Proust and Croce (No2)

[2015] FamCA 660

FAMILY COURT OF AUSTRALIA

PROUST & CROCE (NO2) [2015] FamCA 660

FAMILY LAW – PROPERTY – settlement – where there was a capital gains tax assessment – consideration of the proper definition of a consequential or machinery order – consideration of the difference between a consequential order which may be varied and a substantive order which the Act gives no power to the court to modify.

In the Marriage of Ravasini (1983) FLC 91-312
Molier & Van Wyk (1980) FLC 90-911

APPLICANT: Ms Proust

RESPONDENT: Mr Croce

FILE NUMBER: MLC 6005 of 2012

DATE DELIVERED: 13 August 2015

PLACE DELIVERED: Melbourne

PLACE HEARD: Adelaide

JUDGMENT OF: Berman J

HEARING DATE: 3 August 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Glass

SOLICITOR FOR THE APPLICANT: Glezer Lanteri & Associates

COUNSEL FOR THE RESPONDENT: Litigant in Person

SOLICITOR FOR THE RESPONDENT:

Orders

1. That from the proceeds of sale held on behalf of the parties by L and Co the following disbursements and payments shall occur:

   (a)The sum of FORTY THREE THOUSAND FIVE HUNDRED AND TWENTY SIX DOLLARS ($43,526) (being the amount calculated by H Accountants in relation to the capital gains tax debt) shall remain in trust for the payment of future capital gains tax assessment in respect of the property situate at 1 E Street, Suburb F in the State of Victoria.

   (b)The sum of SEVEN THOUSAND EIGHT HUNDRED AND FIFTY SIX DOLLARS AND TEN CENTS ($7,856.10) less any further amount outstanding as may be owing to H Accountants be held on trust for any further calculations for work that may need to be undertaken in order to wind up the Croce superannuation fund.

   (c)The sum of FOURTEEN THOUSAND ONE HUNDRED AND SEVENTY FIVE DOLLARS (14,175) shall remain on trust for the purpose of any land tax debt.

   (d)That the remaining funds be divided equally between the parties pursuant to paragraph 1(d)(viii) of orders made 21 May 2014 SAVE AND EXCEPT that from the amount payable to the husband a sum of TWENTY THOUSAND DOLLARS ($20,000) shall be held on trust pending the determination of the wife’s application for costs.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Proust & Croce (No 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT

FILE NUMBER: MLC 6005  of 2012

Ms Proust

Applicant

And

Mr Croce

Respondent

REASONS FOR JUDGMENT

INTRODUCTION  

1. By Amended Application in a Case filed 31 July 2015, Ms Proust (“the applicant”) seeks orders that would determine the manner in which sale proceeds of a house property should be disbursed.  In addition, the applicant seeks an order that the respondent pay her costs on a party/party basis fixed in the sum of $15,207 with that amount to be deducted from the respondent’s share of the distributed funds.

2. The interim application has its genesis in an Application in a Case filed 21 May 2015.  The substance of the initial application is the same as the amended application but the detail of the orders is now different.

3. The impact of a determination of the amended application would bring finality to the proceedings for property settlement which were finalised by consent orders made before Cronin J on 21 May 2014.

COURT PROCEEDINGS

1. The first return date of the Application in a Case was 28 May 2015.  On that occasion the applicant was represented by counsel, the respondent appeared in person. 

2. The respondent had not had an opportunity to file a Response and an Affidavit in support.  He made it clear however that he opposed the orders sought in the application and wanted a proper opportunity to be heard.

3. There is considerable complexity to the issues in dispute.  Whilst it will be the subject of detailed consideration, it was generally agreed between the parties that following the sale of a property pursuant to the final orders for property settlement at 1 E Street, Suburb F, there was likely to be a significant capital gains tax assessment.  The issue had particular relevance for the respondent given that he was the sole registered proprietor of the property and accordingly he would be initially liable for any capital gains tax assessed and levied.

4. The parties agreed that the assessment of capital gains tax (CGT) was dependent upon three variables:

   (1)The date upon which the property ceased to be the main residence and therefore not subject to capital gains tax.

   (2)The valuation of the property at that relevant date.

   (3)The sale price of the property.

5. The first two variables were contentious and it was generally accepted that in the absence of agreement the court would need to hear and determine the matter based upon evidence as presented.

6. The parties were able to agree the method by which the best and most reliable evidence could be presented to the court.  That consensus was the basis for paragraph 3 of the orders made that day:

   That by 4pm on 5 June 2015 the parties do jointly instruct a single expert licensed real estate valuer to undertake a valuation of the property at situate at [1 E Street, Suburb F] in the State of Victoria with the valuation of the said property to be determined at the following dates:-

   (a)as at 30 June 2002;

   (b)as at 31 January 2006; and

   (c)as at 30 June 2006

   with the cost of the valuation to be paid equally by the parties.

7. The clear intention was that the affidavit material and therefore the evidence of the parties would be directed to determining which of the three dates was relevant of CGT calculation.  It was considered that the issue was of relatively narrow compass.

8. The proceedings were adjourned for further argument on the application to 3 August 2015.

9. The proceedings were called on by the applicant’s solicitors on 19 June 2015.  The applicant was again represented by counsel but on this occasion there was no appearance by the respondent or any legal representative on his behalf.  The order adjourned further consideration of the interim application to 29 June 2015 imposing an obligation on the court to provide a copy of the order made to the respondent, but with the applicant’s solicitors to advise the husband of the adjourned date in writing.

10. The notation to the order is relevant:

    (a)that the husband has failed to attend the hearing this day;

    (b)that he gives his advice that he was unlikely to attend by email communication; and

    (c)that his failure to attend on the adjourned date may result in orders being made by default and potentially adverse to his interests namely, by either the court nominating a single expert licensed real estate valuer or by giving leave to the wife to instruct her own expert.

11. On 29 June 2015 there was no appearance by the husband.  Following submissions by counsel for the applicant, I considered it appropriate that an order be made appointing a particular real estate valuation service to undertake the valuation of the property at 1 E Street, Suburb F but at the relevant dates as specified in the previous order.

12. I was satisfied by reference to the affidavit of the wife that the husband had failed to respond to any of the communication forwarded by the wife’s solicitors proposing three single expert valuers.  Significant effort had been undertaken on behalf of the wife to provide procedural fairness to the husband.  The issue in respect of the selection of the single expert was not contentious.  It was a benign process in order to achieve a valuation to enable a capital gains tax calculation to thereafter occur.  It was not suggested that the very issue of the valuation should or would be problematic.

13. It is difficult to understand the reticence of the husband to engage in the process.

14. The orders made appointing the single expert valuer was not in any way determinative of the application.  It simply facilitated that which was not expected to be contentious namely, the underlying valuation as at the three nominated dates.  If there was to be disagreement, then it would have arisen which date would represent the beginning and end of the property being used as a main place of residence.

15. The order of 29 June 2015 did not alter the previously nominated hearing date namely 3 August 2015.

16. On that date the husband appeared in person.  He sought an adjournment of the proceedings but did not have an application nor affidavit in support.

17. The husband’s submissions were not directed to any specific proposal or plan if an adjournment was granted but rather, he did not consider that he was personally ready for the proceedings to be heard and determined.

18. It was difficult to ascertain from the husband whether he remained in fundamental disagreement or whether the proceedings simply required too much person or emotional effort.

19. When challenged in respect of certain documents, it appears that the husband had possession of them but had not looked at them.  Some documents apparently remained in unopened envelopes. He acknowledged that he had not responded to correspondence and it may have been the case that he had not read them.

20. If I had been satisfied that an adjournment would have resulted in the husband either obtaining appropriate representation or that he would have diligently obtained relevant evidence and therefore properly prepare a case to support the orders that he would seek, an adjournment would have been entertained.

21. Demonstrably, the husband had not realistically considered whether he did oppose the orders sought by the wife and I had little difficulty in finding that if the proceedings were further adjourned the husband’s case would be no further advanced.  There would however been a significant exacerbation in the applicant’s costs which would have potentially been to the prejudice of the husband in terms of any application for those costs to be met by him.

22. When challenged in respect of the orders now sought in the Amended Application filed 31 July 2015, the husband really did not quarrel with the amounts determined in paragraphs 1(b), (c) and (d) of the orders sought and conceded that on the wife’s case the outcome in terms of monies to be set aside for the payment of CGT, land tax and likely accounting fees to wind up the Croce superannuation fund were if anything generous to the husband.

23. The orders of 3 August 2015 reflect that I dismissed the husband’s oral application for an adjournment.

BACKGROUND

1. After what appears to be highly contentious proceedings both as to property orders but also parenting issues, the parties reached agreement as set out in an order made by Cronin J on 21 May 2014. The orders provided that the parties do all things necessary to cause a property at 2 E Street Suburb F to be sold with paragraph 1(d) of the orders to set out how the proceeds of sale were to be applied both as to manner and priority:

   (i)the loan obtained by the wife pursuant to paragraph 6;

   (ii)the parties to pay the costs and commissions of sale;

   (iii)to pay any debts owing to Suburb F Council and G Water accrued to 14 April 2012;

   (iv)any amount outstanding to Mr D;

   (v)a sum of $10,000 to calculate any CGT payable as a result of the sale of 1 and 2 E Street and then wind up the Croce family superannuation fund;

   (vi)a fund of $20,000 to meet the costs of the parenting orders below and to repay the borrowings in (c)(iii) above;

   (vii)a fund of $150,000 to pay CGT and land tax outstanding on 1 and 2 E Street;

   (viii)the balance to be divided equally between the parties (including any surplus from (v)(vi) and (vii) above.

2. It is self-evident that on the wife’s case there is surplus funds, in particular from the amount set aside to pay CGT and land tax.

3. Paragraph 5 of the orders provide that the calculations required pursuant to paragraph 1(d)(v) of the orders namely, the calculation of CGT would be undertaken by a firm of accountants namely, H Accountants.  The orders made provision for the payment of the accountant’s fees generally but in particular in respect of the calculations that would be required to give effect to the orders.

4. The single expert prepared a report in answer to a request for the necessary calculations to be undertaken.  That report and the affidavit of the single expert was filed on 31 July 2015.  By letter dated 30 July 2015 (annexure D to the affidavit of the single expert), the advice was given that there was no CGT in regards to the property at 2 E Street, Suburb F.  Given that it was at all material times the principal place of residence, there was also no land tax payable.

5. The position was however different in respect of 1 E Street, Suburb F.  The initial position of the accountant was that assuming a value of approximately $810,000 the estimate of land tax payable was $2,025 per annum.

6. The calculation of CGT in respect of 1 E Street based upon the relevant dates was $63,643 if the relevant date was 30 June 2002, $43,526 if the relevant date was 31 January 2006 and $32,426 if the relevant date was 30 June 2006.  I am satisfied that the single expert has undertaken the calculation diligently and with all reasonable skill and attention to detail.

7. The focus then is to determine the appropriate date.

8. The wife by affidavit filed 29 July 2015 considers that the parties ceased to reside in 1 E Street in 2006 whereupon they then commenced to reside in 2 E Street. Accordingly, as far as the wife is concerned the relevant date is 2006 but on her case the earlier of the two dates.

9. The wife sets out a history of cohabitation and at paragraph 13 says:

   It is not possible that the husband and I resided at [2 E Street] from 2002 to 2006 as from approximately mid 2005 extensive renovations commenced on [2 E Street].  The building works involved removal of the original roof, most of the rear wall, the creation of a first floor, with bedrooms, a bathroom and laundry, and the remodelling of the ground floor, including essentially recreating the kitchen, living area, and a family bathroom.  During this time the property was inhabitable including due to the fact that it did not have a roof.

10. To the extent that it adds corroboration to the wife’s evidence, she relies on affidavits from Ms I filed 31 July 2015, Mr J and Ms K both filed 29 July 2015.  The import of the evidence of these witnesses is that they were friends of the family and that they regularly visited the parties at their then marital home at 1 E Street, Suburb F until at least late 2005.  By early 2006 the witnesses were attending at 2 E Street, Suburb F.

11. Accordingly, I consider the evidence to be irresistible namely, that the appropriate date for the determination of CGT liability should be 31 January 2006 when 1 E Street ceased to become the principal place of residence of the parties.

12. On that basis, capital gains tax is able to be calculated at $43,526 and land tax at $14,175.

13. The amount in the orders to be set aside for any outstanding amounts owing to the single expert accountants both for the work done to date but also as may be required to wind up the Croce superannuation fund is appropriate.

JURISDICTION-SUBSTANTIVE OR MACHINERY

1. The Full Court In the Marriage of Ravasini (1983) FLC 91-312 considered the “proper” definition of a consequential or machinery order and “the difference between a consequential order which may be varied and a substantive order which the Act gives no power to the court to modify”.  At pages 78,126-78 the court said:

   The Universal English Dictionary defines the word as “Following as a consequence, on what has gone before, resultant: consequential alteration in wording of a document, those made necessary by others already made.”  The same dictionary defines “consequences” as “event which follows upon something else which is, or appears to be, the cause; a result, outcome of what has gone before.”

   A consequential order then, in a property matter, would include an order following logically or of necessity from a prior substantive order.

   Whether what is to be done is termed a consequential order a machinery order the result is the same.  The court has no power to vary the original order.  It has power to enforce the order and to modify the machinery provisions of the order to effect enforcement provided that by doing so it does not affect the substantive rights of the parties.

   The true position was then summed up with precision by the Full Court in Molier & Van Wyk (1980) FLC 90-911 at 75,768; where it was said: “It has been decided that while this court has no power to vary an order for property settlement, it has power to enforce the order and to modify the machinery provisions of the order to effect enforcement…” Thus, as we have set out above, the substantive order cannot be varied but the enforcement provisions, the secondary orders made as a consequence of the substantive order, to give it operation and effect, can be varied. It is therefore the construction of the order itself that is to be examined and not the basis of fact on which it was made. The test is not whether the unchangeable or substantive order is a just or proper order – that is a matter for appeal or for an application under s 79A - but whether the part or parts of the order sought to be changed are part or parts of the substantive or whether they are orders made to give efficacy to that substantive order.

2. The wife seeks to do no more than to give proper expression to the provisions of the property order.  Without the calculations being undertaken there is no finality.  The substantive rights of the parties are not changed.  The parties agree as to the “mechanics” that would be required to resolve the unknown CGT and land tax assessments.

3. The orders sought by the wife do no more than give effect to that which was promoted by each of the parties.

CONCLUSION

1. The wife has gone to significant effort to resolve the outstanding issues on behalf of the parties.  It is not to her benefit specifically that she brings the application.  The original orders were crafted to avoid the very mischief that has now befallen the parties namely, the current proceedings.  They were unnecessary and the conduct of the husband in his barren opposition to the wife’s efforts to achieve a resolution is not able to be easily explained.

2. I make orders as appear at the commencement of these reasons.

I certify that the preceding forty four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 13 August 2015.

Associate: 

Date:  13 August 2015