Pratley & Pratley (No 8)
[2023] FedCFamC1F 946
•9 November 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Pratley & Pratley (No 8) [2023] FedCFamC1F 946
File number(s): CAC 298 of 2019 Judgment of: GILL J Date of judgment: 9 November 2023 Catchwords: FAMILY LAW – INTERIM PROCEEDINGS – Interim property settlement – Within final anticipated adjustment – adequate reason to make interim order – Mode of payment imperils business – Application refused – Restraint upon business account – Restraint proposed with carve outs to allow the operation of the business – Previous unconstrained drawings by husband – Continuing such imperils business in same manner as refused interim property settlement – Sole use – Injunction in support of sole use – Disclosure Legislation: Family Law Act 1975 (Cth) – ss 75(2), 79 and 114
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)
Cases cited: Bevan v Bevan (2013) 49 FamLR 387
Gabel & Yardley (2008) FLC 93-386
Stanford v Stanford (2012) 247 CLR 108
Strahan & Strahan (2009) 42 FLR 203
Wenz v Archer (2008) 40 FamLR 212
Division: Division 1 First Instance Number of paragraphs: 49 Date of hearing: 30-31 October 2023 Place: Canberra Counsel for the Applicant: Mr Williams, KC, with Mr Matthews, counsel Solicitor for the Applicant: Hijazi Curran Cameron Counsel for the Respondent: Mr Puckey, KC Solicitor for the Respondent: Farrar Gesini Dunn Solicitor for the Interveners: Excused from attendance ORDERS
CAC 298 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS PRATLEY
Applicant
AND: MR PRATLEY
Respondent
MR EE
First Intervener
MR H
Second Intervener
MR J
Third Intervener
MR O
Fourth Intervener
ORDER MADE BY:
GILL J
DATE OF ORDER:
9 NOVEMBER 2023
THE COURT ORDERS THAT:
1.The wife’s application that the respondent husband cause to be paid to her the sum of $250,000 from the working account for HH Pty Ltd, being AA Bank Account …59 (the HH Pty Ltd working account) is dismissed.
2.The respondent is restrained by injunction from withdrawing any amount from the AA Bank Account …59 (being the general account for the Suburb CC Business), except to pay the following:
(a)wages and commissions for the Suburb CC Business;
(b)BAS equal to the assessed amounts from time to time, to be paid as they fall due and not prior, for the Suburb CC Business;
(c)insurance for the Suburb CC Business, for current premiums only; to be paid as they fall due and not prior;
(d)advertising for the Suburb CC Business;
(e)taxation liabilities for the Suburb CC Business as and when they are due and payable;
(f)Income Activity Statements payments for the Suburb CC Business, to be paid as they fall due and not prior;
(g)lease repayments for the Suburb CC Business equipment currently leased;
(h)franchise fees for the Suburb CC Business;
(i)payments to ongoing suppliers for the operation of the Suburb CC Business, including but not limited to phone bills, stationery, and internet;
(j)principal and interest loan repayments, to be paid as they fall due and not prior, for the loans secured by mortgage against the following properties:
(i)5 Q Street, Suburb S; and
(ii)Z Street, Suburb E;
(k)any outstanding home loan repayments due to ANZ Bank, in addition to the payments due in the preceding sub-clause;
(l)any outstanding rates and land tax for the properties at 5 Q Street, Suburb S and Z Street, Suburb E;
(m)the respondent’s rental expenses for the lease at his current residence;
(n)any outstanding school fees payable to DD School;
(o)ongoing school fees for the parties’ children to attend DD School, to be paid as they fall due and not prior;
(p)Water bills for the property at Z Street, Suburb E by either the due date or within 7 days of provision of such bills to the respondent by the Applicant, whichever is the later; and
(q)continued payments to the respondent by way of his salary in the sum of $2,000 per week.
(r)rental payments for the HH Pty Ltd business premises to be paid as they fall due and not prior;
(s)the legal fees of HH Pty Ltd
(t)such other payments as agreed in writing between the parties.
5 Q Street, Suburb S
3.The applicant have sole use and occupation of the property known as 5 Q Street, Suburb S and the respondent is hereby restrained by injunction from attending upon 5 Q Street, Suburb S, other than with the express written consent of the applicant.
The claim by the Intervenors
4.Within 14 days, and quarterly thereafter, the Respondent provide to the Applicant the quantification of those funds that are held in the Suburb CC Business Trust Account (ending #...77) that are sales commissions payable to the Suburb CC Business upon settlement, and those funds in the same account that are not referable to sales commissions.
5.The Intervenors are not entitled to disclosure of the matters in the immediate above order without obtaining further direction from the court.
THE COURT NOTES THAT:
A.As of 31 October 2023, the parties are in agreement about the current state of disclosure, that being that nothing is currently outstanding with the exception of a single trust account.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
GILL J:
INTRODUCTION
This interim hearing occurs in the context of the vacating and adjournment of the final trial listed to determine the property dispute between the parties. A significant aspect of those property proceedings is the treatment of two businesses that are associated with the parties, and recently under the sole control of the husband, B Pty Ltd and HH Pty Ltd.
The trial was vacated upon granting of the application by the Intervenors to be made parties to the proceedings. The Intervenors together claim against B Pty Ltd and HH Pty Ltd a sum of approximately $3 million.
Pending that postponed final resolution, the parties identified four issues in relation to which orders were sought. They were a partial property order in favour of the wife in the amount of $250,000, injunctive restraints against HH Pty Ltd (operated, owned and directed by the husband), the use of a property at 5 Q Street, Suburb S (‘the Suburb S property’) and disclosure. After an adjournment to provide the parties the opportunity to clarify any outstanding disclosure complaints this matter fell away. The parties agreed that there were no outstanding disclosure issues except for one small amount held on trust by the husband.
PARTIAL SETTLEMENT TO THE WIFE
The wife seeks a payment of $250,000 by way of partial property settlement. The major contest was as to the source.
The wife asked that the funds come from the HH Pty Ltd business account. The husband said that the funds should be secured through the wife obtaining a loan against the property that she currently occupies.
Principles
Where a party seeks a payment or transfer of property on an interim basis it is necessary to identify the power by which this is to be done.[1] In this case the application is for an adjustment of property interests, often described as a partial or interim property adjustment. It is an application that calls upon the court to use the powers contained at s 79 of the Family Law Act 1975 (the “Act”).
[1] Strahan & Strahan (2009) 42 FLR 203 [84], [86] (Boland and O’Ryan JJ).
Although it is preferable to use those powers on a single occasion at the finalisation of proceedings, circumstances can justify their use on a number of occasions until the power is spent by there being no further property that can be the subject of such power.[2]
[2] Gabel & Yardley (2008) FLC 93-386 (Bryant CJ and Coleman J).
The use of such power on an interim basis requires a decision that it is appropriate, under the general principles that govern the adjustment of property interests to exercise the power in the manner sought, and that it is also appropriate, in the interests of justice, to do so on an interim or partial basis.[3]
[3] See discussion in Wenz v Archer (2008) 40 FamLR 212.
The general principles require an identification that it is just and equitable to make such an adjustment, requiring adequate identification of the parties’ legal and equitable interests in the property, with a consideration of the matters set out at s 79 and s 75(2) of the Act.[4]
[4] Stanford v Stanford (2012) 247 CLR 108 [35] (French CJ, Hayne, Kiefel and Bell JJ); Bevan v Bevan (2013) 49 FamLR 387 [86] (Bryant CJ and Thackray J).
Given the interim nature of the proceedings, and the factual incompleteness, uncertainty and imprecision of such proceedings, conservatism is often called for, to ensure that any such adjustment is a part of an ultimately integrated exercise of the power. Within that uncertainty, it is necessary to be able to conclude that the interim adjustment will either fall within an ultimate adjustment, or be capable of reversal so as not to undermine an ultimate adjustment that is just and equitable.
As to the decision to exercise the power on an interim basis, there is no requirement for compelling circumstances. Rather the issue is whether it is appropriate to exercise the power. The question is one of whether, in considering the interests of justice, the circumstances sufficiently weigh against restricting the exercise of the power to a single occasion. This may include the consideration of the effects and power differential of one party holding the control of the property that the applying party has a legitimate claim against, and access to which will assist the applying party to prosecute that party’s claim, meet living expenses, or take advantage of a particular opportunity.
Discussion
In this case, both parties accept that the amount sought by the wife falls comfortably within an ultimate adjustment of the parties’ property interests, and implicitly that the amount falls within the just and equitable requirement of s 79.
The husband challenged the notion that the wife has a need for the sum, she having spent in excess of $500,000 in legal fees. He points to the wife having already received significant sums in the proceedings.
The wife indicates a need to further fund both the litigation in the context of the adjournment, and to meet other living expenses. She describes a modest income that falls well short of her living expenses. Despite this she currently holds saving of about $55,000. Otherwise, she funds her expenses through monies advanced to her by her partner, currently sitting at about $688,000.
It may be accepted that despite the wife’s so far demonstrated ability to source funds from her partner, the prolonged proceedings provide ample reason for the adjustment to be made at this point.
The main focus of the disagreement is how the money is to be sourced.
The wife seeks that it be drawn from an account held by HH Pty Ltd, described as the Suburb CC Business Account. This is the working account of HH Pty Ltd and, as at 24 October 2023, had accumulated approximately $600,000.
The husband has been drawing from the same account in an apparently unconstrained manner. In addition to his salary, he has taken approximately a further $500,000 from the account, for purposes including paying tax on his salary and payment of his legal fees.
He opposes the payment being made to the wife from this source, asserting that to do so would require the payment to be characterised as a loan (presumably to the husband) or as a distribution of profit to the husband, each of which carries with it taxation consequences. In the context that the Intervenors make claims of approximately $3 million against a combination of HH Pty Ltd and B Pty Ltd, he asserts that such a payment puts at risk payment of the creditors. He asserts that such a payment compromises the viability of HH Pty Ltd, a business that appears to be rapidly increasing in profitability.
In particular, he notes that 2023 tax liabilities are not as yet paid, which, in combination with personal tax liabilities, will result in $350,000 being drawn from the account. If the amount sought by the wife was to be taken from the account, then this would leave nothing. Under those circumstances the husband submits that the wife should wait for the settlement of the sale of the Suburb D business, anticipated to occur at the end of the year.
It should however be recognised that the Intervenor claims render uncertain the monies that will become available from the Suburb D sale.
The wife identified the significant increase in pre-tax profit of HH Pty Ltd from $334,000 in 2022 to $942,000 in 2023, and observed that the concerns expressed by the husband occur in the context that he has continued to “rip” monies from the account at will.
The husband proposes that the wife simply borrow $250,000, pointing to her previous capacity to borrow evidenced both in loans from her partner, and their joint borrowing to fund the construction of a family home. The wife responds that her financial position as disclosed does not indicate a basis to anticipate that she could so borrow. Her capacity to borrow cannot be assumed.
It may be accepted that the wife has a claim that would encompass the interim distribution of $250,000. The wife’s circumstances form a sufficient justification for her to receive such an amount in advance of the final determination of the parties’ dispute. However, where the husband has already pulled significant amounts from the source identified by the wife, to accede to her application places that entity at sufficient risk to refuse her application.
Without anticipating that the wife will be able to borrow the funds, there appears to be no impediment upon her doing so imposed by the court orders that are currently in place, given the husband’s apparent agreement.
INJUNCTIONS WITH RESPECT TO THE SUBURB CC BUSINESS
As noted above, the husband has withdrawn significant amounts from HH Pty Ltd without reference to the wife, despite his previous concessions that the business legitimately forms a part of the pool of property available for distribution. He has been able to do so as the business is solely owned and controlled by him, the business being set up after the end of the marriage. In addition to his salary from the business, the account has been the source, or is expected to be the source of payment of his outstanding tax liabilities and is used by him to fund his litigation.
In this context the wife sought injunctions restraining the husband from withdrawing any amount from the HH Pty Ltd business account with a number of carve outs related to the working of the business, certain expenses of the parties and the payment of the husband’s salary.
In support of her pursuit of the restraints, the wife made a number of allegations relating to the husband’s financial management of B Pty Ltd post separation, including the non-payment of tax liabilities related to that business, and the accumulation of associated penalties. That business is now also subject by the Intervenors’ claim, based on an allegation that B Pty Ltd and HH Pty Ltd failed to pay entitlements including commission. These circumstances did not appear to be the subject of serious contest, other than the husband placing responsibility in relation to the tax position upon the injunctive restraints currently imposed upon B Pty Ltd.
Although the husband opposed the restraints, he did not suggest that the carve outs, as ultimately adopted by the wife, were deficient in respect of the needs of the business. Rather he seeks to maintain the ability to draw from the business accounts including in relation to the payment of his legal fees, and for the purchase of real property to which both the husband and business have committed. He characterised the restraints as being an impermissible restraint upon his future income.
Principles
The power drawn upon is that contained in s 114 of the Family Law Act 1975, where the court is empowered to “make such order or grant such injunction as it considers proper.” The power is available for the protection of property the subject of the proceedings where there is sufficient risk of dissipation, subject to consideration of the relevant circumstances to determine whether it is in all the circumstances proper.
Discussion
The injunction, on its terms, is directed to the proceeds held in the working account. Those proceeds constitute an asset of HH Pty Ltd, not future income as suggested by the husband.
However, the parties were frank that they considered that such an injunction would grab future income as deposited into the account, and that it was expected that the husband would continue to deposit income from the business into the account.
In relation to the husband’s complaint that the injunction is impermissible, it should firstly be observed that the injunction is sought in aid of the s 79 proceedings. It is true that ultimate orders pursuant to s 79 cannot attach to future income or assets of the parties, and so it would be impermissible to attempt to make a s 79 order directed to the future income of the business (although such may be available as a means of enforcement). Whether an interlocutory injunction is so constrained is not so clear.
However, it is not necessary to resolve this issue as the injunction, on its terms (despite the expectations of the parties), is not directed to future income, but to a current asset of the business which is conceded to form a part of the pool of the property available for the ultimate property adjustment.
The key issues are the consideration of the impact of the restraint upon the husband, and the need to prevent the dissipation of the asset.
The issues raised by the husband as to the need to protect the viability of the business, that defeated the wife’s claim for an interim distribution from that source, point toward the need to protect the asset from dissipation outside the regular operation of the business. As the wife’s drawing against that asset was identified as a potential compromise of the viability of the business, the ongoing unconstrained drawing by the husband should not be thought of differently, particularly where the husband has signalled an intent to continue to draw against that account for his own purposes, beyond that of the receipt of his salary.
The previous use of the account by the husband, coupled with his stated intent, and in the context of the outstanding tax issues that have accumulated for B Pty Ltd and HH Pty Ltd, whilst under the control of the husband, sufficiently indicate risk as to justify the protective mechanism of the injunctions sought by the wife. This outweighs the currently demonstrated impact on the husband.
It should be observed that if future circumstances indicate a different balance, then, in accordance with the leave granted to the parties in previous orders, further application may be made.
It is sensible, however, to give the parties the opportunity to ameliorate those effects by written agreement.
USE AND OCCUPANCY OF THE SUBURB S PROPERTY
Both parties sought to retain this property on a final basis and sought interim orders for sole use with respect to the property.
At present the wife short term leases the property out and retains income from it. The husband proposes to occupy the property at some stage in the future. In rough terms this sets out the contest between them.
Both parties complain as to under-use by the other party when in control of the asset. The husband complains that the wife has failed to maximise income by entering into an ongoing rental agreement. The wife complains that the husband, during his period of control, failed to occupy the property other than for some storage.
The husband complains that the mortgage is funded by drawings from the two businesses, and that he is also paying rent for his accommodation. The wife complains that the husband has failed to meet obligations in relation to the payment of expenses in relation to the property.
There is a contest between the parties as to the husband’s attendances at the property, and as to whether these interfere with the use of the property by the wife, and interfere with her renting out of the property to derive income.
Under circumstances where there is deep hostility between the parties the right to occupy or use the property should be the subject of orders that grant sole use. Whilst it may be the case that the husband ultimately retains the property and occupies it, for now the wife’s current use to derive income renders it proper to make orders to maintain such use.
DISCLOSURE OF THE TRUST ACCOUNT
Whilst the parties were in hot dispute as to whether adequate disclosure has taken place, once they engaged with each other, presumably identifying where disclosure had been sought, and where it had been provided, it turns out that there are no lingering outstanding issues as to disclosure save for two issues. How, under these circumstances, the issue of disclosure remained a hot topic of contention up until the trial was due to commence remains mysterious.
The first is that the wife identified 22 properties sold by HH Pty Ltd, the Agency Agreements for one being the only outstanding disclosure not complied with. She identified the property as having settled in 2021 and $1,000 outstanding held in a trust account. The husband accepted this had not been the subject of adequate disclosure and consented to orders providing for such within seven days.
The second is a matter agreed in substance although not in form. The wife seeks, and the husband agrees to provide a quantification of the monies held in the HH Pty Ltd Trust Account ending #...77 of the sales commissions payable to HH Pty Ltd, and those funds not attributable to the commissions. The husband wished to offer this as an undertaking, whilst the wife sought an order. The husband explained that he wished to do this by undertaking to avoid the Intervenors being on notice of this disclosure.
It is appropriate that this quantification take place and be disclosed to the wife. It, however, runs counter to notions of open justice to hide this from the Intervenors, and so the obligation will be cast as an order. Whether the Intervenors are granted access to such is a matter for another time.
I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gill. Associate:
Dated: 9 November 2023
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