Catchwords: FAMILY LAW – Enforcement – parties negotiate detailed terms of settlement –applicant obliged to indemnify first respondent in relation to income tax assessed upon participation in business partnerships – applicant not obliged to indemnify first respondent in respect of capital gains tax – first respondent assessed upon and demands indemnity for substantial liability for capital gains tax – first respondent’s assessed liability for income tax includes tax on income from participation in partnerships – ATO assessment on 2016 financial year – first respondent demands applicant indemnifies her on income tax liabilities – construction of order – construction of indemnity – applicable principles – scope and operation of clause – whether properly construed, order obliged applicant to indemnify first respondent upon tax assessed at highest marginal rate of tax – order mirrors terms of settlement – terms of settlement drafted by first respondent’s lawyer – measure of indemnity extends to average marginal rates of tax assessed on income alone and on basis that liability for capital gains tax excluded from assessment – applicant given credit in respect of first applicant’s pre-payment of PAYG tax on 2016 financial year.
FAMILY LAW – s.79A application to vary final order – applicable principles – where parties agreed upon 52.5% / 47.5% allocation of net asset pool – parties negotiate extensive terms of settlement – adjustment of significant property interests – where parties proceed to complete settlement of multiple transactions pursuant to s.79 order – parties request advice from bank as to costs on repayment of Bank Bills – bank requires payment of substantial break costs on early repayment of Bank Bills – parties’ discovery of substantial break costs not made until shortly before settlement – Bank Bills secured over property which is subject of settlement – when order made, parties unaware that bank would demand payment of break costs before release of securities – whether parties’ gave false evidence as to scope of liability on Bank Bills – evidence need not be wilfully false – obligation to make full financial disclosure – parties ignorance of break costs – mutual mistake – settlement occurs – respondent refuses to accept liability for share of break costs – whether discovery of break costs constitutes any other circumstances which would render it just and equitable to make new order – whether default by respondent a ground of relief – whether acquiescence – whether reservation of rights – whether principles of acquiescence or reservation of rights a complete barrier to relief under s.79A – liability for break costs would have altered quantum of Asset Pool – whether relief available – s.79A relief cannot alter substantive rights – whether machinery or consequential relief available – relief granted.
Legislation:
Family Law Act 1975 (Cth), ss.78, 79, 79A, 80, 81, 117, 117B,
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Rendon and West and Ors [2018] FCCA 3678
Case
[2018] FCCA 3678
Decision Date
CaseChat Overview and Summary
The case of *Rendon and West* concerned a dispute between the applicant and the first respondent regarding the enforcement of a consent order and an application to vary that order. The primary dispute revolved around the scope of an indemnity clause within the consent order, specifically whether it extended to capital gains tax or only income tax, and a subsequent claim for a share of substantial "break costs" incurred on the early repayment of Bank Bills. The matter came before Judge A Kelly in the Federal Circuit and Family Court of Australia.
The court was required to determine two principal legal issues. Firstly, it had to construe the terms of the consent order and the underlying settlement agreement to ascertain the applicant's obligation to indemnify the first respondent for income tax liabilities, and whether this indemnity extended to capital gains tax. Secondly, the court considered an application under s 79A of the *Family Law Act 1975* (Cth) to vary the consent order, specifically whether the parties' mutual ignorance of significant break costs associated with the early repayment of Bank Bills constituted "any other circumstances" that would render it just and equitable to make a new order, and whether this ignorance amounted to a misrepresentation or a mutual mistake.
In relation to the indemnity, the court found that the terms of settlement, which were drafted by the first respondent's lawyer, obliged the applicant to indemnify the first respondent for income tax assessed upon her participation in business partnerships, but not for capital gains tax. The court determined that the measure of indemnity extended to the average marginal rates of tax assessed on income alone, excluding capital gains tax, and gave the applicant credit for pre-payments of PAYG tax. Regarding the s 79A application, the court held that the parties' discovery of substantial break costs shortly before settlement, which they were unaware of when the consent order was made, constituted circumstances that rendered it just and equitable to vary the order. The court reasoned that this ignorance of break costs, which would have altered the quantum of the net asset pool, amounted to a mutual mistake, and that relief under s 79A was available as machinery or consequential relief, rather than altering substantive rights.
The court ordered that the applicant indemnify the first respondent in the sum of $27,349 for her liability to income tax for the financial year ended 30 June 2016. Furthermore, pursuant to s 79A of the *Family Law Act 1975* (Cth), the consent order of 10 February 2016 was varied to include an order for the first respondent to pay the applicant $28,242, representing 25% of the break costs, and that this sum be set-off against any future indemnity owed by the applicant to the first respondent. The court also ordered that no interest was payable on these amounts and directed the parties to file submissions on costs.
Orders
Orders of the court
1.
Subject to paragraphs (2) and (3) of this Order, the applicant indemnify the first respondent in the sum of $27,349 for her liability to income tax in respect of the financial year ended 30 June 2016.
2.
Pursuant to s 79A of the Family Law Act 1975 (Cth), the Order made by consent on 10 February 2016 be varied by:
A. Inserting after paragraph 4 of that Order:
4A. The first respondent pay to the applicant the sum of $28,242 being 25% of the break costs imposed by [Bank 1] in respect of the early repayment of a Bank Bill in the sum of $2M.
B. Inserting after paragraph 15 of that Order:
15A. The sum payable by the first respondent to the applicant pursuant to paragraph 4A of this Order as varied, be set-off in extinguishment of the applicant’s liability to the first respondent upon the amount of any indemnity in respect of the first respondent’s future assessments of income tax.
3.
Pursuant to s.117B(2) of the Family Law Act 1975 (Cth), order that interest is not payable on the money found to be payable pursuant to paragraphs 1 or 2 of this Order.
4.
By 4.00pm on 18 December 2018, the parties file and serve any submissions as to costs (not exceeding 3 pages).
5.
Any application for costs be listed for hearing on 20 December 2018.