Slattery and Mitra

FEDERAL CIRCUIT COURT OF AUSTRALIA

SLATTERY & MITRA

[2014] FCCA 555

Catchwords:
FAMILY LAW – Application by wife to seek machinery provision orders to enable compliance with intent of final consent orders for property division – those orders result in husband paying the wife funds which the husband says are not payable or contemplated in the final orders – husband says the wife is attempting to vary the percentage division provided for in final consent orders – Court rejects submission that an interim indemnity clause over-rides express provisions of the final property orders – applicant dismissed.

Legislation:
Family Law Act 1975, ss.80, 79

Ravasini & Ravasini (1983) FLC 91‑312
Molier & Van Wyk (1980) FLC 90‑911
Pera & Pera [2008] FamCAFC 87
Slapp & Slapp (1989) FLC 92‑022
Cranage & Cranage (1981) FLC 91‑039
McDonald & McDonald (1976) FLC 90‑047
Kaljo & Kaljo (1978) FLC 90-445

Applicant:

MS SLATTERY

Respondent:

MR MITRA

File Number:

TVC 931 of 2011

Judgment of:

Judge Willis

Hearing dates:

17 February 2014 & 11 March 2014

Date of Last Submission:

11 March 2014

Delivered at:

Brisbane

Delivered on:

21 March 2014

REPRESENTATION

Solicitors for the Applicant:

Macrossan & Amiet

Counsel for the Respondent:

Mr Moore

Solicitors for the Respondent:

Whitsunday Law

ORDERS

That Orders 1, 2 and 4 of Orders sought in the Application in a Case filed on 22 July 2013 by the wife are dismissed.
In the event that the issue of costs is not resolved between the parties, the party seeking costs is to forward written submissions together with a draft order and a schedule of the Federal Circuit Court Costs Schedule with commentary regarding the costs claimed no later than 4.00pm on 28 March 2014 and the respondent is to provide written submissions in reply by no later than 4.00pm on 4 April 2014.
That the costs application will be decided on the papers in chambers unless either party wishes to make oral submissions. If this is so, the parties are to write a joint letter to Judges Chambers making this request no later than 4.00pm on 7 April 2014.
That in relation to Order 3 of the Application in a Case filed by the wife, if that matter is to be pursued it is to be put over to the next mention date noting that neither party agitated this issue at the Interim Hearing.

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

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MACKAY/BRISBANE

TVC 931 of 2011

MS SLATTERY

Applicant

And

MR MITRA

Respondent

REASONS FOR JUDGMENT

On 19 July 2012 the applicant, Ms Slattery (the applicant wife) and the Mr Mitra (the respondent husband) entered into Consent Orders in relation to the division of their property. At the time each of the parties was represented. The wife was and still is represented by Macrossan & Amiet and the husband was and still is represented by Whitsunday Law. The Consent Orders that were agreed upon were drawn up and signed off by each of the parties and forwarded into the chambers of the Federal Circuit Court (then the Federal Magistrates Court) and, as requested, and after being satisfied that the orders were just and equitable, the orders as drafted were made in chambers.
On 22 July 2013 an Application in a Case was filed by the applicant wife. In that application orders were sought in relation to property matters. The orders sought requested that:
(1)    the moneys held in the trust account of Macrossen & Amiet Proprietary Limited to the credit of the parties (the trust moneys) be paid out to the applicant in part satisfaction of her property settlement entitlement agreed by way of consent orders made by this Court on 19 July 2012 (the consent orders);
(2)    that pending sale of the property referred to in order 1(c) (the commercial property) of the consent orders the respondent shall cause (omitted) Pty Ltd to pay to the applicant a sum or sums referred to in order 8 of the consent orders;
(3)    that the respondent be restrained from interfering with the sale process of the commercial property, including the introduction of prospective purchasers to the property;
(4)    that upon sale of the commercial property the applicant shall be entitled to receive the following payments:
(a)    $99,000 representing 55 per cent of the agreed value of (business omitted);
(b)    $55,000 representing 55 per cent of the overdraft facility paid out on settlement of the property referred to in 1(a) of the consent orders;
(c)     $11,482.95 representing 55 per cent of the equipment loan paid out on settlement of the property referred to in order 1(a) of the consent orders;
(d)    $82,349.85 representing 55 per cent of the line of credit paid out on settlement of the property referred to in orders 1(a) of the consent orders;
(e)     $13,040.00 representing overdue payment pursuant to 8(a) of the consent orders;
(f)     55 per cent of the net proceeds of sale of the parties’ interest in the commercial property, less an amount equivalent to 45 per cent of the trust moneys immediately prior to payment to the applicant pursuant to order 1 above;
(5)    that the respondent pay the applicant’s costs of, and incidental to, this proceeding.
The application was supported by an affidavit of the applicant wife filed on 22 July 2013. Since that time an additional affidavit annexing bank statements has been filed by the wife on 23 October 2013. The wife also filed a statement of financial circumstances on 25 September 2013. The husband filed a response on 10 October 2013 (which was really a response to an application in a case) together with an affidavit on 10 October 2013 and a financial statement. The response of the husband was that the application be dismissed and that the applicant pay the respondent’s costs of and incidental to this application and that the parties have liberty to apply to the Court in relation to enforcement of the Orders if necessary. I make the observation that it is not necessary to seek leave to file enforcement proceedings.
As interim orders, the respondent sought that:
(1)    the parties obtain a fresh valuation of the Property S property forthwith, and provide the valuer with a copy of the asbestos report and the applicable legislation for that to be taken into account;
(2)   that the parties also provide such documentation to the auctioneer in relation to the setting of any reserve price;
(3)    that the sale of the Property S property referred to in the applicant’s application, and referred to in order 1(a) of the consent orders filed in these proceedings be stayed until such time as an asbestos management plan has been prepared and signed off on in accordance with the law prevailing.
The applicant wife has been represented in this application by Mr Carroll solicitor advocate and the respondent husband has been represented by Mr Moore of Counsel. Mr Carroll has pressed for the Court to make orders as set out in the wife’s Application in a Case, and Mr Moore has pressed for the Application in a Case to be dismissed, saying that the orders make provision for all contingencies and there is no need for any further orders. The other orders sought on an interim basis by the respondent husband have not been ventilated or pressed.
At the commencement of this matter I queried with each of the advocates as to what power it was that I am being asked to rely upon to make any alteration to the final Orders. I indicated that the only provisions that I was aware of that could revisit a final order would be either a contravention or a section 79A, save and except if the orders that were being sought were purely mechanical or consequential orders required in order enable the substantive orders to be implemented. Mr Carroll for the applicant wife advised me that was, in fact, precisely what the orders sought were and that the orders consisted of additional machinery or consequential orders required to ensure that the terms of the Orders were properly acted on and the intended percentage distributions made.
I first heard the matter whilst I was in Mackay on circuit in the week of 17 February 2014. At that time the matter had had its first return date before Judge Coker in Mackay on 9 September 2013 when His Honour made orders that the applicant wife file and serve a Financial Statement by no later than 27 September 2013; that the respondent husband file and serve a Response and Affidavit by no later than 4 pm on 4 October 2013; and that authorisation be given for the release forthwith to the wife of a sum of $24,000.00 from funds held in the trust account at Macrossan & Amiet and that such amount be credited to the wife in the final distribution to be effected pursuant to the orders of 19 July 2012.
The husband was also ordered to pay the wife’s costs of and incidental to today’s proceedings fixed in the sum of $1,500.00 to be paid upon final determination or as otherwise agreed between the parties. The matter was adjourned over for further mention on 29 October 2013 in Mackay.
As I said, the matter came on in my Mackay list in February 2014 and I took time to hear submissions from Mr Carroll and Mr Moore. It became apparent to me during the submissions that there was a body of case law about machinery provisions as distinct from orders altering substantive orders and that it would be necessary for the Court to have regard to those authorities in determining this matter. Neither Mr Carroll or Mr Moore had reviewed those authorities or had copies of them in Court. The material relied upon by each party has been identified and read into the record as the transcript will show.
I therefore adjourned the matter part heard and directed that the advocates provide the case law that they intend to rely upon to my chambers and I would list the matter for a continuation of the submissions via phone link when I returned to Cairns. On Tuesday 11 March 2014 the matter was recommenced via phone link. By that time I had received additional submissions from each of Mr Carroll and Mr Moore. Mr Carroll had provided an Outline of Argument in February. I thank each for their written submissions and their oral submissions and reference to the authorities.

The applicant wife’s position

Mr Carroll for the applicant wife made submissions that effectively, the respondent husband currently owes the applicant 55% of the value of the combined business debts that were deducted from the sale proceeds as provided for in order 3(b) of the Consent Orders. On behalf of the wife, Mr Carroll submits that whilst the Consent Orders provide for the personal and business debts to be paid out of the sale proceeds of three properties as set out in order 3 (b) of the Orders, that there is a provision in order 8(d) for the wife to be reimbursed this amount as seen in the order stating that the respondent will indemnify the applicant in respect of all debts and liabilities of (omitted) Pty Ltd, the Mitra Family Trust and the business (business omitted).
Relying on this provision in 8(d) of the Consent Orders, the wife contends that she is now entitled to be reimbursed by being indemnified against debts, company debts, namely those that have been deducted from the sale proceeds. The wife says that her entitlement to be indemnified is set at 55% of the three identified debts which the bank deducted from the sale proceeds pursuant to Order 3(b) of the Orders.[1] They consist of three business loans being an equipment loan or lease of $20,878.09, a line of credit for $150,311.38 and a business overdraft of $100,000: In all, a total of $271,189.00 (“the loans”). Multiplying that figure x 55% gives a figure of $149,153.95 which is the amount being sought by the wife.
[1] [1] See annexures SRS 4 and SRS 5 of the wife’s affidavit material, referred to at the schedule set out on page 2 of that affidavit.
The wife asserts that whilst the Orders provided for the sale proceeds of their properties to have deducted from them these loans (being personal or business loans), that it was also always intended that the wife was to be reimbursed or indemnified against payment of those loans by the indemnity referred to at order 8(d) of the Orders. As I have said the wife submits that she was not to be reimbursed 100% of the loans paid out but rather 55% which she submits is in accordance with the percentage of the property division to which she is entitled.

The respondent husband’s position

Mr Moore, Counsel for the respondent, submits that the orders provide very clearly that in the overall property settlement, the sale proceeds of the three properties listed for sale in order 1 of the Orders were to have deducted from the total sum the personal and business debts referred to as order 3 (b) of the Orders. Mr Moore submits that there was no Order stating that the wife was to be reimbursed a percentage of the loans and that the indemnity provided for in 8(d) is nothing more than the respondent being required to indemnify the applicant in the event that she is personally required to pay the business debts or liabilities of (omitted) Pty Ltd, Mitra Family Trust and the business (business omitted). Mr Moore cites examples such as the bank approaching the wife directly to pay an outstanding credit card debt or an outstanding loan repayment of the business and/or entities referred to.
Mr Moore submits that there are no further machinery or consequential Orders required, that the meaning of the Orders is clear on the face of the Orders and that the wife’s application involves her now seeking Orders that amount to substantive orders altering the percentage division provided for in the Orders and that as such, the Application in a Case should be dismissed. Mr Moore contends that there is no provision in the Orders which require the respondent husband to now reimburse the wife for the debts properly deducted by the bank from the sale proceeds of the properties listed for sale.
At the time the application was heard, it was common ground that two out of the three properties had been sold and that as the parties’ properties were used as security for their borrowings, the bank had immediately upon the first sale proceeds being deposited into the bank account, deducted from those funds the debts as stipulated in Order 3 (b) being the debts of the parties, including (omitted) Pty Ltd to the (omitted) Bank.
It is the contention on behalf of the wife, that the parties always knew that this would happen and because of this and the timing of the paying out of the loans, that this was precisely why the indemnity clause was included at Order 8(d). The wife asks the Court rhetorically why else was it included?

The Consent Orders

To properly understand the intention of the Orders, I consider it is not only necessary to read each individual Order, but to also stand back and look at the overall scheme of the final Orders, the timing of events proposed to occur in the Orders and how the property division was intended to actually occur, that is, who was keeping what assets and on what conditions. Rather than repeat all of the Orders in this judgment, I will set out here the specifics of the relevant Orders.
As the transcript will show, I have spent some time during submissions going through each of the Orders and the overall scheme of the Orders with each of Mr Moore and Mr Carroll. One of the issues central to their dispute seems to be whether or not the value of $180,000.00 attributed to the party’s business in 5(a) was a value arrived at, including the debts of the business or a value arrived at after all the debts had been paid out.
In examining the scheme of the orders, I note that the parties have three properties. One at Property W, the second at Property E and a third property at Property S, which I understand is a commercial property. Order 1 provides for the husband and wife to do everything required both in their own capacity and as trustees of the Mitra Family Superannuation fund necessary to sell those properties.
Order 2 sets out the process for the sale of all three properties referred to in order 1 and specific arrangements are ordered about first selling the properties by private treaty and if that fails to procure a sale within 3 months and ultimately if that fails, moving to a public auction.
Order 3 specifies precisely how the sale proceeds will be dealt with and this is subject to the provisions of order 4 (for the purposes of this application, the parties agree that the provisions of order 4 are not relevant). Order 3(a) refers to payment of costs of sale, expenses and commissions.
Next, in sub paragraph 3(b) specific reference is made that the sale proceeds will be dealt with in reduction of the debts of the parties including (omitted) Pty Ltd to the (omitted) Bank. As can be seen, this is a reference to using the funds in reduction of both the parties’ personal debts and the debts of (omitted) Pty Ltd.
Order 3(c) is a provision which is not in contention. It provides for 25% of the sale proceeds to be paid to the Mitra Family Super Fund in relation to the Property S property, as it is owned by the family superannuation fund.
Finally, in terms of the sale proceeds, having paid the aforementioned debts, order 3(d) provides for the balance of those sale proceeds remaining to be held in the trust account of Macrossan & Amiet to be dealt with pursuant to order 5.
Order 4 is not relevant for this application. It stated that if the Property W property was the first to be sold, the husband and wife would use their best endeavours to have the (omitted) Bank bank agree it will release $100,000 or another sum permitted by the bank to the husband and wife in the proportions of 75 % to the applicant and 25% to the respondent. I am told this possibility did not occur.
Turning importantly, to order 5 of the Consent Orders. As will be seen this Order provides for the parties to first pay or put aside a sum payable for capital gains tax and then for a percentage division of the balance of the sale proceeds added to the value of the business “(business omitted)” (with an agreed value of $180,000.00) to be divided between the parties on the basis of the wife receiving 55% and the husband receiving 45% with the husband retaining the business as part of his 45%.
Order 5 states:
Upon the completion of the sales of the properties the applicant and respondent will first jointly cooperate in ensuring any capital gains tax payable on the sale of the properties is paid or set aside to be paid and the moneys remaining shall be divided between them calculated as follows:-
a)The respondent shall have retained the beneficial interest in (omitted) Pty Ltd as trustee of the Mitra Family Trust trading as (business omitted), which interest has an agreed value of $180,000;
b)To this shall be added a net sale proceeds of sales of the properties (including any earlier payment of $100,000 or other sum to the applicant and respondent pursuant to order 4);
c)The sums referred to in (a) and (b) shall be added together;
d)The total sum derived shall be divided between them in the proportion of 55% to the applicant and 45 % to the respondent taking into account the respondent’s retention of the business and the applicant and respondent’s receipt, (if any) of moneys pursuant to order 4.
Order 5 is therefore, a final order determining on a final basis how the total sale proceeds of all of the real properties together with the other asset being the beneficial interest in (omitted) Pty Ltd trustee of the Mitra Family Trust trading as (business omitted), with an agreed value of $180,000 are to be divided between the parties according to the agreed percentage division.
In furtherance of effecting the division proposed, Order 6 specifies other acts the parties are to do contemporaneously with the settlement referred to in Order 5. That order deals with (a) splitting their self managed superannuation fund and once that rollover occurs, the wife resigning from the fund and (b) the wife doing acts to transfer her interest in the company and business to the husband and (c) the husband transferring the Holden (omitted) motor vehicle to the wife and the wife transferring her interest in the Mariner Cruiser to the husband and the standard orders that follow such transfers.

Order 6 reads:
At the same time as the parties carry out the settlement referred to in order 5, they shall do all acts and things necessary to:
a)Effect a super split within the Mitra Family Superannuation Fund so that each of them is entitled to 50% of that fund in the manner referred to in Order 7;
b)Rollover the Applicant’s interest in that fund to a Superannuation Fund nominated in writing by her and thereupon the Applicant shall resign as a trustee of the Mitra Family Superannuation Fund;
c)Transfer from the Applicant to the Respondent all her right, title and interest in the company (omitted) Pty Ltd as trustee for the Mitra Family Trust trading as (business omitted). And for that purpose:-
(i)The Applicant shall resign as a director of (omitted) Pty Ltd;
(ii)The Applicant shall transfer her shareholding in that company to the Respondent;
(iii)The Applicant shall disclaim any interest whether as a beneficiary or otherwise in the Mitra Family Trust
(iv)The Respondent shall indemnify the Applicant in respect of all debts and liabilities of (omitted) Pty Ltd, the Mitra Family Trust and the business (business omitted;
(d)    The Respondent shall cause (omitted) Pty Ltd to transfer the Holden (omitted) registered (omitted) to the Applicant and the Applicant shall indemnify the Respondent in respect of any debt or liability attached to that vehicle;
(e)    The Applicant shall transfer to the Respondent all her right title and interest in the Mariner Cruiser “(omitted)” and the Respondent shall indemnify the Applicant in respect of any debt or liability attached to that vessel.
(f)      transfer her shareholding in that company to the respondent. The applicant shall disclaim any interest whatsoever – whether as beneficiary or otherwise in the Mitra Family Trust.
Thus far I note that the final orders are quite unremarkable. Orders 5 and 6 are final orders providing for how this final division is to be effected and as is not uncommon in family law orders, orders (c), (d) and (e) provide for transfers from one party to another of identified assets with the party retaining the asset providing to the other what I would regard as standard orders indemnifying the other party for any debt or liability attached to that asset.
Order 7 is not relevant to this application.
Order 8 is certainly relevant to this argument as it is relied upon by the applicant to justify payment to the applicant of 55% of the loans deducted by the bank pursuant to order 3(e).
It is the position of the applicant wife that she is entitled to be paid what she refers to as “an adjustment” on the sale of the commercial property as follows:
a)$99,000.00 representing 55% of the agreed value of (business omitted) (the business) pursuant to order 5. The wife asserts that the agreed value for the business was $180,000.00 net of all liabilities of the business as stated by her at paragraph 4(a) of her affidavit of 22 July 2013.
b)The wife asserts she is also entitled to an adjustment of $55,000.00 representing 55% of the overdraft facility. The debt on this facility was extinguished when the bank directed funds from the sale proceeds toward debt reduction, as provided for in Order 3 (b). The wife says in her affidavit: This adjustment is necessary as the overdraft facility of the business was paid out on the sale of the property, listed in order 1(a), and was a liability that had been taken into account in arriving at the net value for the business.
c)$11,482.95 representing 55% of the equipment loan paid out by the bank on settlement of the property referred to in order 1(a) of the Consent Orders and pursuant to Order 3 (b). The wife states that the adjustment is necessary as the overdraft facility of the business was paid out on the sale property listed in order 1 and was a liability that had been taken into account in arriving at the net value for the business.
d)$82,349.85 representing 55% of the line of credit paid out on settlement of the property referred to in order 1(a) of the Consent Orders. The wife states that the adjustment is necessary as the line of credit was paid out on the sale of the business of the property listed in order 1 and was a liability that had been taken into account in arriving at the net value for the business.
The wife contents that the obligation for the husband to make this adjustment arises order 8 (d) of the Orders.
Order 8 reads as follows:
Pending the settlement referred to in order (6)
(a) the respondent shall cause (omitted) Pty Ltd to pay to the applicant the sum of $2000 on the 15^th day of each month, provided that if the applicant has received a payment referred to in order (4), the monthly repayment shall reduce to $96.
This order is not overly relevant to the matter in question. I am told by the parties that the $2,000.00 represented the rent being paid on the commercial property and the order provides for the husband to pay that sum to the applicant and the following order provides that the wife will not receive any other money from the business. It was agreed at the time of the hearing that the husband had not paid this monthly amount.
(b) the applicant shall not be entitled to any other monies from (omitted) Pty Ltd .
It is agreed that the husband was running the business and that he kept all of the income from the business other than to pay the wife $2000.00 being the commercial rent.
(c) the parties shall sign such documents with the bank as is necessary to give effect to this clause
(d) The respondent shall indemnify the applicant in respect of all debts and liabilities of (omitted) Pty Ltd, the Mitra Family Trust, and the business (business omitted).
The wife contends that this indemnity provided for in (8)(d) means specifically that as to the loans which the parties Ordered to be paid out by the bank pursuant to Order (3)(b), it was always intended that the wife was to be subsequently reimbursed or “accounted to” for her share of these loans. It is submitted on behalf of the wife that her share of those debts to be reimbursed was 55%, which is in line with the percentage of the wife’s property entitlement.
It is further submitted that this must be so, as when the business was valued, the value was arrived at after including the debts of the business and that after taking into account the debts of the business, the property listed at order (1)(a) was agreed to have a net value of $180,000. It is the wife’s position therefore that the husband in refusing to acknowledge that she ought to receive an adjustment (a payment) of 55% of the total debts paid out, is effectively gaining more from the orders than she agreed to and that the Orders intend. It is the wife’s position that the value of the business was greater than $180,000.00 but taking into account the loans (line of credit, mortgage and loans), it was $180,000.00. Therefore, the wife contends that effectively given all of the debts of the parties were extinguished pursuant to the provisions of order (3)(b), that in essence the husband will receive the value of an asset with a much greater value than $180,000.00 based on her belief that the value of the business included the debts and was really much higher than $180,000.00.
Whilst the three properties have not yet all sold and at the time of the hearing the commercial property remains listed, the wife submits that nonetheless the husband should now pay, or pay as soon as possible, the sum she says the husband owes her as part of her reimbursement of a percentage of the debts now paid out. It is common ground as I have said elsewhere, that the bank directed the first sale proceeds that were paid into the parties’ account towards the debt reduction as provided for in Order 3(b).
The husband on the other hand says that the current application before the Court is an attempt by the wife to vary the substantive provisions of the Orders by adding clauses that were never agreed to nor included in the Orders. It is his belief that at the time the Orders were made, a fair value for the business was in the vicinity of $180,000.00 (paragraph 3 of the husband’s affidavit). He says:
I accepted this figure at mediation which is the amount reflected in order (5)(a). This, in my opinion is what the business would have sold for at the time.
He says:
The orders in my mind, provided for a number of things, including me taking this business rather than it being sold, and also the payment out of all our debt (from the sale of our three parcels of real property including the former matrimonial home).
The husband contends that he never agreed to any orders whereby in addition to the adjustments to the proceeds of sale of the various properties as set out in order 3(b), there would also be a subsequent adjustment or re-imbursement to the wife to compensate her for a proportion of the loans deducted pursuant to Order 3(b).
The point of difference between the two parties is disagreement about whether the wife is to be reimbursed 55% of the total of the loans paid out pursuant to Order 3(b).

The Valuation

Each of the parties have filed Affidavits essentially giving testimony that they considered the $180,000.00 to be something different than the other.
Adopting the wife’s logic that the business was valued at a much higher figure than the $180,000.00 as this was the net value after the loans were deducted, that would mean that the business was initially valued at a sum represented by at least $180,000.00 plus the value of the loans which were $271,190.00, which is $451,190. 00.
The figure that the wife is seeking is 55% of the total debt, which is $271,190 x 55% = $149,154,50.
Each of Mr Moore and Mr Carroll have given submissions about the difference either way in this division, of adding the loans in or not, to the valuation and what that means to each party in terms of the actual distribution they will receive. Clearly for the husband, it involves paying out a considerable sum of $149,154.95 to the wife which he submits is over and above her percentage of 55% and which effectively comes out of his 45%. I accept the submission by Mr Moore that from the husband’s perspective, that value adds to the wife’s initial percentage of 55% considerably and in similar proportion, reduces the husband’s 45% retention of assets.
I note there is no express Order at 3(b) that after the payment of the sum in reduction of the loans, that the husband is to do all acts and things to forthwith reimburse the wife a sum equivalent to 55% of the total amount paid out reduction by the bank in reduction of those debts.
I note that the wording of 3(b) also refer to the parties personal debts, so adopting the wife’s logic, if any personal debts had been paid out in reduction of the debts by the bank, the husband is to also reimburse her for those personal loans.
The wife asserts that the husband agreed to orders valuing the business at $180,000.00 and says he also agreed that he would then pay back to the wife the major proportion of the loans, i.e. 55% totalling some $149,154.95. Deducting this sum from the value of the business asset retained by the husband leaves the husband retaining an asset really worth to him, after deducting the 55% of the loans repayable to the wife, with an asset with a real value of approximately $30,846.05. That figure is inconsistent with the stated intention in the order that the husband is to retain the business with an agreed value of $180,000.00 as part of his 45%.
In looking at the other Orders, I note that there is no reimbursement to the wife expressly reflected in the formula provided for in 5(a) which expressly states that the sum agreed to for the husband to retain as part of the husband’s 45%, is $180,000.00, not $180,000.00 minus a sum he has to subsequently re-pay to the wife which is to be a sum equal to the value of 55% of the debts referred to at 3(b).
Where is the Court to find any express order requiring this reimbursement? There is no express order. The wife contends is that it is provided for in an indemnity clause found at Order 8(d).

Order 8 (d) – the indemnity

I consider that Order 8(d) needs close examination. In looking at the overall schedule for the events to occur to bring about this final property division, I make the observation that orders numbered 1, 2, 3, 4, 5, 6, 7, 9 and 10 all are directed to the final settlement. As I have said elsewhere, the final settlement has not yet happened because all of the properties are not yet sold.
The wife contends that order 8(d) was intended to reflect the parties’ agreement that the wife would be reimbursed by the husband for 55% of the company debts paid out pursuant to 3(b).
Order 8 is not a final order in the sense that it finally determines the division of property; rather, it is described as an order made “pending the settlement referred to in order 6”. That is, pending the final transfers of the business, car, boat, and roll-overs. Those transfers do not occur until the contemporaneous settlements referred to in Order 5 and 6 which are final orders.
In other words, the final property distribution requires parcels of real estate are all to be sold, the debts all paid, and upon completion of the sale as referred to in Order 5, the assets are divided up 55% to the wife, 45% to the husband and when that occurs, contemporaneously the transfers that accompany the assets they are retaining will be made as set out in Order 5 and the accompanying standard indemnities will apply.
Order 8 however, is importantly styled “pending the settlement referred to in Order 6”. This order enables the husband to keep running the business, to pay to the wife a sum of $2,000.00 per month which is the rent on the commercial property (and which the husband is in default) and specifically no other funds. The parties were to sign documents to make sure the bank understood this. The order states that save for the property being transferred pursuant to the orders, each of the husband and wife shall stand possessed of all other property of any kind whatsoever in her or his possession and shall indemnify the other in respect of any debts or liabilities attached to such property.
Order 8 is intended to operate “in the interim” period being from the making of the Orders until the final settlement is possible. The parties at the time of this hearing are still in this period.
Order 8(d) concludes with an indemnity, which effectively reads pending the settlement:
The respondent shall indemnify the applicant in respect of all debts and liabilities of (omitted) Pty Ltd, the Mitra Family Trust and the business, (business omitted.
In looking at the context of this Order and the express indication that the orders applies pending settlement and noting the other final Orders contained within the Orders, I accept that the indemnity order appears to be made to protect the wife in the event that she is asked to pay any of the debts or liabilities of (omitted) Pty Ltd or the Mitra Family Trust and the business, (business omitted), in the interim period until the final settlement.
In turning to the meaning of “indemnify” and consulting The Butterworths Australian Legal Dictionary, I note that it defines indemnity as:
Security or protection against loss or injury; a sum of money paid to compensate a person for liability, loss or expense incurred by the person; (3) legal protection against liabilities arising from one’s action.
Looking further under the heading Contract Law, the Butterworths Legal Dictionary notes:
A promise by a promisor to keep the promise harmless against loss as a result of entering into a transaction with a third party;
(2) an obligation to protect a person against loss suffered through a third party;
This narrow meaning of “indemnity” does not include an obligation to indemnify a person in a fiduciary relationship, such as a trustee or agent, or a director, to cover the loss arising from performance of the director’s various duties. In the former case the indemnity functions as a security. In the latter case it simply offers reimbursement. An obligation on the part of a principal to protect the agent from all liabilities incurred in the reasonable performance of the agency.
I note in the present matter the wife does not resign as a director of (omitted) Pty Ltd nor does she transfer her shareholding in that company to the husband until the final settlement referred to in Order 6, which happens simultaneously with the settlement referred to in Order 5. In the interim therefore, she remains a director and shareholder.
In returning to the Butterworths Legal Dictionary of the “indemnify”, under Guarantees and Indemnities the definition reads:
An agreement by a surety to make good a loss suffered by another as a result of that other person acting or forbearing to act on the request of a third party.
Under Insurance the term is described as:
A promise by one party to keep the other party harmless against loss. An indemnity involves making good a loss suffered by one person as a consequence of the act or omission of another.
In all of these definitions, I consider that an indemnity is seen to provide a protection by one person against loss suffered by the other.
In the Orders in the present matter the husband I consider that the Order in which the husband is indemnifying the wife in respect of all of the debts and liabilities of (omitted) Pty Ltd, the Mitra Family Trust, and the business (business omitted) operates to hold with wife indemnified against a loss, liability or expense suffered by her pending final settlement.
I consider it is stretching the meaning of that indemnity clause to suggest that it is to be understood to operate to override an express Order as set out in 3(b) that the bank is to withdraw from the sale proceeds of their property, an amount to reduce the debts of the parties. That is a stand alone order which is not expressed to be subject to a condition that the husband is to, at some later point prior to the final settlement or at all, cause a payment to the wife of 55% of that debt reduction. I consider that in all of the circumstances and looking at the wording of the Consent Orders and the scheme of arrangement provided for to settle the financial affairs of these parties, that it is stretching the intention or meaning of a standard indemnity clause to suggest that it requires a specific payment of 55% or $149,153.95 to the wife prior to the final settlement or at all.
Given that the husband was continuing to operate the business and he was to retain all of the income from the business, it is not unusual to include a clause that he will indemnify the wife in respect of debts or liabilities of (omitted) Pty Ltd. I do not understand that this indemnity refers to the Order that expressly provides for debts to be paid out in Order 3(b). I accept that it refers to any loss, liability or expense that the wife is called upon to meet in the interim period, given that until the final settlement, she remains a director and shareholder of (omitted) Pty Ltd.
This order is as I have said pending settlement. The husband is continuing to solely conduct the business and he has sole use of the income of the business until the business is transferred to him pursuant to the orders and until all of the other transfers occur, until the division of the sale proceeds occurs pursuant to orders 3, 5 and 6. The indemnity applies in my view in the event the wife, who remains a director and shareholder, is called upon by any creditor to pay debts or liabilities and if this occurs, she is to be indemnified by the husband for that outlay or loss.
Order 3(b) contains a specific direction to the bank. If, as contended by the wife, that Order was to in effect be overridden by what amounts to a considerable subsequent payment by the husband to the wife in relation to those debts or loans paid out and which the parties agreed were to be paid out from the sale proceeds of the properties, I would have expected order 3(b) to have expressly stated the husband thereafter is to reimburse the wife for 55% of the debts paid. Order 8, as I said, is a pending order and requires the husband who has the control of the business to indemnify the wife for such losses.

I consider it is stretching the normal interpretation of an indemnity clause to say that this order entitles the wife to be repaid a portion of what was their joint debt. If that was intended to occur, I would have expected the indemnity itself to have expressly stated words to the effect “including but not limited to the husband reimbursing the wife the sum of 55% in respect of the total debt reduction referred to in Order 3 (b) herein.

The Law

At the outset I was informed that the Orders being sought were simply machinery provisions or consequential orders to enable the intention of the Consent Order to be acted upon.
I note In the Marriage of Ravasini & Ravasini (1983) FLC 91‑312, that under the Family Law Act a court has no power to vary an order for property settlement. However, it does have power to enforce the order and to modify the machinery provisions of that order to effect enforcement (Molier & Van Wyk (1980) FLC 90‑911).
This case is also authority for the principle that the substantive property order cannot be varied, but the enforcement provisions, the secondary orders made as a consequence of the substantive order, to give it operation and effect, can be varied. In a property matter, a consequential order includes an order following logically, or of necessity, from a prior substantive order. I note also the helpful analysis in the case of Pera & Pera [2008] FamCAFC 87. In that matter Slapp & Slapp (1989) FLC 92‑022 is discussed, in which the Full Court discussed the limitations on the power of the court to vary an order made under section 79 and said at 77,360:
It is not open to a court to make a substantive variation to orders previously made under section 79. That proposition can, today, no longer be doubted. It is based upon the principle endorsed by the High Court in the case of Taylor & Taylor (1979) FLC 90‑674; 5 Fam.L.R. 289 that an order under section 79 is a once‑and‑for‑all proposition. Such an order can only be varied on appeal or where the circumstances warrant the same, pursuant to section 79A.
These principles are referred to as similarly being referred to by Frederico J in Cranage & Cranage (1981) FLC 91‑039 as follows at 76,344:
The Family Law Act confers no power on the court to vary an order for settlement of property (Taylor & Taylor; King & King (1977) FLC 90‑299; Kaljo & Kaljo (1978) FLC 90‑445; Branchflower & Branchflower (1980) FLC 90‑857). The court has power to set aside a property order only on the narrow grounds set out under section 79A, and the parties make no application under that section. Nor has any appeal been brought against his Honour’s orders.
However, in McDonald & McDonald (1976) FLC 90‑047, the Full Court held that:
There is ample power to modify the machinery provisions of a property order, provided this does not affect the substantive property rights or cause undue hardship to either party.
This view was followed in Kaljo & Kaljo (supra) and more recently in Molier & Van Wyk (1980) FLC 90‑911. The court derives such power from section 80 of the Family Law Act. An application might be made for the court to exercise the power, even though liberty to apply has not been reserved expressly. Finally, the distinction between a machinery and substantive order is extensively discussed by the Full Court in Ravasini & Ravasini (1983) FLC 93‑312 at 78,126 to 78,127.

Conclusion

I consider that the orders being sought by the applicant are well beyond machinery orders or consequential orders required to enable the Orders to be carried out as intended. I am satisfied that the Orders being sought by the applicant wife, requiring the respondent husband to pay the sum of $149,153.95 or 55% of the debts paid out pursuant to Order 3 (b) would substantially vary the percentage division provided for in the Consent Orders. I do not consider that they are simply assisting to give the orders effect. The orders proposed provide for a significant payment by the husband to the wife which is not provided for in the Orders.
I therefore dismiss the application to make additional orders providing for the husband to make an accounting to the wife.
I do not have an application under section 79A . If either party wishes to bring an application under any other provision, such as 79A, that would be a matter for them. Such an application would need to fall within one of the relevant provisions of section 79A.
I will hear submissions regarding costs if it is not resolved between the parties. The party seeking costs is to forward written submissions together with a draft order and a schedule of the Federal Circuit Court costs schedule with commentary regarding the costs claimed within 7 days. The respondent is to provide written submissions in reply within 7 days of being served. If I require any further oral submissions the matter will be listed. Otherwise, failing any objection from either party, the matter will be heard on the papers.

I certify that the preceding eighty-five (85) paragraphs are a true copy of the reasons for judgment of Judge Willis

Date: 21 March 2014

[2014] FCCA 555

21 March 2014

Key Legal Topics

Areas of Law

Family Law

Civil Procedure

Legal Concepts

Costs

Appeal

Procedural Fairness