Sanders and Sanders & Ors

[2011] FamCA 881

FAMILY COURT OF AUSTRALIA

SANDERS & SANDERS AND ORS [2011] FamCA 881

FAMILY LAW – PROPERTY SETTLEMENT – transactions to defeat orders – issue of whether husband’s interest in business be set aside – where the parties complied with the previous orders made by a judicial registrar to the advantage of the wife and the wife did not herself comply with those orders requiring her to make formal transfers of her interest in the business - where husband transfers his interest in the business to the two sons of the marriage - where the husband’s business was in a precarious financial state and the husband suffered deterioration in his mental health when the husband decided to transfer his interest – where husband’s decision to transfer his interest was taken when the husband was unaware when litigation might progress if at all – transfer was unlikely to represent a disadvantage to the wife – where impact of setting aside would have a catastrophic financial effect on innocent third parties – no orders made to set aside husband’s disposition.

FAMILY LAW – PROPERTY SETTLEMENT – full and frank disclosure by parties – where the wife asserted that the husband failed to make full and frank disclosure – where the husband made disclosure by providing three volumes of documents annexed to his affidavit – no cross-examination of husband by wife about failure to disclose – where wife’s expert witness was not briefed with the husband’s financial disclosure documents – held no failure by husband to make proper disclosure.

FAMILY LAW – PROPERTY SETTLEMENT – determining matrimonial net asset pool – where parties’ assets have been previously divided by court orders - where parties have minimal assets other than superannuation – where most of the parties’ monies received from the sale of the family home is spent or accounted for in legal costs – orders for no further division.

FAMILY LAW – PROPERTY SETTLEMENT – spousal maintenance – interim order made provision for spousal maintenance of the wife by the husband – where husband ceased paying spousal maintenance due to parties’ changed financial circumstances and made an additional payment to wife of $30,000 – wife is not in employment and in receipt of disability pension – where the bulk of the money received by wife from the sale of the family home has been expended on legal costs – where husband is in part-time employment and has high levels of debt – where husband has suffered from deterioration in mental health – no orders made for ongoing spousal maintenance - no orders made for payment of spousal maintenance in arrears.

FAMILY LAW – CONDUCT OF A REVIEW – application for review of an order of a judicial registrar – a court must hear the application as an original hearing or hearing de novo.

Family Law Act 1975 (Cth) ss 75, 79, 106B

In the Marriage of Gould (1993) FLC 92-434

APPLICANT: Mr Sanders

FIRST RESPONDENT: Ms Sanders

SECOND RESPONDENT: U Pty Limited

THIRD RESPONDENT: CG Pty Limited

FOURTH RESPONDENT: S Pty Limited

FIFTH RESPONDENT: K Pty Limited

SIXTH RESPONDENT: Y Pty Limited

SEVENTH RESPONDENT: N Holdings Pty Limited

EIGHT RESPONDENT: Mr EB

NINTH RESPONDENT: AS Pty Limited

TENTH RESPONDENT: Mr YY

ELEVENTH RESPONDENT: Ms YY

FILE NUMBER: (P)SYC 8576 of 2007

DATE DELIVERED: 18 November 2011

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Cleary J

HEARING DATES: 17, 18 November 2010;
28 February; 1 - 4 March; and 28 March 2011

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Connor

SOLICITOR FOR THE APPLICANT: Argyle Lawyers

COUNSEL FOR THE FIRST RESPONDENT: Mr Lloyd SC

SOLICITOR FOR THE FIRST RESPONDENT: Paul & Paul

SECOND, THIRD, FOURTH, FIFTH, SIXTH & SEVENTH RESPONDENTS In person

EIGHT & NINTH RESPONDENTS: No appearance

TENTH & ELEVENTH RESPONDENTS: In person

Orders

1. That the order for spouse maintenance made 29 May 2010 is discharged as from 29 August 2009.

2. That the Application of the Wife filed 5 November 2010 is otherwise dismissed.

3. That the Application of the Husband is otherwise dismissed.

4. That time for compliance with Orders 2.4 and 2.5 made 29 May 2009 is extended to close of business on the twenty-eighth day after delivery of these Orders and Reasons.

5. That should a party refuse or neglect within 7 days of a written request to do so to sign any document to implement the above orders, a Registrar of the Family Court of Australia be appointed pursuant to s 106A of the Family Law Act 1975 to sign such document or documents on behalf of the defaulting party and do all acts and things and give validity thereto.

IT IS NOTED that publication of this judgment under the pseudonym Sanders & Sanders is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: (P)SYC 8576 of 2007

Mr Sanders

Applicant

And

Ms Sanders

First Respondent

And

U Pty Limited

Second Respondent

And

CG Pty Limited

Third Respondent

And

S Pty Limited

Fourth Respondent

And

K Pty Limited

Fifth Respondent

And

Y Pty Limited

Sixth Respondent

And

N Holdings Pty Limited

Seventh Respondent

And

Mr EB

Eight Respondent

And

AS Pty Limited

Ninth Respondent

And

Mr YY

Tenth Respondent

And

Ms YY

Eleventh Respondent

REASONS FOR JUDGMENT

Short history of the marriage

1. By the time they separated in 2007, Mr Sanders and Ms Sanders had been married for about 23 years and were both in their late forties.

2. They had two sons, W born in 1986 and G born in 1988.

3. Over the years the couple bought, lived in, renovated and sold various properties around Sydney.

4. Until the wife became pregnant with W she worked in a shop.  From then on she was at home caring for the children and carrying out all the domestic work of the family.

5. For the first six years of the marriage, the husband worked in banking, then recruitment.

6. In 1990 the husband and his brother-in-law Mr A, started NE Group. 

7. In 1996 the two men bought offices in North Sydney as business premises for NE Group.  A trust for both the Sanders and A families was established in 1998.  The trustee of that trust was N Holdings Pty Limited (‘N Holdings’).  The husband and Mr A are the directors.  Members of both the Sanders and A families are shareholders.

8. N Holdings acquired the North Sydney offices which were then leased to NE Group.

9. Also in 1998 Y Pty Limited was established as trustee for a second family trust, the Sanders family Trust (No. 1).

10. From 2001 Y Pty Ltd began to buy properties borrowing the funds from the National Australia Bank.  Debt levels were high. 

11. The wife left the home in 2007.  The husband remained living there with the parties’ two sons.  The parties were divorced in 2009.

Adoption of findings of fact by Judicial Registrar

1. In these proceedings the wife adopted the findings of the Judicial Registrar in paragraphs 2 to 48 of his Reasons for Judgment (29 May 2009).  Those adopted paragraphs form a second schedule[1] to this judgment and it is for that reason that the short history of the marriage set out above is by way of short summary only.

   [1]  Paragraph 187 of these Reasons.

History of events since litigation began

1. The original litigation began with the filing on 13 December 2007 of an Application by the husband for property orders.  The wife filed a Response.  Those competing applications were heard on 11 and 12 May 2009 by a Judicial Registrar.  Orders were made on 29 May 2009.

2. The respondent wife was dissatisfied with the outcome and instructed her lawyers to appeal.  The first document by the wife was within time but was rejected for filing.  The subsequent Application in a Case filed 29 June 2009 was correct in form (a Review) but was out of time.  That issue became a sleeper in these proceedings.

3. On 15 July 2009 new solicitors for the wife came on the record.

4. On 29 July 2009 the Application in a Case (Review) filed by the wife came before a Judge.  Orders and directions were made for the preparation of the matter for hearing.  There is nothing recorded in the transcript of that day to indicate that the issue of leave to file out of time was raised[2].

   [2]  Transcript Cohen J 29 July 2009.

5. Both parties did not comply with the orders and directions for hearing. The matter was not set down for hearing.

6. The husband paid spouse maintenance until 9 August 2009.  The payment had been ordered to continue until 29 November 2009.

7. In October 2009 the wife changed solicitors.  This firm, the fourth instructed, continued in the matter to the conclusion of the matter before me.

8. In January 2010 the wife filed an Application in a Case seeking orders for interim costs and spouse maintenance.  The husband sought to have that application struck out.  At that time the leave issue in respect of the Review Application was identified.  Orders were made for that issue to be heard.

9. On 23 April 2010 the wife filed an Amended Application in a Case seeking to amend the application that had been made 10 months previously on 29 June 2009.  The wife sought leave to apply for the review out of time.

10. The matter was heard in May 2010.  The decision on the leave point was reserved and never determined.

11. In June 2010 the husband made a decision to leave the partnership in NE.

12. On 9 July 2010 the settlement took place of the sale of the former matrimonial home.  The sale price was $2.8 million.  After all of the secured debt was repaid there was $386,867 to divide.  The wife received 77 per cent of the net proceeds pursuant to 2.2(e) of the May 2009 orders.  She also received a further sum of $30,000 which will be further referred to in these Reasons.

13. The wife had not transferred her shares in Y Pty Ltd or N Holdings, or disclaimed her interest in the trusts as she had been ordered to do.  This continued to be the case to the conclusion of this hearing.  The oral evidence of the wife was that she was “fighting the orders” and would not disclaim her interest.

14. On 19 August 2010 a letter was sent by the Court to parties advising that pursuant to the orders of Cohen J the matter had been listed for two days hearing commencing 30 September 2010.  Orders in relation to the leave point had not issued at that time.  The matter was therefore not ready to proceed.

15. The wife applied for an adjournment of the proposed hearing.

16. On 1 September 2010 the new arrangements within the NE Group partnership commenced, the husband having transferred his interests to his two sons.  U Pty Ltd was the operative trust for the new entity which came into existence on that date.

17. The adjournment application of the wife came before me on 16 September 2010.  It was at that time that the husband, who was by then representing himself, indicated that he would withdraw his objection to leave being granted if the matter could go ahead on 30 September 2010[3].

    [3]  Transcript 16/09/2010, page 5.

18. The husband had not been in a position to know whether the wife was proceeding with her Review Application until that day.

19. When the wife learned of the transfer by her husband of his interest in NE Group to their sons, she amended her application to set aside that transaction.  Ten further respondents were joined to the proceedings.  An application under s 106B was made to set aside the relevant transactions.

20. The hearing before me was conducted over eight days, between 17 November 2010 and 28 March 2011.  Although the wife was the applicant for the review, the husband agreed to become the applicant in the proceedings as he had been in the first hearing.

21. There were subsequently written and oral submissions.

The 10 Respondents (additional to the husband)

1. The 10 Respondents additional to the husband can be logically grouped as follows:

·   U Pty Ltd
(Second Respondent)

The trustee company for a trust trading as NE Group.

This entity came into existence on
1 September 2010 operated by Mr Sanders and Mr W Sanders.

·   Mr YY
(Tenth Respondent)

A current partner in NE Group.

·   Mrs YY
(Eleventh Respondent)

The wife of Mr YY.
The interests of Mrs YY were represented by her husband.

·   S Pty Ltd
(Fourth Respondent)

The trustee company for the YY Family Trust.

·   CG Pty Ltd
(Third Respondent)

The trustee company for G Sanders.

·   K Pty Ltd
(Fifth Respondent)

The trustee company for W Sanders.

·   Y Pty Ltd
(Sixth Respondent)

The trustee company for two trusts:  both Sanders Family Trusts.

·   N Holdings Pty Ltd (Seventh Respondent)

The trustee company of the Sanders/A Family Trust.

·   Mr EB
(Eight Respondent)

A former partner in NE Group.

·   AS Pty Ltd
(Ninth Respondent)

The trustee company for Mr EB.

Mr EB and AS Pty Ltd were served through an order for substituted service.  The two respondents did not appear or participate in this hearing.

Conduct of a Review

1. A Court must hear an application for review of an order of a Judicial Registrar as an original hearing, a hearing de novo.

2. The Court may receive evidence:

   (a)      any affidavit or exhibit tendered in the first hearing;

   (b)      any further affidavit or exhibit;

   (c)      the transcript if any of the first hearing, or

   (d)if a transcript is not available an affidavit about the evidence sworn by a person present.

3. The Court may make such orders as it considers appropriate in the matter.  The orders were made on 29 May 2009.  No stay of the orders was sought.  Certain orders were complied with, others not.

4. Compliance with orders is significant both for determining the net asset pool and also in relation to the application by the wife pursuant to s 106B.  I refer to that matter at a later stage in these Reasons.

5. The details of compliance are set out below.  There was agreement between the parties in this area.  The wife adopted the written submissions for the husband.  The relevant comment by counsel for the husband is in bold and underlined.

Compliance with Orders of Judicial Registrar 29 May 2009

1.DEFINITIONS (omitted)       

2.PROPERTY ORDERS

2.1That the former matrimonial home (‘FMH’) be sold as soon as practicable. In the event that the parties are unable to agree on an issue to do with the price or the marketing of the home they are to request the President of the Real Estate Institute of NSW to make a decision on that issue and will abide by that decision.

This order was complied with and the FMH sale was settled on 9 July 2010.

2.2That upon settlement of the sale of the former matrimonial home the net proceeds of sale shall be distributed in the following manner and priority:

(a)Firstly, to discharge the following liabilities:

A.   The overdraft facility with the National Australia Bank; being account number …43;

B.    The business instalment loans with the National Australia bank; being account number …44 and account number …21;

C.    The Flexiplus mortgage line of credit with the National Australia Bank; being account number …83;

D.   The National Australia Bank Home Loan; being account number …89; and

E.    The [L Sanders] Investment Account; being account number …00.

This order was complied with on settlement of the sale of the FMH on 9 July 2010.

(b)Secondly, to pay all costs and expenses of the sale including legal costs and disbursements.

(c)Thirdly, in payment of agent’s commission and any advertising expenses.

(d)Fourthly, to meet the costs of the President of the Real Estate Institute of NSW or his delegate, arising from any request made by the parties pursuant to these orders;

This order was complied with on settlement of the sale of the FMH on 9 July 2010.

(e)Fifthly, in the payment of 77 per cent of the remaining balance to the wife;

and

This order was complied with on settlement of the sale of the FMH on 9 July 2010 – the evidence discloses that the respondent wife was in fact paid an additional $30,000 raising this 77 per cent to a higher percentage. This $30,000 and the circumstances of its payment are later addressed herein.

(f)Sixthly, in payment of the remaining balance to the husband.

2.3That within 28 days from the date of this Order, the husband shall do all acts and things and sign all documents as may be necessary to transfer the wife’s motor vehicle into her sole name and at her expense.

This was complied with.

2.4That within 28 days from the date of this order the wife shall do all acts and things and sign all documents as may be necessary to transfer to the husband:

(a)her one share in [Y Pty Ltd];

(b)her 3 “C” class shares in [N] Holdings.

This was not complied with by the respondent wife.

2.5That within 28 days from the date of these orders the wife shall:

(c)Disclaim her interest in the [Sanders] Family Trust, the [Sanders] Family Trust (I) and the [Sanders A] Family Trust; and

(d)Assign to the husband any loan account (debit or credit) that she has in the [Sanders] Family Trust, the [Sanders] Family Trust (I) and the [Sanders A] Family Trust.

This was not complied with by the respondent wife.

2.6It is declared that except as otherwise provided for herein the wife shall be declared to be the sole owner of and the husband shall have no interest in:

(e)The wife’s motor vehicle;

(f)The wife’s bank accounts;

(g)The wife’s superannuation entitlements; and

(h)All other property and personal effects in her possession, custody and control as at the date of these orders.

2.7It is declared that except as otherwise provided for herein the husband shall be declared to be the sole owner of and the wife shall have no interest in:

(i)The [NE] Group;

(j)[Y] Pty Ltd;

(k)[N] Holdings Pty Ltd;

(l)The husband’s motor vehicle;

(m)The husband’s Superannuation entitlements;

(n)The husband’s bank accounts;

(o)All other property and personal effects in his possession, custody and control as at the date of these orders.

At material times following the making of these Declarations, the applicant husband asserts, that notwithstanding the absence of any stay being obtained by the respondent wife, she did not act in accordance with such Declarations (those made in favour of the applicant husband).

2.8The husband shall be solely responsible for and indemnify and keep indemnified the wife in respect of:

(p)the husband's credit card debts;

(q)any liabilities, taxation obligations, debts, dues or obligations of the husband.

2.9The wife shall be solely responsible for and indemnify and keep the husband indemnified in respect of:

(r)the wife's credit card debts.

(s)any liabilities, taxation obligations, debts, dues or obligations of the wife.

The applicant husband says that following the making of these orders he made no demands (and otherwise held indemnified the respondent wife) of the applicant wife in relation to any liability referred to and affecting the respondent wife.

2.10Except as any clause forming part of this Order provides to the contrary, each of the husband and the wife releases the other from all debts owing from one to the other.

The applicant husband says that following the making of these orders he made no demands and otherwise acted in accordance therewith.

3.SPOUSE MAINTENANCE ORDER

3.1The order for spouse maintenance contained in the orders made by this Court on 18 February 2008 is varied to provide that as from the date of this order the rate of maintenance be reduced to $357.00 per week and that unless the parties otherwise agree in writing those payments continue only until 29 November 2009.

The applicant husband says that he complied with this order up to 29 August 2009.

4.MACHINERY ORDERS

4.1The parties are to sign any deeds, documents, instruments and writings as may be necessary to give affect to these orders and to do all acts and things necessary to give them validity and operation.

The applicant husband says that following the making of these orders       he fulfilled his obligations(s) hereunder, but the respondent wife did not.

4.2Should either party refuse or neglect to sign any deeds, documents, instruments and writings as may be necessary to give affect to these orders within fourteen (14) days of being requested to do so, the Registrar and each Deputy Registrar of the Family Court of Australia is appointed, pursuant to Section 106A of the Family Law Act 1975, to execute such deeds, documents, instruments or writings in the name of the defaulting party and do all acts and things necessary to give them validity and operation.

No recourse was made to the Deputy Registrar of the Court by the applicant husband.

Evidence of Mr Sanders – the husband

1. The husband was the respondent to the review application.  He became the applicant in the rehearing.

2. The husband relied on the following material:

   1.Response  filed    28.02.2011

   2.Orders Sought by Applicant Husband        filed    01.11.2010

   3.Affidavit of Mr Sanders  filed    06.10.2010

   4.Affidavit of Mr Sanders  filed    24.03.2010

   5.Affidavit of Mr Sanders  filed    30.04.2010

   6.Financial Statement  filed    06.10.2010

   7.Financial statement  filed    24.03.2010

   8.Affidavit of Mr Sanders  filed    25.11.2008

   9.Affidavit of W Sanders  filed    06.10.2010

   10.Affidavit of G Sanders  filed    06.10.2010

   11.Affidavit of Mr YY  filed    06.10.2010

   12.

   Affidavit of Mr M

   
   

   (Accountant)  filed    06.10.2010

   13.Affidavit of Dr CW  filed    06.10.2010

   14.Affidavit of Mr GD (Valuer) filed    06.10.2010

   15.

   Affidavit of Ms ML (employee)      

   
   

   (emailed to Court)  sworn 18.10.2010

   16.

   Affidavit of Ms P A                

   
   

   (emailed to Court)  sworn            18.10.2010

   17.Affidavit of Mr E (Accountant)                  filed    28.11.2008

   18.    

   Final Property Orders made by Judicial

   
           

   Registrar Loughnan (as he then was)  29.05.2009

   19.

   Reasons for Judgment of made by Judicial

   
   

   Registrar Loughnan (as he then was)   29.05.2009  

3. Mr Sanders gave his evidence in a straight forward way, showing some signs of strain when it came to his health and financial position.  There was evidence from his treating psychiatrist Dr CW.  The doctor was unavailable for cross-examination but I give some weight to his evidence.  I do not discount the husband’s assertions that he had been suffering from depression and finding life difficulty to cope with.  Both his sons gave evidence that they were concerned for his mental state.  I accept the evidence of them both and will come to that matter in more detail further in these Reasons.

4. The evidence of the husband is that he was under pressure in several directions:

   1.From an application the wife made in January 2010 seeking to re-open property settlement and spouse maintenance matters.  The application was apparently categorised as a de facto appeal against the orders of the Judicial Registrar.  Subsequently the wife abandoned that application.  It was not unreasonable for the husband to have wondered if the Review Application brought out of time would also be abandoned.

   2.One of the husband’s two remaining partners, Mr EB, left the business owing more than $460,000 in loans to the National Australia Bank, such loans being secured by the property in North Sydney in which the husband held a 50 per cent ownership.  Mr EB had defaulted on the loans and decamped from the partnership.  He was certainly unable to be located for the purpose of service despite the best efforts of the wife, leading to the application for substituted service.  The husband in his affidavit[4] referred to this default by Mr EB as “the last straw” which prompted him to decide, in consultation with his remaining partner Mr YY, to give up his interest in the business to his two sons. 

   [4]  Affidavit of husband filed 6/10/2010, par 14.

5. I accept the evidence of the husband that he reached the point where he could not continue to be effective in the business.  The husband ceased to be a partner as at 31 August 2010 and a new entity ‘U Pty Limited’ as trustee for the trust trading as NE Group commenced on 1 September 2010.  This change took place at a time when the husband was declared to have the sole interest as against his wife in NE Group and there was no application before the Court other than an application for leave to review out of time.  This is a significant matter.  The husband stood accused of undertaking this transaction to defeat the legitimate interests of the wife, or at least doing so, whether or not he held that intention.  The May 2009 orders had been complied with to the advantage of the wife, but she herself had not complied with those orders which required her to make formal transfers of her interests in the business.  In these circumstances the application pursuant to s 106B was a bold one.

6. The family home was finally sold in mid 2010.  The wife received her percentage, together with an additional $30,000.  The husband also agreed to terms that required him to leave a significant part of the furniture and appliances with the house.

7. The husband asserts and I had no reason not to accept, that he had been treated by several practitioners for his depression since 2008[5].  The husband’s position after the settlement of the sale of the home was that he had no assets other than his interest in the business, no savings and a remaining debit balance on his credit card of over $15,000.  The husband was not challenged on his financial position, other than as to the value of the business.  Ultimately the valuation obtained by the wife was rejected by the Court during the course of the hearing.  On any view of it the husband was in difficult circumstances.  The husband set out the documents he had disclosed to the wife[6].  The general proposition was repeatedly put to him that he had failed to make disclosure and had acted deliberately, or at least recklessly, to defeat the legitimate interest of the wife.  However, he was not cross-examined at all on the assertion in his affidavit of specific disclosure.

   [5]  Affidavit of husband filed 6/10/2010, par 20.

   [6]  Affidavit of husband filed 6/10/2010, pars 6 to 10.

8. The husband presented as bitter over his circumstances, but I do not consider that bitterness detracted from his honesty as a witness.  I accept that the husband decided to leave the business early in June 2010 and that he took all of those steps necessary to create a snapshot of the financial position of the business before making the offer to his active partner Mr YY and to his two sons, who had been working in the business at that time since early 2010.  The husband said this:  “At that time (April 2010) I wanted out.  I was airing my desperation.  I said I think I ought to close the business.”  In June 2010 the husband also spoke of this matter to his accountant Mr M, who gave evidence. 

9. Approximately three months after the expression of this preliminary view, Mr EB left the business in the circumstances outlined above in June 2010.  The proposition was put to the husband that at the time of rearranging his business, he thought it would advance his case in this Court to consult a psychiatrist.  I accept the husband’s evidence that this was not his motivation.  He was referred by his treating general practitioner Dr BZ, on account of his feeling that he could not go on working and that he was “heavy with depression”.  The husband said over the previous 12 months, that is 2009 and 2010, he had seen two general practitioners and Dr BZ who had referred him to Dr CW.  The husband said he had thoughts of suicide at this time.  I accept the evidence of the husband that after the restructure he continued as an employee in the business and that he went into work as often as he could, “depending on his mental state” and that he attended to matters such as the production of invoices and accounts and general financial matters of an administrative nature.  He no longer participated in personnel decisions, dealing with clients and payroll, which he had previously attended to.

10. I find that the husband not only believed that the business was his exclusive responsibility, but that given the orders and declarations made in May 2009, was in fact his exclusive responsibility.  The husband was in an unusual legal situation.  He knew that there may be further contested proceedings.  However I find that he had no obligation to consult the wife about his decision to transfer his interests in the business to the parties’ sons.  The proposition was put to the husband that his sons had increased their income, after becoming partners in the business, and he agreed.  To the extent that there was an inference that this increase was in any sense a result of a decision of the husband, or a reflection of the value of the business, the evidence does not support that inference.  I accept that Mr YY and the parties’ two sons made their own independent decisions after the husband transferred his interest to them.

The car park

1. The husband was extensively examined about two car parking spaces in the building at North Sydney.  The position was that an entity named BB Company managed the car parking spaces at the building.  The husband’s entity, N Holdings Pty Limited held two shares in BB Company.  The use of two parking spaces came with the occupation of the building in North Sydney.  The value of the spaces on the evidence appears to be between $30,000 and $35,000.  There was no suggestion that the spaces were to be independently dealt with.  I do not consider that this issue made any difference to the overall outcome in the proceedings.

2. The proposition was put to the husband, “Your financial position is in a sad state of affairs?” Answer:  “It’s dire.”  In the view of the Court the evidence supports that assessment by the husband, at least in comparative terms.  The husband was also cross-examined about the interest of Mr EB, who had left the partnership without notice, leaving a debt owing to the partnership’s bank.  The bank had begun to move on that debt, which as previously stated, is secured on the husband’s interest in a property at North Sydney where the business is conducted.  The husband’s evidence was that he did not know where Mr EB was.  Certainly the wife’s lawyers had been unable to find Mr EB.  Effectively the proposition was put to the husband that he had been cavalier in regard to Mr EB’s interests.  Even if this had been established, it was irrelevant to the issues in dispute.  If there was an inference in the cross-examination that the husband’s treatment of Mr EB reflected poorly on his credit, I find that the evidence does not support that inference.  This question was put: 

   Question:      You took advantage of Mr [EB]? 

   Answer:We didn’t view his approach as professional, reasonable or genuine.  It was a feint to try to get out of the debts.

   The undisputed fact was that Mr EB had left the partnership on short notice without having made provision for repayment of debt for which he and the husband, by guarantee, were responsible[7].

   [7]  Exhibit ‘W3’.

3. The husband was also extensively cross-examined about a practice of the partnership in relation to its accounts.  The practice appeared to be well known to the accountant Mr M.  In the first quarter of the financial year receipts were carried over and in the last quarter of the year were held back.  I accept the evidence of Mr M that this had been the practice for many years.  To the extent that there was an inference that the husband had manipulated the accounts in some way to his advantage in these proceedings, I consider that there was no evidence to support that inference.

The business debt repaid from the sale of the home

1. There was a line of credit on the family home which was sold in mid 2010, which was used to run the business.  The borrowings secured on the home resulted in a payment of $24,000 per month in interest.  The husband’s position was that the capital reduction of the debt by $1.45 million reduced the indebtedness of the business but did not increase its value.  I accept that evidence.  There had been private borrowings through the partnership for art work, conveyancing and investments unrelated to the business.  Indeed earlier in the partnership’s history when the marriage was still in tact, new partners had bought into the business and the husband and wife received as personal funds $1 million.  That money was not applied to the partnership or its debt at that time.  The wife does not dispute that was the case, although her overall position was that she did not know or understand the financial workings of the partnership.

R suburb Units

1. The husband was cross-examined about the purchase of units at suburb R.  The proposition was put to him that the wife had asked him not to buy the units until the sale of the family home.  The fact that there may have been a disagreement between the parties prior to the purchase of property is irrelevant to the fact that the properties were purchased.  The wife consented to the purchase.  If she did so reluctantly, that must be irrelevant.

Evidence of Mr YY

1. Mr YY relied on his affidavit filed 6 October 2010.  Mr YY was not involved in the first hearing.  Orders are sought against him.  He and his wife were joined as respondents to these proceedings.  Mr YY represented the interests of his wife as well as himself.  He conducted himself with the utmost courtesy and made every effort to assist the Court.

2. Mr YY conceded that with the repayment of $1.4 million worth of debt, overheads for the business had reduced by the extent of the loan repayments and that there were no more drawings by Mr Sanders.  He conceded that billings since 1 September 2010 had been strong.  He gave evidence as to the need to take into account creditors and not simply focus on billings.  This is self-evidently correct.  In answer to questions about Mr EB, Mr YY revealed some of the strain that he felt as a result of one of his partners leaving without notice with debt unattended to.  Mr YY had paid $500,000 to become a partner.  Mr YY was also cross-examined as to whether or not the decision by the business to increase the proportion of ownership of himself and the parties’ two sons had been unfair to Mr EB.  The Court considers that the business decisions taken by the partners as to their approach to dealing with Mr EB, is irrelevant to the determination of the issues in these proceedings.

3. Mr YY gave evidence that the husband attended on the business occasionally for a whole day, at other times for part days and sometimes not at all.  He said the husband did not join in with major decisions that “he and the boys made.”  In a sense Mr YY was acknowledging a long professional relationship over 14 years between himself and the husband by accommodating the new arrangements and allowing the husband to go on using the car that he had as a partner.  I accept the evidence of Mr YY which he gave in an honest and forthright manner.

Evidence of Mr W Sanders

1. Mr W Sanders relied on his affidavit filed 6 October 2010.  He is the eldest son of the parties, aged 24 years at the time of hearing.  Mr W Sanders represented himself, was at all times courteous and strained to assist the Court.  He was an honest and straightforward witness.  He said that after Mr EB had decided to “abandon the company” he had a discussion with his brother about taking over an interest in the partnership.  He said he had come home after learning that Mr EB had left abruptly and found his father crying and stating that he felt like suiciding.  He said: “Having found his father in this state, I decided to talk to my brother.  I talked to my brother and we decided to give it a shot”.  There was clearly a difficult conversation between father and sons.  Initially his father had told him he didn’t want him to have an interest in the company, but the sons having had their conversation, approached their father about his intention to close the business down, to see if they could become involved.  He said he did understand the guarantees for debt.  He also knew that there were family law proceedings in the offing. Mr W Sanders took advice from Mr M the accountant of long-standing of the partnership.

2. Mr W Sanders gave evidence which I accept, that he is opposed to his father taking up an interest in the company again “for his health” and that he would not transfer the interest back if asked to do so.  I note this exchange: 

   Question:      What is going to become of your father? 

   Answer:         God I hope he gets better.

   I have no doubt that Mr W Sanders has been sincerely concerned about his father’s state of mind and health, and that while he was hopeful of making a go of the business and earning a good income, his motivation for becoming involved was to assist his father by relieving him of his obligations to the partnership.  

3. The evidence of Mr W Sanders was compelling in relation to Mr YY’s reaction.  He was asked whether Mr YY had spoken to him about the departure of Mr EB.

   Answer:        (Mr [YY]) was very upset.

   Question:      Upset because he had two new partners?

   Answer:         [Mr EB] had left, now my father was leaving.  He   (Mr [YY]) had a lot of money tied up and a lot of debt.

   Question:      Did you want your father to stay (in the business)?

   Answer:         Yes we needed help and advice.  We had [Mr YY] thank   god who has run the company for eight years.

4. Mr W Sanders was asked whether he was aware of the partnership’s practice of withholding invoices at the end of the year until the commencement of the next financial year.  He said that in his view that “was chasing your tail”.  I take this to be a confirmation that Mr W Sanders became familiar with this as a practice and could see no point in it.  I accept that he had not considered, until he was asked the question, that this was a tactic to reduce the value of the partnership.  Given that the partnership had been approaching financial years in this way for many years, I do not consider that that was the motivation for it.

5. Mr W Sanders also gave evidence in re-examination that the partnership had recently lost its third biggest client and gave some details.

Evidence of Mr G Sanders

1. Mr G Sanders relied on his affidavit filed 6 October 2010.  He is the younger son of the parties and was 22 years at the date of hearing.  He was an impressive witness as his older brother had been.  He represented himself and conducted himself with courtesy and an obvious wish to give truthful evidence.  He said that he had had a career in real estate for about three years and had become somewhat unhappy with that.  Nevertheless I find that as for his older brother, that Mr G Sanders took up an interest in the partnership to assist his father:  “We did it out of his health so we weren’t putting conditions in any way”. 

2. Mr G Sanders said that if his father wanted his interest back he would refuse, but that he would consult Mr YY as his partner.  Again, Mr G Sanders was cross-examined about the interest of Mr EB.  He did not have a great deal of knowledge about the past history, only that Mr EB had left the partnership abruptly and that a decision had been taken to reallocate his interest between existing and new partners (himself and his brother).  He had taken advice as his brother did, from Mr M the family accountant. 

3. If there was an inference that Mr G Sanders was colluding in some way to defeat the interest of his mother, or had been an innocent dupe in such an exercise, I consider that the evidence does not support either of those inferences.

Evidence of Mr M

1. Mr M relied on his affidavit sworn 1 October 2010 and filed 6 October 2010.  Mr M was cross-examined at some length.  He was taken to the practice of the partnership of deferring the issue of invoices at the end of one financial year until the beginning of the next.  Mr M agreed that this had been the practice of the partnership.  He said that his brief was to comment on the original valuation complied by Mr E for the proceedings conducted in 2009. He said that if he had been asked to do a full valuation he would have taken a different approach. 

1. Again, Mr M was cross-examined about the way Mr EB’s interest in the partnership had been dealt, that is reallocated without reference to Mr EB.  Mr M freely agreed that there had been no documentation.  The Court was left with the impression that Mr EB having left abruptly, created consternation for both the husband and Mr YY and activated a response which may have been harsh, or possibly outside the partnership agreement of the old partners, but I accept it was their joint commercial response in the particular circumstances.  That is, the evidence does not support the proposition that it was calculated or manipulated in relation to these family law proceedings.  Mr M was asked whether in his view the husband had understood what he was giving away when he transferred his interest in the partnership to his sons.  Mr M thought that he definitely did.  This question was then asked:

   Question:      Did he express a view about the impact on these proceedings   of the transfer, words such as ‘won’t be anything to fight   over now’.

   Mr [M]:         I cannot recall any such words being said.

2. Mr M said the partnership was not insolvent.  It had a deficiency of assets which was one element of insolvency but it was operating.  Mr M gave evidence that the partnership was not a legal entity, other than as the partners constituting it from time to time and that the three trusts of the partners would be the creditors.  The debt was owed to those individuals and that the debt would remain with the trust. 

3. The effect of Mr M’s evidence was that in his view the partnership had been “living off the overdraft” and that the business itself was under capitalised.  Part of the debt incurred had been created by partners coming in.  When the new partners came in they paid a total of $1 million to each of the trusts of Mr A (then a partner) and the husband.  Through a trust, $1 million was paid to each partner personally.  However, when these partners left and had to be paid out, the partnership account was used.  This evidence is a key to understanding the financial position of the partnership that there had been a blurring of the personal and partnership.  It might be said that a more disciplined approach would have been for the money paid by incoming partners to have been credited to the partnership.  The fact is that was not done.  The husband and wife in these proceedings had the benefit of $1 million worth of partnership property in 2001.  Debt accrued on the “overdraft” secured on the family home because of this serious under-capitalisation. 

Evidence of Ms Sanders – the wife

1. The wife relied on the following documents:

   1.Affidavit of Ms Sanders  sworn 02.11.2010

   2.Financial Statement  sworn 05.11.2010

   3.

   Reasons for Judgment JR Loughnan

   
   

   (pars 2 – 48 inclusive)  delivered 29.05.2009

   4.Application for Review  filed    29.06.2009

   5.Further Amended Response  filed    05.11.2010

   6.Valuation of Mr B  

   7.Valuation of Mr SS

2. The affidavit of the wife was initially tendered without its annexures.  The wife’s solicitor gave this explanation for the annexures not being attached to the affidavit: 

   I think they are not attached and your Honour the difficulty is my client was in Queensland and I was in Sydney but what I would be doing is probably seeking to tender those, whatever is referred to, I would be seeking to tender them in due course.

3. I note that this was another recurrent theme in the proceedings that the wife had very little direct contact with whichever firm of solicitors she was instructing from time to time, and was very often not present in Court in the period between the hearing before the Judicial Registrar and this hearing. Ultimately I have come to the conclusion that the wife failed to engage with the issues in her own case.  This greatly added to the difficulties her solicitors clearly experienced, as well as the Court.

4. Mrs Sanders was aged 50 years at the date of hearing.  She lives on the Gold Coast and is a disability pensioner.

5. Her application, in addition to the setting aside of the disposition of the husband’s interest in NE Group, was for a $2.5 million cash payment plus a car and the property already in her possession, together with spouse maintenance for the balance of her life at the rate of just under $70,000 per year.

6. The wife conceded that she had received “just under $300,000 from the sale of the family home”, although the figure of $330,172 was put.  The wife said that she had not applied for work during the last four months.  She appeared to be restless in the witness-box and uncomfortable.  There was no medical evidence of the condition for which the wife receives her disability pension.  The wife gave the impression that she had very little knowledge, not only of the running of the partnership which she freely conceded, but of the litigation itself.  She was not inclined to take responsibility for the conduct of the proceedings.  For instance she was asked whether she would seek any action to pursue Mr EB?  Answer:  “I’ll be under advisement about that”. 

7. The wife was unable to recall the evidence that she had given in the first hearing in 2009.  The proposition was put to the wife that she had agreed to the sale of the Rose Bay units?

   Answer:         I don’t know what my solicitors did.

   Question:      You allege your solicitors were negligent?

   Answer:         Yes.

   Question:      Are there fees owing to previous solicitors?

   Answer:         Somewhere between $67,000 and $76,000, not sure.

   Question:      Are you still under advice as to whether to sue those   solicitors?

   Answer:         I’ve had no time to sit with the legal team to discuss that.

8. When asked how much of the proceeds of sale of the home she had left, the wife answered $50,000 to $60,000, as all the rest had been spent on legal accounting fees. 

9. In December 2009 the wife had spent $30,000 plus on instructing an organisation called CS Company to obtain a strategy for obtaining disclosure by the husband.  However nothing productive came of that exercise.  The wife considered that it was her then solicitor’s fault that there was no challenge to Mr E’s report.  She said that she had given a list of documents to a Mr X at CS Company to look at to see “if I go forward. then with my legal team we decided to go with Mr [B].”  The wife agreed that the report by Mr B had not been prepared until the first day of hearing on 17 November 2010.  She said that she had relied on Mr X and her lawyers and that she had been forced to be ready in a short period of time.

10. The wife agreed that she wanted to take over the trust of the husband, become the appointor and be paid $2.5 million.  She agreed that she wanted the loan account, both trust entities and the trust structure to be exclusively within her power.  Answer:  “Yes I most certainly do”.

11. The wife agreed that she and the husband had received $1 million at the time of the partnership buy-in in 2002.  She said the money was used to pay out the mortgage on the former matrimonial home and an industrial unit at suburb C and “Where the rest went I don’t know.”  There had been no challenge that any part of the $1 million received had been used other than for the purposes of the family or reduction of debt.

12. The wife also agreed that borrowings had been raised against the house to pay out the three partners in 2006.  On balance it seemed likely that the wife herself had not drawn any distinction between the income of the parties and the income of the partnership. 

13. The wife was unwilling to concede that she had insisted on being paid an additional $30,000 before she would sign the documents for the sale of the home.  However I accept that the additional $30,000 was so paid.  The wife’s statement, “My husband and I had a verbal agreement not to sell for less than $3.5 million” may have had some bearing on the wife’s sense of entitlement to an additional payment.

Wife’s compliance with the Orders

1. Question:      Did you act on the order to disclaim your interest in the trust? 

2. Answer:        No, I was fighting the orders, I was against the orders so I would                 not do it.

   The wife raised her voice and became extremely emphatic in that last statement.  Her response to the proposition that she had not sought a stay of the orders was much more casual.  She did not deny that she had not sought a stay but simply said, “I thought I did”.

3. The wife gave evidence about her intention to take over the running of the business.  The wife said that that is what she proposed to do.  She was asked about whether she had thought about who she would employ.  She said “No, she had not, but it would depend on who wanted to stay and who wanted to go.”  She agreed she did not know the customers of the business.  She was asked whether she heard one of her sons give evidence that the partnership had recently lost its third biggest customer.  Answer:  “Yes, but I haven’t seen any proof of that.”  This answer suggested both that she did not accept what her son said and also reflected the fact that she had been totally uninvolved in the running of the business since the first hearing.  That she had no such involvement can hardly be a criticism.  It was the intention of the orders that she would no longer be involved.  Indeed, those declarations were made.  The wife agreed that she held the view that the business was worth $5 million.  She was pressed about the fact that the business appeared to have lost major clients.  The tone of her voice as she answered “Mm Hm”, suggested that she simply did not believe anything that had been said.  However she freely conceded that she had not made her own enquiries about the loss of customers.

4. The wife did demonstrate knowledge of problems arising from the buyout in 2006 of three partners.  She said this:  “The trouble with the partners that came in is the high wages they commanded.”  This again is a reflection of the fact that the monies paid in by partners was not available to meet the need to pay partners out. 

5. In relation to Mr EB, the wife said she realised Mr EB had walked out on the mortgage which was owed on the North Sydney property owned by the partnership.  She said she was not sure if she was a guarantor of that debt.  She was also unable to remember being advised by the National Australia Bank to get advice about the overdraft secured on the house rising to $1 million in order to deal with the partnership buy-out.

6. The wife said she had read the report of Mr M, but discounted it because he worked for her husband.  She also said, “But I haven’t seen any legal documents to prove that.”  Again and again the wife’s answers suggested that she had simply instructed her lawyers to proceed without reading all of the relevant material, or at least asking sufficient questions to understand the implications.

7. At this point in the evidence the wife appeared to be having difficulty in answering questions.  She was flushed and rambling in response.  It emerged that in relation to CS Company the wife had already paid $21,000 with a further $30,000 outstanding.  The wife did not concede that this investment of $51,000 in advice had been of no value to her.  She said that the extra work had “helped a lot to understand the legal terms and a lot of the accounting things coming through.”  It was clear that the wife had had an aversion to discussing the issues with the lawyers she was instructing to represent her.  She was unable to say whether this expert had communicated with Mr B, “Probably has, I’m not sure.”

   Question:      Have you instructed him to?

   Answer:         On one occasion.

8. The wife again repeated that she had used the majority of the funds received from the sale of the home in paying legal costs.  There was she said, $67,000 plus outstanding to an earlier firm.  She had not agreed to pay their account.  Most significantly she said she had not obtained her file from Penny Waters Armstrong, a firm previously instructed.  All of the documents had been supplied to that firm by the husband.  The proposition was put at that point that it had been quite wrong of the wife to suggest that there had not been disclosure by the husband.  There was no particular response from the wife.  The Court accepts that documents supplied to and obtained by an earlier firm representing the wife are most likely still being held with the file on account of unpaid fees.  In November 2010 the wife agreed that she was asserting non provision of documents.  She was asked whether she was aware of correspondence form her current lawyers confirming that documents sought by them had in fact been supplied.  This was on 16 November 2010:

   Answer:       I don’t know, I don’t remember it.

   Question:       Are you unaware of the resolution of that issue.

   Answer:         I honestly can’t remember.

   Question:      Did you clear that up with your lawyers?

   Answer:         I never ask the questions.

   Question:      Were you trying to wreak havoc?

   Answer:         No response.

   Question:      Are you very very angry with the husband?

   Answer:         Yes the same as he hates me.

   The wife seemed uncertain as to what material Mr B had been supplied with and when told that he had not referred to particular documents, the wife’s answer was “I don’t know”.

9. Altogether the wife was an unimpressive and unreliable witness.  She was clearly bitter as the husband had been, but the real difficulty was a destructive combination of a strong wish to litigate and a complete unwillingness to engage with the issues.  The financial circumstances of the wife are clearly “dire”, more so than the husband’s, given that he is working and earning an income in the order of $55,000 per annum.  Her evidence that she intended to take over the running of the business was unrealistic and on balance, it seems more likely that the wife herself knew that.  She said that she would take over the business subject to the tenancy, but had given no thought as to how she was going to pay the rent.  Despite the evidence that she had been unable to get a job as a sales person, or any employment at all, she said that she had every confidence in running the enterprise.  I find that the bitterness that the wife felt overcame her judgment.  Her evidence was entirely inconsistent.

10. At the conclusion of the wife’s evidence an Amended Response was sought to be filed and relied on.  The sums sought pursuant to order 9 were reduced from $2.5 million to $68,979.  The prejudice to the husband would have been so significant as to justify an adjournment of the proceedings.  Accordingly that document was not admitted.

11. The wife was asked by the Seventh Respondent, Mr YY, whether she accepted that if the business was sold, the creditors would have to be paid.  She said she did.  In answer to the question:  “Do you expect your husband to remain working in the business”, the wife said she had not given the matter any thought.  She said she was unaware of what employee benefits and superannuation would need to be paid out, nor was she concerned on the impact on the partnership of repaying $1.4 million to herself and the husband.  She felt the partnership would be able to borrow those funds.

12. The wife agreed that post-separation the husband had paid down $500,000 worth of debt from the sale of the suburb C property.  The wife agreed that she had been running her case to add-back a $600,000 loss from the sale of the suburb R units.  She said she didn’t know about that.  She denied giving instructions for such a case to be presented and agreed with a proposition that was the lawyer’s fault.  With each answer the wife revealed punitive motivation.  She did not merely reveal her lack of knowledge of both the documentation and the real issues of the case.  She was recklessly indifferent.

Contents of the house

1. The wife conceded that the husband had paid for household contents to be transported to her in northern New South Wales.  Inexplicably the wife has been paying for storage of those contents at $35 per week since that time.  Towards the end of her evidence the wife conceded that she did not want to take control of the trust and run the business, rather she wanted money to be raised to “pay me so I can go on my way”.

2. The proposition was put to the wife that she had no intention of seeking employment.  She said she was on a disability support pension for a back operation in 2000.  The wife was both flushing and openly laughing at this point.  The wife forcefully gave evidence that there in her view was no limitation on the husband’s capacity to work.

Issues for determination

1. The issues for determination were:

   1.      Should the disposition of the husband’s interests in the business be set aside? [s 106B]

   2.      Was there a failure by the husband to make full and frank disclosure?

   3.      

   How should the net asset pool as determined be divided [s 79; 

   
   

   s 75(2)].  [This includes the issue of valuation of the business and The Sanders Family Trust].

   4.      Should the husband continue to pay spouse maintenance and if so, how much and for what period.

   5.        How should the payment of $30,000 by the husband in July 2010 be categorised?

Issue 1:  Should the disposition of the husband’s interests in the business be set aside? [s 106B]

1. The Court has a discretion in proceedings under the Family Law Act 1975 (Cth) (‘the Act’) to set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of a party which is made, or proposed to be made to defeat an existing or anticipated order in those proceedings, or which irrespective of intention, is likely to defeat any such order.

2. In this matter the wife argues that the Court should set aside the transfer of the interest of the husband in the business NE Group.  The history of the transaction is as follows:

   ·       On 29 May 2009 the husband had the benefit of a declaration that he be the sole owner of NE Group and its associated entities.  No stay of that declaratory order was applied for.

   ·       The wife was directed to transfer shares and disclaim relevant interest in the business and associated entities.  She failed to comply with those orders.

   ·       The husband continued to carry the sole responsibility (as against the wife) for the running of the business from the date of the orders (29 May 2009) until August 2010.

3. During that period the husband contended with ongoing litigation initiated by the wife.  A Review commenced in June 2009, was pursued inconsistently.  Another application by the wife was brought and abandoned. 

4. In mid June 2009, one of the husband’s partners, Mr EB, left the partnership without notice leaving significant debt.  His whereabouts remained unknown at the date of hearing.

5. The husband suffered deterioration in his mental health.

6. The husband transferred his interest in NE Group to his two sons commencing 1 September 2001.

7. The Court accepts that the disposition to his sons of the interest in the business was for legitimate reasons unrelated to these proceedings.

8. To the extent that the disposition could have defeated the wife’s claim, irrespective of intention, the Court exercises the discretion in favour of not setting the disposition aside.

9. The fresh value of the business prepared on behalf of the wife was rejected in circumstances where the valuer had been inadequately briefed.

10. Allegations of failure to disclose were unjustified.

11. The position in relation to the business was little changed since the May 2009 hearing, when the valuation of $Nil was accepted.

12. It would be onerous on the other respondents and quite unjust to set aside the transfer in circumstances where the outcome would be virtually unchanged.

13. The application by the wife is refused.

14. The husband transferred his interest in NE Group effective from 1 September 2010.

15. The persons against whom the wife seeks relief are named as additional respondents in the proceedings.  The nature of the claim and the bases for it is set out in the orders sought.

I certify that the preceding one hundred and eighty-nine (189) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cleary delivered on 18 November 2011.

Associate: 

Date:  18 November 2011