SCOTT & SCOTT
[2020] FamCA 414
•2 June 2020
FAMILY COURT OF AUSTRALIA
| SCOTT & SCOTT | [2020] FamCA 414 |
| FAMILY LAW – COSTS – COURT-APPOINTED RECEIVERS – Application by receivers appointed during proceedings to have their fees and disbursements quantified and paid from available assets – Where the appointment of the receivers was terminated by the Full Court – Where the former receivers are entitled to claim remuneration, expenses and costs – Where the dispute is confined to the proper quantum of the receivers’ fees and how the responsibility for payment of the fees should fall upon the parties – Where the receivers were appointed for the benefit of both parties – Ordered the parties are jointly and severally liable to the former receivers in a fixed sum – Ordered the parties shall indemnify one another to the extent of one-half of the total sum payable to the former receivers – Ordered the total sum payable to the former receivers is charged against the parties’ real and personal property. FAMILY LAW – PROPERTY – COSTS – Application by the husband for the wife to pay his costs of and incidental to the property proceedings – Where relevant factors under s 117(2A) of the Family Law Act 1975 (Cth) are considered – Where the wife’s complete lack of success with her application under Part VIIIA of the Family Law Act 1975 (Cth) is a compelling consideration – Where the wife’s financial circumstances do not militate against a costs order – Ordered the wife to pay the husband’s party/party costs in the sum agreed or assessed for confined period. FAMILY LAW – BINDING FINANCIAL AGREEMENT – ENFORCEMENT – Application to facilitate the enforcement of property rights under the parties’ binding financial agreement – Where orders made between the parties in December 2019 require certain steps to be taken to implement the binding financial agreement – Where the parties have been unable to work cooperatively to implement the financial agreement despite it being declared binding under Part VIIIA of the Family Law Act 1975 (Cth) – Where the wife does not want external assistance to manage the parties’ property to bring the terms of the binding financial agreement to fruition – Where the husband’s proposed solution is to appoint a receiver to enforce the binding financial agreement – Ordered the parties each nominate a suitably qualified independent person to act as a new receiver which nomination cannot include the former administrator or former receivers – Ordered the new receiver will be chosen by ballot from the parties’ nominations and the parties must bear the receiver’s remuneration in equal shares – Ordered the husband’s compliance with Order 4(c) made on 6 December 2019 – No basis to disturb the operation of s 117(1) of the Family Law Act 1975 (Cth) and award costs. |
| Corporations Act 2001 (Cth) ss 420, 1337C Family Law Rules 2004 (Cth) Pt 20.06, rr 1.12, 19.18, 20.47 |
| Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 Fatimi Pty Ltd v Bryant [2002] NSWSC 750 In the Marriage of Millar (1983) FLC 91-326; [1983] FamCA 21 Klewer v Official Trustee in Bankruptcy (No. 2) [2010] NSWCA 258 Malloy & Stopford-Malloy [2019] FamCA 986 Minister for Immigration and Multicultural Affairs v B (2004) 219 CLR 365; [2004] HCA 20 Scott & Scott [2019] FamCAFC 9 Scott & Scott (No.3) [2019] FamCA 936 |
| APPLICANT: | Ms Scott |
| RESPONDENT: | Mr Scott |
| FILE NUMBER: | CRC | 105 | of | 2016 |
| DATE DELIVERED: | 2 June 2020 |
| PLACE DELIVERED: | Newcastle |
| PLACE HEARD: | Newcastle |
| JUDGMENT OF: | Austin J |
| HEARING DATE: | 12 & 18 May 2020 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Not Applicable |
| SOLICITOR FOR THE APPLICANT: | Not Applicable |
| COUNSEL FOR THE RESPONDENT: | Mr Carolan |
| SOLICITOR FOR THE RESPONDENT: | Green & McKay |
Orders
The applicant and the respondent (“the parties”) are jointly and severally liable to Mr B and Mr C (“the former receivers”) in the total sum of $358,397.60 (inclusive of GST) for the work done by them as Court-appointed receivers pursuant to orders made in these proceedings on 11 May 2018.
The parties shall indemnify one another to the extent of one-half of the total sum (and any accrued interest) payable to the former receivers pursuant to these orders.
The total sum (and any accrued interest) payable to the former receivers pursuant to these orders is charged against the parties’ real and personal property.
Otherwise:
(a)The Application in a Case filed on 28 October 2019 by the former receivers is dismissed; and
(b)The Response to an Application in a Case filed on 30 January 2020 by the applicant is dismissed.
Order 1 made on 22 August 2019 is discharged and, in lieu thereof, the applicant shall pay the respondent’s party/party costs of and incidental to the proceedings under Part VIIIA of the Family Law Act 1975 (Cth) from 27 May 2019 until 6 December 2019 in the sum agreed or assessed.
Within 14 days hereof:
(a)Each party shall nominate in writing to the other party the name of one suitably qualified person to act as receiver, whom:
(i)in the applicant’s case, shall not be Mr L;
(ii)in the respondent’s case, shall not be either Mr B or Mr C; and
(iii)has consented in writing to act as receiver pursuant to the terms of these orders; and
(b)One receiver of the two nominated by the parties shall be drawn randomly by ballot conducted by the respondent’s lawyers (or some other person agreed in writing between the parties) in the parties’ presence.
The person drawn by ballot pursuant to Order 6 is appointed as the receiver of the property of E Pty Ltd, including the property it holds on trust for the Scott Family Trust and the F Trust, to realise assets and make the net proceeds of sale ready for distribution by E Pty Ltd to the beneficiaries of the Scott Family Trust and the F Trust.
Forthwith upon appointment of the receiver, the parties shall surrender to the receiver all business, financial and bank records in their possession, custody or control which relate to E Pty Ltd, the Scott Family Trust and the F Trust.
The receiver’s powers shall include:
(a)those set out within s 420 of the Corporations Act 2001 (Cth);
(b)the collection of debts owed to E Pty Ltd;
(c)the payment of debts owed by E Pty Ltd;
(d)the sale of all assets (both real and personal) owned both legally and beneficially by E Pty Ltd, which may include sale to either party; and
(e)the sale of all assets (both real and personal) legally owned by E Pty Ltd, but held on trust for the Scott Family Trust and the F Trust, which may include sale to either party.
The receiver is entitled to be paid for his or her professional services at the rate of no more than $440 (inclusive of GST) per hour and to recover disbursements necessarily incurred, for which fees and disbursements the receiver shall account to the parties in writing on a monthly basis.
The parties shall be jointly and severally liable to the receiver for his or her professional fees and disbursements and shall pay the receiver’s monthly accounts in equal shares within 14 days of receipt.
The parties shall indemnify one another to the extent of one-half of the receiver’s professional fees and disbursements.
The professional fees and disbursements owed to the receiver are charged against the parties’ real and personal property, subject to the priority of the charge created under Order 3 hereof.
The husband shall forthwith comply with Order 4(c) made on 6 December 2019.
Otherwise:
(a)The Application in a Case filed on 13 March 2020 by the respondent is dismissed; and
(b)The Response to an Application in a Case filed on 7 May 2020 by the applicant is dismissed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Scott & Scott has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT NEWCASTLE |
FILE NUMBER: CRC 105 of 2016
| Ms Scott |
Applicant
And
| Mr Scott |
Respondent
REASONS FOR JUDGMENT
Introduction
Substantive proceedings between the parties about their property interests under the Family Law Act 1975 (Cth) (“the Act”) were concluded on 6 December 2019 when it was declared that the financial agreement they respectively executed on 20 December 2010 and 4 February 2011 is a binding financial agreement within the meaning of Part VIIIA of the Act.
Several separate applications now require determination, those being:
a)an application by receivers, appointed during the proceedings, to have their fees and disbursements quantified and paid from available assets;
b)an application by the husband for the wife to pay his costs of and incidental to the substantive property proceedings; and
c)the parties’ competing applications for suites of orders to help enforce the implementation of the binding financial agreement.
Receivers’ remuneration
The substantive proceedings between the parties were commenced in May 2016 before the Federal Circuit Court of Australia.
On 5 May 2016, on the wife’s application, an order was made by a Federal Circuit Court judge appointing an administrator (Mr L) to manage the commercial entities controlled by the parties. Another order was made to the same effect on 14 July 2016.
The proceedings were later transferred to the Family Court of Australia in November 2017.
By an order made in March 2018, the existing administrator was ordered to file an affidavit reporting his work to the Court and advising whether he was prepared to continue fulfilling his Court-appointed role. The administrator filed the affidavit on 9 March 2018.
On 11 May 2018, on the husband’s application, Cleary J made interim orders revoking the administrator’s appointment and instead appointing receivers (Messrs B and C) to manage two corporations and, indirectly thereby, the two trusts of which one of the corporations is the trustee.
On 31 August 2018, Cleary J made more interim orders to augment those made in May 2018, clarifying the ambit of the receivers’ powers and confirming their entitlement to be paid from the assets under their control.
The wife successfully appealed from the orders made in May 2018, which were later set aside by the Full Court on 24 January 2019. The orders made in August 2018 were not appealed, but they had no work to do once the appointment of the receivers under the May 2018 orders was revoked. No orders were made by the Full Court specifically dealing with what would be done about the fees incurred by the receivers while fulfilling their duties, nor about the dispute over the fees still owed to the administrator (Scott & Scott [2019] FamCAFC 9 at [35]-[37]).
In the period between May 2018 and January 2019, while the appealed orders were in force, the receivers discharged their duties and are entitled to be paid professional fees for, and the disbursements incurred during, the work.
By an Application in a Case filed on 28 October 2019, the receivers seek orders which effectively:
a)quantify their total remuneration, comprising both professional fees and disbursements, at $345,316 (plus GST), though that figure was reduced to $325,816 (plus GST) during submissions;
b)require the payment of such costs within 30 days;
c)direct that the costs be charged against and paid from the managed assets in priority to all other debts, save for the debts secured by registered mortgage or charge;
d)grant them leave to issue a writ of possession over a parcel of real property owned by one of the two corporations they were appointed to manage, allowing them to sell it and pay their costs (though the application for this particular order was abandoned during submissions); and
e)require the parties to pay the legal costs of their application.
In support of their application, the receivers relied upon the affidavit of Mr B filed on 25 October 2019. The documents comprising the two exhibits to his affidavit were tendered separately from the affidavit.[1]
[1] Exhibit A1
The wife opposed the receivers’ application. She filed a Response to an Application in a Case on 30 January 2020 seeking:
a)an order forcing the receivers to remove the caveat they have registered over the real property which they now wish to encumber as security for the payment of their costs; and
b)the dismissal of the receivers’ application or, in the alternative, assessment of the receivers’ costs at only $28,930 or, in the alternative, an order that the husband pay the receivers’ costs.
The wife’s proposal transformed during the hearing. She eventually conceded the receivers were entitled to their fees in the sum of $42,730, but contended the husband should bear exclusive liability for their payment.
The wife relied upon her affidavits filed on 30 January 2020 and 29 March 2020. The documents referred to as annexures in those two affidavits were not actually annexed and were tendered separately from the affidavits.[2]
[2] Exhibits R1 and R2
The husband did not actively oppose the receivers’ application, nor did he file a Response to it. However, he did file an Application in a Case on 13 March 2020 (referred to below) in which he sought the receivers’ re-appointment to enforce the binding financial agreement between the parties and the assessment of the receivers’ costs and disbursements to date at $232,500 (excluding GST). The receivers were prepared to accept that lesser sum in full satisfaction of their higher claim, but only upon condition of their re-appointment, which dispute between the parties was not determined until afterwards. The husband opposed his imposition with any more than equal liability for the receivers’ costs.
The receivers initially sought an adjournment of their application until after the parties’ dispute over their re-appointment was determined, but the adjournment was refused and the receivers did not require reasons published for that decision.
There can be no doubt the receivers are entitled to be paid for the work they did pursuant to a valid and subsisting order in the period between May 2018 and January 2019. The Family Court of Australia is constituted as a superior court of record (s 21(2) of the Act) and its orders are final and binding unless and until set aside on appeal or pursuant to prerogative writ (Minister for Immigration and Multicultural and Indigenous Affairs v B (2004) 219 CLR 365 at 393). Although the May 2018 orders were later set aside on appeal, they were binding until then.
At least on the face of the material filed by the parties, the ambit of the dispute was confined to the proper quantum of the receivers’ fees and how the responsibility for payment of the fees should fall upon the parties.
Assessment of the receivers’ remuneration
Mr B deposed to the basis upon which the receivers’ fees were calculated,[3] the records kept of the professional work done,[4] his review of the records,[5] his satisfaction with the accuracy of the records,[6] his satisfaction that the records reflect work properly and necessarily done by the receivers,[7] and the receivers’ compliance with their professional code of practice.[8]
[3] Mr B’s affidavit, paras 19-22
[4] Mr B’s affidavit, paras 25-26
[5] Mr B’s affidavit, paras 26-27
[6] Mr B’s affidavit, paras 27, 29-32
[7] Mr B’s affidavit, paras 28, 33-77
[8] Mr B’s affidavit, para 87
Mr B also deposed to the disbursements incurred by the receivers,[9] though the claim for one disbursement of $19,500 was abandoned in submissions.[10]
[9] Mr B’s affidavit, paras 78-86
[10] Mr B’s affidavit, para 86
The wife cross-examined Mr B, but her challenges to him were relatively few and discrete. In essence, they related to:
a)the alleged need for the receivers to refrain from fulfilling their tasks until the wife’s appeal against their appointment was determined;
b)the absence of any need for the second report they compiled in November 2018; and
c)the mistake they made about the identity of the former accountants of the corporations, the subject of the receivership.
Mr B rejected the wife’s suggestion that the receivers, knowing of her pending appeal about the validity of their appointment, should have done no more than simply keep the corporations and their businesses trading. He said that, in the face of the wife’s active opposition to their engagement and their exclusive control of the corporate interests, the receivers were compelled to seek legal advice about the ambit of their powers and obligations. The wife admitted she disagreed with the receivers over their role and activities,[11] which made their resort to legal advice about their role and obligations understandable.
[11] Wife’s affidavit filed 30/01/2020, paras 5-6
The orders made by Cleary J in both May 2018 and August 2018 obliged the receivers to take inventories, pursue debts, pay debts, get in assets, carry on business, and sell assets. The wife’s application to stay those orders pending the determination of her appeal was dismissed and so the receivers were bound to comply with the orders until their appointment was revoked (Malloy & Stopford-Malloy [2019] FamCA 986 at [42]). Nevertheless, the wife still submitted the receivers should have confined themselves to merely ensuring the continuity of trade of the corporations’ businesses until her appeal was finalised and so their costs should now be limited to only $42,730, which is the sub-total of costs related to the receivers’ oversight of the corporations “trading”.[12] The submission is rejected because the receivers were obliged to comply with the Court’s orders, not with the wife’s honest opinion about the limited extent of their remit.
[12] Mr B’s affidavit, para 30
In November 2018, the receivers prepared a second report to the Court, but it was prepared at the husband’s unilateral request[13] and that aspect of the receivers work cost $7,050.[14] Such work was properly done by the receivers, but it raised another question as to whether the husband should be solely liable for the cost of that work when, according to the wife, it was not ostensibly done for any reason other than to satisfy the husband.
[13] Mr B’s affidavit, paras 18(l), 18(m)
[14] Mr B’s affidavit, paras 30, 70, 71
Mr B admitted the receivers wrongly assumed some named accountants were the former accountants of the two corporations subject to the receivership, but he said the mistake was later “addressed” with the parties. He did not say how it was addressed and he was not asked. Mr B said the receivers were not reliant upon only the “indicative” information provided to them by those accountants. It was simply one source of information which informed their work. On the available evidence, the receivers’ mistake about the accountants made no difference to the work they did and was therefore immaterial.
The evidence-in-chief adduced by the wife implied she regarded the receivers’ fees to be unreasonably high because the fees charged by the administrator were much less.[15] However, she did not challenge Mr B in cross-examination with the proposition that the receivers’ fees should have been much less, or that their fees should have been comparable with those charged by the administrator. As a matter of forensic fairness, in the absence of Mr B being afforded the opportunity to explain why the receivers’ overall remuneration is much higher than that charged by the administrator, the wife’s evidence about the quantum of the administrator’s fees became irrelevant. Indeed, the wife ultimately made no submission requiring any comparative analysis, so she implicitly abandoned any such argument.
[15] Wife’s affidavit filed 30/01/2020, paras 19-20
The wife broached with Mr B in cross-examination the legal implications of the receivers’ appointment, given the terms of the trust deeds governing the trusts for which one of the two corporations is the trustee, but they were not questions Mr B had the legal expertise to answer even if the precise import of the questions had been clear. The issue was the subject of submissions later made by the wife, but were comprehensively answered by the receivers’ counsel.
The two relevant trusts are the Scott Family Trust (“SFT”) and the F Trust. E Pty Ltd is the corporate trustee of both trusts.[16]
[16] Mr B’s affidavit, para 11
The trust deed of SFT provides (at clause 20):
THE office of a Trustee shall be ipso facto determined and vacated…if such Trustee being a company shall enter into liquidation whether compulsory or voluntary…
(As per the original)
The wife deposed she “grew concerned” about the implications of the receivers’ appointment, given those terms of the deed.[17] Without intending to imply criticism of the wife, during the hearing she somehow tried to convert her stated “concern” into a submission that the receivers’ appointment was compromised by the terms of the trust deed and so it was unlawful for them to have discharged their functions as receivers and they cannot now sustain their claim for costs. The submission is rejected. E Pty Ltd did not enter into liquidation; only receivership. They are two quite different types of external administration. Clause 20 of the SFT trust deed was not engaged by the facts.
[17] Wife’s affidavit filed 30/01/2020, para 15
The trust deed of F Trust provides (at clause 6.4(a)(ii)):
The Trustee…covenants with the unitholders as follows:
(a)…
(ii)… a Trustee will retire…if being a company…if a receiver shall be appointed…
(As per the original)
That clause was engaged because receivers were appointed to E Pty Ltd. The wife deposed she had “similar concerns” as those she entertained in respect of SFT[18] and she tried to make the same argument of illegality in respect of F Trust. The submission is again rejected, albeit for different reasons.
[18] Wife’s affidavit filed 30/01/2020, para 16
E Pty Ltd may be in breach of the covenant expressed under clause 6.4(a)(ii) of the F Trust trust deed by failing to relinquish its trusteeship upon its receivership, but that default does not invalidate the receivers’ appointment by court order or their entitlement to remuneration for the work they did pursuant to such appointment.
E Pty Ltd remained a bare trustee of F Trust unless and until a different trustee was appointed, with a duty to hold and protect trust assets in the meantime (Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 at [26]). It is common ground that E Pty Ltd has not been replaced as the trustee of F Trust. It was also common ground the receivers have not sold or alienated any of F Trust’s assets, so no tangible prejudice has been incurred, particularly when the parties were ordered in December 2019 to wind up SFT and the parties now propose that the assets of both SFT and F Trust be distributed to the beneficiaries. That process will entail continuity of the process begun by the receivers in May 2018 and carried on, at least in part, by the administrator since January 2019. In the circumstances, it is unnecessary to address the question of how, if at all, any conflict is manifest between E Pty Ltd’s role as a bare trustee of F Trust and the receivers’ use of the full width of their power under the terms of the orders made in May 2018 and August 2018.
The second corporation under receivership, G Pty Ltd, is the trustee of a self-managed superannuation fund,[19] but the receivers did not purport to exert any control over any superannuation fund or assets beneficially owned by such a fund.[20] Despite advertence to it in her affidavit, the wife did not eventually submit that her expressed concern about the self-managed superannuation fund’s legislative compliance bears upon the receivers’ claim for remuneration.
[19] Wife’s affidavit filed 30/01/2020, para 17
[20] Mr B’s affidavit, para 12
In addition to the claim for professional fees ($197,311 plus GST) and the amended claim for disbursements ($128,505 plus GST), the receivers sought that their legal fees incurred in pressing this remuneration claim, globally quantified at $15,000, should be included as part of their overall remuneration.
The receivers submit, and I accept, their claim for that extra sum is not governed by s 117 of the Act because they are not a party to the proceedings under the Act (Malloy & Stopford-Malloy at [50]). The legal costs they incurred to prosecute this claim for remuneration against the parties are expenses, just like the legal costs they earlier incurred by obtaining advice about the extent of their rights and obligations in the face of disagreement between the parties. Notwithstanding, the extra sum is disallowed because it would amount to double-dipping, at least in part. The receivers have already claimed, as part of their overall disbursements, substantial legal fees associated with this application.[21] To the extent that the fees already claimed do not entirely subsume the extra sum of $15,000, the receivers failed to identify the differences and so the responsibility for that lacuna rests with them. It ought not be forgotten the receivers were prepared to relinquish about $100,000 of their overall claim if they were re-appointed as receivers, so they are somewhat flexible about their claim.
[21] Mr B’s affidavit, paras 78(c), 82(b), 84(j), 85
Accordingly, I find that the receivers’ claim is properly quantified at:
Fees
197,311.00
GST on fees
19,731.10
Disbursements
128,505.00
GST on disbursements
12,850.50
Total (incl. GST)
358,397.60
Liability for the receivers’ remuneration
The wife’s argument about the husband’s exclusive liability for the receivers’ remuneration seemingly defaults to two propositions: first, the orders made by Cleary J appointing and defining the extent of the receivers’ powers reflected the form of orders sought by the husband and so any of the receivers’ costs which are attributable to any deficiency in the clarity of those orders is the husband’s responsibility; and secondly, her opposition to the receivers’ appointment was vindicated by her successful appeal and so she should not bear any responsibility for orders she opposed and successfully had discharged.
Both arguments are rejected. The orders made by Cleary J were orders of the Court, not orders of the husband, and they were made in the ordinary course of litigation between the parties. The subsequent discharge of the orders on appeal does not abrogate the parties’ joint responsibility for the costs incurred by experts fulfilling their duties to the parties and to the Court; in this instance by the preservation and impartial management of assets whilst the parties litigated their dispute over such assets.
While the wife plausibly argued the husband should bear exclusive responsibility for the costs of $7,050 incurred by the receivers in preparing the second report at his request, that amount is de minimis in the context of a claim worth $358,397.60 in total.
Payment of the receivers’ remuneration
The receivers were appointed for the benefit of the parties, not for the benefit of E Pty Ltd, SFT, F Trust, or G Pty Ltd. The parties should therefore be jointly and severally liable for the receivers’ remuneration. The receivers can execute their judgment for such remuneration against the assets of the parties as they see fit, but the parties should indemnify one another to the extent of one-half of the debt owed to the receivers to ensure their liability is equal.
The receivers sought orders which would have the effect of securing their remuneration against many assets, including those legally owned by E Pty Ltd (and hence beneficially owned by SFT and F Trust) and G Pty Ltd. In final submissions, there was considerable uncertainty about the source of power to make orders in the terms sought by the receivers, let alone the probity of orders to that effect. Upon consideration, I am not prepared to make any order in such broad terms as the receivers proposed. The parties are not the only beneficiaries of SFT, despite the expectation they are and will be the favoured discretionary beneficiaries. The parties are not even among the beneficiaries of F Trust, though they do have indirect interests in the beneficiaries which hold units in F Trust.
An order is instead made charging the receivers’ remuneration against the real and personal property of the parties. The charge will aid the receivers in the recovery of their remuneration, but it does not impede their resort to any other form of execution against the parties which is available to them at law or in equity.
The receivers have already lodged a caveat over another parcel of real property owned by E Pty Ltd.[22] The wife wanted an order compelling the receivers to remove the caveat but, for an aggregation of reasons, no such order is made.
[22] Wife’s affidavit filed 30/01/2020, para 14; Exhibit R1
First, the caveat trammels the right, title and interest in the property enjoyed only by E Pty Ltd; not by the wife or the husband individually. It must be doubtful that the wife even has standing to apply for such an order in her own right.
Secondly, aside from the probable lack of standing, there was no debate in the hearing at all about the validity of the equity relied upon by the receivers to support the caveat. The receivers must consider they have an equitable right which supports the caveat and, while it is in evidence,[23] the unelaborated content of the caveat does not enable any definitive determination of its validity. No order should be peremptorily made to effectively destroy the receivers’ alleged equity without an open discussion about its validity.
[23] Exhibit R1
Thirdly, even if there were grounds to make an order forcing the receivers to remove the caveat, this Court's power to make such an order under the Real Property Act 1900 (NSW) was not explored during the hearing. Part 7A of that statute, dealing with caveats, reserves power to the Supreme Court of NSW.
Fourthly, the refusal to make the order causes no prejudice because other avenues of redress remain open. If so inclined, E Pty Ltd may serve a lapsing notice on the receivers and, if dissatisfied with their response, petition the Supreme Court for removal of the caveat.
Parties’ costs
The declaration made on 6 December 2019 about the status and enforceability of the binding financial agreement ended the parties’ dispute, consistently with the outcome sought by the husband. The wife unsuccessfully sought orders which would have set the financial agreement aside and then allowed her to seek relief against the husband under Part VIII of the Act.
When the declaration was made on 6 December 2019, another order was made reserving the parties’ costs (Order 7). Invoking that order, the husband made an oral application for an order requiring the wife to pay his costs of and incidental to the substantive proceedings, which application the wife opposes.
In relation to that contest:
a)the husband relied upon his affidavit filed on 6 March 2020, the annexures to which were separately tendered;[24] and
b)the wife relied upon her affidavit filed on 29 March 2020 (the annexures to which were separately tendered[25]), her financial statement filed on 29 March 2020, and her shorter affidavit filed on 7 May 2020 (comprising four paragraphs).
[24] Exhibit H1
[25] Exhibit R2
Sensibly, neither party needed or wanted the opportunity to cross-examine the other on their evidence.
The husband confirmed in his affidavit that he seeks his costs as from 27 May 2019 (when the wife filed an Amended Initiating Application) until the proceedings were concluded on 6 December 2019. Although he calculates his actual costs and disbursements at $132,091.45, he seeks costs in the fixed sum of $100,000 or alternatively his costs in the sum agreed or assessed.
The husband’s application for costs is premised upon the wife’s application in respect of the binding financial agreement having been wholly unsuccessful (s 117(2A)(e)), him having made numerous prior offers to her to settle the proceedings on more favourable terms (s 117(2A)(f)), and the wife’s unsatisfactory conduct of the proceedings (s 117(2A)(c)).
The wife’s defence of the costs application is premised on the husband’s claimed costs not exclusively relating to their dispute under Part VIIIA of the Act, the husband’s unsatisfactory conduct of the proceedings (s 117(2A)(c)) and, inferentially, upon her financial circumstances (s 117(2A)(a)).
Financial circumstances
Neither party was in receipt of a grant of legal aid (s 117(2A)(b)). The wife represented herself in the substantive proceedings.
Under the binding financial agreement, the wife retained the home in which she lived, her existing shareholdings in E Pty Ltd and G Pty Ltd, her existing beneficial interest in SFT, and her superannuation entitlements.
The judgment debt owed by the parties to a mortgagee bank at the time of trial (Scott & Scott (No.3) [2019] FamCA 936 at [108]) is now being enforced. Under a writ of execution, the bank obtained possession of the wife’s home in January 2020, intending to exercise power of sale. The wife now rents accommodation. While there was no evidence of it, the parties confirmed the property has been sold, though there was no consensus over its eventual sale price or the amount the bank will deduct from the sale proceeds. The wife deposed she has nil equity in her home,[26] but it seems unlikely she has no equity in it at all. The husband alleged she would likely recover about $175,000 of the sale proceeds, but the wife did not know. Absent evidence or an admission, no finding is available.
[26] Wife’s financial statement, para 35
The wife is still employed by E Pty Ltd as the manager of the business it conducts, but her employment will soon end and her receipt of gross income of $1,538 per week will cease. E Pty Ltd conducts the business for the benefit of SFT and, in its capacity as trustee, must now wind-up SFT, as was ordered on 6 December 2019 (Order 4(d)). That process may take some months, but the wife’s current level of income is only sustainable until the business is sold or closed, unless she buys it. She will still retain some income-earning capacity even if her job is lost because she is intelligent and resourceful, but it is entirely speculative whether she will have the capacity to earn income of $1,538 per week after SFT is wound-up.
The wife retains her legal proprietary interests in E Pty Ltd and G Pty Ltd and her beneficial interest as a beneficiary in SFT, the value of which will crystallise when SFT is wound-up. The binding financial agreement requires F Trust to be wound-up if SFT is wound-up. G Pty Ltd holds unit shares in F Trust on behalf of the superannuation fund and so, once SFT is wound-up, F Trust will be wound-up and capital paid into the superannuation fund. The parties will then receive their share of the assets and their superannuation interests will be re-calibrated.
Presently, the actual value of the wife’s interests in E Pty Ltd and SFT (and indirectly F Trust) is unknown, though she believes her proprietary interests in “[K] Centre – various entities incl. super” are worth $1.25 million.[27] Her reference to the “various entities” comprising the centre is a reference to both the real estate and business under the control of E Pty Ltd, as trustee for both SFT and F Trust. If that is the value the wife ascribes to her interests in those entities, which was not contested by the husband, it must follow that she has or soon will have sufficient capital to comfortably meet any costs order in the husband’s favour.
[27] Wife’s financial statement, para 41
Conduct of the proceedings
The husband deposed the wife filed a total of 19 applications in the proceedings between them litigated under Parts VII and VIIIA of the Act. That might be so but there is nothing to suggest she did so without reasonable cause.
The proceedings between the parties over their child, under Part VII of the Act, were finalised by orders made on 17 May 2019. Neither party made an application for costs in relation thereto.
No evidence about, nor submission made in respect of, the wife’s conduct of the proceedings under Part VIIIA of the Act attracts attention as a reason to support an order for costs against her.
The wife contended the husband conducted the proceedings seeking inconsistent orders from time to time, which she implied stymied his costs application in some way she was unable to clearly articulate, but the submission is rejected. The husband always sought to contend that the parties’ financial agreement was binding upon them, even though he may have sought other orders in the alternative from time to time.
Wife’s wholly unsuccessful application
At trial in November 2019, the wife moved on her Amended Initiating Application filed on 17 October 2019, supported by the pleadings and particulars set out in her Amended Points of Claim filed on 6 September 2019.
For a veritable host of reasons, she contended the binding financial agreement either was not binding at all or, if binding, should be set aside. Her application was wholly unsuccessful. The financial agreement was declared to be binding, thereby precluding her resort to Part VIII of the Act for property settlement relief. The husband correctly contended this is a powerful factor.
Husband’s offers of settlement
The husband made six written offers of settlement to the wife prior to May 2019, when she filed an Amended Initiating Application. The husband made a seventh written offer to her in September 2019, before the trial started.
The wife submitted it was difficult, if not impossible, to now discern that the offers were more favourable to her than the result flowing from the orders made in December 2019, but she did not contest in cross-examination the husband’s evidence that every one of those offers entailed her receipt of property of greater value than she would receive under the terms of the binding financial agreement.
More likely than not, the husband incurred costs he would have otherwise avoided had the wife accepted any of his offers of settlement. Nevertheless, all but one of those offers was made long before the date in May 2019 from which the husband commenced his claim for costs and so, inferentially, even he did not attribute overwhelming weight to the offers. Had he done so, it is likely he would have commenced his claim for costs from a point in time well before May 2019.
Conclusion
The wife’s complete lack of success with her application under Part VIIIA of the Act is a compelling consideration under s 117(2A) of the Act and, while the wife’s income may soon dry up, she still has or soon will have substantial capital reserves upon which she can call to meet costs, so her financial circumstances do not militate against an order. Those considerations justify the costs order. The wife’s refusal of the husband’s numerous offers of settlement, allegedly more favourable to her, only tends to strengthen his claim. The wife should pay the husband’s costs of and incidental to the proceedings conducted under Part VIIIA of the Act from 27 May 2019 until their conclusion on 6 December 2019.
A former costs order made against the wife on 22 August 2019, requiring her to pay the husband’s costs thrown away by the adjournment of the first trial must be set aside, as the husband acknowledged. The costs covered by that order will be covered by the costs order now made. The wife did not challenge the husband’s proposition that the costs due to him under the order formerly made on 22 August 2019 have not been agreed, assessed or paid. To the extent that the former order for “costs thrown away” by the adjournment of the first trial would incorporate costs not now entirely subsumed by the order for party/party costs, the difference is de minimis.
The wife objected to the husband’s quantification of his costs from 27 May 2019. She contended the costs claimed did not exclusively relate to the proceedings contested between the parties under Part VIIIA of the Act and, notably, the husband did not seek to contradict her during his submissions in reply.
The husband’s costs were admittedly calculated on a solicitor/client basis and, while power exists to order costs on that basis (r 19.18 of the Family Law Rules 2004 (Cth) (“the Rules”)), no submission was persuasively advanced as to why costs should be awarded on that basis rather than on an ordinary party/party basis.
Given the dispute over the way in which the husband’s costs were calculated (both as to the individual items and the cost of each item), the order in the husband’s favour will simply oblige the wife to pay the husband’s party/party costs in the sum agreed or assessed. That may engage them in another dispute over the costs assessment, but I am not prepared to guess at the husband’s proper party/party costs.
Enforcement
The orders made between the parties on 6 December 2019 require them to take certain steps to implement the terms of the binding financial agreement. In particular, the orders provided:
(4)The parties shall forthwith do all acts and things necessary to implement the binding financial agreement and in aid thereof and without implying limitation:
(a)The applicant shall transfer all her right, title and interest in the real property and improvements comprising 1 and 2 Q Street, R Town, NSW, being Folio Identifier … and Auto Consol …, to the respondent in accordance with clause 9 of the binding financial agreement;
(b)The respondent shall transfer all his right, title and interest in the real property and improvements comprising Y Street, M Town, NSW, being Folio Identifier …, to the applicant in accordance with clause 10 of the binding financial agreement;
(c)The respondent shall sell the real property and improvements comprising EE Street, GG Town, NSW, being Folio Identifier … and Auto Consol … and apply the proceeds of sale in accordance with clauses 11 and 12 of the binding financial agreement; and
(d)The parties shall, as directors of E Pty Ltd, the trustee of the Scott Family Trust, wind-up the Scott Family Trust in accordance with Clause 13 of the binding financial agreement.
That consequential order has not been enough to quell the controversy between the parties.
On 13 March 2020, the husband filed an Application in a Case seeking orders to this general effect:
a)that Messrs B and C be re-appointed as the receivers of E Pty Ltd, SFT and F Trust, with the ambit of their powers specified;
b)that the receivers’ be able to calculate their own remuneration up to $100,000, but that the Court assess any claim for remuneration in excess of that threshold; and
c)the wife pay his costs of this application.
The husband relied upon his affidavit filed on 12 March 2020, the annexures to which were tendered separately from the affidavit.[28] The wife was offered, but declined, the opportunity to cross-examine the husband.
[28] Exhibit H2
The wife filed a Response to an Application in a Case on 7 May 2020 in which she instead sought orders to this effect:
a)dismissal of the husband’s application;
b)the husband’s forced resignation as an officer of E Pty Ltd;
c)the husband’s forced resignation as an officer of G Pty Ltd;
d)she have the responsibility to implement the terms of the binding financial agreement, save that the husband sell a parcel of real property he owns (the property now charged with the former receivers’ remuneration);
e)the appointment of Mr L (the former administrator, whose appointment was revoked in May 2018, but revived by the Full Court’s orders after upholding the wife’s appeal in January 2019) to provide any “accounting and associated services” necessary to implement the binding financial agreement;
f)the husband’s restraint from instituting further proceedings without the Court’s permission; and
g)the husband pay her costs of this application.
The wife relied upon:
a)her longer affidavit filed on 7 May 2020 (comprising 16 paragraphs); and
b)the (unfiled) affidavit of Mr L affirmed on 5 May 2020.[29]
[29] Exhibit R3
The husband was offered, but declined, the opportunity to cross-examine either the wife or Mr L.
As already noted, E Pty Ltd is the corporate trustee of both SFT and F Trust. In the substantive proceedings between the parties (Scott & Scott (No.3)), it was found:
a)the parties are the joint shareholders in and directors of E Pty Ltd (at [48], [84], [119], [124]);
b)the parties are the joint appointors and among the discretionary beneficiaries of SFT (at [48], [84]);
c)E Pty Ltd conducts the business on behalf of SFT (at [84]); and
d)E Pty Ltd owns, on behalf of F Trust, the real estate from which the business is conducted (at [120]).
The parties have been unable to work cooperatively to implement their financial agreement, despite it being declared binding in December 2019 and orders then made to aid its implementation. Perhaps, in part, that is due to the misunderstanding of the wife and Mr L, both of whom believe Mr L is charged with the continuing responsibility to manage the parties’ commercial affairs. The husband, correctly, does not accept that proposition. The parties now posit quite different proposals to avoid the impasse which has developed between them over the implementation of the binding financial agreement.
External assistance with the commercial entities
Mr L’s appointment as administrator revived when the Full Court made orders in January 2019, discharging those made by Cleary J in May 2018. The revival of Mr L’s appointment under the orders formerly made in the Federal Circuit Court in May 2016 and July 2016 continued until the substantive proceedings between the parties were finally determined on 6 December 2019. Once those final orders were pronounced, the interim orders under which Mr L was appointed were discharged ipso facto, since interim orders are only intended to regulate the parties’ affairs in one form or another until the action between them is finally determined according to law (see Klewer v Official Trustee in Bankruptcy (No. 2) [2010] NSWCA 258 at [6]; Fatimi Pty Ltd v Bryant [2002] NSWSC 750 at [226]–[232]; In the Marriage of Millar (1983) FLC 91-326 at 78,220 – 78,221).
Both parties now envisage orders being made by the Court to facilitate the enforcement of their property rights under the financial agreement which was declared binding under Part VIIIA of the Act.
The wife wants exclusive responsibility to implement the binding financial agreement between the parties and, to that end, wants the husband to relinquish his control over both E Pty Ltd and G Pty Ltd by his forced resignations as director. Unlike the husband, the wife does not want external assistance to manage the parties’ property, save for Mr L’s authorisation to continue lending assistance to her, as and when required, to bring the terms of the binding financial agreement to fruition. But there are three impediments to the wife’s proposal.
First, if she assumes exclusive control of E Pty Ltd, giving her exclusive dominion over the business (from which she derives her income as a manager) and the commercial property from which the business is conducted, there is no guarantee she will then use her power to cause E Pty Ltd to wind-up SFT or F Trust, as the husband has already lawfully demanded in accordance with the terms of the binding financial agreement. She may prefer to preserve the existing business structure, including her employment within it. That would surely stimulate further enforcement litigation between the parties.
Secondly, it is unnecessary for the wife to garner exclusive control of G Pty Ltd, as she proposes. G Pty Ltd is the corporate trustee of the parties’ superannuation fund and, in the substantive proceedings (Scott & Scott (No.3) at [84], [119], [121]), it was found the parties are the joint shareholders in and directors of G Pty Ltd, they are the only members of the superannuation fund, and their superannuation entitlements must be equalised under the binding financial agreement. The superannuation fund beneficially owns units in F Trust and so the wind-up of F Trust would ensure the superannuation fund recovers its capital. The parties may then exert equal control over G Pty Ltd to equalise their superannuation interests within the fund. The fund may be retained by the parties or they may choose to roll out their individual interests to different funds.
Thirdly, even if it is accepted the wife would use her exclusive control to cause E Pty Ltd to call in trust assets and then distribute them to the beneficiaries, the husband has no trust in either her or Mr L to complete the job. The husband deposed how Mr L has refused to furnish information to him and, at one point in the past, even asked the Court to authorise his provision of only restricted information to the husband.[30] The truth of that evidence was not challenged.
[30] Husband’s affidavit filed 12/03/2020, paras 15, 18
By the same token, the wife has no trust in either the husband or the receivers who were appointed by Cleary J in May 2018. It really does not matter whether or not she has good reason to mistrust the former receivers. Having regard to the nature of her defence of the receivers’ remuneration claim, she would probably doubt the efficacy of their future work and the probity of their fees for such work, almost certainly stimulating more litigation. There is no need for those particular receivers to be re-appointed now their remuneration claim has been separately determined. If a receiver is to be appointed, any competent receiver will do.
The husband’s proposed solution to the current impasse is to appoint a receiver, even if it is not the same receivers as before, which begs the question of the source of power to make the orders he seeks?
Section 90KA(c) of the Act empowers the Court to order that the binding financial agreement be enforced as if it were an order of the Court. If, for that purpose, the provisions of the binding financial agreement are to be regarded as orders of the Court made under Part VIII of the Act, then s 80(1)(k) of the Act would enable the appointment of a receiver to manage the parties’ property; but not the property of third parties. Part 20.6 of the Rules makes more specific provision for the appointment of receivers to achieve that objective.
Alternatively, in the exercise of original civil jurisdiction pursuant to s 1337C of the Corporations Act 2001 (Cth), a receiver may feasibly be appointed to receive and manage the property of a corporation – in this case E Pty Ltd – under Part 5.2 of that legislation. E Pty Ltd would not have been denied procedural fairness by the making of such an order because only the parties are interested in E Pty Ltd, as its joint directors and equal shareholders.
The parties’ mutual distrust and lack of cooperation necessarily means they cannot work together to implement the binding financial agreement. Moreover, neither party trusts the other to individually ensure the implementation of the agreement. Accordingly, some form of external assistance is needed to manage their commercial interests. The only residual questions could be as to the identity of the independent person, the qualifications of that person, the ambit of the power of the person appointed, and arrangements for that person’s remuneration, to which considerations Part 20.6 of the Rules directs attention. To the extent that the evidence adduced by the husband in support of his application is not completely compliant with the Rules, the deficiency is waived so as to ensure substantive justice is not frustrated by fastidious adherence to procedure (r 1.12).
To ensure that the help the parties receive is competent, the orders will require the independent person to be qualified as a receiver. Each party will be entitled to nominate a receiver, which nominations cannot include the former administrator (Mr L) or the former receivers (Messrs B and C), in whom the parties respectively have no faith. The new receiver will be chosen by ballot from the parties’ nominations.
The husband actually proposed the use of an alternate receiver and so did not object to that proposal. Having heard and considered the suggestion of a randomly chosen receiver, the wife embraced that proposal and abandoned her application for orders which would vest her with exclusive control of E Pty Ltd. She thereby implicitly abandoned the argument she sought to make about how the appointment of a receiver might be illegal or in breach of the trust deeds.
The parties must bear the receiver’s remuneration in equal shares, which remuneration will be charged against the parties’ assets (r 20.47(2)). Having regard to the wife’s unchallenged belief that the value of her one-half share in the net assets of E Pty Ltd and SFT (and indirectly F Trust) is estimated at around $1.25 million, meaning an overall expected realisation of some $2.5 million, the costs and disbursements of the receiver should pale in significance against the assets realised and then distributed to the parties under the trusts (r 20.47(1)). Mr L believed his costs would be about $30,000, though he envisaged the possibility of greater costs with court approval.[31] Albeit without evidence, the husband’s counsel estimated a receiver’s costs at between $50,000 and $100,000.
[31] Exhibit R3, para 10
The husband proposed that the receiver be appointed to E Pty Ltd, as the trustee of both SFT and F Trust. He was less than specific about whether such orders sprang from the power found in the Act or the Corporations Act, but either statutory premise is available. Under the Corporations Act, the receivership would cover the property of E Pty Ltd, including that which it owns both legally and beneficially. By comparison, under the Act, the receivership could cover the parties’ proprietary interests in E Pty Ltd, represented by their equal shareholdings in the corporation, and thereby extend to the corporation’s property indirectly.
It is important to appreciate that the receiver’s appointment need only extend to the receipt and management of E Pty Ltd’s property, which includes the assets it holds on trust for SFT and F Trust. The husband applied for much broader orders, empowering the receiver to wind-up the trusts and act more like a liquidator, which is unnecessary. Nobody sought E Pty Ltd’s liquidation. It is enough that E Pty Ltd’s property falls under the receiver’s control, the ambit of power vested in whom is defined by the orders, as required by the Rules (r 20.47(2)(c)). Once the assets of E Pty Ltd (including those beneficially held for SFT and F Trust) are gathered in and debts are paid, the parties, as the joint directors of E Pty Ltd, can distribute the net property to the trusts’ beneficiaries.
Presumably, the parties will jointly exercise their discretion as directors of E Pty Ltd to ensure the assets of SFT are distributed to them equally as the beneficiaries of SFT and, since F Trust is a unit trust, its assets will be distributed commensurately with the beneficiaries’ unit holdings. The evidence adduced in the first contest over the receivers’ remuneration revealed that the units in F Trust are owned in proportions of 62 per cent by SFT (which the parties control through their equal control over E Pty Ltd) and 37 per cent by the parties’ self-managed superannuation fund (which the parties control through their equal control over G Pty Ltd).[32]
[32] Mr B’s affidavit, para 11
The orders specify the powers vested in the receiver and, so the receiver may act promptly and in full knowledge of all relevant financial affairs, the orders require the parties to surrender to the receiver all documents in their possession, custody or control which relate to E Pty Ltd, SFT and F Trust.
Parties’ real property
The role of the receiver need not extend to the parcels of real property owned individually or jointly by the parties.
The husband was ordered in December 2019 to sell one parcel of property. According to the wife’s unchallenged evidence, he has not done so. He explained in the hearing he had been unable to do so because the mortgagee forbade him dealing with it until its secured debt was satisfied from other property, but that is no longer an impediment because of the recent mortgagee sale of the wife’s home. The wife sought another order compelling the husband to sell that property forthwith, which he was content to do.
Restraint of further proceedings
The wife applied for an order in the following terms against the husband:
7. That the husband be prohibited from instituting further proceedings in this matter without the permission of this [C]ourt.
The wife adduced no evidence which related to that proposed order and she made no submissions about it, either as to the source of power to make it or the reasons why it was needed. It was presumably sought pursuant to Part XIB of the Act. The wife abandoned her application for the order, so it is dismissed.
Costs
Each party enjoyed some limited measure of success in the contest over the implementation of the binding financial agreement. There was no basis upon which to disturb the operation of s 117(1) of the Act in this aspect of the litigation.
I certify that the preceding one hundred and nine (109) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Austin delivered on 2 June 2020.
Associate:
Date: 2 June 2020
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