Riley and Riley

[2013] FamCA 755

FAMILY COURT OF AUSTRALIA

RILEY & RILEY [2013] FamCA 755

FAMILY LAW – PROPERTY – Interim distribution – partial property settlement.

Family Law Act 1975 (Cth) s 79, s 117

Bevan and Bevan [2013] FamCAFC 116

Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466

APPLICANT: Ms Riley

RESPONDENT: Mr Riley

FILE NUMBER: MLC 9926 of 2011

DATE DELIVERED: 8 October 2013

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Thornton J

HEARING DATE: 9 September 2013

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Vohra

SOLICITOR FOR THE APPLICANT: Mills Oakley Lawyers

COUNSEL FOR THE RESPONDENT:

Mr St John SC with

Mr Hutchings

SOLICITOR FOR THE RESPONDENT: M A Legal

Orders

1. That the husband forthwith, withdraw caveat … lodged on his behalf against the title to the wife’s real property at … D Street, Suburb E, Victoria being the whole of the land described in Certificate of Title Volume … Folio … (“the Suburb E property”).

2. That the proceeds from the sale of the Suburb E property be applied as follows:

   (a)to pay the costs, commission and expenses of the sale in the estimated sum of $11,600; and

   (b)to pay the balance to the wife.

3. That the husband forthwith disclose in writing to the wife’s lawyers:

   (a)the total amount of all billed and unbilled legal fees and disbursements, including counsel’s fees incurred by the husband in relation to his family law matter;

   (b)the total amount of all billed and unbilled fees incurred by the husband in respect of his engagement of any expert witnesses;

   (c)the total sum owed by the husband (if any) in legal costs and disbursements and/or expert witness fees;

   (d)the source from which the husband has paid or caused to be paid any and all such costs, disbursements and/or fees from the commencement of his family law matter to date; and

   (e)the estimate of the husband’s anticipated future legal costs and disbursements and expert witness fees, including in relation to the upcoming trial.

4. That the costs of and incidental to this application be reserved.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Riley & Riley 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 MELBOURNE

FILE NUMBER: MLC 9926 of 2011

Ms Riley

Applicant

And

Mr Riley

Respondent

REASONS FOR JUDGMENT

Introduction

1. An application by the husband for final property settlement in this case is fixed for a five day trial on 22 October 2013.

2. By Application in a Case filed 6 September 2013, the wife sought an interim order for the withdrawal of a caveat and the urgent release of funds from the sale of her real property at D Street, Suburb E (“the Suburb E property”).  This was heard before me on 9 September 2013.

3. The Suburb E property was sold for $455,000 and the proceeds of the sale less costs, commission and expenses are estimated at $443,400.  Settlement of the sale of the real property is due on 9 October 2013.  There will be a capital gains tax liability payable by the wife, the quantum of which is in dispute.

4. The wife requires the net proceeds of the sale to enable her to meet her outstanding and future legal costs and expenses, including the costs payable to her expert witnesses in the substantive proceedings.

5. The wife also sought to pay her outstanding credit card debts totalling approximately $50,000 from these funds.  The wife asserts that $10,147 of the credit card debt is for legal fees which have been paid. The balance is for living expenses.

6. The husband opposed the wife’s application.

Procedural history and background

1. The substantive matter commenced by way of an Initiating Application filed by the husband on 8 November 2011 seeking final orders for a property division between the parties.

2. The husband is the owner of various companies within a group of entities known as the Riley Group, including the business Riley Pty Ltd, which primarily engages in the acquisition, importation and sale of food products. 

3. The value of the parties’ interests in the Riley Group will be the key issue in the trial and accordingly the total value of the parties’ assets is disputed.

4. A joint experts’ report was filed on 9 September 2013.  The expert for the wife assessed the value of the Riley Group at between $4,458,194 and $6,058,194.  The expert for the husband assessed the value as between $3,685,937 and $4,868,330.

5. The expert for the husband, Mr A, has valued the adjusted earnings before interest and tax of the trading business for the 2013 financial year at over $900,000.

6. The husband’s application for final property settlement is essentially seeking a 50 per cent division of assets between the parties.  The wife is seeking that she transfer her interest in the Riley Group to the husband in return for the husband transferring to the wife a number of properties.  On the husband’s case, if a division based on his value occurred, the wife would receive more than the value of the proceeds of sale of the Suburb E property. 

The material relied upon by the applicant

1. The material relied upon by the applicant and the respondent is annexed to this judgment at Annexure 1.

Interim orders sought by the applicant wife

1. In her application, the wife sought a variety of orders.  The orders in dispute were:

   ·That the proceeds of the sale of the property, apart from the usual expenses, be paid to the wife, and that:

   (a)The sum of $46,235 be paid into the wife’s solicitor’s trust account, on account of capital gains tax payable by the wife in respect of the sale;

   (b)the sum of $300,000 be paid to the wife’s solicitors for the purposes of meeting the wife’s outstanding and future legal costs and expenses, including counsel’s fees and expert witness costs in relation to these proceedings; and

   (c)sums be paid to discharge the wife’s Commonwealth Bank Mastercard Gold Card (the current balance of which is approximately $29,383) and Westpac Altitude Black Card (the current balance of which is approximately $20,618).

2. The wife also sought that the characterisation of any and all payments made to and/or on her behalf pursuant to the orders be reserved for determination at trial.

3. The wife also sought orders that the husband forthwith disclose details of his legal costs and the source of that funding.

The husband’s response to the orders sought

1. The husband sought orders that:

   ·$33,000 be applied, following receipt of an assessment from the Australian Taxation Office, to meet the capital gains tax payable by the wife; and  

   ·the proceeds of sale be otherwise divided equally as part settlement of property.

2. During submissions, counsel for the husband asserted that the capital gains tax liability for the wife would amount to $32,851.

Background

1. It was agreed between the parties that there was a period of 16 to 17 years of cohabitation between them and that the three children of the marriage aged 17, 16 and 11 years, reside with the wife and spend time with the husband on alternate weeks from Thursday to Monday.  The children also spend some holiday time with the husband.

2. The husband is aged 48 years and conducts the business Riley Pty Ltd, which he has been operating for the last 11 years.  This business is the only real income producing asset created by the parties during their 17 year cohabitation.  Although the wife deposes that she did work for the business at various times, she has primarily been at home caring for the children.  The wife has no control over the business Riley Pty Ltd.

3. The wife is aged 52 years and engaged in home duties.  She receives a wage from the husband’s company of $75,000 per annum, which has been characterised as maintenance since July 2013.

4. The husband receives the same amount in income as a salary from the company.

5. The husband has been paying the mortgage payments on the property where the wife and children reside, a holiday house and other mortgages on properties in his name or the business name, as well as the business line of credit.

6. The husband pays the children’s private school fees and the wife pays some of the children’s tuition fees and has the day to day running costs and care of the children.

7. It was not in dispute that the wife is anticipating receiving an amount of approximately $100,000 from her late father’s estate in or about November 2013.

8. The wife deposes that she has no money to pay for the litigation funding of the trial and that she owes a significant amount of money for legal costs and living expenses on her credit card.

9. An earlier application by the wife for an interim part property settlement of $100,000 was dismissed by consent of the parties before Cronin J.  In that application, which was made on 13 March 2013, the husband swore an affidavit that he had no money to pay and referred to the unencumbered Suburb E property of the wife which might raise an amount of $410,000 to assist in her litigation funding.

10. Counsel for the husband submitted that consent orders were made before Cronin J on 9 May 2013 because the wife had failed to disclose her anticipated inheritance and withdrew her application for legal costs.  He denied that there had been any agreement made with the husband for the wife to sell the Suburb E property in order to pay her legal costs.

11. Whilst this would appear to be the suggestion implicit in the husband’s affidavit, I have not determined this application on the basis of this point.

12. In a letter dated 22 July 2013, the wife notified the husband’s solicitors of her intention to sell the Suburb E property to, amongst other things, pay her legal fees.[1]  

    [1] Exhibit C – Letter to MA Legal from Mills Oakley Lawyers dated 22 July 2013.

13. On 23 July 2013 the husband lodged a caveat on the Suburb E property.  The parties were in court on 24 July 2013 in respect of other procedural matters but the wife was not notified of the caveat until 5 August 2013.

The wife’s position

1. The wife submitted that there is some urgency in the situation because it is the husband’s case that he will determine whether or not he retains the company Riley Pty Ltd depending on the ultimate decision of the Court.  If the husband retains the company and then has to source money to pay the wife’s entitlements, then there will be some delay.  Alternatively, if the husband does not retain the company then there will inevitably be some time before it is sold and the proceeds of sale realised. 

2. It was submitted by counsel for the wife that under either scenario the wife would be waiting a considerable period of time for any money to pay her lawyers.  It was also submitted by counsel for the wife that the wife would be waiting a considerable period of time for any money to spend on improving her home and potentially to live on.  The wife deposed that the former matrimonial home where the children and wife reside has no carpet or floor coverings in the main living area because she cannot afford to have them replaced.

3. Counsel for the wife submitted that by agreement, neither party had deposed to the inheritances they had received, and that the husband had an inheritance in 2008 which he used to acquire a property in Town B which was not considered by the wife to be part of the pool of assets and should not be taken into account for the purposes of this application.  She emphasised that the amount of $100,000 anticipated from her inheritance would not be paid until after the trial had concluded.

4. In submissions before me, counsel for the wife confirmed that in global terms, the top of the range of the anticipated estimated legal costs and expenses of the wife including the total costs unpaid to date, amount to approximately $320,215.  The low end of the range was conceded to be an estimate of $295,215.

The husband’s position

1. Counsel for the respondent husband submitted that there was no dispute that provision ought to be made for the wife’s legal costs but that the issue for determination was based on the quantum alone.

2. The husband opposed the making of the orders on the basis that the wife has sufficient funds to pay for the legal costs should the proceeds of the sale of the Suburb E property be divided between them.  This took into account the wife’s anticipated inheritance of $100,000.

Submissions

1. There was no dispute between the parties that the Court has the power to make the orders sought.

2. It was the submission of counsel on behalf of the wife that it was just and equitable to allow for payment of the proceeds of the sale to the wife under the orders sought on the basis of the principles in Strahan & Strahan (Interim Property Orders) (2011) FLC 93-466 to defray these legal costs for the preparation of trial and the costs of a five day trial. This included the costs of expert witnesses to give evidence about the valuation of the company which is in dispute in the trial.

3. Counsel for the wife submitted that an order under s 79 or under s 117 of the Family Law Act 1975 (Cth) (“the Act”) should be made in favour of the wife retaining the net proceeds of the sale because of the following facts:

   (a)the wife had deposed to her legal costs;

   (b)the wife had deposed to the fact that she had no ability to pay them;

   (c)the husband controls the major income earning vehicle of the parties;

   (d)the husband has paid his legal costs using that income; and

   (e)the husband had deposed previously that the wife ought to sell the property to pay her legal costs.

4. In the alternative, it was argued that if the husband asserted that the payment of the net proceeds of sale to the wife would result in her receiving more of the asset pool than she would under a final s 79 order, then an order should be made under s 117 of the Act.

5. Counsel for the husband submitted that after receiving half of the proceeds of the sale and the anticipated inheritance of $100,000, the wife would be in receipt of approximately $300,000 which would be sufficient to pay her legal costs and expenses of the accountant having regard to the range of figures which had been provided on the affidavit of the solicitors for the wife.  He also submitted that the wife’s solicitors’ costs are not presently payable but will arise later.

6. Counsel for the husband submitted that the test is what the wife needs for legal costs and that, having regard to her inheritance, she has not provided sufficient reasons for requiring the whole of the proceeds of sale of the property.  He submitted that there is no justification for the quantum.  Counsel for the husband also submitted that the respondent requires $200,000 for his own legal costs and submitted that the businesses of the respondent do not fund his legal costs and provided an example in Exhibit 1 of two bank statements which were evidence of an amount of $40,000 withdrawn from his private bank account in order to pay the business account.  He suggested this was an amount the husband had taken from the business as a loan to pay for his legal costs.  Counsel for the husband submitted that there had been insufficient time to provide further examples but that this was an example of a transaction where the respondent had paid an amount from a personal account to his business account.

7. Counsel for the husband further submitted that if the husband retains his business, the value of the business will plummet if he has to pay a property settlement and will reduce the income of the company and affect the valuation which is relevant to the asset pool.

The Legal Issues

1. Section 79 of the Act provides for the alteration of property interests between the parties to a marriage.

2. In Strahan, Thackray J referred to a two-step approach; that the court must first identify circumstances that make it appropriate to give consideration to exercising its power to make an interim order. (This requires the court to have regard to the policy consideration that it is generally in the interest of parties and the Court for there to be only one exercise of the s 79 power.) However, once the Court has determined that the interests of justice require it to exercise the power, the conditions on which the power is to be exercised are governed only by the obligation to make an order that is “appropriate” and to ensure that the proposed order is “just and equitable” by reference to the matters set out in s 79(4) of the Act.

3. In Bevan and Bevan [2013] FamCAFC 116 at paragraph 73, the Full Court of the Family Court referred to the three “fundamental propositions” laid down by the High Court in Stanford v Stanford (2012) 247 CLR 108 which should guide trial judges in approaching the task under s 79. They were summarised as follows:

   1. Determination of a just and equitable outcome of an application for property settlement begins with the identification of existing property interests (as determined by common law and equity);

   2. The discretion conferred by the statute must be exercised in accordance with legal principles and must not proceed on an assumption that the parties interests in the property are or should be different from those determined by common law and equity;

   3. A determination that a party has a right to a division of property fixed by reference only to the matters in s 79(4), and without separate consideration of s 79(2), would erroneously conflate what are distinct statutory requirements.[2]

   [2]Bevan and Bevan [2013] FamCAFC 116 at paragraph 73.

4. I am satisfied that the net proceeds of sale of the Suburb E property estimated at $392,000, if paid to the wife, would not exceed her ultimate entitlement  given the quantum of property to be divided.  Even on a conservative assessment the value of the parties’ assets is estimated at approximately $4.9 million.  Counsel for the husband has conceded in his submission before me that “the husband is not imperilled”. 

5. Implicit in the submissions of the parties was the fact that it is just and equitable to exercise the discretion in this case.  Doing the best that I can at this interim stage, I am satisfied that is so.

Factors taken into account

1. There is also sufficient evidence to satisfy the considerations under s 79(4). This section incorporates matters in s 75(2) as may be relevant. I am satisfied that it seems likely that the wife will receive by way of property settlement a sum sufficient to cover the advance to enable the order sought to be made.[3]  This can be taken into account in the eventual property settlement order.

   [3]Strahan & Strahan (Interim Property Orders) (2011) FLC 93-46 at paragraph 137.

Categorisation of payments

1. In a written outline of argument, counsel for the wife submitted that it is a matter for the Court how the proceeds of the sale might be characterised should they be ordered to be retained by the wife and that any characterisation is a matter that should be reserved for determination at the trial.

2. Counsel for the husband submitted that it is not necessary to characterise any amount that might be provided to the parties because the Court had the power to make the orders sought by the husband once quantum was determined.  He submitted that this question should be reserved for the trial.

Conclusion

1. I have concluded that it is appropriate to make an order for payment of the proceeds of the sale of the Suburb E property to the wife as a part property settlement under s 79. Following the decision in Strahan, it is appropriate to categorise the proceeds of sale and the basis for making the order when the interim order is made, so that it is clear on what basis the order is made. 

   It is appropriate to reserve consideration of the wife’s anticipated inheritance of $100,000 for determination during the trial having regard to the fact that it is a post separation inheritance.  There will be an issue in the trial as to whether this inheritance be included in calculation of the assets of the parties.  This cannot be determined at this stage. No doubt there will be submissions directed towards this issue during the trial.

1. In my view, the wife has demonstrated an entitlement to an interim distribution of property or at least, an alteration of the Suburb E property interests to the extent that the husband may be claiming some equitable interest in it because of the lodging of the caveat. I note the wife has the sole legal interest. Having determined the power is available and should be exercised under s 79 of the Act, it is necessary to categorise the payment as an alteration of property interests. Whether that exhausts the power to alter that interest again in the future, particularly if the money is spent, is a matter that can be argued at trial.

2. Accordingly it is appropriate to order that the husband withdraw the caveat lodged on his behalf against the title to the Suburb E property forthwith and that the balance of the proceeds of the sale of the Suburb E property be paid to the wife after deduction of the costs, commission and expenses of the sale.

3. It is the wife’s assertion that significant amounts from the business have been paid to cover the husband’s legal expenses for the litigation. Counsel for the applicant submitted that the husband was using the profits of the company to pay for his legal fees.

4. The wife asserts that the husband has not disclosed what he has paid to his lawyers so far and produced Exhibit B as evidence of the regular payments made by the husband to his lawyers and his expert witness since June 2012.

5. From the wife’s affidavit filed on 6 September 2013, total legal and associated costs paid by the husband from business income was $105,000 for the period between January 2012 and July 2013.  This is denied by the husband in his affidavit of 9 September 2013.

6. The wife's evidence is supported by Exhibit B, which demonstrates that the husband has made regular payments to his lawyers from his business account.

7. No real explanation was provided by the husband for the $40,000 withdrawal and deposit in Exhibit 1, being the statements of his private account and business account, which was proffered as an example of a payment made by him from his personal account to the business.  I agree with the submission of Counsel for the wife that a lump sum of $40,000 which it was suggested had been repaid by the husband from his private to his business account would be surprising giving his annual salary of $75,000.

8. I accept the argument of the wife that the husband should disclose the amounts of his legal costs and expenses which have been paid, and which are anticipated, and the source of the funding for the payment of those costs.

Capital gains tax

1. There was some argument about the calculation of the quantum of the capital gains tax. This argument was really only relevant to any order that might have been made if the husband was to receive the balance of the proceeds of the sale.

2. The husband disputed the assessment of the wife’s accountant,

   
   

   Mr C during the hearing and suggested that as the wife was not working, the assessment would be a lower figure of $34,000.  The husband also asserted that the wife should be working. 

3. In the event that the capital gains tax becomes relevant in the trial, I accept for present purposes the figure of $46,235 as calculated by the expert accountant Mr C sworn 26 August 2013 and based on a sale price of $450,000 for the property. Of course, the property sold for $455,000 not $450,000 and this will affect the new assessment.  In the event that the wife becomes employed, this would inevitably increase her liability for capital gains tax. I note that the capital gains tax is not payable until the end of 2014.

4. However given my conclusion that it is appropriate to make an interim order by way of part property settlement in favour of the wife for the proceeds of the sale of the Suburb E property, it is not necessary to specify an amount to be set aside for capital gains tax.  The appropriation of those proceeds by the wife is a matter for her.

I certify that the preceding sixty-five (65) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Thornton delivered on

8 October 2013.

Associate: 

Date:  8 October 2013

ANNEXURE 1

The applicant relied upon the following material:

·Affidavit of the wife sworn 6 September 2013;

·Affidavit of the wife’s solicitor, Helen Pamela Suke, sworn 6 September 2013, deposing to outstanding and anticipated legal costs and expert witness costs;

·Affidavit of the wife’s accountant, Mr C, sworn 26 August 2013.  This included a calculation of capital gains tax on the sale of the Suburb E property based upon a sale price of $450,000;

·Exhibit A – a copy of the husband’s statement for his business account, Riley Pty Ltd Westpac Business One from 17 January 2012 until July 2013; statement dated 28 April 2011 to 5 May 2011; 5 May 2011 to 12 May 2011; 26 May 2011 to 2 June 2011; 3 November 2011 to 10 November 2011;

·Exhibit B – statement for the respondent husband’s personal bank account, Mr Riley Westpac Choice, dated 7 May 2012 to 21 June 2013; 23 December 2010 to 23 March 2011; 23 June 2011 to 23 September 2011; and

·Exhibit C – a letter dated 22 July 2013 from the wife’s solicitors, notifying the husband’s solicitors of her instructions to sell the Suburb E property and her intention to apply the net proceeds from the sale in part towards her legal and accounting costs in relation to the proceedings and to meet other expenses.

The husband relied upon the following material:

·Affidavit of the husband sworn 9 September 2013; and

·Exhibit 1 - two statements from the husband’s Westpac Choice account, highlighting a withdrawal on 27 June 2013 from his personal account and a deposit to the Business One account on the same date in the sum of $40,000.