.

1. On 29 March 2004, $29,881.20 was credited to the account, marked “from […] settlement proceeds [OS]”.  The evidence does not establish a source for this payment.  These could be funds paid to NAB at settlement of one of the units, or PL, and reimbursed once the full liability under mortgages was established, and discharged.  The last of the three sales settled on 25 March, 2004, some five days earlier.  Prior to the credit of $29,881.20, the account had been $366.96 in debit.

1. The next sum credited to the OS account was $40,000 on 16 June 2004, being a business loan advanced to establish or fund a business, R Company.

1. In early 2004 the wife purchased a property at S which was registered in the name of OS.  The settlement statement for that purchase is dated 26 March 2004.  The purchase price was $281,000 and at settlement NAB provided $253,232.88.  The wife’s evidence (in her first affidavit) was that the balance of the proceeds of the sale of the PL property went towards the purchase of the S property.  Her evidence was that the net proceeds from PL were $50,000, less agent’s commission on the sale.  If that evidence is correct, the deposit on S property, ($28,500) probably came from the net proceeds of sale of the PL property.

1. In her first affidavit (sworn on 18 February 2005) the wife estimated the value of the S property at $280,000 and deposed to an amount of approximately $260,000 then due to NAB, personally guaranteed by her. 

1. In 2003, the wife set up a retail business called R Company in leased premises in M, through OS.  The liquidator’s report, dated 8 November 2006, noted that the lease for the R Company premises commenced on 30 June 2003.  The wife’s evidence was of launching this business after separation, but that was in an affidavit which placed separation in September 2002.  In her first affidavit she deposed to owing NAB $40,000 on a loan for that business, and that $20,000 was owing on “a business card”.  The only assets of the business were stock and the lease.  Before me, her evidence was of initially borrowing $40,000 from NAB (borrowings confirmed by a NAB letter dated 7 June 2004), with subsequent additional borrowings, to a total sum of $100,000.  She tendered the statements for this business secured variable rate instalment loan for the period 15 June 2004 to 30 November 2004.  $38,477.20 remained owing on 30 November 2004.  The loan statements disclose no additional borrowings on this account.

1. In her second affidavit, the wife deposed to closing that business on an unspecified date.  Her evidence was that she tried to sell the business and was unable to do so but was able to transfer the lease to a third party, to avoid on-going liability.  Her evidence was of receiving nothing from the transferee.  The liquidator’s report records that OS transferred the lease on 17 June, 2005.

1. On 28 February, 2005 an order of the Federal Magistrates’ Court restrained the wife from disposing of, spending, encumbering or in any other way dealing with any property owned or controlled by her, or any corporate entity in which she was a director or secretary other than in the normal course of business.

1. In 2005, OS was placed in liquidation.  The wife’s evidence was that it was not trading profitably and could not, or might not be able, to pay its debts.  Mr J of J and Co was appointed liquidator.  In that role he sold the S property for $252,000, with settlement on 31 August 2005.  By letter dated 13 January 2006 the liquidator advised that all funds received by him, including funds from the settlement of S property, were insufficient to pay a dividend to the company’s creditors.  He had not then completed the administration or finalised his investigation into the affairs of the company.  

1. The liquidator’s report noted that at the date of the winding up, the company had real estate valued at $270,000 (this was the S property, subsequently sold for $252,000) and a mortgage debt to NAB of $218,396.  There were unsecured creditors of $68,232.  Thus, on the report of affairs signed by the wife at the date of winding up, the estimated deficiency was $16,628.  Ordinary unsecured creditors made up $41,232 and directors’ loans the balance of $27,000.  Given the eventual sale price of the S property, the actual deficiency must have been higher.

1. As is clear, the S property sold for $252,000, not the $270,000 estimate put on it in the report of affairs.  $253,232.88 had been provided by NAB when the property settled on 26 March 2004, but only $221,050 was said to be owing at the time it was sold; this is the figure on the last page of the liquidator’s final account.  Possibly other funds in the wife’s hands went into the mortgage prior to sale.  The $29,881.20 referred to in paragraph 83 of this judgment did not; the statements show it being steadily eroded over the following months.  Nor does the liquidator’s account enable the court to find what was owing on the business loan at liquidation (the last statement tendered for that account was 30 November 2004 and the report of affairs, dated 30 June 2005, was laid before a creditors’ meeting on 11 July 2005) or on the R Company “business card”.

1. The report as to affairs of OS, referred to in the liquidator’s final account dated 8 November 2006, was annexed to the husband’s second affidavit.  The wife’s evidence was that she had signed personal guarantees to two R Company suppliers, who together were owed some $13,000 at the time the company was wound up.  In her second affidavit she deposed to paying that off at the rate of $400 per month.  Her oral evidence was of personally guaranteeing sums due to E Company; the amount noted as claimed by that creditor in the report as to affairs was $11,937.  I understood her evidence to be that she was trying to pay $100 per week off that debt.  She was also meant to pay $50 per week off a second debt personally guaranteed by her, however the name she used for the creditor in oral evidence is hard to match with the corporate names in the report.  I could find no reference to these obligations or payments in the financial statement sworn by her, filed 17 November 2006.

1. On 18 October 2004 the husband was discharged from bankruptcy.

ALLEGED MISAPPROPRIATION OF GV FUNDS

1. The wife’s evidence was that, in the course of her involvement with the trades business, she did the following, on occasions:

   ·Signed blank cheques and left them to be filled in by office staff;

   ·Made notations on a cheque butt which included some details (for example, the date and prospective payee) but no amount, as the exact amount due to the payee was either not clear, or might be different by the time the cheque (signed in blank ) was completed;

   ·Wrote or signed cheques after they had been removed from the butts, in a different order to that which characterised the butt entries;

   ·Wrote cheques on the business account to pay non-business family bills, such as accounts in respect of the car owned or driven by the husband’s sister-in-law, Ms FP;

   ·Wrote business cheques for personal expenditure of her and the husband, such as a deposit to a real estate agent on an investment property;

   ·Wrote business cheques to pay a non-business debt of her own, such as the rent on the shop conducted with V, and reimbursed the business account later;

   ·Wrote business cheques to cash or to herself, and used the funds to make under-cover cash payments to the husband and his brother, to get round the wage restrictions for bankrupts, and to pre-bankruptcy creditors;

   ·Took funds from sources available to her (including bank accounts of OS and others to which she was an authorised signatory, and cash kept at home) to pay a range of business expenses, including wages and creditors, reimbursing those accounts or herself later by cheque on transfer of funds.

2. An analysis of the cheque butts, copy cheques and business bank statements could have produced evidence tending to establish the probability or otherwise of some of these assertions.  For example, when were the tendered cheques cleared?  Were the tendered cheques, where the cheque did not match the butt entry, the only cheques cleared through the account where that occurred?  Were there cleared cheques for sums noted on a cheque butt, albeit bearing a different number to that on the butt?  Did the OS bank statements tendered tend to prove or disprove the wife’s evidence?  No such analysis was undertaken.

1. Until the brothers faced bankruptcy the wife was not working in the business.  She was employed at A Company and paid a salary.  Of the cheques tendered, signed by the wife, the earliest is dated 12 September 2001, a little over a month prior to the final bankruptcy order.  The husband’s sister-in-law, Ms FP, had been involved in book-keeping prior to the bankruptcy and it is probable that, for a period, there was a reluctance to have her involved again, as responsibility for non-payment of group tax and other funds due to the ATO was attributed to her inept or disorganised book-keeping.  The wife’s evidence was that she employed a girl (Ms M) to work in the office in the period leading up to bankruptcy and immediately after it.  She remained at A Company, but signed cheques for the business and oversaw Ms M.  Her evidence was that the demands made on Ms M by the brothers (for example, to pay out pre-bankruptcy creditors so they would deliver parts) were too hard for her to manage, and Ms M needed constant advice and direction.  In those circumstances, the wife left A Company and worked full-time at the business.  The wife’s evidence about this period had the ring of truth about it.  She said that group tax had not been paid for years for five men and no one knew about it until the ATO knocked on the door.  Neither of the brothers knew what was going on and letters from their accountants relating to outstanding debts were found in garbage bags in the office.   The brothers were not talking a lot to each other, and the situation was very awkward.

1. During that period of five months, the wife employed Ms JB and, with her friend V, set up a shop.  The set-up costs came from what she had saved from her A Company wages and wages paid to her by the business.  The wife and V maintained the shop until the parties separated.  The wife’s evidence was that V said at that time that the business could not carry both of them and as V was the salesperson, she (the wife) left.

1. V’s evidence was of setting up the shop in April 2002, which is consistent with the general time-frame advanced by the wife; the bankruptcy was finalised on 17 October 2001, Ms M stayed for a short period and the wife then worked in the trades business full-time for about five months. 

1. Ms JB’s evidence was of working in the business in 2002; she said she was there for “a minimum of 12 months” from March 2002 to March 2003.  The wife’s recollection was that Ms JB worked there for only three months.  Their recollections of the reasons Ms JB was sacked were as diverse.  Ms JB’s evidence was that she found a lot of discrepancies in the book-work which she brought to L’s (the husband’s brother) attention and that the wife sacked her because “she realised I wasn’t as stupid as she thought”.  The wife’s evidence was that Ms JB was sacked because she kept taking Fridays and Mondays off, arranging it with one of the brothers without saying anything to the wife, and that she (the wife) would then have to try and make alternative arrangements when Ms JB did not arrive at work.  Ms JB’s hostility to the wife was so patent as to give credence to the wife’s account.

1. Ms JB’s evidence was that she was supposed to pay wages and creditors although the only person who could sign cheques was the wife.  In her proof of evidence she said she “did the wages” and drew the creditors’ cheques for signature by the wife.  She alleged that the wife told her she was not to complete “the financial statements’ or concern herself with reconciling the accounts but that she (Ms JB) “perused the bank statements as they were received”.  She went on to say that she observed substantial sums were being withdrawn by cheque to the extent that there were not sufficient funds to pay wages and creditors, and that she “was of the view that [the wife] was drawing and signing cheques”.

1. In the witness box Ms JB attempted to retreat from aspects of this evidence.  Her demeanour made it clear that she did this when she realised that maintaining the evidence could corroborate the wife’s account.

1. For example, in her statement Ms JB said that she “perused the bank statements as they were received”.  It was by doing this that she observed “that substantial sums were being withdrawn by cheque to the extent that there were not sufficient funds to pay wages or creditors”.  She expressed “the view” that the wife was “drawing and signing cheques”.  Ms JB was an employee of GV, a company of which the wife was the sole director.  Her role was to do that which she was directed to do.  Cross-examined about her evidence of perusing the bank statements (which would have shown up the discrepancies on those cheques drawn in the period she said she worked with the company) she back-tracked, saying she saw some, but certainly not all, monthly statements, and that “probably” in the 12 months she worked for the company, she did not see statements for seven of the months.  The husband produced apparently reconciled statements for the full twelve months of Ms. JBr’s alleged tenure (March 2002 to March 2003). 

1. Ms. JB had earlier said that if bank statements were available, she “ticked the cheques”, to reconcile the figures.  On her own evidence, she must have seen at least five bank statements in the period she said she was there, being March 2002 until March 2003.  Shown bank statements there was only one (being statement number 13, for the period 1 March 2002 to 27 March 2002) in which she said the ticks looked like hers and even then she could not say for sure. Ms JB’s evidence was that she used to highlight amounts on a statement which she could not reconcile: the only reason she thought that statement number 13 could have been ticked by her was that it looked from the copy as if a number of figures had been highlighted on it.   She could not say who had ticked entries on other statements, or what another symbol, a little like an angled 7, meant.  It may represent a tick, drawn by a left-handed person. 

1. In the statement which Ms. JB said might have been reconciled by her, there are ticks against 42 out of 48 cheques cleared.  The unticked entries are for cheques of $3,750, $44, $3,300, $4,325, $2,155 and $515.  Of those six apparently unreconciled entries, only three related to copy cheques tendered (cheques 659, 671 and 678 for, respectively, $3,750, $2,155 and $515).  One of the others was for a small sum of $44.  The fact that two cheques not reconciled (for $3,300 and $4,325) do not appear on the list of allegedly misappropriated cheques suggests that whoever prepared that list took the view the two unreconciled cheques had been validly drawn and cleared. 

1. Cross-examined about her evidence that there were not sufficient funds to pay wages or creditors, Ms JB again back-tracked.  She agreed she was supposed to pay wages and creditors and that there were times there were insufficient funds to pay the wages.  It becoming clear that was consistent with the wife’s evidence, she then said there was only one week when there was insufficient money to pay wages, but agreed she could not say where the money eventually came from to allow wages to be paid.  Pressed about her evidence of wages not being paid, Ms JB resorted to saying that if there had been weeks and weeks when wages were not being paid, she would not have stayed.  That takes the matter no further, as the wife’s evidence was that if the business did not have the capacity to pay wages, she got funds from other sources (commonly OS) so that staff could be paid and only later reimbursed the funding source.

1. Ms JB conceded that creditors “regularly” could not be paid from funds available to the business and that there were many times when jobs were unable to be completed because resources would not be supplied by disgruntled creditors.  Ms JB made it clear that she wrote out cheques, albeit cheques signed by the wife.  This is consistent with the wife leaving blank signed cheques for use by staff.  What Ms JB said was not inconsistent with the wife’s evidence that, on occasions, a cheque butt was partly filled in (for example with a date and a supplier) and the amount left blank, as by the time the supplier was paid, the amount due to it could have increased. 

1. No analysis by counsel considered whether the 33 copy cheques tendered had been cleared through the account and, if so, when.  It is not possible to track all 33 as the tendered bank statements date from January 2002, and five of the cheques are dated early in 2001.  The table below lists the 33 tendered cheques.  It notes the details recorded on the relevant cheque butt, the details on the cheque, if (and when) it was cleared through the account (when that can be ascertained) and the sum cleared.

   See attached 4 page table

1. Some aspects of this data, coupled with the anonymous handwritten notations on the copy cheques tendered, support the wife’s account.  For example, the butt for cheque 678 records $194 to “Tyres L …”;  the cheque itself is for $515, payable to SG Accounts.  A handwritten notation records “SG is a supplier of labels to shop”.  This cheque was cleared on 28 March, 2002.  The bank statement shows a cheque (672) for $194 (the figure on the butt of cheque 678) cleared on 27 March, 2002.  The court could not be certain that it is the same $194 but one inference would support the wife’s contention of writing cheques after they had been removed from the butt in a different order to that which characterised the butt entries.

1. As noted in paragraph 13 of this judgment, cheque 1573, for $1,091.51 dated 30 June, 2003, is made payable to OS.  The butt is blank – no date, payee or sum.  However, the anonymous hand has recorded “cheque drawn for OP Petty Cash reimbursement”, an explanation consistent with the wife’s account of using OS funds to pay expenses of the trades business, and reimbursing OS later.

1. In similar vein, the butt for cheque 1699 is blank and the cheque, dated 28 August, 2003, is made out to Cash, for $4,000.  The handwritten notation is “[K …]”.  I cannot say who or what that refers to but it is indicative of the unknown compiler allocating a payee or purpose, for which there is no evidence. 

1. The husband and Ms. JB agreed that the wife sometimes left blank cheques to be filled out by others and the husband agreed that cheques made out to cash were taken by the wife or others to the bank, cashed, and used to pay wages.  There is no doubt that, on occasions, the cheque butts recorded the use to which a cheque was put as “Wages”;  the schedule prepared by the husband’s solicitor (tendered as exhibit H7) lists 85 such butts, dated between 13 September, 2001 and 24 October, 2003.  But the husband agreed he did not know which cheques were used for what, or if a particular cash cheque could have been used for wages.  It is probable the wife was telling the truth when she said the cheques which specified wages were those for wages on the record but other arrangements had to be made for money paid to the husband and his brother over and above that to which they were entitled as bankrupts.

1. Of the 85 cheque butts carrying the word “wages”, six are undated and fourteen carry additional words on the butt.  Although made out to “wages”, the butt for cheque 1772 has the notation “$500 [supplies]”.  The butt records the sum of $3,000.  That butt is dated 30 October, 2003, more than a month after the last dealings of the wife with business funds.  On its face it suggests the unusual book-keeping practices were continuing;  it records a cheque for $3,000 wages, of which (one assumes) $500 related to supplies for the business.  I cannot say if it refers to a reimbursement to a person of a sum expended by him or her on supplies, whether the cheque was cashed and $500 paid to a supplier or whether there is another explanation.  I can say the wife was no longer in a position to sign cheques by that date. 

1. Four of these cheques carry in addition to “wages”, the notation “[M… E…]” or “[M…]”, which is not immediately suggestive of an employee, paid wages.  One carries the notation “[JDT]”.  These may have been payments to suppliers or contractors;  I cannot say.

1. I accept the wife’s evidence that although she signed cheque 731, the writing on the cheque is not hers.  She was candid about the many cheques in her hand, and the document is consistent with her evidence.  One does not need to be a handwriting expert to see that the signature is in a different hand to everything else on the cheque.  It was cleared on 3 May, 2002, for $500.  The butt is undated and carries no sum, but has the word “[Supplies]”;  the cheque is made out to GMC.  This corroborates the wife’s evidence of others filling in cheques signed by her, but left blank.

1. It is probable the writing on the body of cheque 761 is also not that of the wife although, again, it carries her signature.  The butt records PW Company, $1,300 and the date 7 May, 2002;  the cheque is payable to R. C… for $1,300, and is dated 8 May, 2002.  Again, this is corroborative of blank signed cheques being filled in by other people and not necessarily on the date on which an entry was made on the butt.  This is the cheque on which the handwritten notation records the payee on the butt as W…, referred to in paragraph 13.  The husband’s evidence was that the wife’s father is called W and he worked for the business for a while.  Perhaps the person making the notation on the copy cheque and/or the person who wrote “[W…]” diagonally across the cheque butt had reason to believe this cheque had something to do with the wife’s father’s employment.  I cannot say.

1. It is reasonable on the evidence to assume that the ticks against entries on tendered bank statements relate to some form of reconciliation.  Of the 33 tendered cheques, 28 can be traced to a bank statement.  Of these, 18 have been ticked.  Cheques 673, 678, 827 and 887 are not marked in any way.  Cheque 549 (to the agent for the PL property) is marked with an asterisk and two question marks.  Cheque 659 is crossed out on the statement.  Cheques 731, 801 and 841 each have a question mark beside the entry.  Cheque 720 (payable to H Pty. Ltd. and for which the handwritten notation on the copy cheque is “This is landlord for […] shop”) has a note “-862” beside it.

1. The husband’s evidence was that he saw OS as belonging to him and the wife, that he would not know if she had juggled money between OS and the trades business to handle liquidity problems, and that it could have happened without him knowing.

1. The husband agreed the wife made payments to pre-bankruptcy suppliers, who would not continue to supply the business if not paid out in full, and that at least some of those suppliers would only operate thereafter on a COD basis.

1. The husband also agreed that he could not know if the wife juggled funds between an account to which was credited child endowment for C and the business account, again to solve liquidity problems.

1. It is probable the husband genuinely had no idea about many of the transactions about which he was questioned.  However, at times his evidence was disingenuous.  An example was his evidence about cheque 549, made out to Ms S for $1,000, dated 26 January, 2002.  The butt records details identical to those on the cheque butt.  It is included in the bundle of 33 cheques tendered as proof of the wife’s misappropriation.  It took some time for the husband to concede that he knew that Ms S was the agent for the vendor of the PL property, which the parties purchased, and that this cheque was used by them to pay the preliminary deposit.  I accept the wife’s evidence that the husband was with her when she wrote that cheque.  As between the husband and wife, he could not complain about that cheque.  The business may have had grounds for complaint but GV is not a party and it is probable other non-business family expenses were paid through it on occasions. 

1. Further, the husband was content to depose to personal knowledge of things of which, it transpired, he knew little or nothing.  An example is his evidence, in paragraph 7 of the affidavit sworn on 19 January, 2007, that :

   To my knowledge the respondent wife has held accounts in the names of [… Destin], [… Picote], [… M] and [… M] and one in trust for […] with differing financial institutions.

1. Evidence is only admissible if it is relevant;  the court is entitled to assume the husband thought that evidence was relevant.  It follows the earlier sentence:

   I believe the Respondent Wife insisted that I declare bankruptcy so that she could take over control of our assets and transfer all of the assets into names and accounts that would be difficult if not impossible to find.

2. I have no doubt that the inference the husband sought the court draw was that the wife used accounts in different names to disguise or obscure her financial dealings. 

1. Cross-examined, it became clear that the husband had no personal knowledge of any of these accounts and his responses to questions were, on occasions, risible.  For example, it was put to him that … Picote was the name the wife used while married to him.  His answer was “it wasn’t on the marriage certificate”.  Eventually he conceded that he was not sure whether the wife had held accounts in that name.  He agreed that M was the wife’s first married name;  the name she used when he met her was … M.  She is now known as … Destin, having reverted to her maiden name.  It would thus not be surprising were she to have had accounts under the surname M when she used that name, Picote when she was married to the husband and Destin after that marriage was over.

1. The husband agreed that … is the wife’s niece.  … is six years old and he did not know whether the wife had put money into that account for her niece or, if she did, in what sums.  Asked on what he based his evidence that the wife held an account in the name of …, he replied “Mr. […]”.  That answer took the matter no further.

1. Similarly, he agreed that C was the wife’s daughter, that he never saw an account in her name, and that he may have made a mistake when he included her name in paragraph 7 of the affidavit. 

1. There is no doubt that the wife’s account of juggling funds through various entities and people, of making cash payments and of chaotic book-keeping sounded, at times, implausible.  The evidence to which I have referred provides corroboration of many of the practices to which she deposed.  An answer given by the husband late in his cross-examination suggested credence should be given to her evidence that it was only by juggling funds as she did that the business was able to pay wages and creditors. 

1. The husband was being cross-examined about the transfer of $10,000 from the trades business bank account to Ostilla on 25 September, 2003.  The wife’s evidence was that the husband knew and agreed to that transaction, and that the funds were used to discharge mortgage obligations.  He disagreed with that proposition.  He was then asked when he found out about the transfer of $10,000 and replied “when the joint emptied out”.  Asked when that occurred he said “when we couldn’t pay, it was transferred by the phone . . .”.  Counsel for the wife then said words to the effect :

   “Let’s think about that, Mr. [Picote].  When she left all of a sudden the joint was emptied out and the joint couldn’t pay anything.  Is that right?  That’s what I understand you are just telling us?”

1. To that question, the husband answered “naturally”.  He repeated that answer when asked, again, if it were right.  Counsel for the husband then put to him that the joint managed to pay everything and keep afloat while her client was working there;  she said “yes” had to be the answer to that question.  To which the husband replied “and it still is”.

2. Considering all the evidence I cannot find it more probable than not that the wife misappropriated the business funds as alleged.

POST SEPARATION FINANCIAL TRANSACTIONS 

1. The earlier exposition of the evidence demonstrates the manifest inadequacy of the document tendered by counsel for the wife in the course of final submissions.  I have found that the proceeds of sale of GV must have been at least $30,000 less than the husband recalled, which would require the figure of $220,000 (shown as the proceeds of GV) to be replaced with an estimate of $190,000.  However, that is a relatively minor discrepancy.

1. The document shows that a total of $717,603 was directed to NAB on settlement of the sales of the three properties.  On the basis that the sums advanced when the properties were purchased totalled $569,466, the document notes a surplus paid to the bank of $148,282.  Even on the figures contained in the document, the arithmetic is wrong;  on those figures the surplus would be $148,137.  To characterise a “surplus” by reference to the sum originally borrowed and the sum repaid at settlement is simplistic, ignoring the potential for a mortgage to increase, whether as a result of changes in interest rates, unpaid or late instalments, penalties and other bank fees and, importantly, additional borrowings.  The evidence does not allow me to make findings about matters such as bank fees or penalties.  I can find that the parties borrowed an additional $40,000, of which $30,000 went to pay Mr. P, borrowings which are absent from the spreadsheet.  It is possible that funds paid by way of stamp duty on the two declarations of trust were added to borrowings;  I cannot say.  The additional borrowings of $40,000 alone would take the sums advanced by NAB to just under $610,000. 

1. Importantly, the document does not demonstrate how the figure sought by the husband ($168,000) was reached.  Counsel for the husband could not recall the basis for the figure.  It may have been computed by reference to figures other than those in the schedule tendered in final submissions.

1. The evidence supports the following findings :

   ·The wife received $32,000 or $33,000 from V for her interest in the E Street property soon after separation.  Her evidence was of using the funds to make mortgage payments on the three properties which the parties retained and the balance to outfit the unit into which she moved after separation. 

   ·The wife’s evidence was of netting $50,000 from the sale of the PL property, less agents’ commission.  The sum of $30,000 which the settlement statement noted was to be banked into an account, was probably paid into OS on 18 February, 2004.  The balance of the sum shown as remaining with the agent ($20,500 in the settlement statement) was probably the $10,476 paid into the OS account on 28 January, 2004.  On that basis the wife received some $40,476 from that sale.  Of that, it is probable $28,500 was used to pay the deposit on the S property which she purchased after separation, leaving $11,976 unaccounted for.

   ·The amount of $24,500 held by the real estate agents noted in the settlement statement for the F1 property was probably paid to the wife by the cheque for $17,033.10 credited to OS’s account on 18 March, 2004.  If that is correct, a balance of $7,466.90 was retained by the agents, which could be consistent with the commission and costs of sale.  It is unlikely the $6,300 paid to OS on 19 March, 2004 also formed part of the $24,500 with the estate agent, as that would bring the sum paid to the wife from that source to $23,333, and the difference between the two figures would not be explicable in terms of commission and costs.

   ·While I cannot specify the source, the wife received $6,300 on 19 March, 2004, paid into the OS account.

   ·The sum of $29,881.20 paid into the OS account on 29 April, 2004 was steadily eroded. 

   ·The difference between the sale price of the F2 unit and the sum paid to NAB in two tranches was $5,585.  It is likely that balance related to agents’ commission and expenses.

2. Analysed that way, the wife received $11,976 from the sale of PL property, $17,033.10 from the sale of F1 property, $6,300 from a source I cannot identify and $29,881 on 29 April, 2004, which may have been a credit of excess funds paid to NAB.  Those figures total $65,190.  The money received from E Street was additional to that but, according to the wife, disbursed on mortgage payments and to set up a unit after she left the former matrimonial home.

1. While the wife spent $28,500 of the proceeds of PL property on the S property, that deposit was effectively lost as a result of the diminution in the price of the property, which was sold by the liquidator for $29,000 less than the purchase price.

1. Of the funds received by the wife $24,200 went on a car and it is probable funds were used on setting up, and propping up, the R Company business and S property.  It is likely R Company incurred significant losses.

1. The wife’s evidence was of having no capital sums.  She relocated to Western Australia some time after R Company closed and S property was sold.  Having regard to my findings about the way the parties operated while they were together, particularly findings relating to haphazard and incompetent book-keeping, it is probable she is telling the truth when she says that such funds as were paid to her after separation have been spent.

1. The investment properties the parties bought when they were together were bad investments, as was S property.  When the parties were together the wife was in and out of the shop business.  The evidence, such as it is, relating to the R Company business is not inconsistent with findings about her financial acumen and book-keeping when the parties were together, and the evidence supports a finding she commenced that business prior to separation, given the date from which premises were leased. 

1. The court cannot conjure evidence from thin air.  If a party has failed to make full financial disclosure, the court may not be cautious in drawing inferences adverse to that party.  In this case neither party made full financial disclosure.  The husband failed to called witnesses who had the capacity to clarify and provide factual corroboration of his allegations.  The financial documents produced by both parties were partial.  Evidence adduced of the financial investigation undertaken by the husband, or for him, after separation was not complete;  if the investigations were more thorough, the court does not have evidence of them.

1. I do not doubt that funds which came into the wife’s hands after separation were disbursed, and lost.  The funds could be said to have been dissipated in the sense of scattered, or ultimately wasteful dispersion, through distraction and incompetence.  I could not find that they were spent on frivolous or dissolute pleasures, to use one relevant definition in the New Shorter Oxford Dictionary (Third Edition, Clarendon Press, 1993). 

1. It was the wife’s case from the outset that there was not a pool of assets available for distribution. The husband contended otherwise. Considering all the evidence, I cannot find it more probable than not that there are assets available for distribution, or find circumstances sufficient to give rise to a finding that a specific sum should be notionally attributed to funds disbursed, and that notional sum become the subject of the s.79 discretion.

1. In those circumstances the husband’s application will be dismissed. 

1. Each of the parties sought costs but no detailed submissions went to the issue.  It may be that this is a case where the usual rule should apply and each party be responsible for his or her costs.  Orders will provide for the filing of written submissions by either party and the question will be determined in the light of those submissions (if any).

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

Dated the           day of            2007.

…………………………………………
Associate.